A Study On The Effects Of Climate Barriers On RMB Real Effective Exchange Rate

The theories and methods of equilibrium exchange rate have been developed from partial equilibrium to general equilibrium, and from single empirical equation analysis to multi-equations general equilibrium models. Currently speaking, most of those general equilibrium analysis methods are focused on the historical time slice data analysis and thus limited by their model structures, which need to be improved to deal with the new booming issues. On the other hand, in terms of factors related with the real effective exchange rate (REER), the traditional trade volume and tariff trade barriers dominate most of the studies on the relationship between the relative price levels, trade structures by countries and the real effective exchange rate, with the emerging trade barriers such as the climate barriers much less researched.In this thesis, the global multi-regions dynamic computable general equilibrium model (CGE) is constructed and introduced into the analysis of the general equilibrium trend and misalignment of the RMB real exchange rate. More importantly, according to the CGE model, the simulation of the potential climate trade barriers is available, which is a big improvement of the prior REER empirical research. So the effects of the climate barriers and the transmission mechanism through the price and trade channels are the most important part in my research. What’s more, the effects of climate barriers distribution between different RMB REERs based on regional basket currencies such as the BRICS and its effects on different member counties are also involved in this paper, which is the theory basis for the Chinese government to make internal and external economic and climate policies.The major conclusions are as follows:First, during the year 2008 to 2012, the RMB real effective exchange rate is over estimated, which means the currency is facing the depreciation pressure. Second, the carbon tariff barrier from the developed countries will cause a bigger depreciation pressure on RMB, which is mainly resulted by the negative influence of the trade structures adjustment. And the real price level in foreign countries is pushed higher, both indicating the trade barrier function of carbon tariff. Third, in terms of the sector level, industries such as the chemical and machinery and equipment manufacturers will suffer more inhibition from the carbon tariff barrier, which is basically decided by the production volume and sector price reaction to the climate barrier. Four, the domestic carbon tax will be an economic buffer to the carbon tariff. However, an inappropriate tax rate will be a much heavier burden to the industry. Five, the technical climate barrier such as the carbon labeling will cause a little appreciation pressure on RMB, which is opposite to the carbon tariff. On the other hand, as a type of hidden barrier, the effects of carbon labeling on REER and greenhouse gas emission reduction are limited, which could be more easily absorbed by the industry self-adjustment. Six, although the RMB will get deprecation pressure from the carbon tariff on the world wide REER, it will be appreciated when the BRICS basket currency is used as the REER calculation, which means the BRICS internal cooperation will be more beneficial for China to deal with the carbon tariff barrier. Seven, comparing the two types of climate barriers, carbon tariff will be more risky to lead the unbalance of the benefit distribution among BRICS countries. So it is suggested that the carbon labeling would be a batter transition climate barrier that is not only good for China but also a win-win strategy for BRICS.As a general conclusion from the whole analysis, it is strongly suggested that, under the context of emerging climate barrier which will obviously bring bigger depreciation pressure and negative economic effects, China should put forward the technical climate barrier as our priority climate policy to join in the international cooperation. If the carbon tariff must be implemented, the domestic carbon tax should be imposed firstly and appropriately in order to buffer the carbon tariff impact. It should be clearly noted that the stable relationship of BRICS is very important for China and the carbon tariff will be more risky to break the group, compared with the carbon labeling, because of the more unbalanced benefit distribution between the members.