Impact Analysis Of Carbon Tax On China’s Economy

As the global economy has been developing quickly, more and more developing countries come into the process of urbanization and industrialization. It results in annual incremental energy cost and carbon emissions.China is the largest carbon emitter in the world, so it would face intense international pressure to control its domestic carbon emissions. Especially that OECD imposed carbon tariff alerts us. If China does not take carbon reduction measure in a proactive manner, it has to accept other countries’carbon reduction measure. Because of its initiative, carbon tax is likely to be adopted by China. Research on carbon tax is helpful to measure how large the carbon reduction costs is and what is the appropriate measure to lower the negative effect that carbon tax does to economic output.As a efficient policy of carbon reduction, what’s its influence to economy and what’s the difference of the affecting factors between the short term and the long term? All these questions are worthy of research. This paper develops a CGE model to seek to obtain the equations of the impacts caused by carbon tax in short term and in long term by constructing one-country model and two-country model. The main findings are as follows. Firstly, carbon tax reform would cause negative impact on economy and result in externalities. Carbon tax will do harm to economy in the short term, but the negative impact will be reduced by adjusting the capital the long term. While China imposes carbon tax, other countries are influence by that. Secondly, factors of different influence channels has different influence on economy between the short term and the long term. In energy channel, the change of China’s economy is affected by its energy production elasticity and elasticity of energy supply mostly. In capital channel, the output is mainly affected by other countries’capital production elasticity, elasticity of capital supply and combination of capital and energy. In channel of demand for product, It’s demand-price elasticity ΩP1X1and Cross-price elasticity of demand ΩP1X2that affect the change of output.