Impact of carbon tax on energy sector segmentation under different closures: A case study of China via CGE model

Abstract

Carbon tax is important to achieve carbon peaking and carbon neutrality goal. In this paper, we study the impact of carbon tax on energy sector segmentation in China under different closures. First, the social accounting matrix (SAM) of year 2017 is constructed. Second, the electric sector is subdivided into five power generation sectors. Third, by building a static computable general equilibrium (CGE) model, carbon tax is simulated under Neoclassical closure (NC) and Keynesian closure (KC) respectively. The results validate that carbon tax is efficacious in reducing CO2 emission. Specific findings include the following. (1) Carbon tax on three fossil fuels (i.e., coal, oil and natural gas) will increase with the improved emission reduction goal. (2) Reducing the usage of coal and thermal power plant in the electric power sector will significantly contribute to CO2 emission reduction. (3) Carbon tax can produce double dividend effect under KC scenario to increase the income of households and government. (4) The 30% emission reduction goal can be achieved under KC with the carbon tax at 84.19 yuan/ton, which is 3.3 yuan/ton less than that under NC. In the meantime, the carbon emission density will reduce to 116.93 t/million yuan.

Keywords

• Carbon tax
• Computable general equilibrium
• Energy segmentation
• Keynesian closure