CGE Model Measures Carbon Duty’s Impact on China’s Exports

SHEN Keting 1 and LI Gang 2

1Zhejiang Gongshang University
2Institute of Industrial Economics, Chinese Academy of Social Sciences

Abstract:

Carbon-motivated border tax adjustment is a unilateral international trade policy aimed at compensating for the loss of competitiveness of carbon-intensive products due to carbon dioxide abatement actions. It violates fundamental principles of the UNFCCC and potentially conflicts with the core WTO principle of non-discrimination as reflected in the GATT Article I and Article III. Based on an analysis of carbon emissions embodied in China’s industrial exports, this paper evaluates with a recursive dynamic CGE model the potential impacts of the carbon duty on China’s industrial production, exports and employment. The results of a simulation show that with a tariff rate of US$30 or US$60 per ton of carbon, the output of China’s industrial sectors would decline by 0.62-1.22 percent, exports by 3.53-6.95 percent, and employment by 1.22-2.39 percent. The authors suggest several measures of alleviating the impacts of carbon duty and put forward a carbon duty policy based on carbon consumption per capita as a countermeasure.

Key Words:

Border tax adjustment, carbon-intensive products, industrial exports, CGE model

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