The Technical Impacts of the Carbon Tax in China

Despite the significant impacts of technology on the socioeconomic effects of climate policies, many previous researchers neglected the induced technical impacts and thus resulted in biased evaluations of climate policies. Hence, it is important that the induced technology should be endogenized in the policy evaluation framework. In this paper, I attempt to use a Computable General Equilibrium (CGE) model to quantify the technical impacts of the Chinese carbon tax. The technical impacts are denoted by the induced technological change (ITC), which is a function of the energy-use efficiency (EUE), energy-production efficiency (EPE), and nonenergy-production efficiency (ENE). The carbon tax will increase the energy cost share because the of the internalisation of the abatement costs. This paper empirically shows that the carbon tax will decrease the energy cost share and production efficiency but increase the energy use and nonenergy production efficiency. Overall, the carbon tax will promote the technological development, compared to the baseline scenario. In addition to the policy effects of the tax, the ITC will decrease the energy use and production efficiency but increase the nonenergy production efficiency. The ITC will increase the RGDP, decrease the household welfare, and increase the average social cost of carbon (ASCC). To summarise, despite that the carbon tax will decrease the welfare at the country and household level, the ITC of the carbon tax will increase the welfare at the country level but decrease the welfare at the household level. Under the ITC impacts, the emission abatement will become costlier.