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© 2022 International Monetary Fund
IMF Working Paper
Asia and Pacific Department
A Comprehensive Package of Macroeconomic Policy Measures for Implementing China’s Climate Mitigation Strategy
Authorized for distribution by Helge Berger
Jean Château, Wenjie Chen, Florence Jaumotte, and Karlygash Zhunussova1
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Abstract
This paper presents ways for China to achieve its climate goals while also attain high-quality growth—growth that is balanced, inclusive, and green. Using a dynamic computable general equilibrium model that is calibrated to China, multiple scenarios are considered that incorporate a sequence of layered policies: (i) frontloading mitigation with an earlier emissions peak, (ii) power market reforms, and (iii) economic rebalancing. The results highlight that these policies can significantly contribute to the success of the climate strategy overall, including by lowering the shadow price of carbon as well as the associated mitigation costs. Distribution analysis offers proposals to lessen the impact on vulnerable households.
| JEL Classification Numbers: | O53,Q54, O14, D58 |
| Keywords: | Chinese economy; climate policy; carbon neutrality; rebalancing; Computable General Equilibrium model |
| Corresponding Author’s E-Mail Address: | WChen@imf.org |
| JEL Classification Numbers: | O53,Q54, O14, D58 |
| Keywords: | Chinese economy; climate policy; carbon neutrality; rebalancing; Computable General Equilibrium model |
| Corresponding Author’s E-Mail Address: | WChen@imf.org |
Contents
ABSTRACT
A. Introduction
B. China’s Investment-Intensive Growth Model and Resulting Carbon Emissions
C. Overview of China’s Climate Targets
D. Other Climate Mitigation Initiatives
E. Policy Simulations for China’s Road to Net Zero
I. BASELINE (BAU) SCENARIO
II. BASE ACTION SCENARIO
III. EARLY EMISSIONS PEAK SCENARIO
IV. POWER MARKET REFORMS SCENARIO
V. ECONOMIC REBALANCING SCENARIO
VI. SIMULATION RESULTS
VII. SECTORAL IMPACTS
VIII. DISTRIBUTIONAL ANALYSIS
IX. POLICY IMPLICATIONS
A. Concluding Remarks
APPENDICES
1. Impacts of Existing and Projected Climate Change
2. China’s ETS: Design Details
3: Brief Description of the IMF-ENV CGE Model
4. Distributional Analysis Outcomes by Scenario
5. Other Sectoral Policies
FIGURES
1. Global Energy-Related CO2 Emissions Pathways
2. Historical GHG Emissions
3. Carbon Intensity of GDP, Selected Countries
4. GHG Emissions by Sector and Fuel Type, 2018
5. China’s Newly Added and Retired Coal-Fired Capacity by Year, GWh
6. Illustrative Efficiency Frontier
7. ETS Trading Prices and Volumes
8. Selected (National and EU Level) Carbon Pricing Schemes in 2021
9. Aggregate Demand and Current Account
10. CO2 Emission Paths by Policy Scenario
11. Abatement Costs by Policy Scenario and Time Range
12. Carbon Price by Policy Scenario
13. Rebalancing vs. Non-Rebalancing: CO2 Emissions Projections
14: Changes in Sectoral
15. Changes in Sectoral Composition
16. Mean Effect on Consumption Deciles, before Revenue-Recycling by Policy in 2030
17. Mean Effect on Consumption Deciles, after Revenue-Recycling by Policy in 2030
18. Mean Consumption Effect on Consumption Deciles, after Revenue-Recycling using Cash Transfers, by Policy in 2020
TABLES
1. Effective Carbon Tax Rates in China, 2020
The authors would like to thank Simon Black and Ian Parry for significant contributions to this paper. The paper has also benefited significantly from comments by Helge Berger and seminar participants at the IMF.