Exploring the economic impacts of carbon tax in China using a dynamic computable general equilibrium model under a perspective of technological progress. (1st February 2023) - Chang, Yuanhua
Abstract: The carbon tax, as one of the environmental regulation tools, is likely to promote technological progress, which is ignored in previous works when evaluating the economic impact of a carbon tax. This study uses the Generalized Method of Moment model to investigate the effect of an environmental tax on total factor productivity and energy efficiency, and takes the effects as approximations of the effects of carbon tax on technological progress into the computable general equilibrium model as well as considering technology diffusion, to analyze the dynamic impact of carbon tax on China's economy growth. A carbon tax policy negatively impacts GDP at the early stage, but technological progress would make GDP impacts "turn negative into positive" in the late stage. With a carbon tax rate of 100 Yuan/ton, the GDP impact becomes positive from the 4th year and rises to 0.3% in 2030. Not all industries can realize the output of "turning negative into positive, " only low-carbon-intensity industries can achieve a clean transition. Overall, this study discusses the dual effects of a carbon tax on technological progress and increasing fossil energy costs, which provides a new perspective for an in-depth discussion of a carbon tax.