The technical impacts of the carbon tax in China

Abstract 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. The purpose of this paper is the quantification of the technical impacts of the Chinese carbon tax using a Computable General Equilibrium (CGE) model. 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 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. Under the carbon 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). This finding implies that the ITC of the carbon tax is biased towards the technical progress of nonenergy sectors; the emission abatement will become costlier under the ITC impacts. Although the quantification method of the technical impacts was from an existing published paper, the CGE analysis of the ITC impacts of the carbon tax in China is original in this paper.