Previous research has acknowledged that climate change is likely to expand the wealth gap, and climate policies may further increase inequality. Nevertheless, little research has focused on how climate policies affect inequality. To address this, we employ a Computable General Equilibrium (CGE) model to quantify the inequality impacts of the Chinese carbon taxes. Our CGE model results show that tax impacts on inequality are influenced by distribution of climate damages, tax payments, and recycling of tax revenues. Specifically, a positive correlation between income and climate damage induces lower inequality, compared to a zero or negative correlation. Tax payments by high-income households induce lower inequality than tax payments proportional to or independent from income. Recycling tax revenues to low-income households only induces lower inequality than the other recycling schemes. The results imply that relative utility is determined by absolute income, whereas income inequality only has a slight impact on it. In other words, governments could reduce negative feelings about inequality under a climate policy by increasing national income, even if the climate policy may induce higher inequality.

In the literature, very few studies have focused on how urbanisation will influence the policy effects of a climate policy even though urbanisation does have profound socioeconomic impacts. This paper has explored the interrelations among the urbanisation, carbon emissions, GDP, and energy consumption in China using the autoregressive distributed lag (ARDL) model. Then, the unit urbanisation impacts are inputted into the policy evaluation framework of the Computable General Equilibrium (CGE) model in 2015–2030. The results show that the urbanisation had a positive impact on the GDP but a negative impact on the carbon emissions in 1980–2014. These impacts were statistically significant, but its impact on the energy consumption was not statistically significant. In 2015–2030, the urbanisation will have negative impacts on the carbon emissions and intensity. It will decrease the GDP and the household welfare under the carbon tax. The urbanisation will increase the average social cost of carbon (ASCC). Hence, the urbanisation will reinforce the policy effects of the carbon tax on the emissions and welfare.

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