Economic and environmental impact analysis of carbon tariffs on Chinese exports

Abstract

JEL classification: C68 D58 F18 Q54 Q58 Keywords: CGE Border tax adjustments Carbon leakage ChinaAs an alternative measure for the proposal of border tax adjustments (BTAs) advocated by the countries that seek to abate CO 2 emissions (hereafter referred to as 'abating countries'), export carbon tax (ECT) voluntarily conducted by the developing countries has been widely discussed in recent years. This paper uses the multi-regional and multi-commodity computable general equilibrium (CGE) model and the GTAP8.1 database to investigate the economic and environmental effects of carbon tariffs on Chinese exports. The following three policy scenarios are considered: 1) the abating countries implement cap-and-trade emission programs without BTAs; 2) the unilaterally abating countries levy import tariffs and export subsidies on non-abating countries; and, 3) the abating countries implement unilateral climate policies combined with ECT imposed by China. The ECT policy of China is evaluated with a carbon price set at 17 US$/t-CO 2 . Results illustrate that the ECT voluntarily implemented by China is ineffective in reducing its domestic CO 2 emissions. Moreover, ECT merely has a minor impact on global emissions. Finally, the competitiveness of China's energy-intensive and trade-exposed (EITE) industries suffers substantial losses if export tariffs are imposed. However, China's gains in terms of welfare and gross domestic product (GDP) would be slightly improved if an ECT policy is implemented, compared to the scenario where China is subjected to BTAs levied by the abating coalition. In the light of the tradeoff between tariff revenue for welfare and competiveness losses of the EITE industries, it is therefore difficult to conclude that carbon tariff on Chinese exports is an alternative policy to BTAs.

Impacts of U.S. Carbon Tariffs on China’s Foreign Trade and Social Welfare

“…Therefore, reducing coal consumption plays a key role in reducing carbon emissions. However, at $60 a carbon tariff will have little effect on reducing carbon intensity and carbon emissions, a result that is consistent with Bao et al [59] and Dong et al [41]. Tax policy combination reduces the growth of China's carbon emissions and carbon intensity more effectively than carbon tariffs operating in isolation [43,44].…”

“…However, considering that China's responses to carbon tariffs is seldom mentioned in the existing literature, Liang et al [38], Dissou and Karnizova [39], Eyland and Zaccour [40], Dong et al [41], and Qu and Wu [42] compared the different impacts of a carbon tariff and carbon tax, but did not take a carbon tariff as a response policy. However, the researches of Zhu [43] and Jiang [44] are similar to our study.…”

Instrumentation Strategies and Instrument Mixes for Long Term Climate Policy

“…The exporting country confronted with the import levy on its products can prevent that loss by taxing the same amount upon export. Then the option to tax under the WTO rules vanishes, see (Dong, Ishikawa et al 2015). This emissions based export tax can be the start of an emission tax, first covering exports only, but with quite some logic to also cover inland production and consumption.…”

“…The exporting country confronted with the import levy on its products can prevent that proceeds loss by taxing the same amount upon export, using the same method of quantification. Then the option to tax under the WTO rules vanishes for the importing country, see (Dong, Ishikawa et al 2015). The application is limited to cases where the cost of transfer payment under the emission tax are substantial, above at least a few percent of total cost of production.…”

“…They can conform to BTA rules (Tamiotti 2011) and can be avoided by the exporting country by levying the same tax on its exports itself (Dong, Ishikawa et al 2015). …”