The economic impact of a deep decarbonisation pathway for China: a hybrid model analysis through bottom-up and top-down linking

Abstract

The development of mid-century low-emission development strategies is critical to guiding national actions on long-term mitigation. One of the key concerns in developing mitigation strategies is the cost of low-carbon transition. In this study, we estimate the macroeconomic cost of a deep decarbonisation pathway for China, by integrating an energy-systems optimization model with an economic model through hard linking. Our results indicate that deep decarbonisation increases the energy expenses of Chinese households in the mid-run due to the higher cost of electricity. However, firms will benefit from moderate decarbonization through a reduction in coal and oil consumption. Energy-efficiency improvements lead to a reduction in firms' total energy costs, partially compensating the crowdingout effect of low-carbon investments on general productive capital. Our mitigation scenario has therefore a small macroeconomic cost compared to business as usual, equal to a lag in growth of less than one year in 2050.

Macroeconomics of decarbonization strategies of selected global south countries: A systematic review

“…There is also the concern of sustaining growth and keeping the macroeconomy stable. The associated cost of energy system transformation is a core concern for policymakers tasked with formulating emissions reduction targets in line with the Paris Agreement's mid-century climate mitigation strategies (Su et al, 2021). Thus, the most critical policy considerations are how this decarbonization relates to economic development and, specifically, what macroeconomic impacts this transition has (IPCC, 2014).…”

“…Furthermore, considerable investments in carbon abatement technologies and a shift away from fossil-based technologies are crucial to keeping the global temperature increase well below 2 °C. Consequently, rapid changes in investment trends are expected to have wide-reaching macroeconomic implications (Le Treut et al, 2021;Su et al, 2021).…”