Environment and Development Economics

Research Article

Energy and climate change in China

Carlo Carraroa1 and Emanuele Massettia2

a1 University of Venice and Fondazione Eni Enrico Mattei, Italy. Email: carlo.carraro@feem.it

a2 Yale School of Forestry and Environmental Studies, FEEM and CMCC, 195 Prospect Street, New Haven, CT 06511, USA. Tel: 203-4365-783. Email: emanuele.massetti@yale.edu or emanuele.massetti@feem.it

Abstract

This paper examines future energy and emissions scenarios in China generated by the Integrated Assessment Model WITCH. A Business-as-Usual scenario is compared with five scenarios in which greenhouse gases emissions are taxed, at different levels. The elasticity of China's emissions is estimated by pooling observations from all scenarios and comparing them with the elasticity of emissions in OECD countries. China has a higher elasticity than the OECD for a carbon tax lower than US$50 per ton of CO2-eq. For higher taxes, emissions in OECD economies are more elastic than in China. Our best guess indicates that China would need to introduce a tax equal to about US$750 per ton of CO2-eq in 2050 to achieve the Major Economies Forum goal set for mid-century. In our preferred estimates, the discounted cost of following the 2°C trajectory is equal to 5.4 per cent and to 2.7 per cent of GDP in China and the OECD, respectively.

(Received February 22 2011)

(Revised February 17 2012)

(Accepted May 15 2012)

(Online publication July 30 2012)

Footnotes

  This paper was prepared for the workshop on the ‘Chinese Economy’ organized by the Bank of Italy and Venice International University, Isola di San Servolo, Venice on 25/27 November 2010. This paper is part of the research work being carried out by the Sustainable Development Programme at the Fondazione Eni Enrico Mattei and by the Climate Impacts and Policy Division of the Euro-Mediterranean Centre for Climate Change. The research leading to these results has received funding from the European Community's Seventh Framework Programme (FP7/2007–2013) under grant agreement No. 244766 – PASHMINA (PAradigm SHifts Modelling and INnovative Approaches) and from the EC2 Europe-China Clean Energy Centre. The authors thank Massimo Tavoni for helpful discussions and suggestions.