Distributional impact of carbon pricing in Chinese provinces

Abstract

Based on a Multi-Regional Input-Output (MRIO) model, and combined with the 2012 MRIO table for 30 Chinese provinces, this paper analyzes the distributional impacts of carbon pricing on households within and across Chinese provinces. The results show regressive distributional effects of carbon pricing across provinces, i.e. poor provinces are affected more by the price. Carbon pricing also shows rural-urban regressivity (i.e. rural households are impacted more heavily than urban households) in more than half of the provinces. Within each selected province, carbon pricing has mostly regressive effects, i.e. poorer urban households are more affected than richer urban households in all provinces and poorer rural households more than richer rural households in one third of the provinces. When looking more specifically at direct energy consumption, we find that the carbon pricing on domestic fuels generally shows regressivity, while pricing carbon on transport fuels shows progressivity. In addition, the impact of carbon pricing on residential direct expenditures (mainly on electricity and coal) is the most important contributor to the regional regressivity across provinces.