Economic implications of carbon neutrality in China: A dynamic general equilibrium analysis

Abstract

We utilize a dynamic computable general equilibrium model to analyze the economic implications of carbon neutrality for China. Novel treatments of power generation and carbon capture and storage (CCS) possibilities are a feature of the analysis. We calculate the impact of carbon neutrality by comparing a business-as-usual base-case scenario with results from an alternative carbon neutrality scenario. We discuss the assumptions used in these scenarios and shocks relating to energy efficiency, energy preferences, and the implementation of CCS. Our simulation results show that macroeconomic (especially employment) setbacks are minor, suggesting that China should be able to achieve the joint policy goals of both net carbon neutrality by 2060 and doubling real gross domestic product by 2035. We also test the sensitivity of our core results to changes in key underlying assumptions.