Report

China’s carbon future: A model-based analysis

Warwick J. McKibbin, Adele Morris, Peter J. Wilcoxen, and Weifeng Liu

In 2007, China took the lead as the world’s largest CO2 emitter. Air pollution in China is estimated to contribute to about 1.6 million deaths per year, roughly 17 percent of all deaths in China. 

Over the last decade, China has adopted measures to lower the energy and carbon intensity of its economy, partly in response to worsening local air pollution from energy generation. At the 21st Conference of the Parties (COP) to the United Nations Framework on Climate Change (UNFCCC), held in Paris in late 2015, China committed to furthering its efforts by affirming its previously announced goal to cause its emissions to peak around 2030 and to increase the share of non-fossil fuels in its primary energy consumption to around 20 percent by the same year. 

China’s intended nationally-determined contribution (INDC) to the Paris accord also puts forward two new goals for 2030: reducing China’s CO2 emissions per unit of GDP (known as its carbon intensity) by 60 to 65 percent relative to 2005 levels, and increasing the volume of its forest carbon stock by around 4.5 billion cubic meters from 2005 levels.

In a new paper titled China’s carbon future: A model-based analysis, Warwick J. McKibbin, Adele C. Morris, Peter J. Wilcoxen, and Weifeng Liu model the policies China could adopt to achieve its energy-related INDC commitments with an eye to understanding how the policies could affect both the Chinese and global economies. 

The model

In the analysis, the authors use an updated version of the G-Cubed model, a global intertemporal computable general equilibrium (CGE) model, to explore the possible effects of emissions control policies on the Chinese macroeconomy, individual industrial sectors in China, and other outcomes, such as trade flows, currency values, emissions levels, and economic activity. 

The major innovation in the version of the G-Cubed model used in this paper is a significant disaggregation of electricity generation technologies with a focus on non-fossil fuel technologies.

Findings 

The results of the authors’ analysis show that illustrative policies to achieve China’s commitment to cause its emissions to peak in 2030 imply a substantial departure from baseline emissions, even after accounting for large baseline reductions in China’s emissions intensity. 

In the scenarios, Chinese emissions are 6 percent lower than baseline in 2020, 26 percent lower in 2040 and 33 percent lower by 2050. The reductions come at a cost; in 2030 in the policy scenarios, China’s real GDP would be about 1.5 percent lower than baseline, and real wages would grow less rapidly than they otherwise would have. At the same time, the target appears quite credible: the changes to peak emissions in 2030 are manageable for a country that will be growing rapidly in the coming decades and do not involve disruptions that would be likely to cause the commitment to be abandoned.

The authors also find that China’s policies to control emissions have little effect on emissions elsewhere; there is almost no shift in emissions from China to its trade partners. There are, however, small reductions in real GDP in other countries as China’s economy grows more slowly than under the baseline. Those changes are most important for Eastern Europe and the Former Soviet Union and OPEC, and are very small for Europe and the United States. Thus the authors find that countries that import energy-intensive goods from China would bear little of the burden of Chinese emissions control efforts.

You can download the full paper here.

Authors

W

Weifeng Liu

Research Fellow - Center for Applied Macroeconomic Analysis in the Crawford School of Public Policy at Australian National University

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