Energy and Climate Change in China

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 compared with the elasticity of emissions in OECD countries. China has a higher elasticity than the OECD for a carbon tax lower than 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 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% and to 2.7% of GDP in China and the OECD, respectively.

Keywords: China, climate change, energy, policy

JEL Classification: F5, Q1, Q54, Q58