Impacts of carbon motivated border tax adjustments on competitiveness across regions in China

China is a large developing country with high carbon intensity. It is likely that China will have to face the challenge of CBTA (carbon motivated border tax adjustments) in future. Meanwhile, CBTA would create price gap between CBTA users and target countries, and change the competitiveness of different producers. Under such circumstances, this paper seeks to contribute to the debate on CBTA by focusing on the potential impacts of CBTA on different regions of China from a perspective of competitiveness. We adopt two geographical divides in China (eastern–central–western zones, high-trade-openness to low-trade-openness regions), and simulate the potential impacts across regions through a general equilibrium model. Our simulation results show that CBTA would affect competitiveness of different producers, their comparative advantages, relative trade shares, outputs and emissions. CBTA would induce structure change of the economy, and result in a shift of industrial output toward non-industrial output. There are significant differences in the effects of CBTA among different regions in China. CBTA would result in a relocation of outputs across regions in China. Therefore, CBTA would also have impact on China’s regional development policy.

► In this study, we assess impacts of CBTA (Carbon motivated border tax adjustments) on different regions of China.
► CBTA would affect competitiveness, comparative advantages, trade shares, and outputs.
► Carbon leakage may make CBTA not be effective to combat carbon leakage.
► CBTA would result in relocation of industrial output across regions in China.
► CBTA may trigger trade conflicts, which cause damages to its user and target country.