The effects of carbon reduction on sectoral competitiveness in China: A case of Shanghai

The Chinese government has committed to reduce its carbon dioxide emissions per unit gross domestic product by 60-65% from 2005 levels by 2030. In order to achieve this commitment, various measures should be taken. Due to the complex relationship between carbon emission and economic development, it is critical to quantify the impacts of different measures. Under such a circumstance, this paper is to identify the effects of carbon tax on the sectoral competitiveness in Shanghai by 2030 under unequal imposition of carbon tax between Shanghai and the rest of China by using a two-region dynamic computable general equilibrium (CGE) model. Research results show that different carbon tax rates in different regions would affect GDP of Shanghai and the outcomes are different under different scenarios. In general, a lower carbon tax rate can lead to a higher output and these output changes could further influence the sectoral competitiveness. Under the tax44 scenario, sectors such as agriculture, textile, transport equipment, and electronics are the winners in Shanghai, with outputs increased by 2.02%, 1.47%, 1.08% and 3.05%, respectively; while food production, petrol oil, chemicals and non-metal are the losers, with outputs decreased by 2.02%, 0.87%, 0.03% and 2.39%, respectively. This study also reveals that price and scale effects are the key factors influencing the changes of sectoral outputs. Such findings provide useful insights to those policy makers to allocate appropriate carbon reduction targets to different regions.