Economic and environmental impact analysis of carbon tariffs on Chinese exports

- This paper compared effects of climate policies for trade with China as a focus.
- A multi-regional and multi-commodity and static CGE model was applied.
- The export carbon tax (ECT) could not effectively reduce CO2 emissions of China.
- ECT is not an option for the border tax adjustments (BTAs) by developed economies.

As an alternative measure for the proposal of border tax adjustments (BTAs) advocated by the countries that seek to abate CO2 emissions (hereafter referred to as 'abating countries'), export carbon tax (ECT) voluntarily conducted by the developing countries has been widely discussed in recent years. This paper uses the multi-regional and multi-commodity computable general equilibrium (CGE) model and the GTAP8.1 database to investigate the economic and environmental effects of carbon tariffs on Chinese exports. The following three policy scenarios are considered: 1) the abating countries implement cap-and-trade emission programs without BTAs; 2) the unilaterally abating countries levy import tariffs and export subsidies on non-abating countries; and, 3) the abating countries implement unilateral climate policies combined with ECT imposed by China. The ECT policy of China is evaluated with a carbon price set at 17 US$/t-CO2. Results illustrate that the ECT voluntarily implemented by China is ineffective in reducing its domestic CO2 emissions. Moreover, ECT merely has a minor impact on global emissions. Finally, the competitiveness of China's energy-intensive and trade-exposed (EITE) industries suffers substantial losses if export tariffs are imposed. However, China's gains in terms of welfare and gross domestic product (GDP) would be slightly improved if an ECT policy is implemented, compared to the scenario where China is subjected to BTAs levied by the abating coalition. In the light of the tradeoff between tariff revenue for welfare and competiveness losses of the EITE industries, it is therefore difficult to conclude that carbon tariff on Chinese exports is an alternative policy to BTAs.