Economic and environmental influences of coal resource tax in China: A dynamic computable general equilibrium approach

- China's coal resource tax reform policy toward ad valorem collection is studied.
- A dynamic CGE model is built to estimate the economic and environmental effect.
- The reform policy would have a negative effect on China's economy.
- The policy can curb China's total carbon emissions, by improving energy structure.

Coal resource tax reform from quantity-based collection to ad valorem collection has been implemented by the Chinese government in December 2014, to develop a low-carbon economy. This paper builds a multi-sectoral dynamic computable general equilibrium (CGE) model with a coal resource tax module, to study the general impacts of such reform policy on the Chinese economy and environment. Based on the proposed model, different policy designs with different ad valorem tax rates are simulated and further compared with the current quantity-based policy, and some interesting results can be obtained. As for the economic influence, the gross domestic product (GDP) of China would be somewhat negatively affected by the reform in terms of output shrinkage in most sectors, and the effect will be larger with a higher tax rate but decrease as time goes. From the environmental perspective, the energy structure would be improved by the reform policy, with a sharp decrease in coal consumption but increases in the consumptions of cleaner energy forms. Accordingly, the total carbon emissions and other main air pollutants (SO2 and NOx) would be significantly mitigated, which can effectively improve the environment and guarantee the achievement of China's promise in carbon emissions reduction.