Analysis of the economic impact of different Chinese climate policy options based on a CGE model incorporating endogenous technological change

Abatement cost is the main concern for climate change mitigation and the key factor for mitigation cost is technological change. This study established an integrated economic, energy, environmental, dynamic, computable general equilibrium (CGE) model representing endogenous technological change for China's climate change policy analysis. This study analyzed and compared the economic impact of different approaches to mitigation commitments as well as the potential role of technological change in the formulation of mitigation targets and commitments, taking into account China's climate policy-making needs based on the current international climate negotiation process. The results show that, absolute emission limits similar to the Kyoto Protocol will seriously impede the future economic development of China, while the impact of an 80% reduction in carbon intensity, forecast for 2050 based on the 2005 level, is relatively small. Technological change can promote economic growth, improve energy efficiency and reduce carbon intensity per unit of output through the substitution of production factors. Consequently it can reduce marginal abatement cost and related GDP loss by mitigation. At the same time it can increase mitigation potentials and extend the emission reduction amount, showing that consideration of the impact of technological change when deciding the emission reduction targets is necessary.