Synergistic effect of emission trading scheme and carbon tax: A CGE model-based study in China

Abstract

Effective carbon pricing systems are essential for combating climate change, yet the synergistic potential of combined approaches remains underexplored. This study delves into the interaction effects of carbon emissions trading scheme (ETS) and carbon taxes using a dynamic recursive computable general equilibrium model. By developing six distinct policy scenarios, this study analyzes variations in emission mitigation effectiveness and associated costs. The findings highlight significant differences between implementing a comprehensive tax approach (CTA), which imposes a carbon tax on all industries, and a coverage-targeted only approach (CTO), which applies the carbon tax only to industries not covered by ETS. The CTO approach, while limited in its direct impact on high energy-intensive industries, demonstrates a substantial synergistic effect when combined with ETS. This synergy results in an additional reduction of 32 million tons of CO₂ and an economic cost of 5.24 billion yuan in GDP losses by 2030. Conversely, the CTA fails to achieve effective synergy with ETS, resulting in lower carbon prices and diminished carbon constraint capabilities. These insights underline the importance of strategic policy design in carbon mitigation, suggesting that a targeted approach can amplify the benefits of emissions trading systems. This study provides valuable guidance for policymakers aiming to enhance the effectiveness of carbon reduction strategies through integrated policy measures.