Comparative analysis of carbon emission reduction policies in China's manufacturing and transportation sectors

Abstract

This study evaluates China's environmental policies, specifically the increase of carbon emission tax rates and the reduction of carbon emission intensity, by developing a New Keynesian Dynamic Stochastic General Equilibrium (NK-DSGE) model that incorporates energy consumption and carbon emissions. The production sector is segmented into manufacturing, non-manufacturing, and transportation, with transportation services acting as inputs for both manufacturing and non-manufacturing firms. We construct four cases within two scenarios, each characterized by distinct targets and policies. After calibrating and estimating the relevant parameters, we compare carbon reduction outcomes and economic fluctuations across the two scenarios. Our findings indicate that when targeting the same carbon emission tax rate increase or carbon emission intensity ratio reduction, policies that increase the carbon emission tax rate or reduce carbon emission intensity implemented in the manufacturing sector achieve greater carbon emission reductions compared to the same polices implemented in the transportation sector. Meanwhile, compared to the latter case, output experienced a greater decline, and inflation exhibited a more substantial increase in the former case. However, when the quantities of carbon emission reductions are approximately the same in the first quarter, policies that increase the carbon emission tax rate or reduce carbon emission intensity enacted in the transportation sector demonstrate superior performance relative to the same polices implemented in the manufacturing sector. This leads to smaller final output reductions and milder inflation increases. In summary, for equivalent levels of carbon emission reductions, policies implemented in the transportation sector yield more favorable economic outcomes than those applied in the manufacturing sector.