Special Session 87: Large Population Optimization, Stochastic Filtering and Mathematical Finance

On optimal carbon tax in China: implications for net-zero emissions and development
Detao Zhang
School of Economics, Shandong University
Peoples Rep of China
Co-Author(s):    Jingjing Zhang, Pan Chen, Mondher Bellalah, Detao Zhang
Abstract:
The carbon pricing is recognized as an effective tool of carbon reduction. Hence, China urgently needs to improve the carbon pricing system. This paper constructs a dynamic stochastic general equilibrium model with the inter-temporal accumulation of carbon emissions and climate damage function to optimize the estimation of the carbon tax rate in China. It develops a four-sector dynamic general equilibrium model to investigate the effects of a carbon tax. We find that China`s optimal carbon tax rate is increasing with economic growth, and levying a carbon tax can achieve the double bonus of decreasing carbon and expanding the economy. Moreover, the synergy of the carbon tax with related green policies, such as green finance, enhancing green industries competitive advantage, government environmental regulation, and green transformation goals, further amplifies the green effects of a carbon tax. Our conclusions provide a reference for implementing carbon tax system when facing the pressure of carbon reduction, thus promoting global low-carbon development.