Balancing Climate Change and Economic Development: The Case of China

Due to the rapid and substantial accumulation of carbon emissions, climate change has emerged as a critical environmental concern in the context of economic development, damaging social welfare. Focused on the largest emitter, we analyze China’s economic growth and climate change relationship by proposing a dynamic general equilibrium integrated assessment model (IAM) accounting for disparity and interaction across regions and sectors. After scrutinized calibration with data from multiple sources, our simulation findings suggest that without intervention, China’s temperature rises could reach and in advanced and backward regions by 2100, respectively. Implied by the socially optimal path, policies of carbon taxes and lump-sum household rebates could cut down carbon emissions substantially and limit the temperature rises to around across both regions, yielding considerable welfare benefits. However, if China takes the hard road to Paris Agreement’s limit without exceptional low-carbon technology advancements and other preparations, significant social welfare losses could occur.