CoPS/IMPACT Working Paper Number G-318

Title: Energy and Economic Implications of Carbon Neutrality in China -- A Dynamic General Equilibrium Analysis

Authors: Shenghao Feng, Xiujian Peng and Philip Adams


This study investigates the energy and economic implications of China's carbon neutrality path over the period of 2020 to 2060. We use a recursive dynamic CGE model, CHINAGEM-E, to conduct the analysis. Notable advancements from the original CHINAGEM model include: 1) detailed energy sector disaggregation, 2) a new electricity generation nesting structure, and 3) carbon capture and storage (CCS) mechanisms. Our simulation shows that to achieve carbon neutrality in 2060, China needs change its energy consumption structure significantly. Coal and gas consumption will decline dramatically while the demand for renewable energy, especially demand for solar and wind energy will increase considerably. However, the negative effects of the dramatic carbon emission reduction on China's macro economy is limited. In particular, by 2060 real GDP will be 1.36 percent lower in carbon neutrality scenario (CNS) than in the base case scenario. The carbon price level will be 1614 CNY per tonne of carbon dioxide in 2060 in CNS.
The substantial changes in China's energy structure imply significant changes to its fossil fuel imports. China's import demand for coal, crude oil and gas will all fall sharply. By 2060, China's imports of coal and gas will be more than 60% lower and its oil imports will be around 50% lower than their respective base-case levels.

JEL classification: C68; Q4

Keywords: Carbon neutrality, economic implication, energy consumption, China, CGE

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