Assessing the impact of emission trading scheme and carbon tax in the building sector: An embodied carbon perspective

Abstract

With the further strengthening of global climate ambitions, promoting the coordinated implementation of emissions trading scheme (ETS) and carbon tax (CT) has become increasingly important. The building sector contributes significantly to carbon emissions and encompasses various energy-intensive industries. Hence, clarifying the effects of ETS and CT in this sector is vital for achieving carbon reduction targets. Based on the embodied carbon perspective, a computable general equilibrium (CGE) model is constructed to assess the impacts of the ETS with varying free-quota ratios, the CT with different tax rates, and hybrid policies on building and its related energy-intensive industries (BREI) across three dimensions: economy, energy, and environment. The results indicate that the hybrid scenarios enable BREI to offset the loss of GDP while achieving better emission reductions. Specifically, the combination of a high CT rate (60 CNY/t) and low auction of allowances (10 %) scenario shows minimal negative impact on GDP and employment. Carbon prices in ETS play the role of price ‘anchoring’ for the rate of CT. Building upon research in the building sector, it is proposed to introduce the paid quota in national ETS and set the CT rate similar to the carbon trading price.