Analyzing the environmental and economic impact of carbon pricing policy based on an improved dynamic CGE model: Incorporating demographic characteristics of resident

Abstract

Narrowing income inequality while ensuring emission reduction efficiency is essential for achieving social equity and enhancing feasibility of carbon reduction policies. Using China's carbon pricing policy as a case study, this paper evaluates the environmental and economic impacts of various carbon pricing strategies under different carbon market coverage scopes and revenue recycling schemes. To conduct this analysis, we employ an improved dynamic Computable General Equilibrium (CGE) model that classifies residents based on five distinct categories, i.e. gender, age, education level, registration status, and income level. The findings reveal that while carbon pricing reduces emissions, it negatively impacts social welfare and energy-intensive industries. Moreover, it exacerbates income inequality across different age groups, education levels, and registration status, despite contributing to a reduction in gender income inequality. From an efficiency perspective, prioritizing the inclusion of the building materials industry in the carbon market maximizes emission reduction effectiveness. In contrast, to mitigate income inequality, the petrochemical industry should be the first to be integrated into the carbon market. Additionally, the study finds that expanding industry coverage within the carbon market enhances overall emission reduction efficiency. Under the optimal efficiency scenario, redistributing carbon revenue to rural, low-income female residents aged 20–59 with junior high or associate degrees proves to be the most effective strategy for reducing income inequality.