Energy and Economic Implications of Carbon Neutrality in China – A Dynamic General Equilibrium Analysis

Using a dynamic computable general equilibrium (CGE) model, we analyze the energy and economic implications of carbon neutrality in China. Our CGE model, CHINAGEM-E, has detailed up-to-date data and an innovative power generation nesting structure. Impacts of carbon neutrality are calculated by comparing a business-as-usual base-case scenario with results from a number of alternative carbon neutrality scenarios. We discuss in detail the assumptions used in these scenarios, including the macroeconomic closure, and the shocks relating to energy efficiency, energy preferences, take-up of carbon capture and storage (CCS) and so forth. Simulation results show that macroeconomic setbacks are small, and that CCS could lead to significant emissions reduction with small increases in cost. We also tested the sensitivity of our core results to changes in key underlying assumptions. We found that elasticity parameters are critical to simulation results, and that policy combination effects can help to significantly reduce GDP losses