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Carbon-based border tax adjustments and China’s international trade: analysis based on a dynamic computable general equilibrium model

  • Research Article
  • Energy and Climate Economics and Policy
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Abstract

This paper examines the impacts of the proposed carbon-based border tax adjustments (BTAs) on China’s trade, based on a multi-sector dynamic computable general equilibrium model including 7 energy sectors and 30 non-energy sectors and running up to the year 2030. Distinct from previous single China country models, our model disaggregates foreign accounts of China into four regions, including USA and the EU, to enable to examine the effects of re-routing trade flows. The results suggest that BTAs would have a negative impact on China’s trade. BTAs will directly decrease China’s exports, whereas Chinese exporting enterprises will accordingly modify their strategies. Moreover, BTAs will affect China’s total imports and sectoral import in an indirect but more intricate way. Furthermore, the simulation results for coping policies indicate that enhancing China’s power in world price determination and improving energy technology efficiency will effectively help mitigate the damages caused by BTAs.

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Notes

  1. This raises the issue of effectiveness of the US proposed carbon tariffs because of re-routing trade flows to deliver the covered products from countries that are not subject to such carbon tariffs (Zhang 2010d, 2011, 2012). With Japan passing the comparability test and thus being exempted from an emissions allowance requirements (EAR) under the proposed US cap-and-trade regime, imposing an EAR on Chinese steel, but not on Japanese steel, could make Japanese steel more competitive in the US market than Chinese steel. That could lead Japanese steel makers to sell more steel to the United States and Japanese steel consumers to import more from China (Houser et al. 2008). In the end, this neither affects China nor protects US steel producers.

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Acknowledgments

This study is supported by the National Natural Science Foundation of China under Grants No. 71203214, No. 71301006, No. 71373055 and No. 91224004. An earlier version of the study was presented at the 20th Annual European Association of Environmental and Resource Economists Conference, Toulouse, France, June 26–29, 2013. It has tremendously benefited from valuable comments and suggestions from two anonymous referees. That said, the views expressed here are those of the authors. The authors bear sole responsibility for any errors and omissions that may remain.

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Authors and Affiliations

  1. School of Economics and Management, Beijing University of Chemical Technology, Beijing, China

    Ling Tang

  2. Institute of Systems Science, Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing, China

    Qin Bao & Shouyang Wang

  3. Department of Public Economics, School of Economics, Fudan University, 600 Guoquan Road, Shanghai, 200433, China

    ZhongXiang Zhang

  4. College of Management and Economics, Tianjin University, Tianjin, 300072, China

    ZhongXiang Zhang

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  1. Ling Tang
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  2. Qin Bao
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Correspondence to ZhongXiang Zhang.

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Tang, L., Bao, Q., Zhang, Z. et al. Carbon-based border tax adjustments and China’s international trade: analysis based on a dynamic computable general equilibrium model. Environ Econ Policy Stud 17, 329–360 (2015). https://doi.org/10.1007/s10018-014-0100-3

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  • DOI: https://doi.org/10.1007/s10018-014-0100-3

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