The regional economic effects of a reduction in carbon emissions and an evaluation of offsetting policies in China


  • We have benefitted from the comments of four referees. We are grateful to the Business School at UWA and to the Department of International Co-operation at Jinan University for grants which supported the visit of Groenewold to Jinan University in 2011. This research was also partially supported by National Natural Science Foundation of China Grant No. 71173092 and JNU Research Grant No. 12JNYH004. Useful comments have been received from Lafang Wang and from participants at the International Workshop on Regional, Urban and Spatial Economics in China held at Jinan University in June 2012 and at the annual conference of the Chinese Economics Society Australia held at ANU in July 2012. A more extensive version of this paper, including all the appendices, is available as UWA Discussion Paper No. 12.14, which can be accessed at:


China has promised large cuts in CO2 emissions by 2020, which is likely to have differential effects across regions. We know little about the regional effects of pollution reduction. We make a contribution to filling this gap using a small theoretical model with two regions, features of the Chinese economy and the right to emit CO2 as a factor of production. We find regionally differentiated effects on income, welfare and output and explore government policies designed to reduce these effects. The effects of fiscal policies depend crucially on whether one or both regions respond and on whether output or welfare is targeted. Boosts to productive capacity do better in terms of output but not welfare.


China ha prometido grandes recortes en las emisiones de CO2 en 2020, lo que es probable que tenga efectos diferentes en las distintas regiones. Se sabe poco acerca de los efectos regionales de la reducción de la contaminación. Contribuimos aquí a cerrar esta brecha con un pequeño modelo teórico que utiliza dos regiones, las características de la economía China y el derecho a emitir CO2 como un factor de producción. Encontramos efectos diferenciados por regiones sobre la renta, el bienestar y la producción, y exploramos las políticas gubernamentales destinadas a reducir estos efectos. Los efectos de las políticas fiscales dependen de manera crucial de si responden una o ambas regiones, y de si se dirigen hacia la producción o hacia el bienestar. Las mejoras en la capacidad productiva resultan mejor en términos de producción, pero no en cuanto a bienestar.