Impact of Electricity Production Tax on China s Economy, Energy, and Environment: A CGE-Based Study

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1 Pol. J. Envron. Stud. Vol. 28, No. 1 (2019), 1-13 DOI: /pjoes/81617 Orgnal Research Impact of Electrcty Producton Tax on Chna s Economy, Energy, and Envronment: A CGE-Based Study Yanqn Wang 1 *, Zhen Dong 2, Yong Wang 2, Guanghu Lu 2, Hongwe Yang 1, Dongchao Wang 1 1 State Grd Hebe Economc and Technologcal Research Insttute Co., Ltd, Shjazhuang, Chna 2 State Grd Hebe Electrc Power Company Co., Ltd, Shjazhuang, Chna Introducton Global warmng caused by the massve emsson of greenhouse gases represented by CO 2 s one of the most serous global envronmental problems today. Chna s the largest CO 2 emssons emtter n the world. In 2015 CO 2 emssons were bllon tons, accountng for about 28% of global CO 2 emssons [1]. Regardless of Receved: 11 July 2017 Accepted: 28 December 2017 Abstract The global warmng caused by massve energy consumpton s one of today s most serous global envronmental problems. CO 2 emssons by the electrcty ndustry n Chna accounted for 10% of global CO 2 emssons n Ths paper studes the mpact of dfferent electrcty producton taxes on Chna s energy, economy, and envronment. Nne electrcty tax scenaros wth dfferent tax rates and a dynamc recursve computable general equlbrum (CGE) model were created to analyze ths ssue. The results show that sectoral output n the coal ndustry s most senstve to the tax, and that rasng the electrcty tax wll drectly ncrease the prce of electrcty. Moreover, ncreasng the electrcty producton tax wll be helpful for achevng the goal of economc transformaton, and to reduce energy consumpton as well as CO 2 emssons. The longer the mplementaton of changng the tax, the lower the cost of emsson reducton wll be. Therefore, ths paper suggests that Chna can ncrease the producton tax rate of power enterprses moderately n order to reduce energy consumpton and adjust the energy structure. Keywords: computable general equlbrum (CGE) model, electrcty producton tax, energy consumpton, CO 2 emsson, economc-energy-envronmental mpact *e-mal: hbdwwyq@163.com ONLINE PUBLICATION DATE: whether t s from the angle of sustanable development [2] or from respondng to clmate change, CO 2 emsson reducton s the most attractve ssue n Chna s economc and socal development [3]. The electrcty ndustry s the largest CO 2 emsson source, and the amount of CO 2 emsson by the electrcty ndustry n recent years s close to half of the total CO 2 emssons n Chna every year, or about 10% of the global CO 2 emssons n 2015 [4]. Therefore, the CO 2 emsson reducton n the electrcty ndustry s of great sgnfcance for the efforts of global carbon emsson reducton.

2 2 As a basc ndustry, electrcal power enterprses have great nfluence on all of socety. Some scholars focus on the development and energy effcency of electrcty ndustres. For nstance, Martns et al. (2011) [5] looked at the Portuguese experence n the applcaton of PPP arrangements n the energy sector, partcularly as far as the development of wnd power plants s concerned. And the producton tax of electrc power enterprses s hgher than that n other ndustres [6]. The mpact of varaton of electrcty tax on the power ndustry and even the whole socety cannot be underestmated. Thus, ths paper studes the mpacts of dfferent electrcty taxes on the energy, economy, and CO 2 emssons n Chna. Much of the research on tax n the electrcty ndustry has focused on carbon tax [7]. Benavente (2016) [8] studed the mpact of a carbon tax on the Chlean economy usng computable general equlbrum analyss. Descateaux et al. (2016) [9] assessed the lfe cycle envronmental benefts of renewable dstrbuted generaton n a context of carbon taxes n the northeastern Amercan electrcty market. Vera and Sauma (2015) [10] compared the effects of reducng CO 2 emssons of carbon tax and of some energy-effcency measures n the power sector. Lu et al. (2016) [11] analyzed the effects of power-generatng company profts and emssons profles under dfferent carbon tax scenaros by valung the specfc part of the cost that affects the envronment. Gerbelova et al. (2014) [12] examned the cost effectveness of dfferent evolutons of CO 2 taxes under the Emssons Tradng System n Europe by Chen (2005) [13] fnds that carbon tax wll lead to an ncrease n recyclng rates. D Cosmo and Hyland (2013) [14] studed carbon tax scenaros and ther effects on the Irsh energy sector. Meybod and Behna (2011) [15] researched the mpact of carbon tax on nternal combuston engne sze selecton n a medum-scale CHP system. A small number of scholars have studed electrcty taxes. Song et al. (2017) [16] employed a network slacksbased measure (SBM) model to research the producton effcency and envronmental effcency of Chna s coalfred power generaton ndustry from 2006 to 2010, under two dfferent tax polces. Cansno et al. (2016) [17] evaluated a tax on electrcty consumpton usng a prcng model to assess economc mpacts. Bjertnaes et al. (2008) [18] desgned an electrcty tax system n the presence of nternatonal regulatons and multple publc goals. Lu et al. (2011) [19] analysed the mpact of Producton Tax Credts on the proftable producton of electrcty from wnd n the Unted States. Cansno et al. [20] provded a comprehensve overvew of the man tax ncentves used n the EU-27 member states (MSs) to promote green electrcty. Nevertheless, few artcles have studed the mpact of the energy ndustry tax from a socal perspectve n whch ndustry s closely related to economc development. The ratonal producton tax of the power ndustry plays an mportant role n global warmng, economc development, and energy securty, as well as carbon emssons tradng. Therefore, ths paper Wang Y., et al. focuses on the mpact of dfferent electrcty taxes on the energy, economy, and CO 2 emssons n Chna. The nnovatons of ths paper are as follows: 1) Ths paper analyzes the effects of dfferent electrcty producton taxes n Chna n order to explore whch s the best opton for balancng the economy and the envronment. 2) Ths paper establshes a computable general equlbrum (CGE) model to analyze the mpact of the tax on the economy, energy, and the envronment. To study the ssue, we use the CGE model that can be used to analyze a macro-economc mpact. The model s wdely used to analyze polcy mpact, such as Carbone and Rvers (2017) [21] studes on the mpacts of unlateral clmate polcy on compettveness and Pu and Othman (2017) [22] examnng the mpact on economc growth and sectoral performance wth fuel subsdy savngs beng reallocated to the bofuel ndustry for research and development purposes. In research by Wu et al. (2014) [23], Chnese GDP s estmated usng a recursve dynamc CGE model. Kolsuz and Yeldan (2017) [24] studed the synerges between envronmental abatement nstruments and polces toward sustanng green jobs. Ramberg et al. (2017) [25] evaluated the economc vablty of gas-to-lquds technology and ts mpact on the evoluton of the crude ol-natural gas prce rato. Ths paper establshes a dynamc recursve CGE model and constructs 9 scenaros to analyze the mpact of dfferent electrcty taxes on energy, the economy, and the envronment n Chna. Methodology CGE Model CGE model s wdely used n polcy analyss [26-28]. Constructons of all CGE models are based on the tradtonal Walras paradgm, whch means that the model can be descrbed as a system of smultaneous equatons deduced by all actors maxmzng behavor. The CGE model smulates the actvty of socal subjects lke resdents, enterprses, government, and foregners [29-30]. Fve blocks make up the CGE model: producton, ncome-expendture, trade, envronment, and macroscopc-closure and market-clearng. The general framework of the CGE model s llustrated n Fg. 1. CGE assumes that one sector only produces one knd of producton by the utlzaton of factors. And n ths block, the output conssts of value-added energy (VAE), ntermedate nput, and polcy cost followng a Leontef functon. VAE s the combnaton of value-added (VA) and energy followng a constant elastcty of substtuton (CES) functon. The next level s VA bundle and energy bundle, whch are consttuted by labor and captal, electrcty and non-electrc (fossl energy), followng a CES functon, respectvely. The non-electrc bundle s consttuted by coal and non-sold (ol and gas) followng a CES functon.

3 Impact of Electrcty Producton Tax on Chna s... Fg. 1. General framework of the CGE model producton block. Income-Expendture Block Government, enterprses, households, and foregners are four subjects n ths block, whch are mportant parts of socety. The CGE model embodes the balance and relatonshp of the four subjects. For government, t acqures revenues va drect tax, ndrect tax, and tarff; some of these revenues are then used as transfer payments, and others for consumpton and savng. For domestc enterprses, they get revenue from consumpton by government, resdent, and other enterprses to support ther own consumpton, ndrect tax, wages, and savng. For the households, they get money through remuneraton from enterprses, Table 1. The man abbrevatons n ths paper. and transfer payments by the government to support consumpton and drect tax. Trade Block The CGE model assumes that the same ndustry produces the same producton; that s, products produced by the same ndustry are homogeneous. For a country, however, mports and exports exst at the same tme n one type of commodty. Therefore, lke the majorty of exstng studes, the Armngton assumpton s ntroduced based on the CGE model [31-32] usng the CES and constant elastcty of transformaton (CET) functons. Abbrevaton Full name Abbrevaton Full name ETS Emssons tradng scheme AEEI Autonomous energy effcency mprovement VA Value-added SAM Socal accountng matrx VAE Value-added and energy CGE Computable general equlbrum CES Constant elastcty of substtuton WIOD World nput-output database CET Constant elastcty of transformaton CM Counter-measured scenaro CO2 Carbon doxde SL Scenaros of lower electrcty tax GDP Gross domestc product SH Scenaros of hgher electrcty tax CI Carbon ntensty 3

4 4 Table 2. Descrptons and sector classfcaton. Sectors AGR COL O_G PAP CMT FER CMC STL EQU ELC CST TRA OTH SER Descrpton Agrculture, forestry, anmal husbandry, and fshery Coal mnng and washng ndustry Petroleum and natural gas explotaton Paper ndustry Cement Chemcal fertlzer Chemcals Steel smeltng and rollng processng ndustry Equpment manufacturng ndustry Electrcty Constructon ndustry Transportaton Other ndustry Servce Macroscopc-Closure and Market-Clearng Block Ths model consders 3 prncples of market closure: government budget balance, foregn trade balance, and nvest-savng balance. Ths paper assumes that all the savngs are transformed nto nvestment, and that total nvestment equals total savngs endogenously; thus, the model s savng-drvng. In the market-clearng block, two prncples are followed n ths model. One s the market of Armngton composte commodty. The other s the factor market. The former shows that all Armngton commodtes are used for consumpton, ntermedate, and nvestment wthout surplus. The latter s that the market could guarantee full employment. Socal Accountng Matrx A socal accountng matrx s the most basc data of a CGE model and can be made by an nput-output table. The 2010 Chna nput-output table s used n ths model, and the year 2010 s the base year. The data of SAM s from the Chna Statstcal Yearbook [33] and Chna nput-output table (CIOT) supported by the Chna Input- Table 3. Coal equvalent coeffcent and CO 2 emssons coeffcent of fossl energy. Prmary energy Coal equvalent coeffcent of prmary energy CO 2 emssons coeffcent of prmary energy Coal kg/kg kg/kg Ol kg/kg kg/kg Gas kg/m kg/m 3 Table 4. Populaton growth Year Wang Y., et al. Output Assocaton (CIOA) [34]. The SAM s balanced through usng the SG-RAS method [35]. Two ponts are worth mentonng n ths paper: the frst s that the prce n ths paper has been dscounted nto the present value of 2010, the second s that ths paper dscusses the carbon doxde emssons only from fossl fuels used for socety not related to mcrobal decomposton and anmal and plant respraton. The Chna nput-output table ncludes 42 sectors. In order to hghlght the key pont of the research, we reclassfed the ndustry. We dvded the whole country nto 14 departments that consst of energy sectors (such as coal, electrcty) and energy-ntensve sectors (such as steel, equpment), whch s shown n Table 2. Coal equvalent coeffcent and CO 2 emsson coeffcents of fossl energy are shown n Table 3. Model Dynamcs Captal deprecaton s determned by captal stock of current perod and nvestment. Captal stock s endogenous except for the frst perod, and nvestment s endogenous. Labor endowment s exogenous and determned by the Natonal Populaton Development Strategy Research Report [36] (see Table 4). Autonomous energy effcency mprovement (AEEI) n the CGE model s consdered n ths study. Accordng to Medum and Long-term Energy Savng Specal Plannng [37] and the set of Ln and Ja (2018) [38], the energy consumpton level of energy-ntensve ndustres n Chna wll nearly reach the nternatonal advanced level n the year AEEI assumed n ths paper s shown n Table 5. Scenaro Desgn Populaton growth rate % % % % The producton tax on electrcty ndustry s 5.36% accordng to CIOA. The mathematcal expressons of producton tax translated nto the CGE model are τ z, and Table 5. Autonomous energy effcency mprovement of each sector a. Sectors AGR COL O_G PAP CMT FER CMC AEEI Sectors STL EQU ELC CST TRA OTH SER AEEI a The AEEI wll be halved after 2020.

5 Impact of Electrcty Producton Tax on Chna s... Table 6. Scenaro desgn. Scenaro The varaton of electrcty tax S % S-30-30% S-20-20% S-10-10% S 0% S10 +10% S20 +20% S30 +30% S % the rate of electrcty tax s τ z. Ths paper establshes elc a busness-as-usual scenaro and eght countermeasure scenaros to smulate the changes n electrcty tax (Table 6). In S scenaro, the electrcty tax rate remans unchanged. In S-30, S-20, and S-10 scenaros, the tax rates are 30%, 20%, and 10% lower than that n S scenaro, respectvely. S-100 scenaro smulates the abolton of the electrcty tax. The tax rates n S10, S20, S30, and S100 scenaros are 10%, 20%, 30%, and 100% greater than n S scenaro, respectvely. And we assume that the change of electrcty tax wll begn n Results and Dscusson Economc Impact GDP Gross domestc product (GDP) n S scenaro durng 2010 to 2030 s llustrated n Fg. 2. GDP wll rse from $5.90 bllon US n 2010 to $12.41bllon n 2030 (note that the GDP depcted here s real GDP nstead of the nomnal one). The annual growth rate s between 3.17% and 6.37%. The trend of GDP growth bascally concdes wth Hggns et al. (2016) [38] and Pao et al. (2012) [39]. The varaton of GDP n all scenaros compared wth S scenaro durng s llustrated n Fg. 3. In Fg. 2. GDP n S scenaro durng 2010 to Fg. 3. GDP varaton n all scenaros compared wth S scenaro durng GDP wll ncrease n S-30, S-20, and S-10 scenaros compared wth S scenaro by 0.08%, 0.05%, and 0.03%, respectvely, whle GDP n S100, S30, S20, and S10 scenaros wll decrease. Although abolshng electrcty tax wll have a relatvely strong postve mpact on GDP n the short term, the mpact wll contnue to declne and become negatve n We fnd that relaxaton of the tax on electrcty wll promote the growth of GDP, whle rasng the tax on electrcty wll have a negatve mpact on GDP. But the two knds of nfluences wll become smaller as tme goes by. The reason why the mpact wll be smaller as tme goes by mght be that 1) resource allocaton has gradually become more reasonable, so that the negatve mpact of the ncrease n electrcty tax on GDP s gradually reduced, 2) whle lowerng the tax on electrcty wll curb the sustanable development and ndustral restructurng, so the GDP growth rate wll be gradually reduced. Sectoral Output The varaton of sectoral output n all scenaros compared wth S scenaro n 2030 s llustrated n Fg. 4. The output of COL, O_G, and ELC ndustres n the tax relaxaton scenaro wll ncrease by %, %, and %, respectvely. Other ndustres wll ncrease ther output by %. The scenaros of ncreasng electrcty tax wll have opposte results. We can fnd that ndustry most affected by the electrcty tax s coal. Then the second most senstve ndustry s electrcty, and the thrd s ol and gas. The output of constructon wll hardly be affected. The man reason why coal s the most senstve ndustry may be that more than 60% of generatng capacty s from coal-fred power plants. Moreover, the electrcty ndustry s the bggest buyer of coal. The change of electrcty tax wll drectly lead to the output of power enterprses and the decson of purchase, whch wll nfluence the sales of coal enterprses. The most flexble enterprses on the electrcty tax are the energy ndustres, whch means that the tax on electrcty can drectly affect energy consumpton of the whole country. The mportance of the electrcty tax s reflected here. 5

6 6 Fg. 4. Varaton of sectoral output n all scenaros compared wth S scenaro n Fg. 5. Varaton of commodty prcng n all scenaros compared wth S scenaro n Commodty Prce The varaton of commodty prce n all scenaros s compared wth S scenaro n In SL scenaros, commodty prce wll be reduced compared wth S scenaro, whle t wll rse n SH scenaros. The greater the change n electrcty tax, the greater the change n the prce of goods. The prce of electrcty n SL and SH scenaros wll ncrease from -0.62% to % and from 0.11% to 1.07%, respectvely. Other commodty prces wll change wthn 1.19%. The rse of electrcty tax wll drectly ncrease the cost of the electrcal ndustry, and then the cost wll be reflected n prce. Fg. 6. Varaton of mport n all scenaros compared wth S scenaro n Wang Y., et al. After that, the ncreasng electrcty prce wll lead the cost and the prce of other ndustres hgher. Therefore, the rse n other commodty prces s due to the rse of electrcty prce. We can fnd that although the tax on electrcty has a sgnfcant mpact on the consumpton of energy commodtes, ts mpact on the prces of other commodtes, except electrcty, wll not be sgnfcant. Import and Export The varaton of mport n all scenaros compared wth S scenaro n 2030 s llustrated n Fg. 6. The mport n all sectors except for electrcty and constructon wll

7 Impact of Electrcty Producton Tax on Chna s... Fg. 7. Varaton of export n all scenaros compared wth S scenaro n Fg. 8. Flow of labor n all scenaros compared wth S scenaros n ncrease n SL scenaros, whle t wll decrease n SH scenaros. Coal mport s most senstve to electrcty tax, the next s ol. However, the changes n electrcty tax wll have lttle mpact on electrcty mports. The man reason why the mports of fossl energy wll decrease by ncreasng electrcty tax may be that the reducton of electrcty demand wll reduce fossl energy consumpton as well as the mport of fossl energy. The varaton of export n all scenaros compared wth S scenaro n 2030 s depcted n Fg. 7. The export of electrcty s most senstve to electrcty tax, whch wll change from % to 23.11%. The next s COL and O_G, by % to 12.80% and 6.21% to 6.84%, respectvely. The varaton of export n other ndustres wll be no more than 2%. The reason why the exports of energy producton wll decrease by ncreasng electrcty tax may be that the tax wll lead the prce of energy producton rse (the commodty prce s ntroduced n secton 4.1.3), so that the nternatonal compettveness of domestc producton of fossl energy and electrcty wll be lower n SH scenaros than n SL scenaros. Labor Moblty The flow of labor n all scenaros compared wth S scenaros n 2030 s llustrated n Fg. 8. The labor force n electrc power enterprses wll be lost greatly wth the ncreasng electrcty tax. COL and O_G ndustres wll also lose labor enforcement when the electrcty tax rses, by % and %, respectvely. All other ndustry wll absorb these outflows of labor. Among them, the labor n servce wll grow greater than others, whch wll absorb about 61% of the outflow labor force. We fnd that the ncreasng electrcty tax wll sgnfcantly shft the labor force from the energy sector to the servce sector, whch wll be helpful for Chna to acheve the goal of economc transformaton. However, reducng the electrcty tax wll spur energy ndustres to transform nto labor-ntensve enterprses. Energy Impact Fossl Energy Fossl energy consumpton n all scenaros n 2030 s shown n Fg. 9. Coal, ol, and gas consumpton n the 2030 S scenaro wll be 3.99 bllon tons of coal equvalent (TCE) and 1.08 bllon TCE, respectvely. And the rate of coal consumpton s 78.70%. In the S100 scenaro, coal consumpton wll be 3.58 bllon TCE, and ol and gas consumpton wll be 1.01 bllon TCE. The ncrease of electrcty tax wll reduce coal consumpton as well as the consumpton of ol and gas. The rate of coal consumpton wll also be reduced n SH scenaros. The performance s entrely reversed n SL scenaros. In other words, the ncreasng electrcty tax wll reduce energy 7

8 8 Fg. 9. Fossl energy consumpton n all scenaros n Fg. 10. Varaton of electrcty consumpton n all scenaros n consumpton and wll optmze the energy structure to a certan extent. The ncreasng tax on electrcty wll reduce coal consumpton ndrectly but sgnfcantly, as well as ol and gas consumpton. And the reducton of fossl energy consumpton wll drectly promote the CO 2 emsson reducton, whch wll be ntroduced n a later secton. Fg. 11. Carbon emsson ntensty n all scenaros durng Electrcty Wang Y., et al. The varaton of electrcty consumpton n all scenaros n 2030 s llustrated n Fg. 10. The relaxaton of the electrcty tax wll drectly promote the consumpton of electrcty. Wth a tax cut of 10%, electrcty consumpton wll rse by about 0.8%, whle wth an addtonal tax on electrcty, electrcty consumpton wll be reduced by about 0.8%. We also fnd the law of dmnshng margnal returns: for each addtonal 10% of electrcty tax, the amount of reduced electrcty consumpton wll be reduced. Moreover, the reduced electrcty consumpton wll lead to a reducton n fossl energy used. Envronmental Impact Carbon Emsson Intensty Carbon emsson ntensty (CI) n all scenaros durng s depcted n Fg. 11. In S scenaro, CI wll be reduced from kg-co 2 /thousand USD n 2017 to kg-co 2 /thousand USD n In the S-100 scenaro, CI s bgger than other scenaros, by kg-co 2 /thousand USD. Whle CI n S100 scenaros s less than other scenaros by kg-co 2 /thousand USD. The electrcty tax can sgnfcantly affect CI. That s to say, the more electrcty tax, the less CI. The man reason s that the electrcty tax has an obvous postve mpact on reducng fossl energy consumpton, whch could promote the reducton of CI. The reason why CI s lower n SL scenaros than other scenaros s that emsson reducton s greater than GDP loss n SL scenaros, that s, the elastcty of electrcty tax on CO 2 emssons s greater

9 Impact of Electrcty Producton Tax on Chna s... Table 7. Reducton cost n all scenaros durng (USD/t-CO 2 ). Year SL scenaros SH scenaros S S-100 S-30 S-20 S-10 S10 S20 S30 S than that on GDP. Ths result suggests that we could reduce CO 2 emssons and CI by ncreasng the electrcty tax, or reducng the subsdy to electrcty ndustres. Reducton Cost Reducton cost n all scenaros durng s shown n Table 7. The reducton cost ths paper dscussed s the rato of GDP to emsson reducton, whch represents the cost of GDP that must be pad for emsson reducton. In SH scenaros, the reducton cost wll decrease as tme goes by. For nstance, the cost s USD/t-CO 2 n the 2017 S10 scenaro, and t wll be USD/t-CO 2 n Moreover, the hgher the electrcty tax, the greater the reducton cost. As for SL scenaros, reducton cost means the amount of GDP that can be ncreased by an addtonal unt of CO 2 emsson. So t s not lke SH scenaros that the hgher the reducton cost, the better to socety. Although we can fnd that the costs perform well n the short term, the benefts of GDP growth from ncreasng carbon doxde emssons are gettng smaller as tme goes by. For example, the reducton cost s USD/t-CO 2 n 2017 S-10 scenaro whle t wll be 6.52 USD/t-CO 2 n Furthermore, n the S-100 scenaro, the value of reducton cost wll be negatve n 2029 and We fnd that rasng the electrcty tax wll have long-term nterests n reducng emssons. Nevertheless, reducng the electrcty tax s not the choce of long-term nterests. Concluson Ths paper establshes 9 electrcty tax scenaros wth dfferent rates of tax, and constructs a dynamc recursve computable general equlbrum model to analyze the mpact of dfferent electrcty taxes on GDP, sectoral output, commodty prce, nternatonal trade, labor moblty, fossl energy consumpton, electrcty consumpton, carbon emsson ntensty, and reducton cost. And, fnally, ths paper arrves at the followng conclusons. The relaxaton of the tax on electrcty wll promote the growth of GDP, whle rasng the tax wll have a negatve mpact on GDP. However, the mpact of electrcty tax on GDP wll gradually decrease from Sectoral output n the coal ndustry s most senstve to the tax, the man reason beng that the rsng electrcty tax wll gude the purchase decson of electrc power enterprse and fnally lower the ncome of the coal ndustry. The rse of electrcty tax wll drectly ncrease the cost of the power ndustry, then the cost wll be reflected n electrcty prces. The mports and exports on fossl energy wll decrease by rsng electrcty tax. The man reason s the two aspects of prce and demand. The ncreasng of the electrcty tax wll sgnfcantly push the labor force outflow from the energy ndustres, such as coal and electrcty, to the servce ndustry, whch wll be helpful for Chna to acheve the goal of economc transformaton. Also, ncreasng the electrcty tax wll reduce energy consumpton and optmze the energy structure to a certan extent. Moreover, the more electrcty tax, the less CI. And the rse of the electrcty tax wll have long-term nterests n reducng emssons. As tme goes on, the cost of emsson reducton wll gradually decrease. Thus, ths paper strongly suggests that we can reduce CO 2 emssons by ncreasng the electrcty tax by 10-30% n order to reduce energy consumpton and adjust energy structure. Carbon emsson ntensty can be reduced sgnfcantly by ncreasng carbon ntensty. Also, ncreasng the electrcty tax wll be helpful n 9

10 10 achevng the goal of economc transformaton, and to reduce energy consumpton as well as CO 2 emssons. The longer the mplementaton of the polcy, the lower the cost of emssons reducton. Another reason why ncreasng the electrcty tax s hghly recommended to reduce CO 2 emssons n ths Wang Y., et al. paper s that t may be much easer to acheve emssons reducton by means of a mature commodty market than a carbon tradng market or carbon tax. We can use a small amount of government resources to complete the task. Why do we have to spend a lot of socal resources? Appendx A. Equaton system of the dynamc CGE model A. 1 Producton block noe noe 1 [ noe noe (1 ) noe ] noe = α δ ρ ρ ρ + δ NOE COAL NOS noe PCOAL δ NOS = noe PNOS 1 δ COAL noe (1 ρ ) NOE PNOE = COAL PCOAL + NOS PNOS ene ene 1 [ ene ene (1 ) ene ] ene = α δ ρ ρ ρ + δ ENE ELE NOE PELE PNOE ene δ NOE = ene 1 δ ELE ene (1 ρ ) ENEPENE = ELEPELE + NOEPNOE va va 1 [ va va (1 ) va ] va = α δ ρ ρ ρ + δ VA LAB CAP va PLAB δ CAP = va PCAP 1 δ LAB va (1 ρ ) VA PVA = LAB PLAB + CAPPCAP vae vae 1 [ vae va (1 ) vae ] vae = α δ ρ ρ ρ + δ VAE VA ENE PVA PENE vae δ ENE = vae 1 δ VA vae (1 ρ ) VAEPVAE = ENEPENE + VA PVA INT = a Z INT, j, j FVAE = a Z VAE j j j PZ a PVAE a PQ = + vae INT j j, j j (A.1) (A.2) (A.3) (A.4) (A.5) (A.6) (A.7) (A.8) (A.9) (A.10) (A.11) (A.12) (A.13) (A.14) (A.15)

11 Impact of Electrcty Producton Tax on Chna s... g SG = ss TD + TZ + TM µ XG = TD TZ TM SG PQ + + A.2 Income-expendture block xp β XP = ( PCAP CAP PLAB LAB ) SP TD PQ + ( ) d TD = τ LAB PLAB + CAP PCAP TZ TM PE =τ PZ Z z =τ PM M m PM = ε PWE = ε PWM PWE E + SF = PWM M η ( ) 1 η η Q = γ δ m M + δ d D M D η γ δ m PQ = m (1 + τ ) PM 1 1 η 1 η 1 η γ δ dpq = PD Q Q ( ) 1 φ φ φ Z = θ ξe E + ξd D 1 1 φ φ z θ ξe(1 + τ ) PZ E = PE 1 1 φ φ z θ ξd(1 + τ ) PZ D = PD Z Z A.3 Trade block 11 (A.16) (A.17) (A.18) (A.19) (A.20) (A.21) (A.22) (A.23) (A.24) (A.25) (A.26) (A.27) (A.28) (A.29) (A.30) (A.31)

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