An environmental CGE model of China’s economy: Modeling choices and application

What is it about?

This article presents a computable general equilibrium (CGE) model designed to simulate the economic and environmental effects of various policies in a country or region. The model integrates economic, energy, and environmental factors, allowing policymakers to assess how changes in one area impact others. It can simulate the effects of carbon taxes, energy efficiency improvements, and shifts in energy consumption. The CGE model divides the economy into different sectors and uses nested production functions to model relationships between labor, capital, and energy. It also considers household consumption, government spending, and international trade. By applying scenarios like carbon neutrality policies or environmental taxes, the model evaluates how these changes affect energy consumption, economic output, sectoral performance, and welfare. A unique feature is its dynamic mechanism that adjusts for changes in capital stock and labor over time, capturing both short- and long-term impacts. The model's energy-environment block quantifies pollution emissions and examines how policy changes can reduce emissions while balancing economic costs.

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Photo by Evangeline Shaw on Unsplash

Photo by Evangeline Shaw on Unsplash