Co-benefits of regionally-differentiated carbon pricing policies across China

Regional carbon pricing policies focused on specific regions can be used to address local environmental problems. Using China as an example, we extend the spatial coverage of regionally designed policies to cover the entire nation and estimate the costs and benefits of these policies. Based on spatial correlation analysis, a multi-regional dynamic computable general equilibrium, and an extended response surface model with polynomial functions, we explore the co-benefits of regionally-differentiated carbon pricing policies in terms of their impacts on environmental justice and income (in)equality in China by 2060. One national and three regionally-differentiated carbon pricing policies are developed and explored based on 2005-2019 data, including spatial-cluster-level data on PM2.5 concentrations and CO2 emissions and data on average per capita GDP. Results show that the carbon pricing policies achieve China's 2030 carbon mitigation targets and contribute to the 2060 targets of carbon neutrality. However, regionally-differentiated carbon pricing policies result in greater CO2 and air pollutant reductions in their targeted regions compared with the national policy, as CO2 emissions in these regions are priced at higher levels. Regionally-differentiated carbon pricing policy, based on the historical spatial cluster level of PM2.5 concentrations, results in larger reductions in average PM2.5 concentrations in 30 provinces in 2060 compared with other policy scenarios. This policy also promotes improvements in environmental quality and justice across China, which generates additional human health benefits. Furthermore, regional carbon pricing policy has the potential to significantly narrow the income gap between regions. Key policy insights Regionally-differentiated carbon pricing policy designed based on the historical spatial cluster level of PM2.5 concentrations, compared with national policy, generates significant environmental and socio-economic co-benefits in the form of improved environmental justice and reduced income inequality. Regionally-differentiated carbon pricing policy also results in greater reductions in air pollution at a lower cost relative to a national policy and this will generate human health benefits. Results provide insights for other developing countries, especially those that have large disparities in regional economic development, regional income inequality, and air pollution problems.