| Abstract: |
Under reasonable assumptions, China could achieve parity in living standard
with Western Europe by 2100, and India by 2150. Climate change, however, may
be a key obstacle preventing such a convergence. The business-as-usual (BAU)
growth path of the world might increase concentration of atmospheric to unsafe
levels and cause significant negative environmental feedback before China
achieves parity in living standards with the OECD countries. We use a dynamic
multi-country general equilibrium model (the G-Cubed Model) to project a
realistic BAU trajectory of CO2 emissions, and we find it to be even above the
CO2 emissions from the high-growth scenario estimated by the Energy
Information Agency in 2007. This outcome is a reminder that it has been usual
so far to underestimate the growth in China energy consumption. We compare the
merits of the different market-based CO2 reduction mechanisms like a carbon
tax, a cap-and-trade scheme, and the McKibbin-Wilcoxen Hybrid (MWH) approach.
Unexpected developments cause the different CO2 reduction mechanisms to create
very different costs. Both the international carbon tax and the MWH approach
are more economically efficient responses to uncertainty than the
cap-and-trade scheme of the Kyoto Protocol. We use the G-Cubed Model to study
the economic outcomes under each CO2 reduction mechanism, and under the
deployment of advanced green energy. The reduction of CO2 emissions would only
delay, not stop, the increase in CO2 concentrations toward the “danger level”.
As the only long-term solution is likely to be shifting to non-fossil emitting
energy, it is important to combine a market-based CO2 reduction mechanism with
an ambitious program to accelerate the development of green technology. Such a
program would probably have a higher chance of success if some important parts
of it were based on international collaboration. We conclude the paper with
recommendations about the form of future international climate agreements and
how China could be encouraged to participate. |