The economic impact of a deep decarbonisation pathway for China: a hybrid model analysis through bottom-up and top-down linking

The development of mid-century low-emission development strategies is critical to guiding national actions on long-term mitigation. One of the key concerns in developing mitigation strategies is the cost of the low-carbon transition. In this study, we estimate the macroeconomic cost of a deep decarbonisation pathway for China, by integrating an energy-systems optimisation model with an economic model through hard linking. Our results indicate that deep decarbonisation increases the energy expenses of Chinese households in the mid-run due to the higher cost of electricity. However, firms will benefit from moderate decarbonisation as a result of a reduction in coal and oil consumption. As a result, energy-efficiency improvements lead to a reduction in firms' total energy costs, partially compensating the crowding-out effect of low-carbon investments on general productive capital. Our mitigation scenario has therefore a small macroeconomic cost compared to business as usual, equal to a lag in the growth of less than one year in 2050.

Automated summary

The study shows that deep decarbonisation will lead to increased energy expenses for Chinese households in the mid-run, but firms will benefit from reduced coal and oil consumption. Therefore, the overall macroeconomic cost is low and energy efficiency improvements will result in a decrease in total energy costs by 2050.