The Impact of Carbon Taxes and Carbon Tax Recovery on the Chinese Economy: A Green Technological Progress Perspective

Weicheng Xu () and Yunpeng Zhang
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Weicheng Xu: School of Economics, Ocean University of China, Qingdao 266100, China
Yunpeng Zhang: School of Economics, Ocean University of China, Qingdao 266100, China

Sustainability, 2025, vol. 17, issue 4, 1-25

Abstract: Environmental challenges, particularly the emission of greenhouse gases (GHGs), pose significant threats to global sustainability. Sustainability requires achieving economic growth and social progress while minimizing environmental degradation, improving resource efficiency, and ensuring long-term ecological balance. At present, many studies have shown that carbon taxes may negatively impact the economy. However, environmental regulations also drive firms to pursue green technological innovations, thereby promoting progress. Previous studies on the regulatory measure of carbon taxes have often overlooked the potential influence of green technological progress on economic outcomes. To address these gaps, our research selected panel data from 30 provinces in China, spanning from 2005 to 2021, and employed the System Generalized Method of Moments (SYS-GMM) to evaluate the effect of carbon taxes on green total factor productivity (GTFP) and green total factor energy efficiency (GTFEE). The regression results, representing the green technological progress coefficient, are then incorporated into the China Energy-Environment-Economic Analysis 2.0 (CEEEA2.0) model. We also add carbon tax recovery to this model in order to analyze their economic impact from the new perspective of green technological progress. The SYS-GMM findings suggest that carbon taxes positively impact GTFP and GTFEE, with impact coefficients of 7.2% and 3.4%, respectively. The CEEEA2.0 model reveals that, without considering green technological progress, the introduction of carbon taxes negatively impacts the economy. However, this impact may turn into a positive one when green technological progress is considered. Additionally, carbon tax recovery measures help mitigate economic losses or enhance gains. Overall, this study offers a fresh perspective for modeling carbon tax implementation and holds both theoretical and practical significance and provides actionable insights into designing carbon tax policies that balance economic growth, social equity, and environmental sustainability.

Keywords: carbon tax; carbon tax recovery measures; green technological progress; sustainability; SYS-GMM; CEEEA2.0 (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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