The Role of R&D for Climate Change Mitigation in China: a Dynamic General Equilibrium Analysis

Fan Lin and Danyang Xie

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops a dynamic general equilibrium integrated assessment model (DGE-IAM) with endogenous technological changes to explore strategies for China to optimize social welfare, mitigate climate change, and transition to green development. We analyze three solutions and provide corresponding projections of their outcomes: market solution (no intervention), carbon tax solution (carbon taxes and rebates), and green technology solution (induced R\&D investment in green knowledge). While the temperature rise will reach $4.2^\circ C$ in market solution by the next century, it is reduced to $4.0^\circ C$ in the carbon tax solution with social welfare gains. In the green technology solution, economic growth pattern is almost intact with welfare gains while carbon emission approaches net-zero and climate change is curbed and even repairs consistently lower than $1^\circ C$ in centuries. Our results highlight the potential of R\&D investment in green knowledge, e.g., the modern new energy sector, as crucial for China's green transition in the long run with possibly welfare gains. We emphasize the need for immediate and intensive actions and offer valuable insights for policymakers addressing climate change and promoting a sustainable future for China.

Keywords: Climate Change; Endogenous Technological Changes; Induced R\&D; China (search for similar items in EconPapers)
JEL-codes: E27 O33 O44 Q54 (search for similar items in EconPapers)
Date: 2024-07-30
New Economics Papers: this item is included in nep-cna, nep-dge, nep-ene and nep-env
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