Factorial enviro-economic equilibrium analysis for the effects of hierarchical carbon policy on China's socio-economic and environmental systems

Under the coordinated development demands of climate change, carbon emission reduction, energy demand and economic progress, it is desired to methodically study the compound effects of the joint implementation of different policies, especially the detailed impact of the hierarchical carbon-mitigation (HCM) policy. A multi-level factorial enviro-economic equilibrium (MFEEE) model is developed to i) explore the multi-level interactive effects among carbon policy, income tax and production tax on social-economic and environmental (SEE) systems; ii) access the effectiveness of hierarchical carbon-mitigation (HCM) policy among socio-economic sectors. MFEEE is based on a static computable general equilibrium (CGE) model using 2017 as the base year. The results indicated that HCM policy could be regarded as an effective measure to make a greater contribution to related SEE issues compared with the non-hierarchical policy. The interactive effects of carbon policy, income tax and production tax require full attention. As the intensity of the HCM policy increases, the contribution of the interaction between carbon policy and production tax becomes more significant. The impact of HCM on system's GDP may be greater when the sectoral differences are given greater attention in tiered tax rate. These findings suggest that a sectoral differentiated hierarchical carbon-mitigation policy can achieve significant emissions reductions with minimal economic disruption. Policymakers should consider balancing carbon tax structures to mitigate adverse effects on economic growth while maximizing environmental benefits.