An environmental CGE model of China’s economy: Modeling choices and application

This article discusses the expansion and application of computable general equilibrium (CGE) models as significant policy guidance tools for pollution reduction and emission control objectives. Based on the theoretical framework of the Australian school of CGE modeling, we have developed an integrated model that encompasses energy, environment, and economy. This model incorporates energy, environmental, and emission introduction processes, closure mechanisms, and dynamic adjustments. Before simulations, we typically conduct Back-of-the-envelope (BOTE) analyses and validate the accuracy of economic theory judgments and model simulation results through comparative analysis. The article also summarizes our research based on the CGE model, including investigations into differences under various carbon tax revenue policies, comparisons between single-region and multi-region carbon market mechanisms, rebound effects from energy efficiency improvements, impacts of different environmental tax strategies, and the cost-neutral setting of carbon neutrality goals. These findings demonstrate the widespread application and significance of CGE models in theoretical research and policy formulation.