Balancing Regional Development and Carbon Emission Constraints

In the next 40 years, China will need to achieve high-quality development under carbon emission constraints. Among the critical challenges China needs to face is the potential for increased imbalances in regional development. This chapter seeks to answer three questions. First, will carbon emission constraints aggravate the imbalance in China’s regional development? Since the 11th Five-Year Plan period (2006–2010), the government has promoted energy conservation and emission reduction through control of energy consumption and intensity. Under energy conservation and emission reduction policies, the gap in GDP per capita between high-carbon, more-developed and low-carbon, less-developed regions has widened to a certain extent. In the future, will the imbalance in regional development intensify as carbon constraints grow? We conducted multi-scenario analysis using a computable general equilibrium (CGE) model, and the findings show that if carbon neutrality is promoted by prioritizing efficiency of emissions reduction, then regional development imbalances may be the exacerbated, creating significant challenges to high-quality development. Second, why do carbon emission constraints exacerbate imbalances in regional development? Answering this question requires an understanding of who bears the major cost of emissions reduction. High-energy-consuming industries in the midstream of the industry chain may bear the highest abatement costs due to their limited bargaining power over the upstream energy sector and downstream consumption sector. High-energy-consuming industries bear more abatement costs at this stage due to their own transformation and upgrading demand and lower marginal abatement costs compared to other industries. As economic development in less-developed regions is more dependent on these industries, the uniform imposition of carbon emission constraints will exacerbate imbalances in regional development. Third, how can imbalances in regional development be eliminated? On one hand, through “dual control” of carbon emission, a carbon market and carbon tax policies, the costs of emission reduction can be more reasonably shared and more equity issues can be considered while pursuing efficiency. On the other hand, a compensation mechanism could smooth the transition and support less-developed, high-carbon regions through transfer payments and transition finance tools. We compared various policy scenarios using the CGE model, and conclude that in the process of achieving carbon neutrality, dual control of carbon emission, will play a major role in sharing the responsibilities of emission reduction more equitably; that transfer payments are the most effective means to eliminate regional disparities; and dynamically determining the inflow of transfer funds according to the progress of the transition will reduce the decline of national GDP and eliminate imbalances in regional development. Transition finance can also promote equity in regional development at the cost of a potential decline in GDP.