Cross-regional economic impact of carbon emission regulations: A quantitative spatial equilibrium model for China

We develop and quantitatively evaluate a spatial general equilibrium model that incorporates carbon emission regulations. We study the impact of emission regulation on the economies of regions within a country under climate change mitigation goals, and how the impact of emission regulation in one region influences other regions through regional‒sectoral linkages. The model is calibrated using Chinese regional and sectoral data, and several counterfactual exercises are performed. The results indicate that undifferentiated increases in emission regulation across regions have resulted in inter-regional differences in real GDP changes; however, "equity-oriented" regionally differentiated emissions regulations reduce this imbalance. Regarding interactions between regions, negative impacts on the economy are characterized by geographical proximity, whereas positive impacts are not geographically constrained. Sectoral linkages exacerbate the negative economic impacts of emission regulations and widen regional disparities. Additionally, we demonstrate the extended application of our model through two case studies.