The economic impact of a deep decarbonisation pathway for China: a hybrid model analysis through bottom-up and top-down linking

The development of mid-century low-emission development strategies is critical to guiding national actions on long-term mitigation. One of the key concerns in developing mitigation strategies is the cost of the low-carbon transition. In this study, we estimate the macroeconomic cost of a deep decarbonisation pathway for China, by integrating an energy-systems optimisation model with an economic model through hard linking. Our results indicate that deep decarbonisation increases the energy expenses of Chinese households in the mid-run due to the higher cost of electricity. However, firms will benefit from moderate decarbonisation as a result of a reduction in coal and oil consumption. As a result, energy-efficiency improvements lead to a reduction in firms’ total energy costs, partially compensating the crowding-out effect of low-carbon investments on general productive capital. Our mitigation scenario has therefore a small macroeconomic cost compared to business as usual, equal to a lag in the growth of less than one year in 2050.