The Role of R&D for Climate Change Mitigation in China: a Dynamic General Equilibrium Analysis

Lin, Fan and Xie, Danyang (2024): The Role of R&D for Climate Change Mitigation in China: a Dynamic General Equilibrium Analysis.

Abstract

This paper develops a dynamic general equilibrium integrated assessment model (DGE-IAM) with endogenous technological changes to explore strategies for China to optimize social welfare, mitigate climate change, and transition to green development. We analyze three solutions and provide corresponding projections of their outcomes: market solution (no intervention), carbon tax solution (carbon taxes and rebates), and green technology solution (induced R\&D investment in green knowledge). While the temperature rise will reach $4.2^\circ C$ in market solution by the next century, it is reduced to $4.0^\circ C$ in the carbon tax solution with social welfare gains. In the green technology solution, economic growth pattern is almost intact with welfare gains while carbon emission approaches net-zero and climate change is curbed and even repairs consistently lower than $1^\circ C$ in centuries. Our results highlight the potential of R\&D investment in green knowledge, e.g., the modern new energy sector, as crucial for China's green transition in the long run with possibly welfare gains. We emphasize the need for immediate and intensive actions and offer valuable insights for policymakers addressing climate change and promoting a sustainable future for China.

• Item Type: MPRA Paper
• Language: English
• Keywords: Climate Change, Endogenous Technological Changes, Induced R\&D, China
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E27 - Forecasting and Simulation: Models and Applications; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O44 - Environment and Growth; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate ; Natural Disasters and Their Management ; Global Warming

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