Comprehensive Analysis of GHG Emission-Energy-Economy Policy in China
University of Tsukuba
University of Tsukuba
University of Tsukuba
University of Tsukuba
University of Tsukuba※Shanshan WANG
Feng XU
Yang LINan XIANG
Yoshiro HIGANO

1. Introduction
The interrelation among energy, economy and environment was first explored byEdmonds in 1983[1]. He developed a long-term global energy-economic model which iscapable of assessing alternative energy evolutions over periods of up to 100 years. WorldBank (WB) was the first research focused on the relations of China’s energy, economy andenvironment (3E) by constructing a so-called China GHG Model for simulation study from1990 to 2020, which consists of a macroeconomic model, input-output table, energy
coefficients and GHG emissions coefficients[2]. However, the equations of the model are notavailable publicly. Afterwards, more researchers adopt computable general equilibrium(CGE) model to analyze China’s 3E issues. Zhang developed a dynamic time-recursive
CGE model to assess the impacts of carbon tax in China for 1990-2010[3].Jiang adopted
IPAC model which included IPAC-CGE sub-model, IPAC-AIM sub-model andIPAC-Emission sub-model to analyze the relation between energy and GHG emissions in
the long-term[4]. Input-output model and CGE model are two popular tools for analysis ofenergy-economic-environmental implications of climate change policy.
The focus of input-output model in GHG emission is concentrated on accounting analysis
of production-based or consumption-based national emission[5-7]. Production-based
inventory is referred to the GHG emissions occurring within national territories;
consumption-based inventory denotes the emissions from resident institutional units[8].
Many researches focus on the accounting of emissions embodied in trade now, except
Yi-Ming Wei. Yi-Ming Wei used I-O model and Multi-regional Input-Output (MRIO) modelto analyze the energy requirements and CO2 emissions in China. It is found that the key
economic indictor, such as GDP, is exogenous. That is, there is no strong linkage among
energy, economy and environment in the model designed.
However, few studies have concentrated on analyzing the impacts of China’s climate
committee with input-output model. This study attempts to make an systematic andcomprehensive analysis on the relation of energy, economy and environment issues in China
by establishing a dynamic input-output model and macroeconomic model.
2. Methodology
With a dynamic time-recursive input-output model, we analyze how to achieve China’s
Copenhagen commitment. There are many mitigation measures to reduce greenhouse gas
emissions, such as improving the energy efficiency, non-fossil energy substitution, forestry,carbon capture and storage technology, carbon tax etc. The non-fossil energy alternative isproposed in the model.
2.1 Structure of the model
We use input-output and macroeconomic analysis to construct China 3E model. It operates bysimulating the operation of markets for three economic entities, which are government,household and foreign trade separately. In describing the equations, the endogenous variables
are denoted by capital letters, whereas the exogenous are expressed in lower-case letters andGreek letters. The indices i and j refer to sectors or goods, t to time period, h to household and gto government. There are 3 sectors in this model (see table 1), including 2 energy sectors. In ourmodel, energy use is disaggregated into fossil energy and non-fossil energy.
Table 2.1 Classification of producing sectors in the I-O modelNo.

3-Sector

42-sector

123Usual industry
Fossil energy industry
New energy industry

001, 004-010, 012-022, 025-030
002,003,011,023,024
Introduced additionally2.1.1 Material Balance

X 1 (t )  a 11 X 1 (t )  a12 X 2 (t )  a13 X 3 (t )  C1 (t )  G1 (t )  I1 (t )  E1 (t )  M 1 (t )In which,
X(t): a column vector of total production of all sectors in term t;
aij: input coefficient matrix from the i industry to j industry;C(t): a column vector of the household consumption in term t;
G(t): a column vector of the government expenditure in term t;
I(t): a column vector of the capital formation in term t;
E(t): a column vector of export in term t;
M(t): a column vector of import in term t.
2.1.2 Energy Balance

X e  B1 X 1  B2 X 2  B3 X 3  C e  Ee  M e  QXe  X2  X3In which,
Xe: the total energy supply by all the energy sectors in term t; (en)B: the energy consuming factors;(ex)Ce : the household consumption of energy sectors.
Q: the adjustment item in China’s input-output table.
2.1.3 Greenhouse gas emission:GHG(t)  ef1 * X 1 (t )  ef 2 * X 2 (t )  ef 3 * X 3 (t )  ef 4 * X 4 (t )  ef 5 * X 5 (t )  ef * C (t )GHG(t): a scalar of GHG emissions in term t;
efi : the greenhouse emission coefficients in different industries.
2.1.4 Gross Domestic Production (GDP)GDP(t)  X 1 (t ) *（1 - a 11 - a 21  a31） X 2 (t) * (1 - a 12 - a 22 - a 32 )  X 3 (t) * (1 - a 13 - a 23 - a 33 )GDP (t  1)  GDP(t )2.1.5 Household income
Yh1(t )   1 X 1 (t )Yh 2(t )   2 X 2 (t )Yh3(t )   3 X 3 (t )YH (t )  Yh1(t )  Yh2(t )  Yh3(t )YH d (t )  (1  0.15) * YH (t )S h (t )  0.366377 * YH d (t )In which,YH(t): the total household income in term t;
YHd(t): the disposable household income in term t;
ψ: rate of gross income in the industry.
2.1.6 Government revenues
YG(t )   itaxi X i (t )  0.15 * YH (t )iS g (t )  0.1659 * YG(t )In which,
YG(t): Total government revenues in term t;
itaxi: the indirect tax rate;
Sg: the saving of government.
2.1.7 Investment and saving Balance

I1 (t)  I 2 (t )  I 3 (t)  ( E1-d  M 1 (t )) （E e-d  M e (t ))  S h (t )  S g (t )2.1.8 Foreign trade

M (t )( X c  Ec  M c )  M c ( X (t )  Ec  M (t ))Where,
M(t): the import in term t;
E(t): the export in term t;
X(t): the total production in term t;
Mc: the import in base year;
Ec: the export in base year;
Xc: the total production in base year.
2.1.9 Production function

X1 (t)  1 K1 (t )X 2 (t )  2 K 2 (t )X 3 (t )  3 K 3 (t )In which,
K(t): the capital stock in term t; (en)λ : The factor which is related K with X.
2.1.10 Dynamic Capital accumulation

K 1 (t  1)  (1   1 ) K1 (t )  I1 (t  1)
K 2 (t  1)  (1   2 ) K 2 (t )  I 2 (t  1)
K 3 (t  1)  (1   3 ) K 3 (t )  I 3 (t  1)
2.1.11 Objective function

 10Ma x  GDP(t)  t 1subjected to all the constra int s above.
2.2 Scenario design

To assess the impacts of non-fossil energy substitution, three scenarios are designed in the study.
Scenario1 is business as usual (BAU) scenario. No policy to limit the greenhouse gas (GHG)
emission and no new energy industry is introduced; In scenario 2, there is the policy to limit GHG
emissions, but no new energy industry is introduced. There is both the GHG emission restriction andnew energy industry in scenario 3.

Sum of GDP in all years(10000RMB)

3. Results
3.1 GDP in scenario 1 and scenario 2
2.50E+10
2.00E+10
s2:with emission
contraint

1.50E+10
1.00E+10

s1:without emission
constraint

5.00E+09
0.00E+00
without new energy industry

sum of GDP in all years(10000RMB)

Fig. 3.1 the comparison of scenario 1 and scenario 2
It is seen that GDP of scenario 2 is less than that of scenario 1 by the comparison. That is, without
introducing the new energy industry, GDP will be decreased when putting constraints on the GHG
emission.
3.2 GDP in scenario 2 and scenario 3
2.50E+10
2.00E+10
1.50E+10
1.00E+10

s2:without new energy
industry

5.00E+09

s3:with new energy
industry0.00E+00
with the same emission
constraints

Fig. 3.2 the comparison of scenario 1 and scenario 2
It is seen that GDP of scenario 3 is more than that of scenario 2. Considering the same constraints
on GHG emission, GDP will be increased when introducing the new energy industry.
3.3 Development trend of each sector
We analyze the development trend of each sector in scenario 3. The production of usual industry
will be increased to the constant. And the production of fossil energy industry will be decreased
greatly from the year 2005 to 2011, and it will keep stable from 2012 to 2014. The production of
new energy industry will be increased greatly from the year 2005 to 2009, and it will keep stable inthe later.
It represents the development trend of three sectors in the future. With the mitigation pressure, thenew energy industry will be developed in priority and the development of new energy industry will
be limited by the resource reserves in China.

Production(10000RMB)

8.00E+09
6.00E+09
4.00E+09
X1

2.00E+09
0.00E+00
123

45

67

8

910Fig. 3.3 the development trend of usual industry

Production(10000RMB)

4.80E+08
4.60E+08
4.40E+08x2

4.20E+08
4.00E+08
12345678910Fig. 3.4 the development trend of fossil energy industry

Production(10000RMB)

15000000
10000000
X350000000
012345678910Fig. 3.5 the development trend of new energy industry
4. Conclusions
With a dynamic time-recursive input-output model, the study analyzes how to achieve China’s
Copenhagen commitment. The non-fossil energy alternative is proposed and the mitigation
impacts are assessed through model simulation. It is found that GDP will be decreased while theGHG emission restriction becomes severe. And the production of fossil energy will be decreased
to its lower limit while the production of new energy industry will be increased to its upperlimit.
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