The Unintended Equity Costs of a Nationally Uniform Carbon Price

The adoption of a uniform carbon price within and across nations is widely regarded as the most efficient pricing mechanism. However, discrepancies between regional preferences for carbon price levels and the mandated uniform carbon price can lead to households in some regions bearing a disproportionate carbon burden. In this study, we developed an expanded Multi-Regional Input-Output model, newly parameterizing seven key types of power generation within the power sector, and linked it to the Global Change Assessment Model for China (GCAM-China) to identify regionally unequal residential carbon burdens. We employed an empirical approach based on actual carbon prices between countries to determine the carbon pricing preferred by each province under a national carbon emission constraint in the GCAM-China model. The results indicate that between 2030 and 2050, 47% to 87% of provinces will experience carbon burdens exceeding their anticipated levels due to the uniform carbon pricing mechanism, even in provinces where preferred carbon prices are higher than the unified rate. The analysis reveals that while carbon revenue recycling is effective in mitigating these inequitable outcomes, relying solely on the benefits accrued by provinces from the uniform carbon pricing mechanism for transfer payments is insufficient. This study provides insights into regional inequalities in carbon pricing mechanisms for both China and the global community.