China's urban-rural inequality caused by carbon neutrality: A perspective from carbon footprint and decomposed social welfare

Urban-Rural Inequality (URI) is a critical issue that must be solved in carbon neutrality process. However, few studies made a detailed analysis of the URI mechanism. By defining household carbon footprint and decomposed social welfare impact (in the perspective of source-side and use-side impact), and innovatively linking them into a computable general equilibrium model, this paper analyzes the effects of carbon neutrality on URI. The results show that rural residents have a lower carbon footprint, but a higher intensity, which explains why the welfare loss on the use side of rural households is more significant than urban households. Almost all carbon pricing strategies will increase URI without considering carbon revenue recycling. The recycling mechanisms based on population and power consumption are more conducive to narrowing the URI through the source-side welfare impact and help to achieve carbon equity.