The influence of carbon tax on CO2 rebound effect and welfare in Chinese households

Imposing a tax on carbon emissions has a mitigating impact on the carbon rebound effect. However, such taxes will also cause a decline in people's welfare. This paper studies the impact of carbon taxation on the CO2 rebound effect and the welfare of Chinese urban households using a multi-regional input-output model and an almost ideal demand system model. The results show that a tax rate of US$ 7.75/tCO2 could mitigate the urban residents' CO2 rebound effect by 14%-57%. This tax rate will also lead to an increase between 0.65% and 1.9% in urban households' total expenditure. In certain provinces, including Qinghai, Hainan, and Xinjiang, the residents' CO2 rebound effect is not considerably reduced, but their welfare experiences substantial losses after the implementation of a carbon taxation policy. However, in some provinces, including Jiangsu, Guangdong, and Henan, the residents' CO2 rebound effect could be significantly reduced while the household welfare showed fewer losses when introducing carbon taxation. Based on empirical research results, we propose that the Chinese government should introduce a higher carbon tax rate nationwide and grant subsidies to provinces such as Qinghai to balance carbon emission reduction targets and residents' acceptance of carbon taxation.