Impact of emissions trading system on the living cost between urban and rural households

Abstract

Emissions trading system has introduced carbon cost in emission-controlled firms that directly increased their product prices and indirectly raised the prices of other goods throughout supply chains, which ultimately drove up the living cost of households. We utilize China National Input-Output Table 2020 and the per capita annual consumption expenditure survey data 2020, both from China statistical yearbook, to model the impact of ETS on living cost of urban and rural households. The results show that the current product price increases in various sectors are relatively small (0.038%–2.947%), with heavy industries experiencing larger price increases compared to light industries. For eight consumption categories, notable price increases are observed in the Housing and Household facilities, articles and services (HFA&S) sectors, both reaching 0.324%. As to households, urban households (0.183%) experience a disproportionately higher cost burden compared to rural households (0.173%), suggesting progressive distributional effects. Moreover, living costs rise more in developed provinces than in less-developed regions. Overall, these regional and urban-rural cost burden disparities become increasingly pronounced under two conditions: higher cost pass-through rates, increased carbon pricing levels. Regarding carbon market expansion, the urban-rural cost burden disparity first increases during initial sectoral coverage growth, then decreases as coverage becomes more comprehensive.

Graphical abstract

Keywords

emissions trading system / input-output price model / urban and rural households / living cost growth rate

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