Co-benefits and trade-offs of carbon revenue recycling schemes on China's water, energy and food systems under carbon neutrality target

Abstract

Purpose This study explores the synergistic management of the water-energy-food (WEF) resources in China by rationally recycling carbon revenues in the process of achieving carbon neutrality through carbon pricing. Design/methodology/approach This study constructs a dynamic computable general equilibrium model and proposes four typical carbon revenue recycling schemes to simulate the impact on WEF resources and macroeconomics in terms of resource production, consumption, urban and rural household incomes, expenditures and welfare. Findings Returning carbon revenues to households as a lump-sum transfer would increase the welfare of urban and rural households, reduce the urban-rural income gap and promote food supply security. With the shift from traditional thermal power, electricity will show the greatest potential for water savings though will be offset by increased water use from hydropower and biomass. Agriculture will always face trade-offs between stable food production and water saving under different schemes. In comparing the effectiveness of schemes, the no revenue recycling and the transfer to households will be most effective for water saving and rural agricultural development, respectively. Reducing indirect taxes offers superior benefits by reducing gross domestic product loss, contributing to energy savings, increasing profits in agricultural sectors' and enhancing the effectiveness of the water-energy-food system. Originality/value This study can address the gaps in existing studies that focus on the impact of carbon reduction policies on individual resources and the lack of comprehensive analysis under the carbon neutrality target.