Reconciling economic targets and emission abatement in China: Insights from an environmental social accounting matrix

At the 28th Conference of the Parties, countries acknowledged the failure to meet the 1.5 ◦C target set in the 21st session. The final declaration calls for stronger actions, including tripling renewable energy capacity, phasing out coal in power generation, and promoting the deployment of emission-reducing technologies. Given the pivotal role of energy inputs in production and their significant contribution to CO2 emissions, producers face a critical decision: to continue relying on fossil inputs, thereby aggravating emissions, or to shift toward cleaner inputs by adopting abatement technologies. Existing computable general equilibrium (CGE) studies on carbon mitigation often treat emission reductions exogenously or lack a comprehensive representation of the energy–abatement trade-off across sectors. This study addresses this gap by developing a CGE model calibrated to a newly constructed environmentally extended Social Accounting Matrix (ESAM) for China that explicitly endogenizes producers’ substitution between fossil energy use and the cost of abatement technologies. Unlike conventional SAMs, the proposed ESAM integrates detailed energy sector disaggregation, CO2 emission accounts, and abatement cost linkages, enabling the simultaneous assessment of economic and environmental outcomes under alternative policy scenarios. Focusing on China, which accounts for approximately one-third of global CO2 emissions and is the world’s largest energy consumer, the analysis quantifies the economic and environmental consequences of fiscal and energy-transition measures, offering insights for designing policies that balance growth and decarbonization goals.