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We assess recent Chinese climate policy proposals in a multi‐region, multi‐sector computable general equilibrium model with a Chinese carbon emissions trading scheme (ETS). When the emissions intensity per GDP in 2020 is required to be 45% lower than in 2005, the model simulations indicate that the climate policy‐ induced welfare loss in 2020, measured as the level of GDP and welfare in 2020 under climate policy relative to their level under business‐as‐usual (BAU) in the same year, is about 1%. The Chinese welfare loss in 2020 slightly increases in the Chinese rate of economic growth in 2020. When keeping the emissions target fixed at the 2020 level after 2020 in absolute terms, the welfare loss will reach about 2% in 2030. If China’s annual economic growth rate is 0.5 percentage points higher (lower), the climate policy‐induced welfare loss in 2030 will rise (decline) by about 0.5 percentage points. Full auctioning of carbon allowances results in very similar macroeconomic effects as free allocation, but full auctioning leads to higher reductions in output than free allocation for ETS sectors. Linking the Chinese to the European ETS and restricting the transfer volume to one third of the EU’s reduction effort creates at best a small benefit for China, yet with smaller sectoral output reductions than auctioning. These results highlight the importance of designing the Chinese ETS wisely.

We scrutinize the impact of international productivity gains (spillovers) induced by imports and exports on optimal tariffs. First, we solve a stylized 2x2 trade model of a large open economy and show that (a) productivity gains via exports and imports both reduce the strategically optimal tariff, (b) there exists a certain strength of productivity gains such that the incentive to manipulate the terms of trade strategically vanishes, (c) the welfare gain that can be achieved via a tariff is lower in the presence of productivity gains than in their absence, and (d) these results even hold without power on international markets. Second, we apply this model to a panel data set covering 40 countries, 29 sectors and the years 1995 to 2009. We find that importdriven productivity gains are stronger than export-driven productivity gains. Third, we extend our 2x2 model to a multi-region, multi-sector model that we calibrate to the data set used in the econometric analysis and to the econometrically estimated productivity gains. Optimal tariffs are reduced by 17% for the US and China and 40% for Brazil when taking trade-induced productivity gains into account. The USA are the only model region that gains from European optimal tariff policy. Thus, trade-induced productivity gains have empirically relevant effects on optimal tariffs.

We introduce endogenous directed technical change into numerical integrated climate and development policy assessment. We distinguish expenditures on innovation (R&D) and imitation (international technology spillovers) and consider the role of capital investment in creating and implementing new technologies. Our main contribution is to calibrate and numerically solve the model and to examine the model's sensitivity. As an application, we assess a carbon budget-based climate policy and vary the beginning of energy-saving technology transfer. Accordingly, China is a main beneficiary of early technology transfer. Herein, our results highlight the importance of timely international technology transfer for efficiently meeting global emission targets. Most of the consumption gains from endogenous growth are captured in the baseline. Moreover, mitigation costs turn out to be insensitive to changes in most of the parameters of endogenous growth. A higher effectivity of energy-specific relative to labor-specific expenditures on innovation and imitation reduces mitigation costs, though.