Opportunity or Challenge? Carbon Emissions Reduction under New Development Pattern of Dual Circulation

Abstract

China’s economic development strategy is undergoing an evolution from foreign to domestic circulation mainly, and at the same time faces the rigid constraints of “carbon peak before 2030” and “carbon neutrality before 2060”. However, both domestic and foreign trade also have an important impact on carbon dioxide emissions. To this end, this paper uses China’s 2017 multi-regional Input-Output table to systematically simulate the impact of the new development pattern on carbon emissions from the comprehensive perspective of production and consumption. Our simulations find that when the foreign circulation disappears, the total economic output will be hit hard, and carbon emissions will be greatly reduced; when the foreign circulation orientation weakens and the intensity of the domestic circulation is increased, the total economic output will increase to varying degrees, but the total carbon emissions will also increase by a certain extent. Among them, the increase in carbon emissions at the living end accounts for a considerable proportion, while the carbon emissions of electricity, heat production and supply, transportation, warehousing and postal services, metal smelting and rolling processing industries at the production end increase more. From a policy perspective, the government should promote green production and green consumption to achieve a balance between economic growth and carbon emission reduction.

1. Introduction

In recent years, China’s economic growth has gradually slowed down, especially facing many domestic and international issues and uncertainties [1]. From an international perspective, the world economy continues to be sluggish, downward pressure is increasing, unilateral subjects and trade protectionism are on the rise, national geopolitical conflicts continue, the new crown pneumonia epidemic continues to spread globally, and uncertain and unstable factors surge, resulting in accelerated restructuring of the world economic pattern, and China is in a major change unprecedented in a century. From the domestic level, the aging trend of the Chinese population is obvious, the traditional comparative advantage represented by the labor cost advantage has declined significantly, and the role of export trade as the engine of economic growth has weakened. Under the traditional development pattern, the internal and external environment is severe, and the economic development model based on foreign circulation is no longer applicable to China. Based on this, the Chinese government has proposed to deepen supply-side structural reforms, make full use of the advantages of the super-large-scale market and manage the demand side to achieve a new “Dual Circulation” development paradigm with the domestic circulation as the mainstay while domestic and international circulations mutually reinforce each other.

At the same time, in the face of the challenges of global climate change, it is urgent to strengthen carbon emission reduction actions as the common goal of all mankind. China has taken many climate policy action, either through explicit carbon pricing or regulation and foster low-carbon innovation and technology adoption, such as integrated electricity and heat (IEH) operation, Electric Arc Furnace (EAF) production, and carbon capture and storage (CCS) [2,3,4,5]. In 2020, China’s top leadership delivered an important speech at the leaders’side event on safeguarding the planet of the G20 Riyadh Summit, saying that “China will unswervingly implement strive to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060.”. This is an important responsibility of China as a major country to cope with global climate change. However, it must also be fully conscious that the reduction of carbon emissions in 2060 will be a very difficult task. The World Bank Group’s Country Climate and Development Report for China shows that if efforts to tackle climate risks lead to a significant decline in growth and rising inequality, they would deprive millions of people of development and likely erode support for the reforms necessary to achieve a lasting economic transformation (Source: https://openknowledge.worldbank.org/handle/10986/38136 (accessed on 28 December 2022)). Therefore, while shifting the focus from foreign to domestic circulation, it is crucial to keep an eye on the carbon emissions.

On the one hand, it has always been an issue with the environmental effects of international trade, especially in the form of carbon emissions. Levinson and Taylor [6] use theory and empirics to examine the effect of environmental regulations on trade flows, proving that regulatory stringency in developed countries shifts polluting industries to the developing world. On the other hand, the relationship between domestic demand and carbon emissions cannot be ignored. The key to implementing China’s new Dual Circulation strategy of economic development are to shift the focus from foreign to domestic circulation as the major driving force for China’s sustainable development because of the maturation of China’s own domestic consumer market [7]. Consumption, investment and exports jointly drive the development of the national economy from final demand perspective. This means that China’s economic development potential will gradually shift from relying on external demand to being mainly driven by domestic demand. In other words, under the new development pattern, focusing on domestic circulation requires the expansion of domestic demand as a strategic base point [7]. Also, it must be noted that China is still dominated by energy-intensive products [8,9], and as the domestic market expands, growing consumer demand may lead to a significant increase in carbon emissions.

Therefore, it has a great practical importance to examine economic and carbon emissions effects of the changes to China’s new development pattern of Dual Circulation from the point of view of production and consumption, and such conclusions will provide further important references to the development of sustainable development, such as “internal and external Dual Circulation”, green economy, and “Double Carbon”. In recent years, there has been an increasing amount of literature on the theoretical analysis of Dual Circulation. For example, Yifu and Wang [1] examine its theoretical foundation about China’s shift to internal circulation from the perspective of the New Structural Economics approach. Some scholars are concerned about the impact of the Dual Circulation strategy on China’s economic output. Su and Liang [10] use input-output analysis to reveal the dire consequences while it faces from a counterfactual US-China trade decoupling from the perspective of Dual Circulation. With the proposal for Double Carbon and Dual Circulation, more scholars are beginning to pay more attention to carbon emissions as well as pollution emissions from domestic circulation [11,12]. For example, Xu et al. [11] have developed a model of the environmental and economic system by integrating a multi-regional Input-Output approach and a method of weighing the average structural degradation technique to examine the trade related emissions at provincial level. Some scholars have explored the industrial sustainable development from the perspective of Dual Circulation, such as the sustainable development of the coal supply chain [13]. These studies clearly indicate that there is a relationship between carbon emissions and the new economic development patterns. Hence, China will need to grow and green its economy at the same time.

As mentioned above, some studies have provided empirical evidence for understanding the characteristics of China’s new development pattern and the impact of changes in consumer demand on economic outputs and carbon emissions under domestic or international circulation. However, the previous efforts still have some research gaps. Firstly, there has been little quantitative analysis of direct or indirect carbon emissions of Dual Circulation. The link between carbon emissions and Dual Circulation is still unclear. Secondly, the existed contributions are insufficient in their reflection of the above impacts of China’s evolution from foreign to domestic circulation, especially the changes in carbon emissions among the provinces and sectors. Thirdly, there has been no detailed investigation of the whole process from production to final demand under the new development pattern, which would be helpful for developing differentiated carbon mitigation measures from production and consumption perspectives. Therefore, as an extension of previous studies, the objective of this study is to evaluate the impact of the new development pattern dominated by internal circulation on the economic output and carbon emissions of various provinces and industries in China. It must be noted that the Input-Output method is a good way to estimate the impact of changes in domestic and foreign demand on carbon or pollution emissions. For example, Chen et al. [14] investigate potential impacts of poverty alleviation on the environment and health based on an Input-Output approach through changes in consumer demand. Chakravarty and Tavoni [15], based on input-output models, find that if all global residents are to eliminate energy poverty, energy consumption will increase by 7%, but the resulting increase in greenhouse gas emissions will not have a large impact on global climate change and will be basically negligible. Among them is a series of literature that explores the impact of rising household incomes on climate change [16,17,18].

This study contributes to the literature in several significant ways. Firstly, this paper uses an integrated multi-regional Input-Output (MRIO) model to preliminarily estimate the impacts of Dual Circulation on the economic outputs and carbon emissions. An important contribution of the study is to provide an extensive and detailed analysis of the effects from provincial and sectoral level. Secondly, our results prove that there are some trade-offs among the two goals, thus hindering their simultaneous implementation. Finally, this study underlines the importance of green production and green comsumption. More broadly, this paper may give some insight into how to coordinate the construction of a new development pattern and carbon reduction and decarbonization actions.

2. Methods

In order to fully measure the impact of the internal and external circulation pattern on economic output and carbon emissions in all regions of the country, this paper intends to use a multi-regional Input-Output model to construct regional production and consumption emission models. Multi-regional input-output models are one of the most widely used approaches to analyze the economic interdependence between different regions [19]. The 2017 MRIO table is the latest available version, which is constructed by 31 single-region input output tables (SRIO) issued by National Bureau of Statistics of China [20]. In this MRIO table, final use includes rural household consumption, urban household consumption, government consumption, fixed capital formation, changes in inventories and export. Thus, this paper can estimate the changes of the production and consumption sides of the economy as follows: (a) the effects on economic outputs and the total carbon emissions of China’s evolution from foreign to domestic circulation; (b) direct carbon emissions from the consumption of rural and urban regions.

First of all, referring to Zhong et al. [21], according to the relationship between the row balance and the total balance of the multi-regional input-output table, there are:

$$V{T}_{ri}={\left(1-Z^{ri}\right)}^{-1}\left(Y_{rr}+\sum _i{p}_{ri}\right)$$

(1)

Among them, $V{T}_{ri}$ is the total output of a province and city from sector r to industry i, $Z^{ri}$ is the direct consumption coefficient matrix of each department in the province to each department in the region, and $Y_{rr}+{\sum }_i{p}_{ri}$ is the final product demand of the region, where $Y_{rr}$ represents the demand for products produced and consumed by each sector in the region, and $p_{ri}$ represents the product demand generated by various industries in different provinces. Further consideration of the corresponding carbon emissions yields:

$$E_{ri}=F_{ri}{\left(1-Z^{ri}\right)}^{-1}\left(Y_{rr}+\sum _i{p}_{ri}\right)$$

(2)

Among them, $E_{ri}$ represents the corresponding carbon emissions generated by economic production activities in the regional sector r, and $F_r$ represents the unit output carbon emissions of the r sector, that is, the unit carbon emission intensity. Further, the direct consumption factor between regions is shown by Equation (3):

$$Z^{ri}=\left[\begin{array}{ccc}{a}^{1,1}& \cdots & a^{1,N}\\ ⋮& \ddots & ⋮\\ a^{N,1}& \cdots & a^{N,N}\end{array}\right]$$

(3)

where Z represents the direct consumption coefficient matrix, which can be obtained from the intermediate input coefficient $a^{r,i}=z_{ri}^s/x_i^s$. $x_j^s$ is the total input of region s industry i. N is the number of industries in different regions in China’s multi-region Input-Output table, which is set to 30 in this study. According to the multi-regional Input-Output table, the final product requirements can be further expressed in matrix form:

$$F^{r,i}=\left[\begin{array}{ccc}{f}^{1,1}& \cdots & f^{1,N}\\ ⋮& \ddots & ⋮\\ f^{N,1}& \cdots & f^{N,N}\end{array}\right]$$

(4)

where $f^{r,i}$ is the final requirements matrix. Therefore, for the entire input-output model, Equation (1) can be rewritten as: $x=Zx+F$, and $x={(I-Z)}^{-1}F$, in which case $M\equiv {(I-Z)}^{-1}$. M is the inverse matrix of Leontief; I is the unit matrix; Z is the direct consumption matrix. Thus, once different industries’ outputs and consumption has changed due to Dual Circulation, it has an influence on the final requirements matrix. Then, we can get the effects on economic outputs and the total carbon emissions by the above equations.

In addition, according to the multi-regional Input-Output table, the direct carbon emissions from the rural and city consumption by each regional:

$$E^d=\sum _{r=1}^{31}{c}_{r}f{c}_r+r_{r}f{r}_r$$

(5)

where $E^d$ is the direct carbon emissions from the rural and city consumption by all regions; The direct carbon emission coefficient of sector r in rural areas is $f{r}_r=e_{r,i}^{fr}/f_i$, that is, the ratio of sector r to industry i consumption-generated carbon emissions and its consumption. The same goes for city areas. According to Equations (2) and (5), $\sum E_{ri}+E^d$ is the production and living carbon emissions generated by the change of final demand.

3. Data

This paper aims to calculate the economic output and carbon emissions by changes on the consumption side and the production side, and its core data is China’s multi-regional Input-Output table. As mentioned previously, the authors selected the 2017 MRIO data of China from China Emission Accounts and Datasets (CEADs) [22], which is the latest available provincial Input-Output table (Source: https://www.ceads.net/data/input_output_tables/ (accessed on 21 December 2021)). The construction of the table is based on the entropy theory and gravity model. For more convenient display and calculation in this paper, 42 sectors are consolidated to form 30 sectors in this paper. Specifically, this article merges “Accommodation and catering”, “Information transfer, software and information technology services Finance”, “Real estate”, “Leasing and commercial services”, “Scientific research”, “Polytechnic services”, “Administration of water, environment, and public facilities”, “Resident, repair and other services”, “Education”, “Health care and social work”, “Culture, sports, and entertainment”, “Public administration, social insurance, and social organizations” into “Other service industries”. Abbreviation of sectors in I-O tabel can be seen in Appendix A 

Table A1. Abbreviation of sectors in I-O tabel.

Sectors	Abbreviation
Agriculture, Forestry, Animal Husbandry and Fishery	AFAHF
Mining and washing of coal	MWC
Extraction of petroleum and natural gas	EPNG
Mining and processing of metal ores	MPMO
Mining and processing of nonmetal and other ores	MPNOO
Food and tobacco processing	FTP
Textile industry	TI
Manufacture of leather, fur, feather and related products	MLFFRP
Processing of timber and furniture	PTF
Manufacture of paper, printing and articles for culture, education and sport activity	MPPACESA
Processing of petroleum, coking, processing of nuclear fuel	PPCPNF
Manufacture of chemical products	MCP
Manuf. of non-metallic mineral products	MNMMP
Smelting and processing of metals	SPM
Manufacture of metal products	MMP
Manufacture of general purpose machinery	MGPM
Manufacture of special purpose machinery	MSPM
Manufacture of transport equipment	MTQ
Manufacture of electrical machinery and equipment	MWME
Manufacture of communication equipment, computers and other electronic equipment	MCECOEQ
Manufacture of measuring instruments	MMI
Other manufacturing and waste resources	OMWR
Repair of metal products, machinery and equipment	EMPME
Production and distribution of electric power and heat power	PDEPHP
Production and distribution of gas	PSG
Production and distribution of tap water	PDTW
Construction	CON
Wholesale and retail trades	WRT
Transport, storage, and postal services	TSPS
Other service industries	OSI

.

In addition, the unit carbon emission intensity is calculated in the following way [23]: First of all, the primary energy amount of fossil energy by sectors in each province comes from “Province Energy Inventory 2017”, provided by CEADs, to match the 2017 MRIO table (Source: https://www.ceads.net/data/province/energy_inventory/ (accessed on 21 December 2021)). Secondly, referring to the accounting method of IPCC [24], the energy consumption of different sectors is multiplied by the carbon emission factor to obtain the carbon emission of each regional department, and then divided by the total output value of different departments in the corresponding region to obtain the corresponding direct carbon emission coefficient matrix.

4. Scenario Design

As a whole, this paper builds an evaluation framework with the MRIO model to estimate and further explain the economic and carbon effects from foreign to domestic circulation. From the perspective of population size and economic development, capital-intensive sectors are more dependent on the domestic economic circulation, while labor-intensive sectors focus on relying on the international economic circulation, which means that China’s comparative advantage in trade exists sectoral differences [25]. However, with the continuous changes in the current economic environment, China must adopt new strategies to break through the current economic development dilemma. To this end, China’s policy has gradually shifted to guide the development of Dual Circulation.In other words, under the new development pattern, China’s labor-intensive sectors have begun to shift from export-oriented to domestic demand. In this paper, we divide 25 industrial sectors into labor-intensive and capital-intensive sectors according to Ding et al. [25]. The labor-intensive ones include MPNOO, TI, MLFFRP, PTF, MPPACESA, MMP, MGPM, MSPM, MWME, MCECOEQ, MMI, OMWR, EMPME; capital intensive includes MWC, MPNG, MPMO, FTP, PPCPN, MCP, MNMMP, SPM, MTQ, PDEPHP, PSG, PDTW. In the future with the increase of the middle class population in China, the advantages of the ultra-large market will continue to be emphasized. In the past, the pattern of relying on the foreign circulation in the international market to drive China’s economy will gradually change into an internal circulation driven by multi-level and diversified consumption in China’s own ultra-large market.

For the sake of simplicity, we determine the base year as 2017 due to data availability, and design the scenarios based on the reduced exports in labor-intensive sectors and expansion in domestic consumer demand. In addition, this paper divides 31 Chinese provinces into four parts, including the East, the Central, the West, the Northeast. Once changes in per capita consumption in different sectors in different regions have been identified, changes in final use under different scenarios can be identified. According to the report of National Bureau of Statistics of China (Source: http://www.stats.gov.cn/ztjc/ztfx/18fzcj/201802/P020180212569773164579.pdf (accessed on 28 December 2022)), the consumer market in the central and western regions continued to maintain rapid growth with the optimization of the consumption environment. In 2022, General Office of the State Council of the People’s Republic of China issued the “Opinions on Further Releasing Consumption Potential and Promoting the Sustainable Recovery of Consumption”, indicating that that it will deepen east-west cooperation in the service sector and help the central and western regions, especially the underdeveloped regions, improve their development capacity and consumption level (Source: http://www.gov.cn/zhengce/content/2022-04/25/content_5687079.htm (accessed on 28 December 2022)). Meanwhile, China has released guidelines on the strategic planning for expanding domestic demand (2022–2035) with the goal to raise the scale of consumption (Source: http://www.gov.cn/zhengce/2022-12/14/content_5732067.htm (accessed on 6 January 2023)). Thus, the target of the Dual Circulation in our scenarios, which we are exploring in this study, is to stimulating the rapid growth of residents’ consumption in the central and western regions. These changes are introduced until 2035, in line with the development plans of China. Based on this, the following four scenarios by 2035 are designed.

• Scenario 1 (S1): The foreign circulation disappears, that is, exports of labor-intensive products are zero.
• Scenario 2 (S2): Focusing on domestic circulation to stimulate consumption in the western region. Assuming that the export volume of labor-intensive products is reduced by 10%, the per capita consumption of residents in the western region will reach the level of the central region.
• Scenario 3 (S3): Focusing on domestic circulation to stimulate consumption in the western region. It is assumed that the export volume of labor-intensive products will be reduced by 10%, and the per capita consumption of residents in the western region will reach the national average.
• Scenario 4 (S4): Focusing on domestic circulation to stimulate consumption in the central and western regions. Assuming that the export volume of labor-intensive products is reduced by 10%, the per capita consumption of residents in the central and western regions will reach the level of the eastern region.

5. Results and Discussion

5.1. Changes in Economic Output

As shown in

Table 1. Changes in economic output by province (Unit: billion yuan).

Provinces	S1	S2	S3	S4
Beijing	−4670.89	592.31	2583.97	13,207.36
Tianjin	−5490.47	69.39	1650.58	9716.80
Hebei	−6064.88	452.56	4235.36	23,904.38
Shanxi	−2249.52	6056.1	1782.44	1511.29
Inner Mongolia	−1525.91	633.34	578.58	1999.06
Liaoning	−3446.61	438.83	3098.47	1628.73
Jilin	−1594.31	581.5	1314.33	3072.15
Heilongjiang	−945.03	946.71	2575.91	2521.03
Shanghai	−12,436.44	74.16	1972.28	13,398.45
Jiangsu	−44,224.06	−1983.16	7448.77	53,345.63
Zhejiang	−29,197.05	−1819.32	1401.84	19,185.91
Anhui	−6845.57	15,246.89	3830.58	1991.25
Fujian	−12,044.68	−619.95	2738.26	18,731.5
Jiangxi	−5794.47	7841.72	1898.08	1203.14
Shandong	−20,838.87	134.19	15,472.24	84,198.2
Henan	−10,998.02	21,151.94	5193.48	3241.82
Hubei	−4041.51	22,311.06	5628.35	549.73
Hunan	−3739.05	18,950.78	4888.38	1267.18
Guangdong	−62,316.07	−3955.94	3661.02	41,266.27
Guangxi	−3198.48	8.19	35.78	1448.85
Hainan	−339.93	66.1	468.66	2796.76
Chongqing	−5567.00	74.53	−50.65	1241.94
Sichuan	−4633.00	−46.18	−152.13	815.91
Guizhou	−1620.55	347.03	316.26	1539.89
Yunnan	−799.19	152.33	115.59	716.29
Tibet	−25.57	10.31	8.39	41.62
Shaanxi	−3017.67	959.87	466.04	1939.58
Gansu	−589.88	89.55	50.24	325.65
Qinghai	−118.42	22.26	13.63	79.64
Lingxia	−459.74	46.14	19.20	174.94
Xinjiang	−1245.81	185.02	99.52	811.01
Total	−260,078.65	89,018.27	73,343.45	30,7871.95

, once the international circulation disappears, the economic output of China’s provinces will be hit hard. Specifically, when China’s exports of labor-intensive products are zero, external demand will be greatly reduced. Consequently, the China’s economy will suffer trillions in losses, especially for those regions that mainly export labor-intensive products, such as the Yangtze River Delta region and the Pearl River Delta region. Among them, the largest loss in economic output is in Guangzhou Province, with a total loss of 62,316.07 billion Yuan, followed by the loss in economic output in Jiangsu Province, with a total loss of 44,224.06 billion Yuan, and the loss in economic output in Zhejiang Province, with a total loss of 29,197.05 billion yuan. This conclusion is similar to Xu et al. [11]. At the province level, final demand structure made the largest contribution to the provinces, such as Guangdong and Jiangsu. Inland regions (such as Hebei, Gansu, Chongqing, Yunnan, Tibet, etc.), which are dominated in the internal circulation, also lose much due to the upstream and downstream production process. Among them, the economic output of Hebei Province will decrease by 6064.88 billion yuan, the economic output of Gansu will decrease by 589.88 billion yuan, and the economic output of Tibet will decrease by 25.57 billion yuan. It is worth noting that although scenario one is an extreme scenario and may occur with a very low probability, policymakers still need to have bottom-line thinking and deploy internal and external circulation early in order to deal with the risk of the disappearance of the foreign circulation.

In scenario two, when the export volume of labor-intensive products is reduced by 10% and the per capita consumption of residents in the western region reaches the level of the central region, the total output of the entire economic system will increase by 89,018.27 billion yuan. In other words, when the external circulation weakens, the internal circulation of domestic consumption can effectively compensate for this economic loss. Some provinces have increased their total economic output by stimulating consumption in the western region. For example, the economic output of Heilongjiang will increase by 946.71 billion yuan, and the economic output of Inner Mongolia will increase by 633.34 billion yuan. However, the eastern region, which mainly exports labor-intensive products, will still suffer losses in economic output. For example, compared with the base period, the total economic output of Guangdong Province falls by 3955.94 billion yuan, and the total economic output of Jiangsu Province falls by 1983.16 billion yuan. This means that just raising the consumption level of residents in the western region to that in the central region cannot fully compensate for the weakening of the external circulation, specifically, reducing the export volume of labor-intensive products by 10%.

In scenario three, when the export volume of labor-intensive products is reduced by 10 percent and the per capita consumption of residents in the western region reaches the national average level, the total output of the entire economic system will increase by 73,343.45 billion yuan. However, unlike the results of scenario 2, except for Chongqing and Sichuan, economic output in other provinces (municipalities directly under the central government and autonomous regions) has shown a positive growth trend, which shows that it is effective to build domestic circulation to compensate for the economic losses caused by foreign circulation. For instance, the economic output of the Shandong Province is the highest, with a total of 15,472.24 billion yuan, and the economic output of the Jiangxi Province is the second highest, with a total of 7448.77 billion yuan. That is to say, in this scenario, although the total economic growth rate is lower than that of scenario 2, the national economic growth is more balanced, and the domestic consumption demand in the western region still has great market potential.

In scenario four, when the export volume of labor-intensive products is reduced by 10% and the per capita consumption of residents in the central and western regions reaches the level of the eastern region, the total economic output will further increase significantly, and the overall increase will be 307,871.95 billion yuan. At this scenario, whether from the national or the provincial level, stimulating consumption in the central and western regions can compensate for the economic losses caused by the weakening of external circulation. For example, the total economic output of Jiangsu will increase by 53,345.63 billion yuan, the total economic output of Hebei will increase by 23,904.38 billion yuan, and the total economic output of Chongqing will increase by 1241.94 billion yuan. This fully shows that under the new development pattern dominated by domestic circulation, it is very important to stimulate consumption in the central and western regions.

5.2. Changes in Carbon Emissions by Province

As can be seen from

Table 2. Changes in carbon emissions by province (Unit: 10,000 tons).

	Provinces	S1	S2	S3	S4
Production	Beijing	−251.3	38.96	124.1	674.26
	Tianjin	−1337.15	−27.17	159.53	1249.64
	Hebei	−6152.13	17.51	1044.68	7292.64
	Shanxi	−2041.05	2803.93	860.12	1168.28
	Inner Mongolia	−1586.14	364.49	267.59	1216.18
	Liaoning	−3463.48	91.52	964.39	984.97
	Jilin	−655.32	138.06	272.91	721.34
	Heilongjiang	−657.51	406.6	1090.27	1094.85
	Shanghai	−2214.99	49.28	301.94	1977.67
	Jiangsu	−8439.02	−347.87	512.82	5522.18
	Zhejiang	−2609.67	−71.49	243.76	2139.58
	Anhui	−1617.7	2434.85	602.44	396.93
	Fujian	−1117.79	−44.53	148.64	1153.04
	Jiangxi	−1757.39	1305.83	302.96	317.77
	Shandong	−3474.71	181.09	1672.05	8981.86
	Henan	−2522.65	2094.74	547.93	819.91
	Hubei	−1329.69	4940.68	1256.48	227.94
	Henan	−1752.39	3736.48	1104.89	946.55
	Guangdong	−5667.64	−281.04	478.59	4398.42
	Guangxi	−1703.84	−21.63	−27.2	357.86
	Hainan	−127.54	31.47	104.64	608.78
	Chongqing	−854.24	82.55	49.63	372.6
	Sichuan	−1085.18	41.17	1.21	198.96
	Guizhou	−841.65	161.33	127.08	575.42
	Yunnan	−812.1	51.52	32.21	328.92
	Tibet	0 a	0	0	0
	Shaanxi	−836.79	595.86	258.31	697.96
	Gansu	−599.09	37.28	10.37	179.02
	Qinghai	−137.71	33.28	19.52	94.96
	Lingxia	−651.93	118.55	67.85	358.2
	Xinjiang	−992.09	113.92	56.07	514.18
	Total	−57,289.9	19,077.25	12,655.78	45,570.86
Living	Rural	-	8166.72	6913.29	20,627.93
	City	-	12,119.67	10,934.12	23,648.42
	Total	−57,289.89	39,363.64	30,503.19	89,847.21

^a The output value and consumption of various sectors in Tibet are very low, especially some departments directly take it as 0.

, carbon emissions will be reduced by 572.8989 million tons in S1 overall. From the production side, carbon emissions in different provinces will decline to varying degrees. Among them, the province with the largest reduction in carbon emissions is Jiangsu, with about 84.3902 million tons; followed by Hebei Province, with about 61.5213 million tons of carbon emission reduction. Guangdong Province, which has suffered the most damage to economic output, has reduced carbon emissions by about 56.6764 million tons. It may be caused by differences in industrial structure of various provinces, e.g., the industrial structure of Hebei Province is more inclined to high carbon emissions. From the perspective of the living side, since scenario one has not stimulated consumer demand, the direct carbon emissions on the living side remain unchanged. In other words, in the extreme case of the disappearance of external circulation, the pressure on China’s carbon emission reduction will be greatly reduced. This corresponds to the conclusion of previous studies [26,27] that a significant part of China’s carbon emissions is used for export products, which meet the needs of the foreign consumers in terms of production and consumption. However, the balance between economic development and ecological protection of the environment is a key issue, which has always drawn much attention from the economics field. The extreme situation in which the external circulation disappears is not an ideal situation for economics and ecology and a necessary solution must be taken.

In scenario two, carbon emissions will increase by 393.6364 million tons. This shows that, without considering technological progress a stimulative consumption in the western region can appropriately compensate for the economic losses caused by the weakening of the external circulation, but also bring certain environmental costs. From the production side, the total carbon emissions will increase by 190.7725 million tons. Specifically, the carbon emissions in the eastern region, which is mainly oriented to external circulation, will still decline. For instance, Jiangsu’s carbon emissions will be reduced by 3.4787 million tons, and Guangdong Province will reduce carbon emissions by 2.8104 million tons. From the perspective of living side, due to the increase in per capita consumption in the western region, the direct carbon emissions of rural residents and urban residents increased by 81.6672 million tons and 121.1967 million tons, respectively. Therefore, in the present situation, the development of new development pattern based on the benefits of an extremely large domestic market should be promoted, in conjunction with a transformation of the green lifestyle.

In scenario three, carbon emissions will increase by 305.0319 million tons. Except for Guangxi, carbon emissions from both production and consumption in other regions increase, but they are smaller than in scenario 2. This indicates that a different internal circulation pattern of consumption has different effects on the balance of economic and environmental development of different regions. It’s clear that raising the per capita consumption of residents from the western region to the national average level is more conducive to the balance of regional development.

In scenario four, the total carbon emissions will increase by 898.4721 million tons relative to the baseline scenario. This further shows that under the new development pattern dominated by internal circulation, carbon emissions may not decline. From the production side, due to the impact of domestic demand in the central and western regions, carbon emissions will increase across the country. For example, Jiangsu Province’s carbon emissions will increase by 55.2218 million tons, and Guangdong’s carbon emissions will increase by 43.9842 million tons. From the perspective of living, due to the increase in per capita consumption in the central and western regions, the direct carbon emissions of rural residents and urban residents will increase by 206.2793 million tons and 236.4842 million tons, respectively. Therefore, with the continuous strengthening of the internal circulation pattern, carbon emission reduction is likely to become more arduous. The population of China is 14 billion and the per capita GDP is more than $10,000, but there’s still 600 millions of people living in rural regions, and there’s still a significant amount of energy production and security, and there’s a huge potential for growth in the medium and long term. Besides, there’s also a substantial increase in demand for products of medium to high quality, pleasant and energy intensive products with the upgrading of the consumption structure of Chinese residents. Based on this, the transformation of green production and green life is imperative and urgent. In particular, the guidance of rural residents’ green lifestyle cannot be ignored.

5.3. Changes in Carbon Emissions by Sector

Table 3. Changes in carbon emissions by sector (Unit: 10,000 tons).

Sectors	S1	S2	S3	S4
AFAF	−2291.63	1071.89	1441.47	3711.27
AFAHF	−2291.63	1071.89	1441.47	3711.27
MWC	−3146.23	258.55	716.91	2847.14
EPNG	−454.9	−110.04	100.19	322.51
MPMO	−202.95	−7.87	−0.05	42.06
MPNOO	−84.24	27.66	14.09	32.24
FTP	−777.36	−46.76	519.6	1582.34
TI	−788.8	19.34	−26.64	172.41
MLFFRP	−209.88	29.37	−2.26	84.98
PTF	−153.55	−0.36	2.82	48.94
MPPACESA	−960.4	280.71	90.91	437
PPCPNF	−2455.9	1055.05	1347.67	4330.71
MCP	−1555.74	3761.74	1106.92	3359.84
MNMMP	−1161.64	34.5	170.79	642.51
SPM	−24948.31	1858.32	138.4	7101.16
MMP	−434.43	59.59	−10.26	79.19
MGPM	−158.32	1055.57	−82.63	−11.86
MSPM	−1102.91	−433.74	−34.13	−6.09
MTQ	117.94	262.46	107.84	395.79
MWME	−288.46	31.22	−2.2	58.2
MCECOEQ	−287.81	13.55	−18.87	10.99
MMI	−34.67	0.6	−0.65	7.41
OMWR	−47.87	13.07	8.7	26.88
EMPME	−1251.88	619.29	330.69	887.02
PDEPHP	−9052.9	2563.05	2728.78	8408.36
PSG	363.19	552.72	162.89	541.15
PDTW	−4.38	8.74	6.94	17.8
CON	154.92	191.47	18.79	57.62
WRT	−2835.97	−455.26	564.57	1156.97
TSPS	−1924.83	5950.19	2265.08	7412.59
OSI	−1309.99	412.63	989.38	1813.73

shows the changes in various sectors of the economy in carbon emissions. When the external circulation disappears, that is the export volume of labor-intensive products is zero, carbon emissions in all sectors of the national economy will be greatly reduced. The more carbon intensive the industry is, the greater the reduction in carbon emissions. Among them, the largest carbon emission reduction in 30 industries is SPM, with a carbon emission reduction of 249.4831 million tons; followed by PDEPHP, with a carbon emission reduction of 90.5290 million tons. The carbon emission reduction in MMI and PDTW is relatively small.

When the export volume of labor-intensive products is reduced by 10% and the per capita consumption of residents in the western region is increased to the central level, the carbon emission reduction effect will be much weaker than in scenario 1. For example, the carbon emission reduction of MSPM is 4.3374 million tons. As domestic demand stimulates the production of some consumer goods and related industries, the emissions of carbon dioxide from industries like TSPS and CON are increasing. Among them, carbon emissions from TSPS increase by 59.5019 million tons, and carbon emissions from CON increase by 1.9147 million tons.

When the export volume of labor-intensive products is reduced by 10% and the per capita consumption of residents in the western region is increased to the national average, there are some differences in changes in carbon emissions by industry compared with scenario 2. This is due mainly to the differences between the national consumption structure and the consumption level of the residents of the central region. For example, carbon emissions from EPNG increase by 1.0019 million tons compared to a decrease of 1.1004 million tons in S2, and emissions from WRT increased by 5.6457 million tons compared to 4.5526 million tons in S2.

When the export volume of labor-intensive products is reduced by 10% and the per capita consumption of residents in the central and western regions is increased to the level of the east, the carbon emission reduction effect will be greatly reduced compared with the above scenarios. Due to further stimulating domestic demand and strengthening the intensity of internal circulation, carbon emissions in many industries have shown a positive trend of increase. In particular, the PPEPHP’s carbon emissions have increased the most by 84.0836 million tonnes, which could be attributed to the increase in the market demand for basic related products, driven by the domestic demand, followed by the TSPS’s carbon emissions have increased by 74.1259 million tonnes, as well as SPM’s carbon emissions have increased by 71.0116 million tonnes, the PPCPNF’s carbon emissions have increased by 43.3071 million tons, and MCP’s carbon emissions increase by 33.5984 million tons. That means that stimulating domestic demand will increase the pressure on carbon emission reduction in related consumer goods production sectors. Therefore, in the context of domestic circulation, energy demand is rigidly growing, energy conservation and emission reduction are still in a severe situation and the task is arduous. Based on this, it’s crucial for policy makers to formulate green and low-carbon emission reduction policies by industry to internalize the external cost of the environment, thereby guiding these related industrial sectors to save energy and reduce emissions.

6. Conclusions and Policy Recommendations

In the face of the current anti-globalization trend of rising protectionism, sluggish international trade and investment, and the impact of the new crown epidemic on the global industrial chain and supply chain, China’s economic development strategy is undergoing an evolution from foreign circulation to Dual Circulation. At the same time, China is facing the rigid target constraints of “carbon peak before 2030” and “carbon neutrality before 2060”, and the task of carbon emission reduction is arduous. To this end, this paper uses China’s 2017 multi-regional Input-Output table to comprehensively and systematically simulate various possible scenarios under the new development pattern, and finds that the new development pattern dominated by internal circulation may bring challenges to carbon emission reduction targets.

Specifically, first of all, when foreign circulation disappears, the total economic output will be severely affected, especially in the eastern region; and total carbon emissions will also be reduced by 572.8989 million tons. Second, when external circulation orientation weakens and the intensity of the internal circulation is increased, that is, when the export volume of labor-intensive products is reduced by 10%, the per capita consumption of western residents is increased to the central level, and the total economic output is improved, but the total carbon emissions will also increase by 393.6364 million tons; and when the per capita consumption of western residents is increased to the national average, the economic growth rate will be more balanced between regions. Third, on this basis, if the per capita consumption in the central and western regions is further raised to the eastern level, the total economic output will increase by 307,871.95 billion yuan, and the total carbon emissions will increase by 898.4721 million tons, of which the carbon emissions of rural residents and urban residents account for a considerable proportion, while the carbon emissions of PDEPHP, TSPS, and SPM will increase more from an sectoral perspective.

Based on the above conclusions, this paper puts forward the following policy implications for the construction of a new development pattern dominated by domestic circulation and the synergistic promotion of climate change:

Firstly, stimulating household consumption in the central and western regions is an important part of coping with the weakening of external circulation. With the constant improvement of the economy in China and the income level of the residents, the pattern and level of consumption in the domestic market have changed enormously, resulting in a huge demand for consumers. As shown in this article, when foreign circulation of China weakens, that is, and household consumption in the central and western regions is raised to the level of the east, total economic output will grow positively. Therefore, policymakers should have bottom-line thinking, deploy policy measures in advance to stimulate household consumption in the central and western regions, strengthen the intensity of the internal circulation of the economy, and then make up for the economic losses caused by the weakening of the external circulation.

Secondly, it is necessary to actively promote the green transformation of consumption patterns. As per capita consumption levels increase, direct and indirect carbon emissions gradually increase. Therefore, in light of the domestic circulation, it is necessary to take into account the double impact of consumers’ demand on economy and environment, not at a cost of the consumption of resources and energy and the degradation of the ecological environment, but to the path of sustainable development based on the concept of a green economy. On the one side, policymakers should encourage consumer awareness and understanding of the concept of green consumption by encouraging and training them in a variety of forms, and on the other hand, they need to accelerate development of infrastructure and services supporting green consumption, such as green travel subsidies.

Thirdly, green and low-carbon production should be carried out. As this study finds that when exports of labor-intensive products are reduced by 10% and per capita consumption in the central and western regions rises to the national average or the eastern level, carbon emissions from industries such as PPCPNF, MTE, and FTP will all rise. Therefore, to achieve the government’s targets for the reduction of carbon emissions, it is critical to comply with a new development trend, which is driven by the internal circulation and raise the pollution discharge standards in traditional sectors, and also adopt a green technology to accelerate the development and transformation.