*3.2. Dynamics*

In this paper, the recursive method is used to make the CGE model dynamic. In general, the dynamic strategy under Neoclassical assumptions entails the growth of labor endowment, capital endowment, and technological progress. This paper makes fundamental assumptions about labor growth and calculates capital endowment using the perpetual inventory method. This paper simulates the total factor productivity (TFP) by setting exogenous GDP as an economic growth path and endogenous TFP first. Then, the paper uses TFP as the exogenous variable to simulate all scenarios, considering the steady technological progress.

Except for carbon pricing and leading to different carbon emission pathways, this paper assumes that all exogenous variables in the counterfactual (CF) scenario are the same as in the BAU scenario. The model additionally assumes the same total CO2 emissions in the CT and ETS scenarios. The significance of this assumption is that it is assumed that the government's carbon pricing parameters are used to control the total amount of carbon emissions, and that the CT and ETS scenarios have the same carbon emissions making the scenario comparison more scientific.
