Integrating policy design with agricultural emissions reductionin China: A multi-sector DSGE Approach

China's agricultural sector plays a pivotal role in the nation's emission reduction strategies while government policy design is crucial for guiding industrial abatement to balance environmental and food security goals. This paperaddresses the challenge of mitigating agricultural emissions while sustaining growth by employing a multi-sector Dynamic Stochastic General Equilibrium (DSGE) model to simulate the impacts of various emission reduction policies on agricultural output and emissions. Various solution techniques, such as perfect foresight, stochastic simulations, and rational expectation extended pathare utilized to examinehow policy stability and uncertainty differ in influencing economic agents’expectations, and thereby affecting sectoral production and emissions.China's Input-Output tables and Social Accounting Matrices are integrated to capture inter-sectoral spillovers impacting agriculture, providing a comprehensive analysis of cross-sectoral dynamics. The paper explores multiple policy scenarios, including different policy instruments, implementation approaches (ranging from fully predictable to highly uncertain), and combinations, evaluating their economic and environmental effects from 2025 to 2060. Key findings reveal significant variations in policy effectiveness: regulatory measures like taxes (e.g., emission taxes with agricultural exemptions) yield significant emissions reductions but suppress agricultural output due to increased production costs from carbon-intensive inputs;incentive-based subsidies (e.g., uniform emissions reduction subsidies) achieve the most effective long-term balance between emissions reduction and agricultural growth by incentivizing low-carbon technology investments;and market-based trading (e.g., emissions trading schemes with sector-specific caps) showsweaker results in both emissions reduction and growth, as producers may make irrational choices by avoiding initial investments in abatement technologies, instead relying on market trading to acquire permits or profits. Regardingimplementation approaches, stable and transparent designs outperform uncertain ones by reducing volatility and enhancing long-term outcomes.Combined policies integrating regulatory, incentive, and market-based mechanisms prove most effective, as they minimize economic disruptions and balance growth with emissions reductions, demonstrating the advantage of synergistic, predictable policy designs for agricultural decarbonization.