IDEAS home Printed from https://ideas.repec.org/a/eee/energy/v284y2023ics0360544223025483.html
   My bibliography  Save this article

The environmental and economic impacts of phasing out cross-subsidy in electricity prices: Evidence from China

Author

Listed:
  • Yang, Zhiqing
  • Liang, Jing

Abstract

Electricity cross-subsidy policies have long been criticized for they involve subsidizing households by charging above-cost prices in industrial sectors. This paper examines the environmental and economic impacts of phasing out cross-subsidy in electricity prices in the context of China's Carbon Peaking and Neutrality goals by exploiting a large panel data from 2012 to 2020. We first adopt a price-gap approach to calculate the scale of negative cross-subsidy in China and different sectors. Next, we estimate the electricity demand price elasticity of high-, medium-, and low-emission industries to evaluate how the cross-subsidy affects electricity consumption, carbon emissions, and the output value. Finally, with the 2020 scenario as our baseline, we simulate three distinct policy change Schemes and evaluate the environmental and economic effects of phasing out electricity cross-subsidy in China. We find that if policy makers do not consider the emission levels of different industries when implementing cross-subsidy removal, great environmental harm will be caused. We also find that the potential burden on households of electricity cross-subsidy removal is likely to be relatively small at all implementation stages. This study provides timely policy implications for the ongoing electricity system reform in China.

Suggested Citation

  • Yang, Zhiqing & Liang, Jing, 2023. "The environmental and economic impacts of phasing out cross-subsidy in electricity prices: Evidence from China," Energy, Elsevier, vol. 284(C).
    • Handle: RePEc:eee:energy:v:284:y:2023:i:c:s0360544223025483
    DOI: 10.1016/j.energy.2023.129154
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0360544223025483
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.energy.2023.129154?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Major P., 2015. "Internet governance: Trends and realities. Part 1," Бизнес-информатика, CyberLeninka;Федеральное государственное автономное образовательное учреждение высшего образования «Национальный исследовательский университет «Высшая школа экономики», issue 4 (34), pages 7-14.
    2. Meyers, William H., 1996. "Use of the Producer Subsidy Equivalent Measure in Transition Economies: Discussion," Staff General Research Papers Archive 1007, Iowa State University, Department of Economics.
    3. Lin, Boqiang & Xu, Mengmeng, 2019. "Good subsidies or bad subsidies? Evidence from low-carbon transition in China's metallurgical industry," Energy Economics, Elsevier, vol. 83(C), pages 52-60.
    4. Yuan, Jiahai & Guo, Xiaoxuan & Zhang, Weirong & Chen, Sisi & Ai, Yu & Zhao, Changhong, 2019. "Deregulation of power generation planning and elimination of coal power subsidy in China," Utilities Policy, Elsevier, vol. 57(C), pages 1-15.
    5. Kaserman, David L & Mayo, John W & Flynn, Joseph E, 1990. "Cross-Subsidization in Telecommunications: Beyond the Universal Service Fairy Tale," Journal of Regulatory Economics, Springer, vol. 2(3), pages 231-249, September.
    6. Wang, Yao & Lin, Boqiang, 2021. "Performance of alternative electricity prices on residential welfare in China," Energy Policy, Elsevier, vol. 153(C).
    7. Bhattacharyya, Ranajoy & Ganguly, Amrita, 2017. "Cross subsidy removal in electricity pricing in India," Energy Policy, Elsevier, vol. 100(C), pages 181-190.
    8. Jia, Zhijie & Lin, Boqiang, 2021. "The impact of removing cross subsidies in electric power industry in China: Welfare, economy, and CO2 emission," Energy Policy, Elsevier, vol. 148(PB).
    9. Sidorova A.D., 2015. "Complex Internet Promotion of Goods and Services," Annals of marketing-mba, Department of Marketing, Marketing MBA (RSconsult), vol. 3, November.
    10. Böhringer, Christoph & Fischer, Carolyn & Rosendahl, Knut Einar, 2014. "Cost-effective unilateral climate policy design: Size matters," Journal of Environmental Economics and Management, Elsevier, vol. 67(3), pages 318-339.
    11. William H. Meyers, 1996. "Use of the Producer Subsidy Equivalent Measure in Transition Economies: Discussion," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(3), pages 805-807.
    12. Nagayuki Saito, 2015. "Internet Literacy in Japan," OECD Science, Technology and Industry Working Papers 2015/3, OECD Publishing.
    13. W. M. Corden, 1966. "The Structure of a Tariff System and the Effective Protective Rate," Journal of Political Economy, University of Chicago Press, vol. 74(3), pages 221-221.
    14. William Foster & Alberto Valdés, 2014. "A profile of trade protection in Egypt: an effective rate of protection approach adjusting for energy subsidies and non-tariff barriers," Middle East Development Journal, Taylor & Francis Journals, vol. 6(2), pages 285-307, July.
    15. Lin, Boqiang & Jiang, Zhujun, 2011. "Estimates of energy subsidies in China and impact of energy subsidy reform," Energy Economics, Elsevier, vol. 33(2), pages 273-283, March.
    16. Arthur Lewbel, 1997. "Constructing Instruments for Regressions with Measurement Error when no Additional Data are Available, with an Application to Patents and R&D," Econometrica, Econometric Society, vol. 65(5), pages 1201-1214, September.
    17. Jiaman Li & Xiucheng Dong & Kangyin Dong, 2022. "Do pollutant discharge fees affect labor demand? evidence from china’s industrial enterprises," Applied Economics, Taylor & Francis Journals, vol. 54(2), pages 170-188, January.
    18. Xiaolei Wang & Boqiang Lin, 2017. "Electricity subsidy reform in China," Energy & Environment, , vol. 28(3), pages 245-262, May.
    19. Chattopadhyay, Pradip, 2004. "Cross-subsidy in electricity tariffs: evidence from India," Energy Policy, Elsevier, vol. 32(5), pages 673-684, March.
    20. CAF & Universidad Andina Simón Bolívar, Sede Ecuador, . "Juegos ecuatorianos e internacionales," Books, CAF Development Bank Of Latinamerica, number 735.
    21. Grainger, Corbett & Schreiber, Andrew & Zhang, Fan, 2019. "Distributional impacts of energy-heat cross-subsidization," Energy Policy, Elsevier, vol. 125(C), pages 65-81.
    22. Samuel C.K. Buame & George Acheampong, 2015. "International retail firm acceptance: beware of the flattery," International Journal of Business and Globalisation, Inderscience Enterprises Ltd, vol. 14(3), pages 292-309.
    23. Jiang, Zhujun & Tan, Jijun, 2013. "How the removal of energy subsidy affects general price in China: A study based on input–output model," Energy Policy, Elsevier, vol. 63(C), pages 599-606.
    24. Ilyas, Rubina & Hussain, Khadim & Ullah, Mehreen Zaid & Xue, Jianhong, 2022. "Distributional impact of phasing out residential electricity subsidies on household welfare," Energy Policy, Elsevier, vol. 163(C).
    25. Rodionova I. & Massarova A. & Epifantseva A., 2015. "BRICS countries in international innovation rankings," RUDN Journal of Economics Вестник Российского университета дружбы народов. Серия: Экономика, CyberLeninka;Федеральное государственное бюджетное образовательное учреждение высшего профессионального образования «Российский университет дружбы народов», issue 3, pages 45-52.
    26. Hongmei Lei & Ying Chen & Ruiqi Li & Deli He & Jiang Zhang, 2015. "Maximum Entropy for the International Division of Labor," PLOS ONE, Public Library of Science, vol. 10(7), pages 1-15, July.
    27. repec:bla:devpol:v:25:y:2007:i:6:p:659-679 is not listed on IDEAS
    28. Eirik S. Amundsen & Peder Andersen & Jørgen Birk Mortensen, 2018. "Addressing the Climate Problem: Choice between Allowances, Feed-in Tariffs and Taxes," CESifo Working Paper Series 6926, CESifo.
    29. Jiang, Zhujun & Lin, Boqiang, 2014. "The perverse fossil fuel subsidies in China—The scale and effects," Energy, Elsevier, vol. 70(C), pages 411-419.
    30. Hung, Ming-Feng & Chie, Bin-Tzong, 2017. "The long-run performance of increasing-block pricing in Taiwan's residential electricity sector," Energy Policy, Elsevier, vol. 109(C), pages 782-793.
    31. Moerenhout, Tom S.H. & Sharma, Shruti & Urpelainen, Johannes, 2019. "Commercial and industrial consumers’ perspectives on electricity pricing reform: Evidence from India," Energy Policy, Elsevier, vol. 130(C), pages 162-171.
    32. Ryota Ono & Jenifer Winter, 2015. "Conclusion: Three Stages of the Future Internet," Public Administration and Information Technology, in: Jenifer Winter & Ryota Ono (ed.), The Future Internet, edition 1, chapter 0, pages 217-224, Springer.
    33. Dagnachew, Anteneh G. & Lucas, Paul L. & Hof, Andries F. & van Vuuren, Detlef P., 2018. "Trade-offs and synergies between universal electricity access and climate change mitigation in Sub-Saharan Africa," Energy Policy, Elsevier, vol. 114(C), pages 355-366.
    34. Pu, Lei & Wang, Xiuhui & Tan, Zhongfu & Wang, Huaqing & Yang, JiaCheng & Wu, Jing, 2020. "Is China's electricity price cross-subsidy policy reasonable? Comparative analysis of eastern, central, and western regions," Energy Policy, Elsevier, vol. 138(C).
    35. Ai, Hongshan & Xiong, Shiya & Li, Ke & Jia, Pinrong, 2020. "Electricity price and industrial green productivity: Does the “low-electricity price trap” exist?," Energy, Elsevier, vol. 207(C).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alsedrah, Ibrahim Tawfeeq, 2024. "Fintech and green finance revolutionizing carbon emission reduction through green energy projects in mineral-rich countries," Resources Policy, Elsevier, vol. 94(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xu, Shang & Zhang, Jun, 2023. "The welfare impacts of removing coal subsidies in rural China," Energy Economics, Elsevier, vol. 118(C).
    2. Jia, Zhijie & Lin, Boqiang, 2021. "The impact of removing cross subsidies in electric power industry in China: Welfare, economy, and CO2 emission," Energy Policy, Elsevier, vol. 148(PB).
    3. Husaini, Dzul Hadzwan & Puah, Chin-Hong & Lean, Hooi Hooi, 2019. "Energy subsidy and oil price fluctuation, and price behavior in Malaysia:A time series analysis," Energy, Elsevier, vol. 171(C), pages 1000-1008.
    4. Castro Pérez, José E. & Flores, Daniel, 2023. "The effect of retail price regulation on the wholesale price of electricity," Energy Policy, Elsevier, vol. 173(C).
    5. Henseler, Martin & Maisonnave, Helene, 2018. "Low world oil prices: A chance to reform fuel subsidies and promote public transport? A case study for South Africa," Transportation Research Part A: Policy and Practice, Elsevier, vol. 108(C), pages 45-62.
    6. Pritee Sharma & Salla Nithyanth Kumar, 2020. "The global governance of water, energy, and food nexus: allocation and access for competing demands," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 20(2), pages 377-391, June.
    7. Lin, Boqiang & Xu, Mengmeng, 2019. "Good subsidies or bad subsidies? Evidence from low-carbon transition in China's metallurgical industry," Energy Economics, Elsevier, vol. 83(C), pages 52-60.
    8. Pritee Sharma & Salla Nithyanth Kumar, 0. "The global governance of water, energy, and food nexus: allocation and access for competing demands," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 0, pages 1-15.
    9. Boudekhdekh, Karim, 2022. "A comparative analysis of energy subsidy in the MENA region," MPRA Paper 115275, University Library of Munich, Germany.
    10. Liu, Chang & Lin, Boqiang, 2018. "Analysis of the changes in the scale of natural gas subsidy in China and its decomposition factors," Energy Economics, Elsevier, vol. 70(C), pages 37-44.
    11. Wu, Wei & Zhang, Naishan & Hu, Yingying & Zhou, Dengli & Long, Houyin, 2023. "Crossing the cross-subsidy: Evidence from China's electricity sector," Utilities Policy, Elsevier, vol. 84(C).
    12. Korrakot Phomsoda & Nattapong Puttanapong & Mongkut Piantanakulchai, 2021. "Economic Impacts of Thailand’s Biofuel Subsidy Reallocation Using a Dynamic Computable General Equilibrium (CGE) Model," Energies, MDPI, vol. 14(8), pages 1-21, April.
    13. Lin, Boqiang & Li, Zhensheng, 2020. "Analysis of the natural gas demand and subsidy in China: A multi-sectoral perspective," Energy, Elsevier, vol. 202(C).
    14. Li, Yumin & Jiang, Yan & Dong, Changgui, 2023. "Electricity cross-subsidies in China: Social equity, reverse Ramsey pricing, and welfare analysis," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 403-417.
    15. Saeed Solaymani, 2016. "Impacts of energy subsidy reform on poverty and income inequality in Malaysia," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(6), pages 2707-2723, November.
    16. Jan, Muhammad Zain & Ullah, Kafait & Abbas, Faisal & Khalid, Hassan Abdullah & Bajwa, Tariq M., 2023. "Barriers to the adoption of social welfare measures in the electricity tariff structure of developing countries: A case of Pakistan," Energy Policy, Elsevier, vol. 179(C).
    17. Zhan-Ming Chen, 2017. "Inventory and Distribution of Energy Subsidies of China," The Energy Journal, International Association for Energy Economics, vol. 0(KAPSARC S).
    18. Li, Aijun & Peng, Dan & Wang, Daoping & Yao, Xin, 2017. "Comparing regional effects of climate policies to promote non-fossil fuels in China," Energy, Elsevier, vol. 141(C), pages 1998-2012.
    19. Djoni Hartono & Ahmad Komarulzaman & Tony Irawan & Anda Nugroho, 2020. "Phasing out Energy Subsidies to Improve Energy Mix: A Dead End," Energies, MDPI, vol. 13(9), pages 1-15, May.
    20. Daneshzand, Farzaneh & Asali, Mehdi & Al-Sobhi, Saad A. & Diabat, Ali & Elkamel, Ali, 2022. "A simulation-based optimization scheme for phase-out of natural gas subsidies considering welfare and economic measures," Energy, Elsevier, vol. 259(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:energy:v:284:y:2023:i:c:s0360544223025483. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/energy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.