IDEAS home Printed from https://ideas.repec.org/a/eee/rensus/v42y2015icp952-962.html
   My bibliography  Save this article

How does administrative pricing affect energy consumption and CO2 emissions in China?

Author

Listed:
  • Li, Ke
  • Lin, Boqiang

Abstract

Despite reforms, China still largely applies the cost plus pricing mechanism for the energy sector. Government administrative energy pricing leads to energy price distortions, which could result in not only the excessive and wasteful energy consumption, but also environmental deterioration, thereby undermining energy conservation and emission abatement. Using fossil-fuel subsidies as a proxy for the level of energy price distortions, this paper estimates the subsidy of 22 Chinese departments during the period 2006–2010, and adopts the price-gap approach to analyze the impacts of subsidy removal on energy consumption and CO2 emissions for the various sectors and energy types. The results demonstrate that removing energy subsidies would reduce energy consumption and emissions by 3.77% and 2.85%, respectively, but the effects vary across sectors. The transport, storage and post sector and the electricity, gas and water supply sector are much more affected by energy subsidies removal than other sectors. With respect to energy types, fuel oil and natural gas are sensitive to subsidies, indicating the magnitude of their consumption. This suggests that removing subsidies on these fuel types could significantly reduce CO2 emissions. Finally, we comprehensively discuss relevant policy issues on energy price formation reform.

Suggested Citation

  • Li, Ke & Lin, Boqiang, 2015. "How does administrative pricing affect energy consumption and CO2 emissions in China?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 42(C), pages 952-962.
    • Handle: RePEc:eee:rensus:v:42:y:2015:i:c:p:952-962
    DOI: 10.1016/j.rser.2014.10.083
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1364032114009083
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.rser.2014.10.083?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. Fisher-Vanden, Karen & Jefferson, Gary H. & Liu, Hongmei & Tao, Quan, 2004. "What is driving China's decline in energy intensity?," Resource and Energy Economics, Elsevier, vol. 26(1), pages 77-97, March.
    2. Kalkuhl, Matthias & Edenhofer, Ottmar & Lessmann, Kai, 2013. "Renewable energy subsidies: Second-best policy or fatal aberration for mitigation?," Resource and Energy Economics, Elsevier, vol. 35(3), pages 217-234.
    3. Birol, Fatih & Keppler, Jan Horst, 2000. "Prices, technology development and the rebound effect," Energy Policy, Elsevier, vol. 28(6-7), pages 457-469, June.
    4. Diaz Arias, Adriana & van Beers, Cees, 2013. "Energy subsidies, structure of electricity prices and technological change of energy use," Energy Economics, Elsevier, vol. 40(C), pages 495-502.
    5. 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.
    6. Yuan, Chaoqing & Liu, Sifeng & Wu, Junlong, 2010. "The relationship among energy prices and energy consumption in China," Energy Policy, Elsevier, vol. 38(1), pages 197-207, January.
    7. Riedy, Chris & Diesendorf, Mark, 2003. "Financial subsidies to the Australian fossil fuel industry," Energy Policy, Elsevier, vol. 31(2), pages 125-137, January.
    8. Wang, Ting & Lin, Boqiang, 2014. "China's natural gas consumption and subsidies—From a sector perspective," Energy Policy, Elsevier, vol. 65(C), pages 541-551.
    9. 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.
    10. Richard F. Garbaccio & Mun S. Ho & Dale W. Jorgenson, 1999. "Why Has the Energy-Output Ratio Fallen in China?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 63-91.
    11. Richard G. Newell & Adam B. Jaffe & Robert N. Stavins, 1999. "The Induced Innovation Hypothesis and Energy-Saving Technological Change," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 941-975.
    12. Lin, Boqiang & Yang, Fang & Liu, Xia, 2013. "A study of the rebound effect on China's current energy conservation and emissions reduction: Measures and policy choices," Energy, Elsevier, vol. 58(C), pages 330-339.
    13. Larsen, Bjorn & Shah, Anwar & DEC, 1992. "World fossil fuel subsidies and global carbon emissions," Policy Research Working Paper Series 1002, The World Bank.
    14. Nwachukwu, Maxwell Umunna & Chike, Harold, 2011. "Fuel subsidy in Nigeria: Fact or fallacy," Energy, Elsevier, vol. 36(5), pages 2796-2801.
    15. Wang, Qiang & Qiu, Huan-Ning & Kuang, Yaoqiu, 2009. "Market-driven energy pricing necessary to ensure China's power supply," Energy Policy, Elsevier, vol. 37(7), pages 2498-2504, July.
    16. Lin, Boqiang & Li, Aijun, 2012. "Impacts of removing fossil fuel subsidies on China: How large and how to mitigate?," Energy, Elsevier, vol. 44(1), pages 741-749.
    17. He, Yongxiu & Liu, Yangyang & Wang, Jianhui & Xia, Tian & Zhao, Yushan, 2014. "Low-carbon-oriented dynamic optimization of residential energy pricing in China," Energy, Elsevier, vol. 66(C), pages 610-623.
    18. Hang, Leiming & Tu, Meizeng, 2007. "The impacts of energy prices on energy intensity: Evidence from China," Energy Policy, Elsevier, vol. 35(5), pages 2978-2988, May.
    19. David Popp, 2002. "Induced Innovation and Energy Prices," American Economic Review, American Economic Association, vol. 92(1), pages 160-180, March.
    20. Mahmood, Arshad & Marpaung, Charles O.P., 2014. "Carbon pricing and energy efficiency improvement -- why to miss the interaction for developing economies? An illustrative CGE based application to the Pakistan case," Energy Policy, Elsevier, vol. 67(C), pages 87-103.
    21. Liu, Wei & Li, Hong, 2011. "Improving energy consumption structure: A comprehensive assessment of fossil energy subsidies reform in China," Energy Policy, Elsevier, vol. 39(7), pages 4134-4143, July.
    22. repec:dau:papers:123456789/10972 is not listed on IDEAS
    23. Li, Ke & Lin, Boqiang, 2014. "The nonlinear impacts of industrial structure on China's energy intensity," Energy, Elsevier, vol. 69(C), pages 258-265.
    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. Burke, Paul J. & Liao, Hua, 2015. "Is the price elasticity of demand for coal in China increasing?," China Economic Review, Elsevier, vol. 36(C), pages 309-322.
    2. Wen, Xiaoqian & Bouri, Elie & Roubaud, David, 2018. "Does oil product pricing reform increase returns and uncertainty in the Chinese stock market?," The Quarterly Review of Economics and Finance, Elsevier, vol. 68(C), pages 23-30.
    3. Li, Ke & Lin, Boqiang, 2016. "Impact of energy technology patents in China: Evidence from a panel cointegration and error correction model," Energy Policy, Elsevier, vol. 89(C), pages 214-223.
    4. Sha, Ru & Li, Jinye & Ge, Tao, 2021. "How do price distortions of fossil energy sources affect China's green economic efficiency?," Energy, Elsevier, vol. 232(C).
    5. Li, Jianglong & Lin, Boqiang, 2017. "Ecological total-factor energy efficiency of China's heavy and light industries: Which performs better?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 72(C), pages 83-94.
    6. Cao, Hongjian & Wang, Bizhe & Li, Ke, 2021. "Regulatory policy and misallocation: A new perspective based on the productivity effect of cleaner production standards in China's energy firms," Energy Policy, Elsevier, vol. 152(C).
    7. Godwin Edet Bassey & Uduak Michael Ekong, 2019. "Energy Consumption and Inflation Dynamics in Nigeria: An ARDL Cointegration Approach," Energy Economics Letters, Asian Economic and Social Society, vol. 6(2), pages 66-83, December.
    8. Zha, Jianping & Tan, Ting & Fan, Rong & Xu, Han & Ma, Siqi, 2020. "How to reduce energy intensity to achieve sustainable development of China's transport sector? A cross-regional comparison analysis," Socio-Economic Planning Sciences, Elsevier, vol. 71(C).
    9. Du, Gang & Sun, Chuanwang & Fang, Zhongnan, 2015. "Evaluating the Atkinson index of household energy consumption in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 51(C), pages 1080-1087.
    10. Li, Zhen & Wu, Baijun & Wang, Danyang & Tang, Maogang, 2022. "Government mandatory energy-biased technological progress and enterprises' environmental performance: Evidence from a quasi-natural experiment of cleaner production standards in China," Energy Policy, Elsevier, vol. 162(C).
    11. Li, Ke & Jiang, Zhujun, 2016. "The impacts of removing energy subsidies on economy-wide rebound effects in China: An input-output analysis," Energy Policy, Elsevier, vol. 98(C), pages 62-72.
    12. Li, Ke & Lin, Boqiang, 2018. "How to promote energy efficiency through technological progress in China?," Energy, Elsevier, vol. 143(C), pages 812-821.
    13. Lingyun He & Fang Yin & Zhangqi Zhong & Zhihua Ding, 2017. "The impact of local government investment on the carbon emissions reduction effect: An empirical analysis of panel data from 30 provinces and municipalities in China," PLOS ONE, Public Library of Science, vol. 12(7), pages 1-20, July.
    14. Wu, Liangpeng & Xu, Chengzhen & Zhu, Qingyuan & Zhou, Dequn, 2024. "Multiple energy price distortions and improvement of potential energy consumption structure in the energy transition," Applied Energy, Elsevier, vol. 362(C).
    15. Xu, Bin & Lin, Boqiang, 2016. "Assessing CO2 emissions in China’s iron and steel industry: A dynamic vector autoregression model," Applied Energy, Elsevier, vol. 161(C), pages 375-386.
    16. Li, Ke & Lin, Boqiang, 2017. "An application of a double bootstrap to investigate the effects of technological progress on total-factor energy consumption performance in China," Energy, Elsevier, vol. 128(C), pages 575-585.
    17. Lubing Xie & Xiaoming Rui & Shuai Li & Xiaozhao Fan & Ruijing Shi & Guohua Li, 2018. "A Critical Analysis on Influential Factors on Power Energy Resources in China," Modern Applied Science, Canadian Center of Science and Education, vol. 12(2), pages 1-1, February.
    18. Pierre R. Bertrand & Marie-Eliette Dury & Bing Xiao, 2020. "A study of Chinese market efficiency, Shanghai versus Shenzhen: Evidence based on multifractional models," Post-Print hal-03031766, HAL.
    19. Xie, Pinjie & Li, Han & Sun, Feihu & Tian, Huizhen, 2021. "Analysis of the dependence of economic growth on electric power input and its influencing factors in China," Energy Policy, Elsevier, vol. 158(C).
    20. Xu, Shang & Zhang, Jun, 2023. "The welfare impacts of removing coal subsidies in rural China," Energy Economics, Elsevier, vol. 118(C).
    21. Li, Ke & Lin, Boqiang, 2016. "Impact of energy conservation policies on the green productivity in China’s manufacturing sector: Evidence from a three-stage DEA model," Applied Energy, Elsevier, vol. 168(C), pages 351-363.
    22. Feng, Chao & Wang, Miao, 2018. "Analysis of energy efficiency in China's transportation sector," Renewable and Sustainable Energy Reviews, Elsevier, vol. 94(C), pages 565-575.
    23. Huang, He & Hong, Jingke & Wang, Xianzhu & Chang-Richards, Alice & Zhang, Jingxiao & Qiao, Bei, 2022. "A spatiotemporal analysis of the driving forces behind the energy interactions of the Chinese economy: Evidence from static and dynamic perspectives," Energy, Elsevier, vol. 239(PB).

    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. Ju, Keyi & Su, Bin & Zhou, Dequn & Wu, Junmin, 2017. "Does energy-price regulation benefit China's economy and environment? Evidence from energy-price distortions," Energy Policy, Elsevier, vol. 105(C), pages 108-119.
    2. Li, Ke & Lin, Boqiang, 2015. "Heterogeneity in rebound effects: Estimated results and impact of China’s fossil-fuel subsidies," Applied Energy, Elsevier, vol. 149(C), pages 148-160.
    3. Adom, Philip Kofi, 2015. "Business cycle and economic-wide energy intensity: The implications for energy conservation policy in Algeria," Energy, Elsevier, vol. 88(C), pages 334-350.
    4. Shumin Jiang & Jingtao Guo & Chen Yang & Zhanwen Ding & Lixin Tian, 2017. "Analysis of the Relative Price in China’s Energy Market for Reducing the Emissions from Consumption," Energies, MDPI, vol. 10(5), pages 1-13, May.
    5. Adom, Philip Kofi, 2015. "Determinants of energy intensity in South Africa: Testing for structural effects in parameters," Energy, Elsevier, vol. 89(C), pages 334-346.
    6. Hosan, Shahadat & Rahman, Md Matiar & Karmaker, Shamal Chandra & Saha, Bidyut Baran, 2023. "Energy subsidies and energy technology innovation: Policies for polygeneration systems diffusion," Energy, Elsevier, vol. 267(C).
    7. 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.
    8. 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.
    9. Xu, Shang & Zhang, Jun, 2023. "The welfare impacts of removing coal subsidies in rural China," Energy Economics, Elsevier, vol. 118(C).
    10. Ma, Hengyun & Oxley, Les & Gibson, John, 2010. "China's energy economy: A survey of the literature," Economic Systems, Elsevier, vol. 34(2), pages 105-132, June.
    11. Shi, Xunpeng & Sun, Sizhong, 2017. "Energy price, regulatory price distortion and economic growth: A case study of China," Energy Economics, Elsevier, vol. 63(C), pages 261-271.
    12. Ru Sha & Tao Ge & Jinye Li, 2022. "How Energy Price Distortions Affect China’s Economic Growth and Carbon Emissions," Sustainability, MDPI, vol. 14(12), pages 1-27, June.
    13. 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.
    14. Sha, Ru & Li, Jinye & Ge, Tao, 2021. "How do price distortions of fossil energy sources affect China's green economic efficiency?," Energy, Elsevier, vol. 232(C).
    15. 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.
    16. Huang, Junbing & Du, Dan & Tao, Qizhi, 2017. "An analysis of technological factors and energy intensity in China," Energy Policy, Elsevier, vol. 109(C), pages 1-9.
    17. Si, Shuyang & Lyu, Mingjie & Lin Lawell, C.-Y. Cynthia & Chen, Song, 2018. "The effects of energy-related policies on energy consumption in China," Energy Economics, Elsevier, vol. 76(C), pages 202-227.
    18. Huang, Junbing & Chen, Xiang, 2020. "Domestic R&D activities, technology absorption ability, and energy intensity in China," Energy Policy, Elsevier, vol. 138(C).
    19. Chai, Jian & Guo, Ju-E & Wang, Shou-Yang & Lai, Kin Keung, 2009. "Why does energy intensity fluctuate in China?," Energy Policy, Elsevier, vol. 37(12), pages 5717-5731, December.
    20. Yan, Huijie, 2015. "Provincial energy intensity in China: The role of urbanization," Energy Policy, Elsevier, vol. 86(C), pages 635-650.

    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:rensus:v:42:y:2015:i:c:p:952-962. 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.elsevier.com/wps/find/journaldescription.cws_home/600126/description#description .

    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.