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Effects of International Crude Oil Prices on Energy Consumption in China

Author

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  • Gaolu Zou

    (School of Tourism, Culture and Industries, Chengdu University, Chengdu 610106, China
    The Ronald Coase Center for Property Rights Research, The University of Hong Kong, Hong Kong, China)

  • Kwong Wing Chau

    (The Ronald Coase Center for Property Rights Research, The University of Hong Kong, Hong Kong, China
    Department of Real Estate and Construction, Faculty of Architecture, The University of Hong Kong, Hong Kong, China)

Abstract

This study aims to test the effects of changes in international crude oil prices on changes in crude oil and hydropower use from 1965 to 2016. We suggest a cointegration relationship between the consumption of coal, crude oil, and hydropower and the real crude oil price. The real price is weakly exogenous for the long-run relationship and has impacted energy consumption accordingly. The long-run crude oil price elasticity of oil use is 0.460. Our estimate suggests a positive oil price–oil use relationship in China, which is dramatically different from many previous studies but is consistent with a few past studies. The growth in external oil prices may lead to a long-run increase in hydropower use in China, with a long-run price elasticity of 0.242. The long-run crude oil price elasticity of coal use is −0.930. Hence, increased oil and hydropower use could make up the energy supply–demand gap left over by the decreased coal use. Strictly planned domestic fuel prices and rapidly growing family incomes should diminish the negative effect of external oil prices on domestic crude oil demand. In the long run, given a strictly managed energy price, the growth in external oil prices is not likely to noticeably restrain the domestic oil demand or lead to a dramatic increase in coal use. We suggest that the large-scale development and utilization of hydropower may be inappropriate. Coal utilization policies must be reviewed. The appropriate increase in clean coal consumption could reduce the consumption of crude oil and hydropower; meanwhile, carbon emissions will not increase.

Suggested Citation

  • Gaolu Zou & Kwong Wing Chau, 2020. "Effects of International Crude Oil Prices on Energy Consumption in China," Energies, MDPI, vol. 13(15), pages 1-17, July.
    • Handle: RePEc:gam:jeners:v:13:y:2020:i:15:p:3891-:d:391968
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