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A Quantitative Analysis of the Optimal Energy Policy from the Perspective of China’s Supply-Side Reform

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  • Jianming Xi

    (School of Economics, Peking University, Beijing 100871, China)

  • Hanran Wu

    (School of Economics, Peking University, Beijing 100871, China)

  • Bo Li

    (School of Economics, Peking University, Beijing 100871, China)

  • Jingyu Liu

    (School of Environmental Science and Engineering, Shanghai Jiaotong University, Shanghai 200240, China)

Abstract

How does the capacity removal policy affect China’s economy? To quantify the policy outcomes and costs, a four-sector model with vertical market structures is built. The calibrated model shows that, to achieve the policy goal, 10% of equipment operation in the high energy-consuming sectors must be shut down. This policy leads to an improved energy structure in which total energy consumption drops by 4.75% at the cost of a contraction in economic growth, where the total output declines by 12.31%. The numerical experiments find that the optimal policy is to limit the production scale in both the iron/steel industry and the fossil energy industry, closing 9% and 7% of the production, respectively, since doing so minimizes output loss and improves the energy structure. This paper quantifies the impact of the current capacity removal policy and provides policy alternatives to reach the same policy target with a lower output loss.

Suggested Citation

  • Jianming Xi & Hanran Wu & Bo Li & Jingyu Liu, 2020. "A Quantitative Analysis of the Optimal Energy Policy from the Perspective of China’s Supply-Side Reform," Sustainability, MDPI, vol. 12(12), pages 1-13, June.
  • Handle: RePEc:gam:jsusta:v:12:y:2020:i:12:p:4800-:d:370437
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