Economic and environmental gains of China's fossil energy subsidies reform: A rebound effect case study with EIMO model

Energy consumption and efficiency emerged as the hottest topic in the context of China's sustainable development. Energy subsidies and “rebound effect” were closely related to this topic while few combinative studies on them with a focus on China. This paper employed a co-thinking approach, focusing on how the energy subsidies reform could mitigate the rebound effect in China, and how to achieve an “economic and environmental gains” that reduced pecuniary spending, improved the distorted energy market and reduced energy consumption simultaneously. Firstly, with price-gap approach we calculated the total energy subsidies scale of China in 2007, which amounted to582.0 billion CNY; then we detected and identified rebound effect of China energy consumption with the features. Furthermore, based on China 2007 monetary input–output table and energy flow analysis, we compiled a hybrid physical energy input and monetary output model (EIMO) to simulate the mitigation effect of subsidies reform. Results showed that removing energy subsidies would decrease ultimate demand of different economy sectors and reduce the accumulatively physical consumption of coal, oil, natural gas and electricity by 17.74, 13.47, 3.64 and 15.82 million tce, respectively. Finally we discussed relevant policy issues on China's energy subsidies reform in depth.     

Reformulating taxes for an energy transition

An energy transition toward clean energy sources would reduce environmental impacts. One proposal to trigger this energy transition uses economic instruments, particularly environmental taxes. This research studies the potential impact of taxes on electricity on the environment and the economy. Using a dynamic computable general equilibrium model for Spain with energy and environmental extensions, we assess their current impact on GDP growth, energy use, and a set of different pollutant emissions. Then we propose a reform that would foster an energy transition toward clean energies and assess their economic and environmental impact. We find that only taxing the production of electricity by coal, oil, and natural gas can be better for the environment and economy than taxing all forms of electricity production in a revenue-neutral context. Moreover, the production of electricity by biomass, though considered renewable, is an important source of pollutant emissions and, in these terms, should have less importance in an energy transition.     

The impacts of removing energy subsidies on economy-wide rebound effects in China: An input-output analysis

Facing with the increasing contradiction of economic growth, energy scarcity and environmental deterioration, energy conservation and emissions abatement have been ambitious targets for the Chinese government. Improving energy efficiency through technological advancement is a primary measure to achieve these targets. However, the existence of energy rebound effects may completely or partially offset energy savings associated with technological advancement. This paper adopted a modified input-output model to estimate the economy-wide energy rebound effects across China's economic sectors with the consideration of energy subsidies. The empirical results show that the aggregate rebound effect of China is about 1.9% in 2007–2010, thus technological advancement significantly restrains energy consumption increasing. Removing energy subsidies will cause the aggregate rebound effect declines to 1.53%. Specifically, removing subsidies for coal and nature gas can reduce the rebound effects signifcantly, while removing the subsidies for oil products has a small impact on rebound effect. The existence of rebound effects implies that technological advancement should be cooperated with energy price reform so as to achieve the energy saving target. In addition, the government should consider the diversity of economic sectors and energy types when design the reform schedule.     

Co-benefits from energy policies in China

The rapid growth in coal and oil consumption has led to increasing emissions of greenhouse gases as well as air pollutants in China. In response to this, the Chinese government has begun to formulate policies to retard the increasing use of energy consumption and to improve air quality. This paper attempts to quantify the co-benefits of reducing carbon dioxide emissions and improving air quality from policies that are originally formulated to improve energy efficiency and to abate emissions of air pollutants from energy use. The present authors have developed an integrated approach, combining an energy projection model, an emission estimation model, an air quality simulation model, and a health benefit evaluation model, to assess the co-benefits of two different sets of energy policies of China. The modeling results show that significant benefits, including 1469 million tonnes of reduced emissions of CO₂, 12–32% decline in air pollutant concentrations, and more than 100 billion US$ of health benefit, can be achieved around the year 2030 if aggressive energy policies are implemented. The analyses suggest that such energy policies could do a lot of benefit to the environment. Moreover, better industry structure and energy structure is essential for higher air quality.     

Estimates of energy subsidies in China and impact of energy subsidy reform

For a transitional economy such as China, some energy subsidies are reasonable, and sometimes even necessary for achieving social goals. However, with rising energy prices and environmental concerns, we see conflicts emerging between energy subsidies, energy demand/supply fundamentals and climate change considerations. Energy subsidies have important implications for sustainable development through their effects on energy use, efficiency and the choice of fuel source. This paper applies the price-gap approach to estimate China's energy subsidies. Results indicate that China's energy subsidies amounted to CNY 356.73 billion in 2007, equivalent to 1.43% of GDP. Subsidies for oil products consumption are the largest, followed by subsidies for the electricity and coal sectors. Furthermore, a CGE model is used to analyze the economic impacts of energy subsidy reforms. Our findings show that removing energy subsidies will result in a significant fall in energy demand and emissions, but will have negative impacts on macroeconomic variables. We conclude that offsetting policies could be adopted such that certain shares of these subsidies are reallocated to support other sustainable development measures, which could lead to reducing energy intensity and favoring the environment.     

Exploring the impacts of a carbon tax on the Chinese economy using a CGE model with a detailed disaggregation of energy sectors

This paper applies a computable general equilibrium model to investigate the impacts of a carbon tax on China's economy and carbon emissions based on China's 2010 Input–Output Table. To obtain robust simulation results, we further disaggregate the energy sectors into eight departments according to energy use characteristics. The empirical results indicate that a moderate carbon tax would significantly reduce carbon emissions and fossil fuel energy consumption and slightly reduce the pace of economic growth. However, a large carbon tax has a significantly negative impact on China's economy and social welfare. Moreover, a large carbon tax would entail marked price changes in China. Of the fossil fuels in use, reducing coal consumption would have the greatest impact on reducing carbon emissions, and the ad valorem duty rate for coal would be the highest after levying a carbon tax because it has the highest carbon emission coefficient. Therefore, China should strive to promote clean coal technology, which may be crucial to reducing carbon emissions. Moreover, levying a carbon tax would improve the use of clean energy, which would be an effective means of reducing carbon emissions. Therefore, the Chinese government should formulate the regulations for and pass a carbon tax as early as possible to achieve its carbon emission abatement target and further contribute to mitigating climate change.     

Effects of primary energy consumption on CO2 emissions under optimal thresholds: Evidence from sixty countries over the last half century

We examine how different types of primary energy consumption (i.e. oil, coal, gas, hydroelectric and other renewables) contribute to carbon dioxide emissions (CO₂) in the world. We allow the effects of each energy source on emissions to vary according to countries' real income or total emission levels. To achieve this, we use a panel breaking regression with four endogenously determined break points, employing time series (1965–2016) data across 60 major pollutant countries with over 2600 observations. Our analysis distinguishes between five optimally-determined country groupings at differing stages of industrialization, technology and scale, in terms of how they generate emissions from different fossil fuels. Our findings suggest that there exist different trade-offs from switching from one primary fuel source to another at different income levels and highlight how significant fuel-specific gains can be made by using other comparable economies as benchmarks.     

Environmental degradation,economic growth and energy consumption: Evidence of the environmental Kuznets curve in Malaysia

This paper tests for the short and long-run relationship between economic growth, carbon dioxide (CO₂) emissions and energy consumption, using the Environmental Kuznets Curve (EKC) by employing both the aggregated and disaggregated energy consumption data in Malaysia for the period 1980–2009. The Autoregressive Distributed Lag (ARDL) methodology and Johansen–Juselius maximum likelihood approach were used to test the cointegration relationship; and the Granger causality test, based on the vector error correction model (VECM), to test for causality. The study does not support an inverted U-shaped relationship (EKC) when aggregated energy consumption data was used. When data was disaggregated based on different energy sources such as oil, coal, gas and electricity, the study does show evidences of the EKC hypothesis. The long-run Granger causality test shows that there is bi-directional causality between economic growth and CO₂ emissions, with coal, gas, electricity and oil consumption. This suggests that decreasing energy consumption such as coal, gas, electricity and oil appears to be an effective way to control CO₂ emissions but simultaneously will hinder economic growth. Thus suitable policies related to the efficient consumption of energy resources and consumption of renewable sources are required.     

Good subsidies or bad subsidies? Evidence from low-carbon transition in China's metallurgical industry

Since the metallurgical industry has become the main source of China's carbon dioxide emissions and energy consumption in recent years, low-carbon transition in that industry is of great significance for achieving China's carbon reduction targets. It is generally believed that phasing out fossil fuel subsidies is an effective way to reduce energy-related CO₂ emissions since it can increase the energy prices and lower its consumption. This paper aims to investigate whether the energy subsidy removal can promote the low-carbon transition of China's metallurgical industry. Taking inter-fuel and inter-factor substitution effects as the link, we calculate the CO₂ mitigation potential on the assumption that the subsidies for each category of fossil energy were eliminated. We find that the metallurgical industry has a sluggish reaction to the changes in energy price. Supposing eliminating the energy subsidies in the period of 2003–2015, the amount of reduced CO₂ would be 487.286 million tons, accounting for a slight proportion of the total emissions in the industry. But it is meaningful for the global CO₂ mitigation since it approximates the whole CO₂ emissions in Norway during the same period. These findings can provide some new insights for the energy subsidy issue and suggest that the additional measures are required to promote the low-carbon transition in China's metallurgical industry rather than just relying on the removal of fossil fuel subsidies.     

Nuclear energy development in China: A study of opportunities and challenges

With rapid economic development, China faces a great challenge to meet its increasing energy demand. Currently, China's energy supply is dominated by coal consumption, while natural gas and oil are in relative short supply. At the same time, nuclear energy is a relatively clean energy without green-house gas emissions. Considering the growing cost of fossil energy and the limited resources in China, oil supply security, coal mining disasters, the domestic environment pressure, and global climate warming, nuclear energy is an inevitable strategic option.     

How the removal of energy subsidy affects general price in China: A study based on input–output model

In China, most energy prices are controlled by the government and are under-priced, which means energy subsidies existing. Reforming energy subsidies have important implications for sustainable development through their effects on energy price, energy use and CO₂ emission. This paper applies a price-gap approach to estimate China's fossil-fuel related subsidies with the consideration of the external cost. Results indicate that the magnitude of subsidies amounted to CNY 1214.24 billion in 2008, equivalent to 4.04% of GDP of that year. Subsidies for oil products are the largest, followed by subsidies for the coal and electricity. Furthermore, an input–output model is used to analyze the impacts of energy subsidies reform on different industries and general price indexes. The findings show that removal of energy subsidies will have significant impact on energy-intensive industry, and consequently push up the general price level, yet with a small variation. Removing oil products subsidies will have the largest impact, followed by electricity, coal and natural gas. However, no matter which energy price increases, PPI is always the most affected, then GDP deflator, with CPI being the least. Corresponding compensation measures should be accordingly designed to offset the negative impact caused by energy subsidies reform.     

How much can CO2 emissions be reduced if fossil fuel subsidies are removed?

This paper analyzes consumers' price elasticities of demand for fossil fuels, and how a reduction of fossil fuel subsidies can lead to important reduction in CO₂ emissions for various groups of countries that have relatively high fossil fuel subsidies and notably on diesel, including countries in the Middle East and North Africa (MENA). These countries continue to maintain significant levels of fuel subsidies, with Iran and Saudi Arabia being the largest contributors to CO₂ emissions. This paper illustrates that fuel price policy reforms by these countries would be an important instrument for both climate and economic policies. We estimate that a reduction in subsidies to both gasoline and diesel by about 20 US$ cents per liter will lead to significant decreases in CO₂ emissions, both in the MENA region and globally. In Iran, for example, the reductions could be up to 90% and 50% of current emissions generated from diesel and gasoline consumption, respectively, and for Saudi Arabia, approximately 70% and 40%, respectively.     

Modeling China’s energy dilemma: conflicts among energy saving, energy security, and CO2 mitigation

This study analyzes China’s future energy scenarios stretching until 2050 under different policy portfolios of energy security (e.g., oil import dependency) and CO₂ emissions control. Four scenarios, namely, ① business as usual, ② strong oil import dependency (OID) control, ③ strong CO₂ emissions control, and ④ twofold emphasis on OID and CO₂ emissions control, are designed. The results reveal the existence of conflicts among China’s multiple objectives, particularly energy saving, energy security, and CO₂ mitigation. Based on the analysis, an improvement in China’s efficiency in fossil energy conversion and the promotion of the utilization of non-fossil energy such as nuclear, wind, and hydro energy are recommended. The over-development of coal-derived fuels should also be avoided because of incremental coal consumption and CO₂ emissions. Furthermore, research on and development of carbon capture and storage technologies should be promoted, while the energy efficiency loss caused by integrating these technologies into energy systems should be reduced in view of the high possibility of stricter standards for CO₂ emissions in the future.     

Quantification of provincial-level carbon emissions from energy consumption in China

Greenhouse gas emission inventories are useful tools for monitoring air quality and assisting local policy development. This article estimates CO₂ emission inventories from energy consumption and carbon intensities of provinces and municipalities in Mainland China in 1990, 1995, 2000, and 2005–2008 using the IPCC mass balance approach. Results show that China's coal-based energy structure and unique economic development have heavily impacted CO₂ emissions. Fortunately, although coal consumption has increased to over 70% of all fuel use, the share of CO₂ emissions from coal has gradually decreased due to energy consumption restructuring. The switch from coal-dominance to cleaner, renewable energies (wind, solar, natural gas, nuclear power, geothermal, biomass energy) will undoubtedly reduce CO₂ emissions in China. Results also indicate that carbon intensity has improved steadily, as China's economic development introduces new technologies intended to minimize environmental pollution and destruction. Our results suggest that China's CO₂ emissions may not be as high as expected in future, and will gradually lessen.     

Artificial neural network analysis of world green energy use

This paper focuses on the analysis of world green energy consumption through artificial neural networks (ANN). In addition, the consumption is also analyzed of world primary energy including fossil fuels such as coal, oil and natural gas. A feed-forward back-propagation ANN is used for training and learning processes by taking into consideration data from the literature of world energy consumption from 1965 to 2004. Also, an ANN approach for forecasting world green energy consumption to the year 2050 is presented, and the consumption equations for different energy sources are derived. The environmental aspects of green energy and fossil fuels are discussed in detail. The resulting ANN-based equation curve profiles verify that the available economic reserves of fossil fuel resources are limited, and become “depleted” in the near future. It is expected that world green energy consumption will reach almost 62.74 EJ by 2010, and be on average 32.29% of total energy use between 2005 and 2025. However, world green energy and natural gas consumption will continue increasing after 2050, while world oil and coal consumption are expected to remain relatively stable after 2025 and 2045, respectively. The ANN approach appears to be a suitable method for forecasting energy consumption data, should be utilized in efforts to model world energy consumption.     

Renewable energy for sustainable electrical energy system in India

Present trends of electrical energy supply and demand are not sustainable because of the huge gap between demand and supply in foreseeable future in India. The path towards sustainability is exploitation of energy conservation and aggressive use of renewable energy systems. Potential of renewable energy technologies that can be effectively harnessed would depend on future technology developments and breakthrough in cost reduction. This requires adequate policy guidelines and interventions in the Indian power sector. Detailed MARKAL simulations, for power sector in India, show that full exploitation of energy conservation potential and an aggressive implementation of renewable energy technologies lead to sustainable development. Coal and other fossil fuel (gas and oil) allocations stagnated after the year 2015 and remain constant up to 2040. After the year 2040, the requirement for coal and gas goes down and carbon emissions decrease steeply. By the year 2045, 25% electrical energy can be supplied by renewable energy and the CO₂ emissions can be reduced by 72% as compared to the base case scenario.     

World energy analysis: H2 now or later?

This is a study of world energy resource sustainability within the context of resource peak production dates, advanced energy use technologies in the transportation and electricity generation energy use sectors, and alternative fuel production including hydrogen. The finding causing the most concern is the projection of a peak in global conventional oil production between now and 2023. In addition, the findings indicate that the peak production date for natural gas, coal, and uranium could occur by 2050. The central question is whether oil production from non-conventional oil resources can be increased at a fast enough rate to offset declines in conventional oil production. The development of non-conventional oil production raises concerns about increased energy use, greenhouse gas emissions, and water issues. Due to the emerging fossil fuel resource constraints in coming decades, this study concludes that it is prudent to begin the development of hydrogen production and distribution systems in the near-term. The hydrogen gas is to be initially used by fuel cell vehicles, which will eliminate tailpipe greenhouse gas emissions. With a lowering of H₂ production costs through the amortization of system components, H₂ can be an economic fuel source for electricity generation post-2040.     

Energy caps: Alternative climate policy instruments for China?

Decoupling fossil energy demand from economic growth is crucial for China's sustainable development, especially for addressing severe local air pollution and global climate change. An absolute cap on coal or fossil fuel consumption has been proposed as a means to support the country's energy and climate policy objectives. We evaluate potential energy cap designs that differ in terms of target fuel, point of control, and national versus regional allowance trading using a global numerical general equilibrium model that separately represents 30 provinces in China. First, we simulate a coal cap and find that relative to a cap on all fossil fuels, it is significantly more costly and results in high localized welfare losses. Second, we compare fossil energy cap designs and find that a national cap on downstream fossil energy use with allowance trading across provinces is the most cost effective. Third, we find that a national fossil energy cap with trading is nearly as cost effective as a national CO₂ emissions trading system that penalizes energy use based on carbon content. As a fossil energy cap builds on existing institutions in China, it offers a viable intermediate step toward a full-fledged CO₂ emissions trading system.     

Global fossil-fuel subsidy reform and Paris Agreement

The recent downward trend in the international energy prices, combined with the rapid transition in the national energy mix and widespread efforts towards national energy market liberalization have challenged the mitigation potential of the global fossil-fuel subsidy reform. In this paper, we focus on 25 countries with large fossil-fuel consumption subsidies and estimate the impacts of fossil-fuel subsidy reform on achieving country-specific emissions reduction targets defined by the Nationally Determined Contributions (NDCs) under different oil price projections. Our results suggest that the elimination of the fossil-fuel consumption subsidies could be an effective mechanism for meeting NDC targets for an important subset of countries, even if only leading to global emissions reduction of between 1.8 and 3.2% in 2030 depending on the oil price scenario. Out of 17 countries with binding unconditional NDC targets, nine overreach their 2030 commitments under high oil price scenario and six under low global oil prices. Furthermore, eleven countries reach at least 50% of their NDC reduction targets following subsidies elimination under low global oil price path.     

Decomposition analysis of the decoupling indicator of carbon emissions due to fossil energy consumption from economic growth in China

This study decomposed the indicator of decoupling of carbon emissions due to fossil energy consumption from economic growth in China via the logarithmic mean Divisia index (LMDI) method to explore key factors influencing decoupling status in different periods. The decoupling indicator was decomposed into energy structure, energy intensity, economic structure, and economic output effects over each period. Decoupling varied due to changes in economic growth and energy intensity during different periods. The economic output effect significantly enhanced decoupling, while the energy intensity effect greatly decreased decoupling. The energy structure and economic structure effects had slight impacts on decoupling. A comparative analysis across different sectors and industrial subsectors revealed that industrial growth determined the status of decoupling of carbon emissions from economic growth in China. In terms of industrial subsectors, the major sources of carbon emissions were electricity, steam, and water production and other energy-intensive subsectors. The energy-intensive subsectors, such as coal mining and washing, petroleum and natural gas exploitation, and chemical manufacture, had great effects on the decoupling of carbon emissions, whereas non-energy-intensive subsectors, such as instruments, meters, cultural and office machinery, and ordinary equipment manufacture, had relatively slight impacts on the decoupling. Policy implications in terms of economic growth, economic structure, and energy consumption were discussed.