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Energy Journal Issue

The Energy Journal
Volume 37, China Special Issue

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Ying fan and Adonis Yatchew

DOI: 10.5547/01956574.37.SI1.yfan
No Abstract

Convergence of Operational Efficiency in China’s Provincial Power Sectors

Vishal Chandr Jaunky and Lin Zhang

DOI: 10.5547/01956574.37.SI1.vjau
View Abstract

To analyze the operational efficiency of Chinese power sector at the provincial level, this paper studies the convergence of technical efficiency and productivity growth of electricity across 29 Chinese provinces during the period 1996-2008 using several convergence models. Depending on the model being employed, we find evidence of convergence of operational efficiency towards either a national steady state or towards their own steady states, with the latter process occurring more rapidly. In essence, our study provides evidence of negative effects of government intervention. Additionally, we use the nonparametric distribution dynamics approach to analyze intra-distributional dynamics of technical efficiency and productivity. We find some support for productivity convergence while technical efficiency does not converge for provinces with relatively low levels. We discuss policy implementations based on our model results and highlight several aspects for policy making in the power sector reforms currently being undertaken.

The Causality between Energy Consumption and Economic Growth for China in a Time-varying Framework

Jin Zhang and David C. Broadstock

DOI: 10.5547/01956574.37.SI1.jzha
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Extending existing studies based on constant structure, we adopt a time-varying approach to study energy consumption and GDP causality for China in a context of industrialization and urbanization. We find that in light of structural change, China's energy consumption is trend-stationary and thus forms no cointegration with GDP. Further, the relationship between energy consumption and GDP is two-way causal and has been decreasing in strength over time. Finally, industrialization and urbanization, especially the former, have limited effects on energy consumption, suggesting the decreasing energy intensities in individual sectors, instead of structure shift between sectors, as the main reason for China's decreasing energy intensity over the years.

Shocks and Stocks: A Bottom-up Assessment of the Relationship Between Oil Prices, Gasoline Prices and the Returns of Chinese Firms

David C. Broadstock, Ying Fan, Qiang Ji, and Dayong Zhang

DOI: 10.5547/01956574.37.SI1.dbro
View Abstract

Oil price shocks are known to affect the financial sector of the economy, due to the inflationary effects, and increasing costs of doing business they create. Though oil-shocks and financial markets are widely researched, there remains scope for deeper understanding using firm level data. We therefore contribute to the literature by extending widely applied multi-factor asset pricing models to a sample of 963 Chinese firms (between 2005-2013) to (i) systematically evaluate their reactions to oil price shocks, and (ii) further include regulated gasoline prices as a more direct measure of the energy-prices faced by firms. 89.2% of firms are susceptible to oil shocks, with positive and negative reactions observed even for firms within the same industry. Gasoline price shocks are more pervasive, affecting 95.7% of firms. Considering oil and gasoline separately allows us to review gasoline price regulation in China, which ultimately appears ineffective in achieving its intended goals.

Household energy demand in Urban China: Accounting for regional prices and rapid income change

Jing Cao, Mun S. Ho, and Huifang Liang

DOI: 10.5547/01956574.37.SI1.jcao
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Understanding the rapidly rising demand for energy in China is essential to efforts to reduce the country's energy use and environmental damage. In response to rising incomes and changing prices and demographics, household use of various fuels, electricity and gasoline has changed dramatically in China. In this paper, we estimate both income and price elasticities for various energy types using Chinese urban household micro-data collected by National bureau of Statistics, by applying a two-stage budgeting AIDS model. We find that total energy is price and income inelastic for all income groups after accounting for demographic and regional effects. Our estimated electricity price elasticity ranges from - 0.49 to -0.57, gas price elasticity ranges from -0.46 to -0.94, and gasoline price elasticity ranges from -0.85 to -0.94. Income elasticity for various energy types range from 0.57 to 0.94. Demand for coal is most price and income elastic among the poor, whereas gasoline demand is elastic for the rich.

The Marginal Abatement Cost of Carbon Emissions in China

Chunbo Ma and Atakelty Hailu

DOI: 10.5547/01956574.37.SI1.cma
View Abstract

There is an emerging literature estimating the marginal cost of carbon mitigation in China using distance function approaches; however, empirical estimates vary widely in magnitude and variation, which undermines support for policies to curb carbon emission. Applying three commonly used distance functions to China's provincial data from 2001 to 2010, we show that the variability can be partially explained by the difference in the input/output coverage and whether the estimated marginal abatement cost (MAC) is conditional on the abatement of other correlated pollutants. We also argue that the substantial heterogeneity in abatement cost estimates could be related to an economic interpretation that radial measures reflect the short-run MACs while non-radial measures reflect the long-run MACs. Our mean short-run MAC for carbon is 20 US$ per tonne, an amount that is very close to the carbon prices observed in China's recently launched pilot markets.

The Economic Effects of Initial Quota Allocations on Carbon Emissions Trading in China

Jie Wu, Ying Fan, Yan Xia

DOI: 10.5547/01956574.37.SI1.jwu
View Abstract

The emissions trading scheme has recently become an important emissions reduction mechanism in China. The initial quota allocation is one of the key points in its design, which includes the initial quota allocation criterion and allocation method. In this paper, we analyze the regional macroeconomic impacts of emissions trading in China under different quota allocation criteria and allocation methods using a multiregional computable general equilibrium (CGE) model. The results show that the Ability-to-Pay criterion is better than the other criteria, as it can lead to fewer macroeconomic costs and welfare losses; narrow the economic gap between the eastern, central and western regions; and guide investment into the western regions. Comparing free allocation and auction, it is determined that free allocation leads to lower macroeconomic costs, while auction is better at adjusting the industrial structure. This indicates that a hybrid allocation method is preferable.

Factors influencing energy intensity in four Chinese industries

Karen Fisher-Vanden, Yong Hu, Gary Jefferson, Michael Rock and Michael Toman

DOI: 10.5547/01956574.37.SI1.kfis
View Abstract

In this paper, we investigate the determinants of decline in energy intensity in four Chinese industries - pulp and paper, cement, iron and steel, and aluminum. This paper attempts to answer the following key question: For the purpose of promoting energy efficiency, do prices, technology, enterprise restructuring and other policy-related instruments affect various sectors uniformly so as to justify uniform industrial energy conservation policies, or do different industries respond significantly differently so as to require policies that are tailored to each sector separately? In this paper, we examine this question using data for China's most energy-intensive large and medium-size enterprises over the period 1999-2004. Our results suggest that in all four industries rising energy costs are a significant contributor to the decline in energy intensity over our period of study. China's industrial policies encouraging consolidations and scale economies also seem to have contributed to reductions in energy intensity in these four industries.

Willingness to Pay for Climate Change Mitigation: Evidence from China

Yujie Li, Xiaoyi Mu,Anita Schiller, and Baowei Zheng

DOI: 10.5547/01956574.37.SI1.yli
View Abstract

China has become the largest emitter of carbon dioxide in the world. However, the Chinese public's willingness to pay (WTP) for climate change mitigation is, at best, under-researched. This study draws upon a large national survey of Chinese public cognition and attitude towards climate change and analyzes the determinants of consumers' WTP for energy-efficient and environment-friendly products. Eighty-five percent of respondents indicate that they are willing to pay at least 10 percent more than the market price for these products. The econometric analysis indicates that income, education, age and gender, as well as public awareness and concerns about climate change are significant factors influencing WTP. Respondents who are more knowledgeable and more concerned about the adverse effect of climate change show higher WTP. In comparison, income elasticity is small. The results are robust to different model specifications and estimation techniques.

Market and Non-market Policies for Renewable Energy Diffusion: A Unifying Framework and Empirical Evidence from China’s Wind Power Sector

Yang Liu and Taoyuan Wei

DOI: 10.5547/01956574.37.SI1.lyan
View Abstract

We provide a comprehensive framework of analyzing the diffusion process of renewable technology, incorporating epidemic and pecuniary effects. Relying on a panel dataset consisting of information from 1207 CDM wind projects in thirty provinces over the period 2004-2011, we find strong evidence on the dominant role of the epidemic effect and new evidence on pecuniary effects that generate a diminishing marginal effect of profitability in inducing technology adoption. Our numerical simulation demonstrates that the epidemic effect can play a quantitatively important role in the spread of renewable energy technology and markedly enhance the optimal social welfare. Our findings convey important policy implications for regulators when choosing policy instruments to enhance the diffusion and adoption of clean technology. Price instruments should be complemented by a wide range of non-market instruments to address non-market barriers. Policy interventions should be taken using a systemic approach.

Economic Growth and Infrastructure Investments in Energy and Transportation: A Causality Interpretation of China’s Western Development Strategy

Alice Shiu, Raymond Li, and Chi-Keung Woo

DOI: 10.5547/01956574.37.SI1.ashi
View Abstract

Were the large investments in energy and transportation infrastructure effective in fostering economic growth? Or did economic growth trigger these infrastructure developments? To answer these questions, we develop a simple model of production capacity constraints and use China's Western Development Strategy (WDS) as an example to investigate how the relationships among energy investment, transportation infrastructure expansion and economic growth differ in the pre-and post-WDS periods. Our Granger causality analysis uses a panel data sample for China's 30 provinces in the Western and non-Western regions for the period of 1991-2012. We find Granger causality only in the post-WDS period from transportation infrastructure expansion to economic growth and from economic growth to energy investment. These results suggest energy and transportation capacity constraints in the post-WDS period but not the pre-WDS period. Their policy implication is that China should continue its energy and transportation infrastructure investments with improved coordination.

Regional Opportunities for China To Go Low-Carbon: Results from the REEC Model

Hongbo Duan, Lei Zhu, Gürkan Kumbaroglu, and Ying Fan

DOI: 10.5547/01956574.37.SI1.hdua
View Abstract

The intention of this paper is to (i) introduce a multi-regional dynamic emissions trading model and (ii) examine the potential impact of an emissions trading scheme (ETS) on the long-term evolution of energy technologies from national and regional perspectives in China. The establishment of this model is a salutary attempt to Sinicize the global integrated assessment model that combines economy, energy, and environment systems. The simulation results indicate that: (1) for majority of regions, ETS is more effective in cutting CO2 emissions than a harmonized carbon tax (HCT), but this might not be true for the entire country, which means that these two options have little difference in overall carbon reduction; (2) carbon tax policy is a more cost-effective option in curbing CO2 with respect to ETS in the long run; (3) neither ETS nor pure carbon tax provide enough incentives for the breakthrough of carbon-free energy technologies, which illustrates that matching with some other support policies, such as subsidies and R&D investment, is essential to extend the niche market; and (4) In the context of ETS, the diffusion of non-fossil technologies in regions that act as sellers performs much better than this diffusion in the buyer regions.