Skip to main content

Advertisement

SpringerLink
Log in

Impacts of residential electricity subsidy reform in China

  • Original Article
  • Published:
Energy Efficiency Aims and scope Submit manuscript

Abstract

China’s rapid economic growth causes a sharp increase in the demand for electricity. Electricity price in China is generally controlled at a low level by the government, leading to a substantial electricity subsidy. Electricity subsidy is the focus of energy price reform. It is also most closely linked with residential life and is a very sensitive issue to residents. This paper adopts the price-gap approach to estimate the scale of electricity subsidy and finds that in 2010, residential electricity subsidy in China amounted to 467.17 billion CNY (Chinese yuan), accounting for 1.17 % of GDP in that year. Subsequently, the paper estimates the impacts of residential electricity subsidy reform on the welfare of residents using the compensating variation (CV) measurement. The results show that if residential electricity price rises by 50, 100, 150, and 191 %, the CV should be 288.5, 394.2, 451.1, and 467.2 billion CNY, respectively. The residential electricity subsidy reform also has a moderating role in the rebound effect of electricity consumption. The direct rebound effect in China’s residential electricity consumption is 20 %. Electricity subsidy reform will raise terminal electricity price and restrain residential electricity consumption. Therefore, electricity subsidy reform should be an effective measure to mitigate the rebound effect.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3

Similar content being viewed by others

Notes

  1. In China, energy prices are controlled by the government, so if the government raised energy prices or cut taxes to energy companies, this means the government subsidizes these energy producers.

  2. The China Electricity Council Report shows that because coal cost accounts for more than two thirds of the total power generation costs (including transmission and distribution costs), it is the most closely related variable cost to electricity consumption. Thus, we adjust long-term power cost based on coal price variation.

References

  • Atakhanova, Z., & Howie, P. (2007). Electricity demand in Kazakhstan. Energy Policy, 35(7), 3729–3743.

    Article  Google Scholar 

  • Anderson, K., McKibbin W.J., (1997). Reducing coal subsidies and trade barriers: Their contribution to GHGs abatement. University of Adelaid, CIES.

  • Antonio, F. A., & Ignacio, C. (2009). New approach for the assignment of new European agricultural subsidies using scores from data envelopment analysis: application to olive-growing farms in Andalusia (Spain). European Journal of Operational Research, 193(3), 718–729.

    Article  MATH  Google Scholar 

  • Barker, T., Ekins, P., & Foxon, T. (2007). The macro-economic rebound effect and the UK economy. Energy Policy, 35, 4935–4946.

    Article  Google Scholar 

  • Bereket, K. (2006). Energy subsidies and costs in urban Ethiopia: the cases of kerosene and electricity. Renewable Energy, 31, 2140–2151.

    Article  Google Scholar 

  • Berkhout, H. G., Muskens, J. C., & Velthuijsen, J. W. (2000). Defining the rebound effect. Energy Policy, 28, 425–432.

    Article  Google Scholar 

  • Chattopadhyay, P. (2004). Cross-subsidy in electricity tariffs: evidence from India. Energy Policy, 32(5), 673–684.

    Article  Google Scholar 

  • Chattopadhyay, P. (2007). Testing viability of cross subsidy using time-variant price elasticities of industrial demand for electricity: Indian experience. Energy Policy, 35(1), 487–496.

    Article  Google Scholar 

  • China Energy Statistical Yearbook, (2011). Beijing: China Statistics Press.

  • Corden, M. (1957). The calculation of the cost of protection. The Economic Record, 33, 29–51.

    Article  Google Scholar 

  • Cust, J., Neuhoff, K., (2010) The economics, politics, and future of energy subsidies. In: Report from climate policy initiative workshop, hosted at DIW Berlin.

  • De, M. (2001). Towards a grand deal on subsidies and climate change. Natural Resources Forum, 25, 167–176.

    Article  Google Scholar 

  • Dumagan, J.C., Mount, T.D., (1992). Welfare effects of improving end-use efficiency: theory and application to residential electricity demand. Working Paper, New York: Department of Agricultural Economics, New York State College of Agriculture and Life Sciences, A Statutory College of the State University Cornell University.

  • ESMAP (2004). Energy policies and the Mexican economy. In Technical paper 047. Washington, DC: World Bank.

    Google Scholar 

  • Freire Gonza’lez, J. (2010). Empirical evidence of direct rebound effect in Catalonia. Energy Policy, 38, 2309–2314.

    Article  Google Scholar 

  • Greening, L. D. G. (2000). Energy efficiency and consumption—the rebound effect—a survey. Energy Policy, 28, 389–401.

    Article  Google Scholar 

  • He, X. P., Liu, X. Y., & Lin, Y. P. (2009). China’s electricity demand forecast under urbanization process. Economic Research Journal, 1, 118–130 in Chinese.

    Google Scholar 

  • IEA (1999). World energy outlook insights, looking at energy subsidies: getting the prices right. Paris: IEA/OECD.

    Google Scholar 

  • IEA (2002). World energy outlook 2002. Paris: IEA/OECD.

    Book  Google Scholar 

  • IEA (2006). World energy outlook 2006. Paris: IEA/OECD.

    Book  Google Scholar 

  • Ikhupuleng, D. (2003). Impact of energy subsidies on energy consumption and supply in Zimbabwe: do the urban poor really benefit? Energy Policy, 31, 1635–1645.

    Article  Google Scholar 

  • IPCC, (2006). Guidelines for national greenhouse gas inventories. Industrial Processes and Product Use 3. Available at http://www.ipcc-nggip.iges.or.jp/.

  • Jiang, Z. Y. (2010). Comparison of external costs of environmental impacts from nuclear power and coal power in China. Research of Environmental Sciences, 8, 1086–1090 in Chinese.

    Google Scholar 

  • Li, H., Dong, L., & Wang, D. (2013). Economic and environmental gains of China’s fossil energy subsidies reform: a rebound effect case study with EIMO model. Energy Policy, 54, 335–342.

    Article  Google Scholar 

  • Lin, B. Q. (2006). Power sector development in PRC: impact of tariff increase and blackout. Economic Research Journal, 5, 115–126 in Chinese.

    Google Scholar 

  • Lin, B. Q., & Li, A. J. (2012). Impacts of removing fossil fuel subsidies on China: how large and how to mitigate? Energy, 44(8), 741–749.

    Article  Google Scholar 

  • Lin, B. Q., & Liu, X. (2012). Dilemma between economic development and energy conservation: energy rebound effect in China. Energy, 45(9), 867–873.

    Article  Google Scholar 

  • Lin, B. Q., Jiang, Z. J., & Lin, J. (2009). The analysis and design of China’s residential electricity tariff subsidies. Financial Research Journal, 11, 48–58 in Chinese.

    Google Scholar 

  • Lin B.Q., Wang, X.L., (2012). Electricity subsidy reform in China. Working paper, Xiamen: Xiamen University.

  • Liu, W., & Li, H. (2011). Improving energy consumption structure: a comprehensive assessment of fossil energy subsidies reform in China. Energy Policy, 39(7), 4134–4143.

    Article  Google Scholar 

  • MacKinnon, J. G., Haug, A. A., & Michelis, L. (1999). Numerical distribution functions of likelihood ratio tests for cointegration. Journal of Applied Econometrics, 14, 563–577.

  • Mansor, K. A., & Sajjad, B. (2012). An evaluation of the welfare effects of reducing energy subsides in Iran. Energy Policy, 47, 398–404.

    Article  Google Scholar 

  • Mas-Collel, A., Whinston, M. D., & Green, J. R. (1995). Microeconomic theory. Oxford: Oxford University Press.

  • Matos, F. J. F., & Silva, F. J. F. (2011). The rebound effect on road freight transport: empirical evidence from Portugal. Energy Policy, 39, 2833–2841.

    Article  Google Scholar 

  • Matthew, B., Joel, F. E., & Lawrence, G. (1998). The energy project-restructuring and small electric customers. State Legislative Report, 23(3), 415–431.

    Google Scholar 

  • Nahata, B., Izyumov, A., Vladimir, B., & Mishura, A. (2007). An application of Ramsey model in transition economy: a Russian case study. Energy Economics, 29(1), 105–125.

    Article  Google Scholar 

  • Ouyang, J., Long, E., & Hokao, K. (2010). Rebound effect in Chinese household energy efficiency and solution for mitigating it. Energy, 35, 5269–5276.

    Article  Google Scholar 

  • Ouyang, X. L., & Lin, B. Q. (2014). Impacts of increasing renewable energy subsidies and phasing out fossil fuel subsidies in China. Renewable and Sustainable Energy Reviews, 37, 933–942.

    Article  Google Scholar 

  • Ouyang, X. L., & Sun, C. W. (2015). Energy savings potential in China’s industrial sector: from the perspectives of factor price distortion and allocative inefficiency. Energy Economics, 48, 117–126.

    Article  Google Scholar 

  • Qi, F., Zhang, L.Z., Wei, B., Que, G.H., (2009). An application of Ramsey pricing in solving the cross-subsidies in Chinese electricity tariffs IEEE, 442–447.

  • Ruzzenenti, F., & Basosi, R. (2008). The rebound effect: an evolutionary perspective. Ecological Economics, 67, 526–537.

    Article  Google Scholar 

  • Saeed, S., & Fatimah, K. (2014). Impacts of energy subsidy reform on the Malaysian economy and transportation sector. Energy Policy, 70, 115–125.

    Article  Google Scholar 

  • Saunders, H. D. (1992). The Khazzoom–Brookes postulate and neoclassical growth. The Energy Journal, 13, 131–145.

    Article  Google Scholar 

  • Wang, H., Zhou, P., & Zhou, D. Q. (2012). An empirical study of direct rebound effect for passenger transport in urban China. Energy Economics, 34, 452–460.

    Article  Google Scholar 

  • Wei, T. (2010). A general equilibrium view of global rebound effects. Energy Economics, 32, 661–672.

    Article  Google Scholar 

  • Yao, X., Jiang, Z. J., & Liu, J. H. (2011). Removing fossil energy subsidies can support the developing of clean energy. Financial Research Journal, 3, 184–197 in Chinese.

    Google Scholar 

Download references

Acknowledgments

The authors are grateful to Presley K. Wesseh, Jr., for helping to improve the language quality of this paper. The paper is supported by Xiamen University - Newcastle University Joint Strategic Partnership Fund, the Grant for Collaborative Innovation Center for Energy Economics and Energy Policy (No: 1260-Z0210011), Xiamen University Flourish Plan Special Funding (No:1260-Y07200), and the Philosophy and Social Science Fund of Jiangsu Education (No: 2016SJD790024).

Author information

Authors and Affiliations

  1. School of Management, China University of Mining and Technology, Xuzhou, Jiangsu, 221116, China

    Xiaolei Wang

  2. Collaborative Innovation Center for Energy Economics and Energy Policy, China Institute for Studies in Energy Policy, Xiamen University, Xiamen, 361005, China

    Boqiang Lin

Authors
  1. Xiaolei Wang
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Boqiang Lin
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Boqiang Lin.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Wang, X., Lin, B. Impacts of residential electricity subsidy reform in China. Energy Efficiency 10, 499–511 (2017). https://doi.org/10.1007/s12053-016-9466-3

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s12053-016-9466-3

Keywords

Search

Navigation