How Energy Price Distortions Affect China’s Economic Growth and Carbon Emissions

Abstract

China’s energy market reform is characterized by “asymmetry” as a result of the transition from a planned economy to a market economy, leading to typical distortions in energy prices. Using panel data from 30 Chinese provinces during 2006–2018, this paper examines the impact of the price distortions of fossil energy sources (coal, oil, and natural gas) as well as renewable energy on China’s economic growth and carbon emissions. The results show that coal price distortion is the highest among the fossil energy sources, followed by oil and natural gas. Renewable energy price is positively distorted. Not all price distortions of energy sources significantly impede economic growth—only those of coal and renewable energy. In contrast, oil and natural gas price distortions promote economic growth. All four energy price distortions contribute significantly to the increase in carbon emissions. Further analysis reveals that regional heterogeneity exists in the impact of energy price distortions on economic growth and carbon emissions. Additionally, this study finds that technological innovation, industrial structure upgrading, the investment effect, the optimization of energy consumption structure, and environmental regulations are important transmission mechanisms of energy price distortions affecting China’s economic growth and carbon emissions. The findings of this study can help us to understand the relationship between energy price distortions and China’s economic growth and carbon emissions, and provide a reference for formulating energy price reform policies that benefit the win-win development of China’s economy and environment.

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