Is the price elasticity of demand for coal in China increasing?

Abstract

China's dependence on coal is a major contributor to local and global environmental problems. In this paper we estimate the price elasticity of demand for coal in China using a panel of province-level data for the period 1998-2012. We find evidence that provincial coal demand has become increasingly price elastic. As of 2012 we estimate that this elasticity was in the range-0.3 to-0.7 when responses over two years are considered. The results imply that China's coal market is becoming more suited to price-based approaches to reducing emissions. Our estimates suggest that the elimination of coal consumption subsidies could reduce national coal use and related emissions by around 2%.

Understanding the role of economic transition in enlarging energy price elasticity

“…In this intensive work, they find that coal consumption has become increasingly price elastic, and thus they suggest that China's coal market is becoming more suited to price‐based policies to reducing emissions. It should be noted that, increasing price elasticity with time in Burke and Liao () does not necessarily indicate that increasing elasticity is caused by market‐oriented reform . It is more of a synchronous relationship over time.…”

“…Another important variable is energy price. Data on China's provincial energy prices are not directly available; we use panel data of the fuel price index as the proxy of energy price, similar to Lin and Du (2015) and Burke and Liao (2015). Fuel price indexes are obtained from the Price Yearbook of China (1998)(1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010).…”

“…More technical details and mechanisms about how energy efficiency improvement results in the rebound of energy consumption can be seen in Gillingham et al (2016). Overall, the existence of a rebound effect indicates that policies of energy conservation and emissions reduction can only be effectively carried out if they are implemented alongside proper energy pricing reforms and energy taxes, especially considering that China's energy prices were artificially depressed by government through energy subsidies (Burke and Liao, 2015). It is highly possible that economic transition would lead to higher energy prices.…”

“…InBurke and Liao (2015), the changed price elasticity over time is identified by the cross term of energy price and time.…”

How did the price and income elasticities of natural gas demand in China evolve from 1999 to 2015? The role of natural gas price reform

“…To further explore whether the price elasticity of natural gas demand has changed over time, we follow the work of Burke and Liao (2015) and extend Eq. (1) by interacting the natural gas price term with the time trend as follows:…”