Improving energy consumption structure: A comprehensive assessment of fossil energy subsidies reform in China

Energy Policy 39 (2011) 4134–4143

Contents lists available at ScienceDirect

Energy Policy journal homepage: www.elsevier.com/locate/enpol

Improving energy consumption structure: A comprehensive assessment of fossil energy subsidies reform in China Wei Liu, Hong Li n School of Economics, Peking University, Haidian District, 5 Yi HeYuan AV., Beijing 100871, PR China

a r t i c l e i n f o

a b s t r a c t

Article history: Received 21 April 2010 Accepted 7 April 2011 Available online 7 May 2011

Fossil energy subsidies reform would be an effective way to improve the energy consumption structure; however, the reform needs to be assessed comprehensively beforehand as it would exert uncertain impacts on economy, society and environment. In this paper, we use price-gap approach to estimate the fossil energy subsidies of China, then establish CGE model that contains pollutant emissions accounts and CO2 emissions account to stimulate the fossil energy subsidies reform under different scenarios, and the environmental economic analysis concept is introduced to monetize the pollutant reduction benefits. Furthermore, we analyze the possibility and scope of improving the energy consumption structure from the perspective of technical and economic analysis. Analytical results show that the energy consumption structure could be improved by different extent by removing coal or oil subsidies, while the economic and social indexes will be influenced distinctively. Meanwhile, the effects of cutting coal subsidies are more feasible than that of cutting oil subsidies overall. It is recommended to implement fossil energy subsidies gradually, cut the coal first and then cut oil subsidies successively. & 2011 Elsevier Ltd. All rights reserved.

Keywords: Energy consumption structure Fossil energy subsidies reform CGE model

1. Introduction From 1950 to 2007, fossil energy dominated the energy consumption in China, maintaining a proportion about 90%. Specifically, coal consumption took the largest proportion, that is 69.5% in 2007, while oil consumption took only 19.7% (the corresponding proportions of the world in the same year are 28.6% and 35.6%). Coal combustion generates more pollutants such as SO2, NOX and waste solid than other fossil energies.1 As a result, the carbon dioxide (CO2) emissions of China were booming with the increase of coal consumption, which reached to 6.28 billion tons in 2007.2 As above, China faces tremendous intrinsic and extrinsic pressures from the perspective of sustainable development of socio-economy, energy and environment.

n

Corresponding author. Tel.: þ86 1367 1366 001; fax: þ86 10 6275 1460. E-mail address: [email protected] (H. Li). 1 As to main atmosphere pollutants coal combustion is the mail emitter, 90% of SO2, 70% of dust, 67% of NOx and 70% of CO2 came from coal combustion. In addition, the overall utilization efficiency of coal is only 27%, lower by 20% than oil, and 30% than natural gas. Sources: WANG Qingyi, 2009. China’s end-use energy consumption and energy efficiency in 2007. Energy conservation and Environmental protection. 2 Coal’s emission co-efficient (Carbon emission per unit of energy) is higher than other fossil energy. The emission co-efficient of coal, oil, natural gas are 0.7889, 0.5857, 0.4483 respectively. (t/t) Resource: 2006 IPCC Guidelines for National Greenhouse Gas Inventories. 0301-4215/$ - see front matter & 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.enpol.2011.04.013

In fact, China’s coal-dominant energy consumption structure is constrained by various factors, e.g. energy resource endowments, technology lock-in effects, relative energy prices and policy interventions. Most importantly, it is urgent for the Chinese government to redress the long-standing and massive fossil energy subsidies.4 The original intentions of fossil energy subsidies are to ensure low-income groups access to modern energy utilization, to maintain price stability and to boost international competitiveness of the exported products. However, subsidies make the price of fossil energy deviate from their true costs, which results in problems of over-consumption. Removing or cutting fossil energy subsidies would be a possible approach to improve the coal-dominated energy consumption structure; however, it would also bring some uncertain impacts on the socio-economy, energy and environment. Therefore, an in-depth simulation and analysis of positive and negative impacts of fossil energy subsidies reform is necessary for China, especially during its period of economic transition.

2. Brief review of literature Currently, international institutions and researchers have done a series of empirical researches on fossil energy subsidies reform and made analysis of its impacts on economy, society and environment.

W. Liu, H. Li / Energy Policy 39 (2011) 4134–4143

As to how removing or cutting fossil energy subsidies would affect the economy. Some researchers proved that fossil energy subsidies reform would exert negative impacts on the economy. Burniaux et al. (1992) adopted multi-country general equilibrium model (G-Cubed) to analyze the subsidies reform and concluded that the annual real income for the whole world would decrease by 0.7%. With CGE model, International Energy Agency (IEA, 1999) showed that removing energy subsidies in the eight biggest nonOECD countries3 would increase their GDP by 1%10. Organization for Economic Co-operation and Development (OECD, 2003) applied GREEN model to indicate that the free energy trade would result in 4.7% loss of China’s GDP. However, some researchers came up with the opposite conclusion that energy subsidies reform would produce positive results. Steenblik and Coroyannakis (1995) used CGE model to simulate the positive effects of removing the coal subsidies in western European countries, such as promoting the industrialization of power sector and increase coal productions and exports. Clarke and Edwards (1997) found that removing fossil energy subsidies would increase the real income for the sample countries and areas. In recent years, issues concerning how energy subsidies reform would affect the livelihood of resident become the focus. Brannon (1974) and Anderson and McKibbin (1997) studied the mechanism of fossil energy reform and its impacts with partial equilibrium models; they suggested that removing energy subsidies would result in the price going up, especially prices of industrial products close to energy consumption. Particularly, energy subsidies reform would increase the living cost for the households, especially for the low-income households. Saboohi (2001) analyzed the price effects of removing the energy subsidies with Input–Output (I–O) model, and concluded that the expenditure of urban households would increase by 32.3% while the rural households by 37.5%14. IEA (2002) pointed out that the energy subsidies had become an essential way for the poor to acquire modern energy resources, thus before cutting energy subsidies we need to consider residents, especially the livelihood of the poor. Dube (2003) cited Zimbabwe as a case study and calculated the proportion of energy expenditure on the residential household income after removing energy subsidies. Some researchers conducted questionnaire survey on the fossil energy subsidies of India and Serbia, and they confirmed that removing the subsidies could cause more welfare loss for the poor (Shubhashis et al., 2005; Kebede, 2006). Sulistiyo et al. (2009) also concluded that the rural residents would transfer to fire wood burning when the fossil energy subsidies are removed. And the urban residents would increase more consumption of coal and gas in the long term. The price volatility would substantially influence the normal life of the poor. In addition, fossil energy reform would also increase the unemployment rate. The report of Intergovernmental Panel on Climate Change (IPCC, 2001) indicated that the countries removing energy subsidies had lost nearly 174 thousand jobs in total, e.g. France, Germany, Spain, Britain, Japan and Turkey, from 1990 to 2010. UNEP (2008) concluded comprehensively that cutting energy subsidies could cause great impacts for the residents, but it required more in-depth analysis in the future. On the contrary, some researchers believed that the fossil energy reform would increase the energy utilization efficiency, and increase the household income in all levels. Apart from the positive or negative effects the fossil energy subsidies reform would have on the economy and society,

3 The eight biggest non-OECD countries China, India, Indonesia, Iran, Kazakhstan, Russia, South Africa, Venezuela.

4135

increasing attention has been paid on energy-saving and environment improvement related with fossil energy reform. Douglas (1996)’s work showed that energy subsidies in US would impede the utilization of new energy and reduce energy utilization efficiency. With G-Cubed model, Shah and Larsen (1992) showed that if the total energy subsidies with nearly 230 billion dollars in 1990 could be removed, CO2 emissions in the world would decrease by 9.5%. With the Global Coal Model, Light (1999) analyzed the coal subsidies reform in Japan; results showed that removing the coal subsidies in the power supply and industrial boiler sector would decrease the world’s CO2 emissions by 0.2%. IEA (2000) also pointed out that the world’s CO2 emissions would decrease by more than 6% in 2010 if the fossil energy subsidies in the power sector are removed. According to the study with the Panta Rhei model by Federal Environment Agency (FEA, 2003), CO2 emissions would decrease by 50 million tons through removing subsidies. Frondel et al. (2007) found that cutting anthracite subsidies would help realize the goal of reducing the CO2 emissions to 2.3 million tons in 2012. IEA (2009) calculated that the primary energy demand for the world as a whole would decrease by 5% by 2030 if energy subsidies phase out from 2013 to 2020. Currently, evaluation of the impacts of fossil energy subsidies comprehensively is a tendency. UNEP (2001) pointed out that the environment of Mexico, Iran and Chile would get improved in the long term by removing the energy subsidies, though there existed economic loss in a short period. Motlagh and Farsiabi (2007) used Environmental Cost Benefit Analysis Model (ECBA Model) to prove that reducing energy subsidies would benefit the environment protection and promote GDP growth in the long run. In China, still few attentions are paid to energy subsidies related issues, especially the empirical research of fossil energy subsidies reform. Lin et al. (2009) are one of the earliest researchers who were concerned about this topic in China; they concluded that the subsidy mechanism was both inefficient and unfair, and suggested that it was essential to adopt a more targeted subsidy policy. Li et al. (2009) analyze the possible impacts of reducing fossil energy subsidies on the lives of different income groups. Using the I–O model, Li (2010) analyzed the possible impacts of consumer-side fossil energy subsidies reform on residents from the perspectives of climatic conditions, energy level and regional income levels. To address the negative impact of fossil energy subsidies reform based on the relevant data, Li et al. (2009) conducted an analysis on the effect of the reform on urban and rural residents and pointed out that the reform to some extent will reduce the employment rate and increase the poverty rate in the short term, while it would improve the overall welfare of the residents in the long run. Lin and Jiang (2010) estimated China’s energy subsidies and used CGE to simulate the overall impacts of energy subsidy reforms. It contributed to the empirical studies of energy subsidies reform in China, but there are still some important issues such as the mechanism of energy subsidies reform and its impacts on energy consumption structure, socioeconomy indexes and environment indexes to be stimulated and analyzed comprehensively. This paper will find out to what extent the energy consumption structure could be improved by reforming fossil energy subsidies, and evaluating its impacts on China’s economy, society and environment comprehensively. As for the methodology, the price-gap approach and CGE models are used; besides, the concepts of technical and economic analysis and environmentaleconomic values analysis are also applied. This paper tries to make a useful contribution to the literature: (1) Estimate the scale of fossil energy subsidies of China in 2007. (2) Based on ESCGE model and Social Accounting Matrix (SAM2007), we simulate the impacts of removing or cutting subsidies on economy, society and

4136

W. Liu, H. Li / Energy Policy 39 (2011) 4134–4143

environment under three different scenarios and further quantify the potential value of pollution reduction with the concept of environmental economic analysis. (3) Suppose that China will cut the fossil energy subsidies wholly or partly, we finally discuss the possibility and potential of improving energy consumption structure. These studies not only fill a gap in the field of energy subsidies but also provide the appropriate basis on regulating and exerting the fossil energy subsidies polices.

3. Estimation of fossil energy subsidies 3.1. Price-gap approach The Price-gap approach is a widely used method that focuses on consumer-side subsidies and quantifies the gap between reference price and subsidized end-user price (Koplow and Dernbach, 2001). This paper uses the price-gap approach to estimate the scale of fossil energy subsidies of China in 2007. The basic formula of price-gap approach is as follow: PGi ¼ Mi Pi

ð1Þ

where PGi is the price-gap of energy product i. Mi is the reference price of energy product i (refers to the price without subsidies). Pi is the end-use price of energy product i. In 2007, China was the net exporter for coal and net importer for oil products. According to IEA (1999) the related reference prices of coal are adjusted as follows: Mi ¼ FOBi þ Di þ VAT

ð2Þ

where FOB is free-on-board export price selected as starting point price. Di is internal distribution cost, which is added to reflect variations in modes of transportation and distances between the ports and the consumed market. VAT means value-added tax. For oil products and natural gas: Mi ¼ International_pricei þDi þ Tax

ð3Þ

Tax includes VAT, customer tax, etc. 3.2. Impacts of subsidies on energy consumption As subsidies lower the end-use prices, we use the constantelasticity inverse demand function to calculate the impacts of removing the subsidies on energy consumption. q ¼ Pe

ð4Þ

Dq ¼ Q0 Q1

ð5Þ

where q is the energy consumption. e is the long-term demand elasticity. Dq is the change in consumption after removing the subsidies. Q0 and Q1 are the quantity before and after removing the price-gap, respectively. With price-gap and the consumption quantity, the subsidies scale could be estimated. 3.3. Fossil energy subsidies of China in 2007 3.3.1. Coal In China, the government regulates the market timely for the purpose of stabilizing prices, e.g. through administrative persuasion to state-owned coal mines and allocating the transport capacities, so coal subsidies still exist. In 2007, 1.33 billion tons of coals were input into power generation.4 The reference price of steam coal is calculated according to Eq. (2). Firstly, Qinhuangdao is the largest coal transfer port and 4 Sources: China energy statistic yearbook 2008. National Bureau of Statistics of China, 2008.

the most important coal transportation channel in China,5 the average FOB price of Qinhuangdao steam coal is selected as starting price, which is 426.4 CNY per ton.6 We further adjust the FOB price of steam coal for net calorific value difference.7 The price after adjustment is 406.1 CNY per ton. As to the traffic and internal distribution cost, Shanghai, Zhejiang and Guangdong are chosen as the main consumption place of steam coal8; average transportation fee from Qinhuangdao to these areas was about 94.6 CNY per ton in 2007.9 As IEA (1999) concluded that industry and power sectors are exempt from VAT. We calculate the reference price of steam coal as 500.7 CNY per ton. As for the end-use price, average price of steam coal in Shanghai, Zhejiang and Guangdong is 480.3 CNY per ton.10 Based on the above information, we calculate the price-gap for steam coal to be 20.4 CNY per ton. Particularly, there still exist the contract coal prices that were about 21 CNY per ton lower than the market steam coal prices with amount of 755.60 million ton.11 For other types of coal, with the progress of coal market deregulations in China, the prices of coal except the contract coal for electricity are decided by the market substantially; there were no consumerside subsidies in China in 2007.

3.3.2. Oil products In this section, we mainly calculate four types of oil products: gasoline, diesel, fuel oil and Aviation kerosene. The world wholesale spot prices are selected as the international price as they are the marginal market, which reflected the oil production, refining costs and profits (refer to IMF, 2002). In this study, the Singapore Spot Prices12 are adopted, and the international prices for gasoline, diesel, fuel oil and Aviation kerosene in 2007 were 5390.1, 5164.1, 2818.5 and 5208.5 CNY per ton,13 respectively. According to Lin et al. (2009)’s estimate,14 as for U.S., traffic, retail and distribution sectors cost usually account for about 12% of the retail price and for China, it accounts for about 20%. Thus we assume that the transportation and distribution costs of refined oil accounts for 16% (the average of 12% and 20%) of the retail prices. Furthermore, the custom tax for gasoline is 2%, for diesel is 2%, for fuel oil is 3% and Aviation kerosene is exempted from customer tax. VAT is 17% for all oil.15 In addition, when calculating the price-gap, we make the quality adjustment for gasoline, adjusting the prices of domestic 90# gasoline, 93# gasoline, 97# gasoline adherent with the international 95# gasoline (according to the quality). In all, the reference prices for gasoline, diesel, fuel 5 In 2007, 40% of Chinese steam coal is transferred in Qinhuangdao. Resource: Transport report for coal industry, 11-14-2008, China Jian-yin Investment Securities. 6 Sources: Website of Development Research Center of the State Council (DRCnet). http://www.drcnet.com.cn/DRCNet.Channel.Web/Calling/index.aspx? version=Integrated. 7 In 2007, the calorific value of China domestic steam coal is 5000 kilocalorie per kg, and that for exporting steam coal is 5000 to 5500 kilocalorie per kg, we adjust the price according to the average calorific value of exporting steam coal which is 5250 kilocalorie per kg. 8 These places are where the China domestic coal input, or rather, are where the power generators and industries/factories concentrate. 9 Refer to shipping fee. Resource: China Coal Transportation & Sale Society (CCTS) report. 10 Sources: Calculated from monthly data from China coal resource web. http://www.sxcoal.com. 11 Sources: Boqiang Lin, 2010.China Energy Report 2010. Tsinghua University Press, P.R.C. Source of contract coal: http://www.gov.cn/zxft/ft87/content_845985. htm. 12 New York (United States), London (UK), Rotterdam (Netherlands), and Singapore in Asia are the world’s largest oil spot markets. 13 Sources: It comes from the Singapore Spot Price. And the gasoline is 95# unleaded gasoline. USD is exchanged into CNY and the exchange rate is 7.6. 14 Sources: Boqiang Lin, 2009-7-8, http://www.xinhuanet.com. 15 Sources: China National Petroleum Corporation Annual Report, 2006-2008.

W. Liu, H. Li / Energy Policy 39 (2011) 4134–4143

oil and Aviation kerosene are 7652.5, 7105.9, 4088.1 and 6893.7 CNY per ton, respectively. Retail prices are adopted as the end-use prices and for gasoline, diesel, fuel oil and Aviation kerosene, they are 6464.1, 5548.2, 3526.7 and 5106.7 CNY per ton,16 respectively. Then price-gap is calculated as 1188.4, 1557.8, 561.4 and 1787.0 CNY per ton, respectively.

4137

removing or cutting fossil energy subsidies beforehand, so as to establish a mechanism of fossil energy subsidies reform aiming to improve the energy consumption structure on the premise that its impacts on the macro-economy and residents would be foreseeable and endurable. 4.1. Framework

3.3.3. Natural gas As for natural gas, China National Development and Reform Commission (NDRC) and local Price Agents set the ex-plant price, transportation tariff and distribution costs. As for the International price, the American Henry Hub’s natural gas price17 is selected as the benchmark, which was 1.9118 CNY per m3. In order to calculate the transportation and internal distribution costs, we select the difference between the price19 of natural gas consumed mainly in the market and the mean ex-plant price as the internal distribution cost for China’s natural gas, which is 1.420 CNY per m3. In addition, the VAT for China’s natural gas is 13%, which is included in the ex-plant price. Main gas fields in China are Chunyu, Changqing, Qinghai and Xinjiang, and the mean ex-plant price for those gas fields is 0.8 CNY per m3 and the VAT is 0.104 CNY per m3. And, the reference price is 3.41 CNY per m3. As to the end-use price, in 2007, natural gas price for industry was 2.4721 CNY per m3, and for residents and public service it was 2.15 CNY per m3 and 2.09 CNY per m3, respectively. Based on these, the price-gap of natural gas are 0.94, 1.26, 1.32 CNY per m3 for industry, residence and public service sectors, respectively. The price-gap and consumption22 for different energy products in China in 2007 are summarized in Table 1. Based on the Eqs. (1)–(5) and the price-gap and consumption of energy products, the fossil energy subsidies of China could be calculated. Furthermore, an average subsidy rate for various energy products would provide basis for the following analysis. In theory, subsidy rate equates to the ratio between price-gap and the reference price. The results are shown in Table 2. According to Table 2, China’s total fossil energy subsidies were 386.4 billion CNY (50.8 billion USD) in 2007. IEA (2003) estimated that China’s energy subsidies were about 300 billion CNY (including electricity subsidies) in 2007. Our results are higher than IEA, due to different view on coal price mechanism and the selection of reference prices.

In this section, the impacts of removing or cutting China’s coal or oil subsidies respectively are simulated,23 based on ESCGE and SAM2007. As shown in Fig. 1, the whole analysis process includes three parts: (1) Simulating the implementation of fossil energy subsidies reform by removing or cutting coal and oil subsidies. (2) Under the constraint of economic, social and environmental conditions, evaluate synthetically the impacts of removing or cutting fossil energy subsidies on the economy efficiency, unemployment, etc. (3) Quantify the environmental value of pollution reduction, calculate the net economic cost and benefit of fossil energy subsidies reform, then propose an economically available fossil energy subsidies reform aiming to improve the energy consumption structure. 4.2. Social accounting matrix The SAM table is based on China’s Input–Output table (2007), by organizing 135 departments into 12 categories: agriculture, light industry, heavy industry, construction industry, service industry, coal industry, oil and gas industry, coal steam–electric power industry, oil steam–electric power industry, Hydro electric power industry, nuclear electric power industry and renewable electric power industry. The SAM reveals the interaction among the environment, economy and society with three environment protection departments, including SO2 emission reduction, waste water reduction and solid waste reduction (environment restoration effects of these three departments are shared by all the departments; at the same time, waste reducing department acquires intermediate input from other departments), thus the SAM contains 15 departments. Factor accounts include capital account and labor account. Institution accounts include household account, enterprise account and government account. Cross entropy method is used to solve the problem of unbalanced accounts.

4. Simulation and analysis of fossil energy subsidies reform

4.3. Energy subsidies computable general equilibrium model

According to the calculation above, the scale of fossil energy subsidies of China is relatively large. So the impacts of fossil energy subsidies reform on economy and society could not be neglected. We should simulate and evaluate the impacts of

ESCGE model is established on the basis of open standardized CGE model by Lofgren and Robinson (2002) creating the mechanism of interaction among economy, energy and environment. To elaborate the details, we introduce some core equations of ESCGE model. For the variables introduced and defined, refer to Xie and Saltzman (2000).

16 Sources: China Price Yearbook, 2008. For fuel oil prices, we select China’s Huangpu fuel oil spot price. Besides, we determine the prices of domestic aviation kerosene by the previous price adjustment information of the Development and Reform Commission as aviation kerosene prices have no public statistical data. 17 As the NDRC control the price, it is impossible to get the reasonable reference price based on domestic data. 18 Sources: BP statistical review full report work book 2008. 19 The major consumption area refers to Chinese major 36 large cities such as Beijing, Tianjn and Shanghai. 20 In 2007, the main natural gas fields in China are Chunyu, Changqing, Qinghai and Xinjiang, and the mean ex-plant price for those gas fields try is 2.20 CNY per m3. Data sources: we determine the average ex-plant prices of natural gas by the previous price adjustment information of the China National Development and Reform Commission (CNDRC). The market prices come from China price statistical yearbook, 2008. 21 Sources: China price statistical yearbook, 2008. 22 Sources: China energy statistic yearbook 2008. National Bureau of Statistics of China, 2008.

4.3.1. Production and trade This part describes the demand and supply of the product market both domestic and abroad. Eq. (6) is production function of domestic activities. It is a two-level nested CES function, consists of composite added values compounded with labor and capital, general composite intermediate inputs, excluding energy intermediate inputs and energy intermediate inputs, including coal, oil, electricity, etc. Eq. (7) is CET function illustrating domestic outputs distribution between domestic demand and 23 For the energy subsidies estimated in the paper are consumer-side subsidies, so this paper simulates the procedure of removing or cutting fossil energy subsidies from consumer side. Similarly hereinafter.

4138

W. Liu, H. Li / Energy Policy 39 (2011) 4134–4143

Table 1 Price-gap and consumption of energy products of China, 2007. Energy products

End-use prices

Reference prices

Pricegap

Estimate the scale of fossil energy subsidies

Oil subsidies

Consumption

Removing or cutting subsidies Coal (CNY per ton) Steam coal 480.3 Coal contractsa 285.0 Oil products (CNY per ton) Gasoline 6464.1 Diesel 5548.2 Fuel oil Aviation kerosene

3526.7 5106.7

500.7 306.0

20.4 21.0

7652.5 7105.9

1188.4 1557.8

4088.1 6893.7

561.4 1787.0

3.41 3.41 3.41

0.94 1.26 1.32

5552.5  104 tons 12,466.4  104 tons 1932.2  104 tons 45.3  104 tons

SAM2007

Socio-economic constraint Energy constraint Environmental constraint

Impacts on socioeconomic system

50.9 billion m3 13.3 billion m3 5.3 billion m3

Evaluation of fossil energy subsidies reform

Energy consumption structure improvement

Table 2 Calculation for fossil energy subsidies scale of China, 2007. Energy products

Subsidies scale (billion CNY)

Average subsidies rate (%)

Proportion on total subsidies (%)

Coal Oil products Gasoline Diesel Fuel oil Aviation kerosene Natural Gas

43.0 271.8 65.9 194.3 10.8 0.8

6.46 19.52 15.53 21.92 13.73 25.92

11.13 70.34 – – – –

71.6

35.46

18.53

Total (billion CNY)

386.4

–

100.00

t

rt

t

rt

t

rq

rq

ð6Þ ð7Þ

q

Qc ¼ aqc ½jqc QMc c þð1jqc ÞQDc c 1=rc

Fig. 1. Analysis framework of fossil energy subsidies reform.

transformation elasticity defined as t ¼ 4.24 In addition, under the Armington assumption, the CES function can be also used to depict the combination between domestic supply and imported commodity.

exports and the incomplete conversion relationship between them. Eq. (8) is the Armington function depicting the not fully substitute relationship between domestic sales and imports in the domestic market, it deems the domestic sales and imports as the ‘‘inputs’’.

QXc ¼ atc ½dc QEc c þ ð1dc ÞQDc c 1=rc

Energy saving and substitution Environmental improvement

a Coal contracts for the five major state-owned power generation groups. And the prices of coal contracts are prices of mine-mouth.

QDa ¼ CESðQVAa ,QINTa ,QEEa , sa , da Þ

Natural gas subsidies

1.33 billion tons 0.76 billion tons

ESCGE

Natural Gas (CNY per m3) Industry 2.47 Resident 2.15 Public service 2.09

Coal subsidies

ð8Þ

Characteristics of production functions vary with the different elasticities of substitution between two elements. According to the parameter assumptions of He et al. (2002), Sheng (2005) and Wei (2009), the elasticity of substitution between first-level elements of production function is assumed to be sp0 ¼ 0, the elasticities of substitution between the second-level factors such as labor and capital, other Intermediate Inputs, energy Inputs and environmental restoration inputs are assumed as sp1 ¼ sp2 ¼ sp3 ¼ sp4 ¼ 1, respectively. It indicates that the first-level production function is the Leontief Production Function, the second-level production functions are the Cobb–Douglas Production Functions. International trade is a critical factor in the model. We adopt ‘‘small economy’’ assumption, which means the world prices are exogenous variables. Total domestic output is distributed between domestic supply and export by CET function, with the

4.3.2. Prices Eq. (9) is the price of the general composite intermediate inputs; the price of the particular sector depends on the price of combination commodity and intermediate input co-efficient (icaca means the general composite intermediate input of a is c, the same as icaca). Eq. (10) is the price of energy intermediate inputs, including the energy taxes. Eq. (11) is the price of activities, for each activity, the total income deducts the tax revenue will totally pay for the value-added and Intermediate inputs (taa means the tax of the sector).The other two price variables are domestic total output prices and domestic integrated products prices; they are both composite product prices and are shown by Eqs. (12) and (13). Finally, the benchmark price level will be flexibly decided by researchers according to their preferences. X PINTa ¼ PQc Uicaca ð9Þ c A C,c= 2E

PEEa ¼

X

PEe Uiceea ð1 þtee Þ

ð10Þ

eAE

PAa ð1taa ÞQDa ¼ PVAa UQVAa þPINTAa UQINTAa þPEEa UQEEa

ð11Þ

PXc ¼ ðPSc UQDc þ PEc UQEc Þ=QXc

ð12Þ

PQc ¼ ðPDc UQDc þ PMc UQMc Þ=Qc

ð13Þ

24 Selection of transformation elasticity refers to He et al. (2002), Sheng (2005).

W. Liu, H. Li / Energy Policy 39 (2011) 4134–4143

4.3.3. Institutions The economic agents of the model are households, government and enterprises. To simulate the impact on the households when removing the energy subsidies, we also give out the demand equations of households (14). (bch is household h’s consumption expenditure share for commodity C, mpsh is marginal saving rate of household h, tyh is the income tax of household h, thc is the rate of energy tax) QHch ¼

bch ð1mpsh Þð1tyh ÞYHh PQc ð1 þ thc Þ

ðwhen, c A C and c= 2E,thc ¼ 0;

when, c A C,thc ¼ tec Þ

ð14Þ

The utility function of consumer is also CES function: UðX,YÞ ¼ ½aX r þð1aÞY r 1=r

ð15Þ

The elasticity of substitution of consumption can be defined as

sc ¼ 1=1 þ r. The factors of utility function include household consumption, leisure and environmental effect. The structure of utility function is U ¼ CESðCDi ,ULE,TDAg , sc0 , sc1 , sc2 , sc3 Þ, where CDi is the household consumption of the i commodity, ULE is leisure and TDAg is the total emission reduction (million ton). As to utility function, sc0 ¼ sc1 ¼ sc2 ¼ sc3 ¼ 1, which means all levels of nested production function adopt the Cobb–Douglas Production Function. 4.3.4. Environment This part defines the environmental variables about pollutant emission and the interaction between the environmental and economic variables. We suppose that the emission coefficients of different sectors are constant and calculated from the statistics of energy and environment for different year. Under this assumption, the total emission of each pollutant is given by the Eq. (16). Eq. (17) defines the total emission reductions measured by physical units, the conversion ratio from the value quantity to physical quantity is based on the same period. Eq. (18) calculates reduction rates of various pollutants. The emission tax of g pollutant of sector a is calculated by Eq. (19) with variables and constants such as total emissions, emission tax rate of pollutant, density of pollutant emission and rate of pollution reduction. X POLg ¼ d UQDa ð16Þ c g,a TPOLg ¼ Xg UTPOL0g =X0g

ð17Þ

CLg ¼ TPOLg =POLg

ð18Þ

PETAXg,a ¼ QDa Utpeg Udg,a ð1CLg Þ

ð19Þ

4.3.5. System constraints The equilibrium relationship in CGE model could be divided as two main parts. The first part is about market-clearings, such as, the market-clearing of products markets and factors (labor and capital) markets. The second part is about the balances of payments in every institutions, including the balance of households (income of household equals expenditure and saving), the balance of government (income of government equals transfer payment and saving) and the saving-investment balance (the aggregate investment equals saving of government, households, enterprise and the rest of the world (ROW)). The international balance means the income of ROW equals to its expenditure, and its income includes import, saving, transfer payment of China to ROW, its expenditure including export of China and saving of ROW to China.

4139

4.4. Simulation and analysis of energy subsidies reform Tax credit and price regulations are the most common instruments of energy subsidies. UNEP (2008) pointed out that tax would offset the price distortion caused by energy subsidies. To investigate the effect of reducing fossil energy subsidies on economic growth and energy consumption, the simulation of imposing tax on subsidized energy is undertaken to constrain excessive consumption of energy and relief environmental pollution correspondingly. Price elasticity of demand is a key factor influencing the demands of energy products and energy-intensive products after removing energy subsidies. Energy is the basic material both for production and livelihood, price elasticity of demand for fossil energy are quite small (Espey, 1998; Li et al., 2009), so we select the rates of certain tax referring to the energy subsidy rate with the elasticity of demand of fossil energy exerts it effect through simulation process. In addition, removing fossil energy subsidies would inevitably induce income redistribution among government, households and enterprises. A specific form of taxes could increase both the cost of using the fossil energy and the tax revenue, which would be transferred to households, enterprises and foreign payments. We set three scenarios to compare with the baseline scenario in 2007. Scenario 1 and scenario 2 simulate the procedures of removing coal and oil subsidies, respectively. And according to the simulation results, we firstly analyze the net economic benefit and cost of removing energy subsidies based on the concept of environmental economic value, then compare the change of energy consumption structure from the aspect of energy substitute. Finally, we assess the effects of improving energy consumption structure under two scenarios synthetically. In scenario three, we simulate the effects of cutting coal and oil subsidies by 3.00%, 4.00% and 5.00%, respectively, the same analysis procedure mentioned in scenario 1 and 2 will also be conducted in scenario 3. 4.4.1. Synthetic evaluation of removing coal subsidies We simulate the impacts of removing coal subsidies by 6.46%, on the economy, society and environment, and analyze the improvement of energy consumption structure based on the aspect of fossil energies substitute. The results are as follows (Table 3): on one hand, removing coal subsidies would raise the cost of coal, which would be transferred to enterprise directly and to households indirectly, the production scale of enterprise and demand of households would shrink correspondingly, bringing about problems, such as economic fluctuations, unemployment, inflation and imbalance of international payments. The results also show that removing coal subsidies would bring down GDP by 0.52%, employment and resident consumptions would decrease by 0.17% and 0.11%, respectively. On the other hand, removing coal subsidies would bring out the emission reduction effects. CO2, SO2, waste water and waste solid would decrease by 4.0%,

Table 3 Simulation results of removing coal subsidies. Variable

Unit

Baseline in 2007

Relative change (%)

Absolute change

GDP EMPLOY CONSUMPTION CO2 SO2 WATER SOLID

billion CNY billion CNY billion CNY million tons million tons million tons million tons

23,122.68 10,785.06 9655.26 6283.56 24.68 55,680.00 11.97

 0.52  0.17  0.11  4.00  3.73  0.51  1.69

 119.78  18.12  10.14  251.34  0.92  281.18  0.20

4140

W. Liu, H. Li / Energy Policy 39 (2011) 4134–4143

Non-fossil Energy 7.30%

Non-fossil Energy 10.97%

Oil&Natural Gas 23.20%

Oil&Natura l Gas 23.47% Coal 65.55%

Coal 69.50% Basic Scenario

Cut Coal Subsidies by 6.46%

Fig. 2. Effect of removing coal subsidies on energy consumption structure. Data Sources: Data of Basic Scenario refers to 2008 China Energy Statistical Yearbook, and the simulation results cite from the CGE simulation.

3.73%, 0.51% and 1.69%, respectively. We monetize25 the pollution reduction effects into the economy account, so as to make a synthetic evaluation of the economic and environmental effects of removing coal subsidies. Results show that the economic value of CO2 reduction measured in value of CDM would be 28.67 billion CNY, added with the benefit of SO2 reduction, waste water reduction and solid waste reduction, the total benefit would be 31.85 billion CNY, equaling to 26.59% of original economic lost. After accounting for the environmental reduction benefit, the net economic cost would be 87.92 billion CNY, the cost rate would drop from 0.52% to 0.38%. We further analyze the effects of removing coal subsidies on fossil energy consumption and substitution. With accelerating progress of industrialization and urbanization, China’s energy demand would be rigid in the near future; removing fossil energy subsidies would influence the enterprise and consumers’ consumption selection by changing relative prices of fossil energies. The coal consumption decreases from 1.84 billion ton of coalequivalent (TCE) to 1.74 billion TCE by 5.68%, while the oil consumption increases from 0.62 billion TCE to 0.63 billion TCE, by 1.18%. The total fossil energy (mainly coal and oil) consumption deceases by 5.04%. Therefore, removing coal subsidies would reduce fossil energy consumption and improve the fossil energy consumption to some degree (see Fig. 2).

4.4.2. Synthetic evaluation of removing oil subsidies According to the same analysis procedure above, removing oil subsidies by the rate of 19.52% would bring down GDP by 877.74 billion CNY and the total environment benefit of 17.76 billion CNY equals to 2.02% of total economy lost (Table 4). Removing oil subsidies would reduce oil consumption from 0.62 billion TCE to 0.58 billion TCE by 5.6%. Due to income elasticity of demand and price elasticity of demand, coal consumption would reduce from 1.85 billion TCE to 1.82 billion TCE by 1.52% and the total fossil energy consumption would reduce by 2.54%. Compared with basic scenario, removing oil subsidies would reduce coal consumption proportion from 69.50% to 68.44%, decrease oil consumption proportion from 23.20% to 21.90% and non-fossil energy consumption proportion would increase by only 2.36%, from 7.30% to 9.66% (Fig. 3). 25 CERs price for CO2 is 15 USD per ton (CO2 equivalent. According to 2007 China environment statistical yearbook, in 2007, wastewater discharge is 55.68 billion ton, of which industrial wastewater is 24.66 billion tons, households wastewater is 31.02 billion tons, percentage of waste water up to the standards is 91.7%, treatment cost is 42.8 billion CNY, and the treatment cost per unit wastewater is 1.89 CNY per ton. SO2 emissions is 24.68 million ton, for industry is 21.4 million ton, for households is 3.28 million ton, the average treatment cost is 2857 CNY per ton. As to solid waste, we assume its value is 123.90 CNY per ton, based on its Comprehensive utilization value.

Table 4 Simulation results of removing oil subsidies. Variable

Unit

Baseline in 2007

Relative change (%)

Absolute change

GDP EMPLOY CONSUMPTION CO2 SO2 WATER SOLID

billion CNY billion CNY billion CNY million tons million tons million tons million tons

23,122.68 10,785.06 9655.26 6283.56 24.68 55,680.00 11.97

 3.80  1.72  0.91  1.95  3.72  1.11  1.71

 877.74  185.93  87.48  122.28  0.92  616.93  0.20

According to the simulation analysis above, removing coal and oil subsidies would both cause certain economic costs and have negative effects on employment and resident welfare. Therefore, we further make synthetic simulation analysis on the effects of cutting coal and oil subsidies.

4.4.3. Comparison of cutting coal and oil subsidies From the perspective of technology analysis, coal and oil substitution is asymmetrical in the short term (generally refers to the period with no breakthrough of substitute technologies between coal and oil). The substitution of oil for coal is higher than that of coal for oil, so cutting coal subsidies would decrease coal consumption, but increase the consumption of substitute energies such as oil with higher utilization efficiency and lower pollutant co-efficient. Whereas, cutting oil subsidies also decreases the utilization cost of oil, but oil could not be substituted by coal in many technological fields in the short term, both oil and coal consumption would decrease slightly. Simulation results of cutting coal subsidies or oil subsidies by the rate of 3.00%, 4.00% and 5.00% are shown in Figs.4–6 and Table 3. Compared with basic scenario, cutting coal subsidies would decrease coal consumption proportion from 69.50% to 67.61%; however, cutting coal subsidies would increase oil consumption instead, so oil consumption proportion increase from 23.20% to 23.33%, and non-fossil energy consumption proportion would increase by 1.76%, from 7.30% to 9.06% (Fig. 4). In contrast, cutting oil subsidies would decrease the proportion of both oil and coal, and increase non-fossil energy from 7.30 to 7.68%. That is, cutting oil subsidies would exert weaker influence on energy consumption structure than cutting coal subsidies. Furthermore, improvement of energy consumption structure would be enhanced if more coal or oil subsidies are to be cut, with the proportion of non-fossil energies increasing correspondingly. Both the negative impacts on socio-economy indexes and positive impacts on environment indexes would be enhanced

W. Liu, H. Li / Energy Policy 39 (2011) 4134–4143

Non-fossil Energy 7.30%

4141

Non-fossil Energy 9.66%

Oil&Natural Gas 23.20%

Oil&Natural Gas 21.90%

Coal 69.50%

Coal 68.44%

Basic Scenario

Cut Oil Subsidies by 19.52%

Fig. 3. Effect of removing oil subsidies on energy consumption structure. Data Sources: Data of Basic Scenario refers to 2008 China Energy Statistical Yearbook, and the simulation results cite from the CGE simulation.

Nonfossil Energy 9.06% Oil&N atural Gas 23.33 %

Oil&N atural Gas 23.20 %

Nonfossil Energy 7.30%

Oil&N atural Gas 22.98 %

Coal 67.61 %

Cut Coal Subsidies by 3.0%

Nonfossil Energy 7.68%

Coal 69.34 %

Coal 69.50 % Basic Scenario

Cut Oil Subsidies by 3.0%

Fig. 4. Comparison of cutting coal subsidies or oil subsidies by 3.0%. Data Sources: Data of Basic Scenario refers to 2008 China Energy Statistical Yearbook, and the simulation results cite from ESCGE simulation.

Nonfossil Energy Oil&N atural 7.30% Gas 23.20 %

Nonfossil Energy 9.63% Oil&N atural Gas 23.37 %

Nonfossil Energy Oil&N 7.81% atural Gas 22.91 %

Coal 67.00 %

Cut Coal Subsidies by 4.0%

Coal 69.28 %

Coal 69.50 % Basic Scenario

Cut Oil Subsidies by 4.0%

Fig. 5. Comparison of cutting coal subsidies or oil subsidies by 4.0%.

correspondingly (Table 5). Cutting oil subsidies would induce bigger economic loss than cutting coal subsidies. As for the aspect of price, the quantity of coal consumption is 3.5 times26 as that of oil consumption, but the total value of oil consumption (as intermediate inputs) is 3 times27 as that of coal consumption. According to the analysis above, under the same condition, cutting oil subsidies would have stronger impact on economy, but smaller benefit on improving energy consumption structure. It would be necessary to choose the right time and the moderate cutting rate by balancing the target among energy structure, socio-economy and environment.

26 In 2007, coal consumption takes on 72.82% of China’s total energy consumption, and for oil, is 20.64%. 27 It is according to the comparison of intermediate input of coal and oil in China 2007 Input–Output table.

5. Conclusions and suggestions 5.1. Conclusions Based on the simulation analysis above, several conclusions are summarized. Firstly, China’s fossil energy subsidies scale are huge with relatively high subsidy rates, the scale of China’s fossil energy subsidies is 386.4 billion CNY (50.8 billion USD) in 2007, which accounts for 9.67% of China’s total fiscal expenditure28 in the same year, and equals to 4.1 times of the national environmental protection expenditure.29 Fossil energy subsidies not only increase burden on government’s finance, but also disturb the 28 In 2007, China fiscal expenditure is 6133 billion CNY. Data Sources: China Statistical Yearbook 2008. 29 In 2007, China environmental expenditure is 145.1billion CNY. Data Sources: China Energy Statistical Yearbook 2008.

4142

W. Liu, H. Li / Energy Policy 39 (2011) 4134–4143

Nonfossil Energy 10.18 % Oil&N atural Gas 23.41 %

Nonfossil Energy Oil&N 7.30% atural Gas 23.20 %

Nonfossil Energy Oil&N 7.93% atural Gas 22.84 %

Coal 66.41 %

Coal 69.23 %

Coal 69.50 %

Cut Coal Subsidies by 5.0%

Basic Scenario

Cut Oil Subsidies by 5.0%

Fig. 6. Comparison of cutting coal subsidies or oil subsidies by 5.0%.

Table 5 Scenario analysis for cutting coal and oil subsidies by 3.0%. Variable

GDP EMPLOY CONSUMPTION CO2 SO2 WATER SOLID

Cut coal subsidies

Cut oil subsidies

Percent (%)

Value

Percent (%)

Value

 0.24  0.08  0.05  1.92  1.78  0.20  0.82

 56.19  8.52  4.73  120.46  0.44  113.03  0.10

 0.55  0.25  0.13  0.34  0.69  0.10  0.27

 126.71  26.53  12.46  21.18  0.17  54.01  0.03

self-correcting mechanism and demand-oriented pricing. Secondly, removing coal subsidies and oil subsidies can both decrease fossil energy consumption and improve the energy consumption structure to some extent. Removing energy subsidies would bring the effects of income elasticity of demand and price elasticity of demand, the former would decrease the energy demand, while the later would change the energy consumption structure. Thirdly, cutting coal and oil subsidies gradually and successively are the critical implications for fossil energy subsidies reform. Cutting coal or oil subsidies by 3% would bring less negative impacts on economy and society than removing the coal or oil subsidies at once. Meanwhile, due to different technological economic characteristics of coal and oil, cutting coal subsidies would induce more remarkable policy effects than oil on improving the primary structure of energy consumption structure. So it would be reasonable to cut coal and oil subsidies gradually and successively. 5.2. Suggestions 5.2.1. Cut the coal and oil subsidies gradually and successively On one hand, because removing coal or oil subsidies has significant impacts on the economic and social indicators, cutting coal and oil subsidies gradually is more feasible in China. According to simulation results above, cutting coal and oil subsidies on the rate of 3% would bring down GDP by 0.24% and 0.55%, respectively. It would be appropriate to cut coal subsidies on the rate of 3% or less so as to control the economic loss under 0.24%. As for oil subsidies reform, cutting subsidies on the rate of 3% would have severe impact on the economy, thus it is necessary to be prudent to choose the right time and the moderate cutting rate. On the other hand, China’s primary energy consumption is dominated by fossil energy especially by coal, so CO2 emission reduction mainly depends on control the growing of energy consumption or reducing the proportion of fossil energy

consumption. In the short term, the scope for the substitute between oil and coal is bigger than that between renewable energy and fossil energy. In addition, due to the differences of energy utilization efficiency, emission co-efficient and substitute elasticity, cutting coal subsidies would have better effects on improving energy consumption structure. So it is suggested to cut coal subsidies firstly, then cut oil subsidies successively. 5.2.2. Pay more attention to social vulnerable group while cutting fossil energy subsidies Cutting fossil energy subsidies would increase the living costs of households. So, it is proposed to transfer one part of the fiscal expenditure saved from cutting fossil energy subsidies to those low-income households directly. The direct subsidies to these low-income households should take disparities of climate, consumption structure and income level into consideration. Now that low-income households consume far less energy than highincome households, relatively small amount of financial transfers would effectively support the energy consumption for lowincome households. 5.2.3. Transfer fossil energy subsidies to non-fossil energy and environmental protection With accelerating progress of industrialization and urbanization, it is high time for China to expand energy supply resources to satisfy the continuously increasing demand. As the fossil energy is nonrenewable and over-consumed, there is broad space for non-fossil energy to develop in China. And it would be beneficial to transfer one part of the fiscal expenditure that saved from cutting fossil energy subsidies to non-fossil energy in the field of R&D and industrialization of clean and renewable energy or technology.

Acknowledgment We are grateful to anonymous reviewers for comments and this paper is self-responsibility. Thanks to Xie Minghua and Dongliang for their beneficial discussion. This paper is research outcome of the Energy Foundation ‘‘Regulatory Action to Improve Energy Efficiency and Reduce Pollution in China’s Electric Power Industry’’ China Sustainable Energy Program (2007), China Democratic National Construction Association ‘‘Studies on China’s energy price formation mechanism’’ program (2008), China postdoctoral scientific funding ‘‘lasting development and social equity: on the basis of energy subsides theory and policy implement research’’ (no. 20090460202), Philosophy and Social Science program ‘‘Coal-Electricity linkage Mechanism’’ of China Education Bureau (Project no. 09YJA790006).

W. Liu, H. Li / Energy Policy 39 (2011) 4134–4143

References Anderson, K., McKibbin, W.J., 1997. Reducing Coal Subsidies and Trade Barriers: Their Contribution to Greenhouse Gas Abatement. University of Adelaide, Center for International Economic Studies (CIES) 7 /http://www.cepr.org/ pubs/dps/DP1698.aspS. Brannon, G.M., 1974. Energy Taxes and Subsidies: A Report to the Energy Policy Project of the Ford Foundation. Ballinger Pub. Co. Burniaux, J.M., Martin, J.P., Oliveira, M.J., 1992. The effects of existing distortions in energy markets on the costs of policies to reduce CO2 emissions: evidence from Green. OECD Economic Studies, 141–165. Clarke, R., Edwards, T.H., 1997.The Welfare Effects of Removing the West German Hard Coal Subsidy. Paper provided by Department of Economics. University of Birmingham in its series Discussion Papers with number 97-23. Douglas, K., 1996. Energy subsidies and the environment. Subsidies and environment: exploring the linkages. OECD, 207–214. Dube, I., 2003. Impact of energy subsidies on energy consumption and supply in Zimbabwe. Do the urban poor really benefit? Energy Policy 31, 1635–1645. Espey, M., 1998. Gasoline demand revisited:an international meta-analysis of elasticities. Energy Economics 20 (3), 273–295. Federal Environment Agency, 2003. Reduction of Coal Subsidies: The Results of Model-Based Analysis. United Nations Environment Programme. Frondel, M., Kambeck, R., Schmidt, C.M., 2007. Hard coal subsidies: a never-ending story? Energy Policy 35, 3807–3814. He, et al., 2002. Carbon tax and carbon dioxide emission reduction. The Journal of Quantitative and Technical Economics 10, 39–47. IEA, 1999. World Energy Outlook Insights, Looking at Energy Subsidies: Getting the Prices Right. OECD, Paris. IEA, 2000. Environmental Effects of Liberalizing Fossil Fuels Trade: Results From the OECD Green Model. OECD, Paris. IEA, 2002. World Energy Outlook. OECD, Paris. IEA, 2003. Environmentally Harmful Subsidies: Policy Issues and Challenges. OECD, Paris. IEA, 2009. World Energy Outlook 2009. OECD, Paris. IMF, 2002. Issues in Domestic Petroleum Pricing in Oil-Producing Countries. /http://www.imf.org/external/pubs/ft/wp/2002/wp02140.pdfS. IPCC, 2001.Climate Change. /http://www.ipcc.ch/ipccreports/tar/wg3/index. php?idp=0S. Kebede, B., 2006. Energy subsidies and costs in urban Ethiopia: the cases of kerosene and electricity. Renewable Energy 31, 2140–2151. Koplow, D., Dernbach, J., 2001. Federal fossil fuel subsidies and greenhouse gas emissions: a case study of increasing transparency for fiscal policy. Annual Review of Energy and the Environment 26, 361–389. Lin, B.Q., Jiang, Z.J., Lin, J., 2009. Targeted price subsidies help energy efficiency and fairness. Finance research 11. Lin, B.Q., Jiang, Z.J., 2010. Estimates of energy subsidies in China and impact of energy subsidies reform. Energy Economics.

4143

Li, H., 2010. Low Carbon Economic Background of Fossil Energy Subsidies for the Reform of China’s Urban and Rural Residents Living Influence and Countermeasures. Issues in Agricultural Economy 9. Li, H., Dong, L., Xie, M.H., 2009. Price Transmission Mechanism of Reducing Coal Subsidies and Its Effect on households Life. Peking University, Working paper. Li, H., Dong , L., Xie, M.H., 2009. An Evaluation of the Impact of reducing Gas and Electricity Subsidies on the living standard of Households—A Case Study in China. Working paper. Light, M., 1999. Coal subsidies and global carbon emissions. Energy Journal 20, 117–148. Lofgren, H.R.H., Robinson, S., 2002. A Standard Computable General Equilibrium (CGE)Model in GAMS. International Food Policy Research Institute, Washington D.C. Motlagh, S.P., Farsiabi, M., 2007. An Environmental & Economic Analysis for Reducing Energy Subsidies. International Journal of Environmental Research, 150–162. National Bureau of Statistics of China, 2008. China Energy Statistical Yearbook. China Statistics Press. OECD, 2003. Environmentally Harmful Subsidies: Challenges for Reform. /http://www.ine.gob.mx/descargas/dgipea/harmful_subsidies.pdfS. Saboohi, Y., 2001. An evaluation of the impact of reducing energy subsidies on living expenses of households. Energy Policy 29, 245–252. Shah, A., Larsen, B., 1992. World Development Report: Carbon Taxes, the Greenhouse Effect and Developing Countries. Policy Research, Working papers. Sheng, J., 2005. The CGE Model of Chinese Economy and Policy Analysis[D]. RenMin University, China, Beijing. Shubhashis, G., et al., 2005. Reducing subsidies on household fuels in India: how will it affect the poor? Energy Policy 33, 2326–2336. Steenblik, R.P., Coroyannakis, P., 1995a. Reform of coal policies in Western and Central Europe: implications for the environment. Energy Policy 23, 537–553. Sulistiyo, M.H., Adityawarman, K.S., Kaneko, S., 2009. Assessment of the Fuel Switching Policies in Indonesia Cases of the Kerosene and LPG consumption in the Household Sector. /http://wwwsoc.nii.ac.jp/seeps/meeting/2009/abst/ 2098_8ksXzaTN.pdfS. United Nations Environment Programmme (UNEP) and IEA, 2001. Energy Subsidy Reform and Sustainable Development: Challenges for Policymakers. Background Paper No. 14. UNEP, 2008. Reforming energy subsidies: opportunities to contribute to the climate change agenda. /http://www.unep.org/pdf/pressreleases/reforming_ energy_subsidies.pdfS. Wei W.X., 2009. An Analysis of China’s Energy and Environmental Policies Based on CGE Model. Statistical Research. Xie, J., Saltzman, S., 2000. Environmental policy analysis: an environmental computable general equilibrium model for developing countries. Journal of Policy Modeling 22 (4), 453–489.