Abstract
Significant effort has been exerted on the study of economic variables such as absolute energy prices to understand energy consumption and economic growth. However, this approach ignores general inflation effects, whereby the prices of baskets of goods may rise or fall at different rates from those of energy prices. Thus, it may be the relative energy price, not the absolute energy price, that has most important effects on energy consumption. To test this hypothesis, we introduce a new explanatory variable, the domestic relative energy price, which we define as “the ratio of domestic energy prices to the general price level of an economy,” and we test the explanatory power of this new variable. Thus, this paper explores the relationship between relative energy prices and energy consumption in China from the perspective of inflation costs over the period from 1988 to 2012. The direct, regulatory and time-varying effects are captured using methods such as ridge regression and the state-space model. The direct impacts of relative energy prices on total energy consumption and intensity are −0.337 and −0.250, respectively; the effects of comprehensive regulation on energy consumption through the economic structure and the energy structure are −0.144 and −0.148, respectively; and the depressing and upward effects of rising and falling energy prices on energy consumption are 0.3520 and 0.3564, respectively. When economic growth and the energy price level were stable, inflation persisted; thus, rising energy prices benefitted both the economy and the environment. Our analysis is important for policy makers to establish effective energy-pricing policies that ensure both energy conservation and the stability of the pricing system.
Highlights
Numerous authors contend that energy (Ayres and Warr 2010; Kümmel et al 2010) is a driving force of economies
The results reveal that, at present, the output and structure of economic development and the energy consumption structure are key factors affecting total energy consumption, and technological progress and rising relative energy prices can restrain total energy consumption and decrease energy intensity to a certain extent
In certain periods, commodity prices and () overall price levels are stable, and energy prices enable a degree of regulation of energy consumption through their effects on economic aggregates, the industrial structure and the energy structure, causing the overall effect of energy prices on energy consumption to be negative
Summary
Numerous authors contend that energy (Ayres and Warr 2010; Kümmel et al 2010) is a driving force of economies. In China, economic revival and development, industrialization and urbanization have depended on the availability of energy resources. In 2011, China passed the U.S as the world’s largest energy consuming country. China is the world’s largest emitter of sulfur dioxide and greenhouse gases. Energy conservation is a vital problem for China to solve in its quest to achieve sustainable development. In 2005, China targeted a 20 % energy savings target in its Eleventh “Five-Year Plan.”. At the Copenhagen conference in 2009, China promised that its In 2005, China targeted a 20 % energy savings target in its Eleventh “Five-Year Plan.” At the Copenhagen conference in 2009, China promised that its
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