Water–energy nexus: The coupling effects of water and energy policy applied in China based on a computable general equilibrium model

Abstract

China has implemented a number of national and regional water and energy policies to achieve its goals of carbon emissions (CE) reduction, energy saving, and water conservation. Given its high energy and water resources interdependence, a framework is needed that can provide both a unified and systematic assessment of these. This study investigates the effects of coupling China's energy tax and water fee policies using a recursive dynamic computable general equilibrium model. Several possible scenarios are simulated. The simulation results show that the water fee promotes water conservation, but its effect is limited at China's current water fee level. The energy tax is shown to be more effective in improving water-saving efficiency. Under the maximum energy tax scenario (EH), total energy and industrial water demand fall by 10.45% and 3.82%, respectively, compared with 0.59% and 0.72%, respectively, under the maximum water fee scenario (W8). Furthermore, the energy tax is more conducive to China's energy conservation and CE reduction (CER) targets than the water fee, but raising both energy taxes and water fees can have a significant impact on energy conservation and CER. In the scenario going from a low energy tax (EL) to a high-energy tax (EH), the reduction in primary energy production increases from 8.36% to 19.16%, while CE also drop significantly, going from 5.59% to 16.71%; however, In the scenario going from the low water fee (W2) to the high-water fee (W8), the reduction in primary energy production only changes from 0.24% to 0.43%, and CO2 reduction from 0.35% to 0.61%. Meanwhile, the mixed water-energy scenario shows a spill over effect, with the CE and energy savings management goals requiring less GDP loss than water or energy policies implemented in isolation. Ultimately, the results show that even when combined, relying solely on existing water and energy tax policies will be insufficient to meet China's water-saving targets without other environmental policies. The key to overcoming energy and water constraints is to increase water and energy efficiency year after year. This will enable China to achieve its CER target and the 14th Five-Year Plan water savings target. Thus, the synergistic effect of water conservation and energy saving can be realised simultaneously when the CER and energy consumption structure improve, which is crucial for developing an effective environmental policy strategy.