Price Elasticity Of Energy Consumption In China

With the high development of China's economy, the demand for energy is growing rapidly. The environmental pollution caused by energy consumption has become more serious. How to improve energy efficiency and optimize energy structure is one of the most important issues in China. At the same time, energy pricing mechanism in China has many unreasonable aspects which impede the realization of China's energy saving and emission reduction targets. Analyzing the relationship between energy prices and energy consumption has important practical significance for the reform of energy prices and related taxes.This paper analyses industrial and household sectors respectively based on previous studies. First, Allen partial elasticity, own-price elasticity and cross-price elasticity of capital, labor and energy are calculated for China's industrial economy using a translog cost function approach. The results suggest that energy is substitutable with both capital and labor. Increasing energy prices is an effective way to promote China's energy saving and emission reduction. Second, own-price elasticity, income elasticity and cross-price elasticity are calculated for China's household sector using an energy demand model. The conclusion is that through the reforms of energy pricing mechanism and energy related taxes, energy prices will go up to a reasonable level which encourage residents to improve awareness of energy conservation. In this way, energy consumption in household sector will be reduced and energy efficiency will be improved.In this paper, academic analysis and empirical research are used to give some suggestions for government policies. The adjustment of energy prices is an effective way to achieve China's target of energy saving and emission reduction. After fully-consideration of its influence on inflation, energy pricing reform plays an important role in transformation of China's economic development. Resource tax reform, which takes into consideration of resource scarcity and environmental pollution cost, can be promoted in order to guide rational consumption of resource materials, such as energy. Energy-saving technological innovation can be encouraged in order to make the substitution of capital for energy.