Examining Economic and Environmental Impacts of Differentiated Pricing on the Energy-Intensive Industries in China: Input-Output Approach

Abstract

As the energy supply shortage and environmental pollution have increasingly become the major obstacles to China’s economic development, the Chinese government has proposed various policies to reduce energy consumption, one of which is to implement a differentiated electric power price scheme (DEPP) on the energy-intensive industries (EIs). Although it is only imposed on EIs, its indirect impact on other sectors or national economy could be profound. This paper applies an input-output (IO) model, which composes 42 sectors calibrated with data in 2002 to examine the potential impact of DEPP. The results show that DEPP would result in significant energy savings at the expense of declines in gross domestic product (GDP) and increases in consumer price index (CPI). The ancillary benefits include reduction of emissions from the energy-intensive sector.