A Quantitative Analysis of the Optimal Energy Policy from the Perspective of China’s Supply-Side Reform

Jianming Xi, Hanran Wu, Bo Li and Jingyu Liu
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Jianming Xi: School of Economics, Peking University, Beijing 100871, China
Hanran Wu: School of Economics, Peking University, Beijing 100871, China
Bo Li: School of Economics, Peking University, Beijing 100871, China
Jingyu Liu: School of Environmental Science and Engineering, Shanghai Jiaotong University, Shanghai 200240, China

Sustainability, 2020, vol. 12, issue 12, 1-13

Abstract: How does the capacity removal policy affect China’s economy? To quantify the policy outcomes and costs, a four-sector model with vertical market structures is built. The calibrated model shows that, to achieve the policy goal, 10% of equipment operation in the high energy-consuming sectors must be shut down. This policy leads to an improved energy structure in which total energy consumption drops by 4.75% at the cost of a contraction in economic growth, where the total output declines by 12.31%. The numerical experiments find that the optimal policy is to limit the production scale in both the iron/steel industry and the fossil energy industry, closing 9% and 7% of the production, respectively, since doing so minimizes output loss and improves the energy structure. This paper quantifies the impact of the current capacity removal policy and provides policy alternatives to reach the same policy target with a lower output loss.

Keywords: energy structure; overcapacity; supply-side reform; optimal policy; quantitative macro model (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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