The Carbon Rebound Challenge: Evaluating the Mitigation Effect of Fossil Fuel Subsidy Removal in Chinese Households

Pansong Jiang, Donglan Zha, Qian Chen and Jaume Freire González

No 1561, Working Papers from Barcelona School of Economics

Abstract: The carbon rebound effect, a phenomenon that usually accompanies improvements in energy efficiency, is frequently observed in households. To mitigate the household carbon rebound effect, the removal of fossil fuel subsidies has emerged as a potential strategy. This paper aims to systematically simulate the consequences of removing such a subsidy to inform evidence-based policy-making. We develop an analytical framework that facilitates a detailed investigation of changes in the prices of various goods and services consumed by residents after the removal of fossil fuel subsidies, as well as the main sources of household carbon rebound effect (CRE). Moreover, we examine the extent to which the removal of fossil fuel subsidies can counteract the rebound effect. Our findings indicate that rebound-driven fossil fuel consumption is the primary contributor to the total CRE. Meanwhile, consumption in the 'residence' category is the dominant source of the indirect CRE. We further show that removing all fossil fuel subsidies could totally offset the CRE in Chinese households. A notable urban-rural heterogeneity is observed. The subsidy removal for oil and natural gas yields the strongest mitigation effect on CRE in urban regions, whereas removing the oil subsidy proves most effective in rural areas. These results affirm the effectiveness of policies to remove fossil fuel subsidies. We conclude that reforming fossil fuel subsidies is a powerful tool to counteract the CRE, offering valuable insights not only for China but also for other developing countries with similar household consumption patterns.

Keywords: CO2 emissions; fossil fuel subsidies; household consumption; input-output price model; Rebound effect (search for similar items in EconPapers)
JEL-codes: H23 Q41 Q54 R15 R21 (search for similar items in EconPapers)
Date: 2026-02
References: Add references at CitEc
Citations:

Downloads: (external link)
https://bw.bse.eu/wp-content/uploads/1561.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1561

Access Statistics for this paper

More papers in Working Papers from Barcelona School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Bruno Guallar ().