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The impact of natural gas price control in China: A computable general equilibrium approach

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Abstract

This paper depicts the natural gas price control behavior of the Chinese government in an imperfect competition market structure using a static CGE model. It simulates the effect of changes in natural gas price control policy on carbon emission, and the economic effects in view of demand side and supply side. Based on the above, we also analyze the carbon emission mechanism from economic and energy structure perspective. The results show that: an increase in natural gas price can reduce carbon emission, or tends to cause a long-term decline in the surplus profit rate of the natural gas industry. Moreover, the increase in natural gas price may raise the CPI, and reduce actual GDP and residents’ welfare. On the contrary, a decrease in natural gas price may reduce CPI and enhance resident welfare. However, the long-term actual GDP will not increase, but carbon emission will increase and the surplus profit rate of the natural gas industry may reduce in the short term and increase in the long term. On the other hand, Both increase and decrease in natural gas prices may result in a decrease of the actual GDP level in the long term. The elimination of price control in natural gas supply may increase actual GDP and residents’ welfare and reduce CPI. Meanwhile, it may increase carbon emissions and improve the profitability of the natural gas industry.

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... The consumption of natural gas in China exceeded 230 billion cubic meters and increased by 17% in 2017 due to its relatively low carbon emissions (He and Lin, 2017;;Hu et al., 2017). Currently, China has established gas pipeline networks covering the entire country, devising and implementing plans for regional and national natural gas pipelines from west to east and north to south (Fig. 1). ...
... As for the overall economy, computable general equilibrium (CGE), game theory, inputeoutput analysis and Agent-based models (ABM) are often used (Su et al., 2010;Isley et al., 2015;Xia etal., 2017). He and Lin (2017) simulated the effect of a natural gas price control policy on carbon emissions and evaluated the economic effects on both demand and supply. Brandão et al. (2016) developed a theoretical model for the natural gas market and computed the equilibrium outcomes to evaluate the social welfare changes when incumbent firms and new entrants compete. ...
... Model CGE telah digunakan secara luas untuk menganalisis berbagai isu baik di bidang ekonomi maupun energi. Terkait isu penetapan harga gas bumi oleh pemerintah, penelitian yang mengangkat isu tersebut dengan menggunakan model CGE antara lain dapat ditemukan pada Orlov (2015), Orlov (2017), Y. He & Lin (2017), dan Zhang et al., (2017). Keempat penelitian tersebut melakukan analisis kebijakan penetapan harga gas oleh pemerintah terhadap industri/pemakai domestik di Rusia dan China. ...
... Lebih lanjut, menurut Orlov (2017), kemiskinan dapat ditekan dengan menyalurkan tambahan pendapatan pemerintah dari kenaikan harga gas ke rumah tangga yang masuk dalam kategori low dan medium income. Untuk kasus di China, penelitian yang dilakukan oleh Y. He & Lin (2017) dan Zhang et al., (2017) mendapatkan temuan yang sama, yaitu kenaikan harga gas bumi dapat memicu kenaikan indeks harga konsumen, sehingga menurunkan level GDP riil dan kesejahteraan penduduk. ...
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AbstrakOptimalisasi pemanfaatan gas bumi untuk kebutuhan domestik terkendala oleh mahalnya harga gas yang sampai di tangan industri pengguna gas domestik. Untuk mengatasi hal tersebut, pemerintah telah mengeluarkan insentif fiskal berupa Perpres nomor 40 tahun 2016 tentang Penetapan Harga Gas Bumi. Penelitian ini bertujuan untuk menganalis dampak dari insentif fiskal tersebut terhadap perekonomian nasional. Hasil simulasi dengan model Computable General Equilibrium (CGE) Fiskal Dinamis menunjukkan bahwa kebijakan penetapan harga gas bumi tertentu dapat meningkatkan kinerja perekonomian nasional. Hal tersebut ditandai dengan adanya peningkatan GDP pada kisaran 0,12% - 0,13% pada jangka menengah. Pada sisi industri, harga input gas yang lebih rendah akan memangkas biaya produksi sehingga membuat output industri menjadi lebih murah kompetitif. Industri yang mengalami peningkatan output antara lain industri besi baja, industri pupuk, industri keramik, industri kaca, industri barang-barang dari karet, industri pulp & kertas, dan industri makanan & minuman.AbstractExpensive domestic gas price has constrained the natural gas utilization by the domestic industry. To deal with this situation, the government has issued fiscal incentives of Presidential Regulation number 40 of 2016 on the Natural Gas Price Regulation. The purpose of this paper is to analyze the impact of the fiscal incentives to the economy. The Simulation result with Dynamic Fiscal CGE model shows that overall, the fiscal incentive will improve the performance of the national economy. The GDP increases in the range of 0.12% - 0.13% in the medium term. On the micro side, lower gas input prices will lower production costs, thus making industrial output cheaper and more competitive. The output of the following Industries are increasing: steel, fertilizer, ceramic, glass, rubber, pulp & paper, and food & beverage
... Also applying a CGE model, another paper further simulated the influence of tax reform [29]. By refining the energy sector into six sectors, natural gas, gas, crude oil, oil, coal, and electricity, it is possible to discuss the impact of natural gas price changes on the economic system [30]. Similarly, after splitting the energy sector, Dong et al. [31] analyzed the relationship between the shock of international oil prices and the change in the RMB exchange rate. ...
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... The construction of all CGE models are based on traditional Walras paradigm, which means that the model can be described as a system of simultaneous equations deduced from all actors' maximizing behavior. CGE model simulates the behavior of social agents, such as residents, enterprises, government, and foreigners [36,37]. The CGE framework model in this paper is from Ref. [38]. ...
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Human activities have led to increase in carbon dioxide emissions, and carbon tax is one of the main policy tools for reducing global emissions. This paper constructs nine scenarios considering different carbon tax rates and the different taxable industries to analyze the impact of Carbon Tax System (CTS) on energy, environment and the economy. We find that the negative impact of CTS on GDP is acceptable, and the maximum scenario will not exceed 0.5%. If carbon taxes are levied on energy-intensive enterprises, the impact on carbon emissions is also relatively small, even if the carbon tax rate is relatively high. Higher carbon tax rate will result in higher CO2 emission reduction and higher marginal CO2 emission reduction of CTS. The carbon tax rate follows the “law of increasing marginal emission reduction”. We also argue that the focus of taxation should be on energy enterprises. It is only in this way that the efficiency of the energy market can be fully implemented to conserve energy and reduce emissions. This paper suggests that China should adopt CTS that simultaneously imposes a higher tax on energy companies and energy-intensive enterprises. This will maximize emissions reductions and have only a small impact on GDP.
... Studies on the development of natural gas in China have investigated Chinese natural gas supply (Lin et al., 2010;Zhang et al., 2010;Lin and Wang, 2012;Biresselioglu et al., 2015;Wang et al., 2013;Li et al., 2016;Lu et al., 2016;Zhang et al., 2016), unconventional gas development (Wang and Lin, 2014;Wang et al., 2016a,b,c), natural gas price control and reform in China (Paltsev and Zhang, 2015;He and Lin, 2017), gas demand in the transportation sector (Ma et al., 2013;Wang et al., 2015;Kahn, 2017), Chinese natural gas industry (Shi et al., 2010;Jiang et al., 2016;Dong et al., 2017;Wang and Xue, 2017), forecast of China's natural gas demand (Xu and Li et al., 2011;Lu et al., 2015) and gas demand in urban China during 2006-2009(Yu et al., 2014. Our study aims to shed more lights on China's future gas landscape with an analysis on both demand and supply side. ...
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The consumption of natural gas in China increased by only 5.7 percent in 2015, a sharp drop from the previous year. This has resulted in aggressive restrictions on production and resale of long-term contracts. The question is: What will the supply of and demand for natural gas look like in China in the future? We estimate China’s future natural gas demand based on unique panel data, and then investigate supply capacity through domestic production and international imports. Our analysis of supply and demand reveals that supply would be very likely to exceed demand in China in the future if there were no significant policy shocks. This is driven by the fact that the industrial sectors that consume natural gas the most grow much slower compared to earlier years. Possible policy shocks include price cut and encouraging the use of gas as a replacement for coal to reduce environmental woes. We also suggest that the plan for adding more supply capacity should base on a demand estimation that considers future economic growth, industrial structural shifts and environmental policy development.
... Using a CGE model, Hannum et al. [56] estimated the implied cost of carbon in Colorado. He and Lin [57] analyzed the impact of natural gas price control in China. Lin and Jia [58] tried to find the impacts of carbon tax rate and taxation industry in China. ...
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... The construction of all CGE models is based on traditional Walras paradigm, which means that the model can be described as a system of simultaneous equations deduced by all actors' maximizing behavior. CGE model simulates the behavior of social subjects, such as residents, enterprises, government, and foreigners (Bohringer et al., 2017;He and Lin, 2017). It consists of five blocks: production block, income-expenditure block, trade block, energy-policy block, and macroscopic-closure & market-clearing block (Lin and Jia, 2018a). ...
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On December 29, 2017, China's Carbon Trading Scheme (ETS) was officially launched, and it may be the largest emission trading platform in the world. This paper establishes 5 counter-measured scenarios based on the recently launched China's national ETS market and constructs a dynamic recursive Computable General Equilibrium model to study the impact of national ETS on the economy, energy, and environment. We find that the national ETS will have a negative impact on GDP by 0.19%–1.44%. The national ETS can significantly increase the price of electricity, however, the increase in the prices of other commodities will be much lower than that of electricity. As long as the mechanism of the ETS market remains unchanged, emission reduction per year will increase linearly. Economic output and CO2 emission are sensitive to Annual Decline factor (ADF). This paper argues that China's national ETS market is an effective tool to reduce CO2 emission, and we suggest that ADF could be 0.5% when allocating carbon allowance for the electricity sector. This could balance economic output and CO2 reduction. Also, it is easy to achieve the goal of “double control” (total amount and intensity) in China.
... Different from an input-output model (Chen et al., 2018;Cui et al., 2015) or a game theory analyses, the CGE model can better analyze the impact of target issue on the whole society. We summarize three characteristics of the CGE model in this paper (Bye et al., 2018;He and Lin, 2017;Hosoe, 2018). ...
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Energy savings and CO2 emission reduction have become a major issue in recent years. Taxes on energy production sectors may be an effective way to save energy, reduce CO2 emissions, and improve environmental quality. This paper constructs a dynamic recursive Computable General Equilibrium (CGE) model to analyze the impact of the energy tax on energy, economy, and environment from the perspective of tax rates and tax forms (specific tax and ad valorem tax). The results show that adjusting the tax system and the tax rate has important implications for energy conservation while having minor impacts on the output of other industries. The impact of an increasing energy tax on the energy demand is greater than the impact on sectoral output, indicating that energy efficiency will be increased to some extent. The CO2 reduction will increase over time when an ad valorem tax is implemented on enterprises. We found that ad valorem tax has greater elasticity of economic output, energy demand, and CO2 emission reduction. The results support the direction of China's resource tax reform. However, we argue that it is better to increase the tax rate relatively and relax the control on energy prices so that energy efficiency will increase.
... Different from input-output model (Chen et al., 2018;Cui et al., 2015) and econometric analysis (Tan et al., 2018b, Tan et al., 2018, CGE model can analyze the impact of a target issue on the whole society better. Three characteristics of CGE model (He and Lin, 2017;Hosoe, 2018;Wu et al., 2014) are summarized below. ...
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... One-time energy consumption will continue to grow rapidly and place tremendous pressure on China's energy supply capacity and environmental protection policies. Though still not a completely clean form of energy, natural gas is an available, easily usable, and economical energy alternative with which to generate a large share of the huge amounts of electricity that the country requires, and is thus pivotal in China's goal to achieve the construction of a comprehensive ecological civilization (He and Lin, 2017;Mark et al., 2017;Liu et al., 2018;Li et al., 2019). ...
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... It was not until June 2010 that the ex-factory price of natural gas was integrated into the first-tier and second-tier prices [3]. To build a natural gas price linkage mechanism, the National Development and Reform Commission of China issued a notice of accelerating the implementation of the natural gas price adjustment plan in 2010 [4]. However, the adjustment of residential gas prices is closely related to the stability of people's livelihoods which greatly restricts the promotion of a linkage mechanism for residential gas prices and would lead to the imbalance of natural gas supply [5]. ...
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... Rapid increase in energy consumption and pollution emissions forcibly suggest to work as environmental protection become central theme of political leaders and people debate where they seem more concerned about environmental pollution and its consequences in long run. Chinese public are sensitive and aware about the environmental issues and have great concern for pollution reduction (He and Lin 2017). Recently, in Paris agreement 2015, international communities have shown great concern about the Chinese pollution emissions. ...
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... Conversely, an increase in gas prices can significantly affect the economy by applying upward pressure on the CPI and a reduction in actual GDP and residents' welfare (He and Lin 2017) as well as by placing pressure on the profitability of the gas suppliers and distributors (Goncharuk 2013), and a number of industries such as metallurgy and the chemical industry (Goncharuk 2015). Moreover, based on the case of China, He and Lin (2017) established that an increase in gas prices can reduce carbon emissions. ...
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