Does energy-price regulation benefit China's economy and environment? Evidence from energy-price distortions

- Price distortion for a single type of energy has gradually transformed.
- Energy pricing system in China is not yet fully market-oriented.
- China's economy benefits from relative and moving distortions.
- Absolute distortions of energy prices have negative effects on economic growth.
- Carbon emissions call for less pricing distortions.

China's energy prices have long been regulated due to the critical role energy plays in economic growth and social development, which leads to energy-price distortion to some extent. To figure out whether energy-price regulations will benefit China's economy (measured by GDP growth) and environment (measured by carbon emissions), we conducted an in-depth simulation using path analysis, where five energy products (natural gas, gasoline, fuel oil, steam coal, and coking coal) are selected and three measurements (absolute, relative, and moving) of energy-price distortions are calculated. The results indicate that, with a series of energy pricing policies, the price distortion for a single type of energy has gradually transformed, while the energy pricing system in China is not fully market-oriented yet. Furthermore, China's economy benefits from relative and moving distortions, while the absolute distortions of energy prices have negative impacts on economic growth. Finally, with regard to the environment, carbon emissions call for fewer distortions.