Improving energy consumption structure: A comprehensive assessment of fossil energy subsidies reform in China

Fossil energy subsidies reform would be an effective way to improve the energy consumption structure; however, the reform needs to be assessed comprehensively beforehand as it would exert uncertain impacts on economy, society and environment. In this paper, we use price-gap approach to estimate the fossil energy subsidies of China, then establish CGE model that contains pollutant emissions accounts and CO2 emissions account to stimulate the fossil energy subsidies reform under different scenarios, and the environmental economic analysis concept is introduced to monetize the pollutant reduction benefits. Furthermore, we analyze the possibility and scope of improving the energy consumption structure from the perspective of technical and economic analysis. Analytical results show that the energy consumption structure could be improved by different extent by removing coal or oil subsidies, while the economic and social indexes will be influenced distinctively. Meanwhile, the effects of cutting coal subsidies are more feasible than that of cutting oil subsidies overall. It is recommended to implement fossil energy subsidies gradually, cut the coal first and then cut oil subsidies successively.

Research highlights
► This paper estimates the scale of fossil energy subsidies of China in 2007 with price-gap approach.
► We establish a Social Accounting Matrix and a CGE model extended with pollutant accounts.
► We simulate the impacts of removing or cutting subsidies under three different scenarios.
► We discuss the possibility and potential of improving energy consumption structure.