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Chinese Journal of Management Science ›› 2024, Vol. 32 ›› Issue (9): 281-291.doi: 10.16381/j.cnki.issn1003-207x.2022.2554

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The Effects of the Orderly Deregulation of Energy Prices on Carbon Abatement Cost in China: A Dynamic General Equilibrium Analysis

Hongdian Jiang1,2,3,Kangyin Dong4()   

  1. 1.Center for Energy and Environmental Policy Research, Beijing Institute of Technology, Beijing 100081, China
    2.School of Management, Beijing Institute of Technology, Beijing 100081, China
    3.School of Economics and Management, China University of Geosciences (Beijing), Beijing 100083, China
    4.School of International Trade and Economics, University of International Business and Economics, Beijing 100029, China
  • Received:2022-11-28 Revised:2023-12-24 Online:2024-09-25 Published:2024-10-12
  • Contact: Kangyin Dong E-mail:dongkangyin@uibe.edu.cn

Abstract:

Carbon pricing is one of the key measures for China to reach a carbon peak in 2030 and achieve carbon neutrality in 2060. However, price regulations relating to electricity, natural gas, and refined oil products in China may affect the cost-effectiveness of carbon pricing policies. Therefore, China’s existing energy pricing mechanism is introduced into a computable general equilibrium model, and the comprehensive effects of orderly deregulation of multiple energy prices on China’s marginal abatement cost (MAC) is explored. On this basis, the total abatement costs and cost-saving effects under different scenarios for China to achieve Nationally Determined Contribution target and phased target of carbon neutrality are evaluated. The results indicate that, first, China’s MAC is most sensitive to the deregulation of refined oil prices. Whether it is to liberalize refined oil prices for non-key oil-using sectors in the preliminary reform or to liberalize refined oil prices for key oil-using sectors in the in-depth reform, China’s MAC will demonstrate an obvious downward trend and the cost-saving effects to achieve the given abatement target will be the most significant. Second, the deregulation of electricity prices for households and agriculture sector will also reduce China’s MAC and total abatement costs to some extent. Third, although China’s MAC is insensitive to deregulate gas prices for non-households or households, it will also lead to a slight decline in MAC and total abatement costs. Finally, combined with the current mainstream carbon trading policies in China, the following suggestions are given: First, the overall roadmap for China’s energy market price reform may give priority to deregulating natural gas prices for non-household sectors and refined oil prices for non-key oil-using sectors. If the part of refined oil price is liberalized first, the total emission quota in the carbon market can obviously be reduced. If the natural gas price for non-household sectors is liberalized first, the corresponding abatement policies do not need to be adjusted. Second, in the long-run, the energy market price reform will eventually deregulate electricity, natural gas, and refined oil prices in all sectors. In this phase, if we fully liberalize refined oil prices first, it can continue to significantly reduce the total emission quota. If we fully deregulate electricity prices or natural gas prices first, the total emission quota can be both moderately reduced. Third, from an industry perspective, it would be appropriate for the oil refining industry to consider reducing oil refining capacity or transforming and upgrading, and for the power and natural gas industries to consider controlling the scale of new installed capacity or moderately reducing capacity.

Key words: energy price reforms, orderly deregulation, marginal abatement cost, cost-saving effect, CGE model

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