Since the start of its economic reforms in 1978, China's energy prices relative to other
prices have increased. At the same time, its energy intensity, i.e., energy consumption
per unit of Gross Domestic Product (GDP), has declined dramatically, by about 70%, in
spite of increases in energy consumption. Is this just a coincidence? Or does a
systematic relationship exist between energy prices and energy intensity?
In this study, we examine whether and how China’s energy price changes affect its
energy intensity trend during 1980-2002 at a macro level. We conduct the research by
using two complementary economic models: the input-output-based structural
decomposition analysis (SDA) and econometric regression models and by using a
decomposition method of own-price elasticity of energy intensity. Findings include a
negative own-price elasticity of energy intensity, a price-inducement effect on energyefficiency
improvement, and a greater sensitivity (in terms of the reaction of energy
intensity towards changes in energy prices) of the industry sector, compared to the
overall economy.
Analysts can use these results as a starting point for China's energy and carbon
emission forecasts, which they traditionally conduct in China without accounting for
energy-intensity changes. In addition, policy implications may initiate new thinking about
energy policies that are needed to conserve China's energy resources and reduce
carbon emissions