The Impact of Energy De-Subsidization Policy in 2030: A Dynamic CGE Model in China

The issues of energy shortage and environmental pollution caused by energy subsidies are more serious in a massive energy-consuming country like China. Since the Group of 20 summit meeting on September 4, 2016, government leaders have confirmed that they will phase out inefficient fossil fuel subsidies. In this paper, we construct a computable general equilibrium model to analyze the impact of different de-subsidization policies based on possible reduction targets, mitigation routes, and reform periods. The results show that a nonlinear tendency in gross domestic product will emerge with the increasing intensity of de-subsidization targets. Moreover, there is a general macroeconomic recession both in output and consumption, where the prices have generally increased. The results also show that various mitigation routes of de-subsidization policy are slightly significant economically. However, the total removal of energy subsidy in one year will obtain an opposite conclusion with better social welfare and gross domestic product, but more carbon emissions and energy consumption. Overall, a medium target (50-90%) with an average reduction during 2010-2030 could be more suitable for China.