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Price and income elasticities of electricity in China: Estimation and policy implications

Author

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  • Yumin Li
  • Yan Jiang
  • Shiyuan Li
Abstract
China has been reforming the energy sector, especially the electricity industry. One of the important aims is to reform the cross‐subsidies (the industrial sector has been subsidizing the residential sector for decades), which requires policy‐makers have a good understanding of price and income elasticities of electricity. However, few studies have estimated China's price and income elasticities of electricity, partly due to limited micro data. This study estimates price and income elasticities of electricity in China using AIDS (almost ideal demand system) demand model, which is consistent with consumer theory and more flexible than other regression models. The AIDS demand model is estimated using provincial‐level data from 2006 to 2016 and the estimation results show that the uncompensated price elasticity is −0.062, and the estimated income elasticity of residents is 0.889. To better understand the welfare implications of cross‐subsidies, which requires an estimate of the price elasticity of demand in the industrial sector. Based on the estimated price elasticity of electricity, we simulate the consumer surplus under different pricing mechanisms. Ramsey pricing, as expected, generated the larger consumer surplus than actual pricing mechanism, which would provide guidance for the price reform of China's power industry. China ha estado reformando el sector energético, especialmente la electricidad. Uno de los objetivos más importantes es reformar las subvenciones cruzadas (el sector industrial ha estado subvencionando el sector residencial durante décadas), lo que requiere que los políticos tengan un buen conocimiento de la elasticidad de los precios y los ingresos de la electricidad. Sin embargo, pocos estudios han estimado la elasticidad del precio y los ingresos de la electricidad en China, en parte debido a la limitación de los microdatos. En este estudio se estima la elasticidad del precio y los ingresos de la electricidad en China mediante el modelo de demanda AIDS (siglas en inglés de “sistema de demanda casi ideal”), que es coherente con la teoría del consumidor y más flexible que otros modelos de regresión. El modelo de demanda AIDS se estimó utilizando datos a nivel provincial de 2006 a 2016 y los resultados de la estimación muestran que la elasticidad no compensada de los precios es de ‐0,062, y la elasticidad estimada de los ingresos de los residentes es de 0,889. Para entender mejor las implicaciones en el bienestar de las subvenciones cruzadas se requiere una estimación de la elasticidad del precio de la demanda en el sector industrial. A partir de la elasticidad estimada del precio de la electricidad, se simuló el excedente de los consumidores bajo diferentes mecanismos de precios. Los precios de Ramsey, como se esperaba, generaron el mayor excedente de los consumidores que el mecanismo de fijación de precios real, lo que puede servir de guía para la reforma de precios de la industria energética de China. 中国はこれまで、エネルギーセクター、特に電力産業の改革に取り組んできた。この大きな目的の一つに相互扶助(産業部門は数十年にわたって住宅部門に補助金を出してきた)を改革することがあるが、これには政策立案者が電力の価格と所得弾力性を良く理解することが必要となる。しかし、ミクロデータが限られているということもあって、中国の電力の価格と所得弾力性を推定した研究はほとんどない。本研究では、消費者理論に合致した他の回帰モデルよりも柔軟であるalmost ideal demand system(AIDS)の需要モデルを用いて中国の電力の価格弾力性と所得弾力性を推定した。AIDS需要モデルで、2006~2016年までの省レベルのデータを用いて推定した結果は、非補償需要の価格弾力性は−0.062であり、住民の所得弾力性は推定で0.889であることを示した。相互扶助の福祉的な意味をよく理解するにはエネルギー産業の需要の価格弾力性の推定が必要である。電力の推定価格弾力性に基づき、異なる価格設定メカニズムの条件下で消費者余剰をシミュレートした。ラムゼイ価格設定では、予想通り、実際の価格設定メカニズムよりも大きな消費者余剰を生み出し、それは中国の電力産業の価格改革の指針となると考えられる。

Suggested Citation

  • Yumin Li & Yan Jiang & Shiyuan Li, 2022. "Price and income elasticities of electricity in China: Estimation and policy implications," Regional Science Policy & Practice, Wiley Blackwell, vol. 14(S2), pages 76-90, November.
    • Handle: RePEc:bla:rgscpp:v:14:y:2022:i:s2:p:76-90
    DOI: 10.1111/rsp3.12309
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    References listed on IDEAS

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