Is the Price Elasticity of Demand for Coal in China Increasing?

Abstract

China’s dependence on coal is a major contributor to local and global environmental problems. In this paper we estimate the price elasticity of demand for coal in China using a panel of province-level data for the period 1998–2012. We find evidence that provincial coal demand has become increasingly price elastic. As of 2012 we estimate that this elasticity was in the range –0.3 to –0.7 when responses over two years are considered. The results imply that China’s coal market is becoming more suited to price-based approaches to reducing emissions. Our estimates suggest that the elimination of coal consumption subsidies could reduce national coal use and related emissions by around 2%.

Keywords: Coal, Price elasticity, Demand, China, Provincial, Economic reform, Price reform

JEL Classification: O13, Q41, P28, Q48