Energy Transition,Regime Switching And Its Effect On Economic Sustainablity

There is a close relationship between economic development and energy use,on one hand,fossil fuel provides strong power to China economic development,on the other hand,it also results in environmental damages.Empirical evidence shows China’s previous economic development was achieved in unsustainable way due to the great externality from environmental degradation.In order to adjust our future development path,China is gradually taking some necessary steps to promote energy transition.First,a new development strategy is released in the 19th national congress report of our party,namely,’building a beautiful new China,which is based on the energy system of clean,low-carbon,security and high efficiency’.Second,in fulfilling Paris Agreement,China government has perfectly played a responsible big country,meanwhile our country also set a series of targets for herself,the targets contains adjustment of energy structure and carbon emissions.In particular,China has a high potential to develop renewable energy,which will enable the transition from fossil fuel to renewable energy.Energy transition is a long process,and its influence on economic system is also persistent.However,relevant researches are mainly qualitative analyses,which is insufficient in making or designing policies when quantitative information is required.For example,it’s difficult to quantize energy transition’s influence on economic system based on existing qualitative studies.In order to fill in this gap,the paper will explore a new theory and method,which can be used to quantize energy transition’s influence on economic system.It includes three parts,the impact mechanism of energy transition on economic system,regime switching of economic development in energy transition and economic sustainability of energy transition.The paper is composed of both theoretical and empirical analyses.In theoretical analysis,the paper is firstly to analyze how regime switching affects relationship between different inputs based on element substitution elasticity and timing characteristics of energy price,in order to research the impact mechanism of energy transition on economic system.Second,an economic model of energy transition based on bifurcation theory is built,the new model can be used to identify the tipping point where regime switching happens in economic development,and analyze the factors that affect the tipping point,in order to research regime switching of economic development in energy transition.In empirical analysis,first,a DSGE model containing genuine savings is built for analyzing economic sustainablity in energy transition,including sustainablity and economic growth.Second,the parameters are respectively changed for making sensitivity analysis,the parameters include speed of energy transition,growth rate of total energy consumption and pollution intensity per energy consumption.Finally,the part also analyzes how external shocks,technological progress and tax,affect economic sustainablity before and after regime switching.According to theoretical and empirical analysis,there are several main conclusions in the paper.The findings based on theoretical analysis are firstly showed.(1)the substitution elasticity between capital,labor and energy indeed exists a qualitative change before and after regime switching,and change extents are different taking consideration of different type of technological progress.(2)fossil fuel leads to environmental deterioration,and the deterioration’s negative externality makes per capital consumption shows a decreasing trend.China economic development is being in an unsustainable state,but the state is gradually weakened and finally reversed as energy transition promotes.(3)the process that China economic development transforms from unsustainable state to sustainable state is promoted by the factors,including promoting speed of developing renewable energy,increasing elasticity of capital output,lowering negative externality extent from energy consumption and smaller social discount rate.Secondly,the trend of future per capital consumption is the most intuitive way of judging sustainable development,because future trend of per capital consumption is unobservable,so genuine saving has been international general indicator used to measure sustainable development.The findings based on numerical simulation of DSGE model conclude.(1)the trajectory of genuine saving and main economic variables’ change is different before and after regime switching.Economic development is unsustainable and economy keeps growing before regime switch,and economic development becomes sustainable and economic growth is good.(2)energy equilibrium price’s trend is firstly increasing and finally horizontal in energy transition,and meanwhile there is a qualitative change for relationship between inputs.(3)the duration that economic development keeps unsustainable is reduced and economic growth is strongly promoted,as speed of energy transition is increased,growth rate of total energy consumption is decreased and pollutant extent of per energy consumption is weakened.(4)After regime switching,technological shock can bring about greater economic growth and enhance economic sustainablity.Similarly,economic system is more stable and tax shock’s influence on economic system is less if regime switch has happened.Combined with the conclusions,there are some policy implications.(1)China government moderately speeds up energy transition through policy intervention,it enhances economic growth and reduces duration of current sustainable development in China.(2)Growth rate of total energy consumption can be lowered by accelerating the research and development of energy-saving technologies and improving the energy efficiency of high-energy industries,and,as a consequence,contribute to economic growth in a sustainable way.(3)some measures can be taken to reduce the pollution extent of per energy consumption,such as the installation of pollution treatment devices and the legitimation and implementation of laws and regulations to change the behaviors of enterprises.A low pollution intensity is expected to speed up economic growth in a sustainable,instead of the previous unsustainable,path.