An econometric analysis of energy demand and carbon emissions in China's economy

China has experienced rapid economic growth for the last two decades since the post-1978 economic reform. With its rising importance in the world's economy, energy and environmental affairs, and global concern with climate change, it is important for both China's and global decision makers to understand energy demand behavior and associated carbon emissions in the Chinese economic growth. First, we develop a structural decomposition analysis for China's final energy consumption and carbon emissions changes based on Input-Output framework. The results indicate that the changes in direct energy intensity and final demand shift are the main factors for the reduction of total and sectional final energy intensity. The changes in direct carbon emission intensity and the technical coefficient matrix are the main factors in the reduction of total and sectional carbon emission intensity. Second, by employing a translog function we find that coal and oil are almost complement, and electricity is substitutable with coal and oil in all sectors. The decomposition analysis shows that coal input level decreases, electricity and oil input level increases. Output change causes carbon emissions increment, while energy substitution leads to a little decrement. Third, we analyze and compare the impacts of environmental tax on cost, input demand and carbon emissions. When carbon tax is imposed, the production cost and inputs demand for capital and labor rise, while energy demand and carbon emissions drop. The carbon tax has a larger effect on coal demand than on oil and electricity demand. Carbon tax leads to a slightly larger cost decrement and more reasonable energy mix than energy tax. Our study can provide some policy implications for avoiding rapid growth in energy consumption and carbon emissions.