Since the economic reforms that began in 1978 China has experienced a dramatic decline in energy intensity until about 2002 when it flattened out and even rose slightly.
There have been considerable debates about the origins of this dramatic decline of energy intensity before year 2000: whether it is mostly due to changes in composition of economic activity (structural change) or mostly due to changes in technology (energy per ton of steel, for example). However, very few studies have examined the slightly rising energy intensity trend for the post-2000 period. In this report, we use a new time series input output data set from 1981-2005, decompose the reduction in energy use into technical change and various types of structural change, including changes in the quantity and composition of imports and exports. We use two different decomposition methodologies: SDA and IDA methods. Based on these estimates of changes in energy intensity, we project autonomous energy efficiency improvement (AEEI) parameters in forecasting future capital, labor and energy input shares of output for each industry. We then construct a recursive-dynamic computable general equilibrium (CGE) model of the Chinese economy to analyze both command-and-control policies and carbon taxes, and provide policy recommendations on how China would pursue a more sustainable development trajectory to deal with greenhouse gas emissions.
