An Estimation of the Price Elasticity of Energy Demand in Energy-intensive Sectors - Comparative Study of Japan, Korea and China -

Abstract

Although a large body of research on the price elasticity already exists, the elasticity estimates have wide range of results. And there is no consensus about the price elasticity value especially for developing countries. In order to consider the effectiveness of price reform on the energy conservation in developing nations, we estimate the price elasticity of energy demand in energy intensive sector in China and compare the results to those of Japan and Korea.
We found that the estimated price elasticity is asymmetric between the period of price rise and fall, and price elasticity in the period of price rise (upturn price elasticity) is larger than that in the period of price fall (downturn price elasticity) with a few exceptions. This result is consistent with the previous study such as Haas (1998) and Hoshino (2013) which targeted to developed nations. The Chinese upturn price elasticity is the largest among the three countries. This means that the energy price will play an important role for energy conservation purposes, and price adjustment through a subsidy reform can be one of the effective policies in Chinese industrial sector.