The Effects of Market Reforms on Structural Change: Implications for Energy Use and Carbon Emissions in China

This paper assesses the role played by market reforms in shaping the future level and composition of production, energy use, and carbon emissions in China. Arguments have been made that reducing distortions in China’s economy through market reforms will lead to energy efficiency improvements and lower carbon emissions in China. However, these arguments are based on partial and not general equilibrium analyses, and therefore overlook the effects of market reforms on economic growth and structural change. The results suggest that further implementation of market reforms could result in a structural shift to less carbonintensive production and thus lower carbon emissions per unit GDP. However, this fall in carbon intensity is not enough to compensate for the greater use of energy as a result of market reforms due to higher economic growth and changes in the composition of production. Therefore, China’s transition to a market economy could result in significantly higher economic growth, energy use, and carbon emissions. These results could have implications for other countries considering or undergoing market transition.