Reducing rebound effect through fossil subsidies reform: A comprehensive evaluation in China

While energy efficiency improvement is the key influencing factor for this goal, its effectiveness is significantly determined by rebound effect. Energy subsidy as an economic regulation policy would significantly affect rebound effect. To explore how China's fossil subsidies reform would affect rebound effect, this study conducts a comprehensive evaluation based on a multi-sector computable general equilibrium (CGE) model. Rebound effects at different technological improvement levels are investigated and the impacts of different subsidies reform scenarios on mitigating rebound effects and on the whole economy is analyzed. The results provide significant policy insights: Firstly, rebound effect does exist in China, larger for electricity than for primary energies. Secondly, by removing fossil energy subsides, the rebound effect would be effectively mitigated, and removing all subsides would reduce the rebound effect most, however, it would bring significant negative impacts on the macro economy. Thirdly, an integrated policy with removal of fossil energy subsidies and increment of clean energy subsidies would be more effective, greatly reducing rebound effect and also bring benefits for both economy and environment. Our findings would be critical for China's low-carbon policy making in the future.