The demand for coal among China's rural households: Estimates of price and income elasticities

Abstract China's residential sector has experienced rapid electrification and gasification. Among rural households, however, coal still accounts for a large share of energy use, especially in the north. Use of coal for cooking and heating brings large health and pollution risks. From a theoretical viewpoint, economic tools such as taxes and subsidies have the potential to play a crucial role in addressing this issue. In this paper, a provincial-level dataset is used to estimate the price and income elasticities of aggregate coal demand by rural households. We find that coal is a non-Giffen inferior good for the rural household sector. This means that future income growth may help to induce switching from coal. Demand is becoming more price elastic as rural incomes grow. We also find that rural residential coal demand is more price- and income-responsive in the south than the north, perhaps because of fewer substitution options in the north. Our results provide benchmarks and parameters for policy simulation research.