The impact of energy price on CO₂ emissions in China: A spatial econometric analysis

Excessive greenhouse gas emissions pose a global environmental concern. This paper examines the impact of energy price on China's CO₂ emissions based on an extended STIRPAT (Stochastic Impacts by Regression on Population, Affluence and Technology) structural human ecology model. We utilize Chinese provincial data from 2002 to 2016 and apply the spatial panel data techniques to explicitly consider spatial correlations and spillover effects between observations. Our results show that energy price has a significant negative impact on China's CO₂ emissions after controlling for other economic and energy market factors and spatial correlations of these variables. We identify a significant direct impact of the focal province's price change on CO₂ emissions and an indirect effect exerted by energy price changes in adjacent provinces. Such spatial spillover effects are also observed in other determinants identified in the extended STIRPAT model. We also document a path dependent pattern in China's provincial CO₂ emissions with last period CO₂ emissions influencing the current CO₂ emission levels. Our results show that the negative impact of energy price on CO₂ emissions remains qualitatively the same after incorporating the influence of previous period CO₂ emissions. Our results are also robust to the inclusion of lagged energy price measures, alternative spatial economic models, and alternative spatial weight matrices. Overall, our paper highlights the role of energy market in curbing CO₂ emissions and promoting sustainable economic development.