China’s leaders are considering a variety of policies to reduce energy intensity and CO₂ emission intensity, but most policies don’t take into account how interprovincial migration will alter the energy needs and economic activities across provinces. This paper explores the interaction between interprovincial migration and the design of climate and energy policy in China.

Specifically, we focus on two policies included in the Twelfth Five-Year Plan (2011–2015). The first, a mandatory energy intensity target, limits how much energy each province can consume based on its GDP. The second, a non-binding energy cap, limits the absolute amount of energy each province can consume. We estimate a population migration model and integrate it into a general equilibrium model that resolves each province in China to simulate the effect of migration on total national energy use and economic activity.

The analysis shows that if China moves from energy intensity targets to mandatory absolute caps on energy use at the provincial level, it will be important to consider effects of migration explicitly in the target-setting process. The findings also underscore the value of moving from provincial targets to an integrated national emissions trading system.

This led to the following findings: 

• “an energy intensity target (energy use indexed to economic output) is more robust than an absolute cap on provincial energy”;
• If China shifts “from energy intensity targets to mandatory absolute caps on energy use at the provincial level, it will be important to consider effects of migration explicitly in the target-setting process;
• Great value could be achieved by “moving from provincial targets to an integrated national emissions trading system, given that the choice of abatement strategies will adjust endogenously to labor relocation as well as other rapidly evolving features of China’s regional economies”.

Abstract

Interprovincial migration flows involve substantial relocation of people and productive activity, with implications for regional energy use and greenhouse gas emissions. In China, these flows are not explicitly considered when setting energy and environmental targets for provinces, and their potential impact on the effectiveness of policy alternatives is ignored. We analyze how migration affects outcomes under energy intensity targets and energy caps. While both policies are part of the nation's Twelfth Five Year Plan (2011–2015) and imposed at the provincial level, only the intensity targets are binding at present. We estimate a migration model, integrate it into a general equilibrium model that resolves each province in China, and simulate the effect of migration on energy use and economic activity. We find that although both types of policies are affected by uncertain migration flows, energy intensity targets (energy use indexed to economic output) are more robust than absolute caps. They are also more cost effective, placing less burden on the relatively clean in migration provinces. Our findings also underscore the value of moving from provincial targets to an integrated national trading system targeting emissions of energy-related CO₂, given that the choice of abatement strategies will adjust endogenously to labor relocation.