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GDP EFFECTS OF AN ENERGY PRICE SHOCK

This chapter attempts to derive rough estimates of the adverse ef-fects on Chinese GDP growth attendant upon an energy price “shock,” defined as a substantial increase in oil prices, with ensuing empirical effects on such oil substitutes as coal and natural gas as outlined below. We begin with the case of a “severe” production cut and price increase and, for sensitivity purposes, also consider pro-portionately smaller “large” and “moderate” cases as well. As an an-cillary effect in the context of China, such increases in the price of oil can be envisioned to produce an additional adverse impact on public health because of a renewed intensive use of “dirty” (high-sulfur) coal for electric power generation, industrial processes, space heat-ing, and other purposes; however, the available literature does not offer a uniform estimate of that effect in terms of mortality and morbidity, in that the effects are difficult to separate from those of dust from construction sites and agricultural areas.1

We begin with the presentation of some basic data and projections on the Chinese energy sector, followed by a discussion of the effects of a severe increase in international oil prices. GDP effects are de-rived, and the three sensitivity cases are discussed.

Read more: www.rand.org/publications/MR/MR1686/MR1686.ch6.pdf

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