Electricity–Economy Interactions : Implications for Electricity Policy and Pricing Reform in China

With no dependable and reasonably priced electricity, the vehicles that steer industrial productivity and other essential socioeconomic activities will remain redundant. But for an economy as large as China, the task of electricity price reform will require a balance of conflicting socioeconomic interest. To this end, the study examined the direction of causality between electricity consumption and economic growth using Granger causality test on China's annual data for the period of 1971 to 2009. The test revealed a one-way causation running from electricity consumption to economic growth. The study therefore cautioned against the pursuance of electricity conservation policies and major pricing reforms such as abrupt removal of subsidy or changes in tariff structure as these could constrained consumption and exert far reaching consequences on electricity access by the rural poor and subsequently harm economic growth. Better targeting and or gradual removal of subsidy is advocated