Price elasticity, block tariffs, and equity of natural gas demand in China: Investigation based on household-level survey data

On the basis of a newly established database from the Chinese Residential Energy Consumption Survey, this paper estimates the price elasticity of natural gas demand for the households and investigates the factors that affect residential natural gas consumption in China. To address the endogeneity problems, the non-residential natural gas price has been adopted as the instrumental variable for residential natural gas price. Results demonstrate that the natural gas demand of Chinese households respond significantly to price change, with an overall price elasticity coefficient of −0.898. In the meanwhile, 1% increase in family members would cause 0.159% rise in natural gas demand, and household in the south consumes 28.8% more natural gas than that in the north. Recognizing the heterogeneity of residential natural gas price elasticity for different households, quantile regression technique has further been applied to analyze the distributional effect of natural gas consumption. The simulation suggests that the Gini coefficient drops from 0.49 to 0.40 after introducing an increasing block tariff scheme to replace the original flat tariff system, confirming a price reform has potential to improve the energy equity situation by reshaping the energy consumption pattern.