Impact of fossil fuel subsidies on energy-saving technological change in China

Fossil energy subsidies are intended to protect consumers by lowering energy costs, but they come at a substantial cost by damaging other pillars of sustainable development. Phasing out fossil fuel subsidies has caused heated academic and policy attention in developing countries; nevertheless, the implications of fossil fuel subsidies remain controversial. The novelty of this research is the first to empirically investigate the impact of fossil fuel subsidies on energy-saving technological change. To this aim, we adopt the price-gap approach, DEA method, and IV-Probit model to estimate these effects using China's provincial data from 2003 to 2017. The results show that fossil fuel subsidies still exist in China with significant differences in fuel types. Based on our findings, technological progress exhibits an energy-saving bias between energy and capital, while a labor-saving bias between energy and labor. As for the interaction, fossil fuel subsidies significantly impact energy-saving technological change. Therefore, some strategic measures are required to reform fossil energy subsidies and promote energy-saving technologies in China. •Impact of fossil fuel subsidies on energy-saving technological change is examined.•Fossil fuel subsidies exist in China with significant differences in fuel types.•Biased technological progress is observed.•Fossil fuel subsidies significantly impact energy-saving technological change.