Natural gas subsidies in the industrial sector in China: National and regional perspectives

This paper seeks to investigate the regional heterogeneity in natural gas subsidies of China's industrial sector. Price-gap approach and logarithmic mean Divisia index method (LMDI) are combined to accomplish this goal. The results show that there exists regional heterogeneity in the decomposition on the variation of industrial natural gas subsidy in China. In other words, the factors that contribute to the changes in subsidies differ from a regional basis. During 2007-2013, consumption exerted a positive impact on the increase of industrial natural gas subsidies, contributing more than 80% both in the eastern and northeastern regions, followed by 70.66% in the western region and 69.54% in the central region. During 2013-2016, the main factor affecting the changes in industrial natural gas subsidies is the pricing mechanism. The pricing mechanism played a significant positive role in the decline of industrial natural gas subsidies, with contribution rate of 367.73% in the northeastern region, 80.64% in the eastern region, 75.68% in the central region and 74.34% in the western region. Based on the results, we suggest that the policy measures enacted by government should differ in regions when promoting subsidy reform, especially for developing countries with unbalanced regional development.