This dissertation features three essays in environmental economics. In the first essay, I analyze how price regulation changes the welfare effects of carbon emission policies. Specifically this paper shows that electricity price regulation in China substantially increases the cost of reducing carbon emissions. I set up a simple general equilibrium model where the price of the carbon intensive sector (electricity) is regulated and examine the welfare impact of a revenue-neutral carbon tax. The model shows price regulation has a direct cost effect and also changes the secondary cost effects caused by pre-existing taxes. I then construct a static CGE model where the parameters are calibrated using stylized facts about the economy of China in 2007. My central estimate shows the marginal cost of achieving a 20% reduction in CO2 emissions is 22% higher in the presence of pre-existing taxes than in a world with only a carbon tax. Price regulation raises the marginal cost of CO2 reduction by a further 27%, on top of the distortion caused by pre-existing taxes.

The second essay studies the implication of relaxing electricity price regulation, both in the context of pre-existing taxes and in the context of carbon pricing policy. It employs a general equilibrium model of the Chinese economy and provides ex-ante counterfactuals under a range of electricity regulation policy and assess the social welfare impact with potential electricity market reform. It shows pre-existing labor tax increases the per unit social benefit of deregulation. The analysis also shows carbon emission policy increases the per unit benefit of electricity deregulation compared with second-best setting.

The third essay uses micro-level data in China to study the impact of urban heat island on residential electricity use (REU). Combining a household energy consumption survey in China with remote sensing data related to urban heat island intensity and weather conditions specific to each household, the empirical analysis shows that urban heat island has a significant effect on residential electricity use, through interacting with local weather conditions such as temperature. Higher urban heat island increases residential electricity consumption by increasing the impact of Degree Days on REU. The effect also varies seasonally and regionally.