An event study analysis of price adjustment of refined oil and air quality in China

Abstract

Since marketization of the refined oil price, the Chinese government has used refined oil price adjustments to control air pollution. Using an event study analysis, we examine whether these price adjustments have impacted air quality. We test the abnormal returns of 12 price adjustments between 2014 and 2015 in 51 major cities of China. The results show that the impact on air quality of refined oil price decreases is larger than the impact of oil price increases. Although results indicate air quality has deteriorated, the impact is insignificant for most of the cities. Consequently, we conclude that price suspension of refined oil has had a negligible impact on air quality. This policy is not a viable method to improve the air quality in the short run.