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The purpose of the study is to evaluate the impact of China's current coal‐to‐liquids (CTL) activities on its coal and oil markets from 2005 to 2025.

A partial equilibrium multi‐equation model of China's oil and coal markets is developed based on data obtained from the existing literature. The impact of CTL technologies on China's oil and coal markets is evaluated using computer simulations by solving the model under scenarios with and without CTL production.

The simulation results show that on average, the planned CTL activities will decrease crude oil prices by 5.73 percent and China's oil imports by 6.09 percent and increase China's domestic oil supply by 9.26 percent over the 20 year period. Also, China's demand for oil will increase by 0.35 percent on average, suggesting that CTL production will slightly stimulate China's demand for oil because of the drop in oil prices. China's demand for coal will also increase by 1.02 percent because of the additional demand for coal created by CTL production. Surprisingly, both coal prices and China's coal supply will decline by 0.51 percent while the demand for coal and coal supply of the rest of the world will be reduced by 1.63 percent and 0.28 percent, respectively.

The paper is the first study on the implication of CTL conversion from an economist's point of view. It applies an economic model to quantify the impacts of such technology on overall energy prices and supplies.