The impact of China's Differential Electricity Pricing policy on fossil fuel consumption

Abstract

Abstract China, the world's largest energy consumer, has been increasingly relying on pricing policies to improve energy efficiency in recent years. This paper estimates the impact of Differential Electricity Pricing (DEP) policy, which covers the most energy‐intensive industries in China. Under the DEP policy, electricity surcharges are imposed on enterprises using “eliminated” and “restricted” production technologies, of which the “eliminated” enterprises are more backward in technology level and are charged much higher electricity tariffs. We exploit a differences‐in‐differences approach to assess the effect of the DEP policy on fossil fuel consumption. The results indicate that the DEP policy led to a reduction in coal consumption intensity (CCI) of “eliminated” enterprises, which can be explained by the obsoleting of backward equipment in these enterprises. As for the “restricted” enterprises, it was economically optimal to continue to use “restricted” equipment; consequently, the DEP policy had no significant impact on CCI.

Keywords

• China
• coal consumption intensity
• differences‐in‐differences methodology
• Differential Electricity Pricing policy
• energy‐intensive industries