China's experiment on the differential electricity pricing policy and the struggle for energy conservation

Differential electricity pricing was promulgated by China's central government to guide the development of high energy-consuming industries, which are significant for energy conservation. This paper examines the twists and turns of the policy implementation at the provincial level, and seeks to elucidate the difficulties in its implementation. Local governments, concerned that following the central directives would hurt local interests, have tried to deviate from the central orders while the central revises the policy from time to time to ensure local compliance. Three difficulties are analyzed: (1) the current relations between the central and local energy regulatory institutions make these local institutions difficult to perform their duties, and affect incentives for local governments to respond to central directives; (2) financial reform puts a great burden on local governments to raise revenues to cover expenditures, making local governments focus mainly on economic development rather than serving merely as political agents of the central government; (3) the aggressive attitude of local governments in pursuing GDP growth is not necessarily driven by the central government, but by pressure from competition among localities and the need to win local support. Solving these difficulties is important for making national energy conservation polices effective and efficient.