Reform of the Energy System

Two paramount factors determine the level of human energy utilization, technology and institution. In terms of energy technologies, be it the exploration and development of the primary energy or the conversion and utilization of the secondary energy, China has already developed some of the world’s most cutting-edge technologies. The rapid development of the energy industry after the reform and opening-up has given strong impetus to the high-speed growth of China’s economy. However, with the advent of the twenty-first century, China has frequently experienced energy supply shortages such as “power shortages,” “gas shortages,” and “coal shortages.” For some categories of energy products, their prices are seriously mismatched with the supply and demand. Even in those cases when the prices of primary energy on the global market have plummeted, the costs of energy consumption in China remain exorbitant. Problems of this kind can hardly be attributed to China’s backward conditions of energy technology or insufficiency of energy resources. The root cause must be traced to the energy system. In this chapter, an analytical framework for the energy system is proposed, and the focus of analysis is given to an institutional analysis of the two most vital industry chains in the field of energy—the coal-electricity industry chain and the oil–gas industry chain. Through this analysis, it is expected to disclose how changes in transaction costs brought about by changes in energy systems affect the supply and demand relationship.