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Reforming Inefficient Energy Pricing: Evidence from China

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  • ITO Koichiro
  • ZHANG Shuang

Abstract

Inefficient energy pricing hinders economic development in many countries. We examine long-run effects of a recent heating reform in China that replaced a commonly-used fixed-payment system with individually-metered pricing. Using staggered policy rollouts and administrative data on household-level daily heating consumption, we find that the reform induced long-run reductions in heating usage and generated substantial welfare gains. Consumers gradually learned how to conserve heating effectively, making short-run evaluations underestimate the policy impacts. Our results suggest that energy price reform is an effective way to improve allocative efficiency and air quality in developing countries, where unmetered-inefficient pricing is still ubiquitous.

Suggested Citation

  • ITO Koichiro & ZHANG Shuang, 2020. "Reforming Inefficient Energy Pricing: Evidence from China," Discussion papers 20062, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:20062
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    3. McRae, Shaun D. & Wolak, Frank A., 2021. "Retail pricing in Colombia to support the efficient deployment of distributed generation and electric stoves," Journal of Environmental Economics and Management, Elsevier, vol. 110(C).
    4. Wang, Manyu & Huang, Ying & An, Zidong & Wei, Chu, 2023. "Reforming the world's largest heating system: Quasi-experimental evidence from China," Energy Economics, Elsevier, vol. 117(C).
    5. Arnold, Fabian & Jeddi, Samir & Sitzmann, Amelie, 2022. "How prices guide investment decisions under net purchasing — An empirical analysis on the impact of network tariffs on residential PV," Energy Economics, Elsevier, vol. 112(C).

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