China

CN-16:Differential Electricity Pricing for Industry

Policy Description

In June 2004, the National Development and Reform Commission (NDRC) established a policy permitting differential electricity pricing for high energy-consuming industries in which electricity prices can be set based on the energy intensity level of each enterprise. In the 12th Five Year Plan (FYP), companies whose energy/electricity consumption per unit is above the local or national standard will be punished on its electricity price.

Description

In June 2004, the National Development and Reform Commission (NDRC) established a policy permitting differential electricity pricing for high energy-consuming industries in which electricity prices can be set based on the energy intensity level of each enterprise [1]. Based on their level of energy-efficiency, enterprises are grouped into one of four categories (*1):

  1. "encouraged",
  2. "permitted",
  3. "restricted",
  4. "eliminated".

Each  category has a specific electricity price, with tariffs designed to phase-out inefficient enterprises (i.e. the "eliminated" category has the highest electricity price) and encourage efficient ones (i.e. the "encouraged" category has the lowest electricity price). Enterprises in the ‘‘encouraged’’ and ‘‘permitted’’ categories pay the normal price for electricity in their areas. Enterprises in the ‘‘restricted’’ and ‘‘eliminated’’ categories pay surcharges of 0.05RMB and 0.20 RMB per kWh ($0.0060/kWh and $0.0242/kWh) (*2) [5] (*3). In 2006, electricity prices for ‘‘eliminated’’ enterprises increased to 50% over the price for high-energy-consuming industries in order to be phased over three years. Immediately, this increased the price differential for ‘‘eliminated” enterprises by a factor of four (i.e. 0.20 RMB per kWh ($0.0252/kWh)) and for ‘‘restricted’’ enterprises by a factor of 2.5 (i.e. 0.05 RMB per kWh ($0.0063/kWh)). The price is increased to try to force these plants to close [5]. (*6)

Policy Information Expand this section for information on the key features of the policy, such as its date of introduction, categorization, main objective(s) and linkages with other policies.

Policy Categorisation

Policy Instrument Type: Economic, Incentives & Subsidies

Position in the Pyramid

About Us

Participation: Mandatory

Period

Start Date: 2004

Policy Linkages

Supported By Top-1000 Energy-Consuming Enterprises Program Effort Defining
Supports Industrial Energy Performance Standards Effort Defining
Complements Ten Key Projects Program Supporting Measure
Supports Energy Intensity Target of the 11th Five Year Plan Effort Defining
Supports Energy and Carbon Intensity Targets of the 12th Five Year Plan Effort Defining
Supported By Top-10,000 Energy-Consuming Enterprises Program Effort Defining

Agencies Responsible

National Development and Reform Commission

Primary Objective: Energy

Objective

Establish electricity prices for industrial enterprises are established based on their energy intensity level.

Target Group

High energy-consuming enterprises including electrolytic aluminum, ferroalloy, calcium carbide, caustic soda, cement, and steel industries, phosphorus and zinc smelting industries.

Driver of energy consumption or emissions affected by policy: Total electricity consumption.

Implementation Information Expand this section for information on targets, monitoring, verification and enforcement regimes, and implementation requirements and tools.

Coverage

-

Quantitative Target? no

Progress Monitored? yes

Verification Required? no

Enforced? yes

Sanctions: Local provincial authorities retain revenue collected through the differential electricity pricing system (*5)

Requirements on the Target Group

-

Support by Government

Unknown

Implementation Toolbox

Impacts, Costs & Benefits Expand this section to find information on policy effectiveness and efficiency.

Impact Quantitative Estimate Qualitative Estimate
Estimated effect on energy consumption or emissions As of 2006, 30 provinces (33 in total) had implemented this policy, covering approximately 2,500 enterprises. Between 2004 and 2006, approximately 900 firms in the eliminated category and 380 firms in the restricted category had closed, invested in energy efficiency, or changed production processes.
Estimated costs/benefits for industry Not available Not available
Estimated cost for government In 2007, the policy was adjusted to allow local provincial authorities to retain revenue collected through the differential electricity pricing system, providing stronger incentives for provincial authorities to apply the policy
Other Benefits
General Benefits Improve energy savings, reduce carbon emissions, increase awareness

References & Footnotes

References

[1] Price, L., Wang, X., Jiang, Y., (2008a). China’s Top-1000 Energy-Consuming Enterprise Program: Reducing Energy Consumption of the 1000 Largest Industrial Enterprises in China. Berkeley, CA: Lawrence Berkeley National Laboratory (LBNL-519E). http://china.lbl.gov/sites/china.lbl.gov/files/LBNL_519E._Top-1000_Energy_Consuming_Enterprises_Program._Jun2008.pdf

[2] Moskovitz, D., Lin, J., Weston, F., Zhou, F, Liu, S., Hu, Z., Bai, Jianhua, Yu, C., (2007). Part A Final Report TA 4706-PRC: Energy Conservation and Resource Management Project. Asian Development Bank, Manila.

[3] Moskovitz, D. (2008). Climate Change Policy Options for China’s Power Sector. Regulatory Assistance Project.

[4] National Development and Reform Commission (NDRC) (2006). NDRC official press conference: Improve Differential Electricity Pricing and Accelerate the Industry Structural Adjustment. http://www.ndrc.gov.cn/xwfb/ t20060930_87356.htm

[5] World Bank (2010). Accelerating Energy Conservation in China’s Provinces, 1 June: http://go.worldbank.org/1W2EFBV600

Footnotes

(*1) No clear definition of the 4 categories available

(*2) Based on a currency conversion of $1 =7.9897 RMB (average rate of July 2006)

(*34) The prices and intensities are determined by NDRC

(*4) The funds are collected through the electricity price, it is unclear how there would be any verification

(*5) In 2007, the policy was adjusted to allow local provincial authorities to retain revenue collected through the differential electricity pricing system, providing stronger incentives for provincial authorities to enforce its implementation

(*6) The price is increased to try to force these plants to close.