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A fresh look at China’s energy policy shows mixed results

China has pushed to reduce its dependency on energy imports and hit environmental targets, but not much is known about the design of China’s energy policies and their consequences, Cornell researchers say.

Their new study, which appeared in the latest issue of Energy Economics, fills the gap. It is the first to look at China’s energy policies as a whole, rather than at a single policy in isolation.

“We do find several types of policies that reduce energy consumption, but we also find a couple of kinds of policies that had the opposite effect,” said applied economics and management doctoral student Shuyang Si, lead author of the study. The paper compiles a comprehensive data set of China’s 2,656 energy-related policies operating in 30 provinces.

“Research hasn’t really been done at this level and with this rigor in such a comprehensive manner for China. You really have to look at the whole picture,” added co-author C.-Y. Cynthia Lin Lawell, associate professor and the Robert Dyson Sesquicentennial Chair in Environmental, Energy and Resource Economics in the Charles H. Dyson School of Applied Economics and Management.

Si collected and analyzed 2,656 energy-related laws and regulations that were in place for at least one year in at least one of 30 provinces in China between 2002 and 2013. Some policies, such as those related to pollution, weren’t strictly aimed at reducing energy consumption. But Si included them to capture their potential effects on energy consumption. The team also looked at data from the China Energy Statistical Yearbooks to analyze how different types of policies affected the consumption of energy sources from fossil fuel to biomass.

The types of policies that knocked down energy consumption included funding and subsidies for using less fossil fuel; they led to a significant dip in total energy consumption per capita. Loans to firms for reducing pollution dramatically lowered coke and biogas consumption. And funding and subsidies for research and development to increase energy efficiency prompted a significant drop in electricity use.

However, many other policies had the opposite effect. When provinces provided monetary awards for using less fossil fuel, total energy consumption per capita actually increased. When the government gave firms loans to use less fossil fuel, it resulted in a significant uptick in the consumption of crude oil, coke, electricity, biogas and firewood. And emissions standards for air pollution led to a notable increase in natural gas consumption.

Energy-related policies may have unintended consequences for several reasons, the researchers said. For example, multiple policies may diminish the effectiveness of individual regulations.

“Some of them offset each other,” said Lin Lawell. “There are just so many policies that when you layer them on top each other, it doesn’t necessarily lead to a better outcome.”

In other cases, coordination problems, conflicting objectives at different levels of government, poor enforcement and loopholes were the culprits. “Sometimes the policies were poorly implemented. This is quite typical in a government that is so big,” said Si. “There are a lot of divisions in the government that are dealing with these policies and they were not working together, which caused some problems.”

And “command and control” policies, through which the central government institutes mandates and standards, don’t always work, Si said. “The provincial governments have a lot of power,” he said. “It’s really hard for the central government to put a standard rule over the entire country.”

A mix of otherwise ineffective policies sometimes did reduce energy use. For example, a policy that encourages people to buy energy-efficient appliances may lead them to respond to the increased efficiency and energy cost savings by using the appliance more, and may therefore have the unintended consequence of increasing rather than decreasing energy consumption. “But if you couple that policy with education about energy conservation, that actually is a good combination,” Si said. “These results empirically show if you carefully design policy, there are some combinations that are effective.”

Other co-authors were Mingjie Lyu of Shanghai Lixin University of Accounting and Finance, China, and Song Chen of Tongji University, China.

This research was funded in part by an Exxon-Mobil ITS-Davis Corporate Affiliate Fellowship awarded to Si.

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Rebecca Valli