Electricity reform and sustainable development in China

Abstract

Reducing the environmental impact of supplying electricity is a key to China’s sustainable development, and a focus of both domestic and international concerns with greenhouse gas emissions. The environmental performance of the electricity sector is strongly affected by its institutional arrangements: regulatory frameworks, wholesale markets, pricing mechanisms, planning and coordination, and enforcement and incentive mechanisms. These arrangements are set to change as electricity reforms inaugurated in 2002, but sidetracked by several years of supply shortages, are being resumed. In this paper we examine the impact of electricity reform on environmental sustainability by analyzing case studies of four environmental initiatives in the electricity sector: retirement of inefficient generators, installation of pollution control equipment, renewable energy development, and efforts to promote energy efficiency. We find that implementation of these policies falls short of objectives for two main underlying reasons: conflicting priorities between central and provincial governments, and ineffective regulation. Sustainability will be best served not by redoubling short-term supply-oriented, market-based reforms, but by better aligning central and provincial government incentives, and by developing competent, independent regulation at the provincial level. China’s central government and sub-national governments in industrialized countries can both contribute to the latter goal.