Electricity subsidy reform in China

Abstract

China’s rapid economic growth significantly drives the country’s electricity demand. Electricity tariff in China is regulated by the government and is generally priced at a low level, leading to substantial electricity subsidy. With increasing coal price in recent years, the Chinese government’s low electricity tariff policy has led to huge financial losses for power companies, which directly results in electricity shortage. Therefore, the reform of electricity subsidy is the most important aspect of energy price reform in China. The reform is very difficult, as it is closely associated with people’s daily consumption and production activities. This article adopts a price-gap approach to estimate the scale of electricity subsidy with or without external costs in China. The results indicate that the current subsidy is substantial. In 2010, electricity subsidy with external costs in China amounted to 520.249 billion CNY, accounting for 1.3% of the year’s GDP. Despite the substantial electricity subsidy, low-income households did not benefit much. Therefore, there is need to design a sound electricity tariff subsidy and initiate subsidy-reducing strategies to improve efficiency and equality.