Reforming Inefficient Energy Pricing: Evidence from China
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.
For helpful comments, we thank Hunt Allcott, Douglas Almond, Severin Borenstein, Fiona Burlig, Steve Cicala, Lucas Davis, Tatyana Deryugina, Larry Goulder, Michael Greenstone, Kelsey Jack, Ryan Kellogg, Catherine Wolfram, and seminar participants at Stanford, Colorado Boulder, UC Berkeley, University of Chicago, Resources for the Future, the Federal Reserve Board of Governors, and NBER Environment and Energy Program Meeting. We thank Theodor Kulczycki, Jing Qian, Chenyu Qiu, and Andrew Smith for excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- Residents of Tianjin, China, who opted to shift from flat-rate to metered, use-based heating pricing saved money and conserved heat....