“Reforming Inefficient Energy Pricing: Evidence from China”
Koichiro Ito (University of Chicago) and Shuang Zhang (University of Colorado)
Inefficient energy pricing hinders economic development in many countries. In this paper, we examine a recent heating reform in China, which replaced a commonly-used fixed-payment system with individually-metered pricing. Using staggered policy rollouts and administrative data on household-level daily heating usage, we find that the reform induced long-run reductions in
heating consumption and substantial welfare gains. Consumers gradually learned how to conserve heating effectively, making short-run evaluations likely underestimate the policy impact.
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.