China Cuts Prices to Save Energy

China's separate subsidy programs may work at cross-purposes with power-saving goals.
By Michael Lelyveld
2009-07-20
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BOSTON--China's government is providing subsidies to promote energy efficiency, but some of the payments may be encouraging consumers to use more power, an expert said.

In June, the central government started paying subsidies for sales of more energy-efficient appliances like air conditioners and refrigerators, the English-language China Daily reported.

The government payments go to manufacturers, which then offer discounts on their higher-priced, more efficient designs.

The program is part of the government's five-year push to cut 20 percent of the energy used per unit of GDP by 2010. The energy-saving goal is also China's contribution toward international efforts to combat climate change, making the effectiveness of the program an environmental concern.

Last week, the efficiency drive was a major focus during visits by U.S. Energy Secretary Steven Chu and Commerce Secretary Gary Locke, who sealed an agreement to collaborate with China on power-saving technologies for new buildings.

The two countries have been pressing each other to do more in the fight to curb greenhouse gas emissions from energy use. "We're not talking about their giving up prosperity; we're talking about their using energy in a more efficient way," Chu said in an interview with The New York Times.

But it is unclear whether China's growing practice of paying subsidies for new appliances will help or hurt the cause.

'Different purposes'

Philip Andrews-Speed, a China energy expert at Scotland's University of Dundee, has recently watched the subsidy program in action as part of an ongoing study with the Chongqing University School of Economics and Business Administration.

At the retail level in Chongqing Municipality, consumers can buy the smallest, most efficient air conditioners with a 20-percent discount, although they are still more expensive than less efficient models, Andrews-Speed told Radio Free Asia.

So far, the program does not seem to have delivered discounts to consumers on other appliances like energy-efficient refrigerators and washing machines, Andrews-Speed said.

While some of the subsidies are designed to save energy, others have different purposes. In 2008, the government launched its first program for subsidized appliances, offering 13-percent discounts to rural consumers on products like color televisions.

The incentives proved hugely popular and helped send the message that the government was addressing the gap in living standards between richer city dwellers and the rural poor. But they also came at a time of widespread power shortages, aggravating the problem.

More recently, the government announced another program for subsidized sales of electric appliances to help stimulate production during the economic slump. In June, the National Reform and Development Commission (NDRC) said that subsidies would also be offered for trade-ins of some small and mid-sized trucks and cars for new models.

The official Xinhua news agency described the program as "a move to spur domestic consumption and curb pollution." But the different motives for each of the incentives may be working at cross-purposes with China's energy efficiency goals, Andrews-Speed said.

"They would appear to be doing quite different things," he said. "One is to boost the economy and boost the happiness of the poor people by letting them buy lots of big televisions. The other is to try and persuade people to buy more efficient appliances."

"It does seem to be very strange that both policies are going on at the same time."

Conflicting goals

While some parts of the government are committed to the energy-saving program, others appear to be promoting antithetical goals.

"Certainly, the idea of giving subsidies for very big televisions, which is hardly a necessity of life as a refrigerator is, seems to completely undermine what for five years has supposedly been a policy priority, which is to improve energy efficiency," said Andrews-Speed.

The separate subsidy programs suggest there has been little coordination of energy policy among ministries with responsibility for the environment and the economy.

"It always seems that energy policy rises to the top of the government's agenda only occasionally and only for a short time. That's almost the same in any country," Andrews-Speed said.

"In China, what we're seeing is that energy policy is hovering near the top, but as soon as something happens, other policy priorities step in."

Instead of pursuing a single goal, the government seems to have applied subsidies as a single solution for a host of economic, environmental, and social problems. But in each case, the subsidies have done little more than treat symptoms of the problems rather than the problems themselves.

"One would hope that they would stop helping to give cheap televisions to the poor and maybe help them get cheap, very efficient refrigerators," Andrews-Speed said.

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