INTERREGIONAL SHARING OF ENERGY CONSERVATION TARGETS IN CHINA: EFFICIENCY AND EQUITY

Energy conservation is a long-term strategic policy in China to support its economic and social development. This policy strategy is important for saving resources, protecting the environment, and ensuring the secure supply of energy to all economic activities. However, energy conservation often involves large amounts of investment and may also have dampening impacts on some local and regional economies. Moreover, energy conservation and efficiency improvement have many features of a public good. Therefore, government policy and intervention play a strong role to foster regional efforts and cooperative interregional actions on this issue. This dissertation introduces and analyzes a promising policy instrument an interregional energy conservation-quota trading system to help China fulfill its national energy conservation objective in an efficient and equitable way.To analyze the workings of the energy conservation-quota trading system, trading entities are first determined. In this study, statistical analyses (principal component analysis and cluster analysis) are applied to identify regional aggregations of provinces of China to act as the trading units. The marginal energy conservation cost curves of these regions are developed using engineering-economic methods and regression analysis. Simulations of interregional conservation-quota trading are undertaken after Chinas conservation goals in 2010 are allocated among regions according to several equity criteria. Various equity criteria are applied and analyzed in this study because of the philosophical differences in the appropriate definition of the concept. The trading simulations yield several important findings. First, the introduction of an interregional quota trading system can minimize both regional net compliance costs and national total conservation costs, irrespective of how the conservation tasks are initially allocated among regions according to different equity rules. Second, regional welfare implications differ across the applications of various equity criteria. However, for the energy production-based sovereignty and egalitarian equity criteria, the poorest region (in terms of per capita gross regional product) can enjoy net profits from trading, while the clustered region of wealthy coastal provinces shoulders the highest cost. This indicates that a conservation-quota trading system applying these two equity criteria is consistent with the national strategy in China to reduce regional income disparities and to develop the interior and western less-developed regions of the country. Third, compared with trading among conventional regions, trading among statistically clustered regions can more sharply apply the equity criteria to burden sharing and utilize larger differences in marginal conservation costs between regions to achieve a lower total net cost for the country as a whole.In sum, this research develops a useful methodology and identifies an operational way to attain energy conservation targets in China. It offers insights for similar interregional burden-sharing or benefit-sharing policies for China in the future, such as greenhouse gas emission trading, which is closely related to the energy conservation issue.