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Thursday, October 10, 2019 at 11:40am to 1:10pm
Stimson Hall, 206
204 East Ave., Ithaca, NY 14853, USA
Shuang Zhang - University of Colorado
Setting the Price Right: Evidence from Heating Price Reform in China (joint with Koichiro Ito, University of Chicago)
Abstract: Inefficient energy pricing and the lack of incentives to conserve energy are common problems in developing countries and result in substantial allocative inefficiency. We evaluate a recent major reform in the residential heating system in China that replaced a non-metered fixed payment system with a two-part tariff, called consumption-based billing. We develop an event-study research design that exploits quasi-experimental variation in the staggered rollouts of the reform over ten years. Using household-level daily heating usage data before and after the reform, we find that the reform induced substantial reduction in heating usage, by 37 percent reduction in four years. We also find evidence of learning. Households reduced heating usage gradually over time, with larger reduction in warmer days (i.e. days when the value of heating was relatively low) in later years. We then use plant-level emission data to examine environmental benefits of the reform. The reduced heating usage was associated with 40 percent reduction in SO2 emission concentration, 26 percent in NOx concentration and 18 percent in Particulate Matter concentration. We use these results to calculate the reduction in deadweight loss that was produced by the policy. Our findings provide important implications for energy policy because a growing number of developing countries are in the process of implementing consumption-based energy billing in lieu of pre-existing inefficient fixed-charge billing.