Command vs. market in China’s energy intensity reduction strategies: Firm-level evidence

Abstract

China has significantly reduced the energy consumption for per unit of GDP by using both command-and-controls or market-based strategies. This paper examines empirically the relative effectiveness and efficiency of command-and-control strategy (energy reduction target) vs. market-based strategy (electricity price). We find that (1) electricity price was similarly effective in reducing electricity intensity across firms, but government targets were more effective for firms that were more technologically outdated and energy intensive; and (2) government targets led to expenditures that were not useful in reducing energy intensity, suggesting inefficiency associated with targets. Despite the Chinese governments’ capacities and resources in directing and influencing enterprises, market-based approaches might still be more effective and efficient than command-and-control ones to reduce energy intensity.