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Herding Cats: Firm Non-Compliance in China’s Industrial Energy Efficiency Program

Valerie J. Karplus, Xingyao Shen, and Da Zhang

Year: 2020
Volume: Volume 41
Number: Number 4
DOI: 10.5547/01956574.41.4.vkar
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Abstract:
We study firm responses to a large-scale energy efficiency program in China, focusing on the quality of reporting and compliance outcomes. Using statistical methods to detect data manipulation in compliance reports, we find evidence that firms deliberately exaggerated performance during the first phase of the program (2006-2010), suggesting the high compliance rate was overstated. In its second phase (2011-2015), the number of firms in the program expanded by an order of magnitude, and the compliance rate decreased. We develop a simple model to show how the observed increase in non-compliance is consistent with reduced misreporting. Statistical tests find no evidence of manipulation in the second phase. Larger firms, especially those not controlled by the state, and firms in cities with relatively low growth were more likely to report non-compliance, which suggests a role for state control and local protectionism in shaping compliance decisions. Based on our findings, we offer several lessons for future program design.



Selling and Saving Energy: Energy Efficiency Obligations in Liberalized Energy Markets

Louis-Gaëtan Giraudet, Matthieu Glachant, and Jean-Philippe Nicolaï

Year: 2020
Volume: Volume 41
Number: Special Issue
DOI: 10.5547/01956574.41.SI1.lgir
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Abstract:
In Europe, energy efficiency obligations are imposed on energy retailers competing in liberalized energy markets. They comply by subsidizing energy efficiency investments made by energy end-users from within or outside their customer base. We develop a model describing how competition in the energy market affects compliance strategies. We find that, instead of selecting the most cost-effective investments options, firms may either target their most elastic customers, which enables them to increase their retail price, or their competitor’s customers, which protects their sales. Allowing firms to trade obligations can restore cost-effectiveness, but reduces consumer surplus. Overall, the degree of flexibility that should be incorporated into such programs crucially depends on the degree of heterogeneity across investment costs and the relative weights governments assign to cost-effectiveness and consumer surplus.





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