In the draft of China's long-awaited energy law that was
recently published to seek public opinion, a market-led pricing
system has been proposed to assume a major role in the energy
This is a welcome step toward the introduction of a smart energy
pricing system that can respond quickly to supply shortage while
rewarding those who are able to make more efficient use of
Currently, a number of key energy prices are still tightly
controlled by the government to avoid serious price fluctuations.
Given the vital importance of the energy sector to the national
economy, it is fairly predictable that a substantial increase in
energy prices can pose a severe threat to economic growth,
especially when the country has already been hit by accelerated
consumer price inflation.
But fears of higher inflation do not justify any further delay
to allow the market to play a bigger role in fixing energy prices
to balance supply and demand while pricing out those low-efficiency
On one hand, as international energy prices keep soaring, it has
become more and more difficult for policymakers to keep domestic
energy prices below market prices while ensuring adequate
The recent shortage of oil products, especially diesel, in some
parts of China was largely because government price controls have
prevented refining companies from passing surging costs for crude
oil on to consumers. Some of them simply cut production to avoid
On the other hand, a more compelling reason for the country to
introduce a market-oriented energy pricing system is its urgent
task to save energy and protect the environment.
A market-led pricing mechanism can properly reflect the scarcity
of energy while factoring in related environmental costs.
China is to achieve its goals of cutting energy intensity by 20
percent and pollutant discharges by 10 percent between 2006 and
2010 if it allows energy prices to float according to market
demand. Higher energy prices will enable energy-saving enterprises
to stand out in competition with those who have long based their
low-cost strategy on a below-the-market energy bill.
Legislation to introduce a market-led pricing system for the
energy sector is also a crucial part of the efforts to pursue
environmental-friendly and sustainable growth.
(China Daily December 5, 2007)