China's Energy Reduction Policy System: Outcomes and Responses of Local Governments

• Published date: 01 May 2014
• DOI: http://doi.org/10.1111/j.1749-124X.2014.12068.x
• Author: Cheryl S.F. Chi,Jing Zhao,Yuzhe Wang
• Date: 01 May 2014

56 China & World Economy / 56–78, Vol. 22, No. 3, 2014

©2014 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China’s Energy Reduction Policy System: Outcomes

and Responses of Local Governments

Yuzhe Wang, Jing Zhao, Cheryl S.F. Chi*

Abstract

The paper examines the outcomes of and responses to the policy system (the “obligatory

indicator system”) used by the Chinese central government to induce provincial governments

to meet energy-saving targets during the 11th Five Year Plan. The institutional mechanisms

underlying the policy system that promotes implementation of energy saving are identified.

An analytical framework is developed to identify the strategic responses of provincial

governments and the factors shaping their responses. Comprehensive sets of provincial

data on economic and energy performance are collected and analyzed. The findings indicate

that the central government’s credible commitment to implement the policy system drove the

initially disparate attitudes of provinces to a converged outcome. However, the outcome is

significantly constrained by provinces’ initial energy intensity. In particular, provincial

governments have applied strategies of ceremonial implementation, efficiency-oriented efforts

and effectiveness-focused efforts to attain specific targets. This paper discusses the

implications in comparison with the modified obligatory indicator system in the 12th Five

Year Plan and offers policy suggestions accordingly.

Key words: energy saving, obligatory indicator system, policy implementation

JEL codes: H77, P28, Q48

I. Introduction

Given the relationship between energy use and environmental change, promoting energy

conservation has become increasingly important across the globe. However, designing

*Yuzhe Wang, PhD candidate, School of Public Policy and Management, Tsinghua University, Beijing,

China. Email: wyz05@mails.tsinghua.edu.cn; Jing Zhao (corresponding auther), PhD candidate, School

of Public Policy and Management, Tsinghua University, Beijing, China. Email: jczhaojing@hotmail.

com; Cheryl S. F. Chi, Assistant Professor, School of Economics and Management, Tongji University,

Shanghai, China. Email: cheryl.sfchi@gmail.com. The authors thank Dr Alex English and Professor

Bruce Rasmusssen of the Center for Strategic Economic Studies at the Victoria University for their

valuable comments. The authors also thank Professor Qiao Yu and Professor Ling Chen from the School

of Public Policy and Management, Tsinghua University for helpful discussions relating to the study.

57

China’s Energy Reduction Policy System

©2014 Institute of World Economics and Politics, Chinese Academy of Social Sciences

and implementing appropriate policy instruments to motivate cooperative action from local

governments with disparate intentions and attitudes toward environmental policies is

challenging. Top-down and coercive policy approaches have been criticized as overly

prescriptive and not reflective of local conditions, and bottom-up approaches have been

perceived as slow and ineffective.

China has been the world’s largest carbon emitter since 2007 (Zhang, 2010, 2011) and

has faced great global pressure to save energy. Since 1998, China has introduced various

policy instruments to promote energy conservation (Yuan et al., 2009). From 1980 to 2002,

China experienced an average 5-percent annual reduction in energy intensity (energy

consumption per unit of GDP). However, the trend was reversed during 2003–2005 (Chai,

2009; Price et al., 2011) with a 10.7-percent increase in energy intensity. Accelerated

urbanization along with a construction boom triggered the expansion of energy-intensive

industries such as steel, cement and aluminum. The expansion was inextricably linked to

China’s political system, which placed the GDP growth rate at the core of local officials’

performance appraisal system. This greatly encouraged local governments to invest in

“image projects” and to neglect energy conservation (Liao et al., 2007).1

In 2006, the Chinese central government implemented a set of novel policy instruments.

An obligatory indicator that called for the nation reduce energy intensity by 20 percent

by 2010 was put forward in China’s 11th Five Year Plan (FYP).2 The indicator was combined

with multiple policy tools, such as setting specific energy-saving targets for each province,

publicizing each province’s energy-saving progress and linking energy conservation with

local officials’ performance appraisals to form the obligatory indicator system during the

period of the 11th FYP. The implementation of the indicator and the local governments’

responses were consequential to further policy improvement. If such a mechanism could

indeed promote cooperation and foster practices that enhance sustainability within a

heterogeneous group, it would surely provide important implications for environmental

governance, especially for large countries and economic regions (such as the European

Union).

1Image projects are projects that gain and present administrative achievement.

2In the period of the 11th Five Year Plan (2006–2010), the Chinese central government for the first

time divided the main quantitative indicators of economic and social development into two classes:

anticipative and obligatory indicators. “The obligatory indicator is the indicator that is further defined

and strengthened on the basis of anticipation as work requirements proposed by the Central Government

to local governments and related departments of the Central Government in public service and the field

involving public interests” (extracted from Guidelines of the 11th Five-Year Plan for National Economic

and Social Development).