local government, there has been no obvious
improvement in decentralised administration.
3.4 Energy Pricing System
3.4.1 Current Developments
The government continues to intervene in energy
pricing. In each part of the energy value chain the
pricing guidance reflects market dynamics
poorly. Overall, there are many problems in
China’s energy pricing system: in price formation, composition and regulation, and in the
coordinated administration of production and
pricing. Pricing in upstream primary energy has
gradually been deregulated, but government
intervention remains influential in the pricing of
energy products for major end users. The ground
has been prepared for market-oriented pricing
reform in the oil and coal sectors, but gas pricing
reform still needs more work. The energy tax and
finance systems and policies play an important
role at some stages of reform and have a positive
impact on end-user energy prices.
(1) Problems with China’s energy pricing
systems severely constrain energy system
reform
China has been steadily promoting energy pricing reform for years, but deeply rooted contradictions have not been resolved. Distortions in
pricing cause resources to be miscalculated,
structural imbalances and extensive overdevelopment. Although the policy of “replacing pricing reform with adjustment” has had partial
success, prices and price adjustments that work
in the short term have not developed into a
long-term pricing mechanism and a workable
pricing settlement for the entire energy system.
Energy pricing reflects the various drawbacks
in China’s energy system and is a core component of energy system reform. Unreasonable
energy product prices and slow-moving pricing
reform severely constrain the smooth transition
to a new development process and a change in
overall economic structure. Administratively,
energy planning and balancing supply and
demand are mainly the responsibilities of the
NEA, while energy pricing and administration
are the responsibilities of the NDRC. This
administrative separation of production volumes
and pricing is the major cause of China’s energy
pricing problems, many of which are outlined in
the following paragraphs.
First, due to the unfair pricing mechanism and
the government’s forceful intervention in pricing,
prices do not reflect the true value of energy
products. Market-oriented pricing in competitive
energy fields and related areas is not common
practice. For historical reasons and due to the
specific characteristics of energy resources, the
prices of China’s energy products have been set
or strictly controlled by the government for a
long time. As a result, energy prices cannot
effectively reflect supply and demand and the
scarcity of energy resources, which restricts the
role of price in resource allocation.
Second, pricing calculations and taxation are
unreasonable and full-cost accounting is not well
implemented. In the current price calculation of
energy resource products, cost items are entered
at a low level that does not provide reasonable
compensation for the energy resource production
process. Neither do they reflect the cost of controlling environmental pollution in the resource
development process nor the cost of safe production. Moreover, external costs are not internalised. Inconsistent taxation and energy costs do
not reflect the price relationships of energy
products, resulting in users lacking any cost
constraints for some energy products. This is
detrimental to the correct alignment of the energy
system.
Third, the incomplete price regulation system,
poor regulatory expertise and inadequate information disclosure hinder effective price regulation. When the price regulatory body regulates
prices in natural monopolies it tends to lack
real-time cost information and feedback; its price
and cost accounting and supervisory capability
are, therefore, weak. Moreover, there are insufficient levels of personnel, finance, materials and
IT in the price regulatory body, and inadequate
transparency of price regulation and public
engagement. At the same time, lack of
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S. Yaodong and A. Gillespie
improvement in decentralised administration.
3.4 Energy Pricing System
3.4.1 Current Developments
The government continues to intervene in energy
pricing. In each part of the energy value chain the
pricing guidance reflects market dynamics
poorly. Overall, there are many problems in
China’s energy pricing system: in price formation, composition and regulation, and in the
coordinated administration of production and
pricing. Pricing in upstream primary energy has
gradually been deregulated, but government
intervention remains influential in the pricing of
energy products for major end users. The ground
has been prepared for market-oriented pricing
reform in the oil and coal sectors, but gas pricing
reform still needs more work. The energy tax and
finance systems and policies play an important
role at some stages of reform and have a positive
impact on end-user energy prices.
(1) Problems with China’s energy pricing
systems severely constrain energy system
reform
China has been steadily promoting energy pricing reform for years, but deeply rooted contradictions have not been resolved. Distortions in
pricing cause resources to be miscalculated,
structural imbalances and extensive overdevelopment. Although the policy of “replacing pricing reform with adjustment” has had partial
success, prices and price adjustments that work
in the short term have not developed into a
long-term pricing mechanism and a workable
pricing settlement for the entire energy system.
Energy pricing reflects the various drawbacks
in China’s energy system and is a core component of energy system reform. Unreasonable
energy product prices and slow-moving pricing
reform severely constrain the smooth transition
to a new development process and a change in
overall economic structure. Administratively,
energy planning and balancing supply and
demand are mainly the responsibilities of the
NEA, while energy pricing and administration
are the responsibilities of the NDRC. This
administrative separation of production volumes
and pricing is the major cause of China’s energy
pricing problems, many of which are outlined in
the following paragraphs.
First, due to the unfair pricing mechanism and
the government’s forceful intervention in pricing,
prices do not reflect the true value of energy
products. Market-oriented pricing in competitive
energy fields and related areas is not common
practice. For historical reasons and due to the
specific characteristics of energy resources, the
prices of China’s energy products have been set
or strictly controlled by the government for a
long time. As a result, energy prices cannot
effectively reflect supply and demand and the
scarcity of energy resources, which restricts the
role of price in resource allocation.
Second, pricing calculations and taxation are
unreasonable and full-cost accounting is not well
implemented. In the current price calculation of
energy resource products, cost items are entered
at a low level that does not provide reasonable
compensation for the energy resource production
process. Neither do they reflect the cost of controlling environmental pollution in the resource
development process nor the cost of safe production. Moreover, external costs are not internalised. Inconsistent taxation and energy costs do
not reflect the price relationships of energy
products, resulting in users lacking any cost
constraints for some energy products. This is
detrimental to the correct alignment of the energy
system.
Third, the incomplete price regulation system,
poor regulatory expertise and inadequate information disclosure hinder effective price regulation. When the price regulatory body regulates
prices in natural monopolies it tends to lack
real-time cost information and feedback; its price
and cost accounting and supervisory capability
are, therefore, weak. Moreover, there are insufficient levels of personnel, finance, materials and
IT in the price regulatory body, and inadequate
transparency of price regulation and public
engagement. At the same time, lack of
438
S. Yaodong and A. Gillespie