supply and fails to guide consumers to use
electricity efficiently. The existence of
cross-subsidies also hinders market-oriented
reform in power generation and sales.
In addition, although coal pricing has become
market-oriented, the price does not include
externalities, so it needs to be adjusted through
institutional reforms such as an environmental
tax and resource tax.
3.5 Energy Regulation System
3.5.1 Current Developments
China’s energy regulation system is not independent or sufficiently professional, and its
supervision capabilities are inadequate to safeguard fair market operation. The organisational
structure of China’s energy regulation system is
mostly situated at lower administrative levels,
and the rights and liabilities it sets out are
unclearly defined and decentralised. The system
prioritises economic regulation. It bundles
administration and regulation together, resulting
in weak supervision and enforcement that require
improvement.
(1) Regulatory functions are decentralised
and multi-level
Generally, China’s energy regulation system is:
(i) decentralised across several authorities, with
both a horizontal division of labour (regulating
market access, investment, cost and price, etc.)
and a vertical division of labour (regulating the
value chain of the different energy sources);
(ii) multi-level (including the State Council,
central ministries and commissions, and local
government); and (iii) features separate economic
regulation and societal supervision.
Economic regulation of the energy sector is at
a high administrative level, being mainly the
responsibility of the central government. China’s
economic and social supervisory functions for oil
and gas, coal, electricity and nuclear power are
decentralised across various departments and
authorities, whereas the economic regulatory
functions for the energy value chain are mainly
concentrated in central government. For example, the regulatory functions for market access,
cost and pricing in the power sector are in the
hands of different departments, including the
NDRC, the Ministry of Finance and the NEA.
A single economic regulatory function may
involve different departments. For example, the
supervision of electricity investment involves the
NDRC, the NEA and local government bodies.
Significant regulatory functions are mainly
undertaken by the NDRC and the NEA. As a
macroeconomic management agency, the NDRC
also coordinates China’s economic and social
development and the regulatory means to enact
it. The establishment of the NEA in 2013 highlights how energy regulation has been strengthened. Its supervisory activities focus on
“improving the energy regulation and administrative system, strengthening energy regulation
and administration, controlling total energy
consumption, developing the energy market and
maintaining energy market order” (see Table 5).
(2) Economic regulation has been prioritised
and social supervision is gradually being
improved
The energy sector is a priority for government
regulation, but China’s energy regulation is still
in the early stages of transition away from
planned supervision and administration. Energy
regulation prioritises economic regulation, while
the social supervision of energy use remains
relatively weak. Currently, economic and social
supervision are separate.
In general, energy regulation in China means
economic regulation. Economic regulation consists mainly of supervising market access, pricing, investment, costs and market trading
conduct. These functions are mainly decentralised to departments like the NDRC and NEA.
China has strict supervision of market access and
investment, but the supervision of trading conduct is not very effective. Economic regulation
takes place at a higher level, and (with the
exception of coal) is typically implemented by
central government.
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S. Yaodong and A. Gillespie
electricity efficiently. The existence of
cross-subsidies also hinders market-oriented
reform in power generation and sales.
In addition, although coal pricing has become
market-oriented, the price does not include
externalities, so it needs to be adjusted through
institutional reforms such as an environmental
tax and resource tax.
3.5 Energy Regulation System
3.5.1 Current Developments
China’s energy regulation system is not independent or sufficiently professional, and its
supervision capabilities are inadequate to safeguard fair market operation. The organisational
structure of China’s energy regulation system is
mostly situated at lower administrative levels,
and the rights and liabilities it sets out are
unclearly defined and decentralised. The system
prioritises economic regulation. It bundles
administration and regulation together, resulting
in weak supervision and enforcement that require
improvement.
(1) Regulatory functions are decentralised
and multi-level
Generally, China’s energy regulation system is:
(i) decentralised across several authorities, with
both a horizontal division of labour (regulating
market access, investment, cost and price, etc.)
and a vertical division of labour (regulating the
value chain of the different energy sources);
(ii) multi-level (including the State Council,
central ministries and commissions, and local
government); and (iii) features separate economic
regulation and societal supervision.
Economic regulation of the energy sector is at
a high administrative level, being mainly the
responsibility of the central government. China’s
economic and social supervisory functions for oil
and gas, coal, electricity and nuclear power are
decentralised across various departments and
authorities, whereas the economic regulatory
functions for the energy value chain are mainly
concentrated in central government. For example, the regulatory functions for market access,
cost and pricing in the power sector are in the
hands of different departments, including the
NDRC, the Ministry of Finance and the NEA.
A single economic regulatory function may
involve different departments. For example, the
supervision of electricity investment involves the
NDRC, the NEA and local government bodies.
Significant regulatory functions are mainly
undertaken by the NDRC and the NEA. As a
macroeconomic management agency, the NDRC
also coordinates China’s economic and social
development and the regulatory means to enact
it. The establishment of the NEA in 2013 highlights how energy regulation has been strengthened. Its supervisory activities focus on
“improving the energy regulation and administrative system, strengthening energy regulation
and administration, controlling total energy
consumption, developing the energy market and
maintaining energy market order” (see Table 5).
(2) Economic regulation has been prioritised
and social supervision is gradually being
improved
The energy sector is a priority for government
regulation, but China’s energy regulation is still
in the early stages of transition away from
planned supervision and administration. Energy
regulation prioritises economic regulation, while
the social supervision of energy use remains
relatively weak. Currently, economic and social
supervision are separate.
In general, energy regulation in China means
economic regulation. Economic regulation consists mainly of supervising market access, pricing, investment, costs and market trading
conduct. These functions are mainly decentralised to departments like the NDRC and NEA.
China has strict supervision of market access and
investment, but the supervision of trading conduct is not very effective. Economic regulation
takes place at a higher level, and (with the
exception of coal) is typically implemented by
central government.
442
S. Yaodong and A. Gillespie