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Incentivizing sustainable development: The impact of a recent policy reform on electricity production efficiency in China
Author(s) -
Li Fan,
Xie Jiajia,
Wang Wenche
Publication year - 2019
Publication title -
sustainable development
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.115
H-Index - 64
eISSN - 1099-1719
pISSN - 0968-0802
DOI - 10.1002/sd.1942
Subject(s) - subsidy , incentive , electricity , economics , efficient energy use , stochastic frontier analysis , electricity generation , sustainable development , production (economics) , china , environmental economics , business , natural resource economics , industrial organization , microeconomics , market economy , power (physics) , physics , quantum mechanics , electrical engineering , engineering , political science , law
China's rapid economic growth has tremendously accelerated its energy use, calling for a more sustainable supply of scarce and nonrenewable energy. Using a firm‐level dataset of 30 major Chinese electricity utilities from 2010 to 2014, this paper applies a stochastic frontier analysis to determine the utilities' technical efficiency, incorporating their operational environments related to a recent policy reform to encourage sustainable development. Our main findings are (a) state ownership, consumer density, and a chief executive officer with a science and engineering background are factors that can improve technical efficiency; (b) asset‐related subsidy increases efficiency whereas income‐related subsidy lowers efficiency; and (c) the five largest regional electricity generation firms exhibit above‐average efficiency levels. These results provide evidence that supports the recent Chinese policy reform. The findings also suggest that electricity generation efficiency, which is essential to sustainable economic development, can be improved through performance‐based regulation and incentives.