Carrot and Stick Power: Hong Kong Electricity Profits Linked to Pollution
by Alex Pasternack, Beijing, China on 01. 8.08
In a move that could revolutionize how China prices electricity -- and cuts its toxic coal-fired pollution -- Hong Kong set new regulations on Monday that partly links the city's two power companies' permissible rates of return to how much pollution they emit. Under the scheme, Hong Kong Electric and CLP can set their electricity rates higher if the companies can cut their pollution more than required. If either company pollutes more than allowed, however, it would be required to charge customers less, reducing its allowed rate of return by 0.2 to 0.4 percentage point. The companies would also be allowed to charge slightly more for electricity if they are using renewable energy sources.
Beijing has been exploring ways that power pricing can incentivize alternative energy sources by allowing generating companies to charge distribution companies extra for electricity from renewable sources. Up on the mainland the general rule is to keep electricity prices as low as possible (ie, coal), with only a few provinces allowing wind farm operators to charge more than coal-fired plant operators for the electricity they sell to the grid. The same goes for methane generation. Fines are meant to be issued for excessive pollution, but they are difficult to collect.
Hong Kong, where smog has become steadily worse in recent years, has a vested interest in encouraging the mainland to follow its innovative lead: many agree that the bulk of the city's pollution isn't from local electric companies but from the factories and power plants across the border on the mainland. via NYT and news.gov.hk
Photo via hongkongdailyphoto.com
The market mechanism is the best way to regulate this stuff.
Its much easier to save the planet when it also helps the company's pocketbook. If it doesnt' work that way, its really easy for people to delude themselves.
Kudos to Hong Kong and China for taking the lead.
Good for the electricity companies, but actually bad for us, since consumers will pay more for renewable energy. It would be better to just give a government subsidy to electricity companies who reduce pollution, so consumers don't get hurt.
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Alex responds:
You're right--this isn't ideal, but as in the United States, the slightly higher cost of producing renewable energy (that is, if the social costs of conventional energy are not taken into account) is offset by energy consumers. With a subsidy that keeps the cost of renewables equal to conventional power, there may also be less of an incentive for the market to drive down the cost of renewable energy.
I'm assuming this means that residents have no options in energy sources- they have their given power company and that's it. Otherwise this would be a bit of a DISincentive, as people would have little financial motivation to choose anything but the cheapest (ie most polluting) company for their power source.
Hey Andrew,
Doesn't it just come down to a difference between direct and indirect taxation? My point being that the money for a subsidy is derived from taxation. Either way the people in Hong Kong will end up paying for it whether it's paid directly to the power compay through a monthly bill or indirectly through a government subsidy. I don't profess to know a lot about these issues so if there is a difference I would like to hear it.
Cheers