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The World’S Largest Residential Energy Switching Program Is at Risk
Environmental Science & Technology  (IF9.028),  Pub Date : 2021-10-25, DOI: 10.1021/acs.est.1c06544
Chang Liu, Chu Wei

China’s coal-dominated energy mix is undergoing an unprecedented transition to promote sustainable development. As part of this transition, switching the residential sector from coal to clean energy is a promising measure to curb indoor pollution and health burdens. In 2017, the central government set a target of reducing 150 million tons of dispersed coal, with the goal of completing the transition for more than 26 million households in northern China by 2021. (1) To do this, small-scale coal-fired boilers and household coal-based heating and cooking systems must be replaced by equipment fueled by clean energy. The target amount saved is equivalent to the energy use in Poland in 2017; it would be the largest-scale residential energy transition worldwide. The Household Coal Replacement Program (HCRP) was first launched in Beijing from 1999 to 2012. It aimed to control coal-burning pollution to ensure the air quality as the Beijing Olympics commenced. In the second stage, from 2012 to 2016, this program was expanded to a regional-scale program motivated by national air pollution control strategies. However, this expansion unexpectedly resulted in a natural gas shortage in the winter of 2013. Policymakers had to improvise supporting policies to close loopholes in the existing policy, such as preparing an action program to meet the gas demand. After 2016, the third stage saw the uniform adoption of the HCRP nationwide. This provided broader coverage, including all the northern provinces, spreading from urban to suburban and rural areas. However, the great leap of HCRP resulted in a still greater winter heating crisis in 2017, which left many rural Northern residents without gas for heating and unexpected redistribution of pollution emissions in South China. This problem prompted policymakers to improve the HCRP and coordinate it with other policies. For example, local governments were encouraged to explore local options for clean heating, such as solar heating. With a total coal reduction of 18 million tons and coal substitution completed for nearly 6 million households in the Beijing-Tianjin-Hebei (BTH) and surrounding areas, the HCRP achievements in 2017 exceeded the target of more than 3 million households. (2) The implementation of HCRP contributed considerably to the national coal replacement goal, air pollutant reductions, and net social benefits in the form of avoided health and climate damage. Thus, China has partially achieved its aim of completing the world’s largest-scale residential energy transition. However, the future is highly uncertain. Here we identify some potential barriers.
  • The first worry is the unsustainable subsidies. Residents received partial subsidies for equipment purchases and discounts on fuel tariffs after a heat pump was installed. In general, local governments undertook payments for about 70% of the cost of switching. However, the subsidy standard varies greatly and depends on different local governments. The limited local finance capacity in some regions led to lower satisfaction among surveyed residents, due to the approximately 50% gap between the insufficient subsidy in those regions and the actual cost of cleaner heating. (3) With the COVID pandemic, China’s fiscal revenues have been significantly reduced, and local governments have been under more financial pressure. This is a threat to energy switching; a majority of the surveyed residents in the BTH region are likely to turn back to coal if clean energy is unsubsidized. (4)
  • The second limit is insufficient energy supply. China’s natural gas industry lacks flexible market mechanisms and an effective regulatory system, which means that the gas supply cannot respond to the growing heating demand. (5) It remains a challenge to guarantee sufficient energy supply for the coal-switching program in winter.
  • The third concern relates to overcorrecting government control. Experience suggests that policymakers can get immediate results from a command-and-control policy, which might lead to results that are not optimal. For example, the rigid top-down governance pattern compelled superiors to set higher goals for subordinates to avoid failing to complete the HCRP tasks. This drove the overfulfillment of the coal-to-gas substitution goals.
  • The fourth barrier concerns inefficient heating in buildings. Investment in building insulation is an essential cost-effectiveness measure in the long term. However, this measure has not been considered in previous coal-switching projects. In northern China, most rural buildings have poor thermal insulation performance. Lack of understanding of the importance of investing in building insulation has led to lower subsidy efficiency, inefficient energy consumption, and unsatisfactory heating results. (3)
  • The fifth obstacle is little understanding of public perception. This has two aspects. First is the lack of public environmental awareness and poor public perceptions of environmental policies, especially for the poorly educated rural residents. Second is local government’s lack of concern and response to residents’ complaints and public expressions during policy design and implementation.
The first worry is the unsustainable subsidies. Residents received partial subsidies for equipment purchases and discounts on fuel tariffs after a heat pump was installed. In general, local governments undertook payments for about 70% of the cost of switching. However, the subsidy standard varies greatly and depends on different local governments. The limited local finance capacity in some regions led to lower satisfaction among surveyed residents, due to the approximately 50% gap between the insufficient subsidy in those regions and the actual cost of cleaner heating. (3) With the COVID pandemic, China’s fiscal revenues have been significantly reduced, and local governments have been under more financial pressure. This is a threat to energy switching; a majority of the surveyed residents in the BTH region are likely to turn back to coal if clean energy is unsubsidized. (4) The second limit is insufficient energy supply. China’s natural gas industry lacks flexible market mechanisms and an effective regulatory system, which means that the gas supply cannot respond to the growing heating demand. (5) It remains a challenge to guarantee sufficient energy supply for the coal-switching program in winter. The third concern relates to overcorrecting government control. Experience suggests that policymakers can get immediate results from a command-and-control policy, which might lead to results that are not optimal. For example, the rigid top-down governance pattern compelled superiors to set higher goals for subordinates to avoid failing to complete the HCRP tasks. This drove the overfulfillment of the coal-to-gas substitution goals. The fourth barrier concerns inefficient heating in buildings. Investment in building insulation is an essential cost-effectiveness measure in the long term. However, this measure has not been considered in previous coal-switching projects. In northern China, most rural buildings have poor thermal insulation performance. Lack of understanding of the importance of investing in building insulation has led to lower subsidy efficiency, inefficient energy consumption, and unsatisfactory heating results. (3) The fifth obstacle is little understanding of public perception. This has two aspects. First is the lack of public environmental awareness and poor public perceptions of environmental policies, especially for the poorly educated rural residents. Second is local government’s lack of concern and response to residents’ complaints and public expressions during policy design and implementation. In summary, achieving the goal cost-effectively calls for both stricter rules and more market-based instruments. The current policy, driven by strong command-and-control regulations and subsidies, is not a sustainable plan. To gradually remove long-term high subsidies for HCRP is a burning issue, especially under the significant tightening of financial conditions during the COVID-19 pandemic. A complete solution package to respond to increasing costs and uncertainty is required. For example, fundamental HCRP bylaws could be designed to ensure the smooth running of HCRP. Realizing HCRP’s targets at the lowest cost may depend on more market-based instruments, such as facilitating R&D for energy-saving and low-emission equipment and promoting manufacturer competition. In addition, the present fuel-substitution options should be widened based on a systematic comparison considering residential affordability, energy accessibility, environmental benefits, and subjective satisfaction. More investment is needed to improve buildings’ thermal performance. These measures will reduce cost and energy consumption, thus increasing long-term social welfare. This work was supported by the Fundamental Research Funds for the Central Universities, and the Research Funds of Renmin University of China (Grant No. 21XNL020). Chu Wei, PhD, is a Professor at Renmin University of China. He was an Alexander von Humboldt fellow at the Centre for European Economic Research (ZEW), Germany. His research focuses on energy, environmental, and climate economics. He has worked extensively on the analysis of energy efficiency and evaluation of marginal abatement cost of pollutants. He is currently focused on the energy demand in China. His research team is in charge of an annual national-wide representative household survey since 2012, the Chinese Residential Energy Consumption Survey. He has authored over 100 refereed articles and 18 books in the field of energy, environment, and climate. He was listed in Elsevier’s 2020 Highly Cited Chinese Researchers. This article references 5 other publications. This article has not yet been cited by other publications. Chu Wei, PhD, is a Professor at Renmin University of China. He was an Alexander von Humboldt fellow at the Centre for European Economic Research (ZEW), Germany. His research focuses on energy, environmental, and climate economics. He has worked extensively on the analysis of energy efficiency and evaluation of marginal abatement cost of pollutants. He is currently focused on the energy demand in China. His research team is in charge of an annual national-wide representative household survey since 2012, the Chinese Residential Energy Consumption Survey. He has authored over 100 refereed articles and 18 books in the field of energy, environment, and climate. He was listed in Elsevier’s 2020 Highly Cited Chinese Researchers. This article references 5 other publications.