A cooperative inter-provincial model for energy conservation based on futures trading

Abstract

With rapid development of global society, economic growth is increasingly depending on energy consumption. It will be urgent to explore an effective model to conserve energy while maximizing the socioeconomic benefits. To improve on China’s current territorial management model, we applied market-based means to cooperative energy conservation by constructing an energy conservation model based on futures trading. The model has three components: a function that defines the annual socioeconomic benefits for energy consumption; a method for dividing provinces into buyers and sellers of energy-saving index futures; and a cooperative optimal energy consumption model for the buyer or seller provinces. To demonstrate this approach, we performed an empirical analysis of electricity conservation for four Chinese provinces (Shanxi, Jiangsu, Sichuan, and Gansu). Compared with the current territorial management model, the cooperative model increased the overall socioeconomic benefits for electricity consumption by 18.7% and decreased the overall electricity consumption per unit of socioeconomic benefits by 15.7%. In addition, each province’s socioeconomic benefits from energy consumption improved and the electricity consumption per unit of socioeconomic benefits decreased. Our sensitivity analysis revealed that fluctuation of the futures price (from −50% to +50%) created only small differences in the socioeconomic benefits for all provinces.