The economic impacts of China's differential electricity pricing policy: Evidence from energy-intensive firms in Hunan Province

Abstract

Differential Electricity Pricing (DEP), an energy-saving policy promulgated by China's central government for energy-intensive industries, has made great achievement in energy conservation and emission reduction. We investigate the economic effects of DEP policy using the Difference-in-Differences approach and Discrete-Time Hazard model. Based on the micro data of manufacturing firms in Hunan Province, our research found that the DEP policy has led to a decline in their output, revenue and profits. Further research found that the DEP policy has led to a decrease in employment, but hardly affected fixed assets and the probability of exiting the market. After adopting DEP policy, firms accelerate equipment upgrades but create more excess production capacity. We provide reference for a comprehensive evaluation of DEP policy.