World Energy Outlook 2007

and retail competition, but much work remains in detailing how the grids will be
regulated, including pricing of grid services (IEA, 2006). The issue of plant
dispatch, for instance, is a thorny one. Currently, local control over dispatch often
means in practice that preference goes to locally owned plants, which may be
smaller and less efficient, while newer plants that are more efficient and have
better pollution control may be left idle. Future decisions about feed-in tariffs for
preferred generators, for example those using renewable energy sources, will affect
investments and operation and influence future demand for different fuels.
Since 1990, in most years the prices of most energy products have risen faster
than those for other industrial commodities. Prices have become increasingly
reflective of costs and subsidies have been progressively squeezed out (Figure 8.6),
although underpricing of oil is high today as prices lag the sharp rise in
international prices. In general, high energy prices relative to the prices of other
goods and services help to explain falling energy intensity in the 1990s. But
higher prices did not prevent the rise in intensity from 2002 to 2004. The
government has shown an increasing willingness to use the financial levers at its
disposal to influence energy use, despite thorny issues arising from deliberately
raising retail oil prices. The resource tax on coal was recently raised, albeit by a
small amount, to encourage more efficient extraction from currently producing
fields. A proposed tax on motor fuels, intended in part to constrain rising
demand for oil imports, awaits a final decision. Gradual moves have been taken
8
25
Figure 8.6: Energy Subsidies in China*
billion dollars (2006)
20
15
10
5
0
1998 2005 2006
Oil products Natural gas Electricity Coal
* Energy subsidies were calculated using a price-gap approach, which compares final consumer prices with
reference prices that correspond to the full cost of supply or the international market price, adjusted for the costs
of transportation and distribution.
Source: IEA analysis.
Chapter 8 – Overview of the Energy Sector 279