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The Energy Paradox: Evidence from Refrigerator Market in China

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The State of China’s State Capitalism

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Abstract

It is often asserted that consumers undervalue future expected electricity cost relative to purchase price when they choose among different types of refrigerators, or equivalently that they have high “implicit discount rates” for expected future electricity cost. This chapter illustrates how this can be tested by measuring how much that the consumers are willing to pay in purchasing price in exchange for reducing the future electricity cost that has a present value of one unit of CNY, using the random utility theory and standard logit model. To carry out the research, apart from establishing appropriate model, China’s cross-provincial electricity pricing policies are systematically investigated, classified, and approximated in order to get national population-weighted average electricity price to compute electricity cost. The dataset contains all the transaction information of Chinese refrigerator market in the year 2013. The empirical result indicates that consumers are indifferent between spending one more unit CNY in discounted future electricity cost and saving 4.47 unit CNY in refrigerator purchase price. This result verifies that there is considerable energy efficiency gap in China’s refrigerator market suggesting the need of using government subsidy to encourage consumption of energy-saving electronic appliances, especially in the refrigerator market.

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Notes

  1. 1.

    The phenomenon that products with energy-conserving technologies which are apparently cost-effective cannot quickly get enough market share is called energy efficiency gap, or equivalently, energy paradox (Jaffe and Stavins 1994).

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Author information

Authors and Affiliations

  1. International Business School Suzhou, Xi’an Jiaotong-Liverpool University, Suzhou, China

    Yuxiang Ren & Fushu Luan

  2. Cornell University, Ithaca, NY, USA

    Hui Zhou

Authors
  1. Yuxiang Ren
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  2. Fushu Luan
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  3. Hui Zhou
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Corresponding author

Correspondence to Fushu Luan .

Editor information

Editors and Affiliations

  1. Xi’an Jiaotong-Liverpool University, Suzhou, Jiangsu, China

    Juann H. Hung

  2. Xi’an Jiaotong-Liverpool University, Suzhou, Jiangsu, China

    Yang Chen

Appendix

Appendix

1.1 Appendix 1: Refrigerator Market Dataset Sample

Brand

Code

Average price

Sales volume

Value of sales

Total

Cold-closet

Freezer

DPC

Market share

LG

GR M267QGL

18163.00

4585.00

83277355.00

722.00

465.00

257.00

1.28

0.0010845136

LG

GR P247JHM

15475.00

13847.00

214282325.00

637.00

412.00

255.00

1.48

0.0027905798

LG

GR M287QGN

14010.00

497.00

6962970.00

755.00

495.00

260.00

1.15

0.0000906781

LG

GR C2376AZT

12345.00

10750.00

132708750.00

626.00

406.00

220.00

1.25

0.0017282543

LG

GR P247CSP

11914.00

9194.00

109537316.00

617.00

412.00

205.00

1.44

0.0014264948

LG

GR C267FSN

11167.00

1448.00

16169816.00

722.00

465.00

257.00

1.28

0.0002105781

LG

GR P2275NRL

11048.00

4756.00

52544288.00

516.00

348.00

168.00

1.17

0.0006842796

LG

GR B2376AZT

10154.00

14859.00

150878286.00

626.00

406.00

220.00

1.25

0.0019648746

LG

GR C247JYL

9961.00

13779.00

137252619.00

643.00

413.00

212.00

1.40

0.0017874287

LG

GR B267FSN

9651.00

3313.00

31973763.00

722.00

465.00

257.00

1.28

0.0004163915

LG

GR P2274NFB

9305.00

286.00

2661230.00

516.00

348.00

163.00

1.60

0.0000346570

LG

GR P2274NRB

9219.00

50.00

460950.00

516.00

348.00

168.00

1.60

0.0000060029

LG

GR P2275NFL

8354.00

66.00

551364.00

516.00

348.00

168.00

1.17

0.0000071804

LG

GR C2376ATT

8134.00

12422.00

101040548.00

626.00

406.00

220.00

1.25

0.0013158421

LG

GR C2276NCE

7709.00

4799.00

36995491.00

511.00

348.00

163.00

1.15

0.0004817890

LG

GR C227SSD

7705.00

11231.00

86534855.00

554.00

365.00

189.00

1.30

0.0011269358

LG

GR C2275NFK

7579.00

3603.00

27307137.00

511.00

348.00

163.00

1.15

0.0003556184

LG

GR K40DFML

7546.00

14605.00

110209330.00

396.00

248.00

110.00

1.10

0.0014352464

LG

GR P2075TTN

7446.00

7569.00

56358774.00

506.00

348.00

158.00

1.17

0.0007339553

  1. Remarks:
  2. 1. Average price is measured in CNY. It is the average of actual transaction price
  3. 2. Sales volume is the quantity of sales of refrigerators in China throughout the year 2013
  4. 3. Three volume values: total volume (total), cold-closet volume (cold-closet) and freezer volume (freezer) are measured in liters. Total volume is not equal to the sum of cold-closet volume and freezer volume
  5. 4. Daily power consumption (DPC) is measured in kilowatt-hour, also called “DU” in Chinese
  6. 5. Market share is computed as: \( Market\ share\ of\ refrigerator=\frac{Value\ of\ sales}{Total\ market\ sales}, \)
  7. 6. The data of brand, code, average price, sales volume and value of sales is provided by CRMC
  8. 7. The data of three volume values and power consumption are gathered manually from producers, online shops and database websites. Part of the data also come from researchers in Nanjing University of Information Science and Technology (NUIST)
  9. Stylized facts of refrigerator market dataset:
  10. 1. Total observation: 2757 refrigerator types
  11. 2. Average price of the refrigerator: 2464.97 CNY
  12. 3. Total sales volume: 31151637 refrigerators
  13. 4. Total value of sales: 76787744440.00 CNY
  14. 5. Average daily power consumption: 0.59 kilowatt-hour per day

1.2 Appendix 2: Residential Electricity Charging Standards

Province

Tariff pricing

Peak and Valley pricing

Peak price

Valley price

Flat price

1st class limit

Peak hour

Valley hour

Flat hour

Time weighted average price

Population weight

Population weighted price

A nhui

Yes

Yes

0.5953

0.3153

N/A

180

14

10

N/A

0.4786

0.044848142

0.021465816

Beijing

Yes

No (1)

0.4883

0.4883

N/A

240

N/A

N/A

N/A

0.4883

0.015730319

0.007681115

Chongqing

Yes

No (2)

0.5200

0.5200

N/A

200

N/A

N/A

N/A

0.5200

0.024978258

0.012988694

G ansu

Yes

Yes (triple)

0.7590

0.2610

0.5100

160

8

8

8

0.5100

0.019203632

0.009793853

G uangdong

Yes

Yes (triple)

1.0500

0.3500

0.7000

260

9

8

7

0.7146

0.07916478

0.056569833

G uangxi

Yes

Yes (triple)

0.8457

0.2113

0.5283

190

6

8

10

0.5020

0.035097576

0.017618457

G uizhou

Yes

No

0.4556

0.4556

0.4556

183

N/A

N/A

N/A

0.4556

0.026046135

0.011866619

F ujian

Yes

Yes

0.5283

0.2983

N/A

200

12

12

N/A

0.4133

0.028069136

0.011600974

H ainan

Yes

No

0.6083

0.6083

0.6083

195

N/A

N/A

N/A

0.6083

0.006656565

0.004049189

Hu bei

Yes

Yes (triple)

1.0426

0.2780

0.5700

180

6

10

8

0.5665

0.043130079

0.024432471

Hunan

Yes

No (3)

0.5345

0.5345

0.5345

180

N/A

N/A

N/A

0.5345

0.049764332

0.026599035

Hebei

Yes

Yes

0.5500

0.3200

N/A

180

12

10

N/A

0.4083

0.054539208

0.022270177

He nan

Yes

Yes

0.5539

0.4039

N/A

180

12

10

N/A

0.4452

0.070009214

0.031168452

Heilon gjiang

Yes

No

0.5100

0.5100

0.5100

170

N/A

N/A

N/A

0.5100

0.028522823

0.01454664

Jiangsu

Yes

Yes

0.5583

0.3583

N/A

230

13

11

N/A

0.4666

0.059046335

0.027552988

Jil in

Yes

Yes

0.5620

0.3290

N/A

170

11

13

N/A

0.4358

0.02046057

0.008916546

Jia ngxi

Yes

Yes

0.6300

0.4800

N/A

180

14

10

N/A

0.5675

0.033632388

0.01908638

Li aoning

Yes

Yes (triple)

0.7500

0.2500

0.5000

180

8

7

9

0.5104

0.032650638

0.01666543

Neim eng

Yes

No

0.4650

0.4650

0.4650

170

N/A

N/A

N/A

0.4650

0.018578882

0.00863918

Ni ngxia

Yes

Yes (triple)

0.6280

0.2692

0.4486

170

8

8

8

0.4486

0.004864127

0.002182047

Qi nghai

Yes

No

0.3771

0.3771

0.3771

150

N/A

N/A

N/A

0.3771

0.004298877

0.001621106

Sh andong

Yes

Yes

0.5769

0.3769

N/A

210

14

10

N/A

0.4936

0.072389215

0.035728904

Sh anghai

Yes

Yes

0.6170

0.3070

N/A

260

16

8

N/A

0.5137

0.010653033

0.005472108

Shanxi

Yes

Yes

0.5070

0.2862

N/A

170

14

10

N/A

0.4150

0.026998135

0.011204226

Shanxi

Yes

No (4)

0.4983

0.4983

N/A

180

N/A

N/A

N/A

0.4983

0.027994761

0.013949789

Si chuan

Yes

Yes (triple)

0.6974

0.2612

0.5224

180

8

8

8

0.4937

0.060295836

0.029766044

Ti anjin

Yes

No

0.4900

0.4900

0.4900

220

N/A

N/A

N/A

0.4900

0.00746703

0.003658845

Xinjiang

No

No (5)

0.5203

0.5203

0.5203

N/A

N/A

N/A

N/A

0.5203

0.016838506

0.008761075

Xizang

No

No (6)

0.6267

0.6267

0.6267

N/A

N/A

N/A

N/A

0.6267

0.002320501

0.001454258

Yu nnan

Yes

No

0.4670

0.4670

0.4670

120

N/A

N/A

N/A

0.4670

0.034859576

0.016279422

Zh ejiang

Yes

Yes

0.5680

0.2880

0.5380

230

14

10

N/A

0.4513

0.040891391

0.018455648

  1. Remarks:
  2. 1. All prices in above table are measured in CNY per kilowatt-hour
  3. 2. First class limit is measured in kilowatt-hour per month
  4. 3. Population weight is computed using statistics of population at the yearend in 2013, provided by National Bureau of Statistics (NBS)
  5. 4. Time weighted average price and population-weighted price are calculated using the method in 3.2.3
  6. 5. National population-weighted average residential electricity price ≈ 0.502045319 CNY per kilowatt-hour
  7. Notes
  8. 1. Beijing is regarded as not adopting peak and valley pricing. The reason is that only households in the suburb of Beijing who do not use central heating but use electric heating are required to undertake peak and valley pricing. The proportion of this part of households is relatively low. For the time being, Beijing has been drafting unified pricing policies since 2014, but it still takes time to do make adjustments
  9. 2. Chongqing, Hunan, and Shanxi are regarded as using tiered pricing only. The electricity supplies of the three regions are dependent on adjacent hydroelectric power stations. The prices of residential electricity in these three regions are therefore highly flexible to change with variation of water flow caused by seasonal weather change. Thus, the discount and penalty adjustments of peak and valley hours are also flexible to change. It is difficult to get a consistent value. Therefore, we use the estimated average price computed by corresponding local Bureau of Commodity Price to approximate the true residential electricity price
  10. 3. Xinjiang and Xizang are regarded as neither using tiered pricing nor peak and valley pricing. This situation in the short run will not be changed since the power system in these two provinces is less developed

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Ren, Y., Luan, F., Zhou, H. (2018). The Energy Paradox: Evidence from Refrigerator Market in China. In: Hung, J., Chen, Y. (eds) The State of China’s State Capitalism. Palgrave Macmillan, Singapore. https://doi.org/10.1007/978-981-13-0983-0_6

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