# **Box 11: Strengthening of Incentives in Shanxi**

Shanxi province mounted a vigorous response to central energy efficiency policy during the 11<sup>th</sup> FYP. A rich array of implementation incentives were employed, including:

# **1. Allocation of voluntary targets and signing agreements with the largest industrial enterprises**

- Shanxi introduced a provincial Top-200 Enterprise Program modeled after the national Top-1000 Enterprise Program, which in 2009 was extended to include a provincial Top-1000 Enterprise Program. As at the national level, these enterprise programs are voluntary agreements between the largest industrial enterprises and government that commit firms to achieving a prescribed amount of energy savings.

# **2. Strengthening of financial incentives**

- Shanxi leaders created a **Coal Sustainable Development Fund** through taxation of all provincial coal exports and have used part of this money to fund energy-saving initiatives:

- Between 2007 and 2009, the fund reportedly collected over 43 billion RMB (China Financial Report 2010). By 2010, the fund had allocated 1.3 billion RMB to phasing out inefficient production facilities.

- The sizeable Coal Sustainable Development Fund has greatly enhanced Shanxi’s provincial policy implementation capacity. The taxation of coal export helps Shanxi to soften the social and economic consequences of plant closure and eliminating outdated production facilities by providing a pool of funds for city greening initiatives and energy saving policy implementation.

- In 2008, the Shanxi government began to devise a number of financial rewards for municipal governments and larger enterprises with the best record of energy conservation:

- _Enterprise reward:_ A financial reward of 500,000 RMB was granted if enterprises scored 95 points or above and 200,000 RMB was given if enterprises scored between 80 and 95 points during an annual evaluation.

- _Government reward:_ Municipal governments scoring 95 points or above were rewarded with 300,000 RMB and those attaining between 80 to 95 points received 200,000 RMB. A proportion of these rewards can be used to provide personal prizes for leaders.

# **3. Introduction of fines and penalties**

- Sanctions for non-responsive municipal and county governments/government officials:

- Localities that repeatedly fell short of energy intensity targets did not receive new land allocations for industrial purposes.

- In 2006, the Shanxi Environmental Protection Bureau revoked the right of disobedient localities to conduct environmental evaluations ( _quyu xianpi_ ). The suspension of this right effectively blocks a city’s ability to approve industrial projects as all new projects are required to undergo an environmental evaluation.

- Government officials and enterprise leaders that did not fulfill energy intensity targets could be fined, excluded from annual provincial personal rewards programs, denied honorary titles, or even demoted or relocated to a remote area.

- Provincial leaders have also used price controls and shut off access to utilities to discipline non-compliant enterprises.

- Shanxi implemented a differentiated electricity pricing policy by charging higher prices to noncompliant enterprises sorted into two categories:

- ‘Restricted’ enterprises on the government’s watch list saw their electricity prices rise to between 0.05 and 0.1 RMB/kWh.

- Flagrant violators in the ‘to-be-eliminated’ category were charged between 0.2 and 0.3 RMB/kWh (Zhang et al. 2011: 4121).

- For severe cases, a policy called ‘cut electricity, cut water’ ( _duandian duanshui_ ) has been used, whereby the Environmental Protection Bureau coordinates with state-owned electricity and water companies to cut off a company’s access to utilities.

_Source: Harrison and Kostka, 2012_ 37