FIRM CHARACTERISTICS AND COMPLIANCE BEHAVIOR IN CHINA’S
INDUSTRIAL ENERGY CONSERVATION PROGRAM
Da Zhang, Joint Program of the Science and Policy of Global Change, MIT, +1 (857) 928-0049, zhangda@mit.edu
Prof. Valerie Karplus, Sloan School of Management, MIT, vkarplus@mit.edu
Xingyao Shen, Joint Program of the Science and Policy of Global Change, MIT, shenx@mit.edu
Overview
During both the Eleventh Five-Year Plan (2006-2010) and Twelfth Five-Year Plan (2011-2015), an increasing
number of enterprises participated in China’s mandatory national energy conservation initiatives. Indeed, the Top
1000 Enterprises Program was the most important energy-saving command-and-control policy and designed to
deliver roughly 20% of the reduction in energy use indexed to GDP required by the nation’s 20% energy intensity
reduction target in the Eleventh Five-Year Plan (Price et al., 2008). Based on early success the program was
expanded to include a significantly larger number of enterprises in the Twelfth Five-Year Plan. Both programs
included penalties and incentives to induce compliance—meeting targets was mandatory, but approved enterprise
energy conservation plans were usually eligible for low cost loan and grant support.
While scholars have found evidence that firms met and even exceeded targets in the case of the Top 1000
Enterprises Program (Ke et al., 2012) as a result of effort on the part of firms as well as local governments (Kostka
and Hobbs, 2012), the Top 10000 Enterprises Program will conclude in 2015 and its effects have not yet been well
studied.
Methods
In this analysis, we will rely primarily on information recently made publicly available on firm targets and
compliance with the Top 1000 and Top 10000 Enterprises programs. We match the identity of firms participating in
the program to a census of Chinese industrial firms in order to summarize the ownership status, industry
composition, size, and other characteristics of covered enterprises. We discuss how the program evolved from the
Eleventh to the Twelfth Five-Year Plan, and what elements of the Top 1000 Program were carried over into the Top
10000 Program. Changes to the program and their rationales are also summarized.
We then analyse rates of target compliance and non-compliance reported for both programs, and probe how sources
of heterogeneity across firms—such as ownership, industry, size, number of employees, cost of capital, and other
factors—correlate with compliance outcomes. We enumerate and analyse the reasons stated for non-compliance and
relate them to the extent to which an enterprise fell short of its original target.
Results
The enterprises that participate in the Top 1000 and Top 10000 programs belong to a diverse cross-section of
China’s energy-intensive industries. Most participating firms are large and a sizable fraction are state-owned. We
find that while most firms complete and even exceed their targets, a number of firms report non-compliance with the
energy conservation targets in publicly-released documents. A larger share of firms did not achieve their targets
during the Top 10000 Program (Twelfth FYP) compared to the Top 1000 Program (Eleventh FYP). We identify and
discuss several factors that predict non-compliance outcomes.
Conclusions
This research offers first insight into the firm-level performance of a major Chinese energy conservation program.
First, we conclude that the accessibility of documents online on compliance outcomes is an important sign that
energy policy enforcement in China is becoming more transparent.
Second, we find that policy implementation at the firm/local level varies widely, and we identify several factors
correlated with policy performance. Though very effective, the industrial energy-saving program as a command-andcontrol policy is not flexible, partly reflected in the rigid targets for firms, which were formulated solely based on the
information available at the beginning of each program. Since many of the firms included in these programs will be
included in the proposed national emissions trading system (ETS), this analysis could help to form the basis for
comparisons between command-and-control and ETS performance in China, building on past studies of the firmlevel impact of the EU-ETS such as Martin et al. (2014).
References
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Kostka, Genia and William Hobbs, 2012. Local Energy Efficiency Policy Implementation in China: Bridging the
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Price, Lynn, Xuejun Wang, Yun Jiang. (2008). China’s Top-1000 Energy-Consuming Enterprises Program:
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