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, firstname.lastname@example.org Prof. Valerie Karplus, Sloan School of Management, MIT, email@example.com Xingyao Shen, Joint Program of the Science and Policy of Global Change, MIT, firstname.lastname@example.org 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 Ke, Jing, Lynn Price, Stephanie Ohshita, David Fridley, Nina Khanna, Nan Zhou, Mark Levine, 2012. China’s Industrial Energy Consumption Trends and Impacts of the Top1000 Enterprises Energy-Saving Program and the Ten Key Energy-Saving Projects. 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