Energy Efficiency Indicators: China vs USA

1. Introduction

Energy supply is vital for the sustainability of any given economy as it powers all economic activities taking place in any given state. However, the level of demand and supply can be influenced by a number of factors (both internally and externally), and liberalization is one of those factors. It is expected that regulating or deregulating energy will have an influence on both supply and demand, which is what this paper seeks to illustrate. In the case of this paper, two countries have been selected: the USA (where energy is deregulated) and China (where energy is regulated).

2. Energy regulation: pros and cons

Xin and Honglin (2012) did present a detailed analysis of China’s regulation of energy, and the authors made it known that the energy industry is important for both the security and independence of any country. In the Chinese context, energy regulations are made in line with the country’s planned model of economic development (Xin and Honglin, 2012). In that sense, the understanding is that energy does represent fuel. Thus, the Ministry of Fuel Industry was set up between the 1950s and 1980s to regulate industries in the coal, oil, and electricity sectors. Even in the 21^st century, China’s energy is still regulated on two grounds: domestic and international regulation. Domestically, the market does play an important role in how energy resources are allocated, and this is still in line with the 1950s model as it has continued to push for the rapid development of the Chinese economy (Xin and Honglin, 2012). Internationally, however, the country is facing a number of issues when it comes to global pollution, and it has confirmed its willingness to join hands in reducing global emissions through numerous energy conservation policies (Xin and Honglin, 2012).

• Pros of energy regulation in China

1. Movement and operational costs are under government control; this allows for energy to be allocated for the most vital enterprises, and allocation is also based on level of need (Xin and Honglin, 2012). Thus, waste is significantly controlled.
2. Economic development: through the government’s regulation of energy, the Chinese economy has rapidly grown because energy is readily made available for such purposes in line with their economic model (Xin and Honglin, 2012).
   • Cons of energy regulation in China
3. Shortage problem: In 1978, the Chinese government launched economic system reform, which saw a shift from planned economy to market economy. As such, the country experienced rapid and tremendous economic development, but an energy shortage also became apparent (Xin and Honglin, 2012). Additionally, more energy is allocated for industrial purposes, which can lead to a shortage of energy for homes.
4. Slow development: as a result of the government’s inefficient investment, the Chinese energy system did develop slowly, and this is another con when it comes to energy regulation in the country (Xin and Honglin, 2012).
5. Energy deregulation in the USA :pross andconss

In theory, the idea of energy deregulation is that it will increase competition and create a higher level of efficiency, as well as reduce costs due to such competition. However, this has not always been the case, particularly in the United States.Paul (2007) wrote an article on USTodayNews in which he highlighted that following price deregulation, electricity prices in the USA have increased dramatically, and it is one of the issues that comes with deregulation of energy.

• Pros of energy deregulation in the USA

1. Because of the increased competition, the market somewhat sets the price, and prices are derived lower.
2. Innovation: with an increase in competition, companies fight to remain afloat by innovating their energy systems. Thus, it ushers in a new generation of energy resources.
3. Consumers pay the actual price of energy.For instance, in the case where energy is constrained, consumers pay less.
   • Cons of energy deregulation in the USA
4. Marketing at high prices does create room for abuse, gaming, congestion, and phantoms. As a result of deregulation, energy providers can easily form unions and take advantage of customers in their sales process.
5. Generations can actually be developed in the wrong place. For instance, the Texas wind was developed on the wrong side of transmission constraints.
6. As residential and small customers struggle to afford prices, the market produces winners and losers.As a result, the possibility of a powerful brand gaining monopoly exists.

4. Deregulation and regulation of energy resources are compared.

From the above analysis, it is clear that energy deregulation has ushered in new benefits from increased investments. This is because, as companies source for new ways to remain competitive, they increasingly invest in new potentials for energy generation and provide the market with numerous sources of energy (Batumi 2009). However, the approach has not been successful for a number of reasons.

In terms of price, energy deregulation, as noticed in the USA, has brought about increased prices for energy. As such, consumers are forced to forego their respective alternatives in order to meet their energy needs. Additionally, it creates room for "absolute monopolistic capitalism" as companies that can afford more energy will demand more and eventually produce more.

Furthermore, demand has decreased, resulting in a price increase.This has also reduced energy efficiency and resulted in an increase in the price of commodities. This is because manufacturers are forced to produce less with the same amount of energy to produce the same volume of goods with more energy (Williams, 2011). As a result, the additional costs are passed on to consumers in the form of higher commodity prices.

5. Conclusion

Be it regulation or deregulation, any form of energy supply policy adopted has its own pros and cons. The best approach will be a semi-regulated system in which the government controls the price while investors pour in the necessary funds to run the energy sector.

1.      Reference

Xin Qiu and Honglin Li (2012). Energy Regulation and Legislation in China. Environmental law reporter. Available at: http://www.epa.gov/ogc/china/Qiu.pdf [Accessed on: 1-11-2014].

Batumi, Georgia (2009). Liberalization of Energy Markets. Sarah R. Thomas, Legal Division California Public Utilities Commission. Available at: file:///C:/Users/Hp-User/Downloads/Thomas_Liberalization_Legal_Batumi_2009_eng_[Kompatibilit%C3%A1si_m%C3%B3d].pdf [Accessed on: 1-11-2014].