Debates on the Tiered Electricity Pricing Mechanism in China

Based on the Ramsey theory-the foundation for the tiered electricity pricing mechanism, this article analyzes the effects of the tiered electricity pricing system on social justice, eff iciency and commodity prices, and concludes that the system would direct subsidies to flow into low income groups, and promote energy conservation and emissions reduction by restricting over-consumption of high income groups, without enormous effect on commodity prices. The key to designing the tiered system is how to estimate the amount of electricity use for each tier, so as to avoid excluding low income groups from the subsidy or including high income groups in the subsidy.