The energy paradox: Evidence from refrigerator market in China

It is often asserted that consumers undervalue future expected electricity cost relative to purchase price when they choose among different types of refrigerators, or equivalently that they have high “implicit discount rates” for expected future electricity cost. This chapter illustrates how this can be tested by measuring how much that the consumers are willing to pay in purchasing price in exchange for reducing the future electricity cost that has a present value of one unit of CNY, using the random utility theory and standard logit model. To carry out the research, apart from establishing appropriate model, China’s cross-provincial electricity pricing policies are systematically investigated, classified, and approximated in order to get national population-weighted average electricity price to compute electricity cost. The dataset contains all the transaction information of Chinese refrigerator market in the year 2013. The empirical result indicates that consumers are indifferent between spending one more unit CNY in discounted future electricity cost and saving 4.47 unit CNY in refrigerator purchase price. This result verifies that there is considerable energy efficiency gap in China’s refrigerator market suggesting the need of using government subsidy to encourage consumption of energy-saving electronic appliances, especially in the refrigerator market.