The Energy Paradox: Evidence from Refrigerator Market in China

  • Yuxiang Ren
  • Fushu LuanEmail author
  • Hui Zhou


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.


  1. Allcott, H. and Greenstone, M. (2012), “Is there an energy efficiency gap”, Journal of Economic Perspective: 26(1), 3–28.CrossRefGoogle Scholar
  2. Allcott, H. and Wozny, N. (2014), “Gasoline prices, fuel economy, and the energy paradox”, Review of Economics and Statistics: 96(5), 779–795.CrossRefGoogle Scholar
  3. Blumstein, C., Krieg, B., Schipper, L. and York, C. (1980), “Overcoming social and institutional barriers to energy conservation”, Energy: 5(4), 355–371.CrossRefGoogle Scholar
  4. Busse, M. R., Knittel, C. R. and Zettelmeyer, F. (2013), “Are consumers myopic? Evidence from new and used car purchases”, American Economic Review: 103(1), 220–56.CrossRefGoogle Scholar
  5. Federal Reserve Economic Data [FRED]. (2015), Consumer Price Index for China database online.Google Scholar
  6. Gao, J. (2014), Extreme value theory, Gumbel distribution, the maximum likelihood estimation and portfolio distribution model, North China Electric Power University Press, pp. 5–7 (in Chinese).Google Scholar
  7. Gu, X. and Han, X. (2010), “Discussion on trend of residential average energy consumption”, Power Demand Side Management: 12(5), 19–24 (in Chinese).Google Scholar
  8. Greene, D. L. (2010), “How consumers value fuel economy: A literature review”, No. EPA-420-R-10-008.Google Scholar
  9. Gillingham, K. and Palmer, K. (2014), “Bridging the energy efficiency gap: policy insights from economic theory and empirical evidence”, Review of Environmental Economics and Policy: 8(1), 18–38.CrossRefGoogle Scholar
  10. Hebei Daily. (2015), Six categories of residential electricity consumption are prioritized, Hebei News Press, Hebei Daily, July, pp. 2 (in Chinese).Google Scholar
  11. Helfand, G. and Wolverton, A. (2011), “Evaluating the consumer response to fuel economy: a review of the literature”, International Review of Environmental and Resource Economics, 2011, pp. 103–146.CrossRefGoogle Scholar
  12. Jaffe, A. B. and Stavins, R. N. (1994), “The energy paradox and the diffusion of conservation technology”, Resource and Energy Economics: 16(2), 91–122.CrossRefGoogle Scholar
  13. Kidokoro, Y. (2008), “A representative consumer framework for discrete choice models with endogenous total demand (No. 07-07)”. National Graduate Institute for Policy Studies.Google Scholar
  14. Koomey, J. G. and Sanstad, A. H. (1994), “Technical evidence for assessing the performance of markets affecting energy efficiency”, Energy Policy: 22(10), 826–832.CrossRefGoogle Scholar
  15. National Development and Reform Commission [NDRC]. (2011a), The 12th Five Year Plan [online, in Chinese].Google Scholar
  16. National Development and Reform Commission [NDRC]. (2011b), Notification of Residential Electricity Tiered Pricing Reform, No.2011-2617, pp. 1–5 (in Chinese).Google Scholar
  17. Shama, A. (1983), “Energy conservation in us buildings: solving the high potential/low adoption paradox from a behavioral perspective”, Energy Policy: 11(2), 148–167.CrossRefGoogle Scholar
  18. Standardization Administration of China [SAC]. (1995), National Standard for Refrigerator, GB/T 8059–2, Standardization Administration of China Press, Beijing, pp. 1082–1090 (in Chinese).Google Scholar
  19. State GRID. (2013), Industrial and Residential Electricity Price List in Jiangsu Province [online, in Chinese].Google Scholar
  20. Steg, L. (2008), “Promoting Household Energy Conservation”, Energy Policy: 36(12), 4449–4453.CrossRefGoogle Scholar
  21. Sallee, J. M., West, S. E., and Fan, W. (2016), “Do consumers recognize the value of fuel economy? Evidence from used car prices and gasoline price fluctuations”, Journal of Public Economics: 135, 61–73.CrossRefGoogle Scholar
  22. Stern, P.C. and Aronson, E. (1984), Energy Use: The Human Dimension, Freeman, New York.Google Scholar
  23. Zhao, X. and Xia C. (2006), “Storage of units with exponential distribution”, Journal of Naval Aeronautical Engineering Institute: 21(4), 1–2 (in Chinese).Google Scholar
  24. Zhao, J. (2009), “Battle of energy conservation and emission reduction”, Macroeconomic Management: 5, 25–27 (in Chinese).Google Scholar

Copyright information

© The Author(s) 2018

Authors and Affiliations

  1. 1.International Business School SuzhouXi’an Jiaotong-Liverpool UniversitySuzhouChina
  2. 2.Cornell UniversityIthacaUSA

Personalised recommendations