Qiang Wang of the Chinese of Academy of Sciences had a letter in the 29 August Science magazine (behind paywall) about the critical issue of energy subsidies in China.
Rising global energy prices have caused a drop in consumption in the United States, but in China, not so much:
You can see that higher global energy prices have only barely dented consumption in China. Wang argues that China’s energy subsidies are a big part of the problem:
China’s energy prices are mainly decided and controlled by the government. Because the government emphasizes social stability (1) over scarcity of resources or environmental cost (2), it sets the energy prices very low. For example, Chinese gasoline and diesel prices rose by less than 10% (3) in 2007, when global oil price nearly doubled. Moreover, in January 2008, the Chinese government decided to freeze energy prices in the near term, even as international crude oil futures have continued to surge (1).
Energy conservation and efficiency are hard to achieve because government-set prices encourage excessive energy consumption and waste (4). The low energy prices send a distorted market signal to consumers that there is no shortage of natural resources, indicating that enhancing energy efficiency is unnecessary and waste is justified. In 2007, sales of cars with large engines (3 to 4 liters) increased by a factor of 4.5 compared to sales in 2006, and SUV sales increased by 50.09%. Meanwhile, sales of more energy-efficient cars with smaller engines (1 liter) dropped by 30.90%, also compared to 2006 sales (5).
One of the key global problems in aligning energy consumption and production is the allocation problem caused by government subsidies in places like China.