How can pricing strategy for district heating help China realize cleaner residential heating?

District heating is the most efficient and cost-effective approach for China to achieve cleaner heating; however, the long-lived welfare pricing mechanism has impeded the expansion of district heating. In this study, we explore how a pricing strategy for district heating can benefit cleaner residential heating. Our results indicate that theoretically, cost-plus pricing is the most favorable strategy for cleaner heating in most Chinese cities; however, it is challenging to implement due to a lack of transparency regarding heat firms' costs. In contrast, the currently implemented welfare pricing strategy inhibits suppliers' initiatives, restrains financial subsidies for clean energy, and limits transitions to cleaner heating. To address this dilemma, we propose a suboptimal alternative, i.e., a modified marginal-cost pricing strategy, which achieves nearly the same reduction in emissions as that by costplus pricing, with higher operability and robustness.

Automated summary

This study explores the impact of pricing strategies on cleaner residential heating in China and finds that cost-plus pricing is theoretically the most favorable approach but faces implementation challenges. As an alternative, a modified marginal-cost pricing strategy is proposed, which achieves similar emission reductions with higher operability and robustness.