Utilities in Hong Kong Back Green
Jan 8, 2008 - International Herald Tribune
Hong Kong's two electric power companies
agreed on Monday to a new regulatory system that sets
their rate of return on assets based partly on how
much pollution they emit, an approach that could someday
be a model for mainland China's giant power sector
The agreement, lasting 10 years between
the Hong Kong government and the two power companies,
allows the companies to charge electricity tariffs
that will give them a 9.99 percent rate of return
If either company exceeds regulatory
limits for any pollutant, then it would be required
to charge less for its electricity, reducing its allowed
rate of return by between 0.2 percent and 0.4 percent.
If the companies manage to cut their
pollution by even more than required, then they raise
prices so as to earn bonuses of 0.05 percent to 0.1
percent on their rate of return. A complicated calculation
also allows them to charge slightly more for electricity
as they make progress in using more renewable energy.
Western regulators increasingly impose
complex environmental incentives and penalties on
power companies. But regulators in mainland China
and in Hong Kong, a former British colony, have tended
to rely mainly on fines on companies that fail to
meet basic regulatory standards.
Particularly in mainland China, fines
are seldom assessed and violations are rampant, according
to environmental critics.
Mainland power companies also have little
flexibility in choosing anything other than coal to
burn. The mainland regulatory scheme has focused on
limiting electricity tariffs to the lowest possible
level with little regard for the pressures this puts
on power companies to choose cheap but polluting coal-fired
Melissa Brown, a specialist in Hong
Kong power regulation who is the executive director
of the Association for Sustainable and Responsible
Investment in Asia, said that the new system in Hong
Kong sets a useful precedent for the mainland, although
she cautioned that mainland regulators were unlikely
to follow the example soon.
"Anything that is a bonus and penalty
scheme is a positive," Brown said.
But she cautioned that the government
had released too few details Monday on future allowable
levels of specific pollutants to make it possible
to calculate the actual effect of the new agreement
on Hong Kong air pollution.
Smog has become a chronic problem in
the city. CLP and Hong Kong Electric, the two local
power companies, have denied that they are the main
sources of pollutants, while hinting that nearby factories
and power plants on the mainland may be responsible
instead. Exxon Mobil owns 60 percent of a power-generation
joint venture, while CLP owns the rest and all of
the distribution grid serving three quarters of Hong
The State Electricity Regulatory Commission
in Beijing could not be reached for comment on Monday
evening, following the announcement.
Edward Yau, Hong Kong's secretary for
the environment, said that the Hong Kong government
set the new regulated rate of return at 9.99 percent
after deciding that public opinion strongly favored
a rate below 10 percent. The previous rate, under
a 15-year agreement expiring at the end of this year,
was 13.5 percent to 15 percent, and was widely criticized
as excessively generous to the politically influential
Originally published by The New York
Times Media Group.
(c) 2008 International Herald Tribune.
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