Policy redesign for solving the financial bottleneck in demand side management (DSM) in China

DSM is one of the best and most practical policy tools for China to balance environmental protection and economic growth. However, the bottleneck lies in the lack of long-term, stable, sufficient and gradually increasing funds to flow into DSM projects. The author redesigns the practical ‘system benefit charge (SBC)’ policy, which will provide long-term and stable funding for DSM, the policy to facilitate the financial support from banking sector and capital market, and investigates the possibility of DSM funding from CDM projects. SBC is the best way to boost long-term stable and sufficient funding for DSM at present in China. The current low inflation rate and natural resource price are favored to expedite the implementation of SBC and DSM developments. With regard to the uneven development, China needs to design relative policies to offset the impact in different areas, such as tax reduction and fiscal subsides. It is time for China to develop a definite and clear target and timetable to implement DSM, which will give the public and enterprises a definite and clear expectation for the future. The government should publicize a clear and integrated DSM development plan and relative policy outline in the near, medium, and long term.