A transparent price mechanism may not necessarily lead to a sharp rise in energy prices

　　As for the prices of electricity, oil, and gas, as basic consumer goods (necessities), the government will not stand aloof. Considering the current willingness and ability of society to pay for energy scarcity and environmental pollution, even with price reform, it will be difficult for energy prices to rise significantly.

　　For developing countries, raising energy prices too quickly may not necessarily achieve the goal of energy conservation; instead, it may lead people to seek substitutes that are harmful to the environment. For example, a sharp rise in coal prices may force people to use firewood for heating; if people cannot afford electricity, it will directly affect their production efficiency. Therefore, whether fluctuations in energy prices are within the affordability of the people and whether they affect the guarantee of basic energy use are all factors that the government should consider in the design of the price mechanism.

　　The particularity of energy lies in the fact that it affects both stability and development. For prices in competitive links, legitimate government intervention is still indispensable at this stage. The lever should be to establish a transparent and reasonable energy price mechanism, supplemented by a fair and effective energy subsidy design and strict cost supervision.

　　It should be noted that establishing a transparent and effective price mechanism does not necessarily lead to a sharp rise in energy prices. In the design of the price mechanism, the government can influence price levels through taxes and subsidies, which can reduce the difficulty of reform. For example, for refined oil prices, while aligning with international prices, subsidies can be used to maintain prices at a certain level. A transparent price mechanism can clearly tell consumers which links in the energy price formation process are subsidized by fiscal funds and by how much. Making every link clear to consumers can make the fact of price increases more acceptable to everyone.

　　At present, the government's cost-plus pricing has many problems. Because energy costs continue to rise, energy prices continue to rise. First, as long as prices are set by the government, it will be understood as the government raising prices, not the market. Raising prices is something the government is unwilling to do, which leads to energy prices being lower than supply costs for a long time. Second, it is often difficult for the government to explain this situation to the public: when energy is scarce, prices should rise; when energy is in surplus, prices should also rise. Without a clear pricing mechanism, the risk expectation of prices is unclear, and energy companies must engage in gaming, even with the government and consumers. To prevent price gaming from affecting economic operation and social stability, the government needs to establish a reasonable and transparent price mechanism through reform and respect the price mechanism.

　　Economic transformation and environmental governance require market-based energy prices

　　For a long time, various problems and contradictions in the energy industry can be traced back to the lack of a transparent and reasonable price mechanism. As a result, corporate operations and investment are full of uncertainty, leading to a lack of effective strategic planning for enterprise development. Whether energy prices are adjusted or not, there are often reasonable arguments on all sides, and the process of weighing them often delays decision-making, causing economic and social losses. Furthermore, even if the government's cost-plus pricing of energy is necessary in the stage of rapid economic development, the government's position at the center of economic development has changed, and economic transformation and environmental governance require market-based energy prices.

　　First, a transparent and reasonable price mechanism helps the public support energy price reform. Energy prices should be determined by supply and demand. Under the circumstances of growing energy demand and increasingly tight supply, rising energy prices are reasonable. Then why is every reform and price increase questioned? Because, without a price mechanism, the government's cost-plus pricing is often a confusing account for the public. In addition, China's energy companies are relatively monopolistic and state-owned, so the public often finds it difficult to accept price increases because they do not understand them. They will think that prices cannot rise, and that companies should start with reforming their own distribution mechanisms rather than passing on the increase in production costs to consumers. Only under a transparent and reasonable price mechanism can the reasons for price increases be understood and accepted by the public. Of course, the premise of public understanding is that the price mechanism can ensure the cost transparency of energy companies.

　　Second, liberalizing energy prices in competitive links can coexist with energy subsidies. Energy price reform needs to consider actual payment ability. Aligning energy prices with international prices does not mean that consumers must pay international market prices. Affordability is relative to income, and there is also the issue of social equity. Therefore, it is necessary and acceptable for the government to subsidize a certain consumer group and a certain industry that needs encouragement. What is important is that the subsidy design should be reasonable, targeted, and conducive to the transition to marketization.

　　Third, a transparent and reasonable price mechanism can also encourage foreign capital and private capital to participate in energy investment. Under the current situation where state-owned enterprises dominate and prices are controlled by the government, liberalizing investment alone is not enough to attract foreign and private capital. For example, the power generation industry has been open to foreign and private enterprises for more than 20 years, but we have not seen a large influx of foreign and private enterprises; instead, we have seen foreign capital withdraw. Since foreign and private enterprises pursue profit maximization, that is, cost minimization, their entry may set operating baselines and necessary financial discipline for the energy industry.