Cost-effective subsidy incentives for room air conditioners in China: An analysis based on a McFadden-type discrete choice model

Based on a McFadden-type conditional logit (CL) discrete choice model, this paper estimates the most economic subsidy level (MESL) for room air conditioners (RACs) in China that minimizes the net cost of subsidy per unit of electricity saved. The analysis reveals that, given the current price and efficiency spectrum of RACs in the Chinese market as well as the electricity price and cooling demand of Chinese households, the MESL for RACs in China should be around 60%, which is much higher than the current subsidy level of 5-15%. A sensitivity analysis suggests that the high MESL (60%) is mainly a consequence of relatively low electricity price and household cooling demand in the country. If China's household cooling demand increases further and its electricity price were to rise to a higher level, the MESL for RACs could possibly drop to about 5-15%. As household cooling demand varies among Chinese cities in different climatic zones and at different levels of economic development, the RAC subsidy incentives should be region-specific. With necessary modifications, the method for analysis proposed in this paper can also be applied to other household appliances to prioritize the types of appliances requiring subsidies.