Fiscal expenditure efficiency of China's coal to clean heating policy

Government subsidies are the backbone of the large-scale Coal to Clean Heating Policy launched in China in 2017. We analyze data from 27 pilot cities from 2017 to 2019. We use a slacks-based measure model with undesirable outputs to evaluate the optimal design of central and local government subsidies under the policy. While the overall efficiency is high, provincial capitals and cities with lower economic development levels show less efficiency. Our findings suggest that distributing central government subsidies based solely on administrative levels is not the best way to achieve perfect efficiency. Additionally, perfect efficiency at the city level may take years to achieve. A sweeping phase-out of government subsidies could lead to undesirable policy outcomes. Content analysis of normative documents from the six best-performing cities and six least efficient cities indicates that better-formulated legal and policy documents may contribute to higher efficiency. As lessons for designing and evaluating large-scale energy policies, we recommend considering 17 factors that could impact subsidy efficiency. We also suggest implementing a progressive phase-out schedule as a measure of policy efficiency and identifying factors that could ensure the long-term success of nationally implemented government subsidies.