Chinese Coal Can Be Applied To The Reference Price Research

In the recent years, the conflict between the coal industry and the power industry has becoming more and more worse. In spite of a series of adjustment and controlling measures from the government, the conflict has not been solved. The contracting meeting between the coal industry and the power industry in 2006 turned to be a moot. The coal industry declared that due to the increasing cost, the current sales price of coal is too low to cover all the costs and the sales price of coal should be higher. To the contrary, the power industry claimed that higher price of coal could not be accepted because the sales price of power is regulated by the government. Should the price of coal be increased, the power industry would not make profit. The power industry said that they preferred to shut down than to buy coal at a higher price.Without enough knowledge of the cost of the coal industry, the government can't regulate the price properly and the power industry cannot judge whether the variation of the price of coal is acceptable or not. It is anticipated that the price of coal shall still be a conflict between the coal industry and the power industry. This paper argues that enough knowledge of the cost of the coal industry would be helpful to the solving of the conflict.Yu and Yu (2006) put forward a theoretical benchmark price of coal optimal to the society. The theoretical price, if to be applicable, must be analyzed basing on the reality of China. This paper argues that to get a reasonable and applicable coal price, we must first decide the reasonable elements of price. With this knowledge, we can further discuss both the quality and quantity aspects of the price.The exhaustibility of the coal determines that we should adopt dynamic analysis as a basic method. On the basis of the reasonable elements of the coal price, according to the environmental regulation theory, this paper first includes the environmental cost in the elements of the coal price and develops a dynamic model which is optimal to the society. Then, this paper extends the above model in two aspects. One is to discuss the influence of the market structure on the efficiency, and the other is to review the five methods of collecting resource rent. Then, from the angle of the industry chain of the coal and power industry, this paper discusses how to determine the reasonable profit of the coal and power industry. Finally, this paper concludes with an applicable benchmark price of coal. The main conclusions of this paper are as followed:First, from the view of the society, the environmental cost must be accounted to the coal price. Compared to the socially optimal price path, it'll change the price path of coal according to the elasticity of the demand under monopoly. If the demand elasticity is greater than one in absolute value, it'll make the price and production path flatter under monopoly, which means the exhausting date would be postponed. If the demand elasticity is less than one in absolute value, it'll make the price and production path sharper under monopoly, which means the exhausting date would be brought forward. If the elasticity is unity, there would be no difference under monopoly and competition.Secondly, we shall add five methods of collecting rent into the basic model to discuss the influence of rent-collecting on the price and production path. We find that under competitive market, the gross yield tax, the unit tax, the property tax, and the windfall profit tax should deviate the price and production path from the socially optimal path. Among them, the gross yield tax and the unit tax make the path flatter while the property tax makes it sharper. The effect of the windfall profit tax depends on its tax base. If the tax base is higher than the production and environmental cost, the tax will make the path sharper and vice versa. The net profit tax does not change the path.Under monopoly, the gross yield tax, the unit tax, the property tax, and the windfall profit tax should deviate the price and production path further from the socially optimal path together with the distortion of market structure. If tax is designed properly, the dual distortion would be eliminated at the same time. When the demand elasticity is greater than one in absolute value, the gross yield tax will be a sort of subsidy. The unit tax will be a subsidy too despite the elasticity of the demand. The net profit can't be designed properly to alleviate the distortion. So under monopoly and with a net profit tax, the distortion is unavoidable.Finally, this paper shall give two methods to compute the reasonable profit. One is the method of average profit margin and the other is the method of CAPM. We should refer to both methods and their results accordingly. With the development of China stock market, the method of CAPM will become more and more applicable. Beside the above-mentioned costs, we finally include safety cost in the elements of price and give the applicable benchmark price of coal.