There is no question that the scheme of control regulating Hong Kong's electricity sector is out of date. The question facing us now is what it should be replaced with after expiration in 2008. With the start of consultation today, the public debate can at last begin.
The scheme served its purpose well enough over the past four decades, largely by encouraging fixed investment in generating capacity and ensuring the city a steady supply of energy as its economy boomed. Guaranteed returns tied to investments made were the key.
In recent years, consumption growth has slowed, in large part because manufacturing has shifted to lower-cost areas across the border. Meanwhile, Hong Kong is more than adequately supplied with power generation capacity - and our electricity companies sell the excess to mainland customers. A regulatory framework that encourages fixed asset investment and passes the cost on to end-users in this context makes little sense.
Then there is the environmental question. The rising levels of smog in Hong Kong over the past year and the government's lack of leverage when it comes to renewable energy development point to the scheme's inadequacy in helping us meet our air quality goals.
The admission by the larger of our two power suppliers that it is burning more coal than before could only be met with resignation, as the regulations do not prescribe a mix of energy sources, much less provide incentives for companies to use cleaner-burning fuels. Instead, discussion now centres on whether the company should be allowed to recoup its investment in equipment used to offset the higher level of pollution.
The new rules must be framed to encourage environmental responsibility. Emissions trading and research into renewable energy are two areas that could put Hong Kong's energy sector at the forefront of a cleaner energy trend, one that could benefit the entire Pearl River Delta and be used to develop a niche in the mainland market.
