A worker fills up a car with fuel at a gas station in Lianyungang city, East China's Jiangsu province, Feb 9, 2015. [Photo/Xinhua]

Govt says it will make adjustments to reduce energy consumption, pollution

China's top economic planner suspended a retail oil price cut that was scheduled for Wednesday and will adjust the current pricing mechanism in order to reduce fossil fuel consumption for better air quality.

The National Development and Reform Commission, said on Tuesday that the government will use the price of refined oil as a tool to save energy and reduce air pollution.

"To keep a stable domestic price of refined oil on a background of the low global crude price will be helpful in limiting oil consumption, improving the country's energy structure and protecting the environment," the commission said.

The government will soon release a new retail oil pricing mechanism draft for public comment.

The current retail oil price system started in March 2013, shortening the adjustment period to 10 days, which allowed for swifter reactions to increases or cuts in global prices.

The current mechanism represented progress for the country's energy pricing authorities, as it links to global prices. However, global crude prices have declined steeply since last year because of an increasing supply, reaching an 11-year low. The International Energy Agency predicted that the global supply would likely increase next year, dragging down prices further.

The world's crude oil benchmark－US crude－fell as low as $34.53 per barrel on Monday. Brent crude fell as low as $36.33 per barrel, its weakest since December 2008.

Under the current domestic pricing mechanism, China would cut retail prices for a fourth consecutive time on Wednesday, but the authority decided not to do so.

From November last year to January, the government raised the retail oil consumption tax three times from 1 yuan ($0.15) per liter to 1.52 yuan per liter, aiming to improve the energy structure by increasing fuel taxes when global crude prices were low.

"The ongoing falling crude prices seem a challenge for the current pricing mechanism," said Li Li, research director at ICIS Energy, a Shanghai-based energy consultancy.

It may be more like a bonus for China's major State-owned oil producers, including China National Petroleum Corp and China Petrochemical Corp. The two companies will avoid billions of yuan in revenue reductions for one adjustment period－which is 10 days－after the government decided not to cut the price this time, according to an industry insider who didn't want to be named.

In Beijing, vehicle exhaust is a prime contributor to air pollutants, accounting for 31.1 percent of all pollution sources, the municipal environmental watchdog said.