China will impose higher power tariffs on less efficient aluminum smelters to encourage technology upgrade and save energy in an industry which uses power massively.

The government is using power tariffs as a tool to address the problems of overcapacity and falling product prices because electricity accounts for 40 percent of the operating costs in the aluminum smelting industry, according to analysts.

In a tiered pricing system to take effect next month, power prices will be flat for smelters that consume no more than 13,700 kilowatt-hours of power for each ton of aluminum produced in 2013.

Smelters that use between 13,700 and 13,800kWh will face an extra charge of 0.02 yuan (0.30 US cents) per kWh and those using above 13,800 kWh will face a surcharge of 0.08 yuan, said a joint notice by the National Development and Reform Commission and the Ministry of Industry and Information Technology.

"The purpose of a progressive tariff system is to use price leverage to accelerate the elimination of outdated aluminum capacity, reduce excessive consumption of resources and promote the structural adjustment of the industry," the notice said yesterday, adding that the practice will be extended to other industries later.

The government also barred aluminum plants that exceed the 13,700kWh level from negotiating power tariff directly with power companies. The direct negotiation system was introduced in 2009 to realize lower energy prices for big industrial users and also to break a monopoly by grid operators in pricing.

China's aluminum smelting capacity is over 30 million tons a year, and output may be below 25 million tons in 2013, according to analyst estimates.