This article investigates the impact of China's differential electricity pricing policy on power sector CO2 emissions using the logarithmic mean divisia index method. The differential pricing policy, intended to reduce energy intensity in manufacturing, is being implemented in eight electricity-intensive industries. The study finds that, during 2004-2009, the policy accounted for a drop of roughly 115 TWh in electricity use, which amounted to a reduction of 82 million tons of CO2 emissions. The policy has been most effective in reducing electricity use in the nonferrous metal smelting and rolling industry, and least effective in the ferrous metal smelting and rolling industry. Because the differential pricing policy has had significantly different effects across industries, improving the policy's design and implementation going forward will require a more detailed understanding and analysis of how it can be better tailored to individual industries. (C) 2012 Elsevier Ltd. All rights reserved.