Posts Tagged ‘Energy Dragon’

China – Asia’s Energy Dragon

July 14th, 2022

China is presently engaged in a massive effort to control its rising energy use while promoting the rapid growth of its economy. The numbers involved evidence the magnitude of the challenge: in real terms, China’s 2007 GDP was more than double that of 2000; the electric power sector added more than 90 GW of capacity in just one year; and 100 million tonnes of coal-equivalent energy savings are to be achieved by engaging nearly 1,000 of the economy’s largest energy-using enterprises. Though the Chinese leadership has demonstrated its eagerness to learn from international experience, there is simply no precedent for the proposed development path. The policies and programs that China has introduced are necessarily unique given the challenge that is confronted, and original approaches are being developed to implement these policies and programs in the country’s economy.

It is not just the scope of China’s energy efficiency endeavours that sets them apart. China’s administrative structure both enables and requires new approaches with a “Chinese character”. Within the structure of a mixed economy, referred to as “socialism with Chinese Characteristics”, the government retains considerable authority to shift the economies allocation of resources toward energy efficient industries and products. The vertical Integration of government agencies means that those in the central government that are responsible for defining energy efficiency policies are also present at the local level to monitor implementation. Pre-existing lines of communication, responsibility, and accountability can be turned toward the objectives of energy efficiency. The initial impression is that it is an ideal environment in which to make rapid progress in improving energy efficiency.

But the actual situation is much more complicated and often defies understanding by the international community. China is an economy in transition, both planned and market driven, and it is experiencing rapid development. Majority state-owned companies that respond well to government reward systems operate alongside private enterprises that respond more readily to price signals. The economies of some coastal provinces host advanced manufacturing facilities and a vibrant service sector, while the economies of interior provinces remain predominantly agrarian. Evaluations of China’s energy efficiency polices at the national level do not capture the variation found across these geographies of energy efficiency in China.

“Wealth is unevenly distributed across China’s provinces; per-capita income ranges from just CNY10,000 in Gansu to nearly CNY66,000 in Shanghai. China is the world’s largest energy producer and second-largest energy consumer (IEA 2008).”

China is home to some of the most advanced green companies – such as solar cell and wind turbine manufacturers – but on the other hand, as of 2000, coal use per unit of electricity in the power sector was more than 20 percent higher than the level in advanced economies.

The most advanced provinces of China have an average per-capita gross regional product of CNY66,000, while the figure for interior provinces is about one fifth that. In some special economic zones, industries pay market prices for energy, but in most of China retail energy prices remain subsidized. According to a recent study, one province has published building specific energy use data for 526 public buildings, but obtaining reliable energy use data for many other provinces remains difficult. To achieve the energy efficiency targets of the central government, the implementation of energy efficiency policies in China must succeed in all of these settings.

China’s growing experience in implementing energy efficiency policies holds lessons for many observers. Other economies in transition can learn from the mix of approaches that China is developing; even within China itself, one province can learn from the experiences of another. Energy businesses must understand the depth and breadth of energy efficiency programs both to gauge the impact of China’s development on international energy markets and to understand this enormous potential market for energy efficient products and services. And certainly, those who wish to understand China’s commitment to mitigating the environmental impacts of development should understand the many, varied geographies of energy efficiency in China.

China has a long history of pursuing energy efficiency and conservation. Now, having recognized the threat to energy security, sustainable economic growth, and the environment that is posed by rapid energy demand growth, China has placed energy efficiency and conservation as its highest priority energy strategy. Since issuing the Medium- and Long-term Plan for Energy Conservation in 2004, several important high-level actions has been taken to put China on a path toward less energy-intensive development. These have been greeted by observers with praise but also some skepticism.

The 11th Five-Year Plan has been the proving ground for China’s resource-conserving, environmentally friendly development strategy. China’s leadership and observers around the world are watching to see if the national energy efficiency and conservation policies can reduce the rate of energy growth of this rapidly growing industrial economy.

Previous studies, have pointed to the challenges of implementing energy policy in this economy, in which the forces of development, market reform, industrialization, urbanization and globalization have been unleashed. That is why this report has focused on implementation – to understand how the energy efficiency policies of the central government are being implemented by the provinces, local governments, sectors, and enterprises of China. Evidence of success in implementation provides an indication of the feasibility of the strategy, which dramatically impacts the world energy outlook. Moreover, successful implementation strategies might inform further efforts toward energy efficiency, both in and out of China.

To provide a better standard of living, the government aims to achieve a 2020 per-capita GDP four times that of 2000. China’s leadership has recognized two looming obstacles to achieving this goal by energy intensive development. On the one hand, an insecure supply of energy may impede growth. On the other, rapid and unregulated growth in the energy sector might provide the necessary energy supply at an environmental cost that would threaten the improved standards of living that are the ultimate objective. Thus, reducing the economy’s energy intensity by 20 percent was set as an obligatory target in the 11th Five-Year Plan (2006-2010).

“In 2007, China’s population was 1.32 billion, up from 1.27 billion in 2000.”

This important change in China’s national energy policy is implemented first by the universal adoption of supporting, binding provincial energy intensity targets. The provinces have then responded by further decomposing those targets within their jurisdiction and by the adoption of policies and measures, which respond to centrally-issued requirements or convey national regulations to their jurisdiction. Evidence gathered to date shows that all provinces have taken action toward achieving their targets and that many provinces are well on their way toward delivering on this contribution to the national objective. However, a minority of provinces are not progressing at the planned pace, and many central measures have yet to achieve universal adoption.

The simple fact that data with regard to achievement of energy efficiency and conservation objectives is available represents a level of success. It shows that progress toward achieving change is being measured, which is a key step in accountability. In fact, a clear method has been established to evaluate the performance of provinces and key energy using enterprises. Various regulations and laws, issued both by central and provincial governments, suggest that the scores from these evaluations will effectively motivate action by turning the pre-existing methods of administrative performance review, reward, and public praise to the task of spurring energy efficiency and conservation.

Recent years have featured several attempts to reorganize the national energy agencies in order to clarify and consolidate responsibility for energy policy. The National Development and Reform Commission remains the key oversight body for implementation of energy efficiency and conservation in the 11th Five-Year Plan. But aggressive energy saving goals require that implementation activities push farther and deeper into the various sectors, which requires greater collaboration among the various Ministries and departments that are responsible for those sectors. Administration in China is vertically integrated, thus achieving the participation of various ministries enables the local offices of those ministries to deliver on the EE&C measures. Facilitating this collaboration is the objective of the recently established National Energy Commission.

China is large and diverse in many measures and especially so in terms of energy efficiency. From one province to the next there are large differences in energy intensity, and within a given industry there are vast differences in efficiency between top performers and laggards. To some extent this variation has been recognized in the pursuit of the EE&C agenda. Different provinces have been assigned different targets according to their situation. Industries are being pushed to benchmark against the top-performers in order to guide their improvements. And local governments have flexibility to experiment with different approaches to meeting their assigned targets. A one-size fits all approach does not suite China’s distinct geographies of energy efficiency, and the growing diversity of approaches is promising.

Within the power sector, the heat rate of thermal power plants and transmission and distribution line losses, are focused on as key indicators of energy efficiency. China has over 6,000 thermal power units, more than three-quarters of which have a capacity of less than 100 MW. The efficiency of the small thermal units is well below that of the large, over 600 MW, high-efficiency units that China has recently been deploying. Current policy aims to improve the overall efficiency of the power sector by shutting down small and aging plants. This policy is often unpopular with the small plants’ local stakeholders, but it has nonetheless succeeded in eliminating 23.4 GW of small power plants in 2007, and the average heat rate of thermal power stations improved from 356 to 345 grams coal-equivalent per kWh.

Continued culling of the small thermal power plants is likely to produce further efficiency gains. Recent increases to investments in transmission and distribution support this consolidation of capacity and are also expected to improve grid stability and reduce line losses. While working with the national generation and grid companies to improve supply-side efficiency, the government has also encouraged local governments to develop combined heat and power, which a large project in Beijing has shown to offer very high system efficiency.

“Secondary industry (mining and quarrying, manufacturing, production and supply of electricity, water and gas, and construction) provides nearly half of China’s GDP (NBS 2008b)”.

China’s iron and steel industry is by far the largest in the world and it is responsible for 18 percent of China’s final energy demand. It is also remarkably geographically dispersed and fragmented. The industry includes small producers using outdated technologies but also massive production groups with more than 30 million tonnes of relatively modern production capacity. As part of China’s broad economic reform process, the government reduced its direct operating control in the industry. As steel producers became independent, their inefficiencies were revealed. Correcting these inefficiencies led to a period of energy intensity improvements that continued until 2003. Now, the government is utilizing its close ties with the industry to promote further efficiency improvements through more aggressive industry restructuring.

Through agreements with provinces and individual companies, China has succeeded in eliminating over 46 million tonnes of inefficient steel making capacity. New capacity is required to meet the government’s requirements as to efficiency of scale, processes, and equipment.

Furthermore, more than 250 iron and steel enterprises are engaged in the Top-1000 Energy Consuming Enterprise program, which requires them to achieve specific energy intensity reductions, under the scrutiny of the provincial governments. Technology specifications and energy saving targets are thus amply provided, but finance is a potential weak link. Industry consolidation and foreign investment may provide some of the financing for energy efficiency improvements, but additional government financial support could hasten the deployment of efficient technologies. Groups such as the Asian Energy Investment Council are playing a key role in funding for these issues.

China’s manufacturing industries play a dual role in the drive to improve energy intensity. First, they are improving the energy efficiency of the products that they supply to the Chinese market. And second, they are reducing their own energy intensity by increasing the value added of their products while improving the energy efficiency of their facilities. China’s coastal manufacturing hubs, and especially the special economic zones within those areas, are the incubators for this process. Despite the increasing privatization of businesses in these areas, the government maintains close cooperation with industry. Local officials are responding to EE&C objectives by favouring low energy intensity businesses in their jurisdiction. At the same time, manufacturers are motivated to bring efficient products to the marketplace by the central government’s promotion of those products. Continued efforts to deregulate energy prices will push manufacturers to further improve the efficiency of their operations. Success in the coastal development areas may subsequently be transferable to less-developed regions of China.

Though today the residential and commercial sectors are considerably less important than industry in China’s total energy consumption, they are areas of rapid demand growth. There is a large potential for energy efficiency in these sectors and the government has sought to improve their efficiency for many years. Recent policies have introduced higher energy reduction targets, particularly in the building sector, and expanded coverage by including more products under performance standards and labelling programs. Supervision and enforcement of these policies and programs is essential to slow the pace of energy growth in these sectors.

“China’s primary energy mix includes: coal (73 percent), oil (21 percent), gas (4 percent), hydro (3 percent), and nuclear (less than 1 percent). Large domestic coal resources and the economy’s heavy reliance on that fuel have been a source of energy security. However, since becoming a net oil importer in 1996, China’s energy imports have steadily grown”. Recent programs have provided enterprises with both incentives for producing efficient products for the residential and commercial sectors, as well as penalties for failure to comply with minimum energy performance standards.

Importantly, these provisions are backed by recent amendments to China’s Energy Conservation Law. Early evidence indicates that provincial and local governments are strengthening supervision and enforcement activities during the 11th Five-Year Plan period. The rapid expansion of building floor space and appliance usage creates a challenging environment in whi