Putting policy into practice in China

This is the third of a three part series of articles on China's efforts to improve energy efficiency. It is partly a response to an article in Climate Spectator by Tristan Edis questioning the Chinese Government's likelihood of delivering on a 2015 target that would cap coal consumption. The first article in this series explained that China's efforts to improve its energy efficiency and reduce energy intensity have delivered significant results. The second provided an historical overview of China's policy approach to energy efficiency. This final article provides further detail on specific government programs and what might lie ahead.

The 1000 Enterprise Program

In 2006, the central government established the 1000 Enterprise Program, a new system for agreements between government and individual enterprises on specific enterprise energy savings targets, and monitoring and supervision of compliance with these targets.  The government requires the top 1,008 energy-using enterprises to participate in the program; together they account for about one-third of China‘s total energy use.

Under the 1000 Enterprise Program, agreements on energy conservation measures and energy savings targets are established in energy savings responsibility contracts.  Central government agencies set the objectives, targets, scope, and implementation guidelines in the contracts.  Provincial-level governments are in charge of most of the details of implementation.  Progress in each individual enterprise is evaluated annually.  Provinces and prefectures have signed energy savings responsibility contracts with thousands of additional key energy-using enterprises.

Energy Efficiency in Buildings

In 1986, China adopted the first mandatory national building energy codes; these were for new residential buildings in the cold region and in the severe-cold region.  Codes were adopted for the hot-summer-cold-winter region in 2001, the hot-summer-warm-winter region in 2003, and for new public and commercial buildings in 2005.  These codes are being progressively updated.

In recent years, China has put significant emphasis on code compliance and enforcement and there has been a sharp increase in compliance by new residential buildings.  New programs have been established for energy conservation retrofitting of existing buildings.  Progress has also been made on the reforms necessary to achieve significant energy savings in buildings served by district heating schemes in northern China.

Support for an Energy Services Industry

A new energy services industry in China was launched as part of a deliberate plan by the Chinese government with support from the World Bank.  In 1995/96 the World Bank and the government agreed to mobilize technical and financial assistance to introduce and develop energy performance contracting (EPC) in China.

Funding was provided to three new pilot Chinese energy services companies (ESCOs) that were started with assistance from three provincial-level governments.  This provided the three pilot ESCOs with a dedicated large line of credit to assist with making the EPC business model actually work.  Subsequently, private sector ESCOs were started and the industry grew rapidly so that in 2011 there were about 3,900 ESCOs in China.

In 2010, the State Council issued a policy document instructing local governments and ministries to support development of the energy services industry. The government also extended its existing financial incentives for energy conservation to cover qualified EPC projects.

Grid Company Energy Efficiency Obligation

From January 2011, the central government placed an energy efficiency obligation on State Grid and China Southern Grid, the two large government-owned combined electricity transmission, distribution and retail companies.  The obligation requires the grid companies to achieve energy savings of at least 0.3% in sales volumes and 0.3% in maximum load compared with the previous year.

The obligation also lays a foundation for the expansion of demand response programmes by requiring the installation of load monitoring equipment on 70% of the peak load, and load control equipment on 10% of the peak load, in any locality.  The energy and demand targets set by the obligation can be met with end-use energy savings from all economic sectors and from any facility.  In addition, reduction of losses in transmission and distribution networks can also be used to meet part of the targets.

Energy Efficiency and Carbon Targets

In recent years, China has set the following national energy efficiency and carbon targets.

11^th Five-Year Plan (2006-2010)

Energy intensity target – 20% reduction

Actual reduction achieved was 19.1%

12th Five-Year Plan (2011 to 2015)

Energy intensity target: 16% reduction

Carbon intensity target: 17% reduction

These are “mandatory/binding targets”

Total Annual Primary Energy Consumption Target

Capped at 4.0 billion tons of coal equivalent by 2015

This is a “non-binding” target

Medium-term Carbon Target

Carbon intensity target: 40 to 45% reduction by 2020

Setting of energy efficiency targets started in earnest in the 2004 Energy Conservation Plan and has expanded since then.  China‘s leadership continues to insist that achieving energy efficiency targets is essential.

National level targets are set by the central government, and are then subdivided and assigned with clear accountabilities for delivery to provincial-level governments and to administrators of key national programs.  Provincial-level targets are set by the State Council, based on submissions from provincial-level governments that include factors such as: the development level, industrial structure, energy intensity, total energy consumption, per capita energy consumption, and the level of energy self-supply in the province.

Energy efficiency targets for lower levels of government at the prefectural and county levels are allocated and supervised by provincial-level governments.  Targets for individual enterprises under energy savings responsibility contracts are set by the central government for large energy users and by lower levels of government for smaller users.  Performance against these targets is evaluated and enforced by officials from Energy Conservation Supervision Centres – the “energy efficiency police”.

Individual government officials may be subject to penalties and/or sanctions if energy efficiency targets in their areas of responsibility are not met.

Institutionalisation of Energy Efficiency in China

China's comprehensive energy conservation policies and programs, particularly since 2006, have achieved a high level of attention among all groups at all levels on how to achieve energy efficiency.  These activities have yielded a wealth of new ideas, development of a host of new major programs, promulgation of many new and relatively advanced regulations, and a large organizational effort with massive investments of human resources and money.

The institutional gains include:

• the new legal and regulatory foundations put in place,
• design and implementation experience in a large number of new major programs,
• capacity building at all levels, and generation of innovative new approaches.

New systems have been established to allocate and supervise mandatory energy conservation targets for key energy-using industries, and to provide technical and financial support to help these industries achieve their targets.

Large new programs have been implemented to eliminate particularly wasteful industrial plant and to assess the energy efficiency characteristics of proposed new large projects.  Enforcement of national energy efficiency codes and standards has been strengthened.  New public energy efficiency funds have been set up and energy pricing policy adjustments have been implemented.  A new energy services industry has been developed from scratch.  A new energy efficiency obligation has been placed on the two large grid companies that supply electricity to the majority of China.

The overall result has been to institutionalise energy efficiency in China, so that efficiency is now almost automatically considered when new industrial or building projects are being developed or major refurbishments are being planned.

This result has been achieved almost entirely through administrative and regulatory mechanisms which were appropriate when China's economy was entirely based on government command and control.  With the continuing move to a more market-based economy, market-based mechanisms to achieve energy savings are now being developed.

It remains to be seen whether these new mechanisms will be as effective as the existing policies and programs in maintaining the ongoing reduction in the level of energy intensity in China.

David Crossley is a Senior Advisor with the Regulatory Assistance Project. The Regulatory Assistance Project is a global, non-profit team of experts focused on the long-term economic and environmental sustainability of the power and natural gas sectors, providing assistance to government officials on a broad range of energy and environmental issues.