An million demand-side management project centered in Jiangsu, China, is spreading throughout the country.
Now the government has announced a dramatic goal: to cut energy intensity between 2006 and 2010 by 20 percent, or 4.36 percent each year—all the while quadrupling economic growth. It will be a daunting task, though not as daunting as it would be in a less controlled economy. Although there is considerable direct foreign investment into China, the government itself owns shares in many companies (though many others are state-owned). The government has announced rewards for companies that meet energy-efficiency targets, and China is now considering adding a surcharge to power rates with the aim of using new funds for energy savings activities.
The government’s 17th Party Congress, held in October, brought forth even more drastic measures: the closure of cement and steel works in major towns to cut energy use. Real data have shown, however, that despite its efforts, China missed its target in 2006 and has thus far reduced its energy intensity by only 1.3 percent. However, new estimates show that China has reduced its energy intensity by a more impressive three percent in the first three quarters of 2007, according to the NRDC.
Even more gains are necessary to meet the goal. One incentive, adopted in California, creates both rewards and penalties for utilities at the same time. If they exceed energy saving goals, they share a small part (up to an annual total of $150 million) of the net benefits the program provides to users. If they fail to reach targets, they are penalized by the same maximum amount. Effectively, the new initiative disconnects the profit motive from the electricity sales of utilities.
While this would be an excellent mechanism to use in China, it would probably be one of the trickiest, because China’s economic and political structure is so different from that of the U.S. "All utilities in China are government-owned and thus their profits will be part of government revenue," says Bo Shen, who is also working on the NRDC program. However, the possibility exists that the government could reduce the power station’s revenue commitment to the government, with the balance used to fund efficiency.
Other approaches are more immediately practical under current conditions. "Paying for efficiency incentives through utility revenues is the most sustainable option," says Barbara Finamore. A surcharge that cannot be passed further down the chain is added to the utility bill and paid by everyone, so that the base unit price increases, although total electricity bills usually go down. "The thinking behind this is that energy efficiency will help improve the environment and thus is treated as a public benefit that everyone will enjoy," says Bo Shen. Alternatively, a special surcharge is imposed on customers and used exclusively for energy efficiency. While this is possible in the U.S., a surcharge in China cannot be added without central government approval.
Another approach is to create a savings fund. The Chinese Ministry of Finance (MOF) has allocated $900 million for energy-efficiency support in 2007 alone, but this subsidy-based approach is be
ing replaced by an incentive-based one, in which financial rewards are linked to the level of savings made by a company.
"Industrial facilities have their own personal programs and targets, but they’re not succeeding because of structural problems in the system," says Finamore. "They don’t have enough qualified people to do audits and it costs them a lot, even though it saves even more. It’s hard for them to justify the expenditure. Our program wants to cut right through that." The NRDC program, which could last through to 2010, will also produce budgets, carry out energy audits, train local executives, provide information about new technologies, and advocate related policy changes.
Numerous market barriers are in the way, but Majersik is positive. "The Chinese officials recognize that it’s in their interest. They’re even paying to send their own delegates to U.S. forums. It’s an indication of their seriousness. And we’re serious, too, because our climate change fight rises or falls on whether we can make China more efficient."
DR. MARIANNE OSTERKORN is the International Director of the Renewable Energy and Energy-Efficiency Partnership.
CONTACT: Renewable Energy and Energy-Efficiency Partnership