Policies to promote energy conservation in China

Policies to promote energy conservation in China

Policies to promote energy conservation in China Wu Zongxin and Wei Zhihong Various characteristics of the Chinese energy system have contributed to ...

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Policies to promote energy conservation in China Wu Zongxin and Wei Zhihong

Various characteristics of the Chinese energy system have contributed to inefficient energy use. In recent years, severe energy shortages in China and rising international concerns over greenhouse gas emissions have sparked greater interest in efforts to promote energy conservation and reduce China's currently high levels of energy waste. This paper briefly presents the results of a series of long-term energy and carbon emissions scenarios for China. Based on these results, this paper then identifies the following policy options and measures as the most effective means for improving the efficiency of energy use in China; re-adjusting the structure of China's economy, improving China's energy pricing system and improving the efficiencies of China's energygenerating and end-use technologies. Keywords: Energy intensity; Economic structure; China

China, the third largest energy-using nation in the world following the USA and the USSR, consumed 672 million tonnes of oil equivalent (mtoe) in 1989. China's energy system differs from those of most industrialized and major developing nations in a number of ways. First, unlike most other nations, coal constitutes China's principal energy source. Coal accounted for about 76% of the primary energy consumed during the past decade; the share of oil, natural gas and hydropower was 17%, 2% and 5% respectively of the primary energy mix over this same time period. 1 Second, China's industrial sector consumes more than 60% of the nation's final energy demand - a far larger share than in most other countries. The residential sector, the second largest sectoral energy consumer, accounts for 20% of China's energy use. 2 Third, while most industrialWu Zongxin is Deputy Director, and Wei Zhihong is

Associate Professor, Institute of Nuclear Energy Technology, Tsinghua University, Beijing, China. 934

ized nations and major developing nations have replaced their traditional energy sources with modern commercial fuels, China still consumes large quantities of biomass energy. Each year China uses about 200 mtoe of biomass energy) At present, rural households consume most of the nation's biomass energy, although rural industries also use a small share. Due to the tremendous size of the population and heavy reliance on fossil fuel resources (particularly coal), energy production and use in China generate large quantities of greenhouse gases. Corresponding to its rank among gloai energy users, China is the world's third largest carbon producer; in 1989, energy use in China led to the emission of approximately 600 million tonnes of carbon. Despite the nation's high total emissions, carbon emissions per capita in China remain far below per capita levels in industrialized nations and well below the world's average. China's large contribution to global carbon emissions has spurred great interest in global warming issues and has galvanized various efforts aimed at reducing the nation's generation of greenhouse gases. This paper draws on the results of one of the most recent efforts of this type: a techno-economic model of China's long-term energy demand and carbon emissions. Using this model, a high emissions (HE) and low emissions (LE) scenario for energy use and carbon emissions in the year 2025 were constructed based on the following major assumptions: •


China's population reached 1.14 billion in 1990 according to the fourth census. Both of the scenarios assume that the population size increases by 0.63%/year between 1990 and 2025, reaching a total of 1.42 billion. GNP per capita, which equalled about US$ 300 (19805) in 1980, rises by 6%/year between 1990 and 2000, by 4.2-4.5%/year between 2000 and 2010 and by 2.8-3.2%/year between 2010 and 2025. By 2025, GNP per capita in China equals US$ 2 000--2 200.

0301-4215/91/012934-06 © 1991 Butterworth-Heinemann Ltd

Policies to promote energy conservation in China

The nation's economic structure shifts over the observed time period. The share of the service sector in GDP increases from 26% in 1990 to 39-41% in 2025. In contrast, the agriculture sector's share decreases from 27% to 15-18% and industry's share drops from 47% to 4243%. By 2000, the unit energy consumption of China's major energy-intensive products drops to the levels witnessed in today's industri alized countries during the early 1980s. After the year 2000, the unit energy consumption contirLues to decline by l%/year. Energy efficiencies improve considerably in China's residential sector. These improvements stem largely from the increased use of modern fuels for cooking in urban households and the wider dissemination of firewood-saving stoves in rural households.

According to both scenarios, China's energy demand rises substantially by 2025. In the HE. scenario, a policy environment aimed at promoting China's economic growth leads to sharp declines in the nation's energy intensity (energy consumption per unit of GNP). These declines stem primarily from efficiency improvements and structural charges in the economy. In this scenario, energy demand rises to 2.1 billion tonnes of oil equivalent (btoe). The LE scenario examines the opportunities for further limiting the growth of China's energy consumption with the help of policy measures targeted explicitly at reducing the nation's emissions of carbon dioxide. However, because the HE scenario already incorporates substantial efficiency and structural changes, the opportunities for further improvements in the LE scenario are limited. In the LE scenario, energy demand increases to 1.8 btoe. Energy conservation measures play a crucial role in both scenarios. The scenarios assume that energy intensity declines by 2%, 0.8-1.4% and 0.9--1.0%/ year in the 1990-2000, 2000-2010 and 2010-2025 time periods respectively as a result of te:hnical progress and economic restructuring. In conlrast, if today's levels of energy intensity were maintained, China's energy demand would reach 2.8-3.1 btoe by 2025, or about 1.5 times the reference scenario levels. Such rapid energy growth in China would incur high costs and lead to serious energy supply shortages. Hence, the scenarios indicate that efforts to improve energy efficiency in China are vital not only in order to reduce emissions of greenhouse gases but also to facilitate China's own economic development process.

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E N E R G Y U T I L I Z A T I O N IN C H I N A China's limited commercial energy supply has failed to meet the growing energy needs of the nation's rapidly developing economy for many years. For the past two years, China's electricity, oil and coal supplies have fallen short by 70 TWh, 5 million tonnes and 30 million tonnes respectively. 4 Owing to these energy supply shortages, the government strictly rations energy for industrial production. If enterprises want to expand their production, managers must apply in advance to increase their energy supply quota. If they fail to act in advance, industries must pay for the negotiation costs, which are several times higher than planning prices. Even when an industry decides to purchase this more expensive rationed energy supply, the additional energy is often unavailable. The government also limits both the quantity and type of fuel used in urban households. For example, the government rations the use of coal and LPG for cooking and space heating. Only 30% of China's households have access to gas (coal gas, natural gas and/or LPG) for cooking at present. As a result, most households use coal. Despite these fuel supply constraints, China wastes large amounts of energy. China can certainly decrease its current levels of energy intensity and, in the process, greatly reduce the extent of its energy waste. Several factors have served to raise China's energy intensity beyond necessary levels. First, China's industry-heavy economic structure heightens the intensity of its energy use. Because energy intensity is generally a weighted average of all sectors, a nation's economic structure largely determines its overall energy intensity. In general, the intensity of energy use in the industrial sector surpasses intensities in the agricultural and service sectors. Within the industrial sector, the manufacturing subsector tends to be far more energyintensive than the other industrial subsectors. In China, the industrial sector currently comprises almost half of the nation's GNP, whereas as the service and agricultural sectors have relatively small shares. Within the industrial sector, manufacturing accounts for 80% of the share. In terms of US dollars, China's energy intensity equalled 2 kilograms of oil equivalent (Kgoe)/US$ in 1986. 5 Energy intensities averaged 1.48, 0.37 and 0.19 Kgoe/US$ (19805) in the industrial, service and agricultural sectors respectively in 1988.6"7 In comparison, in most industrialized nations, the service sector has the dominant share of GNP, ranging between 5560%, whereas industry's share averages between


Policies to promote energy conservation in China

Table 1. Energy requirements of energy-intensive products. Product Steel (toe/tonne) Electrolytic aluminium (toe/tonne) Synthetic ammonia (toe/tonne) Caustic soda (toe/tonne) Cement clinker (toe/tonne) Plate glass (toe/tonne) Paper (toe/tonne) Thermal power generation Kgoe/kWh

China 0.95 5.00 1.47 1.11 0.13 0.41 0.99 278

Industrialized 0.56 4.69 0.84 0.80 0.08 0.28 0.82 240

35-50%. Even in Brazil and India, the value added shares of services and industry averaged 40-50% and 30-40% respectively, s Second, China's coal-based energy mix has raised the nation's overall energy intensity. Despite coal's many disadvantages, China has continued to rely heavily on coal to produce energy. Coal is far less energy efficient than fuels such as oil and natural gas. China's 0.4 million coal boilers consume around 0.3 billion tonnes of coal each year. 9 The average efficiency of these boilers is 50-60%. In contrast, efficiencies for oil and natural gas boilers average about 80-90%. In addition, about one-fifth of China's coal supply is used for cooking and spaceheating activities. While the heat efficiency of coal stoves averages about 20-25%, that of gas stoves equals 55-60%. Coal-use also entails tremendous transportation requirements (coal accounts for 40% of the total freight volume of rail transport in China), accounting for additional energy waste. Third, the high unit energy consumption within China's industrial sector has also served to raise the nation's overal energy intensity levels. Table 1 shows how much higher the levels of energy consumption of many energy-intensive products are in China than in various industrialized nations. 1° The following factors largely account for China's high unit energy consumption: 1. Most of China's industries rely on low levels of technology. For example: about one-quarter of China's iron and steel plants rely on open-hearth furnaces, which are highly inefficient and costly relative to those used in other countries. Despite the widely recognized superiority of preliminary roasting trough technologies in the electrolytic aluminium production process, this technology comprises only one-fifth of China's total capacity v one-half in most other developing countries. In addition, while most nations increased their electrolytic aluminum production capacity to around 280 ka (1 ka = 1 000 amperes) during the 1980s, China's capacity stands at 60-80 ka, which reflects 1950s standards in today's industrialized countries. About 65% of all synthetic


ammonia production in China relies on coal. This coal-based process is 20% more energy intensive than the natural gas-based process used to produce over 95% of the total material output in the USA, the UK and Holland. In the production of caustic soda in China, the use of graphite anode requires 530 kWh more electricity per tonne of materials than does the use of electrolytic slot installed with metal anode. While the former process has been obsolete in industrialized nations for years, China still relies heavily on this process. China uses wet processes to produce half of its total cement output. This technology is 80% more energy intensive than kiln technologies. Coal-based thermal power generation in China requires about 40 Kgoe more coal per kWh produced than in industrialized nations due to China's small plant capacities and the slow steam parameters of China's generating units. 2. Industrial activities in China typically use out-ofdate production equipment. China's coal boilers operate with an average thermal efficiency of 55%. Some of the more antiquated boilers have thermal efficiencies as low as 20-30%. These figures lie well below the 80% efficiency levels found in many industrialized countries. China's 0.12 million kilns of various types have average thermal efficiences as low as 25%. With technical renovation and enhanced operation management, these efficiencies could be raised to 38%. China also relies heavily on electric furnaces in production and laboratories; the furnaces total about 20 GW of capacity and consume 29 TWh of electricity each year. The electricity intensity of China's various furnaces far surpass intensities found in the corresponding equipment in other parts of the world (eg, the energy efficiency is 42% higher for resistance furnaces, 14% higher for induction furnaces and 13% higher for arc furnaces). 3. The nation's industrial sector lacks a scale economy. China produces an enormous amount of cement - over 0.2 billion tonnes/year. Cement production accounts for between 4-5% of the nation's total energy consumption. Small enterprises, which typically use small rotary kilns that require 1.3 times more energy than medium and large kilns, produce between 70-85% of the total cement output. China's synthetic ammonia production capacity has reached 20 million tonnes/year. Small- and medium-sized plants combined account for around 82% of total production. The unit energy consumption of synthetic ammonia produced in small- and medium-sized enterprises are respectively 1.7 and 1.6 times higher than that of synthetic ammonia produced in large factories. Since the economic reforms of the late

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Policies to promote energy conservation in China

1970s, township enterprises have increased their output substantially. Between 1985 and 1989, the share of these enterprises in China's Total Product of Society (the total output value of the agriculture, industry, construction, transportation, telecommunication and commerce sectors) increased from 16.6% to 24.3%. Hence, township enterprises have come to play an important role in China's social and economic development process by yielding large amounts of industrial products and offering vast employment opportunities to China's rural labour force. However, township enterprises are characterized by their use of simple and out-of-date equipment, small productive scale and poor management. These factors all result in high energy intensity, low efficiency and serious environmental harm.

1970s, the Chinese government established the economic development goal of quadrupling GNP and doubling energy consumption by the year 2000. During the past decade of economic reform, the government adopted the following concrete energy conservation measures:

4. Energy prices are too low and do not accurately reflect production costs. Despite several adjustments over the past decade, China's energy prices remain unreasonably low. Since the early 1980s, coal prices have remained far lower than production costs, causing the coal industry to suffer great losses. Government-administered coal mines lost 3.7 billion yuan in 1988.1] Large coal mines only manage to maintain their production levels by receiving large government subsidies. The losses suffered by the coal industry hinder efforts to expand the nw:ion's energy production capacity due to lack of capital. The restricted energy supply, in turn, constrains economic and technological development. Energy expenditures make up only a very small share of the total cost of a product due to these low energy prices. For example, an analysis of China's inputoutput in 1987 ]2 reveals that in the non-energyintensive industrial subsectors, energy only accounted for 1% of the total input in the manufacture of textiles, food and electronics and 3% in the production of machinery. Even in the energyintensive industrial subsector, energy inputs accounts for a relatively small share of total i:aputs (eg, 8% in the chemical industry and 14% i~a the building materials industry). Due to energy'~,; low costs, factory managers do not view conservation as an urgent issue. As a result, a great deal of energy is wasted.

E N E R G Y CONSERVATION MEASURES AND POLICIES China's severe energy shortages and substantial energy waste have served to focus government attention on energy issues for over a decade. In the late

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• • •

• •

The establishment of energy conservation departments at various levels of government and in many large- and medium-sized enterprises. The publication by the State Council of instructions on how to save electricity, oil and coal. The surveying of energy consumption in China's major industries. The enactment of the 'Provisional Regulation for Energy Conservation Management' by the State Council in 1986. The popularization of technologies and programmes aimed at saving electricity, oil, coal and water in the industrial sector. The adoption of incentive policies which reward energy conservation and punish energy waste. The establishment of special funds and loans for energy conservation and technical renovation. The gradual readjustment of energy prices in order to enhance the role of prices as a means for achieving energy conservation. The development of a set of technical criteria for project design targeted at increasing energy conservation. The dissemination of catalogues containing information about more efficient mechanical and electrical products. The enhancement of energy standardization and monitoring. The formulation of a law of energy conservation which, when enacted, will legitimate the role of energy conservation in China's legal system.

These energy conservation measures have achieved some notable successes. Energy intensity declined by 5.6%/year between 1980 and 1988. Because of this decline, China saved the equivalent of 175 mtoe of energy over the entire period, or 22 mtoe/year. A recent estimate reveals that 50% of these savings resulted from changes in China's economic structure, 40% from the enhancement of energy management and technical renovation and 10% from importing highly energy-intensive products as opposed to producing them at home.13 China's economic development has slowed down considerably in recent years. When this short period


Policies to promote energy conservation in China

of economic retrenchment ends, however, energy consumption should continue to increase at a comparatively high rate (eg, energy demand will reach 980-1 050 mtoe by the year 2000 and 1 800-2 100 mtoe by 2025 according to the two scenarios). Despite past successes in energy conservation, the potential for even greater savings exist in the future. To further improve energy efficiency and to meet the growing energy requirements of economic development, China should consider implementing the following measures and policies: 1. The implementation of an overall energy development strategy which places equal emphasis on both the exploitation and conservation of energy and which is fully integrated into China's social and economic development plans. 2. The reduction of China's reliance on coal resources. Due to resource and financial constraints, coal will remain a major energy source in China well into the future. However, China can reduce its reliance on coal by adopting an energy strategy that focuses on actively exploiting petroleum and natural gas and developing the nation's hydro and nuclear power capabilities. 3. The restructuring of the Chinese economy. China should attempt to restructure its economy with an emphasis on raising the share of the service sector in GNP and decreasing the share of the industrial sector. The goal of such a long-term strategy would be to transform the national economy from an energy-intensive to an energy-conserving economy. The implementation of the following measures could help realize this goal: 1. The adoption of an investment policy which focuses on energy conservation. In one recent example, the Chinese government cut investments for most capital construction projects in 1988-89 due to economic stagnation, but maintained investments for energy conservation projects at their 1987 levels. The 'Provisional Regulation for Energy Conservation Management' stipulates that no less than 20% of the depreciation funds possessed by key energy-intensive sectors and energy-consuming regions should be used for funding technical renovation aimed at energy conservation. 2. The establishment of a system to increase the funding for energy conservation efforts. According to this measure, loans would be offered to companies interested in carrying out energy conservation measures with interest rates at half the typical bank level. 3. The establishment of a programme which would put aside a portion of the energy supply during the distribution process and then reallocate this portion to enterprises based on their success at implementing energy conservation measures. 938

4. The acquisition of funding through various channels to be used to support the research and development of new technologies, equipment and materials which will help promote energy efficiency. The state could fund a set of demonstrative projects to promote technical renovation for energy conservation. The government should put energy-use quotas into effect in the industrial sector and should carry out regular energy audits. 5. The increased recovery and utilization of waste heat. Estimates suggest that approximately 35 million toe could be recovered and put into use; at present, however, only about 10% of this level is being recovered. 6. The government should pay greater attention to the development of scaled economy. This process would involve stopping the construction of smallsized enterprises in the production of certain materials (including small calcium carbide, ferroalloy, blast furnace, electric furnace and refinery enterprises). Such an effort would help raise energy efficiencies, improve the quality of the products being produced and safeguard the nation's natural resources. 7. The adjustment of energy prices over time so that they can serve as a real economic lever to stimulate energy conservation. For example, raising coal prices could prevent losses in the coal industry, help coal enterprises maintain a financial balance and capable enterprises to obtain reasonable profits. Raising oil prices to the international level could offer similar benefits. 8. The substitution of commercial energy sources for biomass should be accelerated in order to improve rural household living conditions and to raise the efficiency of energy use in China's rural regions. A first step in this direction would involve raising the share of commercial energy in rural household energy consumption from 25% at present to 38% by the year 2000. Achieving this increase would entail popularizing firewood- and coal-saving stoves, developing biomass gas, planting more firewood resources and increasing the nation's small-scale hydropower capacity. 9. China must undertake a thorough education campaign to help people to understand the nation's energy supply situation and the strategical significance of energy conservation for China's future. China has already undertaken a strong campaign to improve the efficiency of its energy use. The nation's current efforts will not only achieve their direct goal of reducing the nation's energy consumption, but also indirectly will serve to reduce carbon emissions. The above-listed measures could further raise

ENERGY POLICY December 1991

Policies to promote energy conservation in China China's lo,b' energy efficiencies, decrease the nation's e n e r g y w a s t e a n d limit t h e g r o w t h o f c a r b o n e m i s sions. T h e b e n e f i t s o f p u r s u i n g this e n e r g y s t r a t e g y w o u l d b e felt b o t h o n t h e n a t i o n a l f r o n t b y b o l s t e r i n g C h i n a ' s e c o n o m i c d e v e l o p m e n t a n d in the i n l e r n a t i o n a l a r e n a by d i m i n i s h i n g C h i n a ' s c u r r e n t l y l a r g e c o n t r i b u t i o n to g l o b a l g r e e n h o u s e gases. ~State Statistical Bureau of China, A Statistical Survey of China, 1990, Press of Chinese Statistics, Beijing, 1990. 2State Statistical Bureau of China, Statistical Yearbook of China, Press of Chinese Studies, Beijing, 1990. 3State Statistical Bureau of China, Chinese Energy Statistic::, Press of Chinese Statistics, Beijing, 1989. 4Zhu Liangdong, 'Promoting energy conservation and decreasing energy consumption of the whole society by raising underslanding

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and implementing measures', Energy of China. No 2, April 1990, _~wp1-3. orld Bank, World Development Report 1988, Oxford University Press, New York, 1988. 6State Statistical Bureau of China, op cit, Ref 2. 7State Statistical Bureau of China, op cit, Ref 3. SWorld Bank, op cit, Ref 5. 9jiang Zianrong, 'Retrospection and prospection of energy conservation in China', Energy of China, No 5, October 1989, pp 37-42. l°Zhou Fengqi et al, Energy Demand Analysis of China's Sectors, Energy Press, Beijing, 1989. H'About some political suggestions on supporting the development of energy industry', Energy of China, No 1, February 1990, ~3ff 18-23. ~3ye Qing, 'Summary of the 5th official meeting of the energy conservation of the State Council', Energy of China, No 5, October 1990, pp 4-8.