Energy Efficiency in China: Glorious History, Uncertain Future
Mark D. LevineLawrence Berkeley National
American Physical Society Energy WorkshopBerkeley, CA
March 1, 2008
Part I: Glorious HistoryIn three Acts
Part II: Energy Crisis in China: 2001 to present
repeat of much earlier “inglorious history”??
Part III: The Future:What might happen? What is to be done to end the
crisis?
3
Executive Summary (Part I)
• Things were bad in energy (for 3 decades)• Deng Xiaoping came to power
—A group of academics suggested a new approach to energy
—Deng listened!
• Things were much better (for 2 decades)• The market became king
—Energy went off track again
• There are solutions—The Chinese government and Communist party are
responding, somewhat in the manner of Deng
4
Part I: China’s Energy History in Three Acts
“Soviet Style” Energy Policy (1949-
1980)
Deng’s Initial Reforms (1981-1992)
Transition Period (1993 to 2001)
5
“Soviet Style” Energy Policy (1949-1979)
• Single objective was rapid energy supply growth
• Energy prices greatly subsidized
• Central allocation system provided energy primarily to heavy industry
• No attention to environment
• Result: one of the world’s least efficient (and fastest growing) energy systems
Energy Output and GDP, 1950-1980
Source: NBS
0
100
200
300
400
500
600
700
1950 1955 1960 1965 1970 1975 1980
Mt coal equivalent
0
100
200
300
400
500
600
700
Hydroelectricity
Natural Gas
Oil
Coal
GDP
GDP (billion 1980 RMB)
6
Deng’s Initial Reforms (1980-1992)
• Key meetings among more than 100 academic energy experts in 1979 and 1980 stated:— China energy policy in crisis
— need for radical reform
— major changes identified: (1) energy price reform, and
(2) serious attention to energy efficiency
• Government quickly implemented reforms in Sixth Five-Year Plan (1981-1985)
0
0.25
0.5
0.75
1950 1955 1960 1965 1970 1975 1980 1985 1990
tce/thousand 1995 yuan GDP
Energy Intensity of China's Economy, 1952-1992
Source: NBS
7
Energy-conservation policies & measures in Phase II
• Energy Management—factory energy consumption
quotas—factory energy conservation
monitoring—efficient technology promotion—close inefficient facilities—controls on oil use
• Financial Incentives—low interest rates for efficiency
project loans—reduced taxes on efficient
product purchases —incentives to develop new
efficient products—monetary awards to efficient
enterprises
• R D & D– funded strategic technology
development
– funded demonstration projects
• Information Services– national information network
– national, local, and sectoral efficiency technical service centers
• Education & Training– national, local, and sectoral
efficiency training centers
– Energy Conservation Week
– school curricula
8
Energy efficiency investment is stable, but declining as share of total investment
0
100
200
300
1981 1986 1991 1996
Investment (billion 1995 yuan)
0%
5%
10%
15%
Share of Total Investment
Energy Supply Investment
Energy Efficiency Investment
Efficiency Share of Total Energy Investment
Estimated Efficiency Share, 1996-1998
Energy Supply and Energy Efficiency Investment, 1981-1998
N.B. Only partial data on energy efficiency investments after 1995 are available. These partial data informed the estimates presented here of efficiency's shares of total energy sector investment for 1996-1998. All investment data are for state-owned units only.
Source: NBS, SPC
9
0
5001,000
1,5002,000
2,5003,000
3,5004,000
4,500
1952 1957 1962 1967 1972 1977 1982 1987 1992 1997
Primary Energy Use (Mtce)
Consumption at 1977 Intensity, Reported GDP
Consumption at 1977 Intensity, Adjusted GDP
Actual Consumption
Investment in energy efficiency and other policies greatly reduced China’s energy
intensity (1980-2000)
Energy Use, Actual and Projected at 1977 Intensity, 1952-1999
Source: NBS
10
Transition Period (1993 to 2001) and After
Rapid movement towards market-based system…
—Dramatic energy price reforms (raised all energy prices to consumers)
—Enterprise reforms increased price sensitivity
…but past successes in improving energy efficiency were based on mechanisms that were disappearing…
—Elimination of energy quotas
—Low incentives for monitoring in industry
—Difficulty in continuing energy efficiency loan subsidies
—New tax code (1994) eliminated tax breaks for efficiency
11
Take-off of consumer goods highlights the need for efficiency standards
0
5
10
15
1980 1985 1990 1995
Output (millions)
Air Conditioners
Refrigerators
Motor Vehicles
Production of Consumer Durables, 1980-1999
Source: NBS
13
Executive Summary (Part II)
• China faces a serious new energy crisis — Most Chinese see the energy shortage as the crisis— The real crisis is in energy policy (just as in 1979)
• A key issue: how can investment be attracted to energy efficiency and how can government policy spur such investment?
• A failure to rein in energy demand growth will have serious impacts— The environmental consequences of energy policy
failure are truly frightening— Rapid energy growth portends economic consequences
of equal concern
14
Current Energy Crisis
• Energy demand growing very, very fast• In 2004, widespread power shortage (24 of 31
provinces)• Soaring coal prices• Transportation bottlenecks for coal• Significant economic losses• “Surge” in oil imports especially as oil is used in
place of coal
15
Since 2001, energy use has grown much faster than GDP, reversing patterns from 1980 to 2000
90
100
110
120
130
140
150
160
170
2001 2002 2003 2004 2005
2001 = 100GDP
Actual Energy
Energy Target
Source: NBS, China Statistical Yearbook, various years; China Statistical Abstract 2005; growth estimates extrapolated from mid-year production data for 2005.
Annual energy-related carbon dioxide emissions, 1980-2006
-
1,000
2,000
3,000
4,000
5,000
6,000
1980 1985 1990 1995 2000 2005million tonnes carbon dioxide
USA
PRC
Source: US annual emissions amounts reported by US EIA in the 2006 Annual Energy Review and 2007 Flash Estimate; China emissions are derived from revised total energy consumption data published in the 2007 China Statistical Yearbook using revised 1996 IPCC carbon emission coefficients by LBNL.
Annual energy-related carbon emissions, 1950-2006
-
5,000
10,000
15,000
20,000
25,000
30,000
1950 1960 1970 1980 1990 2000
million tons carbon dioxide
other global emissions
USA
PRC
Source: Historical 1950-2003 US and global emissions data from Oak Ridge National Laboratory, Carbon Dioxide Information Analysis Center; 2004-2006 US data from BP via Global Carbon Project. China 1950-2006 emissions data are derived from revised total energy consumption data published in the 2007 China Statistical Yearbook using revised 1996 IPCC carbon coefficients by LBNL.
Figure 6: Historical and Forecast China Carbon Emissions (WEO), 1990-2030
-
2,000
4,000
6,000
8,000
10,000
12,000
1990 2000 2010 2020 2030
Mt CO2
WEO 1994
WEO 1995
WEO 1996
WEO 1998
WEO 2000
WEO 2002
WEO 2004
WEO 2006
WEO 2007
Historical (LBNL)
WEO 2007
WEO 2002
WEO 1998
Figure 8: Historical and Forecast China Carbon Emissions (8, 9, 10), 1990-2030
0
3,000
6,000
9,000
1990 2000 2010 2020 2030
Mt CO2 ERI (2005)
RNECSPC (2004)
Tsinghua (1999)
Historical (LBNL)
Figure 3: Global, Chinese, and American Per-capita Energy-Related CO2 Emissions, 1950-2004
0
5
10
15
20
25
1950 1956 1962 1968 1974 1980 1986 1992 1998 2004
tonnes CO2/person
USA
global average
PRC
Source: China emissions are derived from revised total energy consumption data published in the 2007 China Statistical Yearbook using revised 1996 IPCC carbon emission coefficients by LBNL; China population data from NBS and US Census (for 1950-51); global and American emissions data from Oak Ridge National Laboratory, Carbon Dioxide Information Analysis Center; global and American population data from US Census.
Cumulative Energy-Related CO2 Emissions, 1950-2006
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
19501955196019651970 197519801985199019952000 2005
Mt CO2
PRC
USA
Source: Historical 1800-1980 US emissions data from Oak Ridge National Laboratory, Carbon Dioxide Information Analysis Center; 1980-2006 US data from US EIA 2006 AER. China 1902-1949 emissions data from Oak Ridge National Laboratory, Carbon Dioxide Information Analysis Center; 1950-2006 emissions data are derived from revised total energy consumption data published in the 2007 China Statistical Yearbook using revised 1996 IPCC carbon coefficients by LBNL. Pre-1902 China emissions data unavailable, but generally considered to be negligible.
22
Growth in heavy industry has been extraordinary in past five years:
industrial efficiency especially critical
• Consumes >60% of energy
• Technical complexity: many different types of processes
• Extraordinary growth in past five years
• Existence of many old, legacy industrial facilities
_______________________________________________________________
23
Cement Production Worldwide: 2004
41%
Italy 2%
Brazil 2%
Spain 2%
Japan 3%
South Korea 2%
United States 5%(includes Puerto Rico)
India 6%
Sources: U.S. Geological Survey, 2005. Mineral Commodity Summaries: Cement; Cui, Y., 2006
China 44 %
Rest of World 32%
US: 99 Mt (2004)
Russia 2%
24
China is the world leader in the production of many industrial commodities
China's Crude Steel Production1990-2004
0
50
100
150
200
250
300
1990 1992 1994 1996 1998 2000 2002 2004
Million Metric Tons
Recycled Steel (Electric Arc Furnace)Primary Steel (Open Hearth Furnace)Primary Steel (Basic Oxygen Furnace)
China's Cement Production1990-2004
0
200
400
600
800
1000
1200
1990 1992 1994 1996 1998 2000 2002 2004
Million Metric Tons
Rotary Kilns
Shaft Kilns
25
Industry Major DriversIndustry Production Revision (million ton) 2000 2005 2010
Glass previous 9.1 9.6 10.1Glass revised 9.1 17.5 27.5Ethylene previous 4.7 7.7 12.0Ethylene revised 4.7 7.6 13.0Ammonia previous 33.6 36.0 38.0Ammonia revised 33.6 46.0 38.0Paper previous 30.5 40.0 50.0Paper revised 30.5 52.6 68.0Cement previous 597.0 680.0 790.7Cement revised 597.0 1050.0 1310.0Aluminium previous 3.0 4.0 4.6Aluminium revised 3.0 7.7 11.2Iron and Steel previous 128.5 250.0 300.0Iron and Steel revised 128.5 349.4 440.0
26
Energy intensities within industrial sub-sectors are actually declining
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
1995 1996 1997 1998 1999 2000 2001 2002 2003
kgce/RMB (2000)
smelting & rolling of ferrous metals
non-metal min prod petroleum, coke, & nuke
raw chemicals & ch prsmelt & roll n-f m
paper coal
electricity
textiles
28
Executive Summary (Part III)
• Things could get worse —Very unlikely, but they could continue on the
present path for some time
• Things could get better—There is some chance!!
29
China’s National Energy Strategy
“Energy development and efficiency have equal role (emphasis on efficiency)”
• But supply investment at RMB 424 billion ($ 50B) while energy conservation investment at RMB 23 billion ($3B) in 2003 !!
30
Energy Investment
• Energy supply investment is ~18 times energy efficiency
investment
• Energy efficiency investment needs to increase from
$3B to $25B per year (avg over next decade)
_______________________________________________________________
China’s government now recognizes the urgency of energy efficiency
• The reform period (1980-2000) showed that energy efficiency was essential to achieve economic goals (Deng Xiaoping)
• The current leadership recognizes the same imperative (Plenary of the Communist Party, Nov, 2005)—Premier Wen Jiabao:
“Energy use per unit of GDP must be reduced by 20% from 2005 to 2010”
• Statement reiterated by the National Peoples Congress (March 2006)
• National Development and Reform Commission creating and re-creating aggressive energy efficiency policies and programs
32
The loss of control led to imposition of new 2010 target of reducing energy/GDP intensity by 20%
0
10
20
30
40
50
2000 2005 2010 2015 2020
Year
Energy Consumed
(million boe/d)
0
10
20
30
40
50
GDP
(trillion 2000 RMB)
actual energy
energy target
actual GDP
GDP target
reference scenario
GDP axis
energy axis
new 2010 target
33
Is the 20% intensity reduction possible?
2,000
2,500
3,000
3,500
2005 2006 2007 2008 2009 2010
Mtce
GDP elasticity=1
LBNL BPS baseline
Aggressive Industrial Efficiency
Aggressive Industrial and ApplianceEfficiency
Aggressive Industrial, Appliance andT&D Efficiency
AGR 5.0%
AGR 3.5%
7.3%
AGR 3.5%
AGR 2.8%(2010 target)
34
2010 Energy Consumption Senarios
1
1.1
1.2
1.3
1.4
1.5
GDPelasticity=1
LBNL BAUbaseline
AggressiveIndustrialEff iciency
+AggressiveApplianceEfficiency
+AggressiveT&D andThermal
Eff iciency
+closingineff icient
plants
EI target
2005=1
AGR 7.5%
AGR 5%AGR 4.3%
AGR 4.1%AGR 3.9%
AGR 3.55%AGR 2.8%
Is 20% energy intensity reduction by 2010 possible?
-11%
-17%
35
Policies• Microeconomic policies (targeting energy efficiency)
— targets for energy efficiency for industries, with strong incentives (carrots) and penalties (sticks)
• Key supporting policies: information and technical guidance; strengthening local energy conservation service provider network; and subsidies directly connected to achieving industrial targets
— enhanced enforcement of tighter building energy standards,
— tighten and assure compliance with appliance efficiency standards,
— strict enforcement and strengthening of auto fuel economy standards,
— initiation of demand-side management programs of scale in several electric utilities, and
— investment in mass transit alternatives.
36
Policies (cont)• Macroeconomic Policies
— Revisiting of energy prices to better reflect costs and taxes to better achieve social/political objectives
— Re-creation of successful approach (during 1980s and part of 1990s) of subsidizing investments in energy efficiency
— Policies that result in additional closings of energy inefficient factories
— We also recommend exploration of ways in which macroeconomic policies can lead to structural changes favoring lower energy use.
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