China’s Draft Energy Law

For more than one year many of the top policy-makers, advisers and academics in China’s energy sector have been engaged in research and consultations which are intended to lead to the promulgation of China’s first Energy Law – a task which is set to take at least two more years. I watch this activity with eager anticipation tempered with a little trepidation.


The eager anticipation arises from the relief in seeing that China’s government has recognised the scale and scope of its energy challenges. Energy has risen to a position near the top of the government’s policy agenda for the first time in at least twenty years and the government is showing a high degree of determination to formulate and implement strategies to address these challenges.  In its desire to draw on a wide range of interests and opinions, the government is holding a major conference on the Energy Law in Beijing in late April 2007 which will attempt to learn from experience and expertise from around the world.


The optimist in me sees the Energy Law as an important step on the way to China producing a coherent approach to the management of its energy sector. The involvement of the wide range of domestic interests should ensure that whatever emerges can indeed be implemented. The inclusion of foreigners illustrates not only the importance of these energy challenges to China but is also implicit recognition that any energy problem of China becomes a problem for the rest of the world.


My enthusiasm is tempered by the fear that this activity directed at the drafting of the Energy Law may be irrelevant. Yes, without doubt, a coherent energy policy is needed; but an Energy Law? A risk exists that efforts to negotiate and draft a document in the form of a Law may distract from the real needs for a coherent energy policy, for an overhaul of the systems and institutions which manage the energy sector, and for the government to exert control over parts of the energy sector which should lie rightfully within its powers. 


Two further risks threaten the relevance of the Energy Law. The first is that the Law is overtaken by events and is irrelevant by the time it is promulgated. The second is that the compromises inherent to the process of law-making in China render the Energy Law empty of clear direction and initiative, but replete with mundane ambiguous rhetoric. Indeed, these risks face any government seeking to draft an Energy Law which encompasses all or most aspects of the energy sector and energy policy. For these reasons few countries have an all-embracing energy law.


Whilst acknowledging that China appears to have an approach to policy and law which is different from that taken by many Western countries, it may be useful to provide a simplistic view of the roles of policy and law in the energy sector as seen through the eyes of one westerner who himself is not a lawyer.


For me, the starting point is policy, not law. Policy is by nature long-term and less precise than law. Its primary components are a clear statement of principal objectives and of the main means or approaches to achieving these objectives. In the case of energy, policy should include key decisions on the role of markets and of government in different parts of the energy sector, and will provide a framework for drawing up specific policies and laws for separate parts of the energy sector.


As discussed before in this column, it is essential for energy policy to be very clear about how certain key policy priorities are to be ranked in order of importance, and how trade-offs are to be managed when these policy objectives are in conflict with each other. The policy will also provide the basis for long–term reform of all or parts of the energy sector, if such reform is envisaged, and will provide the rationale for relationships and links between the various energy industries, as well as between energy and the environment.


Only when such an energy policy is in place, or at least something which addresses most of these issues, should specific laws and regulations be drawn up. This is so, regardless of whether these laws and regulations seek to underpin an existing situation or whether their role is to pave the way for major reforms. Even in the case of the outright privatisation of the entire energy sector, as happened in the UK, an implicit energy policy existed – and this was that the government should leave all or nearly all of the activities in the energy sector to the private sector and to market forces. China is unlikely to take such a radical step at this stage, and therefore the need for a coherent energy policy is greater.


Energy laws and regulations usually build on energy policy. Their role is to provide a firm, transparent, predictable and detailed framework, and individual laws are generally directed at specific activities or parts of the energy sector, for example: restructuring of an industry; a change of ownership of energy companies; the operation of a market for energy products; the pricing of energy products; the management of infrastructure such as transmission networks or storage; and the exploitation of natural resources. Such laws are likely to contain a large number of rules and principles, allocating powers, rights and responsibilities to different players in the energy sector, including energy companies, energy consumers and regulatory agencies. At the same time as setting precise directions and rules, they will also provide clearly defined powers of discretion and decision-making to certain government agencies and industry regulators.


China has long-standing laws relating to electricity, coal and energy conservation, as well as a recent law for renewable energy. These laws provide only very general direction. Indeed, even as policy documents they are still rather vague. Rather than being substantial and detailed, these laws give only loose guidance for the drafters of the regulations which outline the implementation priorities and mechanisms in ore detail. Even these regulations tend to lack the detail required to provide an adequate basis for the management or reform of part of the energy sector. Too much is left to the discretion of officials and to the opportunism of energy companies. Responsibilities and liabilities are generally poorly defined.


China’s energy challenges require a great deal of thought, consultation and action from all levels of government. Existing regulations, systems and procedures need to be more rigorously enforced; for example, those governing the exploitation of natural resources. Plans for industry reform require detailed laws and regulations; for example the electrical power sector. Some industries still have no clear legal framework; for example the natural gas industry. Certain new activities in the energy sector urgently need a governing law or regulation; for example, strategic oil storage.


These tasks and other new or revised laws and regulations in the energy sector already provide the government with a heavy workload. Moreover it is self-evident that all such legislative initiatives need to be drawn up within an agreed framework of energy policy. But does this require an Energy Law? Maybe China’s political tradition means that such an Energy Law is indeed a necessary requirement for substantial progress to be made in the management of the energy sector. Maybe the ‘Energy Law’ will actually prove to be the long-waited ‘Energy Policy’. I do hope so, for otherwise it may be no more than a great distraction from the real tasks at hand.

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