I write this column on the day of the Opening Ceremony of the 2008 Olympics. I am sitting in a fifty year old apartment block. The temperature inside is not far below the 32 degrees Celsius outside. Despite the heat, I, for one, am adhering to the State Council’s recent decree that citizens should turn off their air conditioners in order to save energy; for power shortages are spreading across China, even as Beijing is guaranteed supplies for the Games. Instead I have a small electric fan behind me to keep my shirt off my back.
In front of me are copies of the China Daily newspaper for yesterday and today, 7th and 8th August. Together they carry important messages for the government’s current energy efficiency programme.
Today’s front page carries the headline "Air is fine, let the Games begin". This refers to a statement by the International Olympic Committee President, Jacques Rogge, complimenting Beijing on its success in cleaning the air in time for the Games. The roads have been cleared of traffic, factories have been closed for hundreds of kilometres around Beijing, trees and grass have been planted, and all construction work in the city has been stopped. With these environmental measures, as well as with all the planning and construction for the Games, China has shown, yet again, that it can successfully implement large projects and "campaigns". In the energy sector this is also seen in the construction of the West-to-East gas pipeline, the massive expansion of the electricity transmission grid, the current "One Thousand Enterprises Energy Conservation Programme" and the campaign to close the small-scale coal mines.
Yesterday's newspaper carries a slightly different message, and one which highlights the limitations of the "campaign" approach to policy making and implementation in the energy sector. Under the heading "New energy rule in the works", a Vice-Minister of the National Development Reform Commission, Xie Zhenhua, was deploring the persistence of local governments in ignoring central government energy policy. Instead of cutting back on energy-intensive industries and enforcing energy-efficiency standards on new projects, they were encouraging further expansion of these industries and failing to enforce standards. Indeed, only 53% of projects under construction are adhering to the energy standards in the agreed project plans. As a consequence the central government plans to issue a new regulation empowering it to halt construction on projects which do not meet the requisite energy and environmental standards.
A report released by the National Development Reform Commission on 30th July stated that the country’s energy intensity declined by 3.66% in 2007, an improvement on the 1.33% in 2006. An average reduction of 4.5% will have to be reached in each of the three years 2008 to 2010 if the overall target of reducing national energy intensity by 20% between 2006 and 2010 is to be achieved. In 2007, each Municipality and Province had been set a specific target and these targets varied from 2.0% to 5.6%, depending on the local situation. Beijing, Tianjin, Hunan, Shanghai, Chongqing, Sichuan and Jilin exceeded their targets by significant margins. Hebei, Shanxi, Guizhou, Ningxia, Hainan, Xinjiang and Inner Mongolia failed to meet their targets.
The slow rate of progress in these energy conservation efforts was a topic of discussion at two State Council meetings in July, as reported at length in the China Daily on 8th August. New measures were discussed including new fiscal and financial incentives, better labelling of appliances, and rules for public and residential buildings.
But these debates appear to skirt around what I believe to be the four main constraints to an effective and sustainable energy policy in China.
The first constraint is the continued unwillingness on the part of the government to use robust economic and financial instruments to complement the preferred administrative approach. Energy users see little economic incentive to save energy because energy prices have been tightly constrained. Those wishing to invest in new equipment or processes cannot easily gain access to finance, and tax incentives are inadequate. Though administrative instruments may be effective when applied to a relatively small number of target enterprises or institutions, the weakening of the central government's powers during and since the 1990s has rendered such instruments ineffective across the wider economy unless accompanied by suitable economic measures.
This unwillingness to raise energy prices, in part, relates to the second set of issues which are the economic and social policies which indirectly or directly affect energy consumption. In recent years China's economic and industrial policy has been devoted to promoting heavy industry, infrastructure and manufacturing. The construction boom, which has involved considerable waste, has been further encouraged by weak planning regulation, low interest rates, poor accountability of local governments and state enterprises, and straight-forward corruption. In the transport sector, the desire to promote the domestic automobile industry and car ownership seems to have prevented any possibility of integrating transport policy into the city planning process. Further, the government’s insistence on keeping tight control on end-user energy prices derives from the desire to protect poor consumers as well as constraining inflation.
The third constraint relates to the systems of political decision making and public administration in China. The formulation and implementation of effective policy relating to energy efficiency over a sustained period requires political commitment from the top leadership, pro-active participation from major actors at all levels of government and enterprise, and transparency and predictability in both the administrative and the economic policy instruments employed as well as in the legal system. Failures in the management of energy, natural resources and the environment in China can be attributed to a great extent to deficiencies in these respects. Despite the steps taken by the government in the last few years to address these issues, it is not evident that profound change has taken place.
The final constraint to sustained policy success is the apparent failure, to date, of the population at large to voluntarily adapt their behavior to support government policy on energy efficiency. Thus, the continuing use of air conditioners in the apartments around me.
Central to the outlook for China's energy sector is the government’s strategy for energy conservation and energy efficiency, and the response of local governments, of enterprises and of the population. It is already evident that the government’s current campaign is having some effect in the short-term, as inefficient plants are closed and new technologies introduced. The question is whether this trend of improvement can be sustained, or whether the country reverts to old practices and standards.
In the meantime, past practice and recent evidence suggest that improvements in energy intensity will move in waves and that these waves of increasing efficiency will advance across the country in a number of ways: from sectors of the economy which are easily regulated to those which are less easily regulated; from regions with effective government to those with less effective government; from modern areas which are de-industrialising to less advanced areas which are industrialising; and from wealthy and well educated populations which can appreciate the need for energy conservation and can afford the more expensive appliances, too poorer populations with less education.
Philip Andrews-Speed is Director of the Centre for Energy, Petroleum and Mineral Law and Policy at the University of Dundee, UK