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September 23, 2005

Taking the Measure of China's Energy Strategies

After the United States, no nation has more potential to influence the world's economy and environment than China, whose gross domestic product (GDP) quadrupled between 1980 and 2000, and whose economy is the world's second largest consumer of oil.

As it continues to grow, China is projected to increase oil consumption 50 percent or more by 2020. China's leadership is working to accomplish another doubling of its economic growth over the next 20 years — but to do so the nation will need to make energy-policy choices.

The Environmental Energy Technologies Division in the Department of Energy's Lawrence Berkeley National Laboratory is home to a group of researchers who have been studying energy use and policy in China since the 1980s. The China Energy Group has provided its expertise to Chinese government agencies for many years, helping them develop energy-efficiency standards and labeling and other policies that encourage energy efficiency.

The China Energy Group has recently produced a report, Evaluation of China's Energy Strategy Options, which lays out paths to accomplishing energy growth goals with the help of strong incentives to increase energy efficiency, as well as steps to strengthen the energy supply side, including renewable energy sources.

Thirteen of the report's authors are from Berkeley Lab and one is from the National Renewable Energy Lab. The report is being translated into Chinese and will be sent to China's State Council, as well as to Chinese government agencies and state officials involved in overseeing energy development and energy efficiency. Among those who will see it are officials in the China Certification Center for Energy Conservation Products, the Beijing Energy Efficiency Center, and China's Development Bank.

Funding for the work came from the Energy Foundation, on behalf of the China Sustainable Energy Program for the David and Lucile Packard Foundation; the Shell Foundation's Sustainable Energy Programme; and the U.S. Department of Energy. The Energy Foundation, which has strong ties to Chinese energy officials, asked the Berkeley Lab team to prepare the report.

A Strong History of Encouraging Efficiency

"Not many people realize that during the 20 years that China's economy quadrupled in size, China's energy use only doubled," says EETD's Jonathan Sinton, the report's first author. "Strong energy-efficiency policies were an important factor that helped keep the country's energy use growing at half the rate of the economy. If China is to continue to maintain its high economic growth in the next 20 years, energy efficiency will need to play a significant role."

Conservation is even more important than new supplies of energy, including renewable sources, if China is to succeed in quadrupling its economy while only doubling energy use.

The Berkeley Lab study takes as its point of departure a Chinese report, "National Energy Strategy and Policy 2020," (NESP) a public document that describes the country's goals for its energy future.

With the NESP goals as a guide, the Berkeley Lab study examines China's energy efficiency, conventional energy supply, and renewable energy options. It considers how the country might coordinate energy and environmental policies, and how China might implement various alternatives. It suggests that, as China moves toward a more sustainable energy supply mix and improved energy efficiency, the Chinese government can play roles in three areas: financing energy development, promoting sustainable energy through education, and regulating the boundaries of market activities.

"As China has transitioned to economic liberalization and decentralization of state power," Sinton notes, "the energy sector has shifted resources from centralized planning to state-owned energy companies. The shift stimulated incentives for private ownership, but it also led to a rapid growth in energy consumption."

With previous centralized policies to encourage energy efficiency weakened and energy-supply planning lacking coherence, the pace of improvement in energy efficiency slackened. By 2003, there were electricity shortages in most parts of the country. There have been power shortages in 21 of China's 34 provinces. Although China is adding over 40 billion watts of power capacity per year, this is not enough to meet future predicted energy needs.

Conserving resources as a basic national policy

Recommendations for China's energy plan, as described in the NESP, called for the government to implement resource conservation as a basic national policy. Among other things, it suggested that the government lead by example in reducing its own energy use. The NESP report recommended continued improvement in energy efficiency at the same rate as the past 20 years.

If China is to quadruple its gross domestic product while only doubling its energy use between 2000 and 2020, the ratio of growth in energy use to growth in GDP will have to reverse its current trend and remain below China's average of the past two decades.

The Berkeley Lab report found that "Between 1980 and 2000, the government added 22 administrative measures, seven standards, eight plans and 14 policies designed to promote energy saving technology. However, energy efficiency is seriously underfunded."

Investment in energy efficiency, which had been 10 to 13 percent of the investment in new energy supply during the 1980s, dropped to 7 percent during the 1990s. "In order to reach China's development goals, particularly the quadrupling of GDP while only doubling energy consumption," says the Berkeley Lab report, "investment in energy efficiency needs to increase substantially."

The report goes on to suggest steps that can be taken to increase efficiency, some of which are familiar to Americans — including efficiency programs for utilities and industry, incentives for residences and businesses to become more efficient, and education efforts.

Many policy debates in China refer to experience in other countries. It is common for people to bolster their arguments for or against a particular measure by pointing to its success or failure in other countries. Sinton points out that advice from foreign experts which is considered to be objective — as the Berkeley Lab team is perceived to be by Chinese stakeholders — is given strong weight. Foreign consultants can play important roles in introducing ideas and helping key players to spread them.

Says Sinton, "This report will, we hope, strengthen the hand of those officials, private-sector stakeholders, and policy advisors who are trying to implement practical ways to promote energy efficiency, increase investment in less-polluting energy alternatives, and beef up the sorely underfinanced and undermanned agencies of energy administration."

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