China’s Sustainability Efforts Highlights 2008-2009

Energy Conservation

Amendments to China's Energy Conservation Law became effective on April 1, 2008. Originally promulgated in 1997 (with an effective date of January 1, 1998), the law was largely ignored for years. China's increasing dependence on foreign oil and its need to restrict the growth of pollution discharges, however, has prompted a recent revitalization of its energy conservation efforts.

Since energy conservation does not threaten any major entrenched interests and generally saves money, at least over time, it is a relatively easy sell. A number of programs have been instituted to increase energy efficiency including the "Top 1,000 Enterprise Energy Efficiency Action Plan" and "10 major energy-saving projects."

The Energy Conservation Law now explicitly provides (Article 6) that the State will implement a system of accountability for energy conservation targets and a system for energy evaluation whereby the fulfillment of energy conservation targets is taken as one part of the evaluation of local people's governments and their responsible persons.

In addition to making achievement of energy efficiency goals a component of the performance evaluation of local cadres, the importance of energy conservation as a national policy has also been bolstered. The original version of the Energy Conservation Law provided (Article 4) that “Energy conservation is a long-term strategy for national economic development.” The amended version ups the ante and urgency considerably (Article 4):

Energy Conservation is a basic policy of China. The State implements an energy strategy of promoting conservation and development concurrently while giving top priority to conservation.

The amended Energy Conservation Law governs the construction of commercial and residential structures-areas that were not covered in the original act which dealt primarily with industrial facilities. Now, any industrial, commercial, or residential "fixed asset investment" project of RMB500,000 or more is subject to "a system for evaluation and examination of conservation" (Article 15):

The authorities charged with project examination or approval according to law may not approve the construction of any projects not in conformity of statutory standards for energy conservation. In this case, the construction entities may not commence construction, or if the construction has been completed, it may not be put into operation or use. Specific measures for this process will be formulated by the department of the State Council in charge of energy conservation jointly with relevant departments of the State Council.

Articles 34 to 40 specifically address "Energy Conservation in the Building Sector." The Ministry of Housing and Urban-Rural Construction (or its local bureaus) is in charge of administering and supervising energy conservation regulations during the building construction phase (Article 34), while Article 35 repeats the provisions of Article 15 quoted above, and encourages periodic administrative oversight throughout the construction process:

the commencement of construction projects that are not compliant with the standards for energy construction in the building industry [shall not be approved]. If any such construction has commenced, the departments shall order the construction to be stopped and corrections to be made. If any construction has been completed, the buildings may not be sold or used.

As to energy efficiency efforts generally in China, the 11th Five Year plan (bolstered by a constant drumbeat of public pronouncements from the national leadership) sets a national goal of reducing energy use per RMB10,000 of GDP by 20% over 2005 levels by 2010. Each province and provincial-level city has been assigned an energy reduction target ranging from 30% to 12%. The combined energy efficiency improvement from 2006 to 2008 is 9.65%, leaving a 10.35% improvement to be achieved in 2009 and 2010-a tall order, but doable according to Chinese authorities.

Bottom Line: China is making slow, but steady progress on improving energy efficiency, but most gains have been achieved by plucking the low-hanging fruit. Sustained energy efficiency improvement will require wide-spread implementation of the energy efficiency regulations, particularly in the building sector.

Renewable Energy

China has created two new energy regulatory entities: a National Energy Commission (NEC) and a National Energy Administration (NEA). The NEC will integrate all energy-related institutions and functions controlled by the powerful National Development and Reform Commission (NDRC), the entire National Energy Leading Group (NELG), and the nuclear power management office of the Commission of Science, Technology and Industry for National Defense. The government will disband the NELG - which was set up in 2005 to integrate energy sector planning - and its executive organs.

By forming a national energy commission, a single government department would assume responsibility for uniform enactment of energy policies and programs. According to an explanation given by the State Council's secretary-general at a National People’s Congress hearing, the new national energy commission would be responsible for studying and drafting an energy development strategy. It would also consider energy security and development issue.

The second new energy entity is the NEA which is charged with carrying out day-to-day energy policy implementation. It has approximately 100 employees and consists of nine departments in charge of energy policy, project planning and approval, electricity, coal, oil, nuclear power and alternative resources and international cooperation. It does not, however, control such important issues as "energy conservation, oil reserves and energy price management. It did not obtain any authority over the three state oil and gas monopolies and other government-controlled energy and electricity conglomerates. It is still under the jurisdiction of the NDRC.

Zhang Guobao (张国宝), an NDRC vice minister, was appointed to head the NEB. Zhang's portfolio at the NDRC included general energy issues in the past, and his most recent portfolio covered nuclear power sector in particular. Zhang has signaled that his energy priorities will include:

  • Rapid development of nuclear power with a goal of 5% of China's power generated by nukes in 2020.
  • Encouragement of wind power so that China becomes the largest wind power generator within the next 5 years. The Inner Mongolia Autonomous Region, Gansu and Jiangsu provinces will be the site of the country's first wind power clusters, designed with an electrical capacity of 10 million kW each. This is compared with about 18 million kW from the Three Gorges electrical power generators in the Yangtze River.
  • Active development of hydropower.

The new Energy Conservation Law amendments also encourage the use of renewable energy. Article 40 provides

The State encourages to use such energy-saving building materials and equipment as new-type walling materials in new construction and energy conservation reform of existing buildings, and to install and use systems for utilization of such renewable energy as solar energy.

Article 17 of Renewable Energy Law also encourages solar to be incorporated in the design and construction of new buildings and, where "quality and safety" permit, in existing buildings:

Construction authorities of the State Council shall cooperate with relevant authorities of the State Council in establishing technical economic policies and technical standards with regard to the combination of solar energy utilization system and construction.

Real estate development enterprises shall, on the basis of the technical standards in the previous paragraph, provide necessary conditions for the utilization of solar energy in the design and construction of buildings.

For buildings already built, residents may, on the condition that its quality and safety is not affected, install solar energy utilization system that conform to technical standards and product standards, unless agreement has been otherwise reached between relevant parties.

Contrary to some reports, China’s economic stimulus package contains no money for renewable energy, although there are rumors that a second stimulus package will provide funds for this sector. China continues, however, to announce measures designed to spur development of the renewable energy sector.

For instance, the Ministry of Finance and Ministry of Housing and Urban-Rural Development sent details on a stimulus plan for building-integrated photovoltaic (BIPV) applications to local subsidiaries on April 16. Applications will be accepted until May 15 for the initial round of subsidies: RMB 20/watt for construction material- and component-based BIPV projects, and RMB 15/watt for rooftop- and wall-based projects.

Eligible projects must: begin construction in 2009 and finish within two years; have completed contracts with solar product manufacturers; detail on-grid connective procedures; have installed capacity of 50KW or more; and establish monitoring and long-distance help systems for capacity, electricity and environmental data. Monosilicon PV products must exceed conversion efficiency of 16%, while polysilicon and amorphous silicon products must surpass 14% and 6%, respectively. The government will give priority to projects that: involve solar modules; are on-grid; or are located in schools, hospitals, or government buildings or regions with preferential policies. Previously completed or subsidized projects are not eligible for the project.

Other solar incentives include:

  • Qinghai province plans to invest a total of RMB 104.3 billion from now until 2020 in photovoltaic construction. Major construction will include on-grid solar power stations, as well as solar water heaters, kitchen stoves and greenhouses. Qinghai intends to reach photovoltaic capacity of 20MW in 2010, 660MW in 2015 and 2GW in 2020.
  • Kunming, Yunnan’s provincial capital, aims to install solar heating systems in more than 95% of its newly established buildings and raise the local solar industry’s total output value to over RMB 20 billion by 2015. The city also plans to build a three-square-kilometer solar industry park in its Gaoxin District, said the report.
  • Jiangxi province is inviting bids for the construction of a 300MW photovoltaic power station in Xinyu and a 10MW in station Nanchang.
  • Hainan will provide BIPV subsidies of roughly RMB 20/watt for in 2009.

Wind projects also receive certain incentives such as lower VAT rates, and domestic turbine manufactures are aided by a 70% domestic content rule for Chinese wind projects.

Despite these incentives, China's energy growth is still primarily (~70%) fired by coal. Although there appears to be a slight shift from coal in the energy project investment numbers for 2008 statistics released by the State Electricity Council (SEC) last Wednesday reveal that "the weight of renewable energy in China's total installed electric power capacity and total electricity production decreased by 1.37 and 1.23 percentage points respectively in the past two years."

Bottom Line: Energy policy in China is still being held hostage to political infighting. Renewable energy will continue to develop, but whether it can develop at the pace it needs to move China off its 70% coal habit remains to be seen. New incentives and a other regulatory changes (making it easier for the grid to recover the higher cost of renewable energy) are needed give the sector a real boost.

Circular Economy Law

China’s new Circular Economy Law (passed in 2008 and effective January 1, 2009) is a curious blend of the usual general policy pronouncements found in Chinese legislation and some unusually specific requirements. There is little in the law, however, that is new. Most of its provisions are already on the books in China in either previously enacted laws (most notably the Clean Production Law, the Energy Conservation Law, and the Water Law) or regulations. The law does at least raise the profile of the "circular economy" principles of reduce, recycle, and reuse, and for that reason alone constitutes an important addition to China's environmental law Pantheon.

The law is "formulated for the purposes of promoting the development of the circular economy, improving resource utilization efficiency, protecting and improving the environment and realizing sustainable development" (Article 1). The "circular economy" is defined as one which adopts "reduction, reuse and recycling concepts in the process of production, circulation and consumption" (Article 2), and it is to "be propelled by the government, led by the market, effected by enterprises and participated in by the public" (Article 3).

Regional governments are to establish a "target responsibility" for the development of a "circular economy" (Article 8), which essentially means they should assign targets to subordinate departments to meet in order to fulfill their responsibilities under the law. National and sub-national Circular Economy Development Plans are to be developed which set "objectives, scope of application, major contents, major tasks and safeguard measures" to achieve a circular economy, and shall set such indicators regarding "resource output capacity, waste reutilization rate and waste recycling rate, etc." (Article 12). Regional governments are assigned certain targets (presumably as part of the target responsibility system) which must be met for "major indicators," specifically "discharge of major pollutants, the land used for construction and the total volume of water consumption." The regions industrial structure and construction project approval criteria should be geared toward the achievement of the assigned targets (Article 13). Local officials will be evaluated based on whether they hit their assigned "major indicator" targets. None of these “target responsibilities” have been formulated yet.

"Enterprises and public institutions shall set up management systems and take measures to reduce the consumption of resources, reduce the production and discharge of wastes and improve the reutilization and recycling level of wastes" (Article 9).

A Catalogue of Products and Packages subject to Compulsory Recycling will be developed. Producers of products listed in the catalogue are responsible for recycling discarded products or packaging or, if recycling is technically or economically impossible, shall render them harmless. A producer can contractually delegate these responsibilities to its distributors or "other organizations" (presumably third party recycling operations); it is unclear whether in such instances the product or packaging producer remains primarily liable if recycling does not occur (Article 15). This Catalogue hasn’t been developed yet.

Bottom line: the law is well-intentioned, but has yet to be implemented in any serious fashion. Several circular economy pilot projects will be carried out at some industrial parks this year. It will be several more years before all the regulations are in place to actually implement the law.

Climate Change

The number one energy and environmental issue in China in 2009 will be the international climate change negotiations. The current schedule calls for the an agreement to be signed in Copenhagen in December 2009 that will set in place a framework for post-2012 climate change actions. The key players in achieving an agreement at Copenhagen are the US and China. There have been volumes written on this topic, but the bottom line is: China’s official position is that it refuses to accept any binding carbon reduction limits, and wants Greenhouse Gas (GHG) control technology from “developed” nations for free, as well as a huge cash payments from those nations to help it mitigate the growth (not reduce) its GHG.

Chinese officials involved in the climate change negotiations have dropped some hints recently that China may be amenable to some form of commitment which incorporates its domestic energy efficiency targets, but at best these measures will only slow the growth of China’s carbon emissions, not reduce them.

Recently there were reports that China is considering a tax on carbon emissions, but these reports did not come from the agencies involved in climate change negotiations, and how these taxes would be imposed is unclear. It appears unlikely that such taxes will be imposed anytime soon.

Plastic Bag Ban

The State Council issued a Circular on December 31, 2007 Restricting the Production, Sale and Use of Plastic Shopping Bags. The Circular imposes six specific mandates:

1. The production, sale and use of ultra-thin (less than 0.025mm in thickness) is prohibited as of June 1, 2008.

2. Retailers most charge customers a separate fee for the use of qualified plastic bags. All "retail stores," defined to include "supermarkets, department stores and markets," as of June 1, 2008 must "clearly mark the price of plastic shopping bags and charge a levy on plastic shopping bags, and must not provide free plastic shopping bags nor impliedly include the fee for plastic shopping bags into the total price of goods sold."

3. Systems to ensure that prohibited plastic bags do not get produced or sold must be enhanced

4. The recycling level of waste plastic must be increased.

5. The harmful nature of "white pollution" shall be publicized and use of alternative packaging options encouraged. The use of cloth bags and baskets and dual use of durable shopping bags are to be encouraged, and enterprises should "simplify product packaging and proactively use green and environment-friendly packaging."

6. Local governments are responsible for restricting the production, sale and use of plastic shopping bags.

The regulation does not apply to plastic packaging for the hygiene and safety of products such as fresh food, cooked food, "frozen food".

Commerce Ministry officials have said that "3% to 5% of the weight of landfills was made up of plastic waste from households, the majority of which was plastic bags." There is disagreement as to how many plastic bags are used in China on a daily basis. Some sources say 3 billion, others say 1 billion, although they all reference the same source for the figures-the China Plastics Processing Industry Association. Whatever the number, "experts" predict that that number will be reduced by two thirds once the Circular takes effect.

Several articles have reported that retailers can be fined "up to 10,000 yuan (US$1,400) for providing free plastic bags to shoppers" and "up to 20,000 yuan if they fail to buy bags from legally incorporated producers, wholesalers or importers, or if they fail to obtain related certificates and record relevant data." These penalties are not in the Circular and I am not sure where they come from. They may be contained in China's Product Quality Law which is referenced in the Circular.

There has not been unanimous support for the new policy. "A plastic bag is a tiny item but one that's closely associated with people's everyday lives," said Yang Huidi, chief editor at China Plastic, a trade magazine. "This is a litmus test of the government's problem-solving skills as it jumps on the bandwagon without thinking things through. They would have done better to do nothing." For one thing, banning outright all bags thinner than 25/1000th of a millimeter, rather than requiring manufacturers to meet strength tests, could prompt China to use more plastic. "This policy is nonsense," said Tang Saizhen, secretary-general of the China Light Industry Information Center. "If I buy one steamed bun and use a thicker bag, it's an even bigger waste." The point of the regulation outlawing the thinner bags was they tended to only be used once. The hope was the thicker plastic bags would be reused. I haven’t seen any studies as to whether this is in fact the case.

The issue of whether plastic or paper bags are better for the environment are not an issue in China, since paper bags have not been used to replace plastic at most grocery and convenience stores.

Bottom Line: This has generally been a success story in China if for no other reason than that it has pushed environmental consciousness down to all levels of society and made people think about how their individual actions can effect the environment.

For more information, feel free to contact:

Charlie McElwee
JUCCCE Strategic Advisor

Squire, Sanders & Dempsey L.L.P.
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Shanghai 200040
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