IEEJ: October 2005

Problems and Countermeasures on Energy-saving in China
Zhu Xingshan
Researcher of PetroChina Planning Department

CURRICULUM VITAE
ZHU Xingshan, born in July, 1963; got Doctor’s Degree in China University of Mining andTechnology in 1993; is member of China Energy Research Society and International
Association for Energy Economics; work in Planning Department, petroChina, Company
Limited as a Prime Engineer now; worked in Energy Conservation Information
Dissemination Center of National Development & Reforming Commission as the Assistant
Director General, Ya’an City, Sichuan Province as the Assistant mayor, Energy ResearchInstitute of State Development Planning Commission as the Professor, Deputy Director of
Research Center for Energy Economics and Development Strategy, Southwest Petroleum
Institute as an associate professor, etc.. He has done many researches on energy economics,
energy policy and strategy, oil price, gas market, energy efficiency financing, internationalenergy cooperation and climate change.

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IEEJ: October 2005
Since 2000, energy-supply shortage has recurred in China. Up to this year, energy supply is
still faced with a severe situation. Building a well-off society in an all round way impels more andmore rural population into the city. It is predicted that till 2020, 50-58% of the population will livein cities and towns with modern economy, cultural life and energy services. The urbanization will
accelerate the development of service industry and transportation industry. The developing speedof the tertiary industry will exceed that of the second industry, while the relevant total floor area
and infrastructure will double. The average living area of urban and rural residents will be further
improved. Heating, air-conditioning and hot water will be popularized, which will make life more
comfortable. With an increasing income, more and more families begin to own a car. The rural
residents will make more use of commodity resources, thus the growth of the energy demand in
the next twenty years is inevitable. With a limited energy supply capacity, energy saving becomes
an important means to ease the conflict between energy supply and energy demand in China.
Whether we can set sound energy saving objectives and make effective energy saving policy will
influence the realization of quadrupling the GDP.

1 Energy Demand for Building a Well-off Society in an All Round Way
1.1 The Different Predictions of Energy Demand in China in 2020
Putting forward the goal of building a well-off society in an all round way, China has aroused
an attention-catching problem, that is, how much is the energy demand in China in 2020 in orderto realize the goal of quadrupling GDP? Whether the energy supply in the future can support thegoal?
Currently, the energy consumption per capita in the United States is about 8 tons of oil
equivalent (converted to 11.4 tons of coal equivalent); the energy consumption per capita of themember country of OECD is about 4.7 tons of oil equivalent (converted to 6.7 tons of coalequivalent); even in Japan who has the highest energy efficiency, the energy consumption percapita is as high as 4 tons of oil equivalent (converted to 5.7 tons of coal equivalent). At present,
Beijing and Shanghai have an average GDP of more than 3000 U.S. dollars, taking the lead in
realizing a well-off society in an all around way, with a energy consumption per capita over 4 tonsof coal equivalent. If the overall level of the Chinese urban residents reaches that of Beijing or
Shanghai in 20 years later, if the energy using level in rural areas is improved, the energy demandin China will exceed 40 tons of coal equivalent at that time.
Some foreign and domestic organizations have also analyzed and predicted on the energy
demand in China in 2020 (refer to Table 1). Make a comprehensive view of these predictions; theforeign organizations are conservative about the future economic growth of China and pessimistic
about the energy using efficiency of China, therefore, they have a higher estimation on the energy
demand under the same developing speed. For instance, in 2000, IEA assumed the average annual
economic growth rate of China is 5% before 2020, the energy consumption in China will reach
2.77 billion tons of coal equivalent in 2020; in 2002, IEA modified it and assumed that till 2030
the GDP of China will be four times over that of 2000, and the energy demand of China at thattime will reach 3.05 billion tons of coal equivalent. And the domestic research organizations willconsider more of the resources and environmental restraints and expect that the energy efficiency
will be improved to a great extent. Most predict that the energy demand of China will be

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controlled within 3 billion tons of coal equivalent in 2020. Also some predict that the energy
consumption in the next 20 years will be similar to the other industrialized countries with arelatively high energy consumption supporting the economic development because in the recent
years, the electronic power consumption elastic coefficient is higher than 0.8 and even higher than
1.

Table 1 Comparison of the Predictions of Different Organizations on China’s
Energy Demand
Organization Time

Base
PeriodYear

Year

MethodResult, Energy Demand (0.1 billion tce)
2000

2010

12.14

18.6

2020

2050

IEA

2002

2000

Tsinghua
University

1994

1990

Sector Analysis;
Whole
Residential
EnergyConsumption
Flow Analysis

14.4-15.3
13.9-17.1

23.8-26.8
22.0-27.8

34.8-44.0
33.0-42.0

The former
Ministry ofEnergy1994

1990

Sector Analysis

14.4-15.3

23.8-26.8

34.8-44.1

ChineseAcademy ofEngineering

1996

1990

Sector Analysis

16.6-17.0

22.7-24.0

29.0-31.5

35.7-41.3

IEA

1993

1993

13.9-14.0

20.5-20.9

EIA

1990

12.49

16.96

EDMC

1991

16.21

26.37

30.47(2030)

Note: IEA, International Energy Agency;
EIA, Energy Information Administration of the U.S. Department of Energy;
EDMC, The Energy Data and Modeling Center, the Institute of Energy Economics, Japan
Sources: “Chinese Long and Medium-term Energy Strategy”, China Planning Publishing House, 1999; “2002
China Energy Outlook” (IEA)

Different predictions show that various parties have different views on the social economic
development and energy demand in the next 20 years in China and also reflect that great
uncertainties exist in the future energy demand in China.

1.2 Energy Demand in 2020 in BAU Scenario
According to the social and economic developing trend in the recent years, a scenario
analysis on the possible Chinese energy demand in 2020 is carried out. If follow the current
developing trend, without any reinforcing effort of policies and measures, till 2020 when the GDP
of China is “quadrupled”, the overall energy demand1 in China will reach 3.62 billion tons of coal1

The energy sources mentioned in this article all refer to commodity energy, excluding bio-energy. When
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IEEJ: October 2005
equivalent, with an average annual growth rate reaching 4.7% within 20 years and a corresponding
energy consumption elastic coefficient as high as 0.66 (refer to Picture 1). The result indicates thatwithout adopting energy strategies and relevant policy measures required by sustainable
development, the future Chinese energy demand will increase at a high speed, the energy supply
will be faced with a severe challenge.

Unit:Million tons of Coal Equivalent

T otal Energy Demand
4000

3620. 63500
3046. 53000
2500

2441. 1

2000
1500

1964. 91437. 3

1000
500
0
2000

2005

2010

2015

2020

Picture 1: The Total Energy Demand of China in 2020
(Business As Usual Scenario)

2 Problems on Energy-saving in China
2.1 There is little possibility in energy saving through adjusting irrational energy
prices, thus new methods to stimulate energy saving market are required.
Great changes have occurred to the energy prices in China during the last 20 years. Amongthe prices of different energies, the lowest increase is seven times as before, while the highest
increase is 30 times as before. The increase of energy price is apparently higher than the averageincrease of commodity price. In 2000, the energy consumption of per unit GDP is only 36% ofthat of 1980, in which the adjustment of energy price has played an important role. Currently,
though there is still some irrationality in the energy price, it has been more or less the same as theinternational energy price. It has been unrealistic to promote energy saving through merely
adjusting the energy price as twenty years ago, other economic means adaptive to the current
Chinese developing stage and sustainable developing strategy must be sought after.

2.2 Lack of an effective, rational energy saving system
The problem in the Chinese energy saving system is the key factor for the failure of energy
saving policy. A complete energy saving system should include sectors like, centrally, locally andindustrially harmonious legal policies, up-to-bottom energy saving implementation system, activeenergy saving financing mechanism, legally effective and interactive energy saving supervisory
mechanism, energy saving service agencies capable of providing quality service, mechanism
encouraging people to participate in energy saving, as well as energy saving information spreading
converting different types of energy resources, the nuclear electricity of primary electric power is converted
according to 33% of efficiency while the other kinds of primary electric power is converted according to 100% of
efficiency.
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IEEJ: October 2005
mechanism. In terms of the current energy saving system, many sectors are weak, and the energy
saving system is incomplete.

2.3 Lack of new measures to interfere in the market and promote energy saving
after change of the governmental function.
Effectively carrying out necessary governmental functions is required by the market
economic system, the market failure especially requires the government to interfere in energy
saving through macro-control measures. However, clear-cut and effective governmental
controlling measures are still absent in the field of energy saving. There is no clear boundary
between those energy saving measures that are fully dependent on market for implementation andthose that need governmental assistance. The grass root energy saving work is difficult to carry out.
If the enterprise has a leadership highly aware of energy saving, it will do a good job. Contrarily, it
will lack activism and enthusiasm in energy saving. Thus, we must explore effective measures forthe government to encourage energy saving and carry out governmental functions under market
economic system.

2.4 Economically stimulating policy for energy saving is not sufficient.
China is rich in energy saving policies, but weak in economically stimulating policies. Mostof the economic policies on energy saving are not specialized in energy saving, but include thecontents on energy saving and environmental protection into the preferential policies encouraging
technical transform and scientific innovation. Thus, these economic policies do not support
enough of the energy saving, and reduce the attractiveness and competitiveness of the energy
saving programs. Therefore, in order to save energy and improve the energy efficiency, we shouldmake economically stimulating policies including tax reduction and exemption, loan preferential
treatment and energy saving fund, increase the attractiveness of the energy saving programs,
improve the investment competitiveness of energy saving programs, and incline the economic
lever towards energy saving.

2.5 Energy saving technology progresses is slow.
The technological innovation and popularization on energy saving still incur barriers in termsof system, capital and management. The inadequate energy saving investment has led to thedifficulties in carrying out the research and development of energy saving technology and thepromotion of key model programs and a low penetration rate of energy saving technology.
Moreover, the key energy saving technology and equipment depend excessively on import, andare short of uniform plan and effective management.

3. The Objectives and Key Areas of Energy Saving
3.1 Main energy saving objectives
Try to realize that in the next twenty years the national economy will be quadrupled, while
the energy sources will be doubled, the energy consumption elastic coefficient stays from 0.35 to
0.53, the energy saving rate stays from 3.0 to 4.3%, the accumulative energy saving reaches 0.6 to
0.8 billion tons, the per 10,000 RMB GDP energy consumption reduces from 2.68tce in 2000 to
1.17－1.33tce in 2020 (at 1990 constant price), and the energy consumption of 2020 will not
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IEEJ: October 2005
exceed 3.1 billion tce, which will be tried to kept at 2.4 billion tce.
By adjusting the structure, improve the technological level of various industries and promote
the application of advanced energy saving technology so as to reduce the per unit energy
consumption of major energy consuming products by a large margin. For instance, the coalconsumption of thermal power generation reduces from 392 grams of coal equivalent perkilowatt-hour in 2000 to 322 grams of coal equivalent per kilowatt-hour in 2020, thecomprehensive energy consumption per ton steel in key enterprises reduces from 906kgce to
720kgce, and the comprehensive energy consumption of cement clinkers reduces from 143kgce
per ton to 104kgce per ton.

3.2 Key energy saving fields
At present, the industrial production still occupies a dominant position in energy
consumption, while the energy consumption of buildings and transportation that more directlyreflect people’s living standard is on a continuous rise. Because the housing condition of urban
and rural residents is improving, the related heating equipment and various home appliances arealso improving. The development of tertiary industry greatly increases the number of
non-residential buildings and their energy consumption capacity, thus the energy consumption ofbuilding is rapidly increasing. Due to the rapid development of various transportation industries
including tourism and the improvement of household transportation tools, the energy consumptionof transportation also grows quickly. Compared with industry, as different energy saving
technologies and policies of different levels of force are adopted, the future energy demand ofbuildings and transportation will be more affected. Thus, in the first ten years, industrial
departments are the key areas for energy saving, while after 2010, the focus of energy saving
works in China will shift to transportation and building.

4 Strategic Focus and Key Tasks
4.1 Consider intensifying energy saving and improving energy efficiency as oneof the major energy developing strategies in the next twenty years, really
implement development and saving at the same time, and put energy saving as
the priority.
Create a developing pattern different from that of the developed countries, which is based up
consuming a great amount of energy sources and other natural resources. The overall objective ofindustrialization can only be realized in a developing country with a huge population like us bydeveloping an energy efficiency level much higher than that of the developed countries. Bothefforts in improving energy efficiency and increasing supply are needed to realize a balance
between energy supply and demand. Therefore, energy saving and energy efficiency improvement
must be regarded as the important components of the later energy developing strategy. We should
develop an energy developing policy based upon the incentive mechanism of the market,
implement development and saving at the same time and put energy saving as the priority.

4.2 Establish a mechanism and management system ensuring the sustained
growth of the energy efficiency; try to quadruple the national economy on thebasis of doubling the energy.
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Keep on realizing quadruple the national economy on the basis of doubling the energy.
Establish incentive mechanism and management system guaranteeing sustained high energy
efficiency and promoting energy saving. Further intensify the social consensus on energy saving.
Explore energy saving legal system and economic policy suitable to the market economic system.
Improve legal supervision and policy stimulating mechanism. Reduce the energy demand andrelease the energy supply pressure through guiding the consumers to have self-conscious energy
saving behaviors.
The selection of different economic developing ways and life styles will have great impact onenergy demand. To achieve a same or similar social economic objective, the sustainable selection
and implementation of different energy, environment and consumption policy will result indifferent energy demand. Through choosing the structure, technology and policy, the future energy
demand can be controlled within a rational range. In 2020, 0.8 billion tce of energy can be saved,
the energy consumption elastic coefficient can be kept at 0.5, or even smaller than 0.5, and thenational economy can be quadrupled on the basis of doubling the energy or less.

4.3 Establish market energy saving promotion mechanism, and reinforce thegovernmental capacity in interfering in the market.
The government should bring the function of the “invisible hand” – the market- into full play
to save energy, making use of the economic policy to regulate the market and guiding theconsumers to realize the energy saving objectives through market. The government is responsible
for making the rules of the market environment of energy saving, safeguarding a fair market
competition environment on the premise of realizing the optimization of resources allocation,energy safety and environmental protection, fully reflecting the principle of “interest” motivated in
the market economy and benefit the country, the producing enterprises and users. Establish arational market mechanism, maintain a good market environment, and make sure every socialgroup have a clear role in the energy saving task. Every sector should have explicit responsibility,
right and benefit. Those contributing to energy saving will benefit from it, whereas, it will bepunished economically and legally. Fully mobilize the enthusiasm of the society to participate inenergy saving. Improve the supervisory, coordinate and evaluation system of the policy
implementation. Rectify the direction of the policy timely. Fulfill the tasks that the enterprises andindividuals cannot or are not willing to do. Reinforce the public promotion and education onenergy saving and the spread of energy saving information.

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5 Policy and guarantee measures suggestions
5.1 Policy suggestions
5.1.1 Promote the use of high quality energy and improve the energy efficiency
The Chinese energy structure focusing on coal is the main restraint on energy efficiency. Theenergy consumption structures of those countries with higher energy efficiency mainly focus on
petroleum, natural gas, hydraulic power and nuclear power. Within the energy consumption
structure of Japan, Germany, the United States and Britain, petroleum and natural gas account for
61 to 73%. As for the distribution of Chinese energy efficiency, the coastal provinces import moreof the good quality energy, having a better-optimized energy consumption structure than thoseareas with a higher proportion of coal consumption. For instance, the proportion of coalconsumption of Beijing, Guangdong, Shanghai, Fujian and Hainan in the energy structure is lower
than the average national level, which is from 30% to 58%. Their per unit GDP coal consumption
is about 1/3 of those provinces with a larger coal consumption.
Under the market economy, the tendency to choose high quality energy is increasingly
apparent. The fierce social competition, the improving living standard and the economic
globalization have enabled the users to choose efficient, clean and convenient kinds of energy.
Respecting the rules of market economy, developing recycled high quality energy, guiding theconsumers to select efficient and clean energy is the only way for the government to improve theenergy efficiency of the whole society and to save energy.

5.1.2 Make economically stimulating policies on energy saving that is compatible
with the market economic rules.
China is at a stage with a fast development of national economy, and the tension recurs in theenergy supply. The objective of quadrupling GDP also requires a safe guarantee of the energy.
Therefore, it is a good time to study and make energy saving stimulating policies. The energy
saving economic policy is urgently needed, either from the perspective of the need of theshort-term balance between energy supply and demand, or from the perspective of the long-term
objective of sustainable development.
It can be discovered from the successful foreign experience on energy saving, the economic
policy on energy saving are always independent of other developing objectively. For instance, theenergy saving credit foundation of Britain, the energy saving credit foundation of Hungary and theenergy efficiency joint financing plan are all specially established for saving energy andimproving energy efficiency, with a explicit purpose and guidance, which has strengthened theposition of energy saving. China should make stimulating policies specialized in energy saving assoon as possible, like energy saving foundation, tax reduction and exemption, fuel tax and so on.

5.1.3. Reinforce the energy saving technological policy, and realize theleap-forward development of energy saving technology.
The less developed energy saving technology is one of the main reasons for China to lag
behind of the advanced countries, therefore the technological development is an important means
to improve the energy efficiency. In order to realize the grand objective of attaining the economic
level of the mid-ranking developed countries, China should not follow the back of the developed
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IEEJ: October 2005
countries, adopt the eliminated technology or even the current technology of the developed
countries, instead China should apply the “leapfrog” method and realize leap-forward
development so as to catch up with the developed countries within 50 years. Thus, renovating andimproving the energy saving technological policy appears to be especially important. Develop,
import, make, issue and implement energy saving technological policy, unite and coordinate
industrial management organizations with great potential, guide the renewal of the technologicallevel of various industries, promote the application of advanced energy saving technology so as toimprove the energy efficiency of China.

5.2 Carry out strategic guarantee measures
5.2.1 Organize research and make key economic policies suitable to the situation of China.
The study, making, promulgation and implementation of key economic policies should be
carried out on the premise that the governmental organizations of different functions have realized
the strategic significance of energy saving. Information sharing, mutual understanding, mutual
support and coordination are the very important ways for the governmental organizations tocooperate intimately. Rely fully on the research institutions. Explore the suitability and feasibility
for China to adopt economic policies like energy saving foundation, tax reduction and exemption
and fuel tax. Make economically stimulating policies on energy saving based upon market
mechanism as soon as possible. Encourage activities on saving energy and improving energy
efficiency.
5.2.2 Organize the amendment of the policy outline on energy saving.
“National Policy for the Saving Energy Technology” reflects the developing direction of theenergy saving technology, the promotion and application areas for the advanced technologies aswell as the encouraging policies for promoting the application of advanced energy saving
technology. In 1996, National Planning Committee, State Economy and Trade Commission andState Science and Technology Commission have jointly issued “National Policy for the Saving
Energy Technology”. As the energy saving work in China is faced with problems like slow speedof technological renewal, long cyclic period of new technology promotion and application and therealization of leap-forward development, the government will work on revising the “National
Policy for the Saving Energy Technology”, include the domestic and foreign mature energy saving
technology and advanced technology into the “National Policy for the Saving Energy Technology”
to guide the newly constructed projects and technologically transformed projects.
5.2.3 Carry out energy saving promotion, education, training of various forms, and establish
energy saving information Dissemination system.
Making the whole society aware of saving energy and protecting the environment is one of
the key functions of the government. By carrying out energy saving promotion, education andtraining suitable to different social groups by the governments of all levels, pass on the energy
saving idea, policy, information, and technology to the enterprises, community and individuals tocreate a social environment favorable to energy saving. By establishing energy saving informationtransfer system, pass on the latest information on energy saving policy and technology and extend
the technologies that can save energy and improve energy efficiency.

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5.2.4 Improve the related laws of the “Energy Conservation Law” and the legal execution
supervisory mechanism, and reinforce the energy efficiency standard and identification
system.
As a law specialized in energy saving, complete set of related laws, legal supervision and law
execution mechanism must be set up to ensure the legal effect and the practicability of the“Energy Conservation Law”. The improvement of the related laws must be conducted according
to the concrete situation of different areas and industries. Try to quantify the indexes in the laws
and lay down a foundation for supervising the law execution. The establishment of the execution
supervision mechanism of “Energy Conservation Law” should be consistent with the othereconomic laws, thus the execution supervision of “Energy Conservation Law” can be integrated
into the normal execution system of economic laws. Reinforce the formulation, promotion andexecution of energy saving standard. Improve the energy saving design criteria of new buildings,
the energy saving reconstruction standard of already-existing buildings, and use the foreign
experience on making automobile fuel standard as the reference. On the basis of improving energy
saving standard, enlarge the certification range of the energy saving products. When the situationis permissive, carry out the certification and identification system of energy saving buildings andhigh efficient automobiles, and make use of the means in market economy to strengthen demand
management.

Contact: report@tky.ieej.or.jp10