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China’s Pledge to Cut Energy Consumption

6 January 2011
Mayer Brown Article

China faces the extremely urgent and important task to curb excessive growth in energy consumption and the emission of greenhouse gases. Though China has positioned itself as the world leader in clean energy efforts in recent years, and ranked second in the world in terms of installed wind generating capacity in 2009, coal still accounts for more than 70 percent of the country’s total energy consumption.

To tackle these issues, China’s 11th Five-Year Plan (2006-2010) targeted cutting 20 percent by the end of 2010 from its 2005 per-unit gross domestic product (GDP) energy consumption, and has implemented key laws, regulations and policies to lower its energy consumption. According to data from the National Bureau of Statistics, during the period from 2006 to 2009, China obtained an encouraging 15.6 percent reduction. However, due to the increasing demand for heavy energy-consuming products this year, the index disappointingly rose 3.2 percent in the first quarter.

In order to meet the 20 percent reduction target by year’s end, local governments have taken drastic steps to cut energy consumption. In August, the government ordered closure of more than 2,000 outmoded steel, cement and other energy-intensive plants. In recent months, there have been reports of arbitrary power outages and shutdowns by the local government in various provinces. For example:

  • One city in Hebei Province cut power to hospitals and shut off traffic lights that are not powered by solar cells;
  • Wu’an cut power to plants for 20 days;
  • Tangshan ordered 30 steel mills to reduce output by half; and
  • Anping County south of Beijing blacked out power to homes and turned off pumps for water supplies.
  • These administrative measures taken by the local governments have been criticised as irrational and caused serious disruption to the business operation of the affected enterprises.

New Rules

As a new move to step up the efforts to boost energy conservation across the country, the National Development and Reform Commission (NDRC), China’s top economic planner, unveiled the “Provisional Measures for Energy Efficiency Evaluation and Review of Fixed-Asset Investment Projects” on September 17, 2010. The new rules became effective on November 1, 2010. It is anticipated that this new energy efficiency evaluation system can replace those drastic, and somewhat random, measures taken by the local governments.

Under the new rules, new fixed-asset investment projects must undergo an independent energy efficiency evaluation as well as a government review in order to obtain approval for project commencement from the regulators. Projects that fail to meet energy efficiency requirements will be rejected while approved projects will be subject to strict supervision of their actual energy use. Therefore, it is believed that the new rules can significantly help the government keep energy consumption from increasing too rapidly and promote a reasonable use of resources. Energy efficiency evaluations are classified according to the annual energy consumption of projects upon their completion. The classifications are set out below.

The energy efficiency report submitted by the applicants shall include the following contents:


Energy efficiency reviews will then be conducted by governmental departments in accordance with their respective authority f or project management under the relevant laws and regulations. Upon receiving the energy efficiency report, the local government will appoint independent consulting agencies to examine the energy efficiency of the project and the consulting agencies will issue an opinion within the prescribed time. The opinion will form an important basis for the energy efficiency review by the local government.

China’s Ten Key Projects to Save Energy

In preparation for the intense focus on energy-efficient projects by the Chinese government, enterprises may consider applying for funding under the “Ten Key Projects” launched by NDRC since 2004. The Ten Key Projects program is funded by China’s Ministry of Finance, which provides financial support for energy-saving projects. Projects that target technological improvements in the following areas may be qualified for financial support under the Ten Key Projects:

  • Renovation of coal-fired industrial boilers
  • District-level combined heat and power projects
  • Waste heat and pressure utilisation
  • Oil conservation and substitution
  • Motor system energy efficiency
  • Energy systems optimization
  • Energy efficiency and conservation in buildings
  • Energy-efficient lighting savings
  • Government procurement of energy-efficient products
  • Monitoring and evaluation systems

Applicants will have to undergo a comprehensive energy audit by the authorities and must be able to show that the project will save at least the equivalent of 10,000 metric tonnes of carbon. The more energy the projects can save, the more funding the enterprises can obtain under the scheme. Qualified applicants will secure 60 percent of the funding up-front (which will be calculated according to the estimated amount of energy the project can save), with the remaining 40 percent to be provided after the technology is installed and the energy conservation is evaluated.

In 2007, the Chinese government allocated RMB 23.5 billion to projects to improve energy efficiency and reduce pollution. This funding supported the launch of the Ten Key Projects, the elimination of inefficient facilities and the implementation of measures to protect the environment. In 2008, the total allocation for energy conservation, emissions reduction and ecological improvement doubled to RMB 42 billion. This funding includes RMB 7.5 billion for the Ten Key Projects and RMB 4 billion for phasing out inefficient industrial plants. In 2010, the funding for the Ten Key Project has been substantially increased, as the Chinese government has allocated RMB83.3 billion to the scheme.

Green Economy

Today, China is an acknowledged leader in pursuing green economic development and its energy efficiency program is the most ambitious in the world. Not only has China introduced the Ten Key Projects, the Top 1,000 Energy-Consuming Enterprises Programme and shut down old power plants and production facilities, it has also enacted and amended the Renewable Energy Law and revised the Energy Conservation Law and implemented a variety of financial and tax incentives to encourage energy conservation.

China’s 12th Five-Year Plan (2011-2015) will emphasize a low carbon economy and green development. Undoubtedly, enterprises (representing both domestic and foreign investment) that are interested in investing in China should pay close attention to any new policies and incentives introduced by the Chinese government and examine methods to make their projects more energy-efficient.

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