Zhou Hongchun & Ding Ningning

Social Development Research Department of DRC

At a time when China is further improving its market economy and is opening even wider to the outside world, how should the government administer energy conservation? This has become a practical policy issue in the new era.

I. Splendid achievements have been made by China in energy conservation since the initiation of reform and opening up

In the early 1980s when China put forward the grand goal of "quadrupling the national economy by the end of the century", some people took a sceptical attitude towards it. One major concern at the time was energy supply. Although most people did not believe that energy consumption could also be quadrupled, they estimated that when the national economy was quadrupled, the annual energy consumption would reach 1.4-1.8 billion tons of standard coal. In light of the existing conditions, China’s domestic energy production could hardly meet this demand. For this reason, energy experts suggested that the central authorities should give equal priority to both energy development and conservation and should in the near future place more emphasis on conservation. This suggestion received keen concern by the State Council, which took it as a guiding principle for the country’s energy work. After that, the State Council Energy Conservation Working Meeting System was established and energy conservation was incorporated into the national economic plan. In addition, a special energy conservation fund was set up, and policies on tax preferential treatment, low-interest loans and other incentives were formulated.

In fact, the goal of quadrupling the GDP was achieved five years ahead of schedule. In 1995, China’s total energy consumption was only 1.312 billion tons of standard coal. In the two decades after the initiation of reform and opening up, the aggregate amount of China’s national economy grew by 9.5 percent annually, but its energy consumption grew only by 4.7 percent a year. During this period, a total of 1.02 billion tons of standard coal, worth 964 billion yuan, was saved. In addition, as much as 290 billion yuan that would have been invested in energy capital construction was saved.

The above achievements were mainly attributable to the economic restructuring resulting from a change in the country’s development strategy. After the initiation of reform and opening up, the proportion of the light industry in the national economy rose rapidly, while that of the heavy industry declined drastically. As a result, energy consumption for per 100 million yuan of GDP dropped greatly. In the meantime, the structural optimization and technological progress in the industries also increased the efficiency of energy utilization in a big way. The initial idea that one half of the energy required by economic growth would depend on development and the other half on conservation was finally materialized.

II. China’s stern energy prospect

First, fine quality energy is in short supply, and energy import faces hidden security risks. International experience indicates that rapid economic growth has a close relationship with a higher proportion of oil and natural gas in the energy consumption structure. China’s own experience has also proved it. As China had no sufficient oil and gas resources, its import volume has continued to rise. In 2000, China imported 70 million tons of oil, accounting for more than 30 percent of its domestic oil consumption. In the future, China’s domestic oil and natural gas consumption will further depend on the international market, which will bring a series of new issues to international political and economic relations.

Second, China’s per capita possession of energy resources is far below the world’s average level. China’s one-time energy output ranks the third in the world. But its per capita possession of energy resources is low. In 2001, China had a total proven coal reserve of 114.5 billion tons, a proven oil reserve of 3.3 billion tons and a proven natural gas reserve of 1,370 billion cubic meters. But because of its huge population, its per capita possession of coal, oil and natural gas was respectively only 55 percent, 11 percent and 4 percent of the world’s average levels. This situation will inevitably have an unfavorable impact on China’s future energy production and consumption.

Third, China’s per capita commodity energy consumption is low, which leaves much room for future growth. China’s total commodity energy consumption ranks the second in the world. But its per capita commodity energy consumption in 2000 was only 965 kg of standard coal, 47 percent of the world’s average level. Its per capita household electricity consumption was 132 KWH, only 3.3 percent of the corresponding figure in the United States. About 60 percent of the rural residents still rely on firewood and straw for energy consumption in their daily life. With the improvement in the living standard of the Chinese people, their commodity energy consumption will also increase.

III. Energy conservation faces grave challenges

First, while there is a great potential for energy conservation, energy conservation will become more difficult. China’s energy efficiency is about 32 percent, which is 10 percentage points lower than that of the foreign countries. The unit energy consumption for iron and steel, cement and other products is about 25 percent lower than the world’s advanced level. Therefore, there is a great potential for China to improve its efficiency of energy utilization. However, firstly, we must realize that China’s past achievements in energy conservation were made against a background of extensive operation and rampant wastes and that further energy conservation will become more difficult. Secondly, we must also realize that the energy conservation "opportunities" arising from the change in the country’s development strategy and its economic restructuring will not come again, and that the energy conservation "dividends" arising from system change and market competition will not come again either. Therefore, energy conservation in the future will depend mainly on technological progress, which requires both huge investments and a long process.

Second, the period of low commodity energy consumption coincides with pressures from environment-related international diplomacy. Although China’s per capita consumption of commodity energy is less than half of the world’s average level, its total amount of greenhouse gas emissions ranks the second in the world and could take over the United States to become the highest in the near future. At the Johannesburg Global Summit on Sustainable Development held in September 2002, Premier Zhu Rongji declared that the Chinese government had examined and approved the Kyoto Protocol. Although China has no obligation to reduce greenhouse gas emissions, it faces an increasingly greater pressure from the environment-related diplomacy. Assuming an obligation appropriate to China’s development level is an option that a major responsible developing country must make sooner or later. As a result, China faces an increasingly pressing task to raise the efficiency of energy utilization.

Third, China’s product exports encounter a green barrier -- "energy efficiency label". With China’s accession to the World Trade Organization, each and every domestic enterprise will have to face the pressure of international competition. The iron and steel industry, the petrochemical industry and other energy-consuming industries will all have to take energy conservation as their basic means for survival. As most Western countries have established the "energy efficiency label" system, China’s electromechanical products (including household appliances) must apply for the registration of "energy efficiency label" if they are to be exported to these countries. To those domestic enterprises whose products cannot reach the standard for energy consumption, this is undoubtedly a green barrier.

At present, all the energy conservation administration departments in all industrial ministries have been removed, and the energy conservation administration departments in the comprehensive economic ministries have also been downgraded. As a result, the government’s administrative function over energy conservation has been greatly weakened. This will inevitably increase the difficulty in promoting energy conservation.

IV. The general trend of international energy conservation under market economy

While great achievements have been made in energy conservation and in particular while the undersupply of domestic energy has improved, some people raised the question of whether the government should continue to play a leading role in energy conservation under market economy. As a result, DRC formed a project group with the researchers from the relevant resource conservation department of the State Economic and Trade Commission, the energy institute of the State Development Planning Commission, the China Standard Research Center and other institutions. The group conducted two study tours on the energy conservation work in the Western market economies. Our conclusion from these tours gave this question an affirmative answer.

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