Energy conservation high on agenda: News analysis

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Last updated at: (Beijing Time) Thursday, December 04, 2003

Energy conservation high on agenda: News analysis

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For a long time, China has given first priority to securing energy supply when carving out its energy policy. Now it is time to reconsider its energy policy by placing equal importance on energy conservation and environmental protection.

The government needs to regulate energy conservation in transportation, power generation and housing construction, and introduce policies favouring clean energy.

This need to conserve power should be a critical consideration for policy-makers when drafting the long-term energy policies that will steer China into the next two decades.

Why do we need to transform our approach?

For one thing, insufficient domestic energy supply has become a major bottleneck for the economy, limiting its growth.

The International Energy Agency has forecast that China's energy demand is projected to more than double between now and 2030. The country is expected to account for one-fifth of the increase in world primary energy supply and demand during the period.

But China lacks energy reserves, which makes it increasingly reliant on energy imports to drive its economy. The oil reserve per capita in China is one-tenth of the world average, while gas reserves are less than 5 per cent of the world average.

China is rich in coal. But four-fifths of the reserves are in western regions far from major markets in the east, making transportation difficult.

And in the long term, coal consumption should be reduced for the sake of the environment.

The increasing gap between supply and demand makes the economy vulnerable to fluctuations in the international market, threatening national security.

On the other hand, there is big potential for China to improve energy conservation. China spends 13 per cent of its GDP on energy consumption, almost double the level in the United States.

By taking effective energy-saving approaches and establishing an integrated energy consumption mechanism, China could decrease its energy consumption from 3.2 billion tons of standard coal to 2.4 billion tons in 2020, expert said last Friday.

Transportation and construction are the major sectors able to conserve more energy. They are expected to account for a combined 57-75 per cent of total energy consumption by 2020, compared with the current 35 per cent, according to the State Council's Development and Research Centre.

In the booming housing sector, only 2.5-5 per cent of new housing meets energy conservation standards. Experts said reducing heat loss is as simple as installing double glass on the balcony.

In the automobile industry, China should impose standards to improve the efficiency of car and truck fuel consumption.

At present, the average Chinese automobile consumes about a tenth to a fifth more fuel than one in developed countries.

The environment is another consideration. Energy policy should be transformed to boost the proportion of clean energy such as natural gas.

China is now the second largest carbon dioxide and the largest sulphur dioxide emission producer in the world. Air pollution costs 3-7 per cent of GDP, and the burning of coal is the major source of air pollution.

If the country continues to consume large amounts of coal, it will face increasing pressure from the international community.

Clean energy, especially natural gas, should play a major role in improving the state of the environment.

But the government should create a level playing field for natural gas, which is more expensive but cleaner than coal. Preferential policies, such as tax rebates and stricter environment standards, should be introduced to help natural gas compete with coal.

Long-term power purchase agreements (PPA) that encourage power plants to replace coal with natural gas should also be signed.

Power plants are the major consumers of natural gas. To start up large natural gas projects, gas companies and power plants usually sign take-or-pay contracts under which power plants buy fixed amounts of gas at fixed prices over a long period.

Therefore, the power companies should also be allowed to sign PPAs with electricity users to fix their price and production levels. Otherwise, power companies will be reluctant to use natural gas as fuel for electricity production.

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