China Pinches Provinces on Energy

Consumption caps will spur cheating, analysts say.
An analysis by Michael Lelyveld
2012-05-14
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Coal is transported through the Liangyugang port in eastern China's Jiangsu province, Jan. 15, 2012.
ImagineChina

After two years of debate, China has raised proposed limits on energy consumption, but experts say that even the higher targets appear impossible to meet.

On May 3, a top energy official of the National Development and Reform Commission (NDRC) said a plan to cap China's total energy use is awaiting State Council approval.

Han Wenke, director general of the NDRC's Energy Research Institute, said the plan calls for keeping consumption at no more than 4.2 billion tons of coal equivalent in 2015, the official English-language China Daily reported.

That would be 20.6 percent more than China's total energy use of 3.48 billion tons last year, according to official data.

While the increase seems large, it breaks down to an average annual growth rate of 4.8 percent, RFA has calculated. That compares with a 7-percent rise last year from 2010, the National Bureau of Statistics said.

Energy analysts and environmental advocates have been watching the debate closely as China climbs to the top spot in world emissions and energy use.

Energy caps

But the effort to impose energy caps on economic growth may have turned into a conflict that cannot be resolved.

Environmental groups were encouraged in March 2011, when former head of the National Energy Administration (NEA) Zhang Guobao first said that a cap of 4 billion tons was included in the draft of the 12th Five-Year Plan to 2015.

A month later, an NEA planning official said the limit would be slightly higher at 4.1 billion tons, the official Xinhua news agency reported.

Kevin Jianjun Tu, a senior associate in the energy and climate program at the Carnegie Endowment for International Peace, said Han's statement appears to mark another increase in the target after lengthy negotiations with provincial officials.

"They had to increase the numbers slightly in order to satisfy the energy consumption demands of the provincial governments," Tu told RFA.

While the difference seems small, it may mean that China plans to burn an additional several hundred million tons of high-polluting coal between now and 2015.

China's statisticians convert actual coal into coal equivalent units by using a multiplication factor of 0.825, according to the U.N. Energy Statistics Yearbook. The country actually burned 3.7 billion tons of real coal last year to meet over 70 percent of its primary energy demand.

But in the back-and-forth negotiations with the provinces, the central government may have set a higher target for the energy cap that is still too low for expected economic growth.

"I personally feel it's extremely difficult for provincial governments to meet," Tu said. "I have no idea how the provincial governments are going to meet such a stringent target."

Tu said the NDRC has set its target limit for production and consumption of actual coal at 3.9 billion tons in 2015, but China has already neared that level in 2011. Even with a slowdown, the country may break the 2015 barrier this year.

In an effort to cool inflation, excess development, and runaway housing prices, Premier Wen Jiabao set a lower GDP growth goal of 7.5 percent per year in March.

Provincial pressure

But development pressures continue in the provinces, which are still promoting investment in projects that demand more energy.

This month, the NDRC issued "red-light warnings" to six provinces and autonomous regions of "very serious" failures to meet the government's conservation goals, China Daily reported.

But analysts say there would still not be enough energy under the cap if provinces follow slower-growth policies because of consumption that has already taken place since the start of the five-year period.

"The idea that for the next four years it's going to run at less than 5 percent a year is really a non-starter unless the economy collapses, and I'm sure the government isn't planning on that," said Philip Andrews-Speed, a China energy expert at the German Marshall Fund of the United States.

The conflict over the cap appears to be an attempt to salvage China's controversial energy efficiency policy, which has been a cornerstone of its international pledges on climate change.

In 2010, The government missed its last five-year target to cut energy waste by 20 percent, comparing total energy use to GDP growth. In March, it conceded that the 2011 goal was also missed under the new plan for a 16-percent reduction by 2015.

Provincial attempts to meet the 2010 targets led to serious disruptions with blackouts of homes, businesses, and even hospitals. The NDRC later apologized and vowed the arbitrary cuts would never happen again.

Central planning

Andrews-Speed said the new cap plan is a throwback to central planning measures for dealing with modern problems of market economics and the environment.

"If one is going to use a blunt instrument, then one has to get it at least at an appropriate level. The level of 4.2 billion tons set today is clearly unrealistic," he said.

In the end, the government may get the numbers to come out right, but they are unlikely to reflect the real volumes of energy production, consumption or the environmental effects.

"You've got a blunt instrument that's pressing down too hard, which means that almost unavoidably people are going to cheat by lying about how much energy they're producing and using," Andrews-Speed said.

Official coal statistics have already become "more and more problematic," Kevin Tu said in an interview with ClimateWire of E&E Publishing Service.

The entire central planning exercise with target-setting for provinces may be a poor substitute for market pricing of energy, which could promote conservation through forces of supply and demand.

Andrews-Speed argued that the 2015 caps make little sense because economic growth forecasts beyond a year or two prove inaccurate.

"By all means, look a year ahead or go year-by-year, but looking three or four years ahead is doomed to fail," he said.