Lab, U.S. Groups Help Shape China's Energy Growth
By Brian Stempeck

With Chinese demand for energy soaring as its 1.3 billion citizens clamor for more cars, more electric appliances and a greater share of the Western world's modern devices, a small contingent of U.S.-based organizations and environmental groups is helping to chart China's energy development course in hopes of stemming some of the environmental damage caused by the burning of fossil fuels.

And with a relatively small capital investment -- sources estimate it in the tens of millions of dollars -- the groups are by various accounts achieving many of their goals in shaping the Communist-ruled country's energy future. For example, Chinese government officials are embracing new policies to improve fuel economy, increase energy efficiency and adopt other far-reaching ideas that have befuddled or bogged down lawmakers in the United States for years, officials said.

Moreover, as trade between the United States and China continues its upward trajectory, the U.S. Energy Department estimates that China's energy efficiency policies will have a trickle-down effect for U.S. consumers. For example, energy-efficient appliances imported from China in coming years could save up to 3 percent of total domestic energy usage, or about $8.5 billion of electricity per year, U.S. officials say.

Demand fuels changes

China's willingness to embrace major energy policy changes appears to reflect a fundamental understanding on the part of its highly centralized government of the sheer scale of its energy needs, according to several experts who have worked in the country.

The evidence of rising energy demand can be seen in the mushrooming growth of China's electric utilities. Last year alone, the country's electricity infrastructure grew by 16 percent, and government officials are working to add 30 gigawatts of power generation in the coming year, said Doug Ogden, executive vice president of the nonprofit Energy Foundation and director of the China Sustainable Energy Program.

As more Chinese adopt modern appliances like air conditioners and televisions, the government is scrambling to build more coal-burning power plants, drawing upon the country's extensive coal reserves, the world's third largest behind the United States and the former Soviet Union. The country's massive Three Gorges Dam project, which came online last summer at a cost of $24 billion in planning and construction, provides an additional 18.2 gigawatts of hydropower per year.

But government officials are quickly realizing that despite herculean efforts to increase electricity supply, the pace of adding new power generation falls far short of projected demand, Ogden said. The next five years of air conditioner usage alone will absorb the entire output of the Three Gorges Dam project, he said.

Given the looming reality of an energy crisis, Chinese officials have been remarkably receptive to suggestions about how to improve energy efficiency, Ogden said. Among other things, his group's dozen staffers are advising the government on how to implement efficiency standards for air conditioners, refrigerators, washing machines and other energy-consumptive appliances.

Chinese officials have also been enthusiastic about renewable energy development, launching major wind programs in two provinces and upping investment in wind power to $700 million. The measure is small compared to the level of investment in coal-fired power, but Ogden remains optimistic their suggestions are having a result. "Unless we intercede ... the dirty stuff gets built," he said.

Concerns about rising oil demand similarly heightened the government's willingness to consider fuel economy standards for cars and trucks. The auto sector in China is booming, with more than 2 million cars sold last year, an 80 percent increase from the previous year. At such a pace, energy analysts say Chinese oil demand could be on par with the United States by 2030.

China Sustainable Energy Program members began holding workshops with the Chinese government four years ago, educating officials about measures like the U.S. Corporate Average Fuel Economy program and a Japanese weight-based standard for fuel economy. China indicated it would adopt a weight-based fuel economy system in November, calling for all new cars, vans and sports utility vehicles to get an average fuel economy of about two more miles more per gallon than their U.S. counterparts by 2005, and about five more miles per gallon by 2008 ( Greenwire , Nov. 19, 2003).

"You've got a central government that's looking at its long term development and is very concerned about growing oil dependence and is concerned about the quality of the air," Ogden said.

A mutually beneficial agreement

If the policies adopted by China over the past year read like an environmental group's wish list, that is due in part to the efforts of small groups like the Energy Foundation and CSEP. But leaders of those groups also say it is easier to pass major energy policy changes in China than in the United States, largely because the country has a highly centralized government and few entrenched companies trying to secure big profit margins.

"It's a friendlier political climate," Ogden said. "Development is so rapid that leapfrogging to the latest, most efficient technologies is in China's economic interest."

David Moskovitz, director of the Regulatory Assistance Project and a former member of the Maine Public Utility Commission, has been working to help China develop its first utility regulatory agency, similar in scope to Federal Energy Regulatory Commission in the United States.

"To a much greater degree, their decisionmaking process and the people involved are less ideologically driven" than in the United States, Moskovitz said of the Chinese leaders with whom he has worked. "I certainly think that the sort of interest group-driven decisionmaking that we have [in the United States] is less prevalent there, partly because the utility power sector was government-owned."

For the China Sustainable Energy Program and environmental groups -- the Natural Resources Defense Council and Environmental Defense are also active in China -- reducing greenhouse gas emissions is a major motivating factor behind their work. "We cannot solve global warming without addressing China's greenhouse gas emissions," Ogden said. Currently ranked second in the world for carbon dioxide (CO2) emissions, China is on track to be the world's leading greenhouse gas emitter in the next 20 years.

But GHG reductions are not necessarily driving Chinese acceptance of new policies. "The Chinese tend to stress these gains in terms of electricity saved or power plants avoided," said David Fridley, a staff scientist at the DOE's Lawrence Berkeley National Laboratory who has helped the Chinese government with energy efficiency testing procedures.

Even so, air pollution remains a major concern for all involved with China's energy development, with growing concerns about the worldwide spread of pollutants. "Air pollution in China impacts the United States," Fridley said. "You'll be in San Francisco seeing the haze come in, and you know that they're plowing in northern China now. That's obviously a central justification for spending money on these kind of programs."

Moskovitz said it is impossible to overstate the scope of air pollution problems in China, with 25 percent of deaths in the country attributed to respiratory diseases. "It's harder to sort of ignore the realities that some of the energy sector is imposing on society there," he said.

An unusual niche

CSEP and other nonprofits fill an unique niche as outside experts in a country that only a few years ago shunned any attempts by the West to influence its social, economic or environmental policies. More than simple conduits for knowledge, these groups are actively helping initiate policy changes that cannot be advanced by other organizations, or sometimes, even the Chinese government itself. And yet most of this work has been accomplished with meager budgets. CSEP estimates it has spent about $7.5 million in the country, yet its work has led to some of the most far-reaching regulations adopted so far.

"The Chinese are very open to these concepts," Moskovitz said. "They're sort of sponges for information."

"China is growing so fast even their full-time policy people within the government just can't think of everything and do everything," added Fridley. "It takes these kind of third-party participants."

The nonprofit effort stands in contrast to more formal efforts by the U.S. government to shape Chinese energy policy, which has been largely limited to technical assistance and partnerships with DOE and the U.S. EPA. In part, the U.S. government's reluctance to help is driven by reluctance to build up another major world power and top economic competitor.

"We're the technical guys," Fridley said. "We aren't out there being policy wonks."

Other multinational agencies, such as the World Bank, the U.N. Development Program, the GlobalEnvironment Fund and the Asia Development Bank, spend more money than the United States, but their investment goes largely towards construction projects. The World Bank, for example, is spending $3.4 billion to build two power plants in China with low sulfur and nitrogen oxide emissions, and has earmarked $6 billion to retrofit industrial boilers.

"Policy is tricky because these are government-to-government organizations," Ogden said.

'The emperor is supreme and yet far away'

One key question moving forward is whether China's new energy policies will be enforced. The country is notorious for thwarting laws dealing with software piracy and government corruption. Many reports have found that the managers of coal-fired power plants are implementing pollution-control measures only when government inspectors visit the plants.

Still, Moskovitz said enforcement seems to be working reasonably well. "Things are much more open and talked about than people in the United States might have expected of China," he said.

One success story is a recent doubling of pollution fees levied on sulfur emissions from power plants, now one of the most expensive pollution fees in the world. The fee is collected by local and provincial governments, which are driven by their need for revenue. At the national level, large Chinese agencies like the National Development Reform Commission oversee enforcement.

"China's done a pretty good job there," Moskowitz said of industrial enforcement efforts. "They're used to standards. They're not used to incentives or market-based approaches."

Enforcement of new policies is less of an issue in China than other developing countries in Latin America and Southeast Asia, Moskovitz said. "There are consequences for failure to abide by regulations," he said. "You're always reading and hearing about people who were punished one way or the other for accepting bribes or failing to follow orders."

The new appliance efficiency standards, for example, have been handled in a very strict manner, Ogden said. When Chinese enforcement agencies find violations they are swift to act, pulling products off store shelves and shutting down factories. "There's been some high-profile examples, so there's a bit of regulation by draconian fear," he said.

Still, Ogden called enforcement China's biggest challenge, recalling a popular Chinese phrase, "the emperor is supreme and yet far away." Local governments will enforce national standards when it is in their own interest, Ogden said, as is the case with the pollution fees. But for other policies, they may not be as dutiful.

"There's not enough resources," Ogden said. "All of that needs to be stepped up in China."

"It's an area where the U.S. government could be very helpful if it could step up with resources," Ogden suggested. "We have, comparatively, pretty good enforcement structures here. China is hungry for cooperation with the U.S. in these areas."

Trickle-down energy savings

Because China is one of the world's largest manufacturers, importers of Chinese goods should see efficiency gains as the new energy-efficiency standards take hold. Some of the new standards will not necessarily affect U.S. energy consumption, as Chinese products have not reached the minimum efficiency standards for some U.S. appliances, Fridley said. But there is one notable exception that shows how improved Chinese appliances could reap benefits in the United States.

A joint project by EPA and China is aimed at creating an Energy Star standard for external power packs that convert AC power to DC power for use in laptop computers, answering machines, cordless telephones and other appliance. Such power supply units are also used internally in computers, televisions and other devices.

China manufactures most of the hundreds of millions of power supplies used in the world, and up until now, the efficiency of the devices has ranged widely, Fridley said.

"Bumping up the efficiency of these power supplies can save an enormous amount of energy," Fridley said. "All of a sudden, two countries are moving together to implement the same efficiency levels."

According to EPA, U.S. consumers account for 3 billion of the world's 10 billion power supplies. Experts estimate that about 6 percent of all U.S. electricity flows through the devices, and up to half of that energy is wasted as the power supply alters the current, wasting as much as $8.5 billion worth of electricity per year.

"More efficient power supplies could save 1 to 2 percent of U.S. electricity use," Fridley said. In a recent description of its Energy Star program for power supplies, EPA said the savings could be as high as 3 percent, or $8.5 billion per year in savings. "Just think how ubiquitous they are," Fridley said of the power supplies.

"To the extent we get China to implement more efficient power supply standards, that benefits directly [the United States]," Ogden added. "Your household electricity bill will go down because of China's efficiency standards."

As China adopts other efficiency standards, manufacturers will begin discontinuing less efficient product lines, Fridley explained. "When you have this global, interconnected world appliance market, actions in major countries indeed will have spill-down effects around the world," he said.

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