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1. Statistical Overview........................................................................................................................................... 2
2. Energy................................................................................................................................................................ 4
3. Green Policies and Incentives............................................................................................................................ 6
4. Green Programs and Institutions.................................................................................................................... 15
5. Green Regulatory Framework........................................................................................................................ 17
6. Investment Trends and Challenges................................................................................................................. 18
7. Concluding Remarks........................................................................................................................................ 23
8. Summary of Policy Instruments...................................................................................................................... 26
9. Annex............................................................................................................................................................... 27
10. References........................................................................................................................................................ 53
www.worldbank.org www.ausaid.gov.au
Green Infrastructure Finance
Acknowledgements
T
his country profile has been prepared by the East Asia and Pacific Region of the World Bank.
The work was led by Aldo Baietti, Lead Infrastructure Specialist (EASWE) under the over-
all guidance of John Roome, Sector Director (EASSD) and Charles Feinstein, Sector Manager
(EASWE). The team and co-authors included Andrey Shlyakhtenko and Roberto La Rocca (EASWE)
from the World Bank. The team wishes to acknowledge the peer reviewers and other contribu-
tors inside and outside the World Bank Group including, Gailius Draugelis, Lead Energy Specialist,
Ximing Peng, Senior Energy Specialist, Gerald Ollivier, Senior infrastructure Specialist, Yanqin Song,
Energy Specialist (EASCS), Alexander Jett, Research Analyst (TWISI), John Probyn (PPIAF), Bastiaan
Verink (TWISI), Dafei Huang (EASCS), Yan Li, Banuchandar Nagarajan, Amar Causevic (EASWE),
Zhang Fang (Local Consultant) and 10EQS, Ltd. Edward Charles Warwick edited the report. Finally,
the team wishes to acknowledge the generous support from the Australian Agency for International
Development (AusAID) provided through the World Bank East Asia and Pacific Infrastructure for
Growth Trust Fund (EAAIG).
1. Statistical Overview
Rep. of Korea
Philippines
Singapore
Indonesia
Malaysia
Vietnam
China
Macro Indicators
GDP (current US$ billion)1 847 225 124 7,318 1,116 240 278
Population (million) 2
242 95 88 1,344 50 5 29
Urban population (% of total) 3
49.9 48.7 30.4 49.2 82.9 100 72
Economic Indicators
Constant GDP 10 Year CAGR (%)4 5.1 4.5 6.4 9.6 3.4 5.8 4.5
Public debt (% of GDP) 5
24.7 50.9 48.8 16.5 34.7 108.3 51.8
Inflation, consumer prices (annual %) 6
5.4 4.7 18.7 5.4 4.0 5.2 3.2
Sector mix (% of GDP)7
Agriculture 15 12 21 10 3 0 11
Industry 47 33 41 47 39 28 44
Services 38 55 38 43 58 72 45
Energy Indicators
Energy production (Mtoe)8 352 24 77 2,085 44 0.03 90
Energy use (Mtoe) 8
202 39 64 2,257 229 19 67
Net energy exports/imports (Mtoe)9 147 (19) 11 (185) NA (51) 18
Electricity access (% of population) 10
71 90 98 99 100 100 99
Electric transmission and distribution losses (%) 11 9.4 12.1 9.6 4.9 3.7 5.2 3.8
Energy intensity (kgoe/US$1,000 2005 PPP) 12
230 126 274 273 184 80 191
CO2 emissions (Mt of CO2) 13,i
376 71 114 6,832 515 45 208
Electricity tariffs (US$/kWh)14 0.07 0.14 0.05 NA 0.13 0.22 NA
Fossil fuel endowment 15
Coal (2008, million short tons) 6,095 348 165 126,215 139 NA 4.4
Oil (2012, billion barrels) 3.9 0.1 4.4 20.4 0 0 4
Natural gas (2012, trillion cubic feet) 141.1 3.5 24.7 107 0.3 0 83
Total Primary Energy Supply (%)16
Coal and peat 15.1 15.2 19.7 67.2 28.3 0 15.8
Crude oil 26.5 19.3 4.2 16.8 39.5 61.4 35.5
Oil products 6.7 14.3 21.2 0 0 0 0
Natural gas 17.4 8.3 11.1 3.3 13.8 38.4 43.4
Nuclear 0 0 0 0.8 16.8 0 0
Hydro 0.5 2.2 4.0 2.4 0.1 0 0.9
Geothermal, solar, wind 7.9 22.9 0 0.5 0.1 0 0
Rep. of Korea
Philippines
Singapore
Indonesia
Malaysia
Vietnam
China
Energy Indicators (cont.)
Combustible renewable and waste 26.0 17.9 39.3 9 1.3 0.2 4.5
Electricity and heat 0 0 0.5 0 0 0 0
Electricity Sources (%) 17
ii Investments amounts include greenfield projects, concessions and management, and lease contracts.
2. Energy
C
hina’s economy has been growing at a Figure 1: Total Primary Energy Supply
rapid pace over the past three decades Natural gas
with an average growth rate of nearly 3% Nuclear
Crude Oil 1%
10 percent per year. Today, according to the 17%
International Energy Agency China is the Combustible
renewables
largest energy consumer in the world.26 Since Renewables and waste 9%
late 1980s, energy consumption has increased 12%
Coal & Peat Hydro
five-fold to fuel an economy that increased 2%
67%
eighteen-fold.27 Second factor behind the rise Other RE 1%
in energy consumption was urban population
boom. Population in the cities has more than
doubled since the start of the Open Door Source: International Energy Agency, 2009.28
Policy in 1979.
About 70 percent of China’s current energy consumption is supplied by coal. China is also the
world’s leader in coal production, accounting for nearly half of the world’s total coal production
in 2011. Despite its abundant reserves, in 2009 China became a net importer of coal due to bottle-
necks in domestic production and a rise in domestic prices.
Crude oil is the second largest source of China’s energy supply. In the early 1990s China has turned
from a net exporter of oil to the second largest importer in the world. In 2013 China actually sur-
passed the United States as the world largest importer of crude oil.29 Its dependency on oil imports
is expected to increase further in the coming decade.30 Natural gas consumption has also increased
rapidly in recent years and China now is seeking to increase its natural gas imports via pipeline and
shipment of liquefied natural gas. Renewable sources account for a relatively small percentage of
China’s overall energy supply, but the installed capacity of renewable energy (RE) is growing both
in absolute terms and at the fastest pace in the world.
China is now the world’s biggest CO2 emitter given its large energy consumption and heavy depen-
dency on fossil fuels. With a large manufacturing sector, China’s energy-intensity levels are also
among the highest in the world at more than two times the world’s average.
China is the second largest electricity pro- Table 1: Electricity Generation by Source (% of total)
ducer in the world. Rapid growth in elec- 2003 2005 2007 2009
tricity demand has spurred significant Renewables iii
15.0 16.1 15.1 17.5
investments in generation capacity, which Oil 3.0 2.5 1.0 0.4
has more than doubled from the 2005 levels, Nuclear 2.3 2.0 1.9 1.9
and is expected to double again by 2030. 26
Natural gas 0.3 0.5 0.9 1.4
Currently, China has second largest electric- Coal 79.4 78.9 81.1 78.8
ity generation capacity in the world.32 Over Source: International Energy Agency, 2009.31
iii In historical context hydro is the most important RE electricity generation source in China. Hydroelectric power rep-
resents more than 90 percent of RE electricity generation (99 percent in 2003, 98 percent in 2005, 98 percent in 2007
and 95 percent in 2009).
I
n 2009, China made a significant pledge within the framework of the Copenhagen Accord to
lower its carbon intensity per unit of GDP by 40-45 percent by 2020 from the 2005 levels by 2020
and to increase its share of non-fossil fuels in the primary energy consumption to around 15
percent by 2020.33 The Government has demonstrated strong commitment to meet these goals.
Planning Space
National Government
Copenhagen Accord
Commitments
National Five-Year Plan
Mandatory Targets
Green Credit Local Government Codes and
Programs
Guideline Standards
Ten Key
Appliance Programs, Top
Financial standards, 1000 Programs,
Industries auto efficient small plant
Market standards, etc. closure, etc.
Fiscal Incentives
(tax incentives, capital 7 Strategic
subsidies, low-interest Industries
financing, etc.)
Financing
China’s FYP is the Government’s primary vehicle in setting growth targets, mapping out develop-
ment strategies, and launching social and economic initiatives and reforms.
China’s 11th FYP (2005-2010) places EE as one of the highest national priorities. Under the plan, the
Government introduced environmental targets, including a 20 percent reduction of energy inten-
sity by 2010, and setting a RE target of 15 percent by 2020.v To achieve these targets, the 11th FYP
devised a series of top-down administrative programs, including closing down thousands of small,
outdated and inefficient industrial and thermal plants, retrofitting facilities in energy-intensive
iv Authors compilation based upon review of several research documents, governmental websites and interviews.
v The estimate includes hydro. However, if hydro is excluded the target is three percent.
industries, improving building EE, implementing appliance standards, etc. The Plan also assigned
mandatory energy intensity reduction targets at the provincial level, while holding provincial gov-
ernments accountable to deliver those targets. In the 11th FYP, investments in energy conservation
amounted to US$120 billion, of which 79 percent was from the private sector, 12.7 percent from the
central government, 6.4 percent from the local governments, and 1.9 percent from global finance.34
Meanwhile, total investments in RE reached US$124.4 billion in the 11th FYP period.35
The 12th FYP (2011-2016) placed unprecedented emphasis on sustainable growth. The environmen-
tal targets set for the period include a 16 percent reduction in energy intensity by 2015 and set-
ting a RE target of 11.4 percent by 2015. Central to the 12th FYP is China’s new ‘green’ industrial
strategy that focuses on the development of seven new strategic industries namely: (i) alternative
energy; (ii) biotechnology; (iii) new generation information technology; (iv) high-end equipment man-
ufacturing; (v) advanced materials; (vi) alternative fuel cars; and (vii) energy saving and environmental
vi Authors compilation based upon the information acquired from the Tufts University’s Professor Kelly Sims Gallagher
“International Energy Policy” course.
vii Renminbi (¥) exchange rate is approximately ¥6.230 = US$1.
protection. The Government will provide substantial public investment in these sectors over the Plan
period (2011-2016), with the expectation to leverage investments from both the private sector and local
governments.36 The total value added output of these new industries is expected to grow to eight per-
cent of China’s GDP by 2015, and to 15 percent by 2020. In the 12th FYP, energy conservation investment
demand will increase to about US$193 billion, which will help China to save 383 Mtce, and RE invest-
ment demand is expected to be US$281.3 billion, at about US$56.3 billion per year.34
In response to the mandatory targets set by the 11th FYP, several provincial governments, such as
Hubei Province, established EE funds through a levy on electricity consumption. The provincial gov-
ernments, in turn used these funds to provide incentives and subsidies to enterprises that imple-
ment EE measures.
China is one of the first developing countries that implemented a Renewable Energy Law. The Law
was first promulgated by the National People’s Congress (NPC) in February 2005 and became effec-
tive in January 2006. It put forward a comprehensive RE policy framework, and institutionalized a
number of policies and instruments for China’s RE development.
Planning Space
National Government
Copenhagen Accord
Commitments
Green Credit National Five-Year Plan
Guideline Mandatory Targets
Local Government
Equipment
Manufacturer
viii Authors compilation based upon review of several research documents, governmental websites and interviews.
A key component of the Renewable Energy Law is the provision for a mandatory grid connection
and off-take of all power generated from renewable sources. In 2009, the Law was amended with
strengthened requirements in this area. In spite of the clear legal provisions, off-take uncertainties
remain a major challenge for renewable development in China, due to cash flow strains of the grid
operators, and a reluctance of the renewable developers to enforce their rights.37
China published its Energy Conservation Law on November 1, 1997. The Conservation Law was
updated by the NPC in 2007 and the amendment became effective on April 1, 2008. The Law
requires state council and local governments to include energy conservation measures into their
economic and social development plans, and report on an annual basis to the People’s Congress or
its Standing Committee on energy performance. Additionally, the 2007 amendment requires estab-
lishing the system for tracking and evaluating energy-saving targets. The performance of local gov-
ernments and officials on energy-saving targets will be assessed.
The amendment further clarifies the regulatory frameworks for energy conservation in industry,
building, transportation and public institutions, etc. In industry, it proposes to: (i) improve the
structure of each sector; (ii) promote energy-saving technologies; and (iii) encourage the diffusion
of advanced energy-efficient motors, boilers, and pumps, etc. It also requires grid operators to
provide grid connections for power generation from co-generation, waste heat and pressure, and
other waste resources. In the building sector, it stipulates real estate development companies to
explicitly declare energy-saving measures to customers. It also aims to improve road structure and
to establish energy-saving transportation systems by encouraging the development, production
and usage of energy-saving and environment-friendly vehicles and improving public transporta-
tion. Additionally, the amendment demands that public institutions issue annual energy consump-
tion reports and set energy consumption standards. Public institutions are also required to give
procurement priority to energy-saving products and equipment.
The Medium and Long-term Development Plan for Renewable Energy in China was issued in 2007.
It established specific targets for each type of RE. The measures include the establishment of a
sustainable and stable market demand for RE, the improvement of the market environment, the
construction and extension of grids, the development of renewable power tariff and cost sharing
policies, the creation of additional fiscal and tax incentives, and the acceleration of technology
improvement and industry development.
To ensure stable and sustainable market demand for RE, the Government requires utilities to
achieve minimal levels of RE (non-hydropower) generation. The RPS introduced installed capacity
and power generation goals that must be achieved until 2020. In sum, generation companies with
installed capacity greater than 5 GW (i.e., Huaneng, Huadian, Guodian, China Power Investment
and Datang), should source at least eight percent of capacity and three percent of power genera-
tion from non-hydro RE sources by 2020.38
In 2011 the total installed capacities of the five generation companies amounted to about 515 GW,
translating to a minimal RE installed capacity requirement of 15.4 GW. In 2011 alone, China added
20 GW in wind installed capacity, bringing its total installed capacity in wind to 64 GW by the end
of that year from a meager 1.25 GW in 2005. Among all non-hydro-based RE sources, wind power
usually provides the least cost solution, therefore, often considered the “go-to” source by the big
generation companies in meeting their renewable targets.40
In early 2012, the China Banking Regulatory Commission (CBRC) issued the Green Credit Guidelines
to promote green credit growth among Chinese banks and other financial institutions.41 The guide-
lines also require banks to reduce their lending to energy-intensive industries with high levels of
pollution.42 The guidelines require banks to carry out an evaluation of clients’ environmental risks
when determining their access to credit, and to reduce funding to excessive energy consumption
projects. While it is still too early to assess the impact of the new guidelines, they nevertheless pro-
vide a clear policy direction for banks with respect to clean energy.
ix Authors compilation based on the data obtained from Fan et. al academic article “Renewables portfolio standard
and regional energy structure optimization in China” and Zhang’s book Energy and Environmental Policy in China:
Towards a Low-Carbon Economy.
Table 4: Clean Energy Stimulus Fund Spent and Remaining, 2011 (US$ billion)
Total 2010 2011 Remaining
United States 65.6 26.3 15.7 23.6
China 46.2 32.0 12.0 2.2
Korea, Rep. of 32.4 10.2 6.3 15.8
Germany 15.1 8.9 6.2 0.0
European Union 11.1 3.2 2.6 5.3
Japan 10.5 8.9 1.4 0.1
Australia 3.9 1.6 0.0 2.2
United Kingdom 3.4 1.3 1.4 0.8
Brazil 2.4 0.2 – 2.3
France 2.1 2.1 – –
Canada 0.6 0.1 0.5 –
Total 194.0 95.4 46.3 53.2
Source: Pew Charitable Trust, 2012. 43
In response to the 2008 global financial crisis, the Government of China launched a massive US$586
billion (¥4 trillion) stimulus, of which US$46.2 billion was devoted to clean energy development.
The amount had to be disbursed over two years. The Government’s green stimulus package is the
second largest in the world, only behind the United States. The Government was also the quickest
in disbursing its green stimulus funds, in the form of fiscal incentives (including subsidies, grants,
tax incentives, concessional loans, etc.) to catalyze investments from the private sector and the local
governments.
The Government’s fiscal incentives have spurred active developments in the equipment manufac-
turing space, where both private funds and the capital markets are eager to participate. In half
a decade, China turned into the world’s manufacturing powerhouse of RE equipment, supplying
nearly half of the global demand for wind turbines and solar panels. Unlike the wind power sec-
tor where the majority of the demand comes from the domestic market, China’s solar photovol-
taic (PV) sector has to rely on the absorbing capacity of the export markets. In 2012, with the euro
crisis in full swing and the slow-down of demand for PV in the euro zone, China’s PV manufac-
tures had to cut prices and suffered razor-thin margins. Some PV manufacturers in China are mov-
ing downstream into the project development space. With lower costs and lower upfront capital
requirements, these manufacturers are poised to become a competitive force in the solar energy
development space. However, since May 2012, the United States set punitive tariffs ranging from
24 percent to nearly 250 percent on most Chinese PV imports. Similarly, the European Union and
India and other countries are carrying out anti-subsidy investigations into PV wafers, cells, and
modules made in China.
China’s central and provincial governments offer financial subsidies to clean energy projects. In the
11th FYP, the standard subsidy rate in the eastern region was around ¥200 per ton of standard coal
(US$32.68 equivalent) saved. The standard rate in the western region was ¥250 per ton of standard
coal saved.45 In the 12th FYP, the standard subsidy rate in the eastern regions has increased to ¥240
per ton of standard coal saved, and the standard subsidy rate in the western regions has increased
to ¥300 per ton.
A wide array of tax incentives are available, including a corporate income tax (CIT) and value added
tax (VAT) reduction and/or exemption for RE projects, energy conservation initiatives and some
types of Clean Development Mechanism (CDM) proceeds. Financial subsidies and tax incentives
from both central and provincial governments are also made available to qualified energy service
companies (ESCOs) holding energy performance contracts (EPCs) and consumers of energy efficient
commodities, such as, air conditioners, cars and motors.
In 2009, China rolled out two national solar subsidy programs: (i) the Building-integrated Photovoltaic
(BIPV) subsidy program; and (ii) the Golden Sun Program. Both programs provide capital subsidies
to solar power projects, for either on-grid or off-grid purposes, for various installed capacity. In
2013, the Golden Sun Program was replaced by the national PV feed-in tariff (FiT) scheme.
Tariff
The Renewable Energy Law 2005 made provisions for surcharges to end-users to help finance the
cost premium of distribution companies during the concession tendering period. Under the law, the
power purchase agreements (PPAs) for all renewable projects have a valid period of one-year with
automatic roll-over at the end of each year. In the case of PPAs on wind projects, the agreed tariff
is locked in for at least 30,000 full load hours (about 12-15 years at partial load). At the end of the
30,000 hours the tariff will revert to the coal-fired tariff.37
China started offering a FiT for bio- Table 6: FiTs Levels in China
mass projects in 2006. It was twice
Applications (starting year) Level (¥/kWh)
revised upward because the initial FiT
Biomass (2006) 0.25
level was proven inadequate to sus-
Biomass (2009) 0.35
tain financial viability. The national
Biomass update (2010) 0.75
FiT for wind was introduced in 2009
offering four levels at 0.51 (or 0.083 Wind (2009) 0.51-0.61
US$/kWh), 0.54, 0.58 and 0.61 ¥/kWh, On-grid solar (2011) 1.00-1.15
corresponding to different wind Source: Renewable Energy Policy Network for the 21st Century, 2012.46
resources in different regions.
The different levels were set based on previously approved wind tariffs in each region between
2006 and 2008. In August 2011, China announced its first nationwide FiT for solar projects. The FiT
laid down by the National Development and Reform Commission (NDRC) set an on-grid solar power
price of 1.15 ¥/kWh (about 0.18 US$/kWh) for projects approved before July 1 and completed by
year’s end and 1 ¥/kWh (about 0.16 US$/kWh) for projects approved after July 1, and projects not
completed in 2011.
CDM
China is home to 60 percent of the Table 7: Number and Distribution of CDM Projects
issued CDM credits. The Government Number of China’s
has successfully put in place a facili- Country/Region registered projects contribution
tating framework for CDM investors. China 2,363
Meanwhile, the Government has also Asia Pacific 3,871 61%
used the CDM as a means to raise World 4,685 50%
public funds, and to influence proj-
Source: United Nations Environment Program, 2012.47
ect selection through differential tax
rates on various types of projects. CDM has five local designated operating entities to perform
project assessments and issuing certification.
CDM participation has improved the financial viability of RE projects in China. RE producers in
China generally can count on two sources of revenues, one from electricity sales and the other from
the generation and sales of Certified Emission Reductions (CERs) through the CDM. The latter can
account for as much as 20 percent of a developer’s total revenue.37
Carbon Market
In line with the emission reduction target of the 12th FYP, the NDRC has chosen seven regional pilots
of emissions trading systems (ETS). The pilot markets include Beijing, Tianjin, Shanghai, Shenzhen,
Chongqing, Hubei and Guangdong. The experience from the regional pilots is expected to be
applied to the development of a national unified carbon market planned to be launched during
the 13th FYP. Among the seven pilots, Shenzhen was the first one to pass a carbon trading law in
November 2012. Eight hundred enterprises from 26 sectors are included in the Shenzhen scheme
to ensure that at least 50 percent of the total emissions are covered. Shanghai has announced that
its pilot carbon emissions trading platform will be launched in 2013.48 The Shanghai Environment
and Energy Exchange will oversee the pilot trading platform made up of 200 firms covering 10
industry sectors, such as steel and power, and 6 non-industrial sectors, such as airlines, ports and
hotels.49 Trading will be based on credits that can be bought or sold. The trial companies will be
given initial quotas for free by Shanghai’s NDRC based on previous emissions data. Additional
credits or shortages can be corrected through transactions in the carbon credit market Shanghai’s
approach is also subject to approval from the Commission. In January 2013, Hubei Provincial gov-
ernment also published its Implementation Plan of Carbon Market Pilot with more than 150 energy
intensive firms. Xinyu City in Jiangsu Province, also launched its own mandatory carbon trade plat-
form in March 2013.
S
ince 2005, the Government made EE one of its highest priorities. The 11th FYP laid out ambi-
tious targets to reduce energy intensity by 20 percent from 2005 to 2010. To achieve this tar-
get, the NDRC, the Ministry of Environmental Protection (MEP) and other central government
agencies adopted drastic, top-down administrative measures. These measures included holding
provincial leaders accountable to achieving assigned energy saving targets, and closing down thou-
sands of outdated and inefficient plants in its power and heavy industry sectors. Small plants were
also consolidated to improve efficiency and restrictions were introduced to discourage the produc-
tion and export of energy intensive products, such as steel and cement.
The key EE programs implemented during the 11th FYP period include:
■■ The Ten Key Energy Conservation Projects Figure 4: Energy Savings from 11th FYP Programs
(2005-2010), which focus on coal-fired and Policies based on 2006-2008 Estimates
industrial boiler (kiln) retrofits, district
cogeneration projects, waste heat and 500 n Ten Key Projects
pressure utilization projects, petroleum
n Buildings Energy
conservation and substitution projects, Efficient
motors EE projects, energy system optimi- n Overlap Ten Key
400 Projects and
zation projects, building energy conser-
Top-1000
vation projects, green lighting projects,
n Top-1000 Projects
government agency energy conservation
n Small Plant Closures
projects, and energy saving monitoring 300
n Appliance
and testing and technology service system Standards
Mtce
The next 12th FYP aims to reduce energy intensity by 16 percent from 2010 to 2015. The key EE pro-
grams being implemented during the 12th FYP period include:
■■ The Ten Key Energy Conservation and Emission Reduction Projects, which include: (i) ener-
gy-saving renovation projects; (ii) energy-saving projects that directly benefit the people; (iii)
management and promotional projects relating to contracting energy; (iv) model projects of
energy-saving technology industrialization; (v) projects relating to the construction of urban
sewage treatment facilities; (vi) projects for the prevention and control of water pollution in
key valleys; (vii) desulfurization and denitration projects; (viii) projects designed for the preven-
tion and control of livestock and poultry breeding pollution; (ix) model projects promoting a
circular economy; and (x) projects which involve building energy-saving and emission reduction
capacity. The overall target is to save about 300 Mtce by the end of the 12th FYP.
■■ The Top-10,000 (Energy-consuming Enterprises) Program builds on The Top-1,000 (Energy-con-
suming Enterprises) Program in order to further reduce the energy intensity in key industries.
The Top-10,000 Program aims to cover two thirds of China’s total energy consumption, or 15,000
industrial enterprises that use more than 10,000 tce per year, and around 160 large transpor-
tation enterprises (such as large shipping companies), and public buildings that use more than
5,000 tce per year.
■■ Small Plant Closures: China plans to further close 20 GW of small coal power plants, 48 Mt of
iron-making capacity, 48 Mt of steel-making capacity, 370 Mt of cement-making capacity, 42
Mt of coking-making capacity and 15 Mt of paper-making capacity. Additionally, 12th FYP also
raises environmental standards of the tombarthite industry and requires the elimination of in-
efficient capacity.
■■ Continuing various enabling policies for enterprise EE that build on policies and programs in-
troduced during the 11th FYP, such as, adopting energy management system standards, training
energy managers, building key energy consuming enterprise data monitoring systems, and ex-
panding use of third parties for a wide range of EE services, including promoting energy perfor-
mance contracting, energy auditing, monitoring, reporting and verification (MRV) systems, and
facilitating access to commercial financing.
China’s efforts in RE and EE development are also supported by international institutions and orga-
nizations. In addition to the participation in CDM, programs such as the China Renewable Energy
Scale-up Program (CRESP), the China Utility-based Energy Efficiency Program (CHUEE), the World
Bank/Global Environmental Facility (GEF) China Energy Conservation Projects and the China Energy
Efficiency Financing Project (CHEEF) have played a significant role in the country’s RE and EE devel-
opment by promoting information sharing, offering policy recommendations, and providing finan-
cial incentives.
T
he NDRC is the primary policymaking and regulatory authority in the energy sector.30 Overall,
the NDRC is the leading regulatory body which oversees investments in power projects and
electricity tariff-setting. The NDRC and its local pricing offices approve PPAs of power projects.
Under the oversight of NDRC, the National Energy Administration (NEA) was established in June
2008. Its primary responsibility includes planning, coordinating and supervising activities in the
energy sector. The NEA is responsible for: (i) energy development policies, regulations, and stan-
dards; (ii) the coordination of the entities engaged with the development of the national energy
sector; and (iii) the supervision of China’s energy sector reform agenda.52 In 2013, the State
Electricity Regulatory Commission (SERC) was merged into the NEA to strengthen its function of
monitoring and regulating the operations of the country’s power sector.
The National Energy Commission (NEC), a high-level decision-making body, was set up in January
2010 to further integrate energy-related institutions and functions currently administrated by
the NDRC.53 The commission will review energy strategies and major policy issues, including
development and conservation of energy resources, energy security and emergency responses as
well as international cooperation.54
Other government agencies involved in the regulation of the national energy sector include: (i)
the Ministry of Land and Resources (MOLAR), which is responsible for the approval of all land use
and development of gas resources; (ii) the MEP, which is responsible for the approval of environ-
mental protection measures for energy projects; (iii) the National Ocean Administration, which
is engaged with offshore energy projects (e.g. offshore wind power); and (iv) the Ministry of
Housing and Urban Construction, which is responsible for the concession of gas in urban areas.
C
hina’s sovereign credit rating is one of the highest in the Table 8: S&P’s Credit Rating
region and among developing economies. In December Country Rating
2010, S&P affirmed its “AA-” long-term foreign current China AA-
rating on China, citing the country’s “exceptional growth pros- Indonesia BB+
pects” and its “modest government indebtedness” as the key Philippines BB+
factors supporting its creditworthiness and stable outlook. Singapore AAA
Korea, Rep. of A+
The rating agency had also noted that “the stable rating out- Vietnam BB-
look reflects that China can absorb potential balance sheet Source: Standard & Poor’s, 2012.18
losses with little damage to its credit standing, given its substantial foreign exchange reserves and
strong fiscal position”.55
Since 2009, China has been continuously Figure 5: Global Competitiveness Index
ranked among the top quintile of countries on
the Global Competitive Index. It was ranked Stage of development
between 26th and 29th in the period 2009-2013.56 1 Transition 2 Transition 3
1-2 2-3
Two salient factors have contributed to the Factor driven Efficiency driven Innovation driven
to private, especially, foreign participation in the country’s public sectors. For example, the telecom
sector had been a PPI “blind spot” due to its classification as “prohibited” (until December 2011)
in the Government’s “Catalogue for the Guidance of Foreign Investment in Industries”.x Moreover,
according to the “Guiding Opinions Concerning the Advancement of Adjustments of State Capital
x The Catalogue delineates sectors of the economy where foreign investment is encouraged, restricted and prohibited.
Sectors not listed in the Catalogue are considered permitted.
and the Restructuring of State-owned Enterprises” (December 2006), investments in several “vital
industries and key fields” should be restricted.58 These industries include: aviation, coal, electric
power and state grid, oil and petrochemical, shipping, and telecommunications.
Number of Projects
high economic growth, the 100
expansion of its domestic mar-
US$ billion
80 30,000
ket, and its relatively low, albeit 60 20,000
rising wage, China has been one
40
of the top FDI destinations in the 10,000
20
world. Over the past decade, FDI
0 –
has more than doubled from the 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
2001 level. In 2010, China was Utilized FDI (US$ billion) Number of Projects
the world’s second largest FDI
Source: Ministry of Commerce, 2012. 59
China is emerging as the global clean energy powerhouse. Since 2009, China has been leading
the international RE race, accounting for about one third of the global total RE investments.60
The nation’s ascendance has been steady and steep. In 2004, China attracted less than US$2 billion
worth of private investments in RE. By 2009, China led the world for the first time, with more than
US$38 billion invested. By 2010, China’s investment reached a record US$ 49 billion.60 Today, China
is home to the world’s largest installed capacity of RE. It is also the world’s leading clean energy
manufacturer, producing nearly 50 percent of all wind turbines and solar panels.
% of Global Investment
50
25
40
US$ billion
30 15
20
5
10
0 -5
2004 2005 2006 2007 2008 2009 2010
Additionally, China is also rapidly increasing its investment in energy conservation. In 2006, China’s
investments in energy conservation amounted to US$3.9 billion. Such spending increased to US$17.4
billion in 2007, US$22.8 billion in 2008, US$25.3 billion in 2009 and US$50.7 billion in 2010. Central
and provincial governments contributed 12.7 and 6.4 percent of all the energy conservation invest-
ments in 11th FYP, respectively. As previously indicated, the investment demand of energy conser-
vation is expected to increase to about US$193 billion over the 12th FYP implementation period.34
As part of the Renewable Energy Law 2005, a Renewable Energy Fund was established under the
Ministry of Finance (MOF). Initially, the fund collected ¥0.004 (US$0.0006) per kWh nationwide
(with some customer classes exempt). The proceeds from the surcharge were used to fund govern-
ment-supported RE projects through FiTs. In December 2011, the NDRC announced the doubling
of surcharges to ¥0.008 (US$0.0013) per kWh. According to industry analysts, the total tariff sur-
charges are expected to exceed ¥20 billion (US$3.2 billion) by the end of 2012. In April 2013, the
MOF advanced US$2.4 billion to subsidize renewable power to the provincial grid companies and
other independent electricity companies. Of the US$2.4 billion, US$1.5 billion was advanced to
wind power, US$0.4 billion to solar power and US$0.5 billion to biogas.
Although most investments have been made by state-owned enterprises to meet the govern-
ment-mandated targets for RE capacity, the contributions by the private sector have also been
significant. For example, small private investors and the grid operators have emerged as the key
participants in biomass and small and medium hydropower projects that involve small investments.37
An upward adjustment of the FiT for biomass-based electricity in 2009 and again in 2010 unlocked
private investment flows in biomass power generation and generated a total of US$1.3 billion of
private investments in 422 MW of biomass power generation capacity.57
Table 10: Global G20 Clean Energy Figure 8: Private Investment in New or Additional
Investment, 2006-2011 RE Capacity (US$ million)
Top 5 Growth Top 5 Growth 2,000
in RE Capacity in Investment 1,800
China 92% Italy 92% 1,600
Turkey 85% Indonesia 85% 1,400
US$ million
Brazil 49% China 49% 1,200
1,000
Italy 47% Australia 47%
800
Argentina 46% India 23%
600
Source: Pew Charitable Trust, 2012.43 400
200
0
2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: World Bank, 2012. 61
During the 2001-2011 period, the private sector contribution to RE development amounted to
US$8.6 billion, adding 6.9 GW in renewable installed capacity. Hydroelectric power was responsi-
ble for 3.6 GW of generation capacity. Privately developed wind farms added another 2.7 GW, at
a total cost of US$3.8 billion. Private sponsors operating out of Hong Kong were responsible for
31 percent of the privately developed wind farms. Solar plants appear significantly less popular
among private investors and represented a mere 214 MW, at a cost of US$545 million. As in the
case with private sector participation in biomass power generation, all but one solar project was
built after the implementation of the FiT in 2010.
During the 11th FYP, 79 percent of the investments in energy conservation came from the private sec-
tor, 19.1 percent from the public sector and 1.9 percent from the international community. Industrial
firms, building owners, banks and the equity market were the main players in energy conservation
investments. Investment of industrial firms
Figure 9: Breakdown of RE Investments
amounted to US$53.5 billion, representing 44.4 (US$ million) 172.7, 2.3%
percent of the total private investments. Building
owners invested US$1.9 billion, or 1.6 percent 2164.7, 28.9%
3246.2, 43.3%
of the overall private investments. Investments
from banks and the equity market were US$38
billion and US$1.6 billion, contributing 38 per-
cent and 1.3 percent of the total private invest-
ments, respectively.
343.5, 4.6%
Unlike the “vital industries and key fields” where 542.5, 7.2%
foreign and private sector access has been explic- 1026.6, 13.7%
n Biomass
itly or implicitly restricted, the green sector has n Hydro, Large (>50MW)
been repeatedly marked in the Government’s n Hydro, Small (<50MW)
n Solar, PV
key policy documents as a fast-lane for foreign n Waste
and private investments: n Wind, Onshore Source: World Bank, 2012.61
■■ The 11th FYP, which had promised greater scrutiny on foreign investment projects, had called
for special attention on the environment and EE during evaluation of investments by the Gov-
ernment;
■■ The 12th FYP has established clean energy technology as one of the seven strategic industries
that the Government aims to promote; and
■■ China’s newly-updated Foreign Investment Catalogue has also put clean technology under the
“encouraged” category for foreign investment. Several lower technology and lower value-add-
ed sectors have been removed from the “encouraged” category in the revised catalogue.
7. Concluding Remarks
O
ver the last three decades, China has experienced remarkable growth, transforming the
country into the second largest economy in the world. The growth, largely driven by heavy
industry and export oriented manufacturing, has also made China the largest energy con-
sumer as well as the largest emitter of greenhouse gasses (GHGs) in the world. This has come at
a steep price to its environment and as the economy continues to grow, the environmental chal-
lenges will inevitably escalate.
Given the size of its economy and continued growth in energy consumption, China has a critical
role in finding solutions to mitigate global climate change as well as address the related local envi-
ronmental consequences. The Government has taken actions to address these issues. China’s action
plans put forth the objectives of enhancing energy security and enhancing industrial competitive-
ness through more efficient use of energy resources.
Over the recent years, China has become a major player in the efforts to curb the effects of climate
change through the introduction of many environmental policies and programs. One of China’s
significant achievements has been in the area of energy intensity reduction. In the 11th FYP, China
laid out ambitious targets of reducing energy intensity by 20 percent between 2005 and 2010. To
achieve this target, China implemented top-down administrative measures and incentives schemes
including shutting down many small, outdated and inefficient industrial and thermal plants, retro-
fitting facilities in energy-intensive industries, improving EE of buildings, implementing appliance
standards, etc. China’s EE investments totaled around ¥2 trillion (over US$290 billion) during the
11th FYP. These efforts reduced the energy intensity by a reported 19.1 percent.62
Efforts to boost EE have continued with the 12th FYP (2011-2016). The plan called for a further
17 percent reduction in carbon intensity and a 16 percent reduction in the energy intensity of the
economy. To this end, the 11th FYP’s Top-1,000 Energy-consuming Enterprises Program was scaled
up to target more than 10,000 firms. Emphasis is being placed on the Ten Key Energy Conservation
and Emission Reduction Projects, improving the quality of administrative measures, introducing
more market-based tools to promote EE, and closing small-sized coal-fired power plants. In addi-
tion, the Government took steps towards launching cap-and-trade pilots and is considering other
measures, such as a carbon tax. The NDRC has chosen seven pilots (in Beijing, Tianjin, Shanghai,
Shenzhen, Chongqing, Hubei and Guangdong), which are expected to help create a knowledge
base for building carbon markets at the regional level and ultimately to develop a national unified
carbon market during the 13th FYP.
China has also noticeably intensified its efforts in RE. During the 11th FYP implementation period,
RE markets were established, renewable resource evaluations were completed, and many renew-
able projects were implemented. China achieved and even exceeded its RE targets during the 11th
FYP period, with average annual growth rates in wind and solar installed capacity reaching 89.7
and 62.8 percent, respectively. In a continuing effort to this end, China has set ambitious targets for
12th FYP and in 2012 alone invested a record US$68 billion in RE. According to the Plan, non-fossil
fuel generation accounts for 11.4 percent of total primary energy mix by 2015 and 15 percent by
2020. Moreover, China had aggressively pursued CDM projects. It has emerged as a global leader
in developing and exporting some clean energy technologies. In early 2013, NDRC issued a plan to
accelerate the country’s geothermal development.
In May 2013 the Chinese President Xi Jinping declared ‘ecological progress’ a priority.63 The MOF
announced that it will introduce a set of new environment-related taxes, including consideration
of a carbon tax. In an attempt to curb the number of old vehicles on the road and enforcing higher
emission control levels for new vehicles in the city, Beijing announced to launch the long-awaited
China V emission standard to replace the more lenient China IV standard which was introduced
in 2008. According to Xinhua News Agency, since 2012 China has drawn up 54 national standards
regarding EE, stipulating usage restrictions on sectors such as cement, coal, rare earth elements and
chemicals, and has imposed basic standards in related management systems.64
Despite these accomplishments, China faces steep energy-related environmental challenges. Coal
remains king in the country’s primary energy consumption and, with one fifth of the world’s popu-
lation, China accounts for nearly half of the world’s coal consumption.65 During 2000-2011, despite
concerted efforts in stemming energy intensity and scaling up RE, China’s consumption of coal more
than doubled from 1.5 billion tons to 3.8 billion tons. In addition, China has to import more than
half its oil.66 In the winter of 2012-2013 the widely reported heavy haze and smog descended over
northern and eastern China was a stark reminder of the challenges ahead, including the health
related consequences of insufficient actions.
Along with coal-fired energy production, vehicle emission is another primary cause for the heavy
smog. In an attempt to address this issue, China has recently imposed stringent fuel economy stan-
dards that would decrease fuel consumption to 6.9 and 5.0 liters per 100 kilometers by 2015 and
2020, respectively.67 China is planning to introduce ultra-low sulfur fuels (max of 10ppm) by the end
of 2017. It also aims at improving fuel quality, scrapping high-emitting vehicles by the end of 12th
FYP and limiting vehicle usage based on pollution levels.68
In pursuing green development, China enjoys a number of unique advantages. China has a large
domestic market to scale up green sectors and an abundant natural endowment of resources for
clean energy. It also has capital (including human capital) to invest in the green sectors. However, at
the same time, China also faces unique challenges in the next decades. The incentives for environ-
mental protection are weak and a competitive market environment for green industries is lacking.
Monitoring and enforcement of standards remain weak, especially at the local level. Coordination
between sectors, including between the Government and the private sector, as well between dif-
ferent levels of government, is also challenging in this large country with diverse local capacities.
There is scope for improvement in coordinating vertically between the central state and prov-
inces and horizontally, between different agencies and across jurisdictional boundaries. Finally, the
Government could encourage different regions to provide greater environmental protection incen-
tives for local governments.
Many reports have for some time concluded that China is at an important crossroad, needing to
rationalize the trade-off between the continued reliance on lowest cost energy to drive its indus-
trial competitiveness and the consequences of environmental degradation. China’s concerted
efforts demonstrate how tough the challenge is to overcome. Deeper EE improvements and scaling
of commercial RE are needed. Going forward, the Government will need to continue strengthening
the quality of its administrative programs and balance them more with market-based tools. One
measure could be to explore options to explicitly price both local and global externalities in order
to level the playing field for new entrants in green technologies. Besides continuing its efforts to
make further improvements on the EE front, the Government has to find the right policy mix to
significantly alter its primary energy mix and reduce its dependence on fossil fuels, especially coal.
Moving forward on a national cap-and-trade regime, and imposing carbon tax and other resource
taxes are options under consideration. Whatever the mix, China should ensure that RE, EE and car-
bon emissions policies are consistent and coordinated.
Korea,
China Indonesia Philippines Singapore Vietnam Malaysia
Rep. of
Tax Incentives ● ● ● ● ● ●
Carbon Tax ●
Capital Subsidy/Grants - RE ● ● ● ● ● ●
Renewable Energy
Policy Distortions ● ● ● ● ●
Feed-in Tariff ● ● ● ● ● ●
Domestic ● ● ●
Concessional
Financing
Foreign ● ● ● ●
Tax Incentives ● ● ● ● ● ●
Energy Efficiency & Green
Capital subsidy/Grants - EE ● ● ● ● ● ●
Domestic ● ● ● ● ● ● ●
Concessional
Financing
Tech
Foreign ● ● ● ●
Green Labeling ●
Awareness Campaigns ● ●
CDM ● ● ● ● ● ● ●
Market
Based
Carbon market ● ● ●
Cap-and-trade scheme ● ●
● Full implementation
● Limited scale and/or early stage implementation
● Existing barriers
9. Annex
Table of Contents
Five-Year Plans (FYP) of People’s Republic of China are developed by the Communist Party of
China through plenary sessions of the Central Committee and the NPC. The party plays a lead-
ing role in mapping strategies for economic development, setting growth targets, and launching
reforms. In the last two FYPs an increasing emphasis has been placed on energy conservation, secu-
rity, and sustainable development:
Under the National 11th FYP, the Government introduced environmental targets, including a 20
percent energy intensity target (by 2010) and a 15 percent RE target (by 2020). Of the 18 specific
targets included in the 11th FYP, seven were related to resources and the environment. Many of
these targets were achieved, including: (i) the water use reduction target, which was exceeded;
(ii) the energy consumption target, which was met; and (iii) the deforestation trend, which was
reversed.50
The National 12th FYP included ten key chapters addressing sustainable development that are based
on the following principles:
■■ Reducing the energy intensity of the economy through energy conservation and energy in-
tensity reduction policies;
■■ Reducing the GHG content of the energy used by increasing the share of RE in primary en-
ergy supply; and
■■ Expanding carbon sequestration.69
In addition to the National 12th FYP, specific policies were prepared for specific industries or sectors.
These included:
■■ The 12th FYP for National Energy Science and Technology Development, which aims to pro-
vide technical support for the implementation of the 12th FYP for energy development and
strategic development of new industries.
■■ The 12th FYP for Coal Industry, which aims to make progress in coal industry layout adjust-
ment and exploitation order regulation. It also plans to further centralize production.
■■ The 12th FYP for Coal-Bed Methane (CBM or Mine Gas) Development and Utilization, which
sets a target of CBM output to reach 30 billion m3 and gas generator installed capacity to
reach 2.85 GW by 2015. Under the plan, newly proved geological reserves should reach 1
trillion m3, and construction will be completed of two CBM industrial complexes at Qinshui
Basin and at the east margin of Erdos Basin.
■■ The Development Plan for Shale Gas (2011-2015) includes an assessment of shale gas poten-
tial and the selection of 30-50 shale gas prospects and 50-80 favorable target areas nation-
wide. The government set a 6.5 billion m3 shale gas target by 2015.
■■ The 12th FYP for Renewable Energy Development mandates that, by 2015, the newly RE in-
stalled capacity reaches 160 GW. Of the 160 GW, 61 GW, 70 GW, 20 GW and 7.5 GW should
come from the conventional hydroelectric power, wind power, solar power and biomass
power, respectively. The proportion of RE generation to total gross generation should be at
least 20 percent.
■■ The 12th FYP for Hydropower Development mandates that, by 2015, the total hydropower
installed capacity reaches 290 GW with a pumped storage power capacity of 30 GW.
■■ The 12th FYP for Wind Power Technology Development estimates that the installed capacity
of wind power will reach 100 GW, while the annual energy output will reach 190 billion KW.
The proportion of wind power to gross generation will exceed three percent during the plan
period. Offshore wind power capacity is expected to reach 5 GW.
■■ The 12th FYP for Biomass Energy Development states that, by 2015, the annual utilization of
biomass energy will exceed 50 million tons of standard coal. Installed capacity for biomass
energy power generation will total 13 GW, while the annual power electricity production
will total approximately 78 billion kW. The annual gas supply of biomass energy will reach
22 billion m3. Biomass molding fuel will reach 10 million tons and bio-liquid fuel will reach 5
million tons. Large scale demonstration projects of new technology encompassing compre-
hensive utilization of biomass energy will be constructed.
■■ The 12th FYP for Solar Power Generation Development mandates, by 2015, the installed ca-
pacity of solar power generation to exceed 21 GW, with an annual power generation of 25
billion kWh. The focus is placed on the distributed PV power generation system.
■■ The 12th FYP for Energy Conservation and Environmental Protection Industry estimates that,
by 2015, the total value of energy conservation and environmental protection will reach ¥4.5
trillion, or two percent of GDP.70 Meanwhile, the market share of high efficient energy con-
servation products will increase from 10 percent to 30 percent. By 2015, twenty professional
energy contract management companies and 50 environmental protection companies with
value over ¥1 billion in annual production will be formed.
National Climate Change Program and China’s Policies and Actions for Addressing Climate
Change set the emission intensity target relative to the level of economic activity. This implies that
the emissions in absolute terms will depend on future GDP growth.xi This approach helps alleviate
concerns about the effect of emission reduction commitments on economic development.
Commitments to Reduce Emissions Within the Framework of the Copenhagen Accord were
made by China in 2009. The core target is a 40-45 percent reduction of the CO2 intensity from 2005
to 2020. In addition to the emission intensity target, China also made a commitment to increase its
share of non-fossil fuels in primary energy consumption to approximately 15 percent by 2020. Until
2020 China plans to increase its forest coverage by 40 million ha. Moreover, China plans to increase
forest stock volume by 1.3 billion m3 from the 2005 levels.
Green Industrial Strategy is a central component to the 12th FYP. The strategy prioritizes the
development of seven new strategic industries. These include: (i) alternative energy; (ii) biotech-
nology; (iii) new generation information technology; (iv) high-end equipment manufacturing; (v)
advanced materials; (vi) alternative fuel cars; and (vii) energy saving and environmental protection.
The total value added output of the new industries is expected to account for eight percent of
China’s GDP by 2015 and 15 percent by 2020. The Government will provide substantial amounts of
public investment in these sectors over the next five years and this is expected to leverage hundreds
of billions dollars of additional investments from both the private sector and local governments.xii
Renewable Energy Law was first promulgated by the NPC in February 2005. It became effective in
January 2006, making China the first developing country to implement such a law. The Law explicitly
states that the development and the usage of RE is a priority in energy development. The Law pro-
posed a comprehensive RE policy framework, and institutionalized a number of policies and instru-
ments for China’s RE development and utilization. The Renewable Energy Law acts as the umbrella
legislation, while various ministerial regulations and measures support the implementation details.
xi These engagements were further recognized by the United Nations at the Cancún Summit in December 2010. Never-
theless, they remained voluntary. China and other countries have resisted the idea of any international control over
their domestic actions based on the concept of national sovereignty. GHG inventories can only be monitored and au-
dited at the international level when mitigation actions benefit from international funding.
xii For more details see China’s 12th FYP and Provisional/Indicative Sectoral Targets.
A series of regulations have been established based on the Renewable Energy Law.
The Law authorizes the regulatory department of the State Council to approve RE purchase prices
(wholesale prices), or grid connection tariffs of RE power generation projects with consideration
for promoting RE development and utilization. It also provides that the additional cost of pur-
chasing RE-based electricity and the cost of grid connection for transmitting such electricity may be
passed on to customers as retail electricity charges.
An update to the original Renewable Energy Law 2005 was adopted by the NPC in December 2009
which took effect on April 1, 2010. The amendment contains two main provisions:
Medium and Long-term Development Plan for Renewable Energy established specific targets
for each type of RE. The plan set a mid-term target of raising the share of RE consumption. The
plan also establishes: (i) number of national policies and measures for the establishment of a sus-
tainable and stable market demand for RE; (ii) the improvement of the market environment; (iii)
the construction and extension of grids; (iv) the development of renewable power tariff and cost
sharing policies; (v) the creation of additional fiscal input and tax incentives; and (vi) the accelera-
tion of technology improvement and industry development.
Administrative Provisions for Renewable Energy Power Generation were issued by the NDRC.
The provisions specify the standards for administration of RE power generation and the roles of
power generation and grid enterprises in the development and utilization of RE.
Provisional Administrative Measure on Pricing and Cost Sharing for Renewable Energy
Power Generation were issued by NDRC shortly after the Renewable Energy Law was passed. This
measure provides the general principles, pricing guidelines and cost sharing mechanisms of RE proj-
ects approved by the Government from January 2006.
Tentative Management Method for Renewable Energy Development Special Fund was for-
mulated and put forth by the MOF in June 2006. This policy includes, among other things, assis-
tance priorities, applications for assistance guidelines, their screening and approval and financial
management. The special fund provides grants and subsidies covering interest on loans, and gives
priority for the development and utilization of three major RE sources.
Reduction Target for Energy Intensity was adopted in 2005. The target indicated the impor-
tance of EE measures to the Government and made EE one of the highest national priorities. It was
set at 20 percent from 2005 to 2010. The 12th FYP planned to further reduce energy intensity by 16
percent from 2010 to 2012. To achieve this goal, the Government has adopted drastic, top-down
administrative measures including holding provincial leaders accountable for achieving assigned
energy saving targets, and closing down thousands of outdated and inefficient power and heavy
industry plants. Small plants were also consolidated to improve efficiency and restrictions were
introduced to discourage the production and export of energy intensive products, such as steel and
cement. The Government also provided strong financial incentives, including US$20 billion from
the Central Government in 2006-2009, with additional funds from provinces.
Energy Conservation Law was initially introduced in November 1997. However, the law was not
updated by NPC until 2007. The updated Energy Conservation Law became effective April 1, 2008.
The updated Energy Conservation Law prioritizes energy saving as a basic national policy. It clarifies
the energy conservation regulatory system and places energy conservation performance as one of
the criteria for measuring the performance of local governments. The new Energy Conservation
Law clarifies policies on industrial energy saving and adds new regulations for buildings, the trans-
portation sector and public institutions. The new Energy Conservation Law provides a legislative
foundation for energy conservation in China.
Monitoring and Evaluation Approaches for Energy Saving and Emission Reduction
Implementation were issued by the State Council in 2007. They establish the requirements for
a unified and scientific system to collect, monitor and evaluate data on energy conservation and
emission reduction. They also emphasize that performance in energy conservation and emis-
sion reduction represent a crucial criterion for executive performance and that officials would be
reviewed for non-compliance according to an accountability system.
Notice for Reduction of Export Taxation Refund of Some Commodities was approved by
State Council in June 2007. The notice canceled the export taxation refund of energy intensive,
pollution intensive and resource intensive commodities. It also indicates that the Government will
charge an export tariff on energy commodities in the near future.
Guidelines on Promoting the Energy Performance Contract and the Development of the
Energy Saving Service Industry were published in 2010 by General Office of the State Council
on behalf of NDRC and other related institutions. The guidelines exempt: (i) sale tax of EPCs imple-
mented by ESCOs; (ii) income tax for the first three years; and (iii) half of the income tax for the
next three years for ESCOs. They also waive the value added tax of the assets that ESCOs transfer to
consumers in EPCs. The guidelines also propose to include EPCs into the central budget investment
and the central energy-saving and emission reduction fund.
Temporary Measures for the Management of Fiscal Reward Fund set the reward amount
and funding sources given to the energy performance contract projects. Temporary measures were
published by the State Council in 2010. They clarify that the fiscal reward fund will be allocated by
the financial departments, both at central and provincial levels. For the Central Government the
reward amount is ¥240/ton of standard coal and for provincial governments the reward amount is
no less than ¥60/ton of standard coal. Provinces can raise their reward level.
Industrial Energy Efficiency and Green Development Special Actions were published by the
Ministry of Industry and Information Technology (MIIT) in 2013. The actions aim to establish 30 GW
of efficient motors and outdate 40 GW of inefficient motors, as well as promote efficient motor
manufacturing and demonstration projects in the industrial sector. Additionally, they also encour-
age the green development of lead related industries.
Environmental Laws
Liability Rules
• Environmental Protection Law
• Water Pollution Prevention and Treatment Law
• Air Pollution Prevention and Treatment Law
• Law on the Prevention and Control of Environmental Pollution by Solid Waste
• Environmental Impact Assessment Law
• Notice Addressing the Issue of Land Contamination
• New Tort Liability Law
Environmental Protection Law is the foundation of all Chinese environmental laws and regula-
tions. The law is enforced through other major environmental laws.71
Water Pollution Prevention and Treatment Law requires companies to obtain permits for sites
that discharge wastewater to surface water and wastewater treatment plants. It requires com-
pliance with state and local discharge standards and requires facilities that discharge pollutants
directly or indirectly into water to register with the local Environmental Protection Bureau (EPB).
Air Pollution Prevention and Treatment Law requires companies that discharge pollutants into
the air to register with the local EPB and to report on the categories, quantities and concentrations
of pollutants discharged. In addition, the law obliges companies to provide technical information
concerning the prevention and control of air pollution.
Law on the Prevention and Control of Environmental Pollution by Solid Waste requires the
sites generating hazardous waste that are listed in the Hazardous Waste Catalogue to use licensed
vendors to transport and dispose waste. It stipulates that polluters are responsible for the pollu-
tion they emit.
Environmental Impact Assessment Law requires new, expanded or modified projects to sub-
mit several documents. Those documents are: environmental impact report, environmental impact
analysis or an environmental impact assessment registration. All documents are issued by the local
or Central Government environmental authority for approval prior to commencing a construction
project.
Notice Addressing the Issue of Land Contamination was issued by the former State Environmental
Protection Administration (SEPA). The notice states that polluters will be held liable for the treat-
ment of land pollution and the restoration of contaminated land. Entities that generate hazardous
wastes must have their land tested and analyzed by environmental monitoring authorities before
they terminate operations and change the land use purpose.72
New Tort Liability Law was approved in December 2009 by the Standing Committee of the NPC.
The law increased the liabilities for environmental pollution. The Tort Liability Law became effec-
tive on July 1, 2010. Chapters 8 and 9 of the Law specifically address liability for environmental pol-
lution and clarify certain principles which have existed in various environmental laws, regulations,
and policies issued earlier. The new law may heighten the exposure of companies to environmen-
tal tort claims notwithstanding full compliance with China’s environmental laws and regulations.73
Under the Tort Liability Law, a company that pollutes the environment will be strictly liable in tort
for damage caused and will bear the burden of proof in respect of causation. Some of the main
environmental-tort issues addressed in the Tort Liability Law include triggers of liability for pollu-
tion, evidentiary burdens, and the apportionment of liability.
Regulations
• Green Credit Guidelines
• Guidelines on Credit Underwriting for Energy Conservation and Emission Reduction
• Local Environmental Regulations
Green Credit Guidelines were issued in 2012 by the CBRC. The guidelines were developed based
on the Banking Industry Regulation and Administration Law and Commercial Banking Law, with
the purpose of promoting green credit growth among financial institutions. The guidelines apply
to policy banks, commercial banks, rural cooperative banks and rural credit unions. The guidelines
require banks to reduce their lending to energy-intensive industries with high levels of pollution.
The new guidelines also encourage banks to evaluate and classify the environmental and social
risks of their client businesses and integrate the analyses and ratings into their overall credit risk
management processes.xiii
Guidelines on Credit Underwriting for Energy Conservation and Emission Reduction were
put forth in 2007 and preceded the Green Credit Guidelines. The CBRC has long been active in rais-
ing awareness on financing issues within the banking sector.
Local Environmental Regulations are applicable jurisdictionally and in some cases may place
additional requirements on companies.
xiii E&S risks as used in the Guidelines refer to potential impact and risks brought to the environment and communities
by banks’ clients and their primary supply chains through construction, production and operational activities. This
includes such E&S issues as energy consumption, pollution, land, health, safety, resettlement, eco-system protection,
climate change, etc.
Corporate Income Tax (CIT) incentives come in different forms and cover a broad array of activities:
■■ A reduced CIT rate of 15 percent is available to qualified advanced and new technology en-
terprises in fields of solar, wind, biomaterial, and geothermal energy;
■■ The CDM Fund is exempted from CIT on proceeds from CERs, donations, and interest income.
CER income is CIT exempt for regular private enterprises;
■■ A full exemption of CIT for three years followed by another three years of 50 percent CIT re-
duction is provided to specific CDM projects (including HFC, PFC and N2O projects), qualified
environmental protection and energy or water conservation projects; and
■■ CIT deductibles include: 10 percent of capital investments in qualified equipment, and 150
percent of qualified R&D expenses.
Refundable Value Added Tax (VAT) is offered on: (i) 50 percent on wind power sales; (ii) 100
percent on electricity generated from bio-diesel oil; (iii) goods produced from recycled materials or
waste residuals; and (iv) sales from recycled resources. Sales from sewage treatment services are
exempt from VAT.
Reform of the Resources Tax System will be conducted under the 12th FYP. In general, the tax
reforms will shift from volume-based taxes, which were set several years ago and usually at a very
low level, to value-based taxes that will fluctuate alongside several commodity prices. The new
system was implemented for oil and gas in late 2011, and is expected to be extended to coal and
other commodities. In November 2012, the MOF revealed that in the future water would also be
charged the resource tax.
Carbon Tax has received much attention, since proposals for a new environmental taxation sys-
tem, (drawn up by the MOF’s Financial Science Research Institute) have already been submitted
for review and are expected to be implemented before the end of the 12th FYP period.74 The pro-
posals include establishing an independent tax on GHG emissions that would focus on the major
consumers of coal, crude oil and natural gas. The proposals also called for the tax to be levied as
early as 2012.xiv
Two National Solar Subsidy Programs were introduced in 2009.xv Those are:
■■ The BIPV Subsidy Program was announced in April 2009. China’s Ministry of Housing and
Urban-Rural Development introduced a stimulus plan for BIPV applications, offering ¥20 per
watt for construction material and component-based BIPV projects, and ¥15 per watt for
rooftop and wall-based projects. By July 2009, only three months after the announcement
of the program, 111 rooftop-based or BIPV projects with a combined capacity of 91 MW had
been allocated with subsidies totaling nearly ¥1.2 billion.
■■ The Golden Sun Demonstration Program was announced in July 2009. The MOF, Ministry of
Science and Technology (MOST) and the NEA of NDRC, introduced the Golden Sun Demon-
stration Project. This aimed to facilitate the growth and expand the scale of the PV power
generation industry through fiscal subsidies, scientific and technological support, and mar-
ket incentives to accelerate the industrialization of PV technology and enable large-scale
development of the PV industry. The Program provides upfront subsidies for utility-scale
solar farms exceeding 300 kW, up to a total of 680 MW for qualified demonstrating PV proj-
ects from 2009-2011. By December 2010, 16 companies had won bids for suppliers of the
Program. However, since 2013 the Golden Sun Program is not accepting new applications as
a national PV FiT was being implemented.
Financial Measures
• Feed-in Tariffs (FiTs)
• Tariff Disincentives
• Differential Electricity Price Policy
• Renewable Energy Fund
Feed-in Tariffs (FiTs) for various low-emission technologies were introduced over the last several
years. Those are:
■■ The Biomass FiT was adopted through the Renewable Energy Law and the subsequent Pro-
visional Administrative Measure on Pricing and Cost Sharing for Renewable Energy Power
Generation (implemented in January 2006). The biomass power generation project can ei-
ther receive a subsidy of ¥0.25/kWhxvi or, when subject to competitive bidding, the bid win-
ner’s price is capped by the local standard wholesale price;
xiv According to the National Solar Subsidy Programs, the carbon tax may begin at a rate of ¥10 (US$1.59) per ton of CO2,
and gradually increase depending on a company’s emission levels.
xv A reform of subsidy standards has been announced in 2013.
xvi A price must be above the standard provincial wholesales price for desulphurization coal-fired generation in 2005.
■■ In July 2009, China introduced a national FiT for wind with four levels at ¥0.51, 0.54, 0.58 and
0.61/kWh, corresponding to different wind resources in different regions;
■■ In August 2011, China announced its first nationwide FiT for solar projects. The FiT was
established by NDRC and sets an on-grid solar power price of ¥1.15/kWh (about US$0.18/
kWh) for projects approved before July 1, 2012 and completed by year’s end; and ¥1.00/kWh
(approximately US$0.16/kWh) for all others. According to NDRC, the solar power generation
rates are expected to decrease to ¥0.75-1/kWh for centralized grid-connected PV projects
and ¥0.35/kWh for decentralized grid-connected PV projects due to the rapid reduction of
PV module and system prices.
Tariff Disincentives have been introduced to encourage power producers to phase-out small, inef-
ficient, and high polluting coal-fired generation units. The policy, first introduced in 2007, lowered
the on-grid electricity tariffs for small-sized coal-fired power plants over a period of two to four
years. The policy was applied to all units less than 50 MW to 100 MW units that have been in ser-
vice for more than 20 years, and to 200 MW units that have reached the end of their economic life.
After on-grid tariffs for these aged and small-sized coal-fired power plants were lowered, the pri-
ority switched to more efficient plants for dispatching power generation. Outputs from the small-
sized and aged plants were effectively reduced, and all were eventually taken out of service. This
policy has significantly contributed to the structural upgrading of the generation sector to large-
sized and more efficient generation units.
Differential Electricity Price Policy was issued by State Council and NDRC in 2006. The policy
requires placing a punitive electricity price on energy intensive industry, such as yellow phospho-
rus industry and zinc smelt industry, electrolytic aluminum, iron alloy, calcium carbide, caustic soda,
cement and iron and steel. The electricity consumption of these eight industries will be 50 percent
more, which means ¥0.2 per KW more than the general tariff. In 2010, NDRC further increased
punitive electricity prices on energy intensive industrial enterprises. The electricity consumed by
outdated enterprises will be charged a ¥0.1 per KW premium and the electricity consumed by
restricted enterprises will be charged an additional ¥0.3 per KW.75
Renewable Energy Fund was established under the MOF as a part of the Renewable Energy
Law 2005. Initially, the fund collected ¥0.004 (US$0.0006) per kWh nationally (with some customer
classes exempt). The proceeds from the surcharge were used to fund government-supported RE
projects and FiTs. However, the proceeds from the fund had not been able to keep pace with expen-
diture.76 The NDRC doubled the surcharges to ¥0.008 (US$0.0013) per kWh in December 2011.
According to industry analysts, the total tariff surcharge is expected to exceed ¥20 billion (US$3.2
billion) by the end of 2012.
Market-based Mechanisms
• Clean Development Mechanism (CDM)
• Carbon Markets
• Capital Markets
• Renewable Portfolio Standard (RPS)
Carbon Markets initiative was started in June 2008. The following years have seen the launch of
several trading platforms.79 Nevertheless, only three of these have acquired significant importance:
(i) the China Beijing Environment Exchange; (ii) the Tianjin Climate Exchange; and (iii) the Shanghai
Environment and Energy Exchange.
NDRC has chosen seven regional pilots including Beijing, Tianjin, Shanghai, Shenzhen, Chongqing,
Hubei and Guangdong to establish local/regional level ETS. These pilots are expected to help cre-
ate a knowledge base on building carbon markets at the regional level, and use that experience to
build a national unified carbon market during the 13th FYP. All pilots are currently designing their
regional ETS. While NDRC proposes a cap-and-trade scheme, each pilot may have leeway to adjust
their trading scheme based on their own particular circumstances.
The technical infrastructure at the basis of carbon markets is being built quite rapidly. Its most
important element is the creation of a complete emissions statistical framework, which includes
the ability to monitor the impact of energy conservation and emissions reductions policies. In par-
allel, China is also engaged in carbon-market capacity-building dialogues both bilaterally (e.g. with
the European Union) and multilaterally (e.g. by applying to engage in the Partnership for Market
Readiness a multilateral trust fund administered by the World Bank). Even if a unified Chinese car-
bon market remains distant, some experimental schemes can be implemented in the short term
that can lead to innovative and interrelated measures to ensure China will meet its objectives.
Capital Markets (both domestic and international) are playing an increasingly important role in
financing projects undertaken by Chinese firms. A significant portion of the Chinese firms that
have issued IPOs on the NYSE and NASDAQ are in the green sectors, while the “new energy”
sector has also attracted considerable attention among investors in the domestic stock exchange.
Debt financing through bond issuance remains in its infancy. In 2011, ENN Energy Holdings Ltd.
issued US$750 million equivalent of 10-year Eurobond at a coupon rate of six percent. In the same
year, China Power New Energy Development Company Limited issued a ¥500 million denominated
Eurobond with a coupon rate of 3.75 percent.
Renewable Portfolio Standard (RPS) was designed to ensure stable and sustainable market
demand for RE. The Government plans to increase RE generation (non-hydropower) contribution
to one percent and three percent of the total power generation by the end of 2010 and 2020.
Additionally, generation companies, with installed capacity of more than 5 GW (i.e. Huaneng,
Huadian, Guodian, China Power Investment and Datang are required to increase their contribu-
tion from non-hydropower renewable energies to eight percent of their total installed capacity by
2020). These companies have opted for wind power as it is the cheapest means to achieve scale and
satisfy the targets.38
Key Energy Conservation Projects (2005-2010 and 2011-2020) were established in 2004 by NDRC
as part of China’s Medium and Long-term Plan for Energy Conservation. These projects were aimed
to increase EE through: (i) adjusting and optimizing the economic structure; (ii) promoting ener-
gy-efficient technologies; (iii)establishing a strict management system; and (iv) implementing effec-
tive incentive mechanisms. Later, this program became part of the 11th FYP to support the nation’s
target to reduce energy intensity 20 percent by 2010.
Ten Key Projects focused on: (i) coal-fired industrial boiler (kiln) retrofits; (ii) district cogeneration
projects; (iii) waste heat and pressure utilization projects; (iv)petroleum conservation and substitu-
tion projects; (v) motor EE projects; (vi) energy system optimization projects; (vii) building energy
conservation projects; (viii) green lighting projects; (ix) governmental agency energy conservation
projects and energy saving monitoring and testing; and (x) technology service system building proj-
ects. The overall target was to save about 250 Mtce (excluding oil substitution) by the end of the
11th FYP. In addition, the energy intensities of major products in key industries are expected to be
comparable to advanced international levels achieved at the beginning of the 21st century.
In 2012, China’s State Council released the “Circular of the State Council on the Printing and Distribution
of the 12th FYP for Energy Saving and Emission Reduction”, aiming to transform the mode of eco-
nomic development, establish an energy-saving and environmentally-friendly society, and strengthen
the capacity of sustainable development. The Circular updated the Ten Key Energy Conservation and
Emission Reduction projects to include: (i) energy-saving renovation projects; (ii) energy-saving proj-
ects to directly benefit the people; (iii) management and promotional projects relating to contract-
ing energy; (iv) model projects of energy-saving technology industrialization; (v) projects relating to
the construction of urban sewage treatment facilities; (vi) projects for the prevention and control of
water pollution in key valleys; (vii) desulfurization and denitration projects; (viii) projects designed for
the prevention and control of livestock and poultry breeding pollution; (ix) model projects promot-
ing a circular economy; and (x) projects which involve building energy-saving and emission reduction
capacity. The overall target is to save about 300 Mtce by the end of the 12th FYP.
The Top-1,000 Program includes large-scale enterprises in nine major energy-consuming indus-
tries.80 The goals of the Top-1,000 Program were to: (i) significantly improve the EE of these enter-
prises; (ii) reduce unit energy consumption to a national advanced level for all major products;
(iii) have some enterprises attain either international advanced level or national leading level; and
(iv) achieve energy savings of 100 Mtce in the 11th FYP period.
In light of the big success of the Top-1,000 Program, NDRC, MIIT, and other 10 ministries have
cooperated to expand the Top-1,000 Program to the Top-10,000 Program in the 12th FYP. The Top-
10,000 Program aims to cover two thirds of China’s total energy consumption, or 15,000 industrial
enterprises that use more than 10,000 tce per year, and around 160 large transportation enterprises
(such as large shipping companies), and public buildings that use more than 5,000 tce per year. The
total number of enterprises covered by this program currently has reached to around 17,000. The
target of the Top-10,000 Program is 250 Mtce of energy saving by 2015. To achieve the 16 percent
energy intensity reduction relative to 2010, the total energy-saving target for China is 670 Mtce.
This means the share of the energy-saving target of the Top-10,000 Program is 37 percent of the
total energy-saving target.
The key elements of the Top-10,000 Program include: (i) establishing energy conservation working
groups in enterprises; (ii) implementing the target responsibility and accounting system; (iii) allo-
cating targets to companies, plants and workshops; (iv) conducting energy audits and developing
energy conservation plans, based on the Technical Principle of Energy Audits in Enterprises (GB/T
17166); (v) implementing energy audit systems; (vi) conducting EE benchmarking; (vii) establish-
ing energy management systems following China’s energy management standard (GB/T 23331);
(viii) expanding the energy managers training pilots; (ix) implementing energy utilization report-
ing systems; (x) continuing the phasing-out of backward technologies; (xi) accelerating energy con-
servation retrofits by allocating special funding for annual retrofits and cooperating with ESCOs;
(xii) improving energy measurement and measuring instrument and encouraging companies to
build energy management and control centers and to use automation and IT; and (xiii) establishing
energy conservation incentive mechanisms.
Structural Optimization/Small Plant Closures Program helped carry out the 11th FYP task by
establishing a more rational structure of industries, products, and industrial organization as well
as increasing the ratio of service sector value-added to total GDP of three percent. The program
successfully closed 100 Mt of iron-making capacity, 55 Mt of steel-making capacity, and 250 Mt of
cement-making capacity by 2010. Thousands of outdated and inefficient plants in the power and
heavy industry sectors were closed under the program. The 12th FYP further plans to close 20 GW
of small coal power plants, 48 Mt of iron-making capacity, 48 Mt of steel-making capacity, 370 Mt
of cement-making capacity, 42 Mt of coking-making capacity, and 15 Mt of paper-making capacity.
Additionally, 12th FYP also raises environment standards of tombarthite industry and requires out-
dating backward capacity.
Green Credit Policy Program was introduced in July 2007 by the CBRC, the MEP, and the People’s
Bank of China (PBOC). International Finance Corporation (IFC) provides guidance to the CBRC on
how to enhance monitoring and evaluation of the Green Credit Policy implementation.81 Moreover,
the IFC supported the MEP with the “Green Credit Handbook”, “The International Experience in
Promoting Green Credit: Equator Principles and IFC Performance Standards and Guidelines” and
“The China Green Credit Policy Annual Report”.82 In 2008, MEP signed an information sharing
agreement with CBRC, which indicated that information on environmental impact of firms would
be recorded into the Credit System of the PBOC. Firms that disregard the environment law will be
refused or will be required to return loans. The Green Credit Policy Program was able to reduce
the growth of loans provided to energy intensive sectors by 3.3 percent by the end of 2011 vis-à-vis
loans provided to other sectors. In early 2012, the CBRC issued the Green Credit Guidelines to pro-
mote green credit growth among Chinese banks and other financial institutions. The Guidelines
require banks to carry out an evaluation of clients’ environmental risks when determining their
access to credit, and to reduce funding to high energy consumption projects. While it’s still too
early to assess the impact of the new guidelines, they do provide a clear policy direction for banks
in terms of the approach to clean energy.
Pollution Prevention and Energy Efficiency Program (P2E2) uses Hong Kong’s legal and finan-
cial systems to mobilize international capital, the management and technology to provide solutions
for China’s growing energy conservation and air, water and ground pollution problems. P2E2 uses
the Asian Development Bank (ADB) or IFC loan guarantees (partial risk guarantees) and United
States Export-Import Bank export credits and guarantees to enable commercial banks to make
working capital loans, equipment leases and trade finance available to Hong Kong-based environ-
ment and energy service companies.
China Renewable Energy Scale-up Program (CRESP) launched by the Government, the World
Bank and GEF in 2006 aims to fund policy research to scale up RE development. It also funds tech-
nology development and demonstration, mainly in wind power and biomass generation technol-
ogies. In the CRESP I project, GEF donated US$40 million, which induced ¥9 billion (about US$1.34
billion) investments in the country’s RE industry by 2011. The preparation of the CRESP II project is
underway and, currently, the proposed project includes five components: (i) policy support; (ii) grid
connection and technology design; (iii) technological progress; (iv) RE pilot demonstration; and (v)
capacity building, investment support and project management.
China Utility-based Energy Efficiency Program (CHUEE) selects commercial banks to provide
loans for EE equipment and projects.83 Bank lending is supported by an IFC risk sharing facility. By
June 2009, the guarantee program had supported US$512 million in loans for US$936 million in
projects, and a claimed GHG reduction of 14 million tons.
China Energy Efficiency Financing Project (CHEEF) was approved by the World Bank in May
2008 and became effective in October 2008. The objective of CHEEF is to improve EE of medium and
large-sized industrial enterprises in China, and thereby reduce their adverse environmental impacts.
This is to be achieved through: (i) two International Bank for Reconstruction and Development
(IBRD) loans of US $100 million each to EXIM Bank and Huaxia Bank; and (ii) GEF Grant of US$13.5
million for technical assistance to the Government and two participating banks. In June 2010,
the World Bank approved an IBRD loan of US$100 million to Minsheng Bank to improve the EE of
selected enterprises. In 2011, the CHEEF III provided an additional loan in the amount of US$100
million to scale-up the project. The CHEEF III has also expanded the targeted market segments from
the industrial sector to the building sector and beyond. It has also broadened the sub-borrowers
from large and medium-sized industrial enterprises to include all sizes of enterprises and ESCOs.
Financing and Equipment Leasing for Energy Service Companies enabled US$4 billion in EPCs
in 2010. By the end of August 2011, there were 260 financing and equipment leasing enterprises in
xvii EMCO signs an energy service contract with a customer who is willing to implement an energy conservation reno-
vation project. It provides a comprehensive array of services to that customer, including an EE audit, project design,
procurement services, engineering, training, operating and maintenance, and energy saving measurement associat-
ed with the project, etc. EMCO makes a profit by taking a share of the energy savings of its customer.
Terms ESCO and EMCO are used interchangeably in China to denote a company that engages in energy performance
contracting for EE investment projects in other entities.
China. Equipment leasing allows clients to avoid mobilizing upfront equity and debt financing and
collateral requirements because the equipment is owned by the leasing company. Leasing compa-
nies also can play roles in project bundling arrangements.
Institutions
• State Council
• National Leading Group Dealing With Climate Change, Energy Conservation and Emission
Reduction
• Department of Climate Change
• Department of Resource Conservation and Environmental Protection
• National Energy Administration (NEA)
State Council is the highest decision-making body of the Chinese economy and has control over
the development and operation of the power sector.85 Although it is not directly involved in regu-
lating the power sector, the State Council oversees the responsibilities of the central and provincial
government authorities and the institutional structure of the regulatory body and assigns functions
and tasks to relevant government authorities.
Multiple ministerial agencies, at the central government level, are involved into China’s energy
regulation, including: the NDRC, the NEA, the State Owned Assets Supervision and Administration
Commission, the MEP, MOLAR, the Ministry of Water Resources and the more recently created NEC.
The MIIT, the MOF, the MOST, the Ministry of Transport, the Ministry of Commerce, PBOC and the
Ministry of State Security are also involved.86
National Leading Group Dealing With Climate Change, Energy Conservation and Emission
Reduction was established in June 2007. The group is led by the Premier and is mainly responsi-
ble for: (i) researching and drafting national strategies and policies; (ii) implementing measures on
climate change, energy conservation and emissions reduction; and (iii) coordinating their imple-
mentation among participating agencies. The group also studies China’s international cooperation
on climate change and international negotiations. It holds plenary sessions each year, generally in
June or July, to review progress and set goals for the upcoming year.87
Department of Climate Change (under NDRC) is responsible for: (i) analyzing the impact of cli-
mate change on social-economic development; (ii) coordinating the formulation of key strategies,
and policies dealing with climate change; and (iii) leading the implementation of the UNFCCC. In
collaboration with other relative parties in international climate change negotiations, it is also
responsible for coordinating and carrying out international cooperation in response to climate
change and related capacity building. It is also responsible for organizing and implementing the
tasks related to CDM, and implementing policies created by the National Leading Group Dealing
With Climate Change, Energy Conservation and Emission Reduction.88
■■ Administering energy sectors including coal, oil, natural gas, power sector (including nuclear
power) and RE;
■■ Planning for energy conservation, comprehensive utilization of resources in the energy sec-
tor;
■■ Guiding scientific and technological advancement;
■■ Carrying out the R&D of equipment and guiding the assimilation of imported equipment;
■■ Participating in the formulation of policies related to energy, such as finance and taxation,
environment protection, and climate change;
■■ Making recommendations on energy price adjustment and imports and exports aggregate;
and
■■ Supporting the NEC.90
China’s Vehicle and Engine Emission Standards are issued by the MEP. In addition to National
Standards, which are mandatory nationwide, Environmental Standards apply to industries that
have an impact on the quality of the environment. In addition, local governments may impose
local standards.
China’s first emission regulations for motor vehicles became effective in the 1990s. In May 1999, the
SEPA in collaboration with the MOST and the State Administration of Machinery Industry issued the
Automobile Emission Pollution Prevention Policy, which specified the objectives of pollution control
and the requirements for new car model development. China’s first national emission standards
(China I), equivalent to Euro I standards, were enacted in 2000. They were upgraded in July 2004
by the SEPA to the Euro II standard, with Beijing and Shanghai as pilots. China III, equivalent to
Euro III standards went into effect on July 1, 2007 with Beijing, Shanghai and Guangzhou as pilots.
China IV, equivalent to Euro IV, was introduced in 2010. On December 3, 2012, SEPA required all
new gas fuel ignition engines or cars, which were produced, imported, sold or registered in China,
would need to reach the China V standards.
Implementation of the national standards has experienced repeated delays. For instance, the Phase
III emission standards for gasoline and gasoil were originally scheduled to be implemented nation-
wide by January 1, 2010, but took six months longer. In January 2012, MEP officially announced
that the implementation of the China IV emission standard for heavy-duty diesel vehicles had been
delayed from January 2012 to July 2013.
This has led to some large metropolitan areas, including Beijing and Shanghai, adopting more strin-
gent regulations on an accelerated schedule, ahead of the rest of the country. Beijing implemented
the Euro IV standards for light-duty vehicles in 2008 and plans to introduce Euro V-based standards
from 2012. In April 2012, the Beijing Municipal EPB released a draft plan of new emission standard
which is said to be equivalent to the Euro V standard. The Euro V-based standard emission went
into effect on March 1, 2013 in Beijing.
Air Quality Standards (that include PM 2.5) were passed in 2012 by the State Council. The stan-
dard will be implemented in major cities in 2012 and 2013 before extending it nationally in 2016.
System to Measure Carbon Emissions for major industrial companies is being established by the
National Bureau of Statistics. This is a crucial move to support the country’s plans to establish pilot
carbon markets and a carbon tax.77
Regulatory Agencies
• National Development and Reform Commission (NDRC)
• State Electricity Regulatory Commission (SERC)
• China Banking Regulatory Commission (CBRC)
National Green Technology and Climate Change Council (MTHPI) chaired by the Premier, held
its first meeting in January 2010. The main function of this council is to streamline and coordinate
the effort to drive green technology amongst the various ministries. Under the Council, eight
working committees have been established, namely: (i) Human Capital; (ii) Industrial; (iii) Research
and Innovation; (iv) Promotion and Public Awareness; (v) Transportation; (vi) Green Neighborhood;
(vii) Green Growth; and (viii) Climate Adaptation.
National Development and Reform Commission (NDRC) is the leading regulatory body which
oversees investments in power projects and sets electricity tariffs. NDRC and its local pricing offices
approve PPAs. As a macroeconomic management agency under the State Council, NDRC’s functions
are to study and formulate policies for social and economic development, to reform and maintain a
balanced economic development, and to guide the restructuring of China’s economic system. The
pricing department of NDRC is the ultimate authority on issues related to electricity tariff settings
and their adjustments. On-grid electricity tariffs of new power projects normally are proposed by
the provincial governments, reviewed by SERC, and approved by NRDC.
State Electricity Regulatory Commission (SERC) has supervised the electricity sector since 2003.
However, in 2013, SERC was merged into the NEA to strengthen its function for monitoring and
regulating the operations of the country’s power sector. Before the merger, SERC was responsible
for promoting reforms of the power sector such as breaking up monopolies, supervising market
competition, monitoring and supervising policy implementations (including electricity-pricing poli-
cies) and issuing licenses to operators.
China Banking Regulatory Commission (CBRC) is responsible for supervising banks related to
green finance and green credit.
0.5 1.0
Energy ontensity (tce/1,000Y)
0.4
0.8
Elasticity
0.3
0.6
0.2
0.4
0.1
0.0 0.2
-0.1 0.0
1980 1985 1990 1995 2000 2005 2010
80% n Combustible
Renewables and
Waste
n Geothermal, Solar,
60% etc.
n Hydro
n Nuclear
40% n Natural Gas
n Oil Products
n Crude Oil
20%
0%
1999 2009 2011
xviii Authors compilation based upon the data acquired from “China Statistical Yearbook 1980-2011”.
Table 12: Resources and Environment Goals and Targets of China’s 12th FYP
Nature Growth
Indicator Unit of Target 2010 2015 (%)
Guaranteed arable area million ha 121.2 121.2 0
Forest cover
Forest cover rate % Binding 20.36 21.66 1.3
Forest stock million Binding 13,700 14,300 6
Increase in water efficiency coefficient in m3 Predictive 0.50 0.53 0.03
agricultural irrigation
Reduction in water consumption per unit of % Binding 30
industrial value added
Reduction in energy consumption per unit of GDP % Binding 16
Share of non-fossil fuels in total primary energy % Binding 8.3 11.4 3.1
consumption
Rate of decrease in CO2 emission per unit of GDP % Binding 17
Reduction in emissions of major pollutants: % Binding
Chemical oxygen demand 8
Sulphur dioxide 8
Ammonia nitrogen 10
Nitrogen oxides 10
Sources: Communist Party of China, 2011; KPMG, 2011; and Morgan Stanley, 2011.92
Mineral Resources Compensation Fee and Resources Tax for Oil and Gas is managed by the
MOLAR. In 2012, the MOLAR issued a Notice of Collection of Mineral Resources Compensation Fee
on Petroleum Projects with foreign investment. The compensation fee is imposed on the mineral
right holders of petroleum contracts, which by law are Chinese national oil companies. Petroleum
contracts signed before November 1, 2011 will be exempt from its application, but will still be sub-
ject to the resource tax. Prior to the Notice of Collection of Compensation Fee, the State Council
issued Decree No. 605 to launch a new resource tax scheme. It took effect on November 1, 2011.
The resources tax for oil and gas moved from volume-based (between ¥8.00 and ¥30.00/US$1.30
and US$5.10 per ton for crude oil) to a value-based tax set at 5-10 percent (less than five percent
in actual operation) of the value of the oil and gas produced. It is equivalent to a tax increase of
10-20 times for crude oil.94,xix Prior to Decree No. 605, petroleum projects were subject to a royalty
scheme based on oil and gas output.
Coal Tax and Production Cap represents an important sustainable development mechanism. Since
2004, the Government allowed increases in resource taxes on coal in most provinces. The surcharge
ranges from ¥5–15/ton for steam coal, ¥10–20/ton for anthracite, and ¥15–20/ton for coking coal.
In 2008, revenue from the surcharge amounted to ¥14.6 billion.95
xix However, the net impact of the resources tax on China’s oil companies is minimal because the Government offset this
increase with separate changes to the windfall profits tax that is backdated to November 1, the day when the re-
sources tax is changed. The effects of both changes largely balance out.Terms ESCO and EMCO are used interchange-
ably in China to denote a company that engages in energy performance contracting for EE investment projects in
other entities.
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This report includes one of the first Green Investment Country Profiles completed for the East Asia and Pacific
Region as part of bringing the approach closer to operational status. The initial countries include China,
Philippines, Vietnam, Malaysia, Indonesia, Singapore and South Korea. The assessment involves not only the
green policy and incentives environment, but also the country’s overall natural resource endowment of fossil
and renewable energy, its industrial development strategy in addition to general business indicators and other
considerations, such as electricity prices, the capacity of the financial sector to mobilize long-term domestic
financing, as well as their overall regulatory and legal capacity to implement PPPs. The country profiles provide
a general understanding of the attractiveness, prevailing trends, strengths, and other aspects affecting the abil-
ity of the country to leverage its green growth potential.
www.worldbank.org www.ausaid.gov.au