Local Officials Pressured to Turn Around Poor Showing in Energy Intensity Numbers

This week China held its second high-level discussion in two weeks on implementing its energy intensity target at the same time as disappointing first quarter numbers appeared showing that energy intensity has risen by 3.2% in the first quarter of 2010. Premier Wen Jiabao told provincial officials to use “an iron hand” in implementing energy intensity targets. This comes in the wake of last weeks’ announcement of eight new policies to enhance implementation of the 20% energy intensity target.

The eight measures announced last week are likely to have a positive impact on the energy intensity goal. In particular the increased targets for closing inefficient enterprises and for the 1000 Enterprise Efficiency Program (aimed at China’s largest firms), build on proven success with these programs over the previous four years. The new measures also announce a promising attempt to extend the lessons learned from the 1000 Enterprise Program to a larger number of companies by requiring it to supervise all enterprises using more than 5000 tons of coal equivalent per year. Additional funding for China’s ten major efficiency projects, which include not only industrial savings, but some key improvements in the building sector through efforts such as improved heating systems and replacing old lighting, should also have an impact.

It is difficult to estimate at this point whether such measures alone will be sufficient to make the major push needed to actually meet the 20% target. Local governments are clearly under intense pressure to meet this goal, and if these types of programs don’t yield sufficient results they may choose to delay energy intensive projects – both those that would be sensible to shelve, but also perhaps some of those that may have long-term positive impacts on energy and carbon emissions. As Keith Bradsher points out in the New York Times, quoting Lawrence Berkeley National Lab’s David Fridley, China has used much of the output from heavy industry to build energy-efficient infrastructure, such as long distance rail that should reduce emissions in the longer term.

There are also some macro-economic efforts that might help China step up its energy intensity efforts. In particular the central government has been tightening credit. This has already slowed down the property market, and the question is now whether the government’s increasing concern about inflation will also reduce auto sales growth. New car sales rose 70% in the first quarter of 2010, but most auto industry analysts estimate the full year 2010 figure will be 10-25% higher than in 2009, suggesting that they do not expect the first quarter’s purchasing behavior to continue for the full year. As Michael Dunne pointed out on the CNBC blog if full year sales are well below the first quarter this would be an exact replica of China’s auto sales purchases in 2008, when tightening credit substantially reduced market growth despite record first quarter sales.

In short, the combination of new specific energy intensity measures and overall macro-economic policies should help China improve its energy intensity performance over the poor first quarter showing. Reaching the full 20% over the five years 2006 to the end of 2010 looks difficult, but it is clear that local and provincial governments are under significant pressure to pull out all the stops.

Photo by GraemeNicol, courtesy of a Attribution-Noncommercial-Share Alike 2.0 Generic.