China Renewable Energy and Sustainable Development Report

Transcription

1 August 2008: Vol. VIII China Renewable Energy and Sustainable Development Report China's extraordinary economic growth and heavy reliance on increasingly expensive foreign oil, the vast environmental toll that is one of the most apparent costs of China's economic success, persistent rural poverty in China and periodic power shortages all have impressed upon Beijing that renewable energy must be a large part of China's economy if China is to both complete its economic transformation and achieve "energy security". China is rapidly moving along the path of renewable energy development. By the end of the 11 th Five Year Plan period in 2010 renewable energy will account for 10% of China s energy consumption. At the end of the 11 th Five Year Plan period China will have approximately 190,000 MW of hydropower generating capacity, 73,000 MW of which will have been constructed during this period. Wind power is growing at a remarkable rate. During the 11 th Five Year Plan period China will vastly exceed its own revised objective of having 10,000 MW of wind power capacity by 2010; it is quite possible that China s wind power installations will approach 20,000 MW by Power generated from bio-mass is also becoming a significant source of renewable energy in China; by the end of 2010 China will have in place 5500 MW of bio-mass power plants. With regard to bio-fuels, China will be producing more than 2 million tpy of bio-ethanol and 200,000 tpy of bio-diesel. Other sources of renewable energy also are growing rapidly in China, including methane gas fueling 40 million households and having a total of 150 million square meters of built space serviced by solar hot water heaters. In the long term China has set an objective of having 30% or more of its total energy requirements satisfied by renewable sources by China's ambitious growth target for renewable energy production will require an investment of approximately 2 trillion Yuan (~$263 billion U.S.D.) by 2020 alone. Our goal at the China Renewable Energy and Sustainable Development Report is to provide authoritative, timely, informative and useful information about the emerging renewable energy and sustainable development sectors in China for global companies who have products and services to sell to or buy from China's rapidly growing renewable energy and sustainable development sectors and other policy makers, NGOs and interested parties. Drawing from original Chinese language materials of Chinese companies, industry associations, central and local government agencies and non-governmental organizations, the China Renewable Energy and Sustainable Development Report will cover developments in China's solar, wind, bio-fuel, bio-mass, small hydroelectric and other renewable energy sectors, including regular features on investment, growth, local and national laws and regulations, leading Chinese companies, industry meetings, tradeshows, exhibitions and conferences and business opportunities.

2 An interactive map of China s renewable energy projects is now available on China Strategies website. China Strategies website also now has a map of significant companies/projects in China in the solar energy sector. To view the China Renewable Energy Interactive Map and the China Solar Map, visit click on the tab for China s Renewable Energy Industry and follow the directions to register and receive access. We invite our readers to submit Chinese renewable energy projects to be included on the China Renewable Energy Interactive Map and the China Solar Map. Please send all submissions to lou@chinastrategiesllc.com. Shortly the China Renewable Energy Interactive Map will be upgraded to include a host of additional projects, including nearly Chinese CDM (Clean Development Mechanism) projects. The China Renewable Energy Interactive Map and the China Solar Map were developed with the assistance of Ryan Hodum, an environmental and renewable energy professional who recently completed a Master of Arts in Global Environmental Policy from American University in Washington, D.C. with a focus on renewable energy utilization in China. For more information about subscribing to the China Renewable Energy and Sustainable Development Report, please contact us at lou@chinastrategiesllc.com. For more information about how China Strategies, LLC can assist your firm in its China renewable energy sector projects, please visit and contact us at lou@chinastrategiesllc.com. China's Solar Industry Jiangxi Province s LDK, the NYSE listed solar energy company announced that it had executed a 10 year supply contract with Germany s Q-Cells. The contract with Q-Cells not only will provide market assurances with respect to LDK s new capacity, but the prepayments by Q-Cells will also be one of the sources of funds for the new project(s) that LDK is constructing. According to the terms of the LDK/Q-Cells contract, LDK will supply in excess of 6000 MW of solar power class polysilicon wafers 2009 through The polysilicon wafers will be supplied from the plant that LDK now has under construction and other sources. As one of the financial sources for LDK to implement this project, Q-Cells will make a prepayment of 10% of the contract value. The LDK/Q-Cells contract also provides that Q-Cells will have the preferential right to purchase more silicon wafers when LDK has finished expanding its capacity. Recently LDK announced that it had commenced construction on a polysilicon production line with capacity as high as 6000 MT. Peng Xiaofeng, the CEO of LDK is quoted as saying that through this supply agreement, we and Q-Cells are building a long-term contractual relationship. Anton Miller, the CEO of Q-Cells also pointed out that by entering into this 10 year supply contract with LDK, Q-Cells is able to continuously obtain high quality polysilicon wafers to support Q-Cells development plans. Yesterday s announcement by LDK did not disclose the specific amount of the contract. Industry observers pointed out that it is rare to see such a domestic PV silicon materials contract that is 10 years in duration. In recent years,

3 because of the steady increase in the price of silicon materials, many domestic polysilicon materials plants have been unwilling to enter into long-term supply agreements. But in the opinion of some industry experts that isn t a wise move. Shi Zhengrong, the Chairman of Suntech of Wuxi, Jiangsu Province previously said that previously there were many polysilicon plants that were unwilling to enter into long-term contracts, thinking that they would sell at a profit some as the price of polysilicon continues to rise---because they believe that the price will continue to rise. However, in actuality, the supply chain is a common interest whole, having a lips and teeth relationship. If the price is so high that it is unaffordable... then what advantage is that to the supplier? Our relationship with our customers are like this, said Shi Zhengrong in criticizing some silicon materials plants who emphasize short term profits. Also, according to what this reporter understands, the judgment of the industry as to the direction of future prices of silicon materials is not uniform. According to Wei Qidong, the Secretary of the Jiangsu Province Energy Research Committee, excessively high silicon materials prices are created by churning, are a shortterm phenomenon and many materials show that by 2010 the prices of silicon materials will return to normal levels, falling to a normal $30 U.S. to $40 U.S. from $120 U.S. at present. China's Wind Power Industry The following map shows cumulative wind farm installations through the end of 2007 organized by Province or Directly Administered City.

4 On August 20, 2008 the 40 (1.25 MW) wind turbines, 49.5 MW (phase I) Damaoqihongteng Energy Resources wind farm ( 达茂旗宏腾能源一期风电场 ) was grid connected in Baotou, Inner Mongolia ( 包头市, 内蒙古 ). When all phases are complete the Damaoqihongteng wind farm will have a total of 200 MW. The first phase of the project is expected to generate 145 million kwh/year. Because Baotou City has rich wind resoures (estimated at approximately 44,000 MW) it has attracted some 20 companies to locate there. Baotou city has plans to develop a total of 8000 MW by the end of the 11 th Five Year Plan period. State Power Longyuan Group ( 国电龙原集团 ), China s largest wind energy company now has a total of 2000 MW of installed wind power, which ranks the company as the sixth largest developer of wind power in the world. The company achieved this status in just three years. State Power Longyuan Group already has developed 43 wind farms in 13 provinces (districts) in China; through mid August 2008 State Power Longyuan Group has produced a total of 2 billion Kwh of power from its wind farms; according to Xie Zhangzhun, the general manager of State Power Longyuan Group the group company will produce a total of 4 billion Kwh of power generated from its wind farms this year. State Power Longyuan group plans to have 5500 MW by 2010 and 20,000 MW by Its latest project is the Liaoning Province, Faku (phase III) 49.3 MW wind farm. The

5 Longyuan Power Group also is involved in developing solar, biomass and geothermal power, etc. Another source of support for the Chinese wind power equipment industry is a new fund created by the Ministry of Finance that provides a subsidy of up to 600 Yuan/Kw to Chinese wind turbine and wind equipment and components manufacturers (the latter includes companies manufacturing blades, gearboxes, generators, converters and bearings); this new fund, which was created by the {Provisional Measures for the Administration of the Special Fund for Commercialization of Wind Power Generating Equipment} { 风力发 电设备产业化专项资金管理暂行办法 }, was announced by the Ministry of Finance on August 19, Generally, the fund is intended for the development and commercialization of wind turbines and their constituent components. There are several criteria for qualifying for this new fund, including proof that the turbine or component includes some original innovation/development by the Chinese company; that the wind turbine is larger than 1.5 MW; that the turbine has been certified by the Beijing Certification Center ( 北京鉴衡认证中心 ); that the components (such as blades, gearboxes, etc.) were manufactured by Chinese companies and that the turbine undergoes 240 hours of operation without incident and has been accepted by the owner of the wind farm project. In late August 2008 the National Development and Reform Commission approved three wind farms for development in Zhangjiakou, Hebei Province ( 张家口, 河北省 ). The combined capacity of these three wind farms is 450 MW, comprised of three hundred 1.5MW wind turbines; the total investment is 4 billion Yuan. The three wind farms and their developers are: 1) the Shangyi Qijia Mountain Wind Farm ( 尚义七甲山风电场 ) (Guohua (Hebei) Alternative Energy Co., Ltd. 国华 ( 河北 ) 新能源有限公司 ); 2) the Heibei Shangyi Longyuan Wind Farm ( 河北尚义龙原发电厂 ) (Longyuan (Zhangjiakou) Wind Power Generating Co., Ltd.--- 龙原 ( 张家口 ) 风力发电有限公司 and 3) the Zhangbei (Northern Zhangjiakou) County Lvnaobao Wind Farm ( 张北县绿脑报风电场 ) (Hong Kong Alternative Energy Joint Stock Co., Ltd. and China Energy Conservation Co.- -- 香港新能源控股有限公司和中节能公司 ). At the end of July 2008 the Jiangsu Xinyu Wind Power Equipment Co., Ltd. ( 江苏 新誉风力发电设备有限公司 ) exported its first megawatt-class wind turbine. The 1.5 MW wind turbine was sold to Thailand. In late 2007, the Jiugong Mountain Wind Farm ( 九宫山风电场 ), Hubei Province s first wind farm, came on stream. Largely because the wind turbine was sourced from Gamesa in Spain, the average cost of the Jiugong Mountain Wind Farm was 11,000

6 Yuan/Kw. GC-Nordic ( 国测诺德 ) is a Hubei Province wind turbine manufacturer whose production is booked through next year; the company already has 1.15 billion Yuan in signed contracts for wind turbines and another 5 billion Yuan in letters of intent. GC- Nordic s contracts include a large number of wind turbines that are to be exported. Feng Qifeng, the Deputy General Manager of the Ningxia Power Group ( 宁夏发电 集团 ) recently explicated the stark difference between the cost of imported wind power equipment and components and the China price. Mr. Feng remarked that wind turbine blades would cost 2 million Yuan if imported from Japan, but if sourced domestically the cost would be 1 million Yuan. This is one reason why the Ningxia Autonomous Region is working on developing a wind turbine manufacturing industry. Ningxia alone has exploitable wind resources of some 3600 MW; in addition Ningxia s neighbors---gansu, Inner Mongolia and Shaanxi Province---also are developing high concentrations of wind installations. Ningxia interests have imported 1 MW technology from Mitsubishi of Japan and Nordex of Germany. Ningxia also is working on developing a local capability to develop 1.5 MW wind turbines, as well as a project to produce gearboxes. At present there is 380 MW of wind farms operating in Ningxia and another 40 MW under construction; according to its plan, the Ningxia Autonomous Region will develop a total of 1000 MW of wind power by 2010 at ten locations, including Helanshan ( 贺兰山 ), Qingtongxia ( 青铜 峡 ), Hongsibao ( 红寺堡 ), Changshantou ( 长山头 ), Ningdong ( 宁东 ), Shizuishan ( 石嘴山 ), Zhongwei ( 中卫 ), Guyuan ( 固原 ) and Mahuangshan ( 麻黄山 ). The 49.5 MW wind farm at Siziwangqi ( 四子王旗 ), Inner Mongolia will soon be connected to the power grid. The Longyuan Wind Power Co., Ltd. ( 龙原风力发电有限 公司 ) did the preliminary work on the Siziwangqi wind farm. The total investment is 448 million Yuan and the project uses 33 Sinovel SL1500 wind turbines. The power that this wind farm will produce is 120 million Kwh/year. The Siziwangqi region will have a total of 1200 MW of wind power installed by the end of the 11 th Five Year Plan period and by 2020 the Siziwangqi region s wind power capacity is expected to increase to 13000, laying a foundation for the Siziwangqi region of Inner Mongolia to become the flagship of China s wind power. On August 14, 2008 two wind farms in Shanxi Province, having a total installed capacity of 75 MW, went into operation. The 750 million Yuan projects, which are located at Pinglvqu Baixubao ( 平鲁区 ) and Youyu Xiaoyutai ( 右玉小五台 ) and have a total of sixty 1.25 MW wind turbines, were developed by the Shanxi International Power Group Co, Ltd. ( 山西国际电力集团有限公司 ). When fully operational these two wind farms will add a total of 134 million kwh/year to the grid.

7 There are now five major power companies that are developing wind projects in Inner Mongolia. These five power companies are Huadian International ( 华电国际 ); Guodian Power ( 国电电力 ); Huaneng Group ( 华能集团 ); Datang Group ( 大唐集团 ); and Zhongdian Investment Group ( 中电投集团 ). Huadian International is creating an equity joint venture (with the China Huadian Hong Kong 中国华电香港 ) to develop its latest projects in Inner Mongolia: the 120 million Yuan, 49.5 MW wind farms at Tongliaoyi ( 通辽义 ) and Tala (phase I) ( 塔拉 ), Inner Mongolia. Jiangxi Province s first wind farm is nearing completion and is expected to be operating in October The Jiangxi Jishanhu Wind Farm ( 江西矶山湖风电场 ) will have a total of twenty 1.5MW wind turbines (producing a total of 55 MM kwh/year from the 30 MW installation). The 500 million Yuan Wulanchabu City Siziwangqi wind farm ( 乌兰察布市四子 王旗风电场 ) being developed by the Guangzhou Nuclear Power Group ( 广州核电集团 ) will to be completed and grid connected by the end of Construction on the 49.5 MW wind farm began in May In late July 2008 a signing ceremony was held for the establishment of the Jilin Province Huayi Tongyu ( 吉林省华仪通榆 ) wind turbine project being developed by the Huayi Electric and Gas Group Co., Ltd. ( 华仪电气集团有限公司 ). The 600 million Yuan project, which will have planned capacity of three hundred thirty 1.5 MW wind turbines/year (500 MW/year in capacity), is scheduled to be completed by May When the new facility is operational, it will have sales of ~3.3 billion Yuan. According to a recent announcement, by the end of 2008, the City of Chifeng ( 赤 峰市 ), Inner Mongolia, will have a total of 1114 MW of installed wind capacity. As of the end of 2007, the City of Chifeng had built and put into operation five wind farms with a total installed capacity of MW of wind power; this built capacity represented 8.26% of China s total installed wind power capacity and 31.22% of Inner Mongolia s installed wind capacity. Those five wind farms are: Dali Wind Farm ( 达里风电场 ); Saihanba Wind Farm ( 赛罕坝风电场 ); Dongshan Wind Farm ( 东山风电场 ); Wudaogou Wind Farm ( 五道沟风电场 ) and Wutaohao Wind Farm ( 乌套海风电场 ). In 2008 Chifeng will build another 7 wind farms, including China Datang Company s Dali Wind Farm (phase four and five projects); ( 中国大唐公司达里风电场 ); Saihanba Wind Farm (phase three and four projects) ( 赛罕坝风电场 ); Dongshan Wind Farm (phase two project)

8 ( 东山风电场 ); the Wutaogou Wind Farm (phase two and three projects) ( 乌套海风电场 ) being developed by the Longyuan Company ( 赤峰龙原公司 ); the Yihegong Wind Farm (phase one project) ( 亿合公风电场 ); the Huifeng Company s ( 汇峰公 ) Wutaohai Southern Wind Farm (phase one project) ( 乌套海南风电场 ) and the Ningfeng Company s ( 宁峰公司 ) Meiwoshan Wind Farm (phase one project) ( 煤窝山风电场 ). In all these seven wind farms will add another 626 MW to the total capacity of wind power in the Chifeng city area. According to its plan the city of Chifeng will have a total of 2000 MW of wind power installed as of the end of 2010 and that by 2015 installed capacity to produce wind power will increase to 7550 MW. Over the last two years the Three Gorges Company ( 中国三峡总公司 ), who developed the Three Gorges Hydroelectric Dam, has begun to develop wind power resources. At the end of 2007 the company began development of the Zhejiang Province, Ningbo Cixi Wind Farm ( 宁波慈溪风电场 ), which when completed will have a total of 33 wind turbines producing 49.5 MW of power. In addition, construction has begun on the Jiangsu Province Xiangshui Wind Farm ( 江苏响水风电场 ), which will have a total of 20 wind turbines by the end of 2008; the total installed capacity of the 2 billion Yuan Jiangsu Xiangshui Wind Farm will be 201 MW, which will produce 440 million kwh of power that will be connected to the power grid. The Three Gorges Company also have test turbines up and are evaluating the following projects at: Zhejiang Province Hangzhou Bay; Zhejiang Province Linhai ( 浙江临海 ); and Jiangsu Province Xiangshui Seaside ( 江苏响水近海海域 ). The company also is cooperatively researching offshore wind farm development as a first step towards developing offshore wind farm projects. With the Three Gorges Dam work winding down, the Three Gorges Company also has turned its attention to developing hydroelectric projects on the Jinsha River valley ( 长江上游金沙江流域 ), in the upper reaches of the Yangze River; the company is now developing four hydroelectric projects on the Jinsha River, having a cumulative total installed capacity of 38,500 MW (equivalent to four Three Gorges projects). Trial operation of the Liaoning Province Linghai Nanxiaoliu Wind Farm ( 辽宁凌 海南小柳风电场 ), comprised of 33 wind turbines, is now complete and the project is now commencing commercial operations. The Guodian Power Company developed this project. The 33 wind turbine (1.5 MW) Shandong Province Youcheng Dongying City wind farm ( 油城山东省东营市风电场 ), which is located along the coast in Shandong Province, will be completed by the end of The Dongying Yellow River South Wind Farm

9 (phase I) ( 东营黄河风电场一期 ), which project began construction in June 2008 and which will have total capacity of 49.5 MW, is located south of the Yellow River and north of the Xiaoqing River ( 小清河 ). When completed the Dongying Yellow River South Wind Farm will produce ~96 million kwh of power. According to the Dongying city development and reform commission, in addition to the Yellow River South wind farm, the city of Dongying also is planning three other wind farms: the Hekou Wind Farm ( 河口 风电场 ); the Lilu Wind Farm ( 利津风电场 ); and the Mouth of the Yellow River Wind Farm ( 黄河口风电场 ). When all four wind farms are built, the cumulative total capacity of Dongying City wind farms will be 246 MW (at a total cost of 2.63 billion Yuan). At present Shandong has a total of 106 wind turbines operating and connected to the power grid; these 106 wind turbines produce a total of 92.2 MW of power. Besides the Dongying City wind farms, Shandong has or is constructing other wind farms in Weihai ( 威海 ); Yantai ( 烟台 ); Binzhou ( 滨州 ); Weifang ( 潍坊 ) and Qingdao ( 青岛 ); these other wind farms are comprised of 280 wind turbines (each 1.5 MW) with a total capacity of 436 MW. Guazhou County ( 瓜州县 ) in Gansu Province will have built a total of in excess of 10,000 MW (12750 MW) of wind power by Already Guzhou County has three wind farms with cumulative power capacity totaling 200 MW; these three wind farms are the China Power International Guazhou Northern Bridge 100 MW wind farm ( 中电国际 挂轴北大桥风电场 ); the China Guangzhou Nuclear Daliang 50 MW wind farm ( 中广核 大梁风电场 ) and the Gansu Xinan Xiangyang 50 MW wind farm ( 甘肃新安向阳风电 场 ). At the same time Guazhou County has brought in four wind related manufacturing companies, including the Gansu Keyao Electric Power ( 甘肃科耀电力 ) and the Jiugang Group Guazhou Great Wall Company ( 酒钢集团瓜州长城公司 ). Legal and Policy Developments Related to Renewable Energy Development On August 20, 2008 the Ministry of Finance promulgated the {Provisional Measures for the Administration of Specialized Funds for the Commercialization of Wind Power Generating Equipment} { 风力发电设备产业化专项资金管理暂行办法 }. The Provisional Measures provides for a direct subsidy of wind power generating equipment manufacturing, including whole wind turbines and wind turbine components. Subsidies will be provided in proportion to the underlying cost of the wind turbine component and in principal 50% of the subsidies will go to wind turbine manufacturers and 50% to wind turbine component manufacturers. The Provisional Measures are restricted to MW-class wind turbines and will be paid at the rate of 600 Yuan/kw on the first 50 wind turbines that any company produces. At present there are many Chinese wind turbine

10 manufacturers that are producing sub-mw class wind turbines, but very few that are able to produce MW-class wind turbines. The three largest producers of MW-class wind turbines in China are Jinfeng (Goldwind), Huarui (Sinovel) and Dongfang (Eastern Electric and Gas), all of which produce in excess of 50 wind turbines/year. Based on the subsidy offered, each of these three companies would enjoy subsidies of 45 MM Yuan each (~$6.5 million U.S.). This subsidy would account for, respectively 31%, 78% and 11% of the first half net profits of, respectively, Goldwind, Huarui and Eastern Electric and Gas. Renewable Energy and Economic Development According to the Shandong Province Economic and Trade Commission, alternative energy development in Shandong Province is quickly becoming a new focus of economic development in Shandong Province. By their estimates, there are now more than 100 companies involved in some aspect of the alternative energy industry in Shandong Province and the estimated output value of Shandong Province s renewable energy industry is in excess of 3 billion Yuan/year. Other Alternative Energy The first geo-heat pump system utilizing shallow grade soil to produce air conditioning and to supply heat was successfully tested in the office building housing the Lianyungang Customs Bureau. The temperature of the soil, which supplies the energy for both the cooling and heating, generally is 10 degrees C to 20 degrees C. When this system is cooling or supplying heat, 70% of the energy is derived from the soil and the remaining 30% comes from electricity; the use of electricity in this system is primarily used to transport the cooling or heat into rooms. The pipes transporting the air conditioning rely on flowing water to regulate the temperature. According to a spokesperson for the Lianyungang Customs Bureau, in the month since this new system was installed, the building s air conditioning costs have declined 40% or 2000 Yuan/day. China s Energy Production and Consumption According to a study released by Beijing, China s energy consumption per unit of GDP decreased by 2.88% y-o-y in the first half of Though better than the 1.88% y-oy decrease in energy consumption per unit of GDP which the Chinese economy achieved in 2007 or the 1.6% decrease achieved in 2006 (the first year of the 11 th Five Year Plan), the stated objective of achieving a cumulative decrease in energy consumption per unit of GDP totaling 20% over the full five year period ending 2010 remains elusive. In 2007 there were seven out of 30 provinces that failed to meet the energy conservation targets set for that year. As one of the six largest users of energy, the primary aluminum industry s power costs account for approximately 30% of total costs; at present, with the elimination of preferential power pricing and the imposition, as of June 19, 2008, of an additional cost of

11 0.025 Yuan/Kwh, power costs among Chinese aluminum smelters are between 0.5 Yuan and 0.6 Yuan/Kwh. Even those primary aluminum producers who have captive power plants have seen their power costs rise with the nearly 30% increase in coal prices since the beginning of One avenue for China s primary aluminum producers is to increase their investment in energy conservation measures to reduce consumption of power. According to the agreement that was reached among more than twenty of the largest primary aluminum producers on July 10, 2008, within one month of that date, the 20 primary aluminum smelters are to gradually reduce output by 5%-10% through a combination of reducing output, delaying the commissioning of new capacity, accelerating maintenance, speeding up scraping of outdated equipment, etc. The China Non-Ferrous Metals Industry Association, under whose auspices the July 10, 2008 agreement was reached, has proposed that all primary aluminum producers join in the collective effort to reduce output. Because primary aluminum smelters use vast amounts of energy (~14,500 Kwh of power is needed per MT of output so that the Yuan/Kwh increase in power pricing which took effect as of 7/1/08 means an average increase of 360 Yuan/MT of primary aluminum), energy price increases have led to a steep decline in profitability in the Chinese aluminum industry; in just the first five months of 2008 Chinese aluminum smelters profits have declined 36.5%. According to the China Non-Ferrous Metals Industry Association, the 20+ aluminum smelters that have signed on to the pact to reduce output accounted for 71.3% of the aluminum smelting capacity in China in the first five months of 2008 (9.5 million tpy of China s total aluminum smelting capacity); if each of these smelters reduced output by 10% the CNMIA estimates that there will be a cumulative reduction in output in the second half of 2008 totaling ~400,000 MT. This level of reduction in turn would reduce energy consumption by 5.8 billion Kwh. Beijing is drafting a new regulation intended to require investors in new fixed asset projects to submit a detailed energy efficiency plan for the proposed facility. Any project that did not develop an energy efficiency program for a proposed new investment would not be allowed to proceed with the investment. Currently there 10 provinces, municipalities and autonomous regions, including Beijing, Tianjin, Jiangsu and Inner Mongolia, that are running pilot programs to test the proposed new regulation. According to Xie Zhenhua, the vice-minister of the National Development and Reform Commission, which is responsible for energy efficiency initiatives and climate change issues, the new fixed asset investment energy efficiency regulations will be promulgated as soon as the results from the pilot programs are evaluated. Beijing has begun to target the large-scale industrial users of vast amounts of energy at the initial development stage. Other initiatives target these same classes of industrial users that are already operating. These sectors include power companies, non-ferrous metals, chemicals, iron and steel, building materials and petroleum. Currently the central government checks energy efficiency in real estate development, transportation and in government buildings; these three sectors account for approximately 50% of China s energy consumption. One significant stumbling block for Beijing to begin to achieve its goal of reducing energy consumption per unit of GDP by 20% by 2010 is the resistance put up by local governments who are more

12 interested in fostering economic development in their regions, often by encouraging the establishment of more energy and resource intensive industries. According to a report from the Washington, D.C. based Center for Global Development China s carbon emissions from its power plants increase by approximately 1/3 rd in 2008 and will surpass emissions from U.S. power plants for the first time. China will produce approximately 3.1 billion MT of carbon dioxide in 2008, up from 2.3 billion MT in 2007 from power plants. While the absolute amount of carbon that China emits is now larger than the U.S. the carbon emissions per capita are greater in the U.S. (9.5 MT/person) than in China (2.4 MT/person). China s emissions of carbon that are caused by transportation are much lower than the U.S. because China has fewer cars than the U.S. The Ministry of Finance and the State Bureau of Taxation have jointly issued a notice that beginning September 1, 2008 the consumption tax on passenger vehicles will be adjusted based on the amount of emissions that the vehicle produces. The consumption tax for 3-4 liter passenger vehicles will rise from 15% to 25% and the consumption tax on passenger vehicles that are in excess of 4 liters will increase from 20% to 40%. The consumption tax for smaller passenger vehicles will be reduced; for 1 liter or smaller than 1 liter vehicles the consumption tax will be reduced to 1% from 3%. The vehicles that will be affected the most will be large imported cars, in part because it is the seller of imported cars that will pay the consumption tax, unlike with domestic cars where the manufacturers of the cars pays the consumption tax. In early August the Secretariat of the State Council promulgated the {Notice of the State Council Concerning Further Strengthening the Work of Oil Conservation and Power Conservation} { 国务院关于进一步加强节油节电工作的通知 }. This most recent effort follows similar efforts in 2004 and 2006, also directed at industries that are energy intensive. That there continues to be new initiatives is an indication that the previous efforts did not achieve their objectives. The resistance from local governments is a result of the fact that many local governments get a good portion of their revenues and the localities significant employment and economic development benefits from these large energy intensive industries that have located in their communities. The Notice requires the implementation of differential pricing for industries that have heavy energy consumption (such as the primary aluminum, steel, iron alloy and concrete industries) and the elimination of preferential power pricing by localities benefiting the high energy consuming industries in their areas.