Guest blogger John Romankiewicz a/k/a Sustainable John (pictured right), a carbon markets analyst at New Energy Finance and director of the China’s Green Beat video blog, questions the consistency of NRDC’s announced progress on energy intensity reductions with his own calculations using NBS data.
China’s energy intensity target is perennially referred to by Chinese negotiators in international talks, but also regularly mistaken by the foreign press as some carbon emissions reduction target. Here’s the low down on what it is, progress to date, including the most recent announcement, and exploration of some curious inconsistencies.
What is China’s energy intensity target?
From 1980 to 2000, China led itself down a path of increasing energy efficiency and concern for the bottom line by introducing market incentives and competition such that by 2000, GDP output required two-thirds less energy than it did in 1978. From 2001-2005 however, China – with a realization of its new found wealth – went to a tremendous building boom. Industry could not keep its eye on such rising demand and energy efficiency improvements at the same time, so energy efficiency took the back seat. The government, realizing this in 2005, set a plan in the 11th Five Year Plan to once again improve on energy efficiency. Specifically, the headline target was to reduce energy intensity (the amount of primary energy consumed per unit of GDP produced) by 20% from 2006 to end of 2010. Using energy intensity as the cursor of progress leaves room for GDP to grow as it will even as energy efficiency is being improved.
Two of the most noteworthy programs have been the shutting down of old, inefficient coal-fired capacity and the Top 1000 Energy-Consuming Enterprises program. Additionally, many industrial enterprises have been installing waste heat and gas recovery equipment at their facilities. There are plenty of other smaller initiatives like putting in CFL’s, motor system improvements in manufacturing, and efficiency standards for appliances. It is no doubt that these initiatives are all contributing to China’s improvement in energy efficiency. I only question how much China’s energy efficiency has actually improved.
Announced versus calculated progress to date
According to the National Development & Reform Commission (NDRC), energy intensity has decreased by roughly 10% in the three year period 2006-2008. They have just announced another 3.35% year-on-year reduction for H1 2009 in comparison to H1 2008.
I have analyzed National Bureau of Statistics (NBS) data from 2004-2008 which is summarized in the charts below. The two sources of my GDP (in nominal terms), GDP growth rate (in real terms), and primary energy consumption data are the 2007 and 2008 official economic and social development statistics reports off the NBS website.
You’ll note that I have no idea about H1 2009 energy consumption because the figure has not been reported to my knowledge. Only the percentage drop in energy intensity has been reported. We’ll come back to this in the next section.
I decided to perform an analysis of my own, using these data to calculate energy intensity over the years. For each year, energy consumption is divided by GDP. However, I did not simply take the nominal GDP numbers for each year, but instead, converted the GDP for each year into real terms (i.e. 2005 renminbi) by applying to each nominal GDP figure the applicable GDP growth rate, which was already expressed in real terms. The result is the following:
Given these figures, which are calculated using NBS data, the energy intensity drop for the three year period 2006-2008 is only 7.7%, not the 10% commonly reported. It looks like they still have a long way to go to reach their goal. One of the main discrepancies I have found is with the release of 2008 data. The NDRC announced a 4% increase in energy consumption in 2008 (2.85btce), and coordinated with a 9% increase in GDP, this led to a 4.2% drop in energy intensity. However, if you use 2007 and 2008’s numbers for energy consumption off the NBS website, the increase in energy consumption is actually 7.4% which leads to only a 1.5% drop in energy intensity. Maybe the NDRC and NBS should talk more. Or maybe it’s just a politically sensitive subject.
Latest announcement of progress
As mentioned above, the NDRC has just announced a 3.35% year-on-year reduction for H1 2009 in comparison to H1 2008. According to the NDRC’s News Center, energy intensities for specific sectors have fallen, notably: 1.5% for power sector, 1.7% for steel sector, and 7.7% for cement sector. Meanwhile, GDP continues to grow at 7.1% year-on-year. Data for total primary energy consumption cannot be found (please notify me if you find it), but power consumption is down 1.7%. NBS has released a special report (news coverage in English, Chinese report) explaining just how on earth power consumption could shrink while GDP still continue to grow, defying nearly all energy economics knowledge to date. Here are some summary points for what they came up with.
First, they begin by explaining how primary (think agriculture), secondary (think mining, manufacturing, and power), and tertiary (think banking, consulting, and commerce) industries are using different amounts of electricity per GDP output: respectively, 400kWh/10000RMB, 2460kWh/10000RMB, and 370kWh/10000RMB. Value added index (a proxy for GDP, but why they refer to “Value added index” instead of GDP escapes me) and electricity consumption went up in tandem (one-for-one) in both primary and tertiary industries. Secondary industry is the “culprit” then, as value added index went up 5.2% while electricity consumption fell 5.9%. They explain a lot of statistics magic about why things are the way they are, which honestly doesn’t leave any impression on the reader. The most concrete reasons I could pick out were:
They explain a lot of statistics magic about why things are the way they are, which honestly doesn’t leave any impression on the reader. The most concrete reasons I could pick out were
- Industry is consuming 29TWh of electricity they made themselves from waste heat recovery power facilities, which are not tracked by electricity companies. That’s 2.5% of all electricity they consumed.
- Small scale industry reduced their electricity consumption by a whopping 48.9%.
- Of 44 energy intensive products, 30 of them reduced their electricity consumption/product value which had a net effect of reducing electricity consumption by 1.5%.
They end with a very tired explanation, saying that power elasticity is simply constantly changing from year to year, which they provide data for shown in the chart below. Power elasticity is the percent change in power consumption per percent change in GDP. So if power consumption increases 4% and GDP increases 5%, then the power elasticity is 0.8.
Certainly, China’s power elasticity is all over the place. And power elasticities of less than 1 are very common during times of efficiency build out. But, the NBS failed to address the basic fact that in H1 2009, the power elasticity has gone negative to -0.24 (-1.7%/7.1%). This is something never seen before in China’s history, and as far as I’m aware not seen before in world economic history. The bullet points mentioned above in the NBS report would lead to a lower elasticity, but not a negative one.
So, what’s the deal?