First, the raw facts.

On January 22, the State Council announced the formation of the National Energy Commission, whose purpose would be to:

To study and formulate national energy development strategy, to consider the major issues of energy security and energy development, to coordinate domestic energy development and important matters of international cooperation. (”负责研究拟订国家能源发展战略，审议能源安全和能源发展中的重大问题，统筹协调国内能源开发和能源国际合作的重大事项。”)

The NEC consists of 23 members made up of:

Director: Premier Wen Jiabao
Vice-Director: Li Keqiang, Vice Premier of the State Council
Members:
You Quan, Deputy Secretary-General of the State Council
Zhu Zhixin, Director of the Central Finance Office
Yang Jiechi, Minister of Foreign Affairs
Zhang Ping, Director of National Development and Reform Commission
Wan Gang, Minister of Science and Technology
Li Yizhong, Minister of Industrial and Information Technology
Geng Huichang, Minister of Security
Xie Xuren, Minister of FinanceXu Shaoshi , Minister of Land and Resources
Zhou Shengxian, Minister of Environmental Protection
Li Shenglin, Minister of Transport Minister
Chen Lei, Minister of Water Resources Minister
Chen Deming, Minister of Commerce
Zhou Xiaochuan, Governor of the People’s Bank of China
Li Rongrong, Director of SASAC
Xiao Jie, Secretary of the State Administration of Taxation
Luo Lin, Secretary of the Safety Supervision Bureau
Liu Mingkang, Chairman of China Banking Regulatory Commission
Wang Xudong, Chairman of State Electricity Regulatory Commission
Zhang Qinsheng, Deputy Chief of General Staff
Zhang Guobao, Deputy Director of the National Development and Reform Commission, and Director of the National Energy Administration (NEA).

While Premier Wen Jiabao and Vice Premier Li Keqiang are titular leaders of the NEC, Zhang Ping, Director of the NDRC, will be in charge of the day-to-day management of the NEC, with Zhang Guobao, Zhang Ping’s deputy at the NDRC and director of the NEA, second-in-charge.

Now, let’s really discuss.

Is the NEC new?  When I fist saw the announcement, I had to do a double-take, because I was pretty sure such an institution was in existence.   Turns out, I was right, but not quite for the right reason.

What I was thinking about was the National Climate Change Leading Group, an inter-ministry group organized in 2007 along similar lines to specifically address the climate change issue (see page 6 of this).  The NEC is clearly something distinct from this, but there are some notable differences.  For instance, the National Bureau of Statistics, represented in the NCCLG, is not in the NEC.  This is quite a glaring omission-if there is one thing that Chinese energy governance needs to urgently reform, it is the way they collect, process and report energy data.  That omission is puzzling to me.

The NEC, it turns out, is not exactly new–it was already almost two years in the making.  In March 2008, in the wake of the big bureaucracy reshuffle (see previous post “Bureaucratic Streamlining and Rule of Law“), the State Council already authorized the formation of the NEC (Chinese only).  In that circular, it was made clear that the NEA would carry out the specific work of the NEC (”具体工作由国家能源局承担”), thus suggesting that the NEA would subordinate to the authority of the NEC.

In fact, the NEC was born at the same time as the NEA (at one point also referred to as the National Energy Bureau, or NEB), and it was a bit unclear back then what the relationship of the NEC was to the NEA.  But I think Erica Downs of Brookings got it right when she formulated the following chart:

In essence, the NEA now finds itself in the awkward position of serving two distinct masters, the NDRC, where it officially sits, and the NEC, for which it is not carrying out the “specific work” for.  Perhaps this may not turn out to be a big deal, both the NDRC and NEA seem to be the driving forces of the NEC with Zhang Ping (of the NDRC) and Zhang Guobao (of the NEA, which sits in the NDRC), as the hands-on managers of the NEC.   It will be interesting to see how this arrangement works out.

In fact, the NEC was formed to replace what used to be the National Energy Leading Group, which was established in 2005 to serve as an advisory and coordination body under the State Council and was also then headed by Premier Wen.  It is observed (Chinese only) that unlike the NELG, the membership of the NEC includes representation from the Ministry of Transport, Ministry of Water Resources, and some less obvious stakeholders such as the central bank, the State Administration of Taxation, the Chinese Banking Regulatory Commission and others.  Indeed, some 19 different agencies are represented in the NEC to 13 in the NELG.  This suggests the State Council’s more comprehensive engagement on energy policy then every before.

It seems more likely than not that playing the role of a coordinator for the nearly two dozen or so agencies and bureaus that have a direct or indirect role in influencing the energy sector will be a primary function.  A Chinese op-ed likens energy management in China to the chaotic drama of the Three Kingdoms-energy prices are set by the NDRC, but the wholesale of refined oil products are overseen by the Ministry of Commerce, even while the state-owned oil companies are supervised by SASAC, the State-owned Assets and Supervision Commission of the State Council.  (Of course as the membership of the NEC shows, much more than three agencies have a say on  different aspects of energy policy in China.)

In an interview with media (Chinese only), Zhang Guobao, director of the NEA, confirms as much-high-level guidance and coordination  is what the NEC is all about, and that the “routine work” of the NEC will in fact be carried out by the NEA.  Li Junfeng, deputy director of the Energy Research Institute, the energy think tank under NDRC, makes very similar observations (Chinese only).

If coordination is all its doing, and if the heavy lifting continues to be carried out by the NDRC and NEA, then the NEC is hardly a “super ministry” as China Daily would have you believe.  There is still a lot that the NEC by itself has no power to do.  It is worth pointing out that the all-powerful NDRC, a true super ministry, still retains the authority to price energy through its Pricing Bureau.  But at least one report is suggesting that the NEC will take on the ambitious task of formulating a twenty-year plan for energy development.  This would be consistent with the first part of the stated mission of the NEC, but the opacity of how the NELG and NCCLG have worked in the past provide little clues as to how effectively the NEC will work.  If the NEC is truly tasked to undertake long-term energy planning, and does so in way that is truly collaborative among its diverse members, what may result is a robust, integrated energy plan.

It will be interesting to see if the NEC, or any future unified Ministry of Energy, of which the NEC is most likely a pre-cursor to, makes any headway in overcoming the web of “competing interests” and “splintered institutions” governing China’s energy use that Ed Cunningham describes in his influential 2007 essay.   The NEC does begin to being these competing interests and splintered institutions to the same table, but there is little so far to make one believe that coordination alone will quell the turf battles between energy stakeholders that have gone on for decades.

As Erica Downs said to me, this could all turn out to be “old wine in a new bottle.”  We’ll just have to see how all this pans out.

Picture Credit:  HowStuffWorks

Let’s kick off with this pretty cool video created by ClimateWorks:

Now, onto recent developments:

Going Big with the Stars and Stripes

Google-backed eSolar, a three-year old Californian solar start-up, has signed an agreement to provide technology and assistance to Penglai  Electric, a privately-owned Chinese electrical power equipment manufacturer, to  build a series of solar thermal power plants totaling at least 2 gigawatts over the next 10 years (see pictured right example of an eSolar installation).   The first project, a 92-megawatt solar power plant, will be built this year and located in the 66-square-mile Shaanxi New Energy and Industrial Park in Yulin city, Shaanxi province of Northern China. The region has become a hot spot for renewable energy, with the 2,000-megawatt First Solar project planned 60 miles to the north in Inner Mongolia.  China Huadian Engineering Co. will lead the construction process.  At completion, China Shaanxi Yulin Huayang New Energy Co. will own and operate the first 92 MW plant.   According to Todd Woody, eSolar already manufactures its heliostat arrays in China, and under the terms of the agreement with Penglai it will also build its power plant receivers there.  The solar thermal power plants, using technology distinct from photovoltaics which currently dominate China’s solar power market, will consist of mirrors and lenses to concentrate the sun rays to power a steam turbine.  eSolar’s technologies, in particular,  boasts ease of transportation and installment, modularity, scalability, redundancy, and resilience against wind tear.

This announcement mark the first large-scale commercial effort to develop CSP in China, something that has been on somewhat of a slow track for two main reasons; (1) Limits of water availability: How eSolar and its Chinese partners deal with the issue of the water-energy nexus (I precisely highlighted concentrated solar thermal as a technology that would run up to limits of water availability in a previous post, “Charting China’s Water Future: Closing China’s water availbility gap results in $21 billion in net savings“) since typical CSP designs require significant amounts of water for cooling turbines, and the sunny desert regions of Inner Mongolia, as we all know, is not exactly abundant in water; and (2) a policy emphasis on solar photovoltaics over CSP stemmed from the desire to absorb excess solar photovoltaic panel production capacity caused by several reasons (see below in “Too Much of a Good Thing”).

Just 60 miles north of the eSolar project, in Ordos City, Inner Mongolia, another landmark solar project was announced exactly four months earlier to the day.  Arizona-based First Solar, the world’s leading manufacturer of thin-film PV  modules, signed an MOU with the Chinese government to build a 2 gigawatt solar PV plant.  The solar project in Ordos will be built over a multi-year period. Phase 1 would be a 30 megawatt demonstration project that would begin construction by June 1, 2010. Phases 2 and 3  would be 100and 870 megawatts, respectively, completed in 2014, while Phase 4 would be1,000 megawatts completed by 2019.  This announcement was significant because it marked the first time a foreign company was invited to participate in such a high profile solar project, and came at a time when the China was coming under fire for being overly protective of its renewable energy (particularly wind) industry.

Best Solar, in conjunction with China Guangdong Nuclear Energy Development and Enfinity NV, won the right to operate the Dunhuang project with a tender of RMB 1.09/kWh.  Jiangsu-based thin film and crystal solar module provider Best Solar President Fang Peng said he expects to make 8% internal rate of return from its 10MW solar energy project in Dunhuang, Gansu province.  Some Chinese solar executives, however, think such a tariff might not be high enough to support the development of the PV market in areas other than the most highly irradiated regions such as Tibet.  A range of 1.5 to 1.8 yuan per kwh is more reasonable (Chinese only), they suggest.

Provincial-Level Initiatives

Suntech’s CEO expects 500 MW to be installed in China in 2010.  And Jiangsu province, where Suntech is headquartered and which is also dubbed the California of China when it comes to progressive clean energy policy, is going to be a big part of this equation.  A while back, we said Jiangsu was poised to announce provincial incentives to stimulate the industry without having much details on hand (see previous post “Jiangsu Kicks Off Domestic Solar Market Race with Provincial Subsidies“).   Since then, the full details of the JIangu’s three-year solar PV development plan, officially called 《江苏省光伏发电推进意见》, Chinese only, have been released.  Under the plan, Jiangsu aims to install 400 MW of solar PV (consisting of 260 MW of roof-top projects, 10 MW of building-integrated PV projects, and 130 MW of ground-mounted PV projects) by 2011.  To put this capacity figure in context, the official national target for solar power (including solar thermal power such as CSP, which is a distinct technology from PV) capacity by 2010 is 300 MW, so Jiangsu is clearly blazing ahead.   To support this deployment, a generous feed-in tariff for the next three years is provided along the following scale (in yuan/kwh):

Year    Ground-mounted    Roof-top    Building-integrated PV
2009            2.15                     3.7                  4.3
2010            1.7                       3.0                  3.5
2011            1.4                       2.4                  2.9

The eventual goal of encouraging mass deployment is to spur innovation and achieve economies-of-scale that drive costs down to 1 yuan/kwh.

According to the plan, JIangsu also sets its sights to ramp up its already-strong solar manufacturing base to 10 gigawatts of capacity for components, and 3.5 gigawatts of PV cells by 2011.  The development plan doesn’t shy away from picking winners and losers–or at least picking winners–naming specific cities and companies and their share of the provincial target.  Suntech, based in Wuxi city, is mentioned most often.  Suntech, in particular, will be a key driver of solar innovation as it establishes important R&D centers in the province.  Other key provisions in the Jiangsu solar development plan include those on standards-setting and human resource development.

Beijing has also adopted its own solar development plan called 《北京市加快太阳能开发利用促进产业发展指导意见》 (Chinese only) as of the beginning of this year.  By 2012, it aims to have established 700 million square meteres of solar thermal water heaters, 70 megawatts of solar power generation, solar manufacturing output of 20 billion yuan ($2.93 billion), and the formation of testing centers for PV and solar thermal heating applications.   BY 2020, Beijing wants solar water heating to cover 11 million square meters, to install 300 megawatts of solar power, and to achieve national leadership in the solar value chain.  To this end, It is dedicating a total of 1.44 billion yuan (about $210 million), consisting of 160 million yuan of central government money, 980 million yuan of municipal money, and 300 million yuan in district and county money.   in investments across its various municipal departments.  A focal point of the three-year development plan are the six “Golden Sunshine” projects (六大“金色阳光”工程) (Chinese only), which consist of:

1.  20 megawatt solar PV  roof-top project–Beijing will supplement projects that qualify for the the national solar roofs program (see previous post: “Dawn of a New Era: The Gansu Solar Concession and Landmark Solar Roofs Program“) with additional financial incentives of 1yuan/watt per year for three years.
2.  50 megawatt solar power generation project–By 2012, achieve an installed capacity of 50 megawatts of PV.  Hearteningly, land use will be a major consideration, with an emphasis on the use of otherwise degraded land as well as large-scale agricultural facilities to strategically deploy solar installations.
3.  Solar campus project–install by 2012 in 50% of all primary and secondary schools solar water heating, solar-powered lights, grid-connected PV, solar energy science classrooms and other projects, also to educate students on the value of renewable energy.
4.  Solar energy hot water project–among other things, will provide a subsidy of 200 yuan per square meter for the installation of solar hot water systems.
5.  Rural solar project–the promotion of solar energy use in rural communities
6.  Solar lights park landscaping prject–all city parks and 30 percent of district parks will be equipped with solar lights by 2012.

See also here (again, Chinese only, sorry), for even more details on the Golden Sunshine projects.  In addition to these deployment projects, Beijing wants to be a leader further upstream the solar value chain–in R&D.

Ningxia Autonomous Region, which is highly rural, has also been aggressive in the solar space.  In 2009, it installed 50 MW of PV,  produced  600 and 1,700 tons of monocrystalline and polycrystalline, respectively, and established a solar panel manufacturing capacity of 20 MW.   Just days ago, it announced the opening of a new 40 MW grid-connected PV power station (Chinese only) developed by a consortium of 5 companies, including the CECIC, described in more detail below.

And thanks to cooperation with Germany, remote villages of Qinghai province are also benefiting from

…56 independently operating photovoltaic and photovoltaic-diesel hybrid power stations with a gross installed capacity of 1,539.4 KW, including 454.4 KW of solar power and 1,085 KW of diesel power. The project enabled 3,680 families of 10,400 farmers and herdsmen to use electricity in their daily life and also guaranteed power supply for 34 temples, 13 villagers’ committees, two police stations, two schools and clinics in Hainan, Haibei, Huangnan and Yushu Tibetan autonomous prefectures, and the Mongolian-Tibetan Autonomous Prefecture of Haixi…The project cost 92.4 million yuan (13.5 million U.S. dollars), including 64 million yuan from the German government and 28 million yuan from the Qinghai provincial government and 400,000 yuan provided by a German free training…

Too Much of a Good Thing?

If one wanted to trace back the steps and causes for the Chinese government’s sudden interest in promoting domestic deployment of solar, one of the key factor must certainly be the need to absorb excess capacity of domestically manufactured PV modules, especially in the wake of a collapse of overseas demand as the global economy slowed and key European markets (noticeable Germany and Spain) started reducing their own domestic financial incentives for solar deployment.  In essence, as I argued in a policy brief in China Security last year, a solar industry bailout would be a good excuse to start creating a domestic solar market in China.  Overcapacity is also happening further up the value chain the production of polysilicon, the raw ingredient to silicon-based PV modules (see also graphic, right).  The crimp in demand for solar panels abroad, plus a collapse in polysilicon costs (to the range of $50 to $70 per kilogram today, dramatically down from its peak of almost $500 per kg)  as a result of this oversupply, has brought down the prices of solar modules by roughly 40%.  This situation has provoked a response by the NDRC to pour some cold water on the overheated polysilicon sector, among other industries (including wind energy components).  Still, that is not stopping China Investment Corporation, the $300 billion Chinese sovereign wealth fund, from making an investment into GCL Poly Energy, which first focused on co- and poly-generation thermal combustion plants across China when it first went public a few years ago, but now is in the business of polysilicon production after a recent acquisition.  Surely CIC, now a savvy energy investor, must see something in GCL’s business that makes it interesting.

Over the Slump?

If the bellweather Chinese solar companies are any indication, the solar industry, hemorrhaging in for at least the first half of 2009, seem to be on the road to recovery.  At the beginning of the third quarter, HSBC already suggested that the solar sector had turned a corner.  Suntech, Yingli, Trina and LDK Solar subsequently reported bullish financial results for that quarter.  The good times, in fact, appear to be back for a sustained period of time as Reuters has reported that Suntech are basically in a “sold out” situation through at least the second quarter of this year, and that the “solar majors” (as I will call them) are all ramping up capacity again to cater for more diversified demand, particularly from Japan, which recently rejuvenated its domestic market with new incentives after discontinuing them in 2005.  Suntech, for instance, is expanding capacity by opening a new facility in Suzhou city (Chinese only) in Jiangsu province, near its Wuxi city headquarters.

Suntech, for its part, is extending its dominance in the crystalline-PV sector.  At home in China, it announced in November that it expects to develop one-fifth of the 91 MW of PV projects recently announced as beneficiaries of the national Solar Roofs program, a PV subsidy program announced last March (see previous post: “Dawn of a New Era: The Gansu Solar Concession and Landmark Solar Roofs Program“).  That’s some serious market share for a country and sector with such serious competition.

Coming to America

Suntech not doing too shabbily abroad as well.  In fact, it has already secured 10 percent of the market share of California, also known as the Golden State and that accounts for 40 percent of the U.S. solar market.  Suntech’s domestic competitor, Yingli Green Energy, based in Baoding, Hebei, has been even more impressive, capturing an astonishing 27 percent of the California market.

Separately, Suntech announced plans to establish a modest 30 megawatt manufacturing facility in Arizona, the first solar manufacturing site in the United States by a Chinese firm, that would employ up to 75 people.  Politically, this is important as it came at a time when China was accused of “stealing green jobs” from the United States through unfair practices (whether rightly or wrongly).  From a pure life-cycle energy  economics analysis point of view, it may also be the right thing to do, especially as oil prices rise and increase the cost of shipping.

ENN, a private diversified alternative energy company headquartered in Hebei province, is partnering with Duke Energy of North Carolina, USA to develop solar PV projects in the United States.  The projects will be of two varieties–utility-scale solar power plants and commercial distributed generation (e.g. rooftop).  This solar partnership is the latest in a series of arrangements between ENN and Duke to work together on exploring and developing a series new clean energy technologies, including cleaner combustion of  coal and CO2-absorbing algae biofuels.

Emerging Giant

State-owned China Energy Conservation Investment Corporation, or CECIC, is an emerging solar project developer.  In fact, by some accounts, it was as of the end of third quarter last year China’s largest investor and operator of solar projects totaling 1.1 GW  in capacity.  In September, it completed contruction of China’s first 10 MW solar PV power plant (the first phaseof a 50 MW project) in Ningxia Automous Region together with Suntech.  CECIC has since cemented its relationship with Suntech by entering into a 5-year partnership in which CECIC will be responsible for project investment and development while Suntech supplies the solar products, system design and technical support. Suntech and CECIC plan to focus on the development of large scale on-grid projects, urban BIPV projects, rural off-grid projects, and wind-solar hybrid projects.  Separately, CECIC is reportedly building Asia’s largest grid-connected BIPV project (6.5 MW in Shanghai) amongst other deals. Typically focused on domestic projects, CECIC, with a growing confidence, now has ambitions to build solar projects overseas in Germany, Spain and Italy.

More Eagles visit the Dragon’s Lair

Mid-last year, Evergreen Solar, a U.S. company that is the pioneer of “string ribbon” wafer technology, is shifting some of its wafer and cell manufacturing operations from Massachusetts, USA to Wuhan in Hubei province.   Production in Wuhan at about 100 MW capacity will commence by mid-2010 and be ramped up to 500 MW bY the end of 2012.   Evergreen hopes its strategic move into China can help to bring down production costs to $1/watt by the end of 2012. Evergreen’s efforts sees it partnering with a local PV manufacturer, Jiawei Solar (Wuhan) Co., which will be a subcontractor, and the Wuhan Donghu New Technology Development Zone Management Committee, part of the Wuhan city government, which will provide financial incentives. More details of the arrangement can be found here.

Applied Materials, the world’s leading supplier of solar manufacturing equipment, opened last October the world’s largest non-governmental solar R&D center in Xi’an, Shaanxi, a big coal province.  This bold move had some scratching their heads, but for Applied Materials, the following logic was compelling enough:

We’re doing R&D in China because they’re becoming a big market whose needs are different from those in the U.S.,” says Mark Pinto, Applied Materials’ CTO. Going forward, he says, “energy will become the biggest business for the company,” and China, not the U.S., “will be the biggest solar market in the world.

Dupont also announced plans to expand its R&D work in Shanghai and build a new thin-film manufacturing facility in Shenzhen city, Guangdong province.

Last month, I had the unique opportunity to gather with some of the top U.S-based thinkers on Chinese energy and climate policy.  Participants hailed from World Resources Institute’s ChinaFAQs group of experts.  Since it was a closed door session, I can’t spill everything that was discussed, but I did get permission to share what I thought was the most fascinating segment of the day’s programs.  Mark Levine and Lynn Price of Lawrence Berkeley National Labs’ China Energy Group, presented a fascinating array of findings on how China is progressing on its energy conservation goals in its current five-year plan (2006 to 2010).  The study, conducted by LBNL’s China Energy Group (in collaboration with Tsinghua University and McKinsey) analyzed China’s efforts in seven energy conservation programs–the Ten Key Projects, Enforcement of New Buildings Energy Standards, Building Retrofits, Top-1000 Energy-Consuming Enterprises, Structural Adjustments, Small Plant Closures, and Appliance Standards.  A recent article in Science Daily also covered LBNL’s work in this study.

Lynn explained in an exclusive interview with The Green Leap Forward, the motivations for conducting such a study:

LBNL’s China Energy Group focuses on end-use energy demand, so we are always interested to learn more about the details behind the overall numbers. During this Five-Year Plan, China has been reporting remarkable progress in reducing energy use per unit of economic growth, but the question in our minds was how were they achieving this? With this project, we set out to really understand the end-use policies and programs that China established and how they were or were not contributing to the overall reduction in energy intensity.

The following slides, which are informative and comprehensive, were what was used in Mark and Lynn’s presentation.  I highly recommend going through them in entirety.

LBNL’s findings is summed up best by Mark, lead author of the study and founder of the China Energy Group, who told The Green Leap Forward , also in an exclusive interview:

Overall, China has achieved a remarkable turnaround in reducing demand growth. In 2006, most observers felt that China’s 2010 target was virtually impossible to achieve. They appear now to be on the road to success in meeting the target.

Indeed, a quick summary of the team’s findings (see slide 10) shows that five of the seven energy conservation programs listed above were on course to meet their targets.  Echoed Lynn:

While we were able to offer advice on how to improve some of the programs based on international experience, overall we were surprised to learn of the breadth, depth, and success of the energy-efficiency programs that China has established in a very short period of time.

One of the more interesting findings are with respect to new buildings (see slide 14), where it was found that, at least in cities, compliance by 2008 of new buildings in the the design phase is up to 98 percent, and those during the enforcement phase (i.e. already built) was at about 81 percent.  “China has put into place a system that gives the proper incentives to the design institutes and builders which appears to be quite effective,” the LBNL researchers conclude.   The program to retrofit existing buildings for efficiency has been less successful, and together with structural adjustment, represents the two (of the seven) programs that are not on track to meet their 2010 targets. (Speaking of meeting targets, one program has since fully met  its 2010 goal is the Top 1000 Enterprises program, as reported here).

The recommendations (starting on slide 23) by LNBL are also valuable, with one in particular worth highlighting:

Establish an independent institution similar to the U.S. Energy Information Administration to systematically collect and analyze data focused on end-use energy consumption.

This addresses the perplexing nature of energy data in China, which Mark and his team believed to be largely consistent and accurate from the big-picture point of view, but difficult to untangle once one started to dig a little deeper.  We’ll have more to say on energy data and transparency on this blog in the months to come.

A full report by LBNL based on these findings will be published sometime next month, so look out for it on LBNL China Energy Group’s webpage.

Related Posts:
The Top 1000 Energy-Consuming Enterprises Program
Putting China’s Coal Power Sector in its Proper Perspective
China Climate Progress Report 2009

There has been a wave of water price hikes across various cities and regions across China over the past year.  Most recently, Beijing raised residential water rates by 8 percent, as we blogged about yesterday.  But there have also been proposed or implemented water price increases earlier this year in Shanghai, Lanzhou (Gansu province) and certain cities in Heilongjiang, and others, despite fears of inflation.   Getting the prices right, many seem to agree, is an important ingredient in managing scarcity so that water is allocated to their higher value use.   And as we noted yesterday as well, higher water rates encourages new investment in water supply and treatment infrastructure.  But how one goes about getting these prices right is a topic of debate because a pure-economics approach is either met with the concern that the lower-income folks are disproportionately affected, or opposed by those who take the absolute position that is a public good.   Differential pricing–where users who use less water pay a lower rate, any heavier users pay a higher rate–is generally considered fair, but such a tiered water pricing structure has been slow to catch on because of the practical difficulty of drawing the boundaries of price levels that would be considered fair by the general public (I suspect thought that with electricity price reforms recently announced that will adopt such progressive tiered pricing structures, we should see more of this in water in the future).

McKinsey, by now almost everyone’s favorite climate number cruncher, released a report last month called Charting Our Water Future: Economic Frameworks to Inform Decision-Making, in which it unveiled its Water Availability Cost Curve, analogous to its not famous carbon abatement cost curve.  The report focuses on the four ‘BASIC’ countries (Brazil, South Africa, India and China) and aims to accomplish three things:  First, to paint the supply-demand picture for water from now till 2020; second to present its economic analysis of a menu of options to enhance water availability to make up for water supply deficit; and third to explore the implementation challenges of sustainable water management policy through the lenses of institutions and stakeholders.  The report is a very interesting read, but thick.  The Green Leap Forward has reviewed it and if you are specifically interested in the China bits, you are in luck, because that it is just those bits that rest of this blog post will summarize…

China’s Water Supply Deficit

Simply put, China’s water demand will outgrow supply in the next two decades.  By 2030, China will experience a water supply deficit of 25 percent (see chart below).

Click image to enlarge.  Source:  Charting Our Water Future, McKinsey

China’s Water Demand

• Agriculture will remain the dominant sector for water demand,   Agriculture accounts for 65% of demand today. Flood irrigation remains the main irrigation approach, over more water-efficient techniques such as sprinkler and drip-irrigation.
• But it is the industrial and urban sectors that accounts for most of the demand growth over the next two decades.  Agricultural water demand will decline to 50 percent of overall demand in 2030 as industrial and urban demand grows nearly five times as fast (2.7 and 2.9 percent per year) as fast as agricultural demand growth.
• With respect to industrial demand growth, thermal power is the biggest culprit.  By 2030, thermal power alone will result in 82 billion cubic meters of water demand, a whole 10 percent of China’s projected entire aggregate water demand of 818b m3, and 31 percent of the whole industrial sector’s demand of 265b m3.
• With respect to municipal and domestic demand growth, I would have guessed that this would be driven by the massive wave of rural-urban migration over the next two decades, but McKinsey attributes this more to a rapidly growing middle-class, from 4 percent of the population in 2005 to 56 percent in 2030, leading to increased water consumption.
• Only 38 percent of municipal water is treated, far below what is acceptable.  While a much higher proportion of industrial effluent–91 percent– is treated, the release of metals, cehmicals and other toxins into the water supply remain a big problem (see point on “Quality versus Quantity” below).

China’s Water Supply

• By 2030, China’s water supply will reach 619b m3, significantly short of aggregate demand of 818b m3–a deficit of 25 percent.  Eight of 10 major water basins will experience water shortages.
• China has a rich base of renewable water at 3,507b m3, but unfortunately only 565b m3 is accessible and reliable today.
• Because of the vast geographical expanse and diverse conditions, local availabilities matter (see map above).  While aggregate availability of renewable water today may cover aggregate water demand (555b m3), a more fine-grained look at China’s ten water basins reveals geographic disparities, and shortages.  As we discussed before (see previous post “Chinese Water Torture“), the story of water resource distribution in China is a tale of two regions–the water-rich south versus the water-scarce north.  This has served as the impetus behind the construction of the ambtious south-to-north water diversion project that will transfer some 22 billion cubic meters of water by 2030 from the Yangtze basin to the Hai-Huai-Huang basins, representing some 8 percent of water supply in these northern basins.
• Quality versus Quantity.  Pollution changes the assessment of available water.  Because the quality of some water is so low that it cannot be considered supply, the “quality-adjusted” supply is thus lower than the quantity-only supply, exacerbating water availability deficit.  For instance, some 21 percent of surface water nationwide is unsuitable in quality for even agriculture; in the Hai river basin, that proportion is 50 percent.

A Water Availability Cost Curve for China

The report identifies 55 levers to close the water availability gap of 201b m3 by 2030.  This would require an annual investment of $7.8b, but ultimately result in an aggregate net savings of $21.7b.  These findings are pictorially represented in the water availability cost curve below:

Click image to enlarge.  Source: Charting Our Water Future, McKinsey

Some key observations:

• Most of the savings (the vertical bars that are in the negative cost territory), some $24 billion, come from industrial efficiency measures, e.g. thermal power, wastewater reuse, pulp and paper, textiles and steel.
• But as discussed above, just as geography matters in the water supply scenario, a basin-by-basin approach will have to be taken to assess the most cost-effective levers, particular for supply-side solutions.
• In any case, meeting growing water demand fueled by industrialization and urbanization will require a balanced portfolio of levers–agricultural, supply, municipal and industrial.
• The water-energy nexus, discussed below, presents additional challenges in water management.

Water-Energy Nexus

The McKinsey report discussed something dear to my heart - the water-energy nexus.  It highlights a handful of “watergy” solutions, including:

• Ultra-supercritical processes for thermal combustion of coal: boosts plant efficiency, reduces energy costs $3.9 billion, lowers water-cooling needs, reduces water withdrawals and saves $8.20 per cubic meter.
• Coke dry-quenching: an industrial process to recover waste heat in the form of steam in a waste-heat boiler, resulting in water savings and steam generation for electricity production, as well as cost savings of $3.40 per cubic meter of incremental water availability.
• Renewable energy technologies such as wind, water and hydropower offer not only opportunities in the energy sector due to their lower carbon footprint, but also for water management because of their lower water footprint.  Coal-to-liquids, not a renewable energy source although certainly considered “alternative”, have generally fallen out of favor in recent years with many proposed projects never seeing the light of day precisely because of water concerns.  Concentrated solar thermal, or CSP, though a renewable energy technology, is also placed in an awkward position because of high water use in cooling processes (although at some point, air-cooling technologies can help ameliorate this concern).  This partially accounts for why China has favored solar photovoltaic projects over CSP (although there are other strong reasons such as the need to bail out the PV manufacturing sector that at one point was mired in a overcapacity situation).

All in all, the McKinsey report a terrific read.  And if you are a keen investor sensing that the dire water predicament in China spells an opportunity, you might want to read this equities research report by DBS that does a great job of covering the individual companies, many of them form my home state of Singapore, that are taking advantage of policy trends in China’s water sector (including healthy allocations to water inrastructure from the economic stimulus package) to build viable businesses.

Avalanche

Northern China was swept with a harsh cold snap that over northern China over the weekend.  Beijing, for its part, experienced its largest snowfall in six decades, a lowest temperatures in four decades (at minus 16 degrees Centigrade!!!).  The cold surge has created an unwelcome spike in energy demand at a time where energy demand is already taking on an upward trend as the national economy shows signs of recovering lost ground.  The heavy snow has also disrupted food transportation logistics, creating a squeeze in vegetable supply in urban centers and upward pressure on food prices.  The only consolation out of this white mess is that Beijing meteorological authorities have publicly acknowledged that climate change may be the cause of such extreme weather events, providing further testimony that the Chinese bureaucracy really “gets it” when it comes to the urgency of the climate issue.

Renewables

The Standing Committee of the National People’s Congress has approved an amendment to the Renewable Energy Law of 2006 that clarifies rules, already in existence in the original 2006 law, that require grid companies to purchase all the power produced by renewable energy generators. Power enterprises refusing to buy power produced by renewable energy generators would be fined up to an amount double that of the economic loss of the renewable energy company. The amended law also clarifies how renewable energy projects will be financed by requiring the government to set up a special fund to be managed by the State Council for renewable energy research, financing of rural clean energy projects, building of independent power systems in remote areas and islands, and building of information networks to exploit renewable energy.  A good Chinese piece that elaborates on the nuances of the amendments can be found here.  The full text of the amended renewable energy law in Chinese is available here.

The National Development and Reform Commission (NDRC) has released a detailed list of renewable energy projects receiving government subsidies in the first half of 2009.

China has climbed up the wind installation rankings one position surpassing Spain.  After adding about 8 GW of installed capacity in 2009, its approximately 20 GW now ranks it third in the world (Chinese only) behind the United States and Germany.

Seambiotic, an Israeli developer and grower of marine microalgae for the nutraceuticals and biofuel industries using flue gas from electric power plants, has partnered with two subsidiaries of China Guodian Corporation to establish a Chinese joint venture for the commercial cultivation of microalgae.  The first of several commercial farms will be 12 hectares in size and is expected to cost $10 million.  The farm will be situated in Penglai, utilizing carbon dioxide from the Penglai power station; it is planned to become operational during 2010.

Water Woes

Beijing residential water prices will be hiked from 3.7 RMB/cubic meter to 4 RMB/cubic meter, while water resource fees and sewage treatment fees will rise by 0.16 and 0.14 RMB respectively.  In the past month, two important reports on water have been released.  One by McKinsey earlier this month that looks at .  Another report by Hong Kong-based Civic Exchange looks at the water security challenges of the Pearl River Delta region, and warns thats water solutions must move away from supply-side only management to “total water management.”

Shifting away from water supply to the other end of the pipe–water treatment–the situation is not better.  A senior official from the NDRC recently observed that one in four Chinese cities and seven out of 10 counties are without a sewage-treatment plant; not a good predicament when you are both the world’s biggest discharger of wastewater as well as the one with the fastest-growing discharge levels.  Low fees for water treatment that do not create the incentives for investment in water treatment facilities is cited as the reason:

The residential wastewater treatment fee in 36 major cities was only 0.7 yuan per cubic meter, on average, as of 2008, less than the national average cost of 1.1 yuan, not including the cost for pipe construction and sludge disposal, according to Cao Changqing, head of the NDRC’s Department of Pricing. He suggested that the situation has restricted the development of the wastewater-treatment industry.

A diesel spill from a rupture pipeline belonging to state-owned China National  Petroleum Corp contaminated two tributaries to the Yellow River.  Besides affecting drinking water supply, it disrupted hydropower production as well.

Island Protection

An island protection law is in the cards.  The Standing Committee of the National People’s Congress endorsed a law that will protect coastal ecosystems of China’s 17,000 islands and small isles by limiting coastal reclamation to quarry stone or sand, construction projects, tree felling, tourism activities and activities that threaten coral reefs. The State Oceanic Administration would be in charge of implementing and enforcing this law.

Macro-Policies

Alternative energy will be listed as a “key industry” listed in the Twelfth Five-Year Plan (2011 to 2015) for economic development, according to an official from the Ministry of Industry and Information Technology.  In addition, the following six areas will serve as focal points of environmental protection expenditures by the central government in the Twelfth Five-year plan, according to Assistant Finance Minister Zhu Guangyao:

1.  industrial restructuring, elimination of backward production capacity, particularly the closure of small cement plants, small paper mills, small steel plants high-polluting enterprises.
2. Supporting enterprises to carry out greater efforts in energy-saving and pollution control.
3.  Supporting the development of new and renewable energy, including in rural areas the use of biogas and biomass energy.
4.  Strengthening the construction of ecological economy, especially the “three rivers” and “three lakes” of pollution control projects.5.  Speeding up the construction of pollution monitoring center, including monitoring mechanisms, monitoring systems, strengthening of capacity-building.
6.  Promoting grasslands and the ecological environment restoration.

Notably, Mr. Zhu referenced environmental taxation as an important source of revenue to finance these efforts, although he acknowleged that the implementation of such taxes  is still some time off.

The National Bureau of Statistics revised China’s 2008 GDP growth by 0.6 percentage points to 9.6 percent.  One of the implications of such a revision is that is that energy intensity (i.e. energy consumed per unit of GDP produced) reductions declined by 5.2 percent, significantly more than the previously-reported 4.6 percent.  This increases the odds that China will hit is 2010 target of a 20 percent reduction in energy intensity from 2005 levels.

Autos

The central government is mulling new government procurement policies to increase the proportion of Chinese-made vehicles purchased by governments to more than half.  While a cynic may deem this to be no more than a protectionist move, this in effect represents a positive gain for overall fleet fuel efficiency given that domestic makers tend to make smaller, more efficient cars.

But how much of an environmental gain to efficient cars get when the absolute numbers of cars just go up, up and up.  Case in point–Beijing, which now reportedly has  4 million cars.   To put that figure in context, consider that:

It wasn’t until 1997 that the number of vehicles finally reached 1 million.  Then it took five years to hit the 2-million mark in 2003 – two years after China’s accession to the World Trade Organization. Four years later, it hit 3 million. Now, after just two short years, the number has breached 4 million.

Meanwhile, Chana Auto has apparently released China’s first pure-electric vehicle.

http://www.china5e.com/show.php?contentid=67042

Rail

The rapacious growth in automobiles call for an urgent need for public mass transit–Cities are responding, with 22 of them just garnering approval to build subway lines for a total investment of 882 billion yuan ($129 billion).

The world’s fastest land journey (peaking at 394 km/h) openeed, linking Wuhan to Guangdong with 1068 km of high speed rail.

Trees

As part of its commitments to combat climate change, China pledged to  China’s domestic forestry activities have often been lauded.  In recent months, they announced they would increase forest coverage by another 40 million hectares by 2020.  They also claim that tree-planiting efforts from 1980 to 2005 have resulted in a sequestration of carbon dioxide emissions equivalent to 5 billion tons, and have reportedly met their national 20 percent forest coverage by 2010 target ahead of schedule.  But what is often glossed over in this litany of domestic successes is the culpability of China’s timber industry for illegal logging overseas.e

China’s State Forestry Administration will initiate a pilot project with a group of companies to verify whether its timber products have been logged legally. The new system, once established, will verify imports from China’s major timber importing countries that include Russia, countries in Africa and Southeast Asia, as well as those in South America.

Coal

A new record for efficiency in the thermal combustion of coal has been established, with Shanghai WaiGaoQiao Power Company  claiming that its largest plant in Shanghai achieved an efficiency of 282 grams of coal combuster per kilowatt-hour of power produced (Chinese only), beating the previous record set in 2008 of 287 g/kwh.  To put these numbers in context, the national average is 339 g/kwh, and the world average is 330 g/kwh, while some of the more advances ultra-supercritical power plants achieve an efficiency of 300 g/kwh.

In another move to enhance coal security, China appears to have lowered import tariffs on coal.  Not exactly a move that will facilitate a move away from a coal-dominated energy structure.  However, this would be somewhat offset by a 5 to 10% increase in domestic coal prices (Chinese only) as part of the NDRC’s ongoing efforts to phase in electricity price reform.

LNG

A $40 billion LNG supply deal between Australia’s Woodside and PetroChina fell through as a deadline to reach agreement on further cooperation came and went without agreement.  This setback was offset by the opening of a Central Asia-China natural gas pipeline.  But China still wants more LNG, remarked (Chinese only) Zhang Guobao, chief of the National Energy Administration.

Grid

China’s State Grid will invest at least 200 billion yuan ($29.4 billion) in 2010 alone (Chinese only) on building out grid infrastructure.  Over the next twenty years, State Grid may invest 400 billion yuan ($59 billion) (Chinese only) as part of its three-stage plan to build national smart grid. Meanwhile, China continues to make world-leading advances in the high voltage transmission sector.  A 1300 km high voltage DC transmission grid wire from Yunnan to Guangdong provinces in Southern China was successfully stepped up from 0 to 800kv (Chinese only) by China Southern Grid Company.

Over the course of 2009, the State Grid company completed 11successful tests on 1,000 kv ultra-high voltage AC lines (Chinese only) for a total “live time” of 143 days.

The State Grid is in talks with Duke Energy of North Carolina to team up to build high voltage transmission lines in the United States.

Energy Tragedies

The ugly side of energy development continues to plague China.   There are a few more coal mining disasters to report–the ones I came across are in Shanxi, Yunnan and Hunan.  In Guangdong, a battery plant was shut after it was found that 40 children in surrounding areas had high levels of lead in their blood.  Remarkably, a battery plant in Jiangsu province was also closed when 51 children were found with excessive blood lead levels.

Photo Credit:  Xinhua via People’s Daily

Let’s kick off the new year with yet another Top Ten list, taking a look back at the best blog posts on GLF in 2009.  Last time, we attempted to select the top five posts of 2008 but ended up with seven or eight.  So for 2009, we’ll attempt to broaden the selection to the Top Ten.  As before, the selection is non-scientific and based on a combination of tracked page views (thank you, Google Analytics!) and the author’s favorites.  Unlike the last time, which was in no particular order, I have attempted to rank this list in order of significance:

1.  Eco-infrastructure: Letting Nature Do the Work (Feb 27).  Almost a white paper that explores lots of theoretical concepts and culminates in a set of 9 principles of what eco-communities (notice I avoid the phrase “eco-cities”) should embody.  This post stood out as my most fun to write (I love bridging the theoretical to pracitcal), but also turned out to be the single most visited post that was published in 2009.  (Of course, this metric is not perfect as it discriminates against posts that go up later in the year, and hence have less expsoure–this is why the Top Ten ranking is not based purely on number of hits.)

2.  China’s Climate Progress by the Numbers (Jun 4).  This piece, which reads like a glorified edition of Green Hops providing a comprehensive overview of many of China’s national clean energy policies, help put me on the map, so to speak, in the DC China climate/energy policy community.

3.  China in Copenhagen Series (Dec).  Not so much a single post,  but a collection of detailed posts, most of it written by guest bloggers Angel Hsu and her team from Yale University who were on the ground in Copenhagen tracking the Chinese delegation.   Their almost daily coverage and in depth discussion of the nuances of the Chinese climate position sent GLF daily hits soaring to record heights in December.  Thank you Angel and company!

4.  China to adopt “binding” goal to reduce CO2 emissions per unit GDP by 40 to 45% of 2005 levels by 2020 (Nov 26).  In terms of content, the title says it all.  I am particularly proud of this 3,300 word post because I managed to get this up within hours of the announcement, which accounted for it being one of the most visited posts for the year.

5.  Safety is your responsibility and MINE: The Heilongjiang coal mine disaster in context (Nov 25).  This tragedy, the largest in two years, underscores the point that China continues to pay a heavy price for their reliance on coal.

6.  Deconstructing China’s Energy Intensity–A Lesson in Fuzzy Math (Aug 11).  This guest post by John Romankiewicz took a critical look at the numbers behind China’s energy intensity performance over the recent years…with some very interesting and original findings.

7.  China’s New Water Efficiency Targets (and Implications for Food and Energy) (Feb 17).  On the food-water-energy nexus, one of my favorite issues that I will hopefully be writing more about soon.

8.  How Did China Fare in Copenhagen? A Critical Analysis by Someone Not in the Room (Dec 23).  A post-mortem of how China did in the Copenhagen climate negotiations.  In a word–well, which is not necessarily great news for global climate cooperation.  This is kind of part of the whole “China in Copenhagen” series in #3 as well, but I set it apart as its own because this consists entirely of GLF’s original analysis, which sets itself apart from the other posts in the series that came mostly from guest bloggers.

9.  Dawn of a New Era: The Gansu Solar Concession and Landmark Solar Roofs Program (Mar 27).  This post described new incentive policies that marked the beginning of a new era on the Chinese solar industry.  After years of manufacturing solar photovoltaic panels almost exclusively for overseas markets, China is now getting serious about deploying them domestically.  The hot interest in China’s solar industry led to high score on the blog counter for this particular post, and others like it, such as this and this.

10.  Announcements of U.S.-China Cooperation Create a Path to Copenhagen Success (Nov 22).  This list would not be complete without a the story on how a new chapter in US-China relations has been written through clean energy and climate change cooperation.  I wrote a few blog posts on this, and have chosen this one for highlighting cooperation on transparency that few other commentators picked up, even though it was another earlier post (”Obama and Hu announce comprehensive strategy for clean energy and climate change collaboration,” Nov 17) on clean energy technology cooperation that garnered one of the highest hits of the year.

I am really looking forward to the upcoming year as 2010 may prove to be bigger than ever.  First, the Copenhagen Accord needs to be implemented and a new legally binding treaty can hopefully be hammered out over the next 11.5 months culminating in COP16 in Mexico City.  US-China cooperation on clean energy will continue evolve as both leaderships place high priority on them.  We also expect to see new clean energy development targets formalized (thought the new targets are by now largely known), and perhaps announcements on new spending (remember that 3 trillion yuan expecatation that never materialized this past year?).  We also expect to see more developments on transparency and accountability–the topic is hot and the rest of the world is demanding that China steps up on this front–and I am confident that it will try.   Finally,  as I have forecasted before, water issues, both in terms of quality and quantity (or lack thereof) will continue to come into focus.

1.  China sets 2020 targets to raise non-fossil fuel’s share of primary energy consumption to 15 percent, and to reduce carbon dioxide emissions per unit of GDP by 40 to 45 percent compared to 2005 levels.

2.  The China - Central Asia gas pipeline went into operation, bringing Central Asian natural gas into China.

3.  After 15 years of negotiations, China and Russia finally sign an agreement to build a crude oil pipeline and other energy cooperation agreements.

4.  By the first half of 2009, China closed down more than 54 gigawatts of small, inefficient coal-fired thermal power plants.

5.  Construction commenced on China’s firs 10 GW wind power mega base in Jiuquan in Gansu province.

6.  Construction started on third-generation nuclear power projects in Sanmen (Zhejiang), Haiyang (Shandong) and Taishan (Guangdong).

7.  Shanxi, one of the largest coal-producing provinces, achieved large-scale reductions in small coal mines and coal enterprises.  By the end of 2010, the province’s coal enterprises will be reduced from more than 2000  to 100, the number of mines from 2600 to 1000, and all mines with an annual output of 300,000 tons or less will be closed.

8.  Reform on taxes on refined oil products took effect. Petrol and diesel consumption tax were raised while highway road maintenance, management fees were abolished.

9.  In April, China’s total installed power capacity hit 800 GW upon the putting into operation of hydropower generating units in Qinghai.

10.  China’s legislature mande amendments to the Renewable Energy Law that will take effect next year.

Surprising omissions from my standpoint include the announcement of major subsidies (solar roofs and Golden Sun) to promote a domestic solar market, the broad range of new cooperation between the U.S. and China on clean energy and the big coal mine disaster that claimed 108 lives in Heilongjiang.  We’ll have another Top 10 list soon, this time on the top GLF blog posts of 2009.  Stay tuned!

A more detailed description of the plan, particularly the land reclamation phase, is available here.  This Tianjin project is just one part of a portfolio of infrastructure projects of DHV in China.

In the video clip, Neville Mars, a Dutch Beijing-based architect skeptically points out:

First of all, they are talking about a new city built from the ground up.  I think that’s already a bad start.  True sustainability is the expansion of existing cities so you keep cities compact and city networks efficient.  Even worse, these projects use land created artificially in the sea.  You can’t get much less sustainable than that.  It costs an unbelievable amount of energy to do.

Reasonably put.  But with an additional 350 million Chinese migrating from rural areas to cities by 2025, it is worth questioning even Mr. Mars’ premise that cities, and all the concrete, glass and steel that they imply, can ever attain “true sustainability.”

As I watch this video, I am reminded of the 9 principles of eco-community design based heavily on the concept of “eco-infrastructure” that I penned earlier this year, and which I reproduce below (it is somewhat heady stuff, so I recommend going back to the original post “Eco-Infrastructure: Letting Nature Do the Work” for a refresher):

1. Design is based foremost on the centrality of the natural landscape and the environment’s natural endowment.
2. Eco-infrastructures are designed so that human infrastructure are mapped onto underlying eco-structures, eco-structures onto underlying human infrastructure, in a way that is complementary and mutually reinforcing.
3.  Such eco-infrastructures are deployed with a unified system-of-systems approach.
4.  Eco-infrastructure design is guided by the appreciation of stock-and-flow systems.  Thus, it will embrace an energy system that focuses on harnessing the flow of solar flow, not the limited stock of fossil fuels.  It will also recognize the need to address stock GHGs be sequestering carbon naturally through soils, in addition to reducing flows of additional GHGs by using renewable energy sources.
5. An eco-infrastructure strategy breaks down the dichotomy between rural and urban, and embraces an intermingling of the two.
6. Such ecostructures will be guided by the interactions of various closed-loop cycles (in water, food, energy, materials, nutrients, information and money).
7. Self-sufficiency and localization is emphasized not only because it strengthens security but also because is disentangles the community from the snares of global supply chains and keeps wealth within the community.  Yet, such a community promotes free exchange of information.
8. The social aspects of community are fundamental, hence the focus on social metrics such as job and wealth creation and recreational facilities.  Education and fostering eco-values in the residents are also key–regenerative living is a lifestyle (heartware), not just green power plants and gardens (hardware).
9.  Resilience and security of the community relies on diversity in every respect–energy sources, biodiversity, food diversity, land use diversity, mixed-used housing, cultural and ethnic diversity.  A corollary of diversity is localization, distribution and decentralization because these concepts require the recognition and embrace of diversity at the ground (grassroots/local) level.   Hence, distributed energy resources and the use of local indigenous resources, among other things.

I welcome your thoughts on the Delta Diamonds project.

There’s been a bit of bickering between the Brits and Beijing (how’s that for alliteration!)  following the finalization of the Copenhagen Accord and conclusion of COP15.  I’m not interested in discussing that today.  Instead, I’m more interested in how the details of the accord measures up to China negotiating stance going into COP15 and as they evolved as the proceedings unfolded.  In other words, how did China fare?

No, I was not in the negotiating room, nor do I have any inside track to the minds of the Chinese government, but I have been following the public documents and statements pretty closely.  We’ve discussed some of the details of the Copenhagen Accord in my previous post “Good Cop, Bad Cop.”  As a reference of China’s negotiating stance, I use a collection of three posts: “Green Hops: BASIC Instinct…“; “Copenhagen Kickoff” and “China in Copenhagen Day 4: Back to BASICS!“.   Additionally, a comprehensive set of positions articulated by Premier Wen Jiabao on December 17, the penultimate day of teh summit, serve as a useful marker of where China stood going into the final 36 hours of negotiations (see summary in People’s Daily, Chinese only, rough Google translation here).  All quoted Chinese text below comes from this set of articulated positions which I will attribute to Premier Wen himself.  Premier Wen’s speech on the morning of December 18 is also instructive.

Let’s take the issues in rough order as they appear in the text of the Copenhagen Accord, and just for fun, I will keep a score card, allocating points between China and the rest of the world, awarding a point for a “win” and a half point for a “draw’.  I want to acknowledge at the outset that this assessment is made based on a limited number of public sources and may be prone to a bit of guess work, so I welcome hearing from those who might have different or additional perspectives in the comments section below.

1.  Fate of the AWG-LTC.  In the preamble of the Accord, the ongoing work of both the Ad hoc working group on Long-term Cooperative Action (AWG-LCA), and the Ad hoc working group on Further Commitments of Annex I Parties under the Kyoto Protocol (AWG-KP) are recognized.  In the BASIC text previously dicussed, China (and the other BASIC countries of Brazil, South Africa and India) sought to see an end to conclusion of AWG-LCA by mid-2010 so as to protect the integrity of the Kyoto Protocol.  We know by now why China is so clingy to the Kyoto Protocol - its very architecture, i.e. categorizing the world in terms of Annex I and non-Annex I countries, embodies the “common but differentiated responsibilities” (CBDR) principle that it is intent on preserving.  At the end of the day, it is hard to think that China seriously believed it could get its way in plotting a quick end to the AWG-LTC.  The United States has made crystal clear that it will not sign on to the Kyoto Protocol, thus necessitating the survival of the AWG-LTC.   The AWG-LTC will be the pathway to reframe the worlds countries in terms of major emitters vs. rest of the world,  or take a more differentiated approach to CBDR as I’ve argued for before (see previous post “Thinking Out of the Climate Box: Re-Examining Monolithic Approaches to the “Common But Differentiated Responsibilities” Impasse“), against China’s wishes.  World 1 China 0.

2. 2 degrees Celsius (and 1.5 too). The inclusion of the goal to limit global temperature rise to 2 degrees Celsius above pre-industrial levels is seen as a win by the international community.  It marks the first time the UNFCCC has adopted this shared goal, and builds on prior political commitments this year at the G8, Major Economies Forum and G20 to this very target.  On the other hand, because China (and the rest of BASIC) were party to these political commitments (other than the G8), they were prepared to sign on to this (in part, as discussed in #3 below, to deflect numerical targets for 2050).  What is important to China is that the target is accompanied by the phrase “on the basis of equity and in the context of sustainable development.”  So while the science-based target is clear, it is qualified by a nod to the equity (another way of referring to CBDR) and development priorities of developing nations.

Another interesting twist is how 1.5 degrees C is slipped into the accord in the ultimate clause, not as a definitive global goal, but something to be considered after further consideration by 2015 (see Article 12 of the accord).  The Chinese no doubt had concerns over this, having publicly opposed the 1.5 degrees C standard (see previous posts “China in Copenhagen Day 3: It’s getting hot in here - Tuvalu raises the bar, China reacts” and “China in Copenhagen Day 5: No Country is an Island“) due to its implications for even more onerous emissions cuts.   Despite only being a promise to consider 1.5 degrees in the future, it is still remarkable that 1.5 degrees is mentioned at all, since it was only earlier this year that major economies even began recognizing the 2 degrees C target.  Draw. World 1.5 China 0.5.

3.  50 by ‘50.  Here, I am noting what is conspicuously absent–the global goal to reduce global emissions by 50 percent by 2050.  This was a strict no-no by the BASIC block.  Why? Presumably because of the implications of such a goal to the mitigation responsibilities of big emitters like China.  (Also missing are developed countries’ collective commitment to reduce emissions by 80 percent by 2050, and there is an incendiary but unverified story (but by someone who claims he was in the room!) that suggests the Chinese were responsible for the exclusion of even that developed countries’ goal from the text).  The official Chinese explanation is that while they acknowledge the importance of the long-term view, the focus should be on near and medium-term action rather than deliberating on long-term targets (”中方认为，应对气候变化既要着眼长远，更要立足当前，要把精力和重点放在完成近期和中期减排目标上，不能让长期目标上的分歧影像谈判进程” and he repeated this in his December 18th speech: “ To determine a long-term direction is necessary, even more important is to focus on the completion of the short and medium-term emission reduction targets, and on to honor commitments already made, and on action.“).

But this is strange reasoning because as soon as they make this point, Wen says that China would consider a 2 degrees C goal so as to show its sincerity (”为体现中方诚意，我们可以考虑长期目标设定为升温不超过2摄氏度是国际社会共同努力的方向。“).  Yet, the 2 degrees C goal is in theory probably stricter that the 50 by ‘50 goal, and so if we want to be technical about this, the world is better off.  One can only speculate that the 2 degrees C goal would be more acceptable to the Chinese because it references a much more abstract end-game, and may thus seem more aspirational in nature and have less teeth, compared to a goal that is phrased with numerical reductions.  Purely from the perspective of near-term self-interest, Chinese negotiators will be pleased with the absence of these 2050 targets.  World 1.5 China 1.5.

4.  Peaking.  The language on emissions peaking did not specify a 2020 target year, as some countries were pushing hard for, but instead strove for peaking “as soon as possible,” and even then, with very elaborate and unambiguous qualifying language on developing countries’ right to develop (”recognizing that the time frame for peaking will be longer in developing countries and bearing in mind that social and economic development and poverty eradication are the first and overriding priorities of developing countries and that a low-emission development strategy is indispensable to sustainable development”).   This is exactly as Premier Wen ordered (”我们 认为，可以在成果文件中表明：国际社会应为全球排放尽可能早地达到峰值而共同努力。同时，为保持平衡，文件中也必须强调：发展经济和消除贫困是发展中国家 首要的优先任务。”).  As I’ve noted before, China has been touting this vague “as soon as possible” language for many months now (see previous post “Peaking Duck“).  And coupled with the strong language on development rights and the batting away of the 2020 target, what ended up in the final text of the accord is probably to Beijing’s high satisfaction.  World 1.5 China 2.5.

5. Mitigation Actions.  China is not going to get the 40 percent reductions it once demanded of by developed countries, but as noted in a previous post (”China softens climate rhetoric“), China seemed to show more flexibility on this in the months leading up to COP15.  Much more importantly, the accord marks a sea change in that for the first time in the almost two-decades long history of climate negotiations, non-Annex I countries have agreed to reflect their mitigation actions in an international agreement (in Appendix II, in this case), rather than merely national communications.  As mentioned above, this starts to break down the artificial distinction between Annex I and non-Annex I countries, and begins to re-categorize (although not completely) countries in terms of major emitters and the rest.  When China announced its carbon intensity targets (see previous post “China to adopt “binding” goal to reduce CO2 emissions per unit GDP by 40 to 45% of 2005 levels by 2020“), it was careful to  make clear that it was an “autonomous action” (some translated this as “voluntary action”).  Premier Wen himself made clear that the carbon intensity goal was a domestic action that was not dependent on the outcome of Copenhagen.  Well something happened in the 36 hours that Premier Wen uttered that position.  China looks poised to reflect its carbon intensity goals in Appendix II to the Copenhagen Accord after all.  This is a big win for the rest of the world.  World 2.5 China 2.5.

6.  Transparency.  I was personally most focused on this issue.  On the morning of December 18, I suggested that an agreement on transparency was close (see previous post “Has a U.S-China agreement on transparency been reached?“) based on the speeches by Premier Wen and President Obama.  What resulted in the final accord was language I very much speculated in that post.  Actions supported by finance or technology assistance will be subject to the full force of MRV–that was never in doubt.  Unsupported actions, however were another issue.  In the months leading up to Copenhagen, China’s stance on MRV of unsupported actions was a strict NO.  However, when the BASIC text became public on Day 4 of COP15, it became clear that China was beginning to show some flexibility.  As discussed before, China now seemed it would be willing to subject unsupported actions to a domestic “audit-supervise-assess” mechanism that would take into account  “any guidelines that the conference of parties may elaborate” and “be made publicly available for full transparency.” Furthermore, Premier Wen was cited as saying something to the following effect on December 17:

我们不仅要使承诺公开透明，而且要保证承诺的执行受到法律和舆论的监督。 同时，我们愿意改进国家信息通过的报告方式，增加行动的透明度。今后我们也愿意自愿地、主动地做一些说明或澄清，也可以考虑与各方进行[不?]侵入性的、不涉及主 权的国际交流、对话与合作。(Roughly translated: Not only do we make the commitment to openness and transparency, but we will also ensure the implementation of commitments by the supervision of the law and public opinion. At the same time, we are willing to improve the national reporting adopted to increase the transparency of action. In the future we are willing to voluntarily take the initiative to do some explanation or clarification, and can also consider engaging in international exchange, dialogue and cooperation that is [non-intrusive] and respects our sovereignty.)

True enough, the Copenhagen Accord is now clear that unsupported actions are to be subject to a domestic verification system, and are to be reported in national communications every two years that are subject to “international consultation and analysis.”  Importantly, this wll be done in a way that “ensures national sovereignty is respected,” a specific concern voiced by Vice-Foreign Minister He Yafei. President Obama likened this system to that of the WTO.  The biennial national communications process is a big step change in the reporting requirement, considering that China has only once ever submitted a national communication.  This is the power of reflexive law, something I wrote extensively about when I was in law school with respect to corporate environmental disclosure, and would be equally applicable in the national climate change context.   While the details of this new process need to be flushed out, I think the early money says that both China and the international community walk away from this one as winners.  China was clearly prepared to move on the transparency issue–indeed it had showed early signs form the U.S.-China presidential summit in November (see previous post “Announcements of U.S.-China Cooperation Create a Path to Copenhagen Success“)–and did.  President Obama, for his part, now has something to take back to the U.S. Congress on this critical issue. “If its good enough for the WTO, it should be good enough for climate action,” he is likely to argue.  So while there has been some suggestion that China was out-strategized by the United States into increasing transparency, I disagree in this assessment.  China was ready to move from the get-go, they were just tough enough negotiators to make the developed world work real hard to get to agreement in the Accord.  Draw.  World 3 China 3.

7.  Finance.  The commitment by developed countries of $30 billion in quick start financial assistance for adaptation and mitigation prioritized for the most vulnerable developing countries, followed by up to $100 billion per year by 2020 represents the major achievement of Copenhagen, as I discussed in my last post.  $100 billion is probably only a third of the end of China’s (and th G77) request earlier this year for an international climate fund of 0.5 to 1 percent of the GDP of the developed world.  But I would not necessarily chalk this as falling short of China’s expectations because I consider that position a negotitation strategy rather than a realistic, genuine ask.  There may be an open question, though, of what China and the rest of the developing world really thinks of the fact that this $100 billion consists not just of public money, but private, biltareal and “alternative sources of finance.”  Still, I think they must be relieved that some real money in the billions of dollars range has now been committed, even if those figures now appear pedestrian in the new era of bank bailouts.

China had been a forceful proponent of financial assistance for the poorer developing countries and had been quick to acknowledge that it is not the “first candidate” for such assistance (see previous post “A Stern Warning? No Money for China–No Problem“).  A more interesting question that was not pressed as much during the talks was whether China itself would be expected to contribute to a global climate fund.  Here, I noticed a small opening in China’s position that suggests that some day, it might actually be open to be a contributor:

…尽管中国是一个发展中国家，仍然有1.5亿贫困人口，但是我们在南南合作 和双边合作的框架内为最不发达国家、小岛屿国家和非洲国家提供了力所能及的帮助，以便提高他们应对气候变化的能力和手段。(roughly:…although China is a developing country, there are still 150 million poor people, but we have, in the framework of the South-South cooperation and bilateral cooperation, provided assistance to the least developed countries, small island countries and African countries, and help to improve their ability to cope with climate change and means.)

Recall, for instance, that China very recently agreed to provide $10 billion worth of general aid to Africa, but part of which includes the building of 100 clean energy projects.  So really, why not?  China wasn’t asked to pony up money this time. but if international climate negotiators read this blog, they might just start pressing China to do so at some point.  Tough to divvy up the points on this one, because of the uncertainties in the details of the financing mechanism, so I’ll call it a draw.  World 3.5 China 3.5.

8. Lack of time-table for next steps.  As I explained in my last post, one of the biggest disappointments of the Copenhagen Accord is a lack of a specific timetable for a legally-binding post-Kyoto Treaty.  The expectation was that COP16 at Mexico City in December 2010 would be the target date for the second of this supposed “two-step process”, and indeed, earlier draft text of the Accord said as such.  Needless to say, this is a setback for global climate action.  This Youtube interview of Indian climate negotiator Jairam Ramesh suggests that it was India that objected to the deadline on the grounds that setting any such time table for a new agreement would “spell the death of the Kyoto Protocol.” It is fair to say, especially based on Issue #1, that the Chinese would be aligned with India on this point, and are not all the heartbroken over this outcome. Tie-breaking point to China.  World 3.5 China 4.5

9. Everything else. There are important references in the accord to the establishment of a technology sharing mechanisms, adaptation and forestry, but not at the same level of detail as the key issues of mitigation, transparency and finance.   This is understandable, given the political urgency of the latter set of issues.  The finance prong actually encapsulates technology, adaptation and forestry anyhow, so we can consider China’s strong interest in these subissues served.   Too premature to allocate points on these set of issues.

Verdict

All told, I think China made out just fine on the substance of the Copenhagen Accord.  Based on the statements by Chinese officials, COP15 resulted in a “significant and positive” outcome.  Most climate advocates would certainly disagree if the yardstick was whether the Accord gets us on a path to avoid a 2 degrees C warming (it does not).  But if you are a Chinese negotiator, I think that the positive assessment is probably correct.  My unofficial final score ends up reading as a draw, with China ahead, but if I were to factor in the diplomatic fallout and finger-pointing that China finds itself on the receiving end of right now, I’d probably reconsider.  I’d be curious to hear what other think, so please leave your comments below.  Ultimately, though, the unoffical score-card was just in the name of fun.  Instead, the real numbers that we all should be keeping our eyes on are those dictated by science, the numbers on the thermometer, and those fancy machines that tell you how many parts per million the concentration of CO2 is in our atmosphere.

Picture credit: Reuters, via Radio France Internationale

The mainstream media was quick to dismiss the outcome as a failure, and very soon, new puns such as “flopenhagen”, “brokenhagen” and “nopenhagen” were uttered.  Is this surprising?  No, of course not.  The mainstream media, at least in the Western world, likes headlines that shock and rouse up negative feelings.  Its much simpler to convey to the public the message that the Copenhagen climate talks sputtered, than articulate the modest but important steps that the Copenhagen Accord yielded.

Well The Green Leap Forward is not the mainstream media.  I will endeavor to provide a takeaway of some positive outcomes of the accord, and also try in a subsequent post to reflect on how China came out of this with respect to their negotiating position going in.

The Copenhagen Accord was not a breakthrough, but it wasn’t a complete failure either.

Those who were disappointed that COP15 did not produce a legally-binding outcome clearly were not doing their homework.  Going in to the metings in Denmark on December 7, that was never an expected outcome.   As I made clear in my “Copenhagen Kickoff” post, the goal of Copenhagen was to agree on a political statement or accord.  At the emergency meeting at the APEC in Singapore in mid-November, leaders agreed that Copenhagen would be the first step of a two-step process, with the second step being a fully-ratifiable, legally-binding treaty.  In Beijing days later for the US-China presidential summit, President Obama elaborated on this, expressing hope that what would come out from Copenhagen:

Our aim there, in support of what Prime Minister Rasmussen of Denmark is trying to achieve, is not a partial accord or a political declaration, but rather an accord that covers all of the issues in the negotiations, and one that has immediate operational effect.

So was this achieved?  Let’s take a closer look (I’ll start with the bad stuff so that I can end on a high):

Bad Cop

Two aspects of the Copenhagen Accord make it admittedly disappointing:

First, the emissions mitigation targets that the nations have tabled (but will as a technical matter only submit formally by January 31, 2010) will not get us on the path to the accord’s stated objective of avoiding a global temperature rise of more than 2 degrees Celsius, unless they are miraculously strengthened over the next 5 weeks.  Indeed, analysis by my colleague has shown that such commitments only get us 65 percent of the reductions we need to meet the 2 degrees C goal, to say nothing of the 1.5 degrees C goal that Tuvalu and other small island nation states have pushed for.  Over the course of the next months, governments must be challenged to commit to deeper cuts.

Second, the Copenhagen Accord does not set a deadline for the critical second step–the legally-binding agreement.  Most would have hoped for December 2010, where the 16th Conference of the Parties, or COP16, convenes in Mexico City.  Some like Nobel Prize-winning climate change advocate Al Gore has even pushed for COP16 to be pushed up to July.  The only consolation on this point is that UN General Secretary Ban Ki-Moon has used leadership to urge governments to translate the Copenhagen Accord into a fully ratifiable treaty in 2010.  In my own assessment, the parallel use of non-UNFCCC multilateral fora such as the Major Economies Forum, G8, G20, as well as bilateral interactions, will be critical towards getting to Step Two.

Good Cop

Pictured right, Premier Wen Jiabao and President Obama in a bilateral discussion at Copenhagen on December 18.

Despite its shortcomings, there are at least three reasons to be optimistic:

1.  Mitigation.  The accord starts to move away from the artificial distinction between developed versus developing countries towards one of major emitters versus everyone else.  It is not a complete shift, since references to Annex I and non-Annex I countries still exist in the text and both are held to different standards of mitigation actions.  Yet, the Copenhagen Accord marks the first time where major developing countries such as China and India promise to commit to mitigation actions.  Governments will have up to January 30, 2010 to submit their mitigation commitments.  What is just as important is that the governments explicitly agree to avoid global temperature rise of 2 degrees C, and the last clause of the accord provides for an assessment on a more stringent 1.5 degrees C target to be completed by 2015.

2.  Transparency.  The accord contains important language on transparency.  This has been an especially divisive issue between China and the United States, or so the mainstream media would have had you believe.  However, as I wrote on Friday (December 18) morning, there seemed to be clear signs that the gap between both countries on the transparency issue appeared to be closing.  Apparently, though, it would take another bilateral meeting between Premier Wen and President Obama, and a multilateral meeting among Obama, Wen, Lula (Brazil), Singh (India) and Zuman (South Africa) to hash out the final agreement on transparency.

The ends result appears to be a satisfactory compromise.  Developing countries will have mitigation actions that are supported by international financial/technological assistance to the full force of “MRV” (measuring, reporting and verification), while unsupported actions would be subject to domestic MRV processes, but also reported every two years through national communications and subject to “international consultation and analysis,” but only in such away where “national soveriengty is respected.”  This is not only consistent with my prediction on the moring of December 18, but also with the BASIC position going into the Copenhagen talks itself (see previous post “China in Copenhagen Day 4: Back to BASICS!).   Whether this is something that the United States negotiators can take back to the U.S. Congress to appease those who are skeptical of whether the developing countries can be trusted to live up to their commitments remains to be seen, but President Obama, in his press briefing shortly before leaving Copenhagen, seemed satisfied with the outcome on transparency.

3.  Finance.  The accord produced additional commitments for financial assistance from developed to developing countries, especially the most vulnerable and poor countries.  The US$30 billion quick-start funding for 2010 to 2012, which eventually rises to a $100 billion per year global climate fund by 2020 may fall short of the $300 or $400 billion a year that some developing countries are calling for, but is non-trivial.  The United States, for its part, will pay its fair share of these global figures, including at least $1 billion over the next three years for forest conservation, and another $350 million on four specific technology assistance initiatives.  These are real and new commitments that would not have occurred but for Copenhagen.

As brief as it is (3 pages to be exact, or 5 pages if you count the Appendix), Copenhagen Accord is comprehensive in that it covers all the major issues (including forestry-Article 6-as some media outlets have incorrectly claimed was dropped) and is *somewhat* operational immediately–once the parties declare their mitigation commitments by the end of January, they can proceed to implement them, while the $30 billion quick-start fund commences next year as well; other aspects such as transparency and the global climate fund will require further action from the Conference of Parties to proceed.

The Copenhagen Accord is, in the final analysis, a stepping stone that will require much hard work in the months ahead.

Further Reading

For a more thorough analysis, I leave it to people who are smarter than me.  Rob Stavins of Harvard has the most thorough yet concise analysis.  My colleague Andrew Light at the Center for American Progress, Michael Levi of Council for Foreign Relations, Jeremy Symons of National Wildlife Federation and Jake Schmidt of NRDC provide useful commentary.  (It strikes me that the optimists coming out of COP15 are those who actually know a thing or two about international climate policy.)

A MUST READ, though, is this entertaining piece by AP which provide much color on the chaotic but central role that President Obama had in brokering the final deal, including a final frantic multilateral with China, India, Brazil and South Africa (the four BASIC countries) as pictured right. One is left with the strong impression that  suggesting that we might have come away with nothing at all at Copenhagen if not for President Obama’s intervention in the final hours.

In my next post, I will examine how the Copenhagen Accord measures up to China’s negotioating position going into the summit.

Picture credits: Cartoon by About.com; photos by White House.