| Jonathan E. Sinton Energy Analysis Program Lawrence Berkeley National Laboratory |
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Energy efficiency is a principal means of reducing acid precursor precursor emissions. Improving the efficiency of coal use in China could significantly reduce emissions of sulfur dioxide, thereby mitigating acid precipitation in East Asia. While insufficient by itself to avoid significant increases in China's sulfur dioxide emissions, energy efficiency has some advantages over other measures, such as coal washing and flue-gas desulfurization. In particular, many energy-efficiency options are economically attractive, and China has demonstrated a commitment to overcoming obstacles to implementing efficiency. International aid programs, possibly using channels that have already been established, could play an important program in accelerating deployment of energy-efficient technologies through research, technical, financial, and policy development assistance.
Few developing countries can claim to be more attentive to the environmental and economic damages of acid precipitation than China. While currently unwilling to discuss China's contribution to the wider problems of acid precipitation in East Asia, the government has demonstrated increasing concern about the problem within its borders, committing ever greater administrative and financial resources to mitigating the problem. The country has also demonstrated a willingness to participate in international studies on acid precipitation, in line with its cooperation in a variety of fora on other regional and global environmental problems. Given China's eagerness to learn from other countries' experiences in environmental management and to assimilate advanced technologies, there is substantial scope for using foreign aid programs to assist China in contributing to regional efforts to reduce the impact of acid precipitation.
Improved energy efficiency is an important element in an array of strategies to mitigate emissions of acid precursors that also includes flue-gas desulfurization, coal washing, coal briquetting, and coal gasification. Better energy efficiency is extremely attractive since China will only gradually reduce its overwhelming dependence on coal. Moreover, a great deal of new demand for energy services can be met more cheaply through energy efficiency than through expansion of energy supply. Many energy-efficiency projects also lead to increases in output capacity and improvements in product quality. China has already avoided significant emissions increases through a concerted effort to improve energy efficiency that has included strong investment support, establishment of a nationwide energy management and technical assistance system, and creation of a wide range of regulatory institutions. By 1990, state-funded energy-efficiency projects were directly responsible for annual energy savings that reduced sulfur dioxide emissions by 820 kt, in a year in which actual emissions were about 18.5 Mt .
Tremendous opportunities still exist for improving the efficiency of energy use in industrial processes and boilers, power generation, electric motors and fans, buildings, and other areas. The energy intensity of most industrial processes in China is still substantially higher than international levels. Much of the technical potential for efficiency improvements implied by these differences is also financially attractive. By themselves, however, these measures will be insufficient to prevent further large increases in total sulfur dioxide emissions, which must be curbed to prevent unacceptable levels of damage from occurring. A more complete strategy will have to involve sulfur reductions in fuels and in waste streams, particularly through increased washing of coal and sulfur removal from power plant emissions.
Foreign assistance programs have already begun to address some of the key problems that China faces in accelerating deployment of energy-efficient technologies, developing appropriate regulatory measures, and other implementing other means for reducing pollutant emissions. Such obstacles include: inadequate price signals and financial incentives; weak authority for designing and implementing energy-efficiency and environmental policy; limited support for research and development, technical information and support, and marketing; underdeveloped markets, especially for capital; and lack of technically trained personnel.
With mutilateral and bilateral, support, China has already begun to undertake research projects aimed at better characterizing the domestic and international aspects of acid precipitation and the means to deal with it. These advance understanding of and agreement about the scope of the problem and technical and policy means for dealing with it. Foreign exchanges and assistance in environmental monitoring are providing a foundation for possible regional monitoring standards, which would strengthen joint mitigation efforts.
Transferring energy-efficient and emissions control technologies is perhaps the most obvious source of aid that countries in the region and other parts of the world can offer China. Assistance for transfers of energy-efficient and other sulfur dioxide-mitigating technologies has been underway for some time. Most well-funded has been assistance from multilateral lending organizations. Funding for environmental projects in China from the World Bank and the Asian Development Bank to date total over U.S.$1.4 billion. The Global Environmental Facility and the World Bank are providing China with over U.S.$60 million in funds to establish three energy service companies. Similar assistance programs could be key to the transformation and survival of China's energy conservation centers, which are unique and valuable repositories of expertise in energy efficiency.
Japan has been China's main partner in bilateral activity on environmental protection and energy efficiency. Japan has given millions of dollars of aid and technical assistance through the its Green Aid Plan, some aimed directly at reducing emissions of sulfur dioxide. Also supported by the Japanese have been training centers for energy efficiency and environmental protection. Operating at a more personal level is an association of Chinese and Japanese professionals devoted to exchanging information on energy development and conservation. The United States has made efforts to introduce efficient power generation technologies into China, and helped create the Beijing Energy Efficiency Center. China and the United States have also established a joint Energy Efficiency Working Group, which may begin formal cooperation on information and technology exchanges by the end of this year.
Given the wide range of formal and informal institutions and agreements that already include the countries of Northeast Asia (and the larger global community as well), it is worth considering how these arrangements might be used to further cooperative activities. A great many activities and organizations already deal with pieces of the problem of acid precipitation, but none exists that is solely concerned with it. Since acid precipitation touches on so many disparate spheres of activity, it might be argued that the power to coordinate regional efforts to mitigate the problem would be best given over to a body that deals with a broader range of issues, such as APEC. On the other hand, unless an organization has acid precipitation as its primary focus, there is the danger that its attention to the issue would be watered down to the point that it could not reliably sustain joint action.
Whatever forum is used to initiate joint activities, programs will face some common issues. Accelerating deployment of efficient and clean technologies in China, for instance, requires that they be relatively inexpensive, easy to use, and not interfere with the primary objectives of end users. Providing inexpensive technology implies that equipment should be domestically manufactured as much as possible. Cooperation between governments can do a great deal to create better conditions for commercial technology transfers, e.g., providing protection for intellectual property and reducing tariff and other trade barriers. Internationally sponsored training programs could provide Chinese vendors of energy-efficient equipment with the skills and tools to demonstrate to potential customers the long-term benefits of using equipment with higher first costs. Aid also may help domestic manufacturers adapt equipment to the lower levels of technical skill and harsher operating conditions that prevail at many Chinese enterprises, and to acquire greater capability to provide high-quality service. A regional body with a mandate to foster transfers of efficient technologies could be important in overcoming the reluctance of foreign manufacturers to work with Chinese companies.
The opportunities for using foreign experience, technology, and funds to mitigate China's emissions of acid precursors and other pollutants are virtually without end. The difficulty is in directing limited foreign resources so that they are of greatest use. One practical consideration should be paramount: aid programs should aim to achieve mutually shared goals and should be supported with equal enthusiasm on all sides. In other words, a foreign-supported program in China should be one that the Chinese themselves have a major stake in. The first task, then, is foster agreement among all the countries of Northeast Asia that acid precipitation is indeed a regional problem that requires regional and mutually agreed-upon solutions.
China is the main source of acid precursor emissions in Northeast Asia. Damages from acid precipitation have steadily worsened, and the government considers it to be a major environmental and economic problem. The country established a network of monitoring stations in the early 1980s, and has documented a variety of damages from wet and dry deposition, and found harm cause by pollutants transported over both short and long ranges. *1 Once confined to parts of the Southwest, affected regions now include areas north of the Yangtze River and in Shandong. In 1995, China's National Environmental Protection Agency reported that direct economic damages alone in two of the most severely affected provinces, Sichuan and Guizhou, were 1.4 to 1.6 billion yuan (U.S.$170 to $190 million) per year. *2 For comparison, in 1995 China spent 9.9 billion yuan (U.S.$1.2 billion) on all pollutant discharge control programs, using about one-third for air pollution control. *3
China's concern has found expression in new air quality legislation (passed by the National People's Congress in August 1995) that encourages, among other means, adoption of greater efficiency in energy supply and end-use as a method of reducing pollutant emissions. *4 The National Environmental Protection Agency and the various line ministries are currently formulating rules for implementation. It is these rules that will ultimately determine the effectiveness of the Law in promoting reduction of acid precursor emissions through energy efficiency and other methods.
In the first half of this paper, I focus on energy efficiency, the area that (along with flue-gas desulfurization at power plants) probably provides the best opportunity to reduce China's pollutant emissions over the next decade. *5 In particular, I deal with coal use and the sulfur dioxide emissions resulting from its combustion. In the second half of the paper, I take up the means by which cooperation among country's in Northeast Asia and in the Asia-Pacific Region could accelerate deployment of energy-efficient technologies in China.
While China is greatly concerned about acid precipitation, there is relatively little published (particularly in English) on methods and costs of control, aside from comparisons of the cost of installing various types of flue-gas desulfurization equipment at power plants. A much greater amount of material is available on the methods and costs of mitigating greenhouse gas emissions, an issue that China----at least officially--cares about a great deal less. This is due, at least in part, to the much more generous foreign support given to research related to climate change. Since much of that literature deals with the role of energy efficiency in reducing carbon emissions, it is of some use in assessing the potential for energy efficiency to contribute to mitigating acid precipitation in China and East Asia. In this report I will not attempt to rigorously demonstrate the likely impacts of a concerted set of programs to accelerate deployment of energy-efficient technologies and set out a formula for regional programs to help carry out those programs. I can only estimate figures that hint at the magnitude of potential sulfur dioxide emissions reductions.
In reports prepared for the Chinese government and for joint Sino-Japanese research projects, Chinese experts have identified improved energy efficiency (e.g., through cogeneration) as an important element in an array of solutions that also include flue-gas desulfurization, coal washing, coal briquetting, and coal gasification. *6 Better energy efficiency is extremely attractive when one considers that China will only gradually reduce its dependence on coal, which now provides about three-quarters of primary commercial energy forms. *7 Also appealing is the economic logic of energy efficiency: a great deal of new demand for energy services can be met more cheaply through energy efficiency than through expansion of energy supply. *8 This is often true both from the point of view of the end-user, and the nation as a whole. As more enterprise decision makers become willing and able to make technology choices based on financial considerations, energy-efficient processes and equipment will become easier to deploy, especially if the technologies offer other important benefits to end users, such as improved output quality and ease of use.
China has, in fact, already avoided significant emissions increases through a concerted effort to improve energy efficiency in the industrial sector. Projects included boiler, kiln, and furnace retrofits, cogeneration retrofits, improved control systems, and a variety of process changes. By 1990, state-funded energy-efficiency projects were directly responsible for annual energy savings of about 40 million metric tons of standard coal equivalent (Mtce). *9 This was equivalent to reducing sulfur dioxide emissions by 820 kt, in a year in which actual emissions were about 18.5 Mt (Table 1). *10 Most of the energy-efficiency projects made economic sense simply on the basis of energy savings, but often were made even more attractive by concomitant increases in output and improvements in product quality.
Tremendous opportunities still exist for improving the efficiency of energy use in industrial processes and boilers, power generation, electric motors and fans, buildings, and other areas. The energy intensity of most industrial processes in China is still substantially higher than international levels, even when the unique configuration of major energy-using sectors (like iron and steel) are accounted for. *11 Much of the technical potential for efficiency improvements implied by these differences is also financially attractive. In a major study on options for mitigating the growth of China's greenhouse gas emissions, the World Bank evaluated alternatives for raising energy efficiency in seven energy-intensive industries, major categories of industrial equipment, the coal supply and electric power sectors, agriculture, transportation, and buildings. *12 The study not only demonstrated the existence of a large store of untapped potential for energy-efficiency improvements, it also showed that many of the projects considered are financially attractive, with internal rates of return sometimes in excess of 20% based on energy savings.
Screening and washing coal is usually considered to be an air pollution-control measure, but it can be thought of as an energy-efficiency measure as well. Washed coal has a lower ash content and a higher energy content than raw, run-of-mine coal, generally leading to higher efficiency in end-uses. Moreover, the need to deliver less coal to consumers results in lower transport fuel use per unit of useful energy at the point of end use. I consider washing here not just because of the potential for energy-efficiency improvements, but for comparison to other measures that more strictly fit into the category of efficiency.
Liu and Spofford estimated the impact that coal washing could have on future sulfur dioxide emissions in China. *13 Currently less than 20% of China's coal is washed, and nearly all washed coal is used in metallurgy. Liu and Spofford began by estimating historical sulfur dioxide emissions from official emissions statistics, which do not include emissions from rural industry, the fastest growing segment of Chinese industry. They based future emissions on projections of growth in gross domestic product (8% p.a. from 1990 to 2000 and 5% p.a. thereafter), trends in macroeconomic energy intensity (declining at the same rate as in the 1980s), shares of coal in sectoral fuel mixes (increasing for the utility sector and declining for all other sectors) and sulfur dioxide emissions factors for various fuels. They prepared two scenarios, one in which emissions factors remained constant, and one in which the emissions factor for coal dropped as a result of all coal being washed, which they assumed to reduce sulfur content by one-third. They did not include possible effects from other measures, such as flue-gas desulfurization. Their results show that coal washing, if fully implemented, could reduce sulfur dioxide emissions by about 10 Mt per year, although emissions would still be significantly higher than they are currently (Table 1). While the impact of washing may indeed be large, the results also show that even full and instantaneous implementation of a major measure like coal washing will be insufficient to prevent a worsening of problems due to acid precipitation.
| Year | Scenario I (20% of coal washed) | Scenario II (100% of coal washed after 2000) |
| 1990 | 18.5 | 18.5 |
| 2000 | 27.3 | 27.3 |
| 2010 | 34.7 | 25.1 |
| Source: Liu and Spofford, 1994. | ||
Obstacles to increasing the rate of coal washing in China are manifold. The state-owned segment of the coal industry, which includes all mines large enough to run coal-washing facilities, has still not emerged from the shadow of the planning system. Mines were formerly heavily subsidized, and even with the freeing of virtually all coal prices several years ago they are still unable to accumulate the capital needed for large investments. This is in part because, like most state-owned enterprises, they remain burdened with overly large work forces and numerous retirees. Even if they did have the money to invest, relatively large amounts would be needed for closed-cycle washeries, since most coal mines are in water-short northern areas. Smaller, more profitable collective and private mines have no incentive to invest in washing equipment, since they can easily sell their product cheaply on local markets. Perhaps most importantly, without strict and widespread application of sulfur emissions standards, customers have little reason to by more-expensive washed coal; any cost savings from efficiency gains would b offset by the higher price of the fuel.
In order to be attractive to potential investors, energy-efficiency projects typically do not require the range of systematic changes needed to promote coal washing. This is another argument in favor of pursuing energy efficiency for emissions reductions in the near term, while conditions ripen for implementation of longer-term solutions like coal washing and flue-gas desulfurization. *14
Measures to control emissions of acid precursors are most urgently needed in the electric utility sector, since power plants consume an ever-larger share of China's total coal use (currently 32%) and an even larger share of total sulfur emissions (34%; Table 2). Moreover, power plants typically emit pollutants higher into the atmosphere than industrial facilities and households, and therefore contribute more to regional acid precipitation. This is not to suggest that the local, often urban pollution problems are not worthy of attention. From an international perspective, however, it would be best to direct attention to a sector like power generation, which is responsible for transboundary transport of acid precursors to a degree that exceeds its share of fossil-fuel use. The power sector would also be an easier target for change, since there are far fewer power plants than coal-fired industrial and residential boilers and stoves.
| Sector | Sulfur Dioxide Emissions | Particulate Emissions |
| Electric Utilities | 5,700 | 5,200 |
| Industry | 7,200 | 6,000 |
| Residences and Commerce | 3,300 | 3,000 |
| Transportation | 400 | 300 |
| Agriculture | 400 | 600 |
| Total | 16,900 | 15,000 |
| * Includes estimates of emissions from rural industry. Source: Liu and Spofford, 1994. | ||
Based on the World Bank's assessment of cost-effective improvements in the efficiency of power generation at coal-fired power plants over the next 15 years, I have estimated the reductions in sulfur dioxide emissions that could be attributed to efficiency improvements compared to the mix of power plants currently in use (Table 3). The scenario represents accelerated improvements that would be associated with a strong program to promote energy-efficiency. With improved efficiency, by 2010 about 2.6 Mt of sulfur dioxide emissions could be avoided annually, or about one-quarter of the increase in emissions that would otherwise have occurred. *15 Looked at another way, it would be equivalent to one-quarter of the emissions reductions that would come from washing all coal in all sectors.
| Year | Power Output (TWh) | Net heat rate* (kgce/kWh) | SO2 Emissions Factor** (g/kWh) | Projected SO2Emissions w/ Improvements (kt) | Projected SO2 Emissions w/o Improvements (kt) | Emissions Reductions from Efficiency |
| 1990 | 495 | 427 | 10.4 | 5,147 | 5,147 | - |
| 2000 | 994 | 370 | 9.0 | 8,961 | 10,342 | 1,381 |
| 2010 | 1,460 | 355 | 8.6 | 12,627 | 15,188 | 2,561 |
| N.B. Because of the very small contribution from other fossil fuels, I treat all power output as coming from coal-fired plants. * Accounts for both efficiency improvements in various classes of power plants and change in the structure of coal-fired power plants. Does not include improvements to transmission and delivery systems. ** Based on 1991 generation from fossil fuel-fired power plants and utility-sector SO2 emissions. Projected emissions factors include only improvements from efficiency. Source: Estimated based on Chinese Research Academy of Environmental Science, 1995; Sinton et al., 1996; Tunnah, et al., 1994. | ||||||
Industrial boilers that provide steam and hot water to industry and buildings account for about one third of total coal use. *16 These are therefore the next most appealing target for emissions reductions through whatever means. Most of the over 400,000 industrial boilers in use in China are small (under six tons of steam per hour), so desulfurization retrofits would be impractical. This leaves coal washing and energy efficiency as the major means for dealing with their pollution. Coal use in industrial boilers will grow more slowly than that in utility boilers. Again, based on World Bank materials on cost-effective means of improving efficiency beyond levels that are likely without any intervention, I have prepared a scenario of sulfur dioxide emissions reductions to 2010 (Table 4). In this instance, I have assumed gradual improvements in utility boiler efficiency in both the base case (from the actual average efficiency of 65% in 1990 to 70% in 2010) and the accelerated efficiency case (to 75% in 2010). In the accelerated efficiency case, about 540 kt sulfur dioxide emissions would be avoided per year compared to the base case, or 15% of the increase in emissions between 1990 and 2010.
| Year | BAU Total Coal Use (Mtce) | Industrial Boiler Share of Total | Base Case Combustion Efficiency | Accelerated Combustion Efficiency | Base Case Coal Use (Mtce) | Accelerated Efficiency Coal Use (Mtce) |
| 1990 | 708 | 33% | 65% | 65% | 234 | 234 |
| 2000 | 1,064 | 32% | 67% | 70% | 340 | 326 |
| 2010 | 1,362 | 30% | 70% | 75% | 409 | 381 |
| Year | SO2 Emissions Factor** (kg/tce) | Projected SO2 Emissions w/o Improvements (kt) | Projected SO2 Emissions w/ Improvements (kt) | Emissions Reductions from Efficiency |
| 1990 | 19.9 | 4,656 | 4,656 | - |
| 2000 | 19.9 | 6,786 | 6,495 | 291 |
| 2010 | 19.9 | 8,143 | 7,601 | 543 |
| Source: Estimated based on Liu and Spofford, 1994; Sinton et al., 1996; Tunnah, et al., 1994. | ||||
The iron and steel industry is the largest source of sulfur dioxide emissions from manufacturing after the large and varied chemicals industry (Table 5). China has done a great deal of upgrading in its steel industry over the past 15 years, raising efficiency by introducing continuous casting, recovering and utilizing formerly vented converter exhaust, and other measures. Many were introduced to produce more and improved products and were thus not purely aimed at energy efficiency. There are still significant opportunities for further improvements through retrofits to existing plants and promoting the installation of "best available" technologies in new or replacement facilities. Table 6 shows the sulfur dioxide emissions reductions that would be associated with the World Bank's scenario of accelerated introduction of improved, energy-efficient processes into the steel industry. With the improvements, emissions would fall from the 1980 level of 820 kt to 560 kt per year in 2010. Failure to introduce these improvements would result in a doubling of sulfur dioxide emissions from the sector. Based on the projected rise in energy efficiency, about 300 kt (or 29%) of the difference in annual emissions between the projections would be due to reduced coal use.
| Subsector | Sulfur Dioxide Emissions | Particulate Emissions |
| Electric Utilities | 6,238 | 4,241 |
| Chemicals | 1,090 | 861 |
| Ferrous Metals | 790 | 1,551 |
| Cement | 667 | 3,747 |
| Other Building Materials | 608 | 1,121 |
| Nonferrous Metals | 580 | 281 |
| Food and Beverage | 561 | 926 |
| Other | 2,345 | 1,669 |
| Total | 12,925 | 6,166 |
| * Includes only emissions from state-owned industry. This is not a large omission for the electric utilities, chemicals, and metals subsectors, which are dominated by state-owned enterprise. Source: Sinton, et al., 1996. | ||
| Year | Steel Output (Mt) | Energy Intensity (tce/t steel) | SO2 Emissions Factor* (kg/t steel) | Projected SO2 Emissions w/ Improvements (kt) | Projected SO2 Emissions w/o Improvements (kt) | Emissions Reductions from Efficiency |
| 1991 | 71 | 1.60 | 11.5 | 817 | 817 | - |
| 2000 | 110 | 1.45 | 8.5 | 935 | 1,265 | 119 |
| 2010 | 140 | 1.30 | 4.0 | 560 | 1,610 | 302 |
| * Emissions factors assume that all steel plants have environmental controls by 2000, and that the technical level of controls reaches 1980s international level by 2010. Includes process efficiency improvements. Source: Estimated based on Tunnah, et al., 1994. | ||||||
The scope for energy-efficiency improvements outside the industrial sector are large as well, particularly in residential and commercial buildings, which account for one-fifth of China's commercial energy use. *17 The Ministry of Construction recently issued energy conservation targets, calling for heating systems in newly constructed residential buildings to be 50% more efficient by 2000 than those now being built, and for systems in public buildings to be 30% more efficient. *18 Since the pace of construction in China is likely to remain quite rapid, achievement of these goals would have a significant impact on the average energy efficiency of buildings.
The significance of energy-efficiency improvements in the buildings sector for regional acid precipitation, however, is debatable. Emissions from household stoves and small boilers for space heating create serious local health and environmental (including acid deposition) problems, but the range of transport of these pollutants is very short. Moreover, even if existing or improved building energy efficiency guidelines were implemented (a much more difficult task than in the industrial or electric utility sectors), energy use might not decline. Buildings are typically underheated in winter in China (with temperatures below those desirable for maintaining health, and efficiency improvements may simply allow greater health and comfort for the same level of energy consumption. This would be all to the good, but would do little about emissions of acid precursors.
Perhaps most significant from the point of view of regional transport of sulfur dioxide is electricity use in buildings. The buildings sector is electrifying quickly, as household appliances (including refrigerators, air conditioners, electric heaters, and cooking utensils) become more common, lighting levels increase, and large new commercial buildings with heating, ventilating, and air conditioning systems are built. Buildings now use about 18% of all electricity, and lighting alone (including lighting in all sectors) for about 10%. Greater efficiency in building electricity use could translate into lower emissions from power plants. Unless efficiency gains are startlingly large and rapid, however, they will do far less than the utility and industrial sector improvements discussed above. It may make more sense to first pursue greater efficiency in motors, fans, pumps, and compressors, which account for half of China's power consumption, but, if reducing sulfur emissions is the primary goal, the same caveat applies.
Overall, it appears that energy-efficiency measures could have a significant impact on emissions of sulfur dioxide. By themselves, however, they will be insufficient to prevent further large increases in total sulfur dioxide emissions, which must be curbed to prevent unacceptable levels of damage from occurring. A more complete strategy will have to involve sulfur reductions in fuels and in waste streams, particularly through increased washing of coal and sulfur removal from power plant emissions.
A wide variety of conditions conspire to render difficult the task of environmentally and economically desirable levels of energy efficiency. *19 Among the major categories of obstacles (most of which are not unique to China) are:
Energy price reform has always been near the top of the list of problems drawn up by those who wish to promote energy efficiency. Formerly low prices of all energy forms blunted incentives to reduce energy costs through greater efficiency. With the freeing of coal prices and the steady rise in electricity prices, overall levels of energy prices are no longer the bottleneck they once were. The issue now is relative pricing, e.g., of delivered coal of different quality and of electricity at different times of day.
"Correctly" setting energy prices is not enough to stimulate economically and environmentally desirable levels of energy efficiency, as experience in developed countries has demonstrated. Programs of financial incentives can help overcome reluctance to adopt efficiency measures. Ironically, economic system reforms have removed many of the financial incentives to invest in energy efficiency that were created in the 1980s. Reform have swept away many of those tools along with entire sets of codes and regulations. The new, simplified tax code introduced in 1994, for instance, contained no tax rate reductions and tax holidays on energy-efficient technologies to replace such provisions in the older system. While some local administrations still provide financial incentives of the sort that the central government formerly did, the general lack of national incentive programs is a major gap.
Access to investment capital is a critical issue. The government at all levels still retains tight authority over credit. This perpetuates the historical bias against high initial investment costs, even in cases where life-cycle cost accounting would heavily favor projects requiring larger first capital costs. One result has been the proliferation of small industrial facilities that tend to be more polluting than large ones and that cannot take advantage of economies of scale in pollution control and energy efficiency, *20 Another outcome is a prejudice against energy-efficient equipment, which often has a higher first cost. While there are many other obstacles to adoption of efficiency measures, access to credit is a crucial one. China already makes about U.S.$240 million per year in credit available for energy-efficiency projects (mainly cogeneration) through the China Energy Conservation Investment Corporation, but this is only a small portion of that needed for rapid and large-scale deployment of efficient technologies in all the applications where they would make sense financially. Expansion of credit for energy efficiency is badly needed.
Another priority is reforming or creating institutions to promote efficiency. The structures created under the planning system for promoting efficiency are now in jeopardy because of reforms and neglect. Reforms have severely weakened ChinaÕs bureaucratic energy management and technical support apparatus. In particular, the country's network of over 200 energy conservation service centers, which are a prime source of technical information, assistance, and training for many end users of efficient technologies. The centers have gradually lost government funding and now must vigorously market their skills if they are to survive, a task that detracts from their core functions. Preserving existing efficiency-promotion organizations by aiding the transformation of these centers into forms appropriate to the market-oriented economy would be wiser than attempting to reconstruct a functionally similar set of organizations in the future. This is one of the most urgent tasks currently facing ChinaÕs energy-policy makers.
A draft Energy Conservation Law is being considered for passage in 1997 at the earliest. *21 This law would represent a major step in institutionalizing programs and incentives to promote efficiency. While some of the provisions may codify aspects of the efficiency promotion system that are already obsolete, others will strengthen existing institutions and create new ones that are appropriate to a market-oriented system. The draft law's key provisions include the establishment of institutions such as a national examination system for energy managers, required energy audits of major energy-using enterprises, inclusion of an energy-efficiency chapter in feasibility studies for projects requiring bank loans, mandatory energy efficiency standards for equipment, and new financial incentives. Giving these provisions a basis in law would be a large step in the right direction, though a greater challenge may be to implement them.
Liu and Spofford identified key technical and regulatory tasks that China faces in addressing its air pollution problems. *22 The three major technical areas were developing and manufacturing high-quality emissions control equipment, improving pollution monitoring capabilities, and undertaking detailed studies in support of long-term policy development. The three regulatory tasks were raising emissions fees to levels that would stimulate adoption of emissions-control equipment, establishing an emissions reporting and registration system, and updating standards for emissions and for emissions-control equipment. They also catalogued other areas for government action that are needed for long-term emissions control, including promotion of energy conservation, fostering of higher levels of concentration in industrial production, and continued reform of enterprises and financial institutions. The developed countries of Northeast Asia and the United States have the potential to offer assistance in these and other crucial areas. China considers foreign funding as a crucial source of support for its environmental protection efforts. *23
Joint research projects aimed at better characterizing the domestic and international aspects of acid precipitation and the means to deal with it can advance understanding of and agreement about the scope of the problem and technical and policy means for dealing with it. Involving participants from all sides in research projects increases the likelihood of arriving at mutually shared conclusions about the need for and appropriateness of action.
One of the most basic elements of carrying out successful regulation of pollutant emissions is a reliable and standardized monitoring system to accurately gauge baseline emissions and the effects of mitigation measures. Besides helping China to develop the capacity for monitoring, foreign assistance in this area from other countries in the region would enhance mutual understanding of and trust in each other's basic statistics, and perhaps provide the foundation for regional monitoring standards, which would strengthen joint mitigation efforts.
While it is often not possible to simply import and install relatively advanced equipment from developed countries, transferring energy-efficient and emissions control technologies is perhaps the most obvious source of aid that Japan, Korea, and the United States can offer China. Transferring technologies is a complex process, and one that can occur through a number of pathways. Technology transfer does not simply involve moving a piece of equipment from one country to another. Technologies must be assimilated (requiring a change in the capabilities recipient organization or country) and adapted (requiring a change in the technology itself). It is really a process of joint development by the provider and the recipient. Transfers may result from programs sponsored by foreign governments, international aid and development organizations, and non-governmental organizations, or they may come about through commercial exchanges initiated either by the provider or the recipient. Most exchanges occur through commercial channels, and the object of many aid programs is to "jump start" commercially motivated transfers.
Much of the foreign assistance for technology transfers is in the form of aid in financing equipment purchases and associated transfer costs, e.g., through grants, loans, loan guarantees, and export credits. Other, less direct methods of underwriting the costs of technology transfers are also possible. For instance, international assistance in establishing a credit facility for acid precursor emissions is potentially valuable. Such a facility could provide a structure and the seed money that could attract enough local funds and other support to become self-perpetuating.
Programs that enhance China's capability to absorb and adapt foreign technologies and management practices comprise another important category of aid. Training courses in China and in other countries, as well as support for existing training centers (set up to meet similar needs) or establishment of new ones in China are all possible.
Economic restructuring and decentralization of authority has made the experience of more developed countries in environmental management more relevant to China. *24 Practical advice in formulating policy and implementation mechanisms for controlling pollutant emissions may be one of the most valuable types of assistance that Japan and the United States have to offer. Chinese officials and researchers have often expressed interest in learning more about foreign regulatory institutions, e.g., emissions permitting and trading schemes and utility demand-side management programs, to aid in forming China's own institutions. As with any other aid program, such transfers of experience will need to have the enthusiastic participation of those in China from the very beginning.
China has already received substantial bilateral and multilateral assistance for a variety of environmentally related initiatives, many with implications for emissions of acid precursors. Joint research projects into the sources of and mitigation measures of pollutants have often involved greenhouse gases, and a few have involved sulfur dioxide. The World Bank and the United States have sponsored research projects in China to evaluate current and future emissions of greenhouse gases and response strategies, including greater adoption of energy-efficiency measures. China is participating in a World Bank- and Asian Development Bank-funded study to project sulfur dioxide emissions in Asia and model their effects on the severity and distribution acid precipitation (RAINS-ASIA). The Energy Research Institute of China's State Planning Commission recently began a joint Sino-Japanese research project to model the impacts and costs of implementing various policies and measures to reduce sulfur dioxide emissions. *25 The Japanese External Trade Organization has supported a major research project to explore opportunities for introducing energy-efficient technologies from Japan into China's industrial, utility, and transport sectors. Regional cooperation has also begun in the area of environmental monitoring and reporting methods. In addition to exchanges with Japan, China and the Republic of Korea have taken steps to create channels for environmental information and technology exchanges. *26
Assistance for transfers of energy-efficient and other sulfur dioxide-mitigating technologies has been underway for some time. Most well-funded has been assistance from multilateral lending organizations. It is the largest recipient of funds from the World Bank (much of which goes to environmental-protection projects) and the Global Environmental Facility. Funding for environmental projects in China from the World Bank and the Asian Development Bank to date total over U.S.$1.4 billion. *27 Projects have included construction of facilities and equipment imports as well as institutional-capacity building and policy analysis and development.
Japan has been China's main partner in the region, and indeed in the world, for bilateral activity on environmental protection. Japan has given millions of dollars of aid and technical assistance through its Green Aid Plan (established in 1992 by Japan's Ministry of International Trade and Industry). *28 Some Green Aid projects have been aimed directly at reducing emissions of sulfur dioxide, e.g., demonstration of desulfurization equipment at two power plants and assistance for manufacture of more-efficient industrial boilers. Japanese trade organizations play a role in the Green Aid Plan, establishing networks and arranging training activities.
Also supported by the Japanese have been an energy-efficiency training center, newly established in Dalian, Liaoning Province, and the Sino-Japanese Friendship Environmental Protection Center in Beijing, set up in 1991 with support from Japan's Overseas Development Assistance program. *29 Both of these centers are the sites of training courses, workshops, and exchanges of personnel for joint research projects. Such activities support both mutual interest in environmental protection, and Japan's more mercantilist objective of obtaining markets for Japanese equipment. Operating at a more personal level, but still with some Japanese government funding, is an association of Chinese and Japanese professionals devoted to exchanging information on energy development and conservation.
Investment and training support from other countries has been considerably less. Beyond exchanges of visits of researchers and officials, the United States has made some efforts to introduce efficient power generation technologies into China through the Department of Energy's Clean Coal Technology program. By supporting the establishment of the Beijing Energy Efficiency Center (through the Lawrence Berkeley National Laboratory and Pacific Northwest National Laboratory), the United States has helped create a market-oriented organization to promote energy-efficiency consulting and other services to businesses inside and outside China. China and the United States have also established a joint Energy Efficiency Working Group, composed of representatives from government, industry, and academia, that may begin formal cooperation on information and technology exchanges by the end of this year.
Foreign assistance for China's energy conservation centers is of long standing (the European Community, for instance, provided seed money for several centers in the early 1980s), but has remained small. The Global Environmental Facility and the World Bank are providing China with over U.S.$60 million in funds to establish what are essentially energy service companies in Beijing, Shandong, and Liaoning. This is highly commendable, but the projects cover only three centers, and will not necessarily be models that other energy conservation centers can easily follow. Aid programs could be key to the transformation and survival of these valuable repositories of expertise in energy efficiency.
For many years China has participated in international activities bearing on regional and global environmental problems. China is a signatory to the Montreal Protocol on Substances that Deplete the Ozone Layer and the Framework Convention on Climate Change, has signed an agreement with the United Nations Environmental Program to consider environment in energy policy and development, and established a China Agenda 21 Office to promote foreign participation in environmental-protection projects in China and other projects oriented towards sustainable development. *30 Other multilateral agreements China has participated in cover sustainable development, biodiversity, protection of endangered species, marine pollution, international transfers of hazardous wastes, desertification, population, and other issues.
There are also examples of cooperation on a regional or subregional basis on various issues. *31 APEC has committed to considering environmental issues in addition to its primary concerns with trade and economic development. China signed an agreement with both the Russian Federation and Mongolia, which covers joint protection of wetlands and grasslands that span the three countries' borders. *32 Although sponsored by the United Nations Development Program and involving participants from outside the region, environmental assessment of the Tumen River Delta Development Project has presented a forum for exchanges for China, the Russian Federation, the Democratic People's Republic of Korea, and Japan.
Bilateral agreements have probably been more important in terms of providing a framework for some of the aid activities discussed above. In 1994, Japan and China signed an accord to cooperate on environmental protection issues, including acid precipitation. *33 The document provides for cooperation through a number of avenues, including exchanges of research, policy, and regulatory information and materials, exchange of scientific, technical, and other expert personnel, conferences involving scientific and other expert personnel, cooperative planning (including research projects ) through bilateral agreements, and other mutually agreed activities. In the same year, China and the Russian Federation signed a similar bilateral agreement, which also addressed air pollution among other issues. Bilateral working relationships on environmental protection and energy efficiency with countries outside the region, e.g., the United States, Canada, Australia, Germany, Great Britain, and other countries, may have significant impacts on developments in environmental protection in China, and therefore in Northeast Asia.
Given the plethora of formal and informal institutions and agreements that already include the countries of Northeast Asia (and the larger global community in some cases), it is worth considering how existing arrangements might be used to engage the countries in addressing the regional problem of acid precipitation. A great many activities and organizations already deal with pieces of the problem, but none exists that is solely concerned with it. Since acid precipitation touches on so many disparate spheres of activity, it might be argued that the power to coordinate regional efforts to mitigate the problem would be best given over to a body that deals with a broader range of issues, such as APEC. On the other hand, unless an organization has acid precipitation as its primary focus, there is the danger that its attention to the issue would be watered down to the point that it could not reliably sustain joint action.
Activities should be undertaken with other strategic issues in mind. For instance, joint activities in promoting energy efficiency could also function as confidence-building measures that would create an atmosphere more amenable to joint efforts to pursue cooperation on other, more contentious methods of mitigating acid precursor emissions, like developing civilian nuclear power industries in the region. *34
Whatever forum is used to initiate joint activities, programs will face some common issues. Some assistance programs (especially those concerning industry and utilities) will involve working directly with enterprises in China. This poses a conundrum, since foreign assistance necessarily passes through the hands of the central government, and thus generally involves working with the state-owned segment of the economy. On one hand, state-owned enterprises are more accountable to government, and are thus more responsive to state efforts to control emissions. On the other hand, the state-owned segment of the economy is in deep financial trouble, and the government may be unwilling or unable to require improvements in environmental performance from unprofitable companies that are precariously maintained largely to prevent widespread unemployment. *35 The more profitable, non-state segment of the economy is better able to support the financial requirements of emissions controls, but is also currently less subject to China's existing regulatory systems. In order to ensure that assistance to China is used to best effect, donor nations will have to ensure that aid is not passed on only to enterprises that have little chance for survival, and which thus have little demonstration value.
Since China's environmental regulatory apparatus is weak, the best chance for introducing technologies to reduce emissions in the near future may be to emphasize those that minimize emissions while meeting other needs that are more urgent to end users. As discussed above, energy-efficient and coal-beneficiation technologies are major categories. Starting with measures that are demonstrably advantageous to a company's profits increases the chances for adoption, while gradually incorporating environmental values into the technology decision-making process. When leaders of enterprises and local administrations become more accustomed to the legitimacy of environmental protection goals, it will become easier to introduce emissions control measures like flue-gas desulfurization, which are more purely cost centers in comparison to energy-efficiency and other "clean production" measures.
Because of continued rapid economic growth and consequent growth in emissions-producing activities, assistance in technology transfer to and development in China should be geared towards accelerating deployment. To this end, technologies must be relatively inexpensive, easy to use, and not interfere with the primary objectives of end users. In addition, post-installation support and service must be of high quality. Bilateral or multilateral programs should be directed at achieving these objectives.
Providing inexpensive technology implies that equipment should be domestically manufactured as much as possible. At least initially , some components that cannot be produced in China will have to be imported. Cooperation between governments can do a great deal to create better conditions for commercial technology transfers, e.g., providing protection for intellectual property and reducing tariff and other trade barriers. Part of the process of introducing new equipment will involve persuading end users that devices actually are inexpensive compared to other options, at least in the long run. This is a familiar problem in the area of energy efficiency, as discussed above. Internationally sponsored training programs could provide Chinese vendors of energy-efficient equipment with the skills and tools (such as simple financial analysis software) to demonstrate to potential customers the long-term benefits of using equipment with higher first costs.
Education and training is also essential to successful operation of emissions-reducing equipment once installed. Poor quality of energy-efficient and emissions-control equipment has not been the only bane of environmental protection efforts; poor operation and maintenance of unfamiliar devices has reduced their effectiveness even at enterprises that are relatively willing to invest in them. *36 Manufacturers also bear some responsibility, since after-sales service is generally poor. In cases where technology transfers do not involve close involvement of the foreign supplier (e.g., in which technology is licensed to a Chinese manufacturer and the foreign vendor has no stake in the venture), international aid may be useful in helping domestic manufacturers adapt equipment to the lower levels of technical skill and harsher operating conditions that prevail at many Chinese enterprises, and to acquire greater awareness of the need for and capability to provide high-quality service.
It is often the case that Chinese manufacturers lack the technical capability to manufacture all components of equipment of foreign design to required specifications. Such problems are often outside the scope of commercial technology transfer agreements, offering an opportunity for international programs to provide assistance that may be crucial to widespread acceptance. This could take the form of programs that encourage the formation of consortia of companies to coordinate transfers of sets of technologies that encompass the manufacture of all key components. In the case of refrigerators, for instance, there has been a great deal of transfer of foreign equipment and know-how aimed at introducing CFC-free, energy-efficient compressor systems and insulation. To date, however, most refrigerators in China use imported compressors, in part because foreign compressor manufacturers see little benefit in participating in manufacturing operations in China. A regional body with a mandate to foster transfers of efficient technologies could be important in overcoming the reluctance of foreign compressor manufacturers to work with Chinese manufacturers to domesticate production.
The opportunities for using foreign experience, technology, and funds to mitigate China's emissions of acid precursors and other pollutants are virtually without end. The difficulty is in directing limited foreign resources so that they are of greatest use. One practical consideration should be paramount: aid programs should aim to achieve mutually shared goals and should be supported with equal enthusiasm on all sides. In other words, a foreign-supported program in China should be one that the Chinese themselves have a major stake in. The first task, then, is foster agreement among all the countries of Northeast Asia that acid precipitation is indeed a regional problem that requires regional and mutually agreed-upon solutions.
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