29 February 2012

China Tightens Energy Targets

China is calling for energy-intensive industries such as steel and textile manufacturing to reduce their energy consumption more sharply compared with targets set last year, in a move intended to help cull obsolete capacity to contribute to efforts to reduce its carbon footprint

By Chun-Wei Yap | The Wall Street Journal | February 28, 2012

The move comes as China faces pressure both at home and abroad to curb its dependence on fossil fuels such as oil and coal, as well as its rising greenhouse-gas emissions, amid estimates that it will likely miss emissions goals it had set for last year.

China, the world's largest emitter of greenhouse gases, has refused binding targets at multinational climate talks on mandating greenhouse-gas emission cuts. Instead, the government adopts a voluntary program aimed at reducing the amount of energy required to produce a unit of economic output.

If met, the targets would make the Chinese economy more energy-efficient, though total emissions could still rise as the economy grows. In the past, China has sought to control emissions among metal smelters by imposing a moratorium on new capacity, conducting a name-and-shame campaign to force inefficient furnaces to shut, and providing financial support to accelerate mergers as a capacity-cutting measure.

Industries identified as energy guzzlers, including steel and nonferrous metal producers, must reduce energy intensity—the amount of energy needed to produce a unit of gross domestic product—by about one-fifth by 2015 compared with average energy intensity in 2010, the Ministry of Industry and Information Technology said Monday. This marks an upward revision from a 16% target set last year.

Steel, petrochemical and nonferrous metals producers were given a specific reduction target of 18%, while the chemical industry must meet a 20% reduction, the machinery industry a 22% reduction and the textile industry a 20% reduction, among others.

China had aimed last year to cut energy intensity per unit of GDP by 3.5% compared with 2010, according to Zhao Jiarong, deputy secretary-general and director of resource conservation and environmental protection for the National Development and Reform Commission, China's top economic planning body. The government's target also included cutting pollutant emissions, including sulfur dioxide and nitrogen dioxide, by 1.5% over last year.

In the first three quarters of the year, China's energy intensity fell just 1.6%, and pollutant emissions were reduced by less than 1% in the first half of 2011, Ms. Zhao said.

Though the new targets are expected to weigh on corporate bottom lines, they aren't expected to be overly onerous, as the government will likely provide assistance to soften the blow.

"Particularly when it comes to state-owned companies, which are the main targets of these rules, the government will usually provide some ways to help them implement the requirements, such as credit lines to help these companies develop energy-efficient capacity," said Jim Lin, a steel analyst with the Beijing-based CRU Group consultancy.

The measures also called for accelerating the elimination of obsolete smelting capacity for steel, iron, aluminum, copper, lead and zinc, though the policy plan didn't specify how this would be achieved.

The blueprint published on the ministry's website also called for the ministry to support the establishment of "energy-management centers" for an unspecified "batch" of aluminum, copper and lead-zinc smelters that would evaluate and control energy use within the 2011-2015 time frame.

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