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China's Energy Efficiency Drive Targets Big Industry

February 26, 2008

February 27, 2008 — Faced with a costly energy future to maintain its high level of growth, China has embarked on an ambitious plan to drastically improve efficiency—and reduce the surging demand for coal by its most energy intensive industries.

Every level of government has a reduction target it must meet. The government also launched a "big effort to close down inefficient plants," says Bob Taylor, Lead Energy Special for East Asia at the World Bank and lead author of Financing Energy Efficiency. "The current energy efficiency drive in China is probably the biggest effort any country has ever done. People will be talking about it for years to come."

China is eyeing development of an energy efficiency industry aimed at medium and large industries. A proposed US$200 million project backed by the government of China, World Bank, and Global Environment Facility (GEF) would provide US$100 million each to the Export-Import Bank of China (China EXIM) and Huaxia Bank (Huaxia) to help them launch a large, new energy efficiency commercial lending program making loans in the US$5 to $10 million range.

The project is an outgrowth of discussions among Chinese, Indian, and Brazilian energy efficiency practitioners and banks during the 3 Country Energy Efficiency Project. The goal was to help remove barriers to large industrial energy conservation projects by closing knowledge, institutional, and capacity gaps in the banking sector, mitigating risk concerns of enterprises, and strengthening governmental supervision of industrial energy conservation.

Successful ESCO Industry

China already has perhaps the most successful commercial ESCO (energy service company) industry in a developing country. Two energy conservation projects backed by China, World Bank, and GEF in the last decade introduced energy performance contracting to China. The ESCOs help mainly small and medium businesses improve energy efficiency. The industry has grown from just three ESCOs in 1998 to more than 100 in 2007. ESCOs implemented over 400 energy conservation projects in 16 provinces in 2006, totaling US$280 million in investment, and investment levels in 2007 are expected to be double that amount.

The World Bank's private sector arm International Finance Corporation, along with GEF, Finland's Ministry of Employment and Economy, and the Norwegian Agency for Development Cooperation, also backs the China Utility-Based Energy Efficiency (CHUEE) Project focused on promoting small-sized energy conservation investments by bringing together financial institutions, utility companies, and suppliers of energy efficiency equipment to create a new financing model for the promotion of energy efficiency.