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Home    |   Currents   |   China’s Regulatory Response to the Looming Energy Crisis

China’s Regulatory Response to the Looming Energy Crisis

Jun 20, 2012

Climate ChangeEnergyInternationalWaste & Pollution

                                                                   Yuwa Wei*                                                    

When a country with a substantial population steers into an era of industrialization and urbanization, disequilibrium between energy demand and supply can become acute. Without intervention, the disequilibrium can trigger serious energy concerns. Today, China is at such a crossroads, experiencing bottlenecks in both technology innovation and effective legal regimes to regulate the industry.[1] At the turn of the millennium, many Chinese economists and academics began warning that China had lacked an energy planning and security strategy.[2] Today, researchers understand that a coordinated energy strategy is crucial to China’s development and security.[3] Some Chinese commentators have even asserted that an energy crisis could be the single greatest danger facing the nation, even more critical than a financial crisis.[4] In such an important era for China’s economic development, securing access to affordable, reliable, and clean energy is vital.[5]

China Flag
Photo credit to SpecialKRB.

Since the establishment of the People’s Republic of China in 1949, the Chinese government and its media have not generally classified hardships as crises. Instead, adversity, such as economic stagnation and political turmoil, has been described as difficult.[6] However, because of the gravity of problems associated with energy production and consumption in China, public officials now warn of an approaching energy crisis.[7]

Addressing China’s energy security issues is complicated by the concurrent need to address environmental impacts associated with energy production and consumption. China is under increasing pressure, both nationally and internationally, to take drastic measures to find environmentally sustainable energy solutions.[8] For example, China has assumed international obligations to fight climate change and improve energy efficiency.[9] Therefore, China must observe the general requirements of these treaties to cut its greenhouse emissions. Additionally, China is working cooperatively with many countries to develop more advanced technologies for various sources of energy, including petroleum, electricity, coal, and wind power.[10]

In the State Council report titled China’s Energy Conditions and Policies, China expanded its longstanding policy priorities of developing the economy and eliminating poverty to give equal importance to environmental sustainability.[11] This important report outlines China’s energy policies and strategies. Because China is the largest developing country and the second largest energy producer and consumer, the report highlights that energy efficiency, environmental protection, and sustainability must be at the forefront of development.[12]

To assess this new path’s viability, this Article examines China’s current energy policies and evaluates the extent to which these policies are supported by current legislative and regulatory frameworks. By reviewing China’s regulatory initiatives, this Article argues that while China is making important efforts to address the energy crisis, serious deficiencies must be addressed for effective change to occur.

Policies

At first glance, China appears to have rich energy resources—water and coal energy reserves are the largest and third largest in the world respectively.[13] China depends heavily on these resources, benefiting both economically and socially from its significant supply. Coal provides the main source of energy for electricity, supplemented by crude oil, natural gas, and renewable sources such as water, wind, and solar energy.[14] To maximize these resources, China has incorporated modern market mechanisms into the energy sector and corporatized its state-owned entities, thereby introducing corporate governance instruments into the management of its energy enterprises. These strategies have gradually improved the efficiency of the energy market, resulting in energy price reforms.[15] For example, the price of energy today usually reflects market demand as opposed to manufacturing costs.

Nevertheless, a number of vulnerabilities exist in the energy supply system, and China will face serious challenges accommodating future economic development. Despite efforts to improve energy infrastructure and distribution, major problems endure, including low energy efficiency, an ineffective price system, a heavy dependence on fossil fuel causing environmental stress, and an incomplete supervisory and early-warning emergency mechanism. Furthermore, China’s per capita energy reserves are far below the world average, particularly for crude oil and natural gas, which account for only 6 percent of the country’s reserves.[16]

At the Seventeenth National Congress of the Communist Party of China in 2007, the government revealed its ten–year goal for economic development and energy policy.[17] The nation’s per capita gross domestic product (GDP) is projected to triple between 2000 and 2020, causing the demand for energy resources to continue to soar.[18] The three foremost energy policies outlined to support this economic growth include energy conservation, restructuring the energy production system, and environmental protection through development of renewable energy sources.

First, energy conservation will be given the highest priority.[19] Through implementing a series of energy saving schemes, China intends to reduce its energy consumption per unit GDP.[20] Additionally, the government will take the necessary steps to ensure the soaring GDP growth is met with a sufficient energy supply, a reduction in greenhouse gas emissions,[21] and increased energy efficiency.[22] China is focusing on advancing technological development to address these goals.[23]

Second, China’s energy production system will be intensively restructured. Due to a lack of sufficient alternative energy resources, the government anticipates that coal will continue to be the country’s main energy source for at least the coming two decades.[24] Because the environmental consequences of coal exploitation, production, and usage are severe—including high greenhouse gas emissions that exacerbate climate change and acid rain—China must improve the managerial and technological efficiency of the coal industry. Thus, China has vowed to develop highly efficient coal technologies with low emissions in the coming decades.[25]

Lastly, China hopes to develop renewable and clean energy infrastructure, including water, wind, and solar, to meet the growing demand for electricity while protecting the environment.[26] In the short-term, China will increase the percentage of its energy portfolio comprised of crude oil and natural gas in order to mitigate environmental deterioration caused by coal consumption.[27]

Yet, many Chinese commentators and scholars have strongly criticized these new energy policies for failing to reconcile the conflicting interests of economic development and energy conservation.[28] They argue that the government has not provided a detailed implementation plan to explain how it will promote rapid economic development while also giving top priority to energy conservation.[29] They warn that without careful planning, China may follow a suboptimal path and fail to achieve the outlined goals.[30]

Coal Plant
Coal-fired power plant in Beijing. Photo credit to Bret Arnett.

Existing Legal Framework

Despite China’s lofty energy policy goals, the country’s regulatory framework is still in the early stages of development. Although piecemeal laws and regulations for some energy-related matters have existed since the 1980s, a fundamental energy law remains largely absent.[31] Among the existing laws, the 1996 Mineral Resources Law and the 1996 Law on the Coal are important regulations that introduce market mechanisms and privatization into the energy industry. The 1995 Electric Power Law goes further to encourage clean power generation through renewable sources.

However, the two most influential pieces of energy legislation are the 1997 Law of the People’s Republic of China on Energy Conservation and the 2005 Law of the People's Republic of China on Renewable Energies.[32] The former aims to promote energy conservation, and the latter focuses on encouraging the development and utilization of renewable energy resources. Although these two laws provide some framework, they have been heavily criticized for failing to offer workable guidelines and implementation procedures.[33]

For instance, article 8 of the Law on Energy Conservation provides that energy conservation shall be managed centrally by an authorized department in the State Council that then delegates responsibilities to other relevant departments.[34] However, the law does not specify which State Council department has the ultimate authority or how the responsibilities shall be further divided among the other departments.[35] Moreover, the Law on Energy Conservation neither specifies institutions for enforcement nor addresses dispute resolution.[36] Ultimately, inadequate monitoring and enforcement mechanisms have rendered these laws toothless.[37]

Under these laws, reconciling the relationships between authorities and maintaining a central energy management body has been difficult. Currently, the managerial powers over energy are dispersed and decentralized. Administrative authorities have overlapping functions and perform redundant roles, which are at times in direct conflict with each other. The result is inefficiency, confusion, and a lack of government control over the energy market and industry.[38] Unfortunately, these inadequacies are not sufficiently addressed by the forthcoming energy law.

China Electricity
Electrical lines near Beijing. Photo credit to å›§-Jean-囧.

The Proposed Energy Law

In 2005, China’s State Council called for the enactment of a general energy code.[39] A law drafting team was created in 2006, comprising fifteen ministries and sixteen experts.[40] The team carried out investigations, surveys, and conferences, resulting in a draft Energy Law at the end of 2007.[41] The draft bill was submitted to the State Council for examination in 2008 and has not yet been finalized.[42]

The forthcoming Energy Law, organized into fifteen chapters and 140 articles, addresses the following issues: (1) codifying the country’s energy policies and strategies; (2) systemizing the energy management hierarchy; (3) regulating the energy market and putting in place monitoring mechanisms; (4) providing comparable rules for energy pricing, taxation, and finance; (5) completing and perfecting energy supply and emergency systems; (6) promoting energy saving and environmental protection; (7) encouraging energy technology innovation; (8) facilitating international cooperation; and (9) clarifying legal liability issues.[43] The overall goal is to introduce legal mechanisms that will promote an energy-efficient and environmentally friendly society, secure the nation’s energy, and better regulate energy administration.[44]

The draft Energy Law can be seen as a reasonable step forward because it is a comprehensive legal framework for the energy sector; it fills legal gaps and coordinates existing piecemeal regulations. Unlike the previous laws that separately regulate each specific energy industry, the forthcoming Energy Law will cover all forms of primary energy including coal, natural gas, renewables, and nuclear, as well as secondary energy such as thermal power.[45] Furthermore, it clarifies legal terms left undefined by the current laws.[46] Nevertheless, the proposed law still has critical shortcomings, which demonstrate that China is far from achieving an effective legal system for regulating the energy industry.

The proposed law falls short in two key ways: it makes existing laws redundant and it lacks specificity. First, it overlaps with both the Mineral Resources Law and the Law on the Coal Industry. For instance, chapter four outlines tactics for technological advances in energy conservation, including administrative guidance for the scientific research and development of energy-saving technologies and major energy conservation projects.[47] These provisions are similar to the provisions in the Mineral Resources Law and the Law on the Coal Industry. Further, chapter six, which addresses energy conservation in the construction industry, the transportation sector, and other key energy consuming industries, substantially overlaps with the Law on Renewable Energies.[48] This is problematic because the Energy Law is not intended to supersede overlapping provisions in existing law.[49] As a result, instead of providing solutions, the draft Energy Law is likely to add to current confusion.

Second, the draft Energy Law does not provide innovative solutions and lacks specificity regarding management of the current energy system. The law provides no long- or short-term goals for preventing future environmental degradation and it fails to provide enforceable standards for energy industry management.[50] Instead, the draft Energy Law articulates lofty goals to promote energy efficiency and sustainability without providing details for how to reach those goals.

China Air Pollution
Construction surrounded by polluted air in Chongqing, Chongqing. Photo credit to Kate McKenna.

Implementation: Fragmentation and New Initiatives

Currently, a plethora of governmental departments are involved in the administration of China’s energy sector. For instance, crude oil exploitation permits must be obtained from the Ministry of Land and Resources, while the Ministry of Commerce approves petrol service station permits.[51] Further, the National Development and Reform Commission regulates the petroleum industry’s planning and pricing.[52] Moreover, regional governments and mega-corporations also have a hand in energy administration.[53]

Since the 1990s, China has endeavoured to remedy this departmental fragmentation and establish an effective institutional and legal framework for its energy management system. The creation of the National Energy Administration in 2008 and the National Energy Commission in 2010 demonstrate this effort. However, these agencies have not cured the problem of ineffective management.[54] The National Energy Administration, a vice-ministerial department, lacks the authority to consolidate the dispersed administrative powers. Further, the National Energy Commission acts as a deliberative body, mainly addressing energy policies and issues relating to international energy cooperation.

Additionally, both the Administration and the Commission lack oversight from an executive authority. Although in theory the State Council has authority over both agencies, without a permanent supervisory organ with specifically designed managing and monitoring powers, the two departments are left in supervisory vacuum.[55] Moreover, the National Energy Commission is actually both the highest administrative authority and the highest supervisory authority over the Administration. This raises the risk of a conflict of interest, which could result in a compromise of supervisory effectiveness. These issues must be addressed before an efficient, centralized managerial system can begin to take shape.

It is evident that China has begun the process of developing a more sustainable energy supply and consumption system. However, crucial decisions have yet to be made regarding what models, measures, and mechanisms must be introduced in order to improve management and technology efficiency. Market mechanisms alone cannot fulfil this goal. Instead, technology promotion, public intervention, regulatory backup, and market leverages must collaborate.

In light of this, three reforms of the energy administration and regulations are in order. First, two independent bodies should supervise and administrate the energy industry. The current arrangement, with the State Council playing the dual role of supreme supervisor and administrator between the National Energy Commission and National Energy Administration, must be adjusted to enhance supervisory efficiency over energy administration. Second, coordination between the central administration and local authorities must become more effective, perhaps by imposing necessary restrictions on the powers of local authorities. Third, the power retained by giant energy companies must be redefined and contained.[56] Undertaking these reforms will help to actualize China’s commitment to creating sustainable energy policies.

Conclusion

Addressing energy safety in China has been at the forefront of the critiques and debates on energy conservation and sustainability over the last two decades. Academic scholars have discussed the development of innovative energy strategies, managerial schemes, and regulatory models. While the Chinese government has passed laws to promote energy efficiency and environmental protection, which include lengthy statements on goals and principles, China needs more than just policy goals. Tactical solutions, specific implementation plans, and functioning legal instruments to enforce obligations are necessary to achieve these goals.[57] A sustainable energy production and consumption system will not come over night, years of planning and development will be necessary for effective implementation.


* LLB, China University of Political Science and Law; LLM, Bond University, Australia;, PhD, Bond University, Australia. Professor of Law, Kenneth Wang School of Law, Soochow University, the People’s Republic of China.

[1] See Yanfang Li, Comments on Making China’s Energy Law and on the Draft Bill of Energy Law, 2 Jurists Rev. 92 (2008).

[2] See Jiang Ze Min, Reflections on Energy Issues in China 13 J. Shanghai Jiaotong U. (Sci.) 257 (2008); Fundamental National Policy: Energy Development Tactics for China–A Country Proceeding Towards Becoming a Great Nation (Xiaoming Wu ed., 2009); Editorial Committee of China’s Economic Situation and Energy Development Report, China’s Economic Situation and Energy Development Report 2010 (2010).

[3] Jiang Ze Min holds that it is important to clarify aims, guidelines and tasks of energy strategy. He suggested that China’s energy development strategy must employ Chinese characteristics, attaching importance to factors such as efficiency, clean technology, environmental protection, and international cooperation. See Jiang Ze Min, supra note 2, at 263.

[4] See Xinghua Chen, Energy Changes Fate: How China Will Face Challenges 1 (2008).

[5] See id.

[6] See id.

[7] In April 2008, Jiang Ze Min, the ex-president of China, published Reflections on Energy Issues in China in the Journal of Shanghai Jiaotong University (Science), which has been widely disseminated and downloaded. In this article, Jiang stated that energy would act as a crucial factor constraining the future development of China’s economy. See Jiang Ze Min, supra note 2.

[8] It is noteworthy that in order to comply with Agenda 21, China has published China’s Agenda 21, stating that pollution control, ecological environmental improvement, energy conservation, and protection of sustainable energy resources will be important targets to meet in the country’s future development. See State Council of China, China’s Agenda 21 (1994).

[9] China is a signatory of the Rio Declaration, Agenda 21, the United Nations Framework Convention on Climate Change, the Kyoto Protocol, and the Vienna Convention for the Protection of the Ozone Layer.

[10] See generally China International Energy Cooperation Report 2009 (Yue Chen & Qinhua Xu eds., 2009).

[11] See id.

[12] See id.

[13] Jiang Ze Min, supra note 2, at 261.

[14] See State Council of China, China’s Energy Conditions and Policies 2 (2008).

[15] Id. at 3.

[16] Songyue Chai, Dir., China Energy Research Council, Envisaging China’s Future Energy Strategies, Speech at the U.S.-China Strategic Forum on Clean Energy Cooperation (Jan. 18–19, 2011).

[18] Id.

[19] See People’s Cong. of China, The Twelfth Five-Year Plan for National Economic and Social Development of the People’s Republic of China 22 (2011); Songyue Chai, supra note 16; Dianming Xu, Deputy Dir., Nat’l Energy Office of China, The Facts and Policies in China, Speech at APEC Forum on Developing Renewable Energy Resources (Sept. 26, 2005).

[20] See People’s Cong. of China, supra note 19, at 22.

[21] See Many Provinces Are to Reduce Their GDP Growth Rate, 21st Century Bus. China (Mar. 22, 2011).

[22] See Xiucheng Dong, Energy Efficiency and Economic Transformation Are Twin Brothers, China Value (July 14, 2011).

[23] See Jiang Ye Min, supra note 2, at 268.

[24] See State Council of China, New Energy Industry Development Plan 2011 (2011).

[25] This can be observed from a number of official speeches and documents. See, e.g., Guihui Wu, Chief Engineer, Nat’l Energy Admin. of China, The Achievements and Prospects of Low Carbon Green Energy in China, Speech at the United Nations Durban Climate Change Conference (Dec. 4, 2011); Wen Jiabao, Prime Minister of China, Let High Tech Lead China’s Sustainable Development, Speech at the Great Hall of the Capital (Nov. 3, 2009).

[26] People’s Cong. of China, supra note 19, at 24; see also Songyue Chai, supra note 16; Dianming Xu, supra note 19. 

[27] State Council of China, supra note 24. Some predict that by 2030 natural gas will account for 10 precent of the total energy supply; see also Songyue Chai, supra note 16.

[29] See Yanfang Li, supra note 1, at 94.

[30] See Lainan Zhang, The Establishment of China’s Energy Commission Heralds A Greater Energy Management System, China Certification & Accreditation Ass’n Net (Mar. 7, 2011).

[31] See, e.g., Interim Regulations on Energy Conservation (promulgated by the State Council, Feb. 2, 1990, effective Jun. 1, 1990) (China), available at http://www.law-lib.com/law/law_view.asp?id=364; Regulations of the People’s Republic of China for the Supervision of the Safety of Civil Nuclear Facilities (promulgated by the State Council, Oct. 29, 1986, effective Oct. 29, 1986) (China), available at http://www.nea.gov.cn/2011-08/19/c_131060265.htm; Regulations on Protection of Power Facilities (promulgated by the State Council, Sept. 15, 1987, effective Sept. 15, 1987) (China), available at http://www.nea.gov.cn/2011-08/19/c_131060557.htm; Electric Power Law of the People's Republic of China (promulgated by the Standing Comm. Nat’l People’s Cong., Dec. 28, 1995, effective April 1, 1996), available at http://www.gdzz.cn/javaoa/Item/doc/lawpdf/s07.pdf; Coal Industry Law of the People’s Republic of China (promulgated by the Standing Comm. Nat’l People’s Cong., Aug. 29, 1996, effective Dec. 1, 1996), available at http://www.anquan.com.cn/law/Class2/200403/4019.html.

[32] See Law of the People’s Republic of China on Energy Conservation (promulgated by the Standing Comm. Nat’l People’s Cong., Nov. 1, 1997, effective Jan. 1, 1998) [hereinafter Law on Energy Conservation]; Law of the People’s Republic of China on Renewable Energies (promulgated by the Standing Comm. Nat’l People’s Cong., Feb. 28, 2005, effective Jan. 1, 2006) [hereinafter Law on Renewable Energies].

[33] See, e.g., Mingyang Wang, Problems and Solutions in Implementing Energy Laws: the Law of Energy Conservation and the Law on Renewable Energies, 2 Legal Sci. Monthly 122 (2007).

[34] The original text of article 8 states:

The administrative department for energy conservation under the State Council shall be in charge of supervision over and administration of the work for energy conservation throughout the country. The relevant departments under the State Council shall exercise supervision and administration in the work within the scope of their functions and responsibilities respectively.

Law on Energy Conservation, supra note 32.

[35] Mingyang Wang, supra note 33, at 123.

[36] Id.

[37] Id. at 129.

[38] Yanfang Li, supra note 1, at 96.

[39] See China Energy Research Soc’y, China Law Sci. Ass’n, The Twelfth Five-Year Plan and Energy Law Making (2011).

[40] See Yongyu Gao, Will Energy Law Come up Soon after Fours’ Amendments? First Fin. and Econ. Daily (Feb. 12, 2010).

[41] Draft Energy Law of the People’s Republic of China, published Dec. 4, 2007 [hereinafter Draft Energy Law].

[42] These legislative activities are about thirty years behind some developed countries. For instance, the United States and the United Kingdom enacted the National Energy Conservation Policy Act, Pub. L. 95–619 (1978) (current version at 42 U.S.C. § 91 (2006)), and the Energy Act, 1976, c. 76 (U.K.), respectively.

[43] See Yong Zhang, Research on General Energy Law 64–76 (2010).

[44] Draft Energy Law, supra note 41, art. 1.

[45] See A New Energy Law for China, Mallesons Stephen Jaques (Feb. 29, 2008).

[46] Id.

[47] Draft Energy Law, supra note 41, §§ 34–39.

[48] Law on Renewable Energies, supra note 32.

[49] See Hui Liu, Thoughts on the Issues Concerning China’s Energy Law Making, Nat’l Research Net (Oct. 16, 2006).

[50] Yanfang Li, supra note 1, at 95.

[52] Id.

[53] Liang Hu, In-depth Reforms to the Energy Management Is in the Pipeline, China Econ. Times (Jan. 29, 2011).

[54] Junjian Wang et al., supra note 51.

[55] Centre of Sci. & Tech. Consultation, Yunnan Univ., Handbook of Energy Management Knowledge 10 (2008).

[56] See Liang Hu, supra note 53.

[57] See Meimei Yang, Experts’ Insightful Discussions on the Strategic Significance of Energy Law, First Fin. Daily (Feb. 12, 2010).

Copyright 2012 Yuwa Wei. All rights reserved.

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