WHAT CHINA BRINGS TO THE TABLE IN COPENHAGEN

Inside the Copenhagen Climate Negotiations: The Critical Roles of the U.S. and China
Mark D. Levine, December 2, 2009 (World Affairs Council)
and
Assessment of China’s Energy-Saving and Emission-Reduction Accomplishments and Opportunities During the 11th Five Year Plan
Mark D. Levine and Lynn Price, December 9, 2009 (Lawrence Berkeley National Laboratory)

SUMMARY
Reports so far are of impasse in the negotiations at the Copenhagen climate change summit. If an international agreement on cutting emissions to fight climate change emerges, it will have much to do with the deal between the U.S. and China.

What the U.S. offers and accepts in that deal will have much to do with how it sees China’s intentions to reduce and report its emissions. Nobody understands what China is doing to curb its emissions better than the scientists at the Lawrence Berkeley National Laboratory (LBNL) who have been working in China and with China on Energy Efficiency since 2005.

In Assessment of China’s Energy-Saving and Emission-Reduction Accomplishments and Opportunities During the 11th Five Year Plan, Mark D. Levine, the leader of LBNL’s China Energy Group, and Lynn Price, a Group staff scientist, detailed the strengths, weaknesses, accomplishments and failings of the extensive work done by Chinese and LBNL scientists toward China’s previous goal of a 20% reduction in emissions by 2020.

In Inside the Copenhagen Climate Negotiations: The Critical Roles of the U.S. and China, Levine described to the World Affairs Council the work China has been doing since 2005, rejected popular dismissals of their new efficiency goal to reduce their emissions intensity 40%-to-45% by 2020, insisted China’s new commitment is “very significant” and predicted something productive would emerge from the Copenhagen summit.

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Emissions intensity is the amount of greenhouse gases (GhGs, usually quantified in metric tons (tonnes) of carbon dioxide equivalent, CO2e) per unit of gross domestic product (GDP). The controversy in China’s commitment to cut emissions intensity is that it avoids a commitment for an absolute reduction in GhGs. In China’s booming economy, emissions intensity can go down while total CO2e goes up.

At the same time, China, India and the other emerging economies of the world are pressuring the U.S. and the West for more and more significant absolute cuts in emissions, cuts that potentially threaten the developed countries' economic competitiveness.

As Levine pointed out and fully documented, China’s new, Copenhagen-oriented commitment is not only a big step forward, it is an indication of a brave new world in which China has, under LBNL tutelage, become the leading innovator in the New Energy and Energy Efficiency world.

Levine believes China WILL NOT make a binding commitment to big absolute emissions cuts at Copenhagen but will stay with its emissions intensity pledge. And, Levine pointed out, the U.S. CANNOT make a binding commitment to absolute cuts because Congress has not yet approved them.

Levine thinks, however, that the Chinese will see President Obama’s personal commitment to GhG reductions as important and Obama will accept the Chinese commitment to emissions intensity reductions as significant. Levine is, therefore, optimistic that the agreement that comes out of Copenhagen will lay meaningful groundwork for a binding treaty at or before the 2010 meeting of the Conference of the Parties (COP) in Mexico.

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COMMENTARY
The China Energy Group and Lawrence Berkeley National Laboratory (LBNL) have worked since 1988 to make it possible for Chinese institutions to promote Energy Efficiency through (1) adopting appliance efficiency standards, (2) developing industry efficiency pilot projects, (3) creating efficiency-building institutions (Energy Foundation China Sustainable Energy Program and Beijing Energy Conservation Center), and (3) training Chinese scientists and technicians in Energy Efficiency.

Levine contends there are 4 key players in the Copenhagen negotiations: (1) the U.S., (2) China, (3) the EU, and (4) the other nations of the developing world. He expects the EU to play the catalytic role but, in the end, follow the lead of the U.S. and China.

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Unfortunately, he believes, China won’t make a binding commitment to big absolute emissions cuts but will demand to stay with its emissions intensity pledge. And, Levine pointed out, the U.S. cannot make a binding commitment to absolute cuts because the bill that was approved by the House of Representatives containing a requirement for the U.S. to cut its GhGs 17% from the 2005 level by 2020 and 83% by 2050 has not yet been taken up by the Senate.

Levine believes, however, that President Obama’s commitment to absolute GhG cuts will engage the Chinese and he believes the President, like himself, will see China's promise of a 40-to-45% reduction from its 2005 emission intensity level as quite significant for Beijing.

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Levine is optimistic, therefore, that the agreement that comes out of Copenhagen will lay meaningful groundwork for a binding treaty.

The key to understanding why China’s promises of emissions intensity cuts are significant is knowing some recent history. China's energy intensity and emissions intensity rose in 2003, 2004 and 2005 for the first time since 1980. In 2005, China’s leaders stepped forward. They got help from the scientists at LBNL to improve their Energy Efficiency and they set new goals for New Energy.

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China's efforts in New Energy and Energy Efficiency since 2005 have proven they are serious. By committing themselves to a 40-to-45% cut from the 2005 level in emissions intensity, they are committing themselves to even more serious efforts. Levine believes it will require:

(1) Very stringent efficiency standards for appliances and motor vehicles, even more stringent than U.S. standards;
(2) More New Energy per person than any country except France and the few hydropower-rich nations in the world now have;
(3) More New Energy investment than any country (per person or otherwise) now spends;
(4) The highest or near highest energy price in the developing world.

If developing world nations were to do what China is committing to doing in emissions intensity, global GhGs would drop 50%-to-75% by 2020.

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In laying the groundwork for the proposed emissions intensity reductions after 2005, China introduced innovative public policies such as (1) an $8 billion government fund that is on its way to attracting $80 billion in private sector New Energy and Energy Effciency investment; and (2) a cleverly constructed utility price system (pioneered in California and essentially ignored by most of the rest of the U.S.) that essentially decouples utility profit from increasing electricity consumption.

These market mechanisms, Levine pointed out, are stronger and more innovative than almost any in the U.S., where the market is supposed to be the key to the economy.

Levine acknowledged that China’s ability to introduce policy innovations like decoupling rests largely on the fact that the bulk of its energy consumption (and emissions generation) comes from large industry.

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The decoupling program allows a utility to estimate its total power sales and then sets a rigid price for complying. If a utility’s volume exceeds its estimate, the government doubles the price the utility pays for power. If it does not institute efficiency measures to bring that volume down, its price triples. If demand remains elevated, the utility is no longer allowed to sell power.

And if, through effective efficiency measures, the utility sells less power than it estimated, it is rewarded by being allowed to charge more for its power sales. In essence, a decoupling policy rewards utilities for implementing efficiencies that reduce energy consumption and penalizes them for failing to curb demand.

Because China’s biggest power demand now comes from its heavy industry, its utilities are able to navigate the pitfalls of decoupling more easily and successfully than Western utilities whose customer bases are largely made up of consumers. The question in Levine’s mind is what will happen to China’s emissions when, sometime in the near future, its consumer sector emerges at the level of the developed economies.

If China’s consumers mimic those of the U.S., its ability to meet even its current GhG-cutting commitment will likely be sharply compromised.

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LBNL’s assessment o0f China’s efforts to date identifies several potential difficulties:
(1) A lack of publicly-available systematic reporting and monitoring;
(2) A confusion of clearly defined units;
(3) Poorly defined targets;
(4) Varyingly accurate regional reporting.

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Findings of the overall program developed with LBNL to improve energy intensity (the amount of energy used per unit of GDP) 20%:
(1) Substantial progress;
(2) Success due to Energy Efficiency/conservation
(3) Initial changes overcame the little success in altering infrastructure

China"s successful Energy Efficiency programs include:
(1) Ten Key Projects
(2) Top-1000 Program
(3) Small Plant Closure Program
(4) Enforcement of new building energy standards
(5) Appliance standards and labeling program

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Programs not on track to meet goals:
(1) Building retrofits
(2) Structural adjustment

10 Key Projects is on track to meet or surpass the goal of 250 Mtce primary energy savings.

The Buildings program saved 4.6 Mtce between 2005 and 2008 but barriers such as subsidized heating and heating prices based on space instead of usage must be addressed, materials must be improved, there must be more incentives for developers, better reporting and allocation of targets.

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The Top 1000 program is on track to meet its final energy-saving target of 100 Mtce in 2010, many Top-1000 projects have energy intensities better than the national average and 50 billion RMB¥ ($7.3B) has been invested in technology innovation.

The Small Plant Closures program has been successful and is ahead of schedule but the overall structure of China’s industrial sector remains inefficient, manufacturers still have too many incentives to use smaller facilities and difficulties remain at the local levels.

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The Appliance standards and EE labels program has been very active, going to 30 products (from 3 to 6 products at inception) but thresholds and voluntary specifications need revision, market conditions must be included in practices, labeling needs to be coordinated and the appliance manufacturing industry must be integrated.

LBNL’s overall recommendations:
(1) Maintain successful policies and programs;
(2) Add mechanisms for structural change;
(3) Complete the National Energy Conservation Center for information dissemination and training;
(4) Strengthen provincial energy conservation centers;
(5) Establish something like the U.S. Energy Information Administration (EIA) to independently and systematically collect and analyze energy data.

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LBNL added specific recommendations for:
(1) Monitoring, Reporting, Verification
(2) Program design
(3) Building Energy Efficiency
(4) Industry Energy Efficiency
(5) Structural optimization
(6) Appliance standards and Energy Efficiency labels

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QUOTES
Mark D. Levine, leader, LBNL China Energy Group: “Recent newspaper articles state that China’s commitment to reduce CO2 emissions intensity by 40% to 45% by 2020 is of little significance. I respectively disagree…Judged by the standards of all other developing countries, China’s commitment is very significant. Achieving the goal of 40-45% reduction in CO2 by 2020 will require very significant policies for China to contain the economic forces that are driving energy demand…”

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- Levine: “It is a common belief that China’s CO2 emissions will continue to grow throughout this century and will dominate the world’s emissions. We believe this is not likely to be the case because appliances, floor area, vehicles, roadways, etc. will saturate some time between 2020 and 2030. When this happens, China will have (on a total and per capita basis) larger low or zero CO2 emissions energy supply system than the United States by a considerable margin…Unless the Chinese develop a profligate lifestyle—modeling themselves on a certain country in North America—China will have leveled off in its CO2 emissions at a much lower per capita level than the United States, Europe, or Japan!!”

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- Levine: “When we started working with China, we brought things to China that they didn’t know about, both in terms of policy and in other ways. But things have evolved now and it’s clear that as of 2009 we have as much to learn from China as they do from us. And by 2020, unless we really start moving, they won’t have anything to learn from us and we’ll have a lot to learn from them and we can only hope that they’ll teach us. And you can say that in spades about electric vehicles…BYD is a company I would invest in…The competitive advantage that the U.S. has is..we are the undisputed leader in R&D…Let us hope that we don’t destroy the underpinnings of R&D in the future…”