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Tracking energy efficiency finance: Implications for energy conservation governance

Tracking energy efficiency finance: Implications for energy conservation governance. Yuqing Ariel Yu Task Manager, Climate and Energy Group Institute for Global Environmental Strategies (IGES). Research questions.

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Tracking energy efficiency finance: Implications for energy conservation governance

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  1. Tracking energy efficiency finance: Implications for energy conservation governance Yuqing Ariel Yu Task Manager, Climate and Energy Group Institute for Global Environmental Strategies (IGES)

  2. Research questions • What was the landscape of energy efficiency (EE) finance during the 11th FYP (2006-2010)? • What was the mechanism that facilitated mobilization and deployment of EE finance? • What is the finance need during the 12th FYP?

  3. Outline • Part I: Background • Introduction • Methodology • Part II: EE finance during the 11th FYP • Overview of EE finance during the 11th FYP • Enabling environments: The target-responsibility system (TRS) • Tracking EE finance • Part III: Outlook for the 12th FYP • Finance need during the 12th FYP • Lessons learned

  4. China’s energy intensity and energy conservation targets The 10th FYP The 6th FYP The 9th FYP The 11th FYP The 7th FYP The 12th FYP The 8th FYP No target Target: 16% Achievement: N/A Target: 12.3-16.3% Achievement: 23.5% Target: 11.6% Achievement: 11.9% Target: 20% Achievement: 19.1% Target: 8.6% Achievement: 22.5% Target: 22.7% Achievement: 26.7% Source: China Energy Statistics Yearbooks • China experienced an average annual reduction of 5% in energy intensity during 1980 to 2002. China had an energy conservation target for each FYP. • The period of 2002 to 2005 saw a reversal of this trend: energy intensity increased an average 5% per year. This period was the only period that lacked an energy conservation target. • In response, during the 11th FYP (2006-2010) China set a target of reducing energy intensity by 20% by 2010 compared to the 2005 level.

  5. Drivers for X-shaped energy related CO2 emissions Energy conservation governance CO2 emissions=a counterbalance and Economic growth emissions (left) intensity (right) Source: Annual review of low-carbon development in China, CPI at Tsinghua, 2012

  6. Definition of EE finance • There lacks an agreed definition of EE finance in the UNFCCC and academia • Focus on existing facilities and buildings. • Improvement in end-use and sectoral energy performance (i.e., industry, buildings, transport, appliances) that include equipment upgrades and process improvement; • Power generation efficiency improvement (excluding fuel switching); • Energy conservation related R&D and capacity building • When possible, only the additional amount needed for EE improvement; when impossible to separate, the full capital cost of an EE project investment

  7. Overview of EE finance during the 11th FYP

  8. The landscape of China’s EE finance

  9. China invested USD 114.2 billion during the 11th FYP Source: Annual review of low-carbon development in China, CPI at Tsinghua, 2013. Note: RMB: USD of 7.2:1 has bee used for the period of the 11th FYP. • China’s annual investment was approximately 2 times of the aggregate amount of the rest BRICS (IEA, 2012). • 98% of funding for EE came from domestic sources. International institutes played a very small role. • The contribution from the central government accounted for 12.7% of total investment; while local governments contributed another 6.4%. Collectively, various levels of government contributed 19.1%. • 79% of funding came from non-government agents, such as enterprises, building owners, and banks. • More than 40% of funding came from industrial enterprises, many of which are state-owned enterprises.

  10. The industry sector attracted the largest share Source: Annual review of low-carbon development in China, CPI at Tsinghua, 2013 Note: An average RMB:USD rate of 7.2:1 has been used for the period of 2006 to 2010. • Almost 90% of funding went to the industry sector, which is China’s most important sector. • By contrast, the transport sector had limited scope for EE investment.

  11. EE NAMAs achieved total energy savings of 408 Mtce Source: Annual review of low-carbon development in China, CPI at Tsinghua, 2012 • Improving energy efficiency accounted for 64% of energy savings realized to fulfill the energy intensity target. • The industry sector realized the largest amount of energy savings. • The vast amount of funding went to the sector that had the greatest potential to save energy.

  12. Data sources and quality • Data sources • Official data • Publicly available data • Our estimations based on case studies and interviews • Data quality (finance and outcomes of NAMAs) • At the central level: data quality is acceptable • MOF has specified the central government’s contribution to energy conservation in its annual fiscal statement since 2008 • NDRC has published annual progress reports on its climate and mitigation actions with assessment of outcomes since 2008. • At the provincial level: data are not consistent • Too many data sources; conflicting information • At the county/town level: rare data sources (case studies) • At the enterprise level: rare publicly available data (interviews) • At the bank level: No EE specific data (our estimation, interviews)

  13. Energy conservation governance: The target-responsibility system (TRS)

  14. Improved energy conservation governance mobilized EE finance The National Development and Reform Commission Incentive channel Administrative channel Financialinputs Others Public institutions building energy Central institutions building energy ●●●●●● ●●●●●●

  15. Tracking finance: The national EE special fund

  16. Distribution channels Outcomes Instruments Inputs Outputs The fund Overview of the national EE special fund NDRC, MOF Governance USD 3bn Results-based rewards Provincial authorities Government budgets The National EE Special Fund USD 72bn Saved energy: 295 Mtce; Avoid CO2 emissions: 774 Mtons Project-level equity 5200 projects in the industry sector USD 69bn Balance sheet financing Corporates Note: An average RMB:USD ratio of 7.2:1 has been used for the period of 2006 to 2010.

  17. Project selection criteria **: Ten Key Projects are (1) boiler (kiln) renovation project of the coal-fired industry, (2) district heat and power cogeneration project, (3) waste heat and pressure utilization project, (4) oil conservation and alternative project, (5) electric motor energy conservation project, (6) energy system optimization project, (7) building energy conservation project, (8) green lighting project, governmental agency energy conservation project, (9) energy conservation monitoring and (10) technical service system project.

  18. The results framework: Results verification before project implementation and upon project completion The NDRC The MOF Before implementation: baseline energy consumption Appropriate the remaining 40% of the reward Report Report Appropriate 60% of the reward Appropriate 40% of the reward Project implementing entity Appropriate 60% of the reward Provincial government Self-evaluation report 1st verification report Commission 1st onsite verification Third-party agent 1 Upon completion: actual energy savings Third-party agent 2 2nd onsite verification Commission 2nd verification report 3rd onsite verification Third-party agent 3 Commission 3rd verification report

  19. Outlook for the 12th FYP

  20. China needs USD 202.6 billion to achieve energy intensity targets in the 12th FYP Energy conservation NAMAs can achieve energy savings of 383 Mtce, accounting for 57.1% of total energy savings required to attain the national energy intensity target of 16%. Source: Annual review of low-carbon development in China, CPI at Tsinghua, 2012 Note: A RMB:USD rate of 6.1:1 (as of May 30th, 2013) has been used for the period of the 12th FYP.

  21. China has to overcome a finance gap of USD 88.4 billion Every sector needs to scale up EE investment. Unit: USD billion Source: Annual review of low-carbon development in China, CPI at Tsinghua, 2012 Note: An average RMB:USD rate of 7.2:1 has been used for the period of the 11th FYP; a RMB:USD rate of 6.1:1 (as of May 30th, 2013) has been used for the period of the 12th FYP.

  22. Lessons learned • Improved energy conservation governance mobilized EE investment at all levels. • Institutional arrangement is critical for EE finance. • More funds should be allocated to support capacity building at the sub-national level. • The TRS is incompetent in inducing local governments’ internal drivers for energy conservation. • To overcome the finance gap, China needs to mobilize banks.

  23. Thank You Contact: yu@iges.or.jp

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