Energizing efficiency in the U.S.-China relationship

Yesterday, before Chinese President Hu Jintao’s plane even hit the tarmac, senior energy experts from both countries gathered to inaugurate the U.S.-China Clean Energy Research Center (CERC), the latest in a series of initiatives building on the historic November 2009 summit between Presidents Hu and Obama. NRDC is a proud member of the building energy efficiency consortium. Together with the national demand-side management (DSM) regulations that came into effect on January 1st, these programs in energy efficiency hold some of the greatest promise for reducing the burden on China’s growing energy demand while promoting goodwill and broad cooperation in the bilateral relationship.

Building efficiency

In China, the benefits of energy-efficient buildings are great. In our report From Gray to Green: How Energy-Efficient Buildings Can Help Make China’s Rapid Urbanization Sustainable, we highlighted:

• Operating residential and commercial buildings accounts for 25 percent of China’s energy use
• Buildings use more energy than the cement, iron and steel sectors combined
• More than any other sector, greenhouse gas mitigation in buildings is cost-effective, saving on average 461 RMB per ton of CO2 abated
• Even a modest increase of energy efficiency in buildings could reduce CO2 emissions by 170 million tons by saving 170 million kWh by 2015, equivalent to:
  • Not building 50 additional coal-fired power plants
  • Two dams the size of Three Gorges
  • Turning off all the lights in the U.S. for one month.

The CERC on building efficiency – complementing two other joint R&D programs, in clean vehicles and advanced coal – seeks to capture key technologies and markets to make these reductions possible in both countries. Led on the U.S.-side by Lawrence Berkeley National Lab, a consortium of seventeen institutions and businesses will partner with Chinese colleagues led by the Ministry of Housing and Urban-Rural Development (MHURD) and Tsinghua University in examining the following research areas:

1. Monitoring and Simulation – grappling with the raw numbers of buildings through real-time data collection and analysis
2. Building envelope – insulating, ventilating and providing shade through new materials and research on sustainable design
3. Building equipment – developing efficient heating, cooling and lighting systems, and integrating renewable energy
4. Building integration – country-specific case studies on the whole performance of green buildings
5. Commercialization research – policy and market research, including research on policies to promote implementation, evaluation and certification of building energy efficiency codes and labels; mechanisms and policies for market promotion of building energy efficiency; expanding expert exchanges

The full work plan signed yesterday is available here.

Demand-side management (DSM)

In a complementary move, as of January 1, China has begun implementation of nationwide utility demand-side management regulations, known as DSM. These regulations, which were implemented previously only in select provinces, require for the first time utilities to spend a portion of their revenues in developing large-scale energy-saving programs in factories, businesses and homes across China. (See here for the official DSM government announcement in Chinese, here for the official DSM regulations in Chinese for the regulations in Chinese, and here for our unofficial English translation of the DSM regulations).

These regulations incorporate a number of key provisions, which I blogged about here in November, including:

• Integrated resource planning – the regulations consider both supply-side and demand-side measures, but give preference to demand-side, because the cost of energy-saving devices is cheaper than building additional coal-fired power plants.
• Energy efficiency resource standard – the regulations establish a minimum amount of savings each utility must achieve through DSM programs; specifically, an amount equivalent to at least 0.3% of the sales volume and 0.3% of the maximum load of the previous year.
• Funding mechanism for energy efficiency investments – the regulations authorize three sources of funding critical to the sustainability of DSM programs, namely, public utility surcharges, revenue from differentiated electricity prices, and government budget allocations.

While the target of 0.3% may seem like a relatively small contribution to total sales, when implemented nationally, this translates to 11 billion kWh of avoided generation needs.[1] Also, it is important to keep in mind that many DSM programs start small, ramping up over several years.

In November, in Illinois, Commonwealth Edison, NRDC, and other parties and regulators signed a three-year DSM agreement that will save $497.7 million and 16 million MWh.  This agreement will implement a 2007 Illinois energy efficiency resource standard law requiring utilities to displace 2% of their annual sales with energy efficiency savings by 2015. The ComEd standard starts at 0.2%, increases to 1% of sales in 2012, and will continue to increase until it reaches 2% of sales in 2015.

Similarly, the first three years of our cooperation with Jiangsu beginning in 2004 resulted in 300MW in avoided new power generation capacity. It has now more than doubled, to 680MW, translating to 3.5 million MWh annual savings. We can expect similar learning curves for the national standard and deeper savings over the next few years.

Currently, nineteen U.S. states have adopted EERS. NRDC and the China-U.S. Energy Efficiency Alliance helped broker a DSM agreement in 2005 between Jiangsu and California – one of the leaders in DSM in the U.S. The states’ average target is higher than China’s minimum 0.3%, but China’s is distinguished because it is being implemented nationwide. Existing provincial targets will remain in place, so this provides an opportunity to bring all the other provinces up to speed.

Taken together, these programs are leading us on the path to the 2.4-gigaton wedge that McKinsey has calculated for potential greenhouse gas reductions in China through efficiency by 2030. They are also some of the strongest and synergetic avenues of climate and energy cooperation between our two countries. You can expect continued progress on all of these fronts.

This post was coauthored with NRDC China Climate Fellow Michael Davidson.

[1] China’s total electricity consumption in 2010 was 4.190 trillion kWh, http://news.xinhuanet.com/english2010/china/2011-01/17/c_13693802.htm.