China's Strategy to a Greener

Economy

Jintao Xu

Peking University

January 9, 2012, NYSE

• Environmental Issue one of the Major Challenges Affecting Sustainability of China’s Economic Growth

• Calling for Change of Economic Structure with Low Energy Consumption, Low Pollution and High Productivity

• A Greener Economy

the 12th Five Year Plan (2011-2015)

• Plan for National Economic and Social Development Economic restructuring and improved quality and performance of economic

growth Continued effort in energy saving and emission reduction Active climate policy

• New Strategy for Industrial Development Identify seven strategic industries, with energy saving and emission reduction

ranked 1st, new energy 4th

• Work Plan for Energy Saving and Emission Reduction• Work Plan for Controlling GHG Emissions

Goal: by 2015, CO2 emission per unit of GDP decreased by 17% compared with 2011 level

Policy: Administrative• Energy saving

by 2015, energy intensity decrease to 0.87 ton coal equivalent per 10K GDP

(2005 price), down by 16% compared with 1.03 ton in 2010 and 32% compared with 1.28 ton in 2005.

Save 670 million ton coal equivalent during the 12th FYP

• Emission reduction COD down to 23 million T, and SO2 to 21 million T, all by 8% from 2010.

Ammonia Nitrogen <2.38 million T, NOx <20 million T, down by 10% from 2010  

• Certification System Energy efficiency labeling system Environmental products certification system

Policy: Economic• Investment

Central Government Investment (3.1 trillion yuan in 12th FYP) (J.Wang)

• Pricing Reform Resource products price reform (coal, electricity, oil, gas, water, mineral resources) Step-wise water and electricity price Desulfurization and Denitrofication electricity price premium policy

• Tax & fee Tax deduction on energy saving and emission reduction activities Resource tax reform (crude oil, natural gas, coal) Environmental tax reform Preferential tax policy for renewable energy Export tax policy for high pollution industry Sewage processing, garbage disposal and heavy metal pollution charge

• Financial policy Credit support for environmental friendly investment

• Ecological compensation mechanism

Green Opportunity

•15%-20% annual growth rate, 4.5 trillion yuan output value by 2015.

•A $7.6 trillion investment of worldwide energy-saving industry in future 20 years is estimated , among which China accounts for 40% (20 trillion RMB), with an investment of 3.4 trillion RMB during the 12th FYP.

• Investment of urban sewage waste and flue gas desulfurization and denitrofication facilities will reach 600 billion during 2010~2015, with an operating scale of over 600 billion yuan.

Promising Areas: Energy-saving Industry

Target Future Space

Recent Opportunity

New energy vehicles

Pure electric vehicle was main goal, hybrid vehicles as recent focus.

Market scale of 5 million vihicles by 2020, 50% of total vehicle used.

100 billion government financial investment: in the next 10 years

Energy-saving Buildings

20% decrease of energy consumption per unit area( 30% in large public buildings) by 2015.

A plan of public building energy-saving reconstruction in major cities(40 cities included by 2015)

New Energy

Goal by 2015

Nor-fossil

Energy

Solar thermal Biomass Geothermal Other

Capacity

11.4% out of primary energy (15% by 2020)

1 million KW(3 million by 2020)

13 million KW 100 thousand KW(use of 15 million tce)

hydropower, windpower, tidal energy, ocean energy, etc.

Market Scale

15 billion( 45 billion by 2020, investment over 100 billion Yuan)

500-700 biomass power plants, investment in waste power generation over 40 billion Yuan)

350 million m2 heating (cooling) area by ground source heat pump, 100 billion Yuan total market scale

Promising Areas: Environmental Protection and Resource Recycling

Industry

• Environmental Protection Industry(during the 12th five-year)• Investment:3.4 trillion RMB(57% higher than 10th five-year)• Output: 500 billion RMB of environmental protection equipment industry and environmental service industry • Companies: 100 environmental companies with over 1 billion Yuan annual output value.

• Resource Recycling Industry• Fast development with a higher growth rate than GDP.

• Major Areas of Environmental Protection Industry• Air pollution control • Sewage treatment and upgrade

• Solid waste disposal and upgrade– 800 billion RMB investment. Focus on food waste processing

• Environmental Monitoring – Further promotion policy needed. 100 billion investment during 12th five-year. PM2.5 detector.

• Environmental Service• Soil Remediation(e.g. heavy metal pollution treatment )

Promising Areas: Shale Gas

• Great potential– 100 trillion m3 geological reserve, 36 trillion m3 can be technically developed, rank No.1 among 33

countries. But not commercially used by now(EIA).– China will become the driving force of the global shale gas demand with a growth rate of 15% in the next 18

years(Jefferies & Company, Inc.).

• Opportunity for China's Shale Gas Industry due to Strong Policy Support

– Approved as a new independent mineral by the state council(Dec.,2011 ).– Listed as the encouraged item in the Catalogue for the Guidance of Foreign Investment (Dec.,2011 ).– Draft version of The 12th five-year Plan of Shale Gas came out(Dec.,2011 ).

• Target: By 2015, complete the investigation and assessment of China's shale gas's potential, proved geological reserves 1000 billion m3, recoverable reserves 200 billion m3, annual output achieves 6.5 billion m3.

• By 2020, select 50 to 80 major areas and 20 to 30 exploration and development areas to guarantee the reserves grow steadily to 1000 billion m3.

Business Opportunities

• 40 billion RMB investment, 6.5 billion m3 annual output by 2015, • 445 billion RMB investment, 80 billion m3 annual output by 2020( Report

by Ping An Security).• 5 to 10 years to form a certain scale as the mining cost remains high in the

initial stage ( expert from China National Petroleum Corporation).– 3rd, Jan.,2012, Sinopec Group announced to spend $ 2.2 billion to

make the acquisition of part of the shale oil and gas blocks interests of Devon Energy Corporation in the USA.

• The second shale gas exploration tenders will be announced in this mouth, and whether the foreign companies can bid is under discussion.

Thank You!

Energy Management Contract(EMC)• A business model for energy-saving and pollution reduction promotion.

• An intense supporting policy introduction since Oct.,2010.

• Future trend: over 1000 domestic ESCOs, with a market scale 300-500 billion in the next 5 years.

• Others: High Efficient Technology and Equipment, etc.