Institute for Global Environmental Strategies Climate Finance Tracking energy efficiency finance:...

Institute for Global Environmental StrategiesClimate Finance

Tracking energy efficiency finance: Implications for energy conservation governance

Yuqing Ariel YuTask Manager, Climate and Energy Group

Institute for Global Environmental Strategies (IGES)

Yuqing Ariel Yu IGES | http://www.iges.or.jp UNFCCC SB38, June 7th, 2013, Bonn, Germany

Role of business for enabling sustainable lifestyles

IGES-Climate Finance

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?




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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




China’s energy intensity and energy conservation targets

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The 6th FYP The 7th FYP The 8th FYP The 9th FYP The 10th FYP The 11th FYP

Target: 12.3-16.3%

Achievement: 23.5%

Target: 11.6%

Achievement: 11.9%

Target: 8.6%

Achievement: 22.5%

Target: 22.7%

Achievement: 26.7%

Target: 20%

Achievement: 19.1%

Target: 16%

Achievement: N/A

The 12th FYP

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.

No target




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Drivers for X-shaped energy related CO2 emissions

CO2 emissions=a counterbalance andEconomic growthEnergy conservation

governance

51.47

56.63

60.82 62.40

65.21

69.30

73.62

2.78 2.72 2.56

2.39

2.29 2.21 2.14

0

0.5

1

1.5

2

2.5

3

3.5

4

40

45

50

55

60

65

70

75

80

2005 2006 2007 2008 2009 2010 2011

CO

2 in

tens

ity

(tC

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10,0

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MB

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Tota

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ted

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ons

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illi

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ns)

CO2排放量

CO2排放强度

Source: Annual review of low-carbon development in China, CPI at Tsinghua, 2012

emissions (left)

intensity (right)




Definition of EE finance

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• 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

Sector Included in our paper Excluded from our paperIndustry EE standard projects; restructuring projects;

phasing out outdated production capacitiesEE-related infrastructure construction; EE equipment

manufacturing; enterprises’ spending on phasing out outdated production capacities

Building Retrofitting residential and public buildings Integrating renewable energy into buildings; green buildings

Transport Demonstration of new energy vehicles Low-carbon Transportation Campaign Carried out by 1000 Enterprises in the Field of Vehicle, Vessel, Road and Port

Consumption Subsidizing EE lighting, appliances, and vehicles; Trading in old appliances and vehicles

Consumers’ capital; government procurement

Capacity building EE technology R&D; institutional development --




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Overview of EE finance during the 11th FYP




The landscape of China’s EE finance

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China invested USD 114.2 billion during the 11th FYP

Category Source Finance (USD billion) Share in EE investment (%)

Government budgets

The central government 14.5 12.7

Provincial and lower-level governments 7.3 6.4

Subtotal 21.8 19.1

Non-government agents

Corporate own capital Industrial enterprises 48.7 42.6

ESCOs 1.3 1.1

Auto makers 0.9 0.8

Subtotal 50.9 44.6

Building owners 1.8 1.6

Banks 36.1 31.6

Stock market 1.5 1.3

Subtotal 90.3 79.1

International funding

International institutes 1.3 1.1

CDM 0.9 0.8

Subtotal 2.1 1.8

Total 114.2 100

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.




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The industry sector attracted the largest share

Note: An average RMB:USD rate of 7.2:1 has been used for the period of 2006 to 2010. Source: Annual review of low-carbon development in China, CPI at Tsinghua, 2013

• 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.

Sector Energy conservation NAMAs Investment (USD billion)

Share in the total investment (%)

Industry Technological upgrades (Ten Key Project Program, Top 1000 Enterprises) 94.0 82.3Phasing-out obsolete production capacities 4.2 3.7

Energy performance contracting 3.5 3.1Subtotal 101.7 89

Building Retrofitting existing residential buildings in the Northern region 3.4 3.0Setting up energy monitoring systems in government and public buildings 0.6 0.5

Energy performance contracting 0.9 0.8Subtotal 4.9 4.3

Transport Demonstration of new fuel vehicles 1.2 1.0Consumption EE lighting 0.2 0.2

EE air conditioning 1.6 1.4EE vehicles 0.4 0.4

Old appliance trade-in 1.1 1.0Old vehicle trade-in 0.5 0.4

Subtotal 3.9 3.4Capacity building

EE technology R&D 1.4 1.2Establishment of energy management centers at the local level 1.2 1.1

Subtotal 2.6 2.3Total 114.2 100




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EE NAMAs achieved total energy savings of 408 Mtce


Sector Energy conservation NAMAs Energy savings (Mtce) Share in total energy savings (%)Industry Technological upgrades 274 67.1

Phase-out obsolete production capacities 110 26.9Energy performance contracting 10.5 2.6

Subtotal 394 96.5Building Retrofitting existing residential buildings in Northern regions 1.95 0.5

Setting up energy monitoring systems in government and public buildings

1.16 0.3

Energy performance contracting 2.5 0.6Subtotal 5.61 1.4

Transport Demonstration of new fuel vehicles 0.02 0.0Consumption EE lighting 4.08 1.0

EE air conditioning 3.26 0.8EE vehicles 0.4 0.1

Old appliance trade-in 0.35 0.1Old vehicle trade-in 0.1 0

Subtotal 8.19 2.0Capacity building

EE technology R&D 0 0Setting up energy management centers at the local level 0 0

Subtotal 0 0Total 408.3 100

• 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.




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)

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




Improved energy conservation governance mobilized EE finance

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The National Development and Reform Commission

Central institutions building energy

●●●●●●

●●●●●●Public institutions building energy

Administrative channel Incentive channel

Financial inputs

Others




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Tracking finance: The national EE special fund




Overview of the national EE special fund

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Governance

Inputs

Government budgets

NDRC, MOF

The fund InstrumentsDistribution channels Outputs

The National EE Special Fund USD 3bn Results-

based rewards

Balance sheet financing

USD 69bn

Provincial authorities

Corporates

Outcomes

USD 72bn

5200 projects in the industry sector

Saved energy: 295 Mtce;

Avoid CO2 emissions: 774 Mtons

Project-level equity

Note: An average RMB:USD ratio of 7.2:1 has been used for the period of 2006 to 2010.




Project selection criteria

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The 11th FYP The 12th FYP

Way of rewarding

1. Results-based2. No cap on the scale of rewarding

Same

Eligibility 1. Meet the criteria of Ten Key Projects** (categories 1 to 6)

2. Minimum achievement of energy savings of 10,000 tce.

1. No requirements on technology2. Minimum achievement of energy savings of

5,000 tce.

Standard Eastern regions: 200 rmb/tceWestern regions: 250 rmb/tce

Eastern regions: 240 rmb/tceWestern regions: 300 rmb/tce

**: 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.




Commission2nd onsite verification

2nd verification report

Report

Self-evaluation report

Comm

ission

1 st onsite verification

1st v

erific

ation

repo

rt

Report

Appropriate 60%

of the reward

Appropriate 60% of the reward

The results framework: Results verification before project implementation and upon project completion

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Third-party agent 3

Third-party agent 2

Third-party agent 1

Project implementing entity

The NDRC

The MOF

Provincial government

3rd onsite verification

Commission3rd verification report

Appropriate the remaining

40% of the reward

Appropriate 40% of the reward

Before implementation: baseline energy consumption

Upon completion: actual energy savings




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Outlook for the 12th FYP




China needs USD 202.6 billion to achieve energy intensity targets in the 12th FYP

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Sector Energy conservation NAMAs Energy savings potential (Mtce)

Cost (USD/tce)

Finance need (USD billion)

Industry

Technological upgrades 171 640.2 109.6Phasing-out obsolete production capacities 66.4 -- 4.9

Subtotal 238 482.0 114.5 Building Retrofitting existing residential buildings 600 1765.1 10.6Transport Low-carbon transportation campaign carried out by 1000

enterprises in the field of “vehicle, vessel, road and port” 100 4194.6 4.2

Energy-efficient products benefaction program 30.5 585.2 17.9Energy performance contracting program 60 476.7 28.6

Energy conservation technology demonstration program 15 1693.9 25.4Capacity building -- -- 1.4

Total 383 529.5 202.6

Note: A RMB:USD rate of 6.1:1 (as of May 30th, 2013) has been used for the period of 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%.





China has to overcome a finance gap of USD 88.4 billion

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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.


Sector Energy conservation NAMAs Finance need in the 12th FYP

Investment in the 11th FYP

Finance gap

Industry Technological upgrades 109.6 94 15.6Phasing-out obsolete production capacities 4.9 4.2 0.7

Subtotal 114.5 98.2 16.3Building Retrofitting existing residential buildings in the Northern region 8.9 3.4 5.5

Retrofitting existing government buildings and public buildings 1.7 0.6 1.1Subtotal 10.6 4.0 6.6

Transport Low-carbon transportation campaign carried out by 1000 enterprises in the field of “vehicle, vessel, road and port”

4.2 1.2 3.0

Energy-efficient products benefaction program 17.9 3.9 14.0Energy performance contracting program 28.6 4.4 24.2

Energy conservation technology demonstration program 25.4 1.4 24.0Capacity building 14.4 12.2 2.2

Total 202.6 114.2 88.4

Unit: USD billion

Every sector needs to scale up EE investment.




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.

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Thank You

Contact: [email protected]

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