County - level rural energy assessments : a joint study of ESMAP and Chinese experts

/A I IL.l World Bank/UNDP/Bilateral Aid Energy Sector Management Assistance Program Activity Completion Report No. lo0/89 Country: CHINA ; ActiVity: COUNTY-LEVEL RURAL ENERGY ASSESSMENTS A JOINT STUDY OF ESNA AND CHINESE EXPERTS MAY 1989 Report of the World Bank/UNDP/Bilateral Aid Energy Sector Management Assistance Program This document has a restr'icted distribution. Its contents may not be disclosed without authorizationi from tile -Government, t6e WAIrrbt RanU cr thcia I iNJfP  ENERGY SECTOR KANAGEKENT ASSISTANCE PROGRAM PURPOSE The World Bank/UNDP/Bilateral Aid Energy Sector Management Assistance Program (ESMAP) was started in 1983 as a companion to the Energy Assessment Program, established in 1980. The Assessment Program was designed to identify and analyze the most serious energy problems in developing countries. ESMAP was designed as a pre-investment facility, partly to assist in implementing the actions recommended in the Assessments. Today ESMAP carries out pre-investment activities in 45 countries and provides institutional and policy advice to developing country decision-makers. The Program aims to supplement, advance, and strengthen the impact of bilateral and multilateral resources already available for technical assistance in the energy sector. The reports produced under the ESMAP Program provide governments, donors, and potential investors with information needed to speed up project prepar- atior. and implementation. ESMAP activities fall into two major groupings: - Energy Efficiency and Strategy, addressing the institutional, linancial, and policy issues of the energy sectort including design of sector strategies, improving energy end-use, defining investment programs, and strengthening sector enterprises; and - Household, Rural, and Renewable Energy, addressing the tech- nical, economic, financial, institutional and policy issues affecting energy supply and demand, including energy from traditional and modern sources for use by rural and urban households and rural industries. FUNDING The Program is a major international effort supported by the World Bank, UNDP, and Bilateral Aid from a number of countries including the Netherlands, Canada, Switzerland, Norway, Sweden, Italy, Australia, Denmark, France, Finland, the United Kingdom, Ireland, Japan, New Zealand, Iceland, and the USA. INQUIRIES For further information on the Program or to obtain copies of the completed ESMAP reports listed at the end of this document, contact: Division for Global and OR Energy Strategy, Management Interregional Projects and Assessment Division United Nations Development Industry and Energy Department Programme World Bank One United Nations Plaza 1818 H Street, N.W. New York, N.Y. 10017 Washington, D.C. 20433  CHINA COUNTY-LEVEL RURAL ENEGY ASSESSMENTS A JOINT STUDY OF ESNAP AND CHINESE EXPERTS MAY 1989  CURRENCY, 1988 US$1.00 = 3.7 Yuan RMB 1.00 Yuan RMB = US$0.27 ENERGY CONVERSION FACTORS Tonnes of Standard Kilocalories/ Coal equivalent Kilogram (TCE)/Tonnes Standard coal equivalent 7,000 1.0 Electricity (thermal replacement value) 2,800/kWh 0.4/Mwh Kerosene 10,200 1.46 Biogas 5,500/m3 0.79 LPG 10,800 1.54 Charcoal 7,000 1.0 Dried dung 3,200 0.46 Leaves and grass 3,000 0.43 Fuelwood (air-dried): Hengnan and Xiushui 3,400 0.49 Kezuo 3,600 0.51 Crop By-products: Hengnan and Xiushui 3,250 0.46 Kezuo 3,450 0.49 Coal for household use (average): Hengnan 3,800 0.54 Xiushui 4,200 0.6 Kezuo 4,600 0.66 Other coal depends on source  TABLE OF CONTET Page FOREWORD ...................................................... SUIE ARY.....,........................... iii I. BACKGROUND ON CHINA'S RURAL ENERGY ECONOMY............... 1 The Role of Rural Energy in China's Energy Economy .................................. . 1 Special Characteristics of the Rural Energy Sector *...o.......e..oo...........ooo........oooo.... 4 Overview of China's Rural Energy Problemso............ 5 Environmental Degradation........................... 5 Constraints on Economic Development ................. 6 Current Rural Energy Development Policy............... 6 II. THE OBJECTIVES, PROCESS AND METHODOLOGY OF THE ASSESSMENTS.o .... ...... ***** ******** ***.... 8 China's County-level Rural Energy Aesessment Program.. 8 Objectives of the Joint ESMAP/Chinese Assessments..... 9 The Process and Outputs of the Study....u............. 10 Overview of the Assessment Methodology*.*..*.**..**. 11 The Principal Components of the Analysis.ys. is.,** 11 The Household Energy Surveyr........................ 14 Principles of the Benefit/Cost and Least-cost Analysis as. . o........e. ......oo..... 15 Characteristics of the Three Counties................. 17 III. SECTOR-WIDE I S S U ESo.....o .......... 20 Integrated Rural Energy Planningo..anni.g.*...0.0*0.. 20 The Necessity of an Integrated Approach to Rural Energy Developmento.o.........,............... 20 Benefit/Cost and Least-cost Analysis.....*.*.,,,,**# 23 Macro and Micro Aspects of Planning..n....ing....-. 30 Data Requirementsq..... u i r e m e n ts*9*99*06...0...*. 31 Intersectoral Coo rdination..o.o.o.....o..o.... .o 31 Training and Technical Assistaacce.o.o.... o.o.... oo. 32 IV. ENERGY CONSERVATION.S E R V A T I ONo ...... .o. oo.o.o.oo.....o.o 34 Improved Cooking Stoveso.ov es.o. ooo.. o.... .o.. oo...o.. 35 B a c k g r o u n t ~~~~~~~~~~~35 Needs for Expanded Program Support................. 36 Manufactured Stove Designs.o....o.. ... oo....... 37 Program Monitoring. 9o .09999o99 ................ o 37 Researchooking andHeatig Efo i.o.. e.ooin 37 Improved Cooking and Heating Efficiencies in Northern China .......... 38 Background ,.*,...o..o..........oeeoooe* 38  Needs for Expanded Researche........................ 39 Energy Conservation in Pig Feed Preparation........... 40 Background o o.* *.* o *........................e.............. 40 Needs for Attention to Pig Feed Preparation as an Energy Concern.... .... . . . . .e........ ......... 41 Expanded Use of Processed, Formulated Feeds......... 42 Alternative Methods of Preparing Traditional Feed... 43 Changes ir. the Current Structure of the Household Pig Industry...... . .......... ........... 43 Energy Conservation in Rural Industry................. 43 V. ENERGY SUPPLY ............ ...... ................... . . 46 Coal Development and Use.............................. 46 Background ................................................ 46 Rural Household Coal Utilization...............e.... 48 Investment in Coal Production....................o.. 51 Forestry and Fuelwood Development..................... 54 Backgroundo*oo**soeoo#o***oooso 54 The Importance of an Integrated Approach to Hillside Development........................... 56 Planting on Individual Hillside Plots (ziliushan)... 57 Forestry Extension.. ...... ... ... . ..... .. ..... 59 Fuelwood Development Research*...*. .. *******..#*** 60 Wood Supply Data................... . . 60 Rural Electricity Development..........o.. ........ 60 Background ........ 60 Local Power System Planning................ .... 63 Small Hydro Development ...........o...o.......... 64 Power System Efficiency... ........................ 64 Local Power Utility Management................... 65 Biogas Development *oeo.*ooooooo***oo 65 Background....o... ... *999999*999999o99999999.9 65 Capacity Utilization Rates.o , ... 66 Potential Contribution to the Household Energy Balance.... 67 Crop By-Product Utilization.............. 9.99.9...... 68 VI. PRIORITY AREAS FOR INTERNATIONAL ASSISTANCE IN CH''NA'S RURAL ENERGY DEVELOPMENT .............* 999 9 71 The Hunan Fuelwood Development and Conservation Project 99999999999 ..................... 72 Follow-up EKXAP Activities ................ , 72 Training and Technical Assistance for Integrated Rural Energy Planning.............................. 72 Planning and Management of Decentralized Power Companies.. 73 Additional Areas for International Assistance......... 74 Research Program on Space Heating in Northern China ...... 74 Provincial Improved Stove Centers..nte.rs0000**0006 75  Fuelwood Forestry Research........... .............., 75 Strengthening of the Forestry Vocational Training System ..... 76 Technical Assistance for Biomass Resource Assessmentsoo.o..oooooo.. o . ooo.o.....oo. 76 Training in Energy and Forestry Economicsom....o.c 77 TABLES 1.1 Estimated Rural Primary Energy Consumption in China, 1985oooooo.................................... ........ 3 2.1 Basic Statistics of the Three Counties, 1985............. 18 3.1 Hengnan County - Comparative Direct Costs of Different Fuels for Household Use. ................... 25 3.2 Xiushui County - Comparative Direct Costs of Different Fuels for Household Use...................... 26 3.3 Kezuo County - Comparative Direct Costs of Fuelwood and Coal for Household Useo.................. 27 4.1 Share of Rural Industry in Gross Social Output and Total Energy Consumption in the Three Cournties, 1986........ 45 5.1 Coal Consumption in Three Counties, 1986................. 47 5.2 Comparison of Current Costs of Coal Supply and Average Incremental Costs of Coal Production, Transport and Distribution in Three Counties, 1988.................. 52 5.3 Annual Fuelwood Consumption and Sustainable Supply in Three Counties. . . . . . . oo.o. . oe. . o . . o.o. . . . . . . . . o 56 5.4 Current and Intended Plantings on Individual Hillside Plots in the Three Counties, End-1987..-............7. 58 5.5 Electricity Consumption in Hengnan and Xiushui huio.....oo 62 5.6 Characteristics of Small Hydropower Plants in Xiushui, 198ooo9880000*0.000004000 62 5.7 Crop By-product Utilization in the Three Counties, 1986/87o....... . . * *.0.............. 69 ANNEXES 1. Energy Consumption in Hengnan County, 1986 ............... 78 1. Energy Consumption in Xiushui County, 1986............... 79 1. Energy Consumption in Kezuo County, 1986 .................. 80 MAP IBRD-21486 - China: County Level Rural Energy Assessmentsoo.oooooo.000*.*000000 81  FOREWORD 1. This report summarizes the findings of a joint ESMAP/Chinese study on rural energy development in China. The study focuses on three county-level case studies. The study was requested by the Ministries of Agriculture and Forestry, and was approved by China's State Planning Commission in April 1987. It was implemented by a joint international and Chinese team between September 1987 and February 1989. 2. The study was pursued within the context of an ongoing program of the Chinese Government to undertake integrated reviews in a series of counties of local rural energy development issues and options, and to identify and implement integrated programs of rural energy development projects in those counhies. The principal objectives of the participation of the World Bank/UNDP/Bilateral Aid Energy Sector Management Assistance Program (ESMAP) in three of these county-level assessments were to: (a) provide advice on assessment methodology, particularly comparative economic analysis; (b) provide technical assistance on some of the issues and options involved in each of the major rural energy development programs; and (c) assist in the identification of priority areas for future international assistance for China's rural energy development. 3. From the outset, this study has been considered as a first step in an effort to expand well-targeted international assistance in rural energy, in part through the ESMAP framework. This type of study was selected both because of Chinese interest in ways in which analytical methods used in other countries might contribute to domestic rural energy assessment work, and because both sides felt that international staff could only gain some understanding of the major rural energy issues in the country through exposure to che complex actual conditions at the field level. Because of the case study approach, however, the study was limited in scope from the national perspective; while many of the issues analy-zed and discussed in this report are highly relevant for many other areas of China, additional in-depth analysis will be required to define a national strategy to address many of these issues. 4. The counties studied included Hengnan (south-central Hunan Province), Xiushui (northwestern Jiangxi Province), and Kezuo (western Liaoning Province). They vary substantially in terms of resource base, climate, and prevailing energy issues and development prospects. They a-e similar, however, in that they are poorer than the average in China, are relatively mountainous, suffer from major shortages of sustainable supplies of energy, especially for rural household use, and, relatedly, face major problems of environmental degradation. 5. The study process included (a) joint determination of the study methodology, (b) completion of a comprehensive household energy survey of 1850 households, (c) detailed field investigations by the joint study  - ii - team, (d) preparation of working papers by both sides, (e) joint working paper review, and (f) preparation of final reports. 6. This final report seeks to synthesize and compare the results of the county-level case studies, present the issues identified which have a bearing on other areas as well, and identify priority areas for international follow-up. It was prepared by ESMAP, but it portrays the conclusions of the ,oint study team, rather than the views of ESMAP alone. Final reports presenting the details of the development programs recommended for implementation by the joint team in each county also have been prepared by the Chinese team members, largely for government use. A series of working papers also are available upon requesi (para. 2.9). 7. Chapter I provides background on rural energy in China, and Chapter II provides details on the objectives, process and methodology of the arsessments. Chapters III-V present the main conclusions of the study, and Chapter VI outlines priority areas for follow-up international assistance. 8. The assessments were conducted by a joint team of international and Chinese experts. The team was led by Deng Keyun (Deputy Director, Bureau of Energy and Environmental Protection, Ministry of Agriculture), Yang Yuexian (Division Chief, Department of Afforestation Management, Ministry of Forestry), and Robert P. Taylor (Energy Planner, World Bank). Other international team aembers included Ian Auldist (General Agriculturalist, Consultant), Douglas Barnes (Sociologist, ESMAP), Noureddine Berrah (Power Economist, ESMAP), Kevin Fitzgerald (Energy Planner, ESMAP), K. Krishna Prasad (Energy Conservation Specialist, Consultant), Paul Ryan (Forester, ESMAP), and Loraine West (Agricultural Economist, Consultant). Wong Longfai (Agricultural Economist, Consultant) also participated in the Initiating Mission, and Liu Qian (World Bank Summer Intern) assisted in the analysis of the household survey. Other Chinese members of the core study team included Zhang Zhengmin (Energy Research Institute of the State Planning Commission), Chen Kunquan (Jiangxi Inrormation Institute of Science and Technology), and Li Junfeng (Energy Research Institute of the State Planning Commission). Ma Wenyuan (Chinese Academy of Forestry Science), Liu Zizhen (Ministry of Water Resources), Li Jingming (Chinese Academy of Agricuiltural Engineering, Research and Planning), and Chen Rongyao (Northeast Agricultural College) also participated in the field work and analysis of specific sectors. Pamela Sawhney was responsible for the processing of this report. Funding was provided from the Government of Switzerland (Xiushui and Kezuo) and the Government of Belgium (Hengnan). The study team also would like to express its special thanks to the large number of central government, provincial and county-level authorities and experts involved in the study--without their support and contributions, it could not have been successful.  - iii - SUMMARY Overview of the Rural Energy Economy 1. Broadly defined to include energy used in rural households, agricultural production, and collective and county-run industry, the rural energy sector accounts for over one-half of China's total energy consumption. Rural households consumption, of which about 80% is non- monetized biomass fuel, accounts for a little over one-half of total rural energy use. The importance of rural energy development rests primarily with the strong linkages to the development of improved standards of living among China's enormous rural population (paras. 1.2- 1.11). 2. China's rural energy problems basically revolve around shortage and inefficiency. Shortage of sustainable supplies of useful energy result in (a) reduced standards of living from shortages of household fuel, especially in the north where heating needs are high in winter, (b) degradation of the rural environment stemming from immediate needs for biomass fuel, regardless of the long-term ramifications, and (c) severe constraints on the efficient local development of both agriculture and industrial production (paras. 1.12-1.17). 3. Based on its review of the three counties selected as case studies, the joint study team concludes that potential currently exists to substantially overcome energy shortages and put energy supply on a far more sustainable footing over the next decade. This can be achieved through a combination of development initiatives based on technologies that are available in China today and without massive, unsustainable subsidies for implementation. The current economic environment in which rural energy consumers make decisions regarding energy use patterns does pose some constraints on development. 1/ In areas of severe energy shortages such as these three counties, however, major improvements can be made within today's environment, through strengthened programs to improve access to and knowledge of more sustainable energy supply and utilization methods and technologies. In this regard, the most important areas to focus on are to: (a) Improve the process of assigning relative priorities among various rural energy development programs at the local level, 1/ One example is the current distorted and multi-tiered price structure for inputs and outputs in rural industry (para. 4.35). Another example is that the high societal costs of exc' ssive biomass fuel collection by rural households, in terms of environmental degradation, do not directly and transparently accrue to individual collectors over the short term (para. 3.24).  - iv - to ensure that priorities are more optimal, from an integrated perspective, for local conditions; and (b) Improve the cost-effectiveness of the improved energy supply/ utilization methods or technologies promoted through the various individual programs, and provide greater support for local units pursuing these programs in terms of training and technical assistance. The Integrated Approach to Rural Energy Development 4. Currently, the various rural energy development programs are for the most part planned and pursued separately. Because there is little overall review at local levels of rural energy sector problems as a whole, major opportunities often can be ignored. Guidelines and priorities established at higher levels, which may make sense from an aggregate point of view, are often appliec_ indisriminately at local levels, even if local conditions may require different prescriptions. 5. The joint study team concurs with the growing concensus in China that the energy problems in the countryside cannot be adequately addressed without greater dissemination of integrated energy planning at local levels. The integrated approach involves review of the entire rural energy sector of an area and the linkages to the rural economy. It entails (a) an appraisal of the potential for development of all available energy resources and co.servation options, (b) a review of energy demand trends, (c) comparison of the principal supply and conservation options, and (d) preparation of a development program for implementation based on the priorities identified. The Rationale for an Integrated Approach 6. An integrated approach is required because of the wide variety of development and interfuel substitution options which typically exist, especially in the rural household subsector, and because of the complex, multiple linkages between th.e rural energy sector and other aspects of the rural economy and the natural ecosystem. In the counties reviewed, for example, fuels currently used by rural households for cooking and heating included fuelwood, crop by-products, leaves and grass, coal, biogas, charcoal (for some heating in the southern counties), and dried dung (in Kezuo). As only an estimated 40-60% of this fuel consaumption can be sustained by the ecosystem over the long-term under current conditions, fuel use patterns cause a series of interrelated problems of hillside degradation, reduction in soil organic matter content and fodder shortages. The main current options for alleviating the shortage of sustainable fuel supplies in the three counties are also diverse, including (a) expanded use of coal, (b) expanded sustainable fuelwood supply through a variety of hillside development schemes, (c) biogas generation, (d) improved stoves, and, in Kezuo, improved heating systems and home insulation, and (e) energy conservation in pig feed preparation.  - v - Determination of priorities among these options requires not only comparative analysis of their potential role in the overall energy picture, but also attention to interrelationships with overall forestry, animal husbandry and agricultural development. 7. A local scope in planning and implementation is required because much of the decision-making in the rural energy sector is decentralized and there are wide variations in local conditions. Decentralized decisionmaking is not only characteristic of the biomass fuel economy, but many of the key aspects of electric power and coal supply, distribution, and allocation also are decided at the county level. In addition, local conditions vary to such an extent that attempts to indiscriminately apply conclusions on development priorities from one area to another invite gross distortions. 8. The integrated assessments conducted in this study resulted in confirmation of some previously set development directions, but also resulted in several major changes in the rural energy development priorities in each of the three counties. The mix of priorities also was markedly different in each case (paras. 3.6-3.9). Improving Assessment Methodology 9. As with other county assessments previously conducted in China, the joint assessments included appraisals of the energy situation for both the household and the productive sectors. Compared with the previous assessments, however, the three joint county-level assessments included more comprehensive and sophisticated household energy surveys. They also introduced more sophisticated concepts of benefit/cost and least-cost analysis, which were used to strengthen the comparative analysis of the development options. Both were considered highly successful by both sides, and added significantly to the robustness of the assessment results. 10. In addition to data on energy consumption patterns (which were significantly different from the statistics which were previously relied on), the surveys also provided qualitative data on the perceptions of households towards energy and the environment. The survey results provided a starting point for much of the study team's macro analysis of the household energy economy, but they also provided the basis for more micro analysis--or analysis of the energy situation as viewed from the far.ers' point of view--than is usually conducted in China (paras. 2.15- 2.19). 11. Comparative analysis of the costs and benefits of different options was heavily emphasized. This type of analysis currently is generally not conducted at local levels in China. The joint team's analysis included: (a) comparison of the produ-tion costs per unit of useful energy of different household fuel development options (paras. 3.15-3.16), (b) comparison of alternative hillside development models (paras. 3.17-3.22), (c) comparison of the costs of different sources of coal supply (paras. 5.16-5.20), and (d) a broad review of local  - vi - electricity development plans (paras. 5.47-5.48). Where appropriate, alternative combined packages of hillside development and rural household fuel development alternatives also were compared. Although other factors also were considered, the results of this analysis were critical in the team's readjustment of integrated rural energy development plans in each of the counties. 12. Local plans must fully recognize that many aspects of actual development stem from decisions made by consumers themselves (paras. 3.23-3.28). Progress in rural household energy development, for example, largely depends upon the perceptions of farmers as to the pros and cons of different options, including factors such as willingness to pay cash (e.g. for coal or a biogas digestor) in lieu of non-monetized costs (e.g. labor for fuelwood collection). While it is difficult to predict consumer behavior because of the large number of the factors involved, it is critical to maintain a two-way dialogue and to identify areas where policy adjustments can impact incentives for change. Two areas where policies affecting incentives are particularly important are: (a) pricing policies for rural industry, and (b) local forestry responsibility systems. Dissemination of Integrated Rural Energy Planning Techniques 13. Based on the results of the demonstration county-level rural energy assessment work (both in this study and other Chinese efforts), the Chinese Government now seeks to disseminate the integrated approach to rural energy development on a broader scale. The degree of institutional coordination required at local levels presents a major challenge, but given past experience, this is not an unsurmountable challenge. The other key challenge involves the training of local staff. To help meet this challenge, a major new joint ESMAP/Chinese activity will be undertaken, focusing on establishment of a long-term training program, primarily for provincial-level staff, who can then provide assistance to local levels in their provinces (paras. 6.7- 6.10). The training materials and courses will incorporate many of the improved techniques developed through the three joint county assessments. Rural Energy Development Options 14. In its review of the three counties, the study team focused on rural energy development options based on technologies which basically are available in China today. While the specific combination of development initiatives recommended in each county varied substantially, broader conclusions on the individual development options emerging from the study as a whole include the following: (a) Top priority should be given to programs to increase the efficiency of energy use, both within rural households and rural industry.  - vii - (b) Greater attention needs to be given to the current de facto role and potential role of coal as a rural household fuel. (c) Greater emphasis on cost-effectiveness and means to generate spontaneous fuelwood development by local farmers are needed to enable fuelwood development initiatives to become more self- sistaining. (d) Improvements in local power system planning, management and efficiency are critical, to best use the limited resources available for overcoming shortages in the increasingly sophisticated rural power systems. (e) Household biogas development efforts need to be better targetted towards areas where suitable conditions exist for high capacity utilization rates. Energy Conservation 15. Although the team focused on the rural household subsector, major opportunities exist to increase the efficiency of energy use both in households and rmral industry. For rural households, the main opportunities are: (a) dissemination of more fuel-efficient cooking stoves, (b) fuel conservation in the preparation of feed for pigs raised by households, and, (c) in areas such as the northern county of Kezuo, development and dissemination of more efficient home heating and insulation techniques. Through a combination of these measures, primary energy use per unit of useful energy realistically could be reduced in these counties by at least 25-50% by the end of the century. Factors relevant for the speed with which changes can be made include: (i) the constraints which household face spending cash for savings of non- monetized fuels, (ii) constraints involved in changing traditional practices, and (iii) a lack of consumer access to more efficient technologies. 16. Improved stoves. Given the potential for alleviating rural household energy problems and the economic attractiveness from the nation's perspective, current efforts to develop and disseminate improved biomass cooking stoves deserve far more support at all levels than they are receiving today. Similar to many other counties, Hengnan and Xiushui had initiated biomass stove programs and had vague, but ambitious, plans for the future. However, the programs were exceedingly weak--not only were the designs being promoted suboptimal, but the entire programs suffered from inadequate funding and insufficient qualified staff for design research, program design, marketing and monitoring work, and the initial establishment of production facilities. Although counties designated as stove demonstration counties may receive better support, these two counties were pursuing work largely in isolation, with little or no technical assistance, training or information support from outside agencies.  - viii - 17. In Xiushui and Hengnan, the study team placed top priority on the establishment of stronger, expanded improved stove programs, based on stoves with manufacturpd core components, as in some other areas of China. These programs should include comprehensive monitoring efforts and further efforts to reduce costs. There is a general but urgent need to strengthen provincial-level capabilities to provide support to local units. The ESMAP team also recommends that the government undertake a comprehensive review of the results and experiences to date of the massive national improved stoves program (paras. 4.3-4.13). 18. Improved heating technology. With additional technical support, substantial potential exists for cost-effective improvements in home heating technology and reductions in home heat losses in northern areas such as Kezuo County. Kezuo had successfully disseminated more efficient coo'King stoves in over 90% of the rural homes, but the stoves appear to have resulted in a decrease in heat supplied to the kangs which they are connected to, and hence, the gains in the efficiency of the integrated stove/kang systems are unclear. The county has recently initiated efforts to disseminate more fuel-efficient kangs and improved home insulation measures. For the short-term, the study team encouraged the county to continue these efforts, albeit with greater efforts to reduce costs. However, the identification of practical, very low cost methods of reducing home heat losses and improving the thermodynamic performance of stove/kang/chimney systems, during different seasons and with different fuels, is complex. A more concerted and integrated research effort, building upon the decentralized work being conducted by various units in different areas, is necessary to support programs over the medium term in the wide number of areas similar to Kezuo (paras. 4.14-4.20). 19. Conservation in pig feed preparation. Typical of many areas of China, the cooking of feed for household pigs accounts for about 45% of total rural household fuel use in Hengnan and Xiushui--about the same share as the cooking of family meals. The typical pig ration is based on household food wastes, green forage, and rice or dried sweet potato. This is mixed together with water about every day and boiled for about one hour. Even modest changes in the types of feed used or the methods in which they are prepared would have substantial beneficial impacts on household energy use patterns. More attention should be given to energy conservation in this area in rural energy development work. 20. One key energy conservation measure is to speed up the introduction of high-quality, processed feeds, which require no cooking and are similar to those in the developed countries, in parallel with the introduction of improved pig breeds. Processed feeds are now being introduced in Hengnan and Xiushui, but supplies fall short of demand. At a minimum, authorities in these and other counties should do their best to expand knowledge about the new feeds and breeds, and to ensure that supplies (sold at cost) fully meet demand. This can help alleviate environmental problems associated with current household fuel use patterns at little or no cost to government. Another possibility is to  - ix - promote cultivation of new iapeseed varieties, which can yield rapeseed extracts suitable for raw feeding to pigs. 21. Fuel also could be conserved through adoption of less fuel- intensive methods of preparing traditional feeds, particularly the cooking of the rice or sweet potatoes separately, and the preparation of the other feeds without boiling. The feasibility and desirability of r,romoting such changes is uncertain, however, and will require further field investigations (paras. 4.21-4.31). Energy Supply 22. Coal. Expanded coal use often is not explicitly considered as a rural household energy development option, despite its current de facto importance and potential for alleviating problems associated with biomass fuel use. Use of coal as a rural household fuel carries both advantages and disadvantages from the nation's perspective (paras. 5.9-5.11). Regardless, however, coal use in rural homes clearly is increasing rapidly in the counties reviewed and the countryside at large, primarily through direct purchases from local mines at market prices. At a minimum, the implications of rural household coal use must be fully recognized, and efforts made to promote high-efficiency use. In Hengnan, the use of hand-made honey-comb briquettes in high-efficiency stoves was very popular among the farmers--these techniques should be introduced elsewhere. 23. In the case of Kezuo, expanded use of local coal in rural homes had not been fully considered, despite its low cost compared to other development options. The study team recommended that high priority be given to the establishment of a supply system to make coal more readily available to farming households outside of the immediate vicinity of local mines, at prices reflecting costs. In the case of Hengnan, the team also pointed out the direct importance of household coal use for the county's forestry program, .nd the need for local authorities to monitor rural household use and assist in supply arrangements, if necessary (paras. 5.12-5.15). 24. In its review of the options for coal supply for both households and rural industry, including expansion of production in small mines within Kezuo and Hengnan, the study team observed a number if cases where local strategies were suboptimal from the national perspective, due to price distortions and the insecurity and hence risk associated with reliance on coal from outside of the county. Distortions stemming from the latter factor could be alleviated through greater policy support for long-term contracting and/or joint-venture investment between localities (paras. 5.16-5.23). 25. Forestry and fuelwood development. Efforts to expand sustainable supplies of fuelwood are necessary major aspects of rural energy development in each of the three mountainous counties. However, programs based on large subsidies have little potential to make a major  impact because of financial constraints. Emphasis must be placed on the design and implementation of regimes which are attractive for farmers and/or collectives to pursue largely with their own resources. Far greater attention must be placed on improving the cost-effectiveness of fuelwood development schemes, in terms of site selection, plantation design, species selection and management regimes. While pure fuelwood forestry may be attractive in some cases, greater emphasis needs to be given to more multi-purpose planting schemes, incuding combined small timbertfuelwood plantings, and fuelwood tree plantings intercropped with agricultural crops, grasses or legumes. A flexible approach is required, whereby a variety of models, can be adopted by local people, depending upon local needs and conditions (paras. 5.28-5.31). 26. Although interest varied, the household survey showed a general high level of interest among farmers toward a variety of types of planting on their individual hillside plots (ziliushan). Especially in the cases of Hengnan and Kezuo, the study team concluded that the ziliushan program, and the promotion of household plantings around their homes, deserved greater support, at least in terms of extension and seedling availability (paras. 5.32-5.34). 27. For both collective and individual initiatives, the existing forestry extension system needs to be strengthened, and made more responsive to the multiple and varied needs of farmers (para. 5.35). Practical, demand-driven research on improving fuelwood development, particularly aimed at reducing costs and increasing yields, also needs to be expanded and more effectively disseminated (paras. 5.36 and 6.21- 6.23). 28. Rural electricity development. Major improvements in local power planning and management are urgently needed in the two southern counties where the electricity subsector was broadly reviewed. Although Hengnan relies primarily on the large regional grid for its power, the county itself, and others similar to it, could still undertake a series of measures to help address current severe power shortage problems. These include the preparation of a proper review of long-term power requirements linked with economic development plans, and a substantial effort to improve the operating efficiency of the local network and to reduce line losses, through both imlroved management and some technical measures. 29. Improvements in local planning, management and system efficiency are even more pressing in the case of Xiushui, which relies on its own small hydropower plants for electricity supply. In many ways, Xiushui is typical of the roughly 800 counties in China which rely primarily on their own sources of power--the county is now beginning to expand its own local grid, connecting most of the isolated small hydro plants in the county together. Although the amount of power that the county will receive is small, the county's system also is being interconnected with the regional grid. In making this transition, the Xiushui County Power Company also needs to make a major transition in  - xi - terms of the level of sophistication required in system planning and management--a task for which substantial technical assistance and training from outside are required. In addition, the county also needs to undertake measures to reduce system losses and improve the system's power factor--improvements here would directly reduce major problems of dry-season power shortages. 30. The case studies of Hengnan and Xiushui showed how the viability of small hydro development varies according to local conditions. In Hengnan, plans to develop supplementary small hydro generation are not financially viable without large subsidies. In Xiushui, however, the county's plans to develop a system of cascading plants are financially viable at current in-county prices, and more attractive than purchases from the large grid (paras. 5.38-5.58). 31. Biogas. Digestor capacity utilization rates are a key factor underlying the attractiveness of household biogas production compared to other fuel development options. These rates are determined largely by the availability of suitable resources for fermentation at the household level, technical expertise, and climate. In Hengnan and Kezuo, the study team did not assign high priority to biogas development -- only a small percentage of rural households raise sufficient numbers of pigs to make generation attractive from an energy point of view. In Xiushui, however, over one-half of the rural households surveyed raise three or more pigs, the existing technical support system is relatively sophisticated, and capacity utilization rates are much higher than in the other counties. Under these conditions, and in light of the relatively high costs of other fuel supply options, the study team encouraged further development, although further efforts to improve the program are still required. However, biogas generation can still provide only a supplemental source of fuel for families with digestors. Especially given the current high fuel use for preparing pig feed, biogas could meet only about 20% of the energy needs of families with sufficient pigs to support digestors in Xiushui, if other factors remain the same as today (paras. 5.59-5.66). However, fuel supply is not the sole objective of biogas development; sanitation and fertilizer enhancement objectives usually also are involved. Areas for International Assistance 32. Chapter VI of this report outlines a series of areas identified jointly by the study team as priority areas for international assistance in the future. The programs or projects identified include only those areas stemming from the joint assessments where foreign expertise and/or foreign exchange are required, and thus represent only a small subset of the wide range of activities which need to be undertaken. Nevertheless, these areas for further assistance aim to help address the two most basic problems identified by the team: (a) the need to improve the determination of development priorities at local levels, and (b) the need  - xii - to improve cost-effectiveness and to expand the level of training and technical assistance provided to local units in the pursuit of the various individual programs. The areas identified include one project which is under preparation by ESMAP and Chinese counterparts but requires financing for implementation (a, below); two new joint ESMAP/Chinese activities which have just begun to be implemented (b and c, below); and six additional project ideas, which can be further defined, pending expressions of donor agency interest (d through i, below): (a) The Hunan Fuelwood Development and Conservation Project. Jointly prepared by ESMAP and counterparts for donor agency implementation, this project is designed to follow-up on the development priorities identified in the county-lwvel assessment in Hengnan. The fundamental objective is to demonstrate the feasibility of a combination of household energy conservation and a variety of innovative fuelwood development programs as a means to alleviate current fuel shortages and associated hillside degradation, and improve results in timber development. (b) Training and Technical Assistance for Integrated Rural Energy Planning. This joint ESMAP/Chinese activity seeks to enhance ChinaTs- capabilities to disseminate and implement integrated rural energy planning techniques at local levels. Two goals of the three-year activity are to (a) establish a long-term national training program in integrated rural energy planning, and (b) jointly prepare a paper summarizing the implications of local energy assessments for national rural energy development strategy. (c) Planning and Management of Decentralized Power Companies. The objectives of this joint ESMAP/Chinese activity are to prc Tide technical, planning and managerial assistance to local power companies to help them in (a) strenthening planning for generation and grid expansion, (b) reducing losses of electricity and improving system efficiency, and (c) improving management to meet today's needs. (d) Research Program on Space Heating in Northern China. International assistance would support a proposed national program, designed to both coordinate work currently being undertaken in China and to proceed with additional, stronger research work on low-cost means to improve the performance of stove/kang systems and to reduce heat losses in rural homes. (e) Provincial Improved Stove Centers. The proposed project would establish improved stove research, training and technical assistance centers in 1-3 provinces.  - xiii - (f) Fuelwood Forestry Research. The study team identified a wide range of areas where coordination of existing research and additional practical research on improving fuelwood development is necessary. Both a broad, comprehensive program or a number of more narrow and small-scale programs would be beneficial. (g) Forestry Vocational Training. International assistance is need on a regional scale to assist in conducting a manpower needs assessment, and identifying and undertaking a program to impr,ve both facilities and curricula. (h) Biomass Resource Assessments. This program would seek to transfer to China techniques recently developed in other countries to conduct assessments of non-industrial woody biomass resources, through a combination of training and several collaborative provincial-level assessments. (i) Training in Energy and Forestry Economics. In collaboration with the ESMAP acitvity described in (b) above, if desirable, support is needed for sponsoring visiting foreign instructors at major Chinese universities or institutes, and/or sponsoring the study of Chinese students and professional staff at universities abroad.  I. BACKGROUND ON CHINA'S RURAL ENERGY ECONOMY 1.1 This chapter provides an overview of China's national rural energy economy and the context within which the joint ESMAP/Chinese County-level Rural Energy Assessments were conducted. Subsequent chapters describe the objectives, process and methodology of the assessments, conclusions on the issues and options encountered in the assessments, and the priorities jointly indentified for future international assistance in China's rural energy development. The Role of Rural Energy in China's Energy Economy 1.2 Broadly defined to include the economy and population of China's rural towns as well as small villages, China's rural energy sector encompasses the supply and use of energy for the daily life and economic output of about 850 million people, or almost 80% of the country's total population. Including energy used in rural households, agricultural production, and collective and county-run rural industry 1/, the sector accounts for over one-half of total energy consumption in the country. The importance of rural energy development rests primarily with the strong linkages to the standards of living of China's enormous rural population. These linkages include: (a) the supply of sufficient energy for the basic cooking and heating needs of households; (b) the supply of energy for rural economic development, including development of both agriculture and rural industry; and (c) the linkages between patterns of biomass energy supply and use and the health of the rural ecosystem and natural environment, upon which the long-term livelihood of the rural population largely depends. 1.3 The boom of rural economic growth of the last decade has brought both dramatic increases in the demand for energy in the 1/ China's rural economy involves three distinct types of economic entities, based on different ownership: the state (ownership by "the whole people"), collectives (stemming from the old commune system), and individuals (private sector). The system of state organization involves provinces (31), prefectures (shi, covering several counties), and counties (xian, about 2300). The township (xiang, formerly the people's commune) is the largest unit of rural collective organization--typically a county will have about 50 townships. Each township contains a number of villages (cun, also a collective unit, and formerly called brigades), which in turn have a number of small collective units usually called "village small groups" (cunmin xiaozu, formerly teams). In some counties, districts (diqu), which are an intermediate level between the county (state) and townships (collectives) are also important in the organization and implementation of development programs.  - 2 - countryside and changes in the structure of energy use. During 1979- 1986, rural gross output value and the income of rural households more than tripled (in current prices). Rural collective industries grew at a rate of 22% per year, in constant prices, during 1981-86, increasing their share in rural gross output from 19.5% in 1980 to 31.5% in 1986. The result has been a sharp rise in demand for energy, especially commercial energy (e.g. coal, electricity, and petroleum products). While supplies (and consumption) fall far short of demand, supplies of commercial energy to rural areas appear to have roughly doubled during 1981-86. 1.4 Energy used to support the daily life of rural households currently accounts for a little over one-half of total rural energy consumption (see Table 1.1). Traditional biomass fuels, consisting primarily of low quality fuelwood, brush, and crop residues, remain the dominant fuel, representing about 80% of rural household energy consumption. Household fuelwood consumption alone amounts to about 275 million tonnes per year 2/, or about six times as much wood as the officially reported annual timber harvest. Annual consumption of crop by-products as a household fuel is estimated at about 230 million tonnes, or about 70% of total crop by-product production. Coal accounts for most of the commercial fuel used by rural households--kerosene is used only for lighting, and LPG use is extremely rare, due to its high price and short supply. Different government reports indicate that rural household coal consumption was about 75-100 million tonnes in 1985, or 30-50% above 1980 levels. Although about 70% of China's rural households have access to electricity, supply is sporadic and household electricity use amounts to only an average of about 13 kWh per year per capita. 15 Energy used in agricultural production, individual and collective (township and village) industries, and state-owed county-run industries accounts for about 45% of total rural energy consumption. The energy consumed is almost entirely commercial energy. While rural industrial output is diverse, and varies according to local resources and markets, chemical and building material industries dominate rural industrial energy consumption in most areas. The bulk of the country's cement, bricks and lime is produced in the countryside. About 280 billion bricks were produced in township and village industries in 1986. Most counties also operat . at least one coal-based ammonia bicarbonate fertilizer plant. 2/ During the early 19809, the official estimate of fuelwood consumption by rural households was 180 million tonnes, of which 90 million tonnes were estimated to be supplied from environmentally sustainable sources. However, the recently published results of a survey conducted by the Ministry of Forestry in 1984-85 suggest that consumption by rural households was about 275 million tonnes in 1985.  - 3 - Table 1.1: ESTIMATED RURAL PRIMARY ENERGY CONSUMPTION IN CHINA, 1985 (million tonnes of coal equivalent) Agriculture Percentage of and Rural Rural Consumption Rural Collective County-run of National Households Industry Subtotal Industry Total Consumption Biomass Energy 280 20 300 -- 300 100% Commercial Energy 60-80 130-180 200-250 100-140 310-380 40-45% Total 340-360 150-200 500-550 100-140 610-680 55-60% Source: ESMAP estimates, based on a variety of Chinese sources. Electricity is converted to TCE at a thermal conversion value of 2,800 kcal/kWh. 1.6 Adding all of the sectors together, including county-run industry, China's rural areas accounted for virtually all of the nation's biomass fuel consumpticn and 40-45% of commercial energy consumption in 1985. Rural electricity consumption totalled 124 TWh in 1985, or 30% of the national total. Rough estimates suggest that rural coal consumption amounted to 300-400 million tonnes, representing 35-45% of total national consumption, and about one-half of national coal consumption outside of the power sector. 1.7 China's rural areas also produce a large portion of the energy which they consume. In addition to biomass energy production, coal mines operated by county governments, townships and villages (collectives), and individuals produced 354 million tonnes of coal in 1985, accounting for about 40% of total national production. 3/ Indeed, mines operated at or below the county level have been the most dynamic part of the coal industry in recent years, providing 80% of the increase in coal production between 1979 and 1985. In coal-rich areas (particularly Shanxi Province), these mines make an important contribution to the national economy, but in other areas, output is mostly locally consumed. 1.8 Rural units also produce about one-quarter of the electric power which they consume, primarily through small-scale hydroelectric power generation. In 1986, small hydro generation totalled 24.4 TWh (18.3% of total rural power use), small coal-fired power generation totalled 7 TWh (4.5%), and diesel generation totalled 2.2 TWh (1.6%). Especially important, nearly 800 of China's 2300 counties relied mainly on small hydro for their power needs. 3/ In 1985, county-run mines produced 70 million tonnes (8% of national output), collective mines produced 267 million tonnes (30.6%), and individually operated mines produced 17 million tonnes (1.9%).  - 4 - Special Characteristics of the Rural Energy Sector 1.9 One key characteristic of the rural energy sector is that much of the energy supply, consumption and sector decision-making is highly decentralized. For the most part, rural energy development involves the use of local resources to meet local needs. This is true not only for biomass fuels, but also for key aspects of commercial energy supply, distribution and use. As mentioned previously, coal production controlled by units at or below the county level contributes a large portion of rural supply. Moreover, much of the responsibility for procuring coal from outside of a county's boundaries is decentralized. County authorities arrange for increasingly large amounts of coal supply outside of the state plan, and rural enterprises and farming families often purchase large amounts of coal directly by themselves. Even in the power sector, local authorities play a key role. Although about three- quarters of rural power supply comes from bulk purchases from the large, state-controlled grids, local electricity allocation, local distribution systems, and development of local generation to supplement grid-supplied power are under local control. 1.10 In contrast with the "large-scale" or urban aspects of the energy economy, therefore, much of the decision-making authority for rural energy supply rests with a very large number of local units. The central government provides guidelines and influences local decisions through a variety of largely indirect means. Determination and implementation of ultimate development paths, however, rests more with authorities at the county level or below. Indeed, in the case of the household energy sector, much of the final decision-making power, particularly concerning the production/collection and use of biomass fuels, lies with the households themselves. Given the lack of centralized control, therefore, efforts to promote optimal development must rely heavily on the establishment of a framework which provides correct signals for others to act upon, and the development of effective planning and management capabilities within a large number of local units. 1.11 Another special characteristic of the rural energy sector is the strong and complex linkage between energy supply and the agricultural system and natural environment, arising from the importance of biomass fuels. Biomass fuel supply represents just one output of the limited biomass and land resource base, which also is relied upon to provide food, organic fertilizer, fodder, and cash crops. Particularly because o,f the high population pressure in China, the rural biomass utilization system is tightly interrelated, and changes regarding one aspect of the system tend to have profound direct and indirect impacts on other aspects. Hence, the rural energy economy needs to be reviewed in a wider context, incorporating other aspects of the rural economy such as agricultural production patterns, livestock development, and hillside land use issues.  Overview of China's Rural Energy Problems 1.12 China's rural energy problems basically revolve around shortage. Shortages of sustainable supplies of energy result in (a) reduced standards of livirg from shortage of household fuelt especially in the north where heating needs are high in winter, (b) degradation of the rural environment stemming from immediate needs for biomass fuel, regardless of the long-term ramifications, and (c) severe constraints on the efficient local development of both agriculture and industrial production. 1.13 Household fuel shortages result in widespread use of very low- quality biomass fuels, high labor expenditures among both men and women in fuel collection, and, where supplies still fall short of basic needs, local hardship from insufficient heating and constraints on cooking. In many areas, poor quality fuels such as straw, leaves, grass, twigs, and roots represent the dominant fuels. In some areas, such as Northwest China, use of sod (caopi), which is literally dug from the denuded hillsides, is common. Use of these fuels is not only inconvenient, smoky and inefficient, but also a major cause of environmental degradation. Envioromental Degradation 1.14 Environmental damage stemming from current patterns of biomass fuel collection and use appears to be worsening rather than improving. The root of the problem lies with the high population pressure, and because a limited resource base is called upon to meet a variey of needs, shortfalls or constraints in one aspect of the interrelated ecosystem impacts the others as well. Where the strain of traditional patterns of biomass use on the resource base becomes too severe, the traditional balance of the local agricultural and hillside ecosystem unravels, causing accelerating destruction of the already limited land resources upon which the livelihood of the rural population depends. 1.15 The most widespread adverse environmental impacts of biomass fuel use trends include: (a) Hillside soil erosion and excessive water runoff from inordinate fuel collection on uncultivated hillsides. Collection of low-quality fuels from already deforested hills results in an annual denudation of the hillsides. Often coupled with overgrazing of livestock, this has a particularly severe effect on soil and water conservation. Carried to an extreme, the eventual result can be the eternal loss of the productive potential of local hillsides, as well as increased flooding and river siltation. (b) Constraints on afforestation work. If the fuel needs of the rural population are not taken into account, the pressure of  - 6 - fuel collectors often compromises the success of local afforestation initiatives designed for protection or production. Forest plantations which have been mutilated and rendered unproductive by fuel collectors are a common sight in China. (c) Declines in soil fertility due to inadequate recycling of org&nic matter. The share of total crop residue production burned as fuel has increased nationwide to 70%, and in many areas, especially in the north, virtually all are burned. As a result, recycling of biomass back to cultivated soils is often insufficient to maintain suitable organic matter content and water retention capacity, eventually causing a negative impact on crop yields. Constraints on Economic Development 1.16 Shortages of commercial energy in rural areas for power irrigation and drainage, agricultural processing, local transport and rural industries are widespread. This results in inability to fully utilize existing capacity and/or inability to proceed with further development which requires energy. The effect of cu^rent energy shortages, especially electricity shortages, on the rural industrial sector is particularly striking. In many counties where further agricultural development prospects are limited, rural industry development represents a key to increased prosperity. However, electric power shortages are now estimated to directly result in a loss of industrial capacity utilization of 20% nationwide, and even more in rural areas. Industrial work stoppages in the countryside solely due to lack of electricity are common, even for months at a time. New, potentially attractive rural industrial expansion plans also are put on hold, solely due to inabilities to secure adequate power supplies. 1.17 Insufficient investment in energy supply infrastructure is one aspect of this problem, but suboptimal investment strategies and inefficient enargy utilization technology and practices also are major contributing factors. Current Rural Energy Development Dolicy 1.18 As with rural economic policies as a whole, the years 1979-81 represented a watershed period concerning China's rural energy development policies. In contrast with the past, recent efforts have been characterized by a more serious evaluation of the extent and complexities of the countyside's energy problems, a stronger emphasis on practical results, and an increase in government support. Significant progress was made in afforestation and the development of rural small coal pits, small-scale hydroelectric plants and biogas during the 1970's. However, recent Chinese appraisals point out that these programs  - 7 - often paid insufficient attention to effective long-term results, quality rather than quantity, actual local conditions, technical details, individual incentives, and cost-effectiveness. 1.19 The current focus of rural energy development efforts is summarized in the sixteen-character policy: "Develop according to local conditions; emphasize use of many types of energy, supplementing one another; stress comprehensive use; and emphasize results." Far greater attention has been placed on energy conservation, especially the dissemination of improved cooking stoves. The goal i3 to develop a wide mix of supply alternatives and improved energy utilization technologies, with the relative weights of this mix being determined by local conditions. 1.20 The sixteen-character policy is well founded, but broad implementation is a major challenge. Far greater technical and infrastructural support for local units is required for effective implementation of the various individual programs. Even more difficult, however, is the implementation of the integraced approach required for determining and implementing the optimal development paths for different localities. Implementation of the localized, but integrated, approach requires a major strengthening in inter-sectoral comparative analysis and planning at local levels, coordination among a variety of institutions, and a careful matching of macro policies with micro conditions. This challenge provides the context for the government's Rural Energy Integrated Development Demonstration County Program, and the joint ESMAP/Chinese County-level Rural Energy Assessments which were connected to that program (see Chapter II.)  - 8 - II. THE OBJECTIVES, PROCESS AND METHODOLOGY OF THE ASSESSMENTS 2.1 This chapter briefly describes the government's program to pursue county-level rural energy assessments, and the objectives, process and methodology of the three assessments which were conducted jointly with ESMAP in this study. China's County-level Rural Energy Assessment Program 2.2 Initiated in early 1983, China's program to pursue county-level rural energy assessments ("Rural Energy Integrated Development Demonstration Counties") is an important part of the central government's recent efforts in rural energy strategy work. With the support of zhe State Economic Commission and State Planning Commission, the program has been implemented as a coordinated effort involving several ministries (chiefly, the Ministry of Agriculture, Animal Husbandry and Fisheries, the Ministry of Forestry, and the Ministry of Water Resources and Electric Power) and a number of research units. 4/ 2.3 Broadly speaking, the principal objective of the program has been to test and demonstrate the feasibility and merit of adopting multi- pronged, intersectoral development programs to alleviate local rural energy problems. The program also has sought to shed light on the diversity and inter-related nature of China's rural energy problems. 2.4 The program involves a comprehensive and integrated review of prevailing rural energy conditions and development options, the identification of short-term and long-term development priorities, and the initiation of projects in accordance with these priorities. The review and prioritizing process has involved review of all types of available energy resources, research on energy consumption and demand trends in the various local economic sectors, and then preparation of a development plan which best matches these two. 2.5 Eighteen county assessments have been completed by the Chinese Government by the end of 1988. The counties selected are broadly representative of the various general mixes of rural energy problems and development options found in different parts of China. A government evaluation of the experience in all 18 counties and the results of the projects initiated in the first group of counties assessed has been undertaken in 1988. Based on this evaluation, the government considers 4/ The exact institutions involved have now changed somewhat, following the restructuring of many government institutions during the summer of 1988, but the principal personnel involved remain the same as before.  the program to have been highly successful. A series of new county assessments are planned for the Eighth Five Year Plan (1990-95). More important, however, the government now would like to begin to expand the integrated rural energy assessment and development approach from a demonstration activity to a regular aspect of rural energy development work at local levels (see paras. 6.7-6.10). Objectives of the Joint ESMAP/Chinese Assessments 2.6 Following discussions with the Ministries of Agriculture and Forestry, China';. State Planning Commission requested in April 1987 for ESMAP to work together with Chinese counterparts to complete three joint county-level rural energy assessments. Narrowly speaking, the objective of the assessments was the same as for the others pursued by the Chinese --to conduct a comprehensive review of the energy problems and development options in each of the three counties, and define a multi- pronged local development program for the future. The rationale for ESMAP's participation, however, was broader. Through the pursuit of the three assessments, in essence as case studies, and the close collaboration involved in working together as a joint study team, the principal objectives of ESMAP's involvement included: (a) Provision of advice and analytical assistance regarding assessment methodology, particularly comparative economic analysis of the various development options; (b) Provision of technical assistance on the issues and options involved in each of the major energy development programs, based on experience abroad, through the exchange of experts in joint efforts to solve concrete problems; and (c) Assistance in the identification of priority areas for future international assistance for China's rural energy development. 2.7 From the outset, the joint county assessments study has been considered by both sides as a first step in an effort to bring international assistance to bear in China's rural energy development work in the areas most needed, in part through the ESMAP framework. This type of study was selected both because of the Chinese interest in ways in which analytical methods used in other countries might contribute to and improve domestic integrated rural energy assessment techniques, and because both sides felt that international staff could only gain some understanding of the major ru!al energy issues in the country through exposure to the complex actual conditions at the field level.  - 10 - The Process and Outputs of the Study 2.8 The counties of Hengnan (Hunan Province), Xiushui (Jiangxi Province) and Kezuo (Liaoning Province) were selected for study in April 1988. (See paras. 2.27-2.32) for a general description of these counties.) The scope and basic methodoloy of the assessments were determined jointly in September/October 1987. At that time, the household energy survey for each county was also jointly designed (paras. 2.15-2.19) and additional data requirements and collection methods were determined. The survey and other data collection work was completed by the Chinese side by April 1988. In-depth field investigations in each county were conducted in May/June 1988 by the joint study team (see page 1), together with provincial officials and experts and county authorities. During that summer, ESMAP team members prepared working papers on the rural household energy issues and options and the various sub-sectors in each county, while Chinese team members prepared draft integrated reports for each county. Four Chinese members of the joint study team visited ESMAP headquarters in October 1988 to jointly discuss the working papers and priority areas for future international assistance. ESMAP staff visited China in November to discuss the proposed areas for international assistance with government agencies and local international donor agency representatives. Two follow-up ESMAP activities on rural energy were also jointly designed and approved by the Chinese Government at that time (see paras. 6.7-6.13). 2.9 This final report was prepared by ESMAP, but it portrays the conclusions of the joint study team, rather than the views of ESMAP alone. Final reports presenting the details of the development programs recommended for implementation by the joint study team in each county have been prepared by the Chinese team members largely for government use. Greater detail on the issues and conclusions in each county is provided in the working papers prepared primarily by international team members as inputs to the final Chinese reports ard this report. Available upon request, they include the following: (a) A Comparative Analysis of Rural Household Fuel Development Options in Three Chinese Counties, (b) Integrated Hillside Biomass Development: A Study of Three Chinese Counties, (c) A Study of Coal Supply and Use in Hengnan, Xiushui and Kezuo Counties, (d) Stoves in Three Counties of China, (e) A Review of Rural Electricity Development Issues in Two Chinese Counties, and  - 11 - (f) An Overview of the Results of Household Energy Surveys in Three Chinese Counties. 5/ 2.10 It also was agreed in 1987 that ESMAP and Chinese counterparts would proceed a step further in the case of Hengnan County, and jointly prepare a demonstration forestry and energy conservation project for donor agency financing. Following the completion of the broader rural energy assessment work in Hengnan, a joint project preparation team visited Hunan in November/December 1988. The final report (China: Hunan Province Fuelwood Development and Conservation Preinvestment Study) provides additional detail on both forestry and improved stove development in that county, and also is available from ESMAP. 6/ Overview of the Assessment Methodology 2.11 The methods used to assess the issues and options in rural energy development in the joint county assessments represented a combination of techniques developed by the Chinese in previous assessment work with new techniques contributed by ESMAP. Aside from the overall greater level of detail in the joint assessments, compared with the others, the joint assessments included household energy surveys which were substantially more comprehensive in scope and more sophisticated in terms of design. The joint assessments also introduced Western concepts of benefit/cost analysis, which were used to strengthen the comparative analysis of the energy development options. 2.12 Both the new types of surveys and the incorporation of more sophisticated benefit/cost analysis were considered highly successful by both sides, and both added significantly to the robustness of the assessment results. At the request of the Chinese Government, one of the most important goals of the follow-up ESMAP activity on training and technical assistance in rural energy planning is to disseminate the key aspects of the survey techniques, statistical analysis, and, particularly, the benefit/cost analysis on a broader scale in China (see paras. 6.7-6.10). The Principal Components of the Analysis 2.13 While all of the major aspects of the energy sector in each of the counties were reviewed, the greatest emphasis was placed on a comprehensive review of the issues and options in the rural household energy sector. Rural household energy use accounts for the largest share of total energy use in each of these counties. More important, however, 5/ Report forthcoming. 6/ Report forthcoming.  - 12 - the environmental issues stemming from current unsustainable rural household fuel use patterns, the wide variety of development options, and the complex interrelationships with the broader agricultural economy dictated a need to place this sector highest on the agenda. The study team's review of issues and options relating to coal supply and demand, however, encompassed all economic sectors# as did the team's broad review of the electricity sector. Prospects for energy conservation in rural industry also received some attention, although a comprehensive review was not conducted. 2.14 In its review, the study team's analysis followed through the basic steps outlined below. The process was most rigorous and complete in the analysis of the rural household energy sector, but the work on issues and options concerning coal and electricity also followed the same basic pattern. The working paper on rural household fuel development options provides the details of how the process was systematically applied in the rural household sector in each county. (a) Review of current supply and use patterns, and identification of principal issues. This was based on both survey data and data prepared by local authorities. For the rural household sector, this step included a review of the present magnitude of environmentally unsustainable supply. (b) Identification of principal development options. Primary energy "foregone" for a given level of useful energy consumption 7/, through improvements in energy efficiency, was put on par with primary energy supply. The development options considered were restricted to the principal technologies readily available in China today. 8/ In the review of the options for coal and electricity supply, current and potential sources of supply from outside of the county also were considered. Although the relative importance of different 7/ This is not the same as actual primary energy savings. A portion, or potentially all, of a given efficiency gain may result in increased useful energy consumption rather than actual savings. 8/ The main purpose of the assessments was to review the relative priorities among the main types of current programs, and how these programs could be improved. The research, design and trial application of fundamentally new types of energy supply or conversion systems (e.g. biomass or coal gasification, crop residue briquetting, biogas generation through dry fermentation, hydrogen production from solar cells, etc.) was not explicitly considered. However, this by no means implies that research, development and demonstration of new types of technology is not an important and necessary part of China's long-term effort to seek solutions to the rurel energy problem.  - 13 - options varied, the principal rural household energy development options analyzed in each county included: (i) improved biomass and coal stoves; (ii) energy conservation in pig feed preparation 9/; (iii) improved integrated heating and cooking systems, and improved insulation and passive solar gain in housing construction (Kezuo only); (iv) use of coal; (v) expanded sustainable fuelwood supply through a variety of hillside biomass development schemes; and (vi) household biogas generation. Although not "development options" per se, current and perspective use of fuelwood from sustainable sources of supply, and the use of crop by-products, leaves and grass, and dried dung as fuel also were reviewed. (c) Comparison of development options. Compared with the previous county rural energy assessments, far greater emphasis was placed on the relative costs and benefits of different options. The direct cost of incremental energy was calculated for different options and compared. While the costs of environmentally unsustainable fuel supply proved difficult to quantify in many cases, this also was at least implicitly considered. For the rural household energy analysis, benefit/cost analysis also was pursued for a series of alternative hillside development models, which included other options in addition to forestry development for fuelwood. Combined packages of fuel and hillside development options, incorporating energy supply, cash generation and soil erosion concerns, were then prepared (see paras. 2.20-2.26 for more details on the benefit/cost methodology). (d) Balancing supply and demand. Alternative scenarios for balancing supply and demand were prepared primarily to assess the potential impact of different development programs and outline a least-cost mix of conservation and supply initiatives for the future. For the rural household energy sector, several supply and demand scenarios were constructed for the year 2000 in each county. Although it was important to gain some picture of the orders of magnitude involved in placing the household energy supply and use system on a more sustainable footing, the study team did not attempt to prepare an "accurate" forecast of future demand and supply, given the wide range of uncertainties actually involved. Instead, greater emphasis was placed on identifying the factors and programs which could have the greatest impact in the most cost-effective manner, as a 9/ The boiling of traditional feeds for household pigs accounts for about 45% of rural household energy use in the two southern counties. Major energy savings can be achieved through adoption of processed feeds which do not require cooking and/or changes in the methods of preparing traditional feeds.  - 14 - framework for defining policies and priorities over the short and medium terms. (e) Conclusions. Conclusions regarding policy adjustments, the priorities for development, and the best relative scale among development initiatives were derived based on consideration of a combination of the benefit/cost analysis, the potential impact of different measures, current knowledge (or lack of knowledge) of the perceptions of the local farmers, and existing practical constraints, such as levels of technical expertise, or factors outside of the county's control. Given the dynamics of the rural energy economy, less emphasis was placed on defining a blueprint of long-term physical targets, and more emphasis on actions which should be taken or initiated over the short term. The Household Energy Survey 2.15 All aspects of the household energy survey design were pursued jointly, including the detailed design of the principal questionnaire. The same survey was conducted in all three counties. It included four components: (a) A rural household energy survey of 540 households in each county (6 xiang, 3 villages per xiang, and 30 households per village). (b) An energy survey of 100 households in the county seats of Kezuo and Xiushui (the largest urban center in each county). This was not done in Hengnan, as the county seat (Hengyang City) is actually outside of the county's boundaries. (c) A measured survey of energy consumption patterns over a three day period in 36 rural households. (d) A short survey of the perceptions of village heads in each of the villages included in the rural household energy survey (18 per county). 2.16 With the exception of the survey in the county seats (for which an entirely randomly selected sample was used), the survey used a stratified random sample. To ensure sufficient diversity regarding energy resource availability, the six surveyed xiang were selected from a list of xiang ranked by a previous classification of all xiang according to levels of local biomass energy resources. In each xiang, three villages were selected at random, and the households in each village also were randomly selected. In the preparation of aggregate household energy consumption results for each county, the data were weighted based on curre..t data on xiang population.  - 15 - 2.17 The major types of quantitative data resulting from the survey included energy consumption patterns, by fuel and end use, basic socio- economic data, data on agricultural cropping and animal husbandry, and the relationships between these. In addition, however, a substantial amount of qualitative data resulted concerning the perceptions of households towards energy and the environment, especially attitudes on tree planting and the advantages and disadvantages of different fuels. The use of both the quantitative and qualitative data proved key for deriving many of the conclusions of the study. 2.18 Computerized analysis of the survey results in each county was conducted by both sides before, during and after the field investigations of the study team. 10/ It is planned to conduct further, more complex analysis, including comparative analysis between the counties, as part of the follow-up ESMAP activity on integrated rural energy planning. Additional analysis of the survey data on farmers' attitudes towards tree planting also is being conducted as part of a World Bank research project on incentives for tree planting by small farmers. 2.19 Additional details on the design, process and results of the survey are presented in the working paper on the household energy survey. The working paper also includes a discussion of both the positive and negative lessons learned from this survey, with a view towards bringing the experience gained to bear on future survey work, especially in China. Principles of the Benefit/Cost and Least-cost Analysis 2.20 The two major types of analysis pursued included (a) calculation of the unit production costs of different fuels from different sources, and (b) preparation of benefit/cost models for alternative hillside development schemes. The purpose of the first type of analysis is to compare different fuel supply and conservation strategies, in order to determine a least-cost mix. The analysis included comparison of the production costs of different rural household fuels, comparison of the costs of coal supply from different sources, and, to some extent, the costs of different electricity supply options. The purpose of the second type of analysis is to assess the returns of different development schemes. 2.21 These types of analysis place benefits and costs in common terms so that they can more easily be compared. In theory, virtually any type of cost or benefit can be included in the analysis. In practice, however, some types of costs and benefits which are relevant to society often prove too difficult to accurately value, such as many types of long-term environmental costs and benefits, costs and benefits in terms of income distribution, or, in the case of fuels, advantages and lb/ The capability to analyze specific data from the survey during field investigations was especially useful.  - 16 - disadvantages in terms of convenience of use. The most practical approach is usually to exclude these from the quantitative analysis, but not from the final process of choosing among options. Even where unquantified factors are substantial, the results of the analysis still provide a major tool to compare different options, and to substantially narrow the number of subjective factors which must be considered for final decisionmaking. 2.22 To calculate the unit production costs of different fuels, costs are listed in monetary terms and energy output is listed in useful energy terms. The final result is a cost per standard unit (e.g. TCE) of useful energy. Hence, all fuels must be converted into TCE, and then multiplied times the average conversion rates which apply for different fuels into useful energy. 2.23 In the benefit/cost analysis of different hillside development options, both costs and benefits are valued in monetary terms. The results of the analysis are various measures of the relationship between benefits and costs (principally, the internal rate of return--IRR, or the present value of the net benefits--NPV). 2.24 In the effort to put costs and benefits in common terms, it is essential to put them in common terms in respect to time. (Obviously, both a given farmer or society as a whole places a higher value on one yuan today than on one yuan in fifteen years. For the same investment today, one coal mining project which yields the same amount of coal earlier than another coal mining project also is obviously superior.) To account for time differences, all costs and benefits must be defined in either constant prices or current prices, but not a mixture of the two. Time differences are then accounted for by discounting future benefits or costs to put them in today's terms (present value terms). I1/ To account for time differences, all of the study team's calculations of the cost of different fuels are given in terms of the present value of the cost per TCE of useful energy. 2.25 The key results of the study team's analysis are presented in Chapter III, and underpin many of the conclusions of the study presented in Chpters II, IV, and V. The details of the analysis, including discussion of how different costs and benefits were valued, sensitivity analysis, and the variety of discounted cash flow tables are presented in the working papers on rural household fuel development options, coal, hillside biomass development, and electricity. ll/ A higher discount rate is chosen if costs and benefits are valued in current prices than if they are valued in constant prices.  - 17 - 2.26 Comparative analysis of costs per unit of useful energy associated with different development options should be included in all future rural energy assessment work. Where fuelwood development is a major option, analysis should also be conducted on the benefits and costs of different hillside development options. Characteristics of the Three Counties 2.27 The three counties included two counties in south-central China--Hengnan County, Hunan Province, and Xiushui County, Jiangxi Province--and one county in northeastern China--Kezuo County, Liaoning Province (see IBRD Map No. 21486). Hengnan is located in south-central Hunan, adjacent to Hengyang City on the main Guangdong-Beijing railway. Xiushui County is in the isolated northwestern corner of Jiangxi, about equidistant from Jiujiang City on the Chang Jiang (Yangtze River), and Changsha, Hunan Province. Kezuo County (or, more formally, Kelaqinzuodi Mongolian Minority Autonomous County), is a Mongolian minority area in the western part of Liaoning Province, about equidistant from Shenyang and Beijing. 2.28 Table 2.1 provides basic statistics on each county, and Annex 1 presents energy balances for each county. The three counties are substantially different in terms of their existing resource bases, access to main transportation routes, the current mix of fuels used, and energy development prospects. They are simlar, however, in that they are all located in mountainous/semi-mountainous areas, they are relatively underdeveloped, poverty-stricken areas, and are fuel-deficit areas. In these respects, they are not fully representative of China's countryside as a whole. 2.29 The average annual per capita net incor.me of rural households in these counties was 270-320 yuan in 1985/6 (US$ 75-85), which was 25-35% below the national average. A key factor leading to rural poverty in the case of Hengnan and Xiushui is the low amount of cultivated land area available per person. Key factors in Kezuo are the short growing season and, particularly, the low level of annual rainfall. 2.30 Shortages of sustainable supplies of fuel for the use of rural households in these counties are severe. While this problem is common throughout most of China, the problem encountered in Hengnan, Xiushui and Kezuo may be significantly more severe than on average. Fuel supply which can be sustained by the current resource base over the long-term is estimated to account for roughly 60% of total rural household fuel  - 18 - Table 2.1: BASIC STATISTICS OF THE THREE COUNTIES, 1986 Hengnan Xlushui Kezuo I)tal population 911,740 659,444 384,918 Percentage of rural population (%) a/ 94 92 89 Population density (persons per square kilometer) 339 146 172 Cultivated land area per rural person (hectares) 0.076 0.073 0.185 Annual net Income per rural person (yuan) b/ 320 281 269 c/ Total land area (square kilometers) 2690 4503 2238 Cultivated land area (M) 24.3 9.8 28.3 Land area available for forestry (%) d/ 44.3 73.7 49.4 Forested land area (C) 21.8 45.6 e/ 29.8 f/ Average annual rainfall (millimeters pee year) 1269 1500 500 Household energy consumption per rural person (kgCE) g/ 379 West: 479 412 East: 1022 Total: 832 Total Energy Consumption ('OOOTCE) Rural households 326 504 141 Town households 12 19 25 Agriculture 37 10 7 Industry 113 20 92 Total 488 553 265 a/ The rural population is defined as those families engaged in agriculture (nongyehu). b/ Includes the estimated value of net income in kind (mostly self-produced) as well as cash Income. c/ 1985. d/ linye youdi. This Includes most of the deforested hillside land, minus pastureland or land allocated for pasture development. e/ Forest resources are abundant in the East, but very limited in the West. f/ Most of the land classified as forest is actually very sparsely covered, at best. The actual forest resources of Kezuo are very small. g/ Total primary energy consumption per capita does not necessarily reflect the degree of shortage. Useful energy consumption in Hengnan and West Xiushui is actually similar, because coal, which is used far more efficiently than biomassfuel, accounts for a larger share of fuel used in Hengnan. In Kezuo, fuel use for preparing pig feed Is far less than in the southern counties, but energy needs for heating are far greater. Source: County Government statistics; Annex 1.  - 19 - consumption in Hengnan and Kezuo, and about 40% of the total in Xiushui. 12/ This results not only in hardship, especially in Kezuo rur&O heating levels are clearly inadequate, but contributes to the major soil erosion problems of Hengnan, western Xiushui and Kezuo, and, in the case of western Xiushui and Kezuo, greatly inadequate levels of crop by-product recycling to the soil. 2.31 In the case of Xiushui, the county was divided into western and eastern districts for much of the study team's analysis, as the forestry resource base and current and prospective household fuel mix between these two parts of the county vary dramatically. In the western districts, which include 34'. of the county's rural population, most of the hillsides are deforested, and soil erosion is extremely severe. The eastern districts, however, include some of the most important timber resources of Jiangxi Province as a whole. In the East, per capita fuelwood consumption is dramatically higher than in the West. Current rural household fuel supply and use patterns are still a matter of major concern in the East, but this concern focuses more on how to put fuelwood supply and use on a more sustainable basis, so as to avoid the types of soil erosion problems already encountered in the West. 2.32 Although their power supply systems are very different, both Hengnan and Xiushui also suffer major shortages of electric power. Between the three counties, the availability and cost of coal supply is radically different. Kezuo enjoys access to relatively low-cost sources of coal, while Xiushui has virtually no coal resources, and must rely on supplies from relatively distant mines over poor roads. Hengnan currently has ready access to fairly high-cost coal supplies from its own mines and mines in neighboring counties, but the availability of supply is expected to become tightly constrained in the next few years. 12/ Rough estimates of environmentally unsustainable fuel supply include (a) fuelwood consumption levels above the estimated sustainable supply level from the current forestry resource base, (b) the gap between current levels of crop by-product recycling and the levels estimated as necessary to maintain long-term soil productivity, (c) most of the leaves and grass currently consumed, and (d) consumption of dried animal dung as fuel.  - 20 - III. SECTOR-WIDE ISSUES 3.1 This chapter, and the following chapters on energy conservation and energy supply, review the principal conclusions of the three county- level rural energy assessments. These chapters attempt to compare and synthesize the results of the county-specific analysis, and place the conclusions in a broader, national or regional context. Using the three county assessments as case studies, the focus is on the identification of issues that are relevant to a larger number of areas in China. Although the study process included substantial discussion of the pertinence of the issues encountered for the national rural energy development picture, the exposure of the study is of course limited. Robust definition of a national strategy to address the issues identified would require study of expanded scope. Integrated Rural Energy Planning The Necessity of an Integrated Approach to Rural Energy Development 3.2 Both ESMAP and the principal Chinese authorities involved in rural energy development are convinced that China's rural energy problems cannot be adequately addressed without greater dissemination of integrated planning at local levels. The integrated approach involves a review of the entire rural energy sector of an area and the linkages to the rural economy. It entails (a) an appraisal of the potential for development of all available energy resources and conservation options, (b) a review of energy demand trends for all major energy end-uses, (c) comparison of the principal supply and conservation options, and (d) preparation of a development program for implementation based on the priorities identified. Such an integrated approach is required because of (i) the high degree of current and potential inter-fuel substitution in rural areas, especially wiLhin the household sector, (ii) needs to assess and match current and future total energy demand and supply trends, and to weigh the potential relative roles of conservation and supply development in balancing demand and supply, and (iii) the fact that the various development options are highly inter-related, especially where biomass fuels are involved, and development in one direction tends to have major direct and indirect impacts on other development programs. 3.3 Definition of solutions for local rural energy problems also requires attention to a number of key linkages between the energy sector and other aspects of the rural economy. Some of the examples from the three county-level assessments of areas where energy sector development is closely intertwined with other aspects of the agricultural system and rural economy include: (a) The role of fuelwood supply in hillside land use and development. Fuelwood is just one output from uncultivated  - 21 - hillsides, and fuelwood supply development is just one option for hillside land use (see paras. 5.28-5.30). (b) The allocation of crop residues by farmers for alternative uses including use as fodder, construction material, and soil conditioner, as well as fuel (see paras. 5.67-5.73). (c) The direct link between trends in pig husbandry and household fuel use. As is typical in many parts of southern China, fuel used for the boiling of traditional pig feed accounts for almost one-half of total household fuel use in Hengnan and Xiushui (see paras. 4.21-4.31). (d) Direct links between the development of electric power supply and rural industrial development. 3.4 Integrated planning efforts need be localized because of the great variation in local conditions between different areas. Although this represents a difficult challenge in terms of dissemination, conditions vary to such an extent that attempts to apply conclusions on development priorities from one area to another invites gross distortions. From the point-of-view of both size and administrative function, the county represents the best unit for review and establishment of development priorities. 3.5 Currently, the various rural energy development programs are for the most part planned and pursued separately from one another. Organized along the vertical lines of authority of the provincial and national sub-sector institutions, local forestry units plan and manage fuelwood development initiatives (if any), local rural energy offices (under the Ministry of Agriculture system) control biogas, improved stove and solar energy programs, local coal companies oversee coal development and supply, etc. Inter-agency coordination is rare--indeed it is common for one agency to have little more than superficial knowledge of what some of the others are doing, even if the programs of other agencies will have major impacts on that agency's program. Typically, there is no serious effort to assign priorities between development programs at the local level, based on local conditions. Major opportunities can be ignored. Often work programs seem to proceed along the lines of a "little of each", with little concern for definition of where the greatest potential for development lies in that area. Development priorities and guidelines established at national or provincial levels, which may make sense at an aggregate level, are often applied indiscriminately at local levels, regardless of the fact that local conditions may require different prescriptions. 3.6 The integrated assessments conducted in this study (using techniques described in Chapter II) resulted in major changes in the rural energy development priorities in each of the three counties, as briefly described below. (Further details are provided in subsequent sections of this chapter, and Chapters IV and V).  - 22 - 3.7 In Hengnan, the study team concurred with local authorities on the importance of fuelwood forestry development, although needs for greater flexibility in plantation design and attention to multi-purpose plantations were emphasized. However, the development and dissemination of improved biomass cooking stoves, which had received very little concrete attention, was given top priority. The county was continuing to devote considerable resources to the promotion of household biogas development, and placed high hopes on biogas as a future major household fuel, despite poor results in dissemination. The study team assigned much lower priority to biogas, particularly because of insufficient manure resources among most households. The team placed higher emphasis on the introduction of hybrid pig varieties and measures to ensure that high-quality processed feed supplies meet demand, as a means to cut energy demand. The team pointed out the importance of rural household coal use patterns for the county's forestry program, and the need for the county government to monitor household coal use and assist in arranging supplies, if necessary. Concerning electricity, emphasis was placed on improving management and system efficiency, as opposed to the county's plans to develop high-cost local small hydro plants. 3.8 As in Hengnan, the study team attached paramount importance to the development and dissemination of improved biomass stoves in Xiushui, where little serious work was being conducted. Recommendations also included a major increase in efforts to introduce high-quality processed pig feed, and new efforts to review the potential for reducing fuel consumption in the preparation of traditional pig feeds. The team agreed with local authorities on the importance of expanding fuelwood forestry in the western and central parts of Xiushu. However, planting for fuel supply should take place primarily on the less-eroded sites in these areas. Planting on the severely eroded sites should concentrate on water and soil conservation, through a combination of grass, legume and tree planting. The team concurred on the direction and scope of the county's relatively successful biogas program, and the need for government assistance in providing some coal supplies to families in especially fuel-deficit areas. 3.9 In Kezuo, the study team attached high priority to increasing the availability of coal for rural household use, through the establish- ment of a rural distribution system, and efforts to review and disseminate more efficient household coal utilization methods. The previous county plans to expand energy supply for rural households had focused almost entirely on the development of fuelwood, with little attention to the potential role of coal. The study team also endorsed the need to move ahead with fuelwood supply development initiatives, but with far greater attention to cost-effectiveness. It endorsed the county's emphasis on improving the efficiency of household energy use and home insulation, but stressed needs to review the traditional and improved stove/kang/chimney system as an integrated system and to reduce costs of improved technology.  - 23 - Benefit/Cost and Least-cost Analysis 3.10 Assessment of the costs and benefits associated with different rural energy development projects currently is greatly inadequate. Commonly, some analysis of the costs and benefits to the unit involved, and sometimes to the county as a whole, is included as part of the review of new projects or programs, especially in the coal, electricity and forestry sectors. However, techniques are inadequate, at times resulting in misleading conclusions. Costs and benefits are not discounted to take differences in the time in which various costs and benefits accrue into account. This causes distorted results, especially for projects with long gestation periods. Current and constant prices are often confused, and the types of costs and benefits included is often incomplete. In the electricity sector, benefit calculations by local units are usually based on annual energy (kWh) generation, with no explicit attention to differences in the relative values of energy at different times or during different seasons. 3.11 Comparative analysis of the costs and benefits associated with different development options is rare. In the local review of development options in each of the sub-sectors, some comparative analysis may be conducted, especially for coal or power development. In forestry, however, review of the cost-effectiveness of alternative planting schemes is uncommon. Particularly important, very little if any review of the relative costs of different options for providing energy across sub- secors is conducted. 3.12 Rural household fuel prices. Of the major rural household fuels for cooking and heating, coal is the only fuel which is paid for in cash. 13/ Fuelwood, crop by-products, leaves and grass used by rural household for fuel is generally not purchased, but produced or collected by farmers on a subsistence basis. In the three counties reviewed, there was no evidence of any trend towards commercialization of rural household biomass fuels. Attempts to levy fees for fuelwood collected by farmers for subsistence needs would not be practical and have no precedence. 3.13 The prices of coal for rural household use vary substantially from area to area. As is typical of most rural areas, farmers in Hengnan and Kezuo purchased coal outside of the plan, at negotiated prices. In Xiushui, however, some coal was supplied by the government to rural household in the fuel-scarce western districts at subsidized prices (see para. 5.8, and the working paper on coal). 13/ In the southern counties of Hengnan and Xiushui, some charcaol is used for heating in small braziers in the countryside, and this is purchased with cash. Relative to the other fuels, however, consumption is small, and charcoal is used just for this specific end use. Prices are generally on par with coal prices, on a heat equivalent basis, or slightly higher.  - 24 - 3.14 Although they are not monetized, the biomass fuels used by rural households do carry implicit costs from the farmers' perspective, in terms of labor expenditures for collection, and/or opportunity costs (foregone benefits), as in the case of crop by-product fuel (see paras. 5.67-5.69). 3.15 Comparative direct production costs of major rural household fuel development options. In each county, the study team conducted a comparison of the relative direct production costs of different, mutually substitutable fuel sources for rural household use. (Fuel savings per unit of useful energy through the dissemination of improved stoves was also included in the comparison, as such savings in essence equate to foregone primary energy supply, but no change in useful energy supply.) All costs (and benefits, in the form of energy) were calculated in present value terms (see para. 2.24). Cost estimates reflected incremental production costs (the cost of new supply), regardless of who incurs them. All costs were based on the current financial costs of new production, excluding net taxes, except for labor costs, which were shadowed priced in the case of forestry development, as a significant amount of labor would be provided by farmers themselves for their own plantations. 14/ 3.16 The resulting estimates, presented in Tables 3.1-3.3, were an important input for the study team's preparation of county-specific development plans. In both of the southern counties of Hengnan and Xiushui, the costs per TCE of energy saved from improved stoves was lower than the cost of energy supply. However, the relative production costs of fuelwood from new plantations, coal from new mine expansion projects, and biogas varied from county to county. The estimates also show that the type of plantation and site conditions are critical factors underlying the relative costs of plantation fuelwood. This clearly shows why these varying factors must be fully considered in any attempt to design viable fuelwood development plans at the local level. (See the working paper on rural household fuels for more details.) 14/ Thus defined, the cost estimates provide a very rough gauge of the costs of various development options to the nation as a whole. More accurate estimates would need to include substitution of estimates for the true value to the nation (shadow prices) of key production inputs, rather than the current financial costs of these inputs. It should be noted, however, that the average prices of most of the key inputs for the construction of biogas plants, small-scale coal mines, improved stoves and forestry development have risen sharply recently, and better reflect market prices than previous, low, in- plan prices.  - 25 - Table 3.1: HENGNAN COUNTY - COMPARATIVE DIRECT COSTS OF DIFFERFNT FUELS FOR hOUSEHOLD USE Types of Fuels Yuan per TCE of Yuan per TCE of Primary Energy a/ Useful Energy a/ Fuelwood Moderate Sites: Fuelwood Plantations b/ 40-50 400-500 Timber Plantations c/ 18 175 Poor Sites: Fuelwood Plantations b/ 250-280 2500-2800 Coal d/ Hengnan Mines, Average e/ 127-157 440-540 Hunan Mines Outside of Hengnan 125 430 Other Provinces 155 535 Biogas f/ 255-350 425-585 Fuel Savings from Improved Blomass Stoves g/ Incremental Cost Over Traditional Stove 9-13 90-130 Entire Stove Cost 13-19 130-185 a/ All costs are in present value terms. Costs in constant 1988 Yuan (e.g. costs excldding Inflation) are discounted at 10% per year to take time preference into account. Costs per TCE of useful energy assume current end-use efficiencies of 10% for fuelwood, 29% for coal, and 60% for biogas. b/ Fuelwood plantations Include plantation just for fuelwood and plantations with fuelwood trees intercropped with agricultural crops, grasses, and/or legumes. c/ As the primary objective of the model is timber production, the only cost allocated to fuelwood production !s fuelwood harvesting. d/ All costs are estimates of the average incremental costs of production, transportation and distribution, based on Investment and operating cost estimates for early 1988. (See the working paper on coal supply and use.) e/ Average Incremental costs for coal from ZhoushI at 157-170 yuan/TCE are signIficantly highAr than the county average. f/ Estimates are based on cost estimates for Xiushul (Table 3.2). Costs of systems currently being developed in Hengnan would be substantially higher. g/ Estimates of Incremental costs assume a stove core production cost of Y20/unit, an average transport cost to users of YO.5/unit, and a retailer's cost/profit of Y2/unit. Entire stove costs are estimated at Y85 for a unit Including stoves for cooking and for pig feed preparation. Ranges depict assumptions of stove life times of 6 and 10 years.  - 26 - Table 3.2: XIUSHUI COUNTY - COM4PARATIVE DIRECT COSTS OF DIFFERENT FUELS FOR HOUSEHOLD USE Yuan per TCE of Yuan per TCE of Primary Energy a/ Useful Energy a/ Fuelwood West Xiushul: Less-ended sites 47-51 465-510 Severely eroded sites 155-250 1550-2500 East Xiushui: Fuelwood plantations 31-32 310-320 Timber plantations 12 120 Coal Pingxlang 215 615 (Wuning) b/ (125) (355) Biogas c/ 255-350 425-585 Fuel Savings from Improved Stoves d/ West Xiushul: Incremental cost over traditional stove 6-8 60-80 Entire stove cost 8-11 80-115 East Xlushul: Incremental cost over traditional stove 2-3 20-35 Entire stove cost 3-5 30-50 a/ All costs are In present value terms. Costs In constant 1988 yuan (e.g. costs excluding Inflation) are discounted at 10% per year to take time preferenren Into account. Cost per TCE of useful energy assume end-use efficiencies of 10% for fuelwood, 35% for coal, and 60% for blogas. b/ The prospects for obtaining substantial supplies from Wuning for household use appear poor, c/ Ranges portray unit costs at production rates of 40 and 55 cu m of gas/cu m of digestor capacity/year. d/ Estimates of Incremental costs assume a stove core production cost of Y20unit, an average transport cost to users of YO.5/unit, and a retaller's cost/profit of Y2/unit. Entire stove costs are estimated at Y85 for a unit Including stoves for cooking and for pig feed preparation. Ranges depict assumptions of stove life times of 6 and 10 years.  - 27 - Table 3.3: KEZUO COUNTY: COMPARATIVE DIRECT COSTS OF FUELWOOD AND COAL FOR HOUSEHOLD USE Yuan per TCE Yuan per TCE of Primary Energy a/ of Useful Energy b/ Fuelwood Poor Hilltop Sites: Fuelwood Trees/Pasture 175 865 Mid/Lower Hillside Sites: Fuelwood Trees Only 140 710 Fuelwood Trees/Pasture or Crops 95 465 Gullies: Fuelwood Trees/Pasture 15 75 River Flats: Timber/Fuelwood Trees 10 50 Efficiency Efficiency of 20% b/ of 35% b/ Coal Kezuo Mines 65-95 325-475 185-270 Other Liaoning/lnner Mongolia Mines 150-215 750-1075 430-615 Datong, Shanxi 115 575 330 a/ All costs are in present value terms. Costs in constant 1988 yuan (e.g. costs excluding Inflation) are discounted at 10% per year. b/ End-use efficiencies in fuelwood use are assumed to be 20%, while two calculations are given for coal use: 20% and 35%. These are based on current and potential end-use efficiencies In summer cooking. The key point of the analysis, however, Is the relative efficiencies of the two fuels. Where the end-use efficiency of coal use is calculated at 20%, this provides a picture of relative costs when the efficiency is the same as for fuelwood use. Where the end-use efficiency of coal use is calculated at 35%, a picture is given of relative costs where coal is used 75% more efficiently than fuelwood.  - 28 - 3.17 Integrated assessment of fuel and hillside development options. Where fuelwood development is considered a major option, it is important to consider alternative hillside land use options as part of the assessment of fuel options. The goal is to identify the best combined packages of both hillside and energy development options. As shown below in the case of Hengnan, such an integrated review can result in different conclusions concerning the optimal direction of fuelwood supply development than a review focusing on energy alone. 3.18 In Hengnan, the present value of the cost of fuelwood production from fuelwood plantations on moderate sites was estimated to be just slightly lower than the present value of the incremental cost of coal from the chief potential sources of supply. Benefit/cost models prepared by the study team of alternative programs of hillside development 15/, however, showed clearly that timber plantations provided substantially higher net returns (e.g. net present value per hectare) on land available for forestry development than fuelwood forestry plantations. 16/ Therefore, two integrated scenarios were compared. Scenario A involved the use of improved biomass stoves and the development of fuelwood forests to provide household fuel needs. Scenario B involved the development of timber plantations, the use of smaller amounts of fuelwood provided as a by-product from the timber plantations in an improved stove, and the purchasing of coal (at incremental production cost) to meet the balance of household fuel needs. The net present value of Scenario B was by far the highest (+2400 yuan for one household as opposed to -285 yuan), because the difference between the net benefits from timber planting as opposed to fuelwood planting is far higher than the difference between the cost of coal and fuelwood production. In Hengnan, therefore, development of timber and use of coal is clearly superior in economic terms to the development of fuelwood forests. 3.19 Complicating the matter further, however, is the fact that the gap bfcween current rural household energy consumption and sustainable supply in Hengnan is so large that the pressure placed on the county's hillsides by random fuel collectors cannot diminish radically over the medium term. Particularly given coal supply constraints (see para. 5.4), there is no way that expanded coal supply and conservation can adequately fill this gap during the next decade. This means that there are poor prospects for success for a forestry development program which focuses on 15/ The working paper on integrated hillside biomass development presents and discusses the details of the models prepared for each county. 16/ Estimates of the net returns from pasture development also were higher than the net returns from fuelwood forestry development, but there appeared to be little direct competition for land between these two alternatives in Hengnan.  - 29 - timber production alone. Past experience in the county has already shown how fuel deficits result in the abuse of timber plantations by fuel collectors, often to such an extent that they yield little quality production. 3.20 The study team concluded, therefore, that the best forestry development policy for Hengnan revolved around increasing flexibility, through the promotion of a variety of forestry development models and increased farmer participation in development decisions. Special emphasis has been placed on different multi-purpose schemes, providing a mixture of timber, fuelwood and other outputs from intercropping between trees. The team also emphasized the linkage between household coal supply levels and the economic returns from forestry development. Close monitoring of rural household coal use and government assitance in arranging supplies, if necessary, were recommended. 3.21 Incorporation of erosion control benefits. The possible erosion control benefits of fuelwood forestry and other hillside development schemes can be accounted for largely through the use of the integrated assessment of both energy and hillside development options described above. Obviously, a comparison of the direct production costs of various fuels can be misleading, as erosion control benefits associated with fuelwood supply development are not included. Rather than attempting to quantify these benefits and incorporate them somehow in the comparison of production costs, however, it is more appropriate to review combined packages of fuel and hillside development, which incorporate erosion control considerations. If fuelwood and coal supply options are to be compared, for example, it is appropriate to compare fuelwood forestry against coal development plus another hillside development option which provides comparable erosion control, such as grass/legume plantings or timber plantations. 3.22 Because different hillside development schemes provide different degrees of erosion control, the team ranked various models according to their expected erosion control performance. While this makes comparison of different energy/hillside development packages imprecise, meaningful quantification of erosion control benefits proved too difficult, given the available data. 3.23 Relative fuel costs from the farmers' pers?ective. From the farmers' perspective, choice of fuels and the relative attractiveness of different development options involves, in part, a balancing of cash costs with the perceived costs associated with non-monetized fuels. Use of coal, adoption of improved stoves, and biogas digestor construction involve cash costs, whereas fuelwood development primarily involves labor costs. Concerning the use of existing traditional biomass fuels, the costs realized by farmers are non-monetized, and include labor for the collection of fuelwood, grass and leaves, and the benefits foregone from not using crop by-products as a soil conditioner, source of fodder or raw material.  - 30 - 3.24 As in many developing countries, probably the most fundamental dilemma in addressing rural household energy problems arises when the direct costs of biomass fuel collection are perceived to be low by farmers, but the actual costs to society are high, due to adverse environmental effects. In these three counties, however, incomplete data from the household energy survey indicate that labor currently expended for fuelwood collection is high. Indeed, the cost of fuelwood collection from dispersed, often distant sources, in terms of the value of labor expended, may at times approximate the cost of fuelwood production in more concentrated lots. Regarding crop by-product fuel, farmers in western Xiushui appeared to attach high opportunity costs to this fue', but this was not true in Kezuo (see paras. 5.68-5.72). 3.25 The relative attractiveness of different development options from the farmers' point of view, and particularly their willingness to pay cash costs in lieu of non-monetized costs, also depends upon many other factors. Some of these include income and education levels, the relative convenience of using different fuels, willingness to change traditional habits, extent of actual understanding of the options, access to technology and material inputs, and the degree of perceived uncertainty or risk. In the final analysis, therefore, how farmers balance cash costs, non-monetized costs and these other factors is difficult to fully explain and predict. Often, the response of farmers to new innovations can only be judged through trial application. 3.26 In general, the study team advised against large subsidy programs to support the various rural energy development options--even if justifiable on long-term environmental grounds, severe financial constraints mean that strongly subsidized programs cannot be sustained or implemented on a large scale. Considerable potential for improvement remains to be tapped at little or no direct net cost to government by insuring that farmers have ready access to alternatives, such as coal, fuel-efficient stoves or processed pig feed which does not require cooking. The cost-effectiveness of fuelwood and energy conservation programs also can be improved. In some cases, the attractiveness of changes to the farmers also could be enhanced by changes in policies which have an indirect impact on the farmers' economic environment (see paras. 4.27 and 5.72 for two examples). Macro and Micro Aspects of Planning 3.27 Typically, current rural energy development planning (where it is pursued) is based primarily on macro-level analysis. Review and planning are based predominately on aggregate analysis of resources, demand, and development possibilities. While macro-level analysis is clearly necessary, attention needs to be devoted to micro-level analysis as well. 3.28 Particularly in the rural household energy economy, many aspects of the actual development of supply and use trends stem from decisions made by consumers. To achieve the best results in program  - 31 - planning and implementation under the prevailing conditions in rural China today, therefore, policies must seek to influence micro-level behavior, often achieving results indirectly. As described above, the reasons why consumers behave the way they do often invovles many factors and is difficult to predict. For the best results, therefore, it is critical to maintain a two-way dialogue between development experts and authorities and consumers. This is especially important in improved stove programs and afforestation work--if the needs and aspirations of farmers, as expressed by themselves, are not adequately incorporated, and programs are based primarily on prescription determined by planning experts, these programs are likely to achieve poor results. 3.29 In a number of cases, the study team also identified planning errors stemming from sole reliance on aggregate, macro resource calculations, without adequate consideration of micro-level resource distribution patterns. Perhaps the best example concerns the determination of the potential for family biogas generation. Commonly, development potential is calculated based on total available manure resources in an area. This is very misleading. Actual potential must be determined through analysis of the number of households which have adequate resources for biogas generation. Data Requirements 3.30 The quality and completeness of a wide variety of local energy supply and use data must be improved if local planning efforts are to have a sound point of departure. While the reliability of the data from the study team's household energy survey certainly was not perfect, the team is confident that the basic patterns which emerged are accurate. In both Hengnan and Xiushui, the survey results showed far higher levels of fuelwood consumption than reported in official statistics, pointCng to a need to improve local data collection techniqes on fuelwood use. Some of the additional areas where substantial improvement is urgently needed include data on (a) sustainable wood supply levels, (b) rural household coal consumption levels and sources of supply, and (c) rural electircity load characteristics. In addition, the study team found that data collected from the household energy survey on the current perceptions and opinions of farmers on a variety of issue involving energy and forestry were extremely useful, and collection of this type of data in local energy assessment work is highly recommended. Intersectoral Coordination 3.31 Effective rural energy planning and program implementation requires coordination between a large number of units, including those involved in agriculture; animal husbandry; coal production, supply and distribution; electricity generation, distribution and allocation; forestry; improved stoves, biogas and alternative sources of energy (in the Ministry of Agriculture systeml; soil and water conservation; and rural industry. Because the strength of the institutional system runs along vertical lines, the horizontal coordination required represents one  - 32 - of the most difficult challenges faced in the effort to promote isntegrated rural energy development. 3.32 The experience of the previous county assessments and the three joint county assessments shows, however, that this challenge can be effectively met and is not insurmountable. At the county level, a key for success has been the close involvement of the County Magistrate's office, in terms of supervising and directing the work of the various units under it. Training and Technical Assistance 3.33 China's existing system of rural organization, which includes a complete hierarchy from the central government through to the rural collectives, provides major advantages for the provision of program support and technical assistance to local units. The country also has a rich experience in implementing programs to disseminate new techniques and technology in the countryside. Training programs have been developed in a wide range of areas, often involving the training of cadres at one level, who then train cadres at the next, and so on. A wide variety of practical reference books, handbooks, and, more recently, videos, also are published and widely disseminated. 3.34 Nevertheless, the study team noted that the current level of technical assistance provided to local units and the number of qualified personnel in a wide variety of areas in the three counties was greatly inadequate. To a large extent, this stems from the size of the country. Shortages in suitably trained manpower also stems from historical factors. As in so many areas, however, the system for providing technical advice, guidance and training to local people in the various aspects of rural energy development must be strengthened, if current problems are to be effectively addressed. In terms of technical assistance, current needs span a wide spectrum, which includes needs for greater consultation with experts from research units or higher levels (even if only occassionally), access to both basic and highly applied technical information and the results of research work (much of which would be very useful at local levels, but generally is not easily available), and greater knowledge of experience gained by other local units in China attempting to solve similar problems. The other side of the problem--the shortage in qualified personnel--obviously also must be addressed, and will require a long-term effort. 17/ One aspect of this problem which is particularly difficult to address is a tendency among many local planning or technical staff to routinely apply narrow guidelines established at higher levels in their work (and sometimes these guidelines are greatly 17/ One positive development worth noting is the recent introduction of a rural energy major at several of the universities in China.  - 33 - misunderstood), rather than analyze the actual problems at hand and how they might be addressed. 3.35 To begin to disseminate techniques of integrated rural energy planning, training and technical assistance needs are major, as the comparative approach required is largely new at local levels. Over the medium term, training efforts will need to focus on the provincial level, in an attempt to build provincial-level capacity to help a larger number of counties adopt simple, but more effective integrated planning practices (see paras. 6.7-6.10). 3.36 In the principle sub-sector development programs, needs for greater technical support and improvements in the levels of qualified staff were particularly great in the areas of improved stoves, forestry and rural electricity development and management. In Hengnan and Xiushui, the improved stoves programs suffered from virtually all of the problems noted above. In the case of forestry, needs for qualified field-level staff for extension work, and needs to strengthen and disseminate research work and information concerning a broader range of development options were particularly evident. In the case of rural electricity, the shortage of qualified technical personnel and needs in counties such as Xiushui for technical assistance and training in regard to the new, relatively more complex issues having to do with local system expansion and linkages between local and regional grids were most obvious.  - 34 - IV. ENERGY CONSERVATION 4.1 Major opportunities exist for improving the efficiency of rural energy use, and efforts to realize this potential must be a central part of rural energy development. In the household sector, the principal opportunities include (a) the development and dissemination of improved cooking stoves, (b) the development and dissemination of improved stove/kang systems 18/ in the northern parts of the country, (c) energy conservation in the preparation of pig feed, primarily through expanded use of high-quality, processed feeds which do not require boiling and/or changes in the ways in which traditional feeds are prepared, and (d) improvements in housing construction techniques in northern areas to provide better insulation and/or passive solar gain. Major opportunities also exist for improving energy efficiencies in rural industry. 19/ 4.2 Although major potential clearly exists in the case of Kezuo for improving the efficiency of household energy use, quantification of this potential was difficult, partic:larly because of uncertainties surrounding the efficiencies of the current and improved stove/kang systems (see para. 4.16). In the case of the two southern counties, however, conservative estimates of the realistic potential for energy savings from improved stove programs and some modest changes in energy use for pig feed preparation were made by the study team. By the year 2000, the same level of useful energy consumption per capita could be maintained with at least one-third less primary energy in Hengnan, 25% less in the western parts of Xiushui, and 50% less in the eastern parts of Xiushui. 20/ 18/ The kang is a large, hollow brick bed, which is heated and provides the bulk of household warmth in winter in northern China. In many cases, such as in Kezuo, the kang is connected to the cookstove so that the exhaust gases from cooking are led through the hollow bed before being let out through the chimney. In some areas, especially in the Northwest, kangs are independent from the cook stove, and heated with stoves at their base. 19/ Opportunities for improving efficiency in local power systems are reviewed in the section on rural electricity (paras. 5.55-5.56). 20/ Given current primary energy shortages, however, efficiency improvements actually should be expected to result in a combination of increased useful energy use per capita (and hence, higher standards of living) and energy savings--it should never be assumed in practice that efficiency improvements will result in a fully commeserate reduction in actual fuel use.  - 35 - Improved Cooking Stoves Background 4.3 Typically, traditional Chinese rural cooking stoves are large, fixed structures made of mud blocks, bricks or cement. Usually, they accomodate two pans, one for cooking family meals and one for cooking pig feed, each with its own large combustion chamber. Traditional stoves rarely include a chimney, and hence, indoor smoke is a major health problem auid source of discomfort. Average energy conversion efficiencies using biomass fuels are in the neighborhood of 10%. When coal is used, it generally is used in one of the biomass stove chambers, a seperate, smaller chamber just for coal, or, where briquette technology is disseminated, in separate, small and portable briquette stoves. 4.4 Beginning in the early 1980's, China has embarked on an ambitious and massive program to introduce improved, more fuel-efficient cooking stoves. By the end of 1987, about 80 million improved stoves were reported to have been disseminated. Although many other counties have pursued work on improved stoves, much of the national program has focused on about 600 demonstration counties. The demonstraLion counties receive some technical assistance, program guidance and a little funding. For the work in a demonstration county to be declared completed, a number of tests must be passed, incliding dissemination in at least 90% of the households and demonstrated stove efficiencies (through a standard water boiling test on stoves in actual use) of at least 20%. 4.5 Comprehensive monitoring and review of the program needs to be more strongly emphasized, especially outside of the demonstration counties. Most of the improved stoves disseminated to date are hand- made, using traditional materials. Differences between the stoves classified as improved and traditional stoves vary substantially, but in a number of cases, improved stoves involve only a retrofitting of traditional stoves with grates and chimneys, with unclear actual gains in specific fuel consumption. There is evidence of problems associated with the common hand-made stoves, both in terms of quality control (especially in terms of the key paramenters which affect efficiency), and in terms stove deterioration over time, resulting in declining efficiencies with use. As a result, the government is now placing more stress on the development and dissemination of stoves with manufactured core components (usually made of iron), but this work has really just begun. 4.6 Of the three counties, Kezuo has completed work on improved stoves as a demonstration county, but neither Hengnan nor Xiushui are demonstration counties. Both Hengnan and Xiushui have begun some work on improved stoves, however, and have ambitious plans for the future. In Hengnan, about 17,000 hand-made improved stoves reportedly had been disseminated to about 8% of the county's households by mid-1988, but the study team observed that designs and quality were sub-optimal. Hengnan  - 36 - County had been very successful in the dissemination of high-efficiency coal briquette stoves and simple coal briquetting technology, however. About 30,000 improved, portable coal briquette stoves had been reportedly disseminated. These stoves, other avail,ble types of coal-briquette stoves, and the associated briquettes were clearly very popular amongst the farmers. In Xiushui, about 20,000 improved stoves had been disseminated by mie-1988, but all except for 400 of these were simple retrofits of traditional stoves with grates and chimneys. Although the retrofitted stoves may provide major benefits in terms of reducing indoor smoke, it was not clear that they provided any reduction in specific fuel consumption. 4.7 Issues stemming from the study team's review in Hengnan and Xiushui, and some of the broader issues concerning improved stove development and dissemination identified by international team members are discussed below. Issues relating to the combination of cooking and heating as in the case of Kezuo are discussed in the subsequent section. Needs for Expanded Program Support 4.8 Given the potential for alleviating rural household energy problems and the economic attractiveness from the nation's perspective, the development and dissemination of improved biomass cooking stoves deserves far greater support at all levels than it is receiving today. Establishment of sound, expanded improved stoves programs was identified as a top priority in both Hengnan and Xiushui, and there is no reason to suspect that this is also not the case in many other counties. The level of support provided in both counties, however, was grossly out-of-line with the importance of the work, in terms of the level of qualified staff and funding allocated for research, program design, dissemination and monitoring work, and the initial establishment of production capabilities. Although demonstration counties may be provided with better support from outside units, both of these two counties also were pursuing the work largely in isolation, with little or no technical assistance, training or information support from outside agencies. 4.9 Although it may at times appear simple and straight-forward, the effective design, production and dissemination of improved stoves is complex and difficult. In the growing international experience in this work over the last decade, initial and naive perceptions have been tempered by initial high rates of failure. Success rates have improved significantly in recent years, but only because of recognition that the design and dissemination of effective but popular stoves involves a complex process. Many criterea must be met in addition to reducing specific fuel consumption, including low cost, convenience, and flexibility, to name just a few. Adaptability to local cooking customs is key for success, including different methods of food preparation and use of different fuel mixes. 4.10 Based on the review to date, the ESMAP team recommends that (a) a comprehensive review of the results and experience of the nationwide  - 37 - improved stove program be undertaken without delay, and (b) based partly on the results of this review, the existing national-provincial-county level network for stove developemnt and dissemination be strengthened, both in terms of qualified staffing and in terms of funding for research, technical assistance, training and information dissemination to parallel and lower units. In regard to (b) above, it already is clear that capabilities at the provincial level to provide support to county-level units is urgently needed, and might best be met through the establishment of provincial-level research, training and technical assistance centers, initially in at least a few provinces. Manufactured Stove Designs 4.11 The study team concurs with the growing opinion of Chinese experts that greater emphasis needs to be placed on the development and dissemination of improved stoves with manufactured core components. Clearly, a variety of designs need to be considered and offered to consumers, including iron-core designs, designs with ceramic liners, and, possibly, small all-metal stoves. Designs which incorporate manufactured components, however, enable better control of the key paramenters affecting stove performance, and are likely to maintain efficient performance for a longer time than the entirely hand-made stoves. The development of designs with manufactured components was recommended by the study team from both Hengnan and Xiushui. Program Monitoring 4.12 The study team recommended that comprehensive monitoring be included as an integral part of new stove development and dissemination in the two counties. Two-way communication between consumers and developers/disseminators is essential if improved stoves are to be both popular and more efficient. As in the marketing of any product, monitoring of the performance of different designs, and the likes and dislikes of various consumer groups is particularly important during initial stages, when different designs are being tested on a trial basis, as numerous modifications are usually required before several designs can be put into mass production. Monitoring should continue during large- scale dissemination, however, to better understand the how results can be improved and to enable efficient matching of production patterns with demand trends. In at least some cases, household fuel consumption surveys should be undertaken before program start-up and periodically during implementation, and such surveys should include collection of information on consumer perceptions as well as quantitative information. Research 4.13 The study team identified a number of areas where further research is needed to provide a better foundation for new improved stove programs in Hengnan, Xiushui and areas with similar conditions. While some work could be conducted at the county level, the involvement of outside agencies and/or universities would be necessary for a strong  - 38 - effort. Some of the high priority areas, which are discussed in greater detail in the working paper on stoves, include: (a) Cost reduction. Although the incremental cost of improved stoves such as those designed by CAAERP, Beijing, is only some 20 yuan more than traditional stoves with chimneys, the total cost of 85 yuan per unit is still very high for most families. The area with the greatest potential for cost reduction appears to be a cutting of material requirements, especially bricks and cement. The chimney is an important element to focus on reduction of material costs--currently, the chimneys promoted account for about one-half of the total cost of a one-pot stove. (b) Improved chimney design. In addition to efforts to cut chimney costs, thermodynamic and mechanical research work needs to be conducted to improve performance and efficiency through the determination of optimal chimney size and design. (c) Review of the advantages and disadvantages of ceramic and iron manufactured stove core inserts. Improved Cooking and Heating Efficiencies in Northern China Background 4.14 One of the central problems encountered in Kezuo was inadequate heating levels in rural homes during the winter. Average indoor temperatures are typically around 0 degrees C during the winter months, when average outdoor temperatures are on the order of -3 to -5 degrees C, and may fall to as low as -25 degrees C. Despite the current practices of wearing thick clothes and sleeping under heavy blankets, the low heating levels are one aspect of the low rural standard of living. In the countryside, total per capita fuel consumption for cooking and heating is about one-third less than in the towns of Kezuo, where coal is supplied to households at subsidized prices. 4.15 Heating levels could be increased through the supply of more energy, but substantial potential for improvements also exist through improving the performance of the stove/kang system and the insulation characteristics of rural homes. 4.16 In reviewing the performance of and possibilities for improving the stove/hLnj system, cooking and heating functions must be considered on an integrated basis. During the coldei months, the same fuel is used for both heating and cooking. Hence, it is very difficult to determine fuel consumption and efficiencies for each task, and to employ the same type of end-use energy analysis as that conducted in the southern counties. Determination of even the overall efficiency of the stove/kang  - 39 - system, especially as regards different fuels, is methodologically complex. Without further research, the study team was not able to determine the relative efficiencies of different fuels, complicating its analysis of the costs of different fuels per unit of useful energy. 4.17 As an improved stove demonstration county, Kezuo has successfully disseminated stoves which are more fuel-efficient from the cooking point-of-view. Over 90% of the rural families have improved, hand-made stoves, which are reported to have efficiencies of about 20% in the cooking process. However, the new stoves appear to have resulted in a decrease in the heat 3upply to the kangs. This appears to be a key reason why electric blowers have become popular--as a means to supply additional air to the combustion chamber and additional heat to the kangs. The extent to which the dissemination of the new stoves has resulted in increases of decreases in the overall efficiency of the stove/kang system (or actual fuel consumption) is therefore unclear. 4.18 Recently, Kezuo has begun to develop and disseminate improved kangs. One thousand improved kangs were introduced in 1987. They include the following new features: (a) The traditional thick, clay slab used as a top is replaced with a thinner cement concrete slab; (b) baffling systems are included in the interior; (c) the bottom of the kang is raised from the floor, reducing heat losses to the floor; and (d) separate grates and combustion chambers sometimes are included in the interconnected cooking stove for winter and summer operation. The financial costs to users are high at about 110-120 yuan per improved kang. The improved system is reported to have an overall efficiency in cooking and heating of nearly 70%, as opposed to 35-40% in traditional systems. Although more robust data are required for a proper assessment, rough calculations suggest that the improved systems are more attractive economically than increased energy supply as a means of increasing indoor comfort levels during winter. 4.19 "Solar" homes are being constructed in Kezuo on a pilot basis. These homes include double-layered brick walls, constructed with perlite insulation filling the gap between the layers, and large glass windows facing south. Compared with other brick homes, the new features in these homes (combined with improved kangs) are reported to increase average indoor air temperatures by about 5-8 degrees C. The cost of a 110- square-meter house, which would normally cost about 10,000 yuan, is increased by about 1000 yuan. Rough calculations suggest that the new insulation measures are at best only marginally viable in economic terms, suggesting that further efforts to improve cost-effectiveness are needed for the program to be fully worthwhile. Needs for Expanded Research 4.20 The study team concluded that efforts to improve the stove/kang system and introduce improved home insulation techniques in Kezuo should continue, and be strengthened. However, identification of effective and practical measures to improve the integrated performance of the stove,  - 40 - kang and chimney, during different seasons and with different fuels, is a highly complex topic. Additional, relatively sophisticated research and development work is needed to achieve the best results in this area, as well as on cost-effective means to improve home insulation. Because such work would also be highly relevant to many other parts of northern China as well, the study team recommended that a major, national research and development project be initiated, building upon existing work in different institutes, and perhaps using Kezuo as a case study. Three topics considered to be high priority include: (a) Further research on the performance of different stove/kang/chimney systems, during differealt seasons and using different combinations of fuels, and identification of low-cost improvements for development and dissemination. This work would need to include detailed field survey work of traditional and improved systems currently in use, including measurements of fuel consumption and indoor and outdoor temperatures. (b) Comprehensive review and research of technology to efficiently utilize coal for both cooking and heating in northern rural households. A key question concerns the efficient and safe use of coal during the colder months as well as during the summer, and the feasibility of expanded use of coal briquettes and briquette stoves for both cooking and heating. (c) Research on the heat loss characteristics of various types of traditional rural dwellings, and opportunities for reducing heat losses at low cost. Such research would need to build upon work already conducted in China. Energy Conservation in Pig Feed Preparation Background 4.21 The cooking of feed for household pigs accounts for about 45% of total rural household fuel consumption in Hengnan and Xiushui--roughly the same share as the cooking of family meals. The role of energy used in pig feed preparation varies substantially--for example, in Kezuo, where pig husbandry is less developed, the cooking of pig feed accounts for 13% of household fuel use. Nevertheless, the major role which pig feed preparation plays in the household energy balance in Hengnan and Xiushui is not abnormal or atypical for many areas of China. According to the household energy survey, the average number of pigs per rural person is about 0.4 in Hengnan and about 0.66 in Xiushui, compared to a national average in 1984 of 0.37. Use of traditional feeds and traditional preparation methods also are still the norm for most households throughout China.  - 41 - 4.22 The raising of pigs is an integral part of the household economy for most rural Chinese families. Over 90% of the rural households in Hengnan and over 95% of the rural households in Xiushui had at least one pig. Pig sales for meat are a major source of cash income for most families, providing about one-third of cash earnings in Hengnan and Xiushui, on average. Pig manure is a key source of organic fertilizer, and a principle source of nutrients for crop cultivation. Pigs also consume a variety of household wastes which might otherwise be wasted. 4.23 In Hengnan and Xiushui, traditional pig rations include household food waste; green forage (including weeds, small forbs and sweet potato vines); perhaps some rice bran, wheat bran, or rapeseed abstract; and milled rice and/or dried sweet potatoes to ensure sufficient energy intake. Typically, pig feed is prepared every day by mixing the food waste, green forage and rice/sweet potatoes together with water and boiling the mixture for about one hour. 4.24 Based on the data from the household energy survey, economies of scale are substantial. In both Hengnan and Xiushui, useful energy per pig for traditional pig feed preparation appears to be about three times as high in households raising one-two pigs than in households raising five or more pigs. 21/ Needs for Attention to Pig Feed Preparation as an Energy Concern 4.25 Although issues relating to fuel use for pig feed preparation have been reviewed in some rural energy assessment work, they are more commonly overlooked. Clearly, fuel use patterns and opportunities for conservation are determined primarily by the detailed aspects of household pig husbandry development, and energy aspects are mostly indirect. Nevertheless, the quantity of fuel consumed for traditional pig feed preparation implies that even modest changes in current patterns can have a major effect on the rural household energy situation. Indeed, a modest change in current pig husbandry traditions could have energy impacts that are greater than some of the substantial energy development programs now promoted, often at considerable government expense. As an energy concern, therefore, the issue deserves far more attention in terms of both field research and the definition of local energy conservation strategies. 4.26 The study team was not able to fully review the pig husbandry industry in the two counties in the level of detail required to provide confident conclusions regarding a future development strategy. The bulk of the team's efforts focussed on the identification of areas which appeared to hold the most promise in terms of reducing fuel consumption, and should be further investigated. The major ones are discussed below. 21/ These estimates were prepared after having accounted for some use of processed feed by families with a high number of pigs.  - 42 - Expanded Use of Processed, Formulated Feeds 4.27 High-quality, processed formulated feeds, such as those used in developed countries, are fed to pigs raw, and their use requires no energy use by pig-raising households. Expanded substitution of these feeds, which would need to be in conjunction with further introduction of improved "lean pig" breeds, would have an obvious effect on household fuel use. 22/ Currently, processed feeds sustain 10-15% of the pigs in Hengnan, and about 4% of the pigs in Xiushui. Use of processed feeds is growing in both counties, but it may be possible to speed up the rate of adoption. Clearly, a number of factors are involved that have little to do with energy, such as the extent of current knowledge among farmers about the feeds and the new pig breeds which can more easily use them, and the relative financial attractiveness of raising traditional breeds with traditional feeds versus improved breeds with processed feeds. Where families rely on rice (as opposed to sweet potato) as the major energy component of traditional feeds, for example, current prices for the sale of surplus rice may be highly relevant--cash returns from the feeding of rice to pigs appear to be higher than from the sale of rice to the state at prevailing procurement prices. In both counties, however, the demand for processed feed is greater than supply. At a minimum, therefore, county authorities should do their best to ensure that supplies (sold at cost) meet demand, as increased use of processed feed can help alleviate household fuel problems at no cost to the government. This can be achieved through the construction of additional production capacity and measures to ensure that the raw materials for production are made availatle, and/or greater supply of processed feed from other areas. 4.28 Where suitable rapeseed varieties are grown, as in Hengnan, rapeseed meal as a feed for traditional pig varieties could be at least partially substituted for feeds which are boiled. 23/ 22/ The aggregate rate of substitution of processed feeds for traditional feeds should not be expected to result in a proportional reduction in aggregate fuel use for pig feed preparation, however. Processed feeds are generally adopted first by families with a relatively high number of pigs, where economies of scale mean that energy consumption per pig for traditional pig feed preparation is substantially lower than in households with fewer pigs. 23/ Traditionally, rapeseed meal has been valued as a fertilizer rather than a livestock feed due to low palatability and content of anti- nutritional factors. Following introduction of rapeseed varieties with lower contents of erucic acid and glucosinaolates, the high protein and energy content of this feed can be better utilized. About one-half of Hengnan's rapeseed area now uses these varieties.  - 43 - Alternative Methods of Preparing Traditional Feed 4.29 The feasibility and desirability of promoting changes in methods of preparing traditional feeds is uncertain. Further investigation of the issue, however, is well warranted. The fuel-scarce western districts of Xiushui would provide a good site for further research, which could be important to a wide number of areas. 4.30 One possible change, which could reduce fuel use for pig feed preparation by up to two-thirds, is to cook the rice or sweet potato portion of the ration separately, and prepare the green or high roughage portion without extensive boiling. Without other methods of treatment, the boiling of the green vegetables, weeds and sweet potato tops, which commonly account for 25-40% of the diet, most likely increases palatability, intake and possible digestibility. The issues here are the extent to which the high fuel usage for extensive boiling is actually worth these gains in terms of pig growth, and the extent to which other methods of preparation could achieve similar results. Other possible preparation methods include just mixing the green feeds with boiling water (rather than boiling the entire ration together for an hour), cold fermentation in a salt solution, or anaerobic fermentation (ensiling). Changes in the Current Structure of the Household Pig Industry 4.31 Obviously, the current distribution of the pig-raising industry is due to a variety of factors, which may not change even gradually over the medium term. Some of these factors include the availabilty and role of organic fertilizer, ways to use household wastes, and sources of supplemental household cash income. It is important to note, however, that concentration of the industry within fewer households who raise higher numbers of pigs would create substantial economies of scale, and result in a major reduction in energy use. Energy Conservation in Rural Industry 4.32 In its review of energy in each of the three counties, the study team did not fully review the issues and options surrounding energy conservation in rural industry. For the most part, improvement of industrial energy efficiency through new investment or management improvements is subject to the same types of constraints that bear on improvement of enterprise efficiency as a whole. A proper review would require not only a substantial amount of field survey work, but also a review of many of the broader issues which impact rural industrial  - 44 - efficiency as a whole. 24/ Nevertheless, a few observations of the study team are outlined below. 4.33 As shown in Table 4.1, the share of rural industry in gross social output and energy consumption is lowest in Xiushui, followed by Hengnan. In Kezuo, rural industry plays the most important role--in this county, climatic conditions for basic agriculture are very poor, and the chief opportunities for economic growth lie with industrial development, which is well serviced by railroads, and development of the "courtyard economy" (sideline household occupations, intensive vegetable cultivation in greenhouses, household animal husbandry, etc.). 4.34 The structure of rural industry in Kezuo leads to a level of energy intensity which is substantially higher than in Hengnan or the national average. The energy-intensity per unit output value of Hengnan's township and village industries (5.5 TCE/10,000 yuan of gross output value) is about at the national average. Although recent efficiency improvements have now lowered the average somewhat, consumption in the township and village industries in Kezuo was about 9.1 TCE/1O,000 yuan in 1985. A key reason is that heavy industry accounts for about 70% of the output value in Kezuo, and, within heavy industry, building materials account for about one-third of output. Given the county's abundant clay and lime resources, access to relatively inexpensive coal and transport facilities, this structure may be highly desirable. Moreover, as far as the building materials industry is concerned, which accounts for 75% of energy consuription in Kezuo's township and village industries, the technology used in Kezuo is clearly more energy-efficient than that in Hengnan. 4.35 The potential for improving energy efficiency in rural industry is clearly substantial in each of the three counties, as in other parts of China. The technology employed is generally far more backward than in many of the more modern urban industries, and equipment often consists of second-hand cast-offs from urban industry. Management levels are poor. The degree of incentive for enterprise managers to adopt improved technology, or undertake conservation investments or reforms in energy management practices, are highly varied, however. Accountability for profits or losses varies, in part according to the type of enterprise ownership. Profitability also is often determined more by factors such as the relative proportions of inputs and outputs procured or sold at planned or market prices than efficient operation. 4.36 In the case of the brick industry, the study team also noted the importance of differences in the organization of the industry. In 24/ A more extensive review of issues surrounding energy conservation in rural industry is being comtemplated as part of the new, follow-up ESMAP activity on training and technical assistance in integrated rural energy planning.  - 45 - Table 4.1: SHARE OF RURAL INDUSTRY IN GROSS SOCIAL OUTPUT AND TOTAL ENERGY CONSUMPTION IN THE THREE COUNTIES, 1986 a/ Share of Industry Shere of Industry In Gross In Total Social Output Energy Consumption Hengnan 20.3 b/ 23.1 Xlushul 11.6 3.6 Kezuo 41.9 c/ 34.7 a/ Industry Is defined to Include county-run state Industries as well as township, village and Individually-run Industries. b/ Share of gross Industrial and agricultural output value. c/ 1985. Source: County government statistics and ESMAP/Chinese household energy survey data. Hengnan and Xiushui, production by individual families or groups of families plays a key role in meeting demand. Using century-old technology, many farmers produce bricks on an intermittent basis. In Xiushui, over 200 individually managed kilns consume over five tonnes of fuelwood (about 2.5 TCE) per 10,000 bricks. This exceeds the state standard for specific energy consumption by several times. In Hengnan, the large numbers of individually managed kilns consume coal at what appears to be a similar rate. In Kezuo, however, larger, county, township and village enterprises dominate production. In recent years, many have adopted "internally-fired brick" technology, whereby low- quality coal is mixed with the clay to form the raw bricks, and firing is achieved as much with the coal within the brick as with that from without. This has resulted in a reduction of specific fuel consumption from 1.57 TCE to 1.07 TCE/10,000 bricks since 1985, as well as the production of higher quality bricks. 4.37 In all three counties there was no systematic means for managers or officials interested in adopting conservation measures to obtain technical advice and guidance. In Kezuo, some factories had hired experts from universities to conduct feasability studies, but the energy conservation services organized by the province were fully occupied with large-scale industries, and rural industry remained outside of the overall scope of their work.  - 46 - V. ENERGY SUPPLY Coal Development and Use Background 5.1 Coal currently accounts for 20-55% of total energy use in each of the counties (see Table 5.1). The share of coal in total energy use also has clearly been increasing, not only due to expansion of rural industry but also because of increasing use among rural households. 5.2 All three counties are located in provinces which are deficit in coal, but each county exhibits major differences in terms of local coal resources and production, coal prices and production costs, and utilization patterns. 5.3 Xiushui County produces virtually no coal of acceptable quality, and the county's coal needs must be shipped over poor roads from mines which are 125-340 kilometers distant. Although the prefectural coal companies which manage Xiushui's supply purchase much of their coal under the state plan, purchasing and delivery costs in mid-1988 were still high, ranging from 70-132 yuan per tonne (115-230 yuan per TCE). 25/ (See Table 5.2) In contrast to the other counties, agricultural production and rural industries in Xiushui consume significant amounts of fuelwood, based on resources in the eastern part of the county. Nevertheless, coal still accounts for more than one-half of industrial fuel use. Coal accounts for only 3% of household energy use. Rural household coal use is limited to only the western districts of the tounty, where fuel shortages and hillside degradation are extremely severe. Rural household coal supply is subsidized and rationed at a price of 52 yuan per tonne. 5.4 In 1988, mines within Hengnan County were expected to produce about 62,000 tonnes of coal, accounting for about 16% of the county's total coal consumption. With the exception of 8000 tonnes which is supplied to residents in towns at a subsidized price of 34 yuan per tonne, all coal is purchased and consumed outside of the state plan. Prices in mid-1988 for delivered coal ranged between 65 and 95 yuan per tonne (100-130 yuan per TCE) for coal mined in the county, and were 113 yuan per tonne (about 145 yuan per TCE) for coal purchased outside of the county and distributed by the County Coal Company. Most of the coal purchased outside of the county comes from relatively large coal fields in neighboring counties in Hunan. A major concern in the county is that 25/ TCE, or tonnes of standard coal equivalent (7 million kilocalories), are best used for comparative purposes, as coal qualities vary substantially.  - 47 - these supply sources will become tightly constrained, as a new 800 MW coal-fired power plant begins operation *n a neighboring county, based on local coal supplies. Coal now accounts for one-third of rural household energy use, the highest share among the three counties. Table 5.1: COAL CONSUMPTION IN THREE COUNTIES, 1986 (Thousand tonnes of standard coal eqdivalent) Households Production a/ Grand County Rural Town Total Agricultural Industry Total Total Hengnan Coal Consumption ('000 TCE) 107.4 11.9 119.3 26.0 94.2 120.2 239,5 % of total energy use In the given sector 33% 98% 35% 70% 84% 80% 49% Xiushul Coal Consumption ('000 TCE) 14.8 2.4 17.2 -- 11.1 11.1 28.3 % of total energy use in the given sector 3% 13% 3% -- 56% 37% 20% Kezuo Coal Consumption ('000 TCE) 36.4 22.0 58.4 3.6 82.7 86.3 144.7 % of total energy use In the given sector 26% 88% 35% 50% 90% 87% 55% a/ The definitions of energy used in agriculture and energy used in industry can vary. In the case of Hengnan, for example, some energy used in brick and lime production is Included under agricultural consumption. Industrial consumption includes energy used in county-run enterprises, as well as collective and individual enterprises. Source: Annex 1. 5.5 About 30% of Kezuo County's coal supply in 1987 came from mines within the county, and the balance was supplied from mines in other parts of Liaoning or other provinces. Virtually all of the coal supplied from outside of the county is purchased within the plan, with delivered costs to the county in 1987 ranging between 40 and 108 yuan per tonne (76-124 yuan per TCE). Delivered costs co users for locally mined coal were 35- 40 yuan per tonne for average quality coal (50-60 yuan per TCE). Public institutions and town residents receive subsidized coal under a rationing system, but other consumers basically pay prices based on mine-gate prices plus transport, tax and handling. Town residents consume an average of about 510 KgCE of subsidized coal per capita, accounting for almost 90% of their energy use. Rural households purchase about 105 KgCE per capita from local mines at prevailing mine-gate prices, accounting for about 26% of their total fuel consumption.  - 48 - 5.6 Two areas where the study team identified major issues regarding coal supply and use in the three counties include: (a) policy issues concerning rural household coal supply and the efficiency of rural household use, and (b) distortions in production investment trends stemming from the current pricing system and difficulties in arranging for secure supplies from outside areas. Rural Household Coal Utilization 5.7 For decades, government policy has included the allocation of coal for household use at subsidized prices to urban and town residents (umin), but rural household coal use has been discouraged. During the 1980's, however, rural household coal use appears to have doubled, especially through increasing direct purchases from local mines by farming households themselves. Increasing coal use has a major impact on the rural household energy situation. It is generally used at higher efficiency than biomass fuel and hence assumes a greater role in terms of supply of useful energy than its !fiare in total primary energy use might imply. Nevertheless, the supply ' use of coal by rural households is often not explicitly conside.t. in local policy and planning. Consumption and supply trends are rarely monitored with any accuracy. 5.8 Interestingly the county without usable coal resources, Xuishui, was the only county of the three which maintained an active policy on rural household coal use, through its efforts to supply subsidized coal to the fuel-deficit areas of West Xiushui as a measure to reduce hillside degradation. In Hengnan, major progress has been made in the introduction of efficient coal-briquette stoves in the countryside, but coal supply for rural household was considered to be their own affair, and outside of the re nonsibilities of local coal authorities. The household energy survey showed that rural household coal use was about double the level depicted in official statistics. In Kezuo, rural household coal supply was also considered as outside of the realm of local coal authorities, and use is largely restricted to areas adjacent to mining sites. The potential for and issues surrounding expanded rural household coal use, and improving the efficiency of use, had not been fully considered in the county's energy development plans. 5.9 Some of the most important advantages of coal as a rural household fuel include: (a) Convenience. Farmers interviewed in the household energy survey in all counties considered coal to be more convenient and preferable to biomass fuels by large margins. Whereas the vast majority of farmers felt that the burning of biomass fuels was too smoky, the opposite was true in the case of coal.  - 49 - (b) Efficiency. The end-use efficiency of burning low-quality biomass fuels in traditional stoves is generally estimated at 10%, while the efficiency of coal use in traditional stoves is usually estimated at 17-18%. The efficiency of improved biomass stoves is generally 20-25%, whereas the efficiency of coal briquette stoves is estimated at about 35%. (c) Alleviation of pressure on the biomass resource base. By providing a source of fuel from outside of the local biomass ecosystem, substitution of coal for bioma-s fuel can play a major role in alleviating hillside degradation or th1 deterioration of cultivated soils. Coal substitution can also free up biomass resources and land for other, alternative uses. 5.10 In terms of the costs of coal supply and distribution compared to other fuel supply development options, the situation varies substantially. For example, the direct production costs of fuelwood through fuelwood plantations in Kezuo is estimated to be far higher Lhan the cost of incremental coal production and distribution. In Hengnan, however, these two are roughly equal, while in Xiushui, fuelwood production enjoys a substantial cost advantage. 5.11 Some of the most important disadvantages of coal as a household fuel include: (a) Cash cost. In contrast to the chief biomss fuels, where the direct costs involved are mostly labor expenditures, coal must be paid for in cash. (b) Insecure supply. Given current difficulties in making long- term arrangements for coal purchasing and transport from outside areas, increasing reliance on outside sources of coal brings risks of supply security (as in the case of Hengnan). Where regional coal shortages and/or major coal transportation bottlenecks exist, increased rural household coal use can also have a detrimental impact on coal availability within other sectors. (c) Long-term environmental effects. While the substitution of coal for biomass fuel can bring significant environmental benefits, through lower particulate emmissions and alleviation of hillside degradation, it also has substantial long-term environmental drawbacks. Using current stove technology, indoor carbon monoxide levels tend to be higher when burning coal rather than biomass. Sulphur dioxide emmissions from coal combustion, especially with the higher sulphur coals of southwestern China, are already contributing to increasing acid rain in those areas. Perhaps most worrisome over the long term is the expansion of carbon dioxide emissions which would stem from massive rural household coal use, and the potential ramifications of this on climate through the "greenhouse effect".  - 50 - (d) Finite supply. As a non-renewable resource, coal use cannot provide a final solution for rural energy needs. China has very abundant coal resources on the whole, but in some localities, the issue of resource depletion already is becoming apparent. 5.12 Considering the growing "de facto" importance of rural household coal use, the study team feels that the issues involved need to be more expic:tly recognized and reviewed at various levels of government. The study team is not in a position to weigh the long-term advantages and disadvantages of expanding rural household coal use from the national perspective. From the point-of-view of the counties reviewed, however, moce active policies are needed regarding the rural coal distribution system and opportunities to improve the efficiency of household use. 5.13 In the case of Hengnan, strong links exist between hillside degradation, forestry development and household coal use. In Hengnan, where about three-quarters of household coal is consumed in high efficiency coal briquette stoves, the efficiency of coal use is about three times higher than biomass use. Hence, the supply of one TCE of coal provides roughly the same useful energy as three TCE of biomass fuel collected from the hillside or grown in fuelwood plantations. High levels of coal use can enable greater development of timber forestry, which is more profitable than fuelwood forestry. Low levels of coal use will require greater emphasis on fuelwood forestry, or further hillside degradation and/or mutilation of timber forests may result (as in the past). As part of the county's forestry development program, therefore, the study team has recommended that the coal supply situation for rural household be carefully mon ored, and that the local government assist in arranging coal supplies tor sale to households at full cost, if necessary. 5.14 In the case of Kezuo County, development of a distribution network to provide coal to rural households at cost could significantly alleviate the county's rural energy problems at no additonal cost to the government. The economic cost of providing coal through increased production of local mines is also well below that of the other major fuel supply options. Judging from the household energy survey, there is no reason to believe that household coal purchases will not increase in areas distant from mining centers if coal were made readily available, as in areas adjacent to mines. 5.15 In Kezuo, as well as other counties where little attention has been given to improving the efficiency of rural household coal use, efforts to develop coal supply should be coupled with efforts to improve efficiencies. In the southern parts of China, dissemination of coal briquettes and coal briquette stoves in rural areas, as in Hengnan and Xiushui, appear to be the exception rather than the rule. However, the experience in these two counties, as well as urban centers, shows that  - 51 - coal briquette stoves can be produced at .low cost, yield high efficiencies, and can be disseminated on a large scale relatively quickly. In the northern parts of China, improvement in the efficiency of household coal use is more complex, as cooking and heating are usually both done through the use of the combined stove/kan system. Complexities include the advantages and disadvantages of using briquettes in this system, the degree of attractiveness of using coal briquette stoves independently on a seasonal basis, and needs to use multiple fuels in the same system. Nevertheless, review of the options and development of improved cooking and heating technologies based on coal are of critical importance for much of northern China, as coal use expands for environmental reasons as well as in the interest of energy efficiency. Investment in Coal Production 5.16 The study observed a number of cases where local coal production or procurement strategies were sub-optimal from a long-term, national perspective, due to distortions in the current pricing system and/or the risks associated with reliance on coal supplies from outside areas. As in a variety of economic sectors, development strategies were basically rational from the perspective of local government authorities or leaders of collectives. From a broader perspective, however, some aspects of supply or development patterns result in inefficient use of resources. 5.17 Table 5.2 provides a comparison of estimates of the average incremental costs (AIC) of coal productiont transport and distribution for the major sources of coal supply in each county with estimates of the current financial costs to the county of supply from these sources. The estimates of the incremental costs of supply provide a rough gauge of the actual costs to the nation of coal supply at the margin to the given county. The estimates of the financial costs to the county include the costs of purchasing coal at mine-gate prices, transportation and distribution. These estimates differ from consumer prices in cases where consumer prices are subsidized by the county (with funds accumulated from various government levels). Both the AIC and financial cost estimates include handling costs and costs associated with transport losses. The AIC estimates exclude all taxes, while the financial cost estimates include taxes paid to units outside of the county. 5.18 In many cases, the financial costs to the counties is significantly lower than the actual AIC of supply, as is generally true in China as a whole. In a number of cases where the source of supply is outside of the county, however, the current costs incurred by the counties are well above AIC's. This situation tends to arise where stiff competition exists for relatively small amounts of non-allocated coal  - 52 - Table 5.2: COMPARISON OF CURRENT COSTS OF COAL SUPPLY AND AVERAGE INCREMENTAL COSTS OF COAL PRODUCTION, TRANSPORT AND DISTRIBUTION IN THREE COUNTIES, 1988 Average Incremental Average Current Cost of Production, Financial Cost Transport and to Distribution County, 1988 (Yuan/TCE) a/ (Yuan/TCE) b/ HENGNAN Hengnan Mines: Congshi 110 105 Zhoushi 160-220 125-140 Hunan Mines Outside of Hengnan 115-150 155-175 Other Provinces 135-175 145-160 XIUSHUI Pingxiang (Household Coal) 200-230 115-230 Wuning (Industrial Coal) 115-130 125-170 KEZOU Kezuo Mines 65-95 50-60 cl Mines Outside of Kezuo 115-215 70-125 c/ a/ Estimates include the present value of the financial costs of capacity Investment and operating costs for the production of an incremental TCE, the financial cost of transport and the firancial cost of distribution, minus any net taxes. Costs are In 1988 Yuan. A real discount rate of 10% was assumed. b/ The current financial costs to the county include procurement at mine-gate prices, transport and distribution, minus any taxes levied by the county Itself. c/ 1987. Sources: Study team estimates. See the working paper on coal for details.  - 53 - from a given production center, driving up negotiated prices 26/. In the case of Hengnan, the county coal company also was required to pay additional fees levied by provinces or counties to purchasers from outside of their administration. 5.19 The situation in Kezuo provides a good example of distortions arising from differences between procurement from sources selling at subsidized, "in-plan" prices and sources which must sell at prices closer to production cost. Although Kezuo's county-run and collective mines have some flexibility regarding the prices they charge, prices are held down to remain competitive with coal supplied at planned prices from the outside. (The local coal produced also is of poorer quality, and less desirable for industrial use, as it is mixed with large amounts of gange, but quality could be improved with better quality control and additional sorting.) Several mine renovation projects are planned, which could increase production at relatively low cost, but financing is problematic, as price increases to cover the investment will result in a loss of competitiveness. From the nation's point-of-view, however, these ir.vestments are highly economic--the .IC of local supply is about one- half of the AIC of supply from outside, which more than accounts for the quality difference, especially where household use is considered. Local prices in line with AIC's, however, would be only slightly lower than the current prices of coal from the outside, and hence uncompetitive, given the quality difference. 5.20 In Hengnan, distortions arise from the fact that, with the exception of the county's Congshi mine, the lowest AIC of supply is from mining centers in neighboring counties, but these centers now are the highest cost source of coal in financial terms. Financial costs of supply from neighboring counties are above AIC's, while financial costs of supply from other provinces are roughly in line with AIC's and the financial costs of supply from the local mines at Zhoushi are well below AIC's. The distortion may well increase in the near future, as the increasing demand of the new coal-fired power plant near to Hengnan absorbs increasing amounts of the coal mined in the area, increasing competition for non-allocated coal yet further. Yet, these mining areas 26/ Generally speaking, prices for coal procured under the state plan are substantially lower than the negotiated prices for coal procured outside of the state plan. Coal procured under the state plan, however, is not always procured at fixed, low "in-plan" prices. In Xiushui, where most coal is procured within the plan from outside areas, the prefectural coal company arranges within-plan allocations from various mines, but prices at times are negotiated, and well above "in-plan" prices, especially where the source of supply is a collective mine. In Kezuo, all coal from outside sources was procured "within the plan", and prccurement prices tended to be at "in-plan" levels, but the county coal company determined the sources of supply primarily by itself.  - 54 - have ample resources for the development of production levels well above those required to sustain the new power plant--the major constraint limiting production expansion is a shortage of investment funds. 5.21 Faced with this situation, the authorities in Hengnan are attempting to arrange long-term contracts for supply from other provinces and have plans to further expand production (or arrest production declines) at the very high cost mines at Zhoushi within the county. From e national perspective, this represents a waste of resources--a far more economic solution would be to expand mining investment in the neighboring counties, perhaps in part through joint-venture projects with localities such as Hengnan. 5.22 In Hengnan, concern regarding the security of future supply also is an important reason for the county's desire to further develop the Zhoushi mines. From the county's perspective, this may be a high cost investment, but some degree of self-sufficiency is felt to be critical in today's environment, as outside supplies rarely can be guaranteed over more than the short term. 5.23 Distortions resulting from the current pricing system and mixture of market and planned economies are widespread and well-known in China, and resolution of these issues is a national problem far beyond the scope of this study. Distortions arising from concern about the security of supply from outside efforts may be easier to alleviate, however, through greater policy support for long-term contracting and/or joint venture investment between localities. Both have been introduced in China, but remain relatively new and uncommon. Forestry and Fuelvood Development 27/ Background 5.24 As has been the case for three decades, tree planting by large numbers of rural farmers on collectively-owned land continues to dominate the country's afforestation efforts. In the mid-1980's, for example, 95% of the afforested area outside of the provinces of Heilongjiang and Nei Mongol was collective land, while only 5% was state-owned land. Despite the tremendous effort expended, however, results have not been very good. Of the 100 million hectares afforested during 1949-1976, less than one- third remain with tree cover today. In recent years, the government has 27/ In addition to the ESMAP working paper on integrated hillside development in the three counties, further details concerning Hengnan County and Hunan Province are available in the Hunan Fuelwood Development and Conservation Project Preinvestment Study (ESMAP, Summer 1989).  - 55 - been searching for new approaches which can offer better incentives for quality planting and especially improved management and protection, as compared with the traditional, collectively managed afforestation drives. Much of the establishment and most of the management of collective plantations is now contracted out to individual households or groups of houesholds. In addition, a substantial portion of the collectively-owned land available for forestry has been allocated to individual households, who are given usufruct rights for tree planting purposes. By 1984, about 45% of China's rural households had been allocated private hillside plots (ziliushan) for tree planting, with a total land area of about 26 million hectares. For example, in Hunan Province, where collectives own 95% of the land available for forestry development, one-third of the collective land for forestry has been divided into ziliushan. 5.25 Although serious initiatives have just begun, attention to fuelwood supply issues in local forestry development has been increasing. This increased attention is not only due to greater attention to the country's rural energy problems as a whole, but also to a growing recognition in the forestry community that inadequate consideration of local fuel needs often seriously compromises the success of afforestation work for timber production or protective purposes. Where suitable fuel alternatives are not in place, collective plantations are frequently mutilated by fuel collectors, regardless of all types of efforts to impose protective control. 5.26 As shown in Table 5.3, current fuelwood consumption in the two southern counties of Hengnan and Xiushui exceeds sustainable supply levels by alarming proportions. (In Kezuo, most hillsides have long been deforested, and fuelwood is a relatively minor fuel. The apparent surplus of supply seems to result from an overestimate of sustainable supply levels by county authorities, and a concentration of resources in areas of low population density.) The result of these imbalances is a steady reduction in forest resources, and, where hillside denudation is severe, soil erosion and reduced hillside water retention. Accelerating soil erosion stemming from loss of hillside vegetation from fuel collection is a most evident problem in Hengnan, but this problem is most severe in the western districts of Xiushui County. There about one-half of the hillside land already is seriously eroded, and the thin soil layer on an increasing number of nillsides near to population centers is being lost, leaving large faces of exposed, useless rock. Soil erosion is less of a problem in the heavily-forested eastern districts of Xiushui, but the gross imbalance between fuelwood use and sustainable supply, coupled with overcutting of timber trees, presents a very real danger that the current problems in the West will soon extend to other parts of the county as well. 5.27 Alleviation of the imbalance between fuelwood use and sus- tainable supply (or, in the caJe of Kezuo, fuel shortages and excessive burning of crop residues for fuel), will require a mixture of measures, of which fuelwood supply development is only one. All three counties have begun substantial programs to expand sustainable fuelwood  - 56 - supplies. The chief issues identified in the study team's review of these programs are presented below. Table 5.3: ANNUAL FUELWOOD CONSUMPTION AND SUSTAINABLE SUPPLY IN THE THREE COUNTIES Fuelwood Consumption a/ Estimated Sustainable Per Capita b/ Total Supply Hengnan 0.30 264,000 77,000 West Xiushui 0.58 127,000 20,000 East Xiushul c/ 1.60 744,000 245,000 Kezuo 0.07 29,000 50,000 a/ Includes roundwood equivalent of charcoal, and fuelwood used in agricultural production and industry. b/ Includes household use only. The figure for Hengnan includes rural household use only. c/ Includes Xiushul Town. Sources: Consumption - Annex 1; sustainable supply - County government estimates. The Importance of an Integrated Approach to Hillside Development 5.28 Hillside resources usually are called upon to meet a variety of needs, including fodder, timber, and cash crops as well as fuel. Usually, hillside degradation also results from a combination of factors, including irrational extension of agricultural cropping to steep slopes, overgrazing, and excessive timber felling as well as fuel collection. Typically, successful hillside development programs must incorporate a variety of these needs and concerns. For the best results, programs often must also include a balance between short-term and long- term benefits, and outputs providing cash as well as products for subsistence. 5.29 In each of the three counties, much of the emphasis on fuel- wood supply development focused on the establishment of pure fuelwood forests, with dual goals of fuel supply and erosion control. This approach may be successful and highly beneficial on some sites and in areas where fuel shortages are a major concern among local farmers. In particularly degraded areas where erosion control is the primary objective, however, the study team observed that current efforts to plant dense stands of fuelwood trees was extremely costly, especially given the low prospective yields. Other, less costly measures of erosion control, involving grass and legume plantings, will often be more cost effective, as has been shown in other Asian countries euch as India. In addition, the emphasis on fuelwood as the primary product of plantations (along with some leaf fodder) may often be problematic from the point of view of  - 57 - producer incentives, as fuelwood in these areas is for the most part not sold for cash but used for subsistence needs. Indeed, the degree of success in promoting pure fuelwood plantations for subsistence needs in a variety of other developing countries has been verv low, unless large and unsustainable subsidies are involved. 5.30 Multi-purpose plantations. Given the degree of fuel shortage found in the areas reviewed, pure fuelwood forestry may be more successful than in most other countries. Nevertheless, the study team has recommended that more multi-purpose planting schemes be given greater emphasis. These include combined small timber/fuelwood plantings and fuelwood tree plantings intercropped with agricultural crops or grasses/legumes for fodder and erosion control. While the household energy survey indicated significant (although varied) interest in growing fuelwood on ziliushan for subsistence needs, it is useful to note that most families that had planted fuelwood also had pursued some planting with other objectives in mind as well (see para. 5.33). Particularly important is the adoption of a flexible approach to plantation establishment, whereby a variety of models, as opposed to one or two government-approved plantation designs, can be adopted by local people, depending upon local needs and conditions. 5.31 Inter-agency cooperation. Effective integrated development of hillsides, incorporating several objectives, requires improved linkages between local forestry units and other units involved in agriculture, animal husbandry, and soil and water conservation. Such linkages are not only required for extension work, but also for the initial planning of development schemes where several land use options may apply. The study team has recommended that formal working groups be established in each county, if possible. The important point is to foster and maintain an a regular and formal cooperative relationship between the four chief sector units involved. Planting on Individual Hillside Plots (ziliushan) 5.32 In Hengnan, about one-half of the rural families surveyed have been allocated ziliushan, and in Kezuo, about one-third of the families surveyed have these plots. In Xiushui, ziuliushan are even more common-- about 90% of those interviewed have them. The size of the plots varies substantially, ranging from an average of 1.8 mu (0.12 Ha.) in Hengnan, to 7.9 mu (0.53 ha.)in Kezuo, and 3.4 mu (0.23 Ha.) and 16.1 mu (1.07 Ha.) in western and eastern Xiushui, respectively. 5.33 The survey showed a general high level of interest among the farmers towards planting on their ziliushan (see Table 5.4). Although the actual results of plantings are unclear, most families with plot3 alrsady had pursued some type of planting, and many of those who had not planted anything stated that they intended to plant in the future. The  - 58 - Table 5.4: CURRENT AND INTENDED PLANTINGS ON INDIVIDUAL HILLSIDE PLOTS IN THE THREE COUNTIES, END-1987 (Percentage of Surveyed Households with Plots) a/ ------------Not Planted---------------- Already Intend to Plant Do not Intend to Type of Planting Planted In the Future Plant In the Future HENGNAN Timber 30.0 7.5 62.5 Fuelwood 27.6 11.0 61.4 Fodder Plants 18.5 7.6 73.9 Other 17.7 4.4 77.9 Any type of planting 61.0 13.7 25.3 WEST XIUSHUI b/ Timber 58.7 9e1 32.2 Fuelwood 50.4 37.3 12.3 Fodder Plants 10.7 17.5 71.8 Other 13.5 16.7 69.8 Any type of planting 83.3 13.5 3.2 EAST XIUSHUI b/ Timber 60.2 13.3 26.5 Fuelwood 4.0 4.4 91.6 Fodder Plants 0.0 18.1 81.9 Other 8.8 15.5 75.7 Any type of planting 62.8 17.3 19.9 KEZUO Timber 11.8 10.0 78.2 Fuelwood 36.5 34.8 28.7 Fodder Plants 28.1 12.3 59.6 Other 42.0 7.1 50.9 Any type of planting 78.0 15.6 6.4 a/ The sample size Is 249 households In Hengnan, 252 In West Xlushul, 226 In East Xiushul, and 109 in Kezuo. Each row adds to 100s, and hence each family falls into one but only one category for each type of planting listed. Many families have pursued, or Intend to pursue more than one type of planting. b/ Eastern and Western districts of Xlushul are separated, as existing forest resources In the East are dramatically higher than In the West. Source: ESM4AP/Chinese Household Energy Survey.  59 - types of planting pursued varied substantially, however. Tree planting for fuelwood to meet subsistence needs was just one type of planting that had been undertaken or was planned. Interest in planting for fuelwood was highest in the fuel-scarce western districts of Xiushui, and lowest in the eastern districts of Xiushui, where existing forest resources are relatively abundant. In all counties, most people who had planted fuelwood also had pursued other plantings with other objectives in mind. In Hengnan, just 21% of those who had planted trees for subsistence fuelwood had not also pursued planting with other objectives. In Kezuo, 43% of those who had planted for fuelwood were pursuing fuelwood forestry alone, and in West Xiushui, the share was 34%. 5.34 A large majority of the farmers with ziliushan in each county stated that the natural conditions on the sites allocated are too poor. The level of technical advice provided to farmers and the availability of seedlings appear to vary substantially among the counties, and both appear to have a major bearing on the success of the program. In West Xiushui, where the highest levels of planting have been achieved, most farmers stated that the did not have difficulties obtaining technical guidance or seedlings. In Hengnan, by contrast, a large majority of farmers stated that they had difficulty obtaining both advice and seedlings. Among those who have not pursued planting, 88% said they could not obtain technical advice, and 80% said that there were difficulties in obtaining seedlings. In Kezuo, the responses to these types of questions were mixed. 28/ Especially in the cases of Hengnan and Kezuo, the study team concluded that the ziliushan program, and the promotion of household plantings around their homes, deserve greater support, at least in terms of extension and seedling availability. Depending upon the local availability of non-forested land, the county governments also should consider the allocation of plots to more households, the allocation of higher-quality land, and, in the case of Hengnan, allocation of larger plots. Forestry Extension 5.35 The existing forestry extension system is primarily concerned with the planning and technical supervision of collective-based afforestation programs. Very little attention is paid to supporting tree growing by individual households. If tree growing for fuelwood production is to be spontaneously undertaken by households, an extension system needs to be in place to effectively support these households. For such w