China - Energy conservation study

Report No. 1081 3-CHA China Energy Conservation Study February 4, 1993 Industry and Energy Operations Division China and Mongolia Department East Asia and Pacific Regional Office FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted di..tribution and may be used by recipients only in the performance of their of" 'ial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Yuan (Y) = 100 fen 1980 1990 1992 Exchange rate: $1 = Y 1.5 $1 = Y 4.7 $1 = Y 5.5 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES gCE = 104 TCE Kcal = 4.19 kilojoules = 3.97 Btu kgCE = 10' TCE MTCE = 106 TCE MW = 103kW TCE = 7 x 106 kilocalories TOE = 1.43 TCE (rWh) = 109 kWh ton of coal = 0.7143 TCE, average (actual heating values vary) ton of crude oil = 1.43 TCE e3 of natural gas - 1.33 KgCE kWh of electricity = 0.1229 KgCE (heating value) = 0.392 KgCE, in 1990 (thermal replacement value varies by year)  FOR OFFICIAL USE ONLY ABBREVIATIONS AND ACRONYMS Btu - British thermal unit CEM - Country Economic Memorandum CFL - Compact Fluorescent Lamp EEC - European Economic Community ERI - Energy Research Institute ESMAP - Energy Sector Management Assistance Programme FYP - Five-Year Plan GDP - Gross Domestic Product GEF - Global Environment Facility GVIO - Gross Value of Industrial Output IEA - International Energy Agency IEC - International Electrotechnical Commission Kcal - Kilocalorie kgCE - Kilogram of Coal Equivalent kV - kilovolt kVA - kilovolt-ampere kW - Kilowatt kWh - Kilowatt-hour MMEI - Ministry of Machinery and Electronics Industry MOE - Ministry of Energy MTCE - Million Tons of Coal Equivalent MW - Megawatt OECD - Organization of Economic Cooperation and Development PEC - Provincial Economic Commission FPC - Provincial Planning Commission SEC - State Economic Commission SEIC - State Energy Investment Corporation SETO - State Economic and Trade Office SPC - State Planning Commission SSB - State Statistical Bureau t - metric ton TCE - Ton of Coal Equivalent TOE - Ton of Oil Equivalent TVE - Township and Village Enterprise TWh - Terawatt-hour WDR - World Development Report This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOREWORD Ibis study was completed by Robert Taylor (Senior Energy Economist), with inputs from Jayant Sathaye (Consultant) on electricity efficiency issues and with research assistance from Zhang Z;ihong and Zhao Yangjun. The main mission (Messrs. Taylor and Sathaye) visited Beijing, Wuhan and Shanghai during October 1991, togetlher with Xiong Sizheng (residen; mission), and Yang Meicai (State Planning Commission, SPC). The mission is most grateful for the assistance provided by the study counterparts-the Department of Resource Savings and Comprehensive Utilization of SPC, and the Deportment of Energy Conservation of the Ministry of Energy. The mission also remains indebted to the provincial/municipal governments of Beijing, Hubei/Wuhan, and Shanghai for their most effective support.  CONTENTS Executive Summary ....................................... v 1 The Energy Intensity of China's Economy ..................... 1 A. Energy Consumption Patterns in China ..................... 1 The Role of Different Fuels . ................ 2 Sectoral Consumption Patterns in International Perspective ............................ 3 Energy Growth Trends in the 1980s ....... .............. 4 B. China's Energy Intensity in International Perspective .... ......... 6 Factors Underlying China's High Energy Intensity .... ........ 8 Some Statistical Issues in Energy Intensity Comparisons . .................................. 10 2 Past and Prospective Macroeconomic Energy Intensity Changes in China ........................... 12 A. Overview of Energy Intensity Changes in the 1980s ..... ........ 13 Total Energy Intensity Changes ......... ............... 13 Summary of Factors Influencing Energy Intensity Changes ............. ................. 13 B. The Impact of Changes in Sectoral Demand Structure in the 1980s .............. .................. 16 The Role of the Residential Sector ......... ............. 16 The Role of Energy Industry Losses ......... ............ 17 Structural Change Between Production Sectors ..... ......... 18 Reductions in Sectoral Energy Intensities .......... ........ 19 C. Industrial Output Structure and Industrial Energy Intensity ......................... 19 Impacts of Change in the Structure of Output Between Industrial Subsectors ........... ........... 21 Changes in the Energy Intensity within Industrial Subsectors .................................... 22 The Effect of Trade in Energy-Intensive Industrial Products ............................... 23 Nontrade Structural Change Effects Within Industrial Subsectors .................................... 24 D. Policy Conclusions and the Outlook for the Future ..... ......... 28 Targets for the 1990s .............................. 28 The Role of Policy in Structural Energy Savings ..... ........ 29  - ii - 3 Strategic Technical Energy Conservation Issues ................. 31 A. Technical Energy Efficiency in Chinese Industry .31 Declines in Unit Energy Consumption in the 1980s .31 Sources of Success in Reducing Unit Energy Consumption .33 Unit Energy Consumption Levels in International Perspective .34 B. Strategic Issues for the 1990s .37 The Potenti..I for Impro-Ang Technical Energy Efficiencies .37 Housekeeping Measures, Renovations and Retrofitting .38 Improving Process Technology .38 Spatial Issues .40 Improving the Efficiency of Capital Goods .41 C. Improving the Efficiency of Electricity Use .42 Overview of the Potential for Improvement .42 Reducing Power System Losses .44 Increasing the Efficiency of Electricity End-use .46 Electric Lighting .46 Electric Motors and Associated Equipment .46 High-Frequency Electric Furnaces .49 Home Appliances .50 Air Conditioning .50 D. Improving the Efficiency of Coal Use .51 Improving Efficiencies in Industrial Boilers .51 Improving Coal Quality .53 Improving Coal Utilization in the Household Sector .54 4 The Policy Framework for Energy Conservation .56 A. China's Current Energy Conservation Policy Framework .56 Essential Features of the Current System .57 Advantages of the Current System .58 Disadvantages of the Current System .59 B. Market-Based Energy Conservation Programs .61 C. Issues and Options for the 1990s .63 Energy Price Reform .65 Energy Sup)ly Quotas and Unit Consumption Standards .67 Promotion of Improved Technology and Strengthening Energy-Efficiency Standards for New Equipment .68 Strengthening Technical Assistance and Training .70 Improving Appraisal Criteria for Energy Conservation Investments .70  TABLES IN TET 1.1 EnergyBalance, 1990 .................................. 2 1.2 International Comparisons of Energy/GDP Growth Elasticities, 1966-90 .. . ................................. 5 1.3 C-cimercial Energy Consumption Growth by Sector, I91J-90 .......................... 6 1.4 Irternational Comparisvns of Primary Energy Consumption Relative to GDP, 1980-88 ...................... . 7 1.5 International Comparisons of Total Final Energy Consumption Per Unit GDP, 1988 ......................... . 9 2.1 Changes in Commercial Energy Intensity Relative to National Income, 1981-90 .......................... 14 2.2 Estimated Sources of Commercial Energy Savings Relative to Real National Income, 1981-90 ..................... 15 2.3 Total Commercial Energy Savings by Economic Sector, 1981-90 ....................................... 17 2.4 Sectoral Shares of Real National Income, 1980-90 ................ 18 2.5 Energy Savings due to Change in the Structure of Majcr Production Sectors, 1981-90 .............................. 19 2.6 Reductions in Sectoral Energy Intensities, 1981-90 ................ 21 2.7 Energy Use and Intensity by Industrial Subsector, 1985-90 .... ....... 23 2.8 Estimated Net Imports of Embodied Energy in Energy- Intensive Industrial Products .............................. 25 3.1 Changes in Unit Energy Consumption for Selected Industrial Products in the 1980s .................................. 32 3.2 International Comparisons of Energy Use for the Production of Selected Industrial Commodities ................... 34 3.3 Estimated Economically-Viable Potential for Improving Electricity Efficiency ................................... 43 3.4 Comparison of Chinese and US Electric Motor Efficiency Ratings .......................................... 48 4.1 Cinparison of Chinese and International Energy Pricps, 1991 ........... ............................. 66 FIGURES IN TEXT 2.1 Annual Change of the Share of Industry in National Income .... ...... 20 2.2 Energy Savings Due to Changes in the Sectoral Structure .... ........ 20  - iv - ANNEXES Statistics on China's Energy Consumption in International Perspective ible 1: 1990 CommerL.ial Energy Balance Sheet Table 2: 1988 Commercial Energy Balance Sheet Table 3: International Comparisons of the Share of Electricity in Final ES.crgy Consumption, 1988 Table 4: International Compar!sons of the Composition of Final Energy Consumption, 1988 Table 5: International Comparisons of Per Capita Final Energy Consumption, 1988 Table 6: !nternational Comparisons of Per Capita Final Electricity Consumption, 1988 Table 7: International Comparisons of Per Capita Final Consumption of Nonelectricity Fuels, 1988 Table 8: Inte.national Comparisons of the Composition of Final Electricity Consumption, 1988 Table 9: International Comparisons of the Structure of GDP, 1983 Table 10: International Comparisons of Energy Intensities in Industry and Agriculture, 1988 Table 11: International Comparisons of the Structure of Mining and Manufacturing Gross Output Value, 1990 and 1988 2. Statistics on China's Energy Consumption and Conservation during the 1980s Table 1: Annual Final Commercial Energy Consumption, 1980-90 Table 2: Annual Final Electricity Consumption, 1989-90 Table 3: Annual Energy Savings Relative to Total National Income, 1981-90 Table 4: Total Energy Savings Relative to Total National Inccome, Sixth and Seventh FYP Table 5: Structure of National Income and Energy Savings due to Structural Change in Major Production Sectors, 1980-90 Table 6: Energy Use Per Unit Contribution to National Income, 1980-90 Figure 1: Basic Materials and Industry Growth Index, 1981-90 3. China's Institutional and Policy Framework for Energy Conservation Table 1: An Example of an Energy Conservation Project Financing Package  v - EXECUTIVE SUMMARY Introduction i. Improving energy efficiency is recognized in China and worldwide as an issue of strategic importar.ie in China's development. The increasing need for energy services to sustain continued rapid economic development can be provided only through a balanced combination of increases in energy supply and improvements in the efficiency of energy use. This is true not only from the economic perspective, but also from an environmental point of view: improvements in energy efficiency are at the core of efforts to reduce air pollution and greenhouse gas emissions. ii. The purpose of this study is to provide a broad overview of energy efficiency issues in China. It includes a review of macroeconomic energy intensity trends and the factors underlying them, and an assessment of priority areas for energy conservation initiatives and policy reform. The primary focus is on the industrial sector, which dominates commercial energy use. Electricity conservation was a special focus in the fieldwork. The study focuses mainly on strategic issues; more in-deptn analysis of investmen, priorities is being undertaken as part of ongoing and planned follow-up work. Energy Efficiency and Reform of China's Economic System iii. Unquestionably, China's ability to achieve further, major and sustained success in reducing the energy intensity of the economy rests on continued progress in economic system reform. Increasing the market orientation of the. economy, enterprise reform leading to a hardening of state enterprise budget constraints, further progress in price reform, and financial sector reform are all central to China's efforts to improve the efficiency of use of all resources, including energy. The extent to which changes in macroeconomic structure will continue to provide major energy savings will ride largely upon the extent of progress in economic reform (see paras. xvi-xviii below). Continued, serious improvements in technical energy efficiencies also will require fundamental improvements in the economic environment which defines enterprise incentives to use energy-efficient technology (paras. xxvii-xxxviii below). iv. Specific energy conservation programs and policies also have an important role to play. In China, as in many other countries, however, there is at times a tendency to lose proper perspective. At times, the role of specific programs to increase awareness of energy conservation issues, to provide technical assistance, and to support specific energy conservation investments is overemphasized, and may to some extent cloud the importance of making progress on underlying fundamental issues affecting energy efficiency. The best role of the specific energy conservation initiatives is a supplemental one: to build upon and further sharpen broader, more implicit forces developed through system reform to improve the efficiency of use of energy and other materials. Energy Efficiency and the Environment v. Improvements in the efficiency of energy use are probably the most important single means to brake China's growing problems of air pollution and greenhouse gas emissions.  - vi - G;;en the dominance of coal in energy use, achievement of energy efficiency gains as discussed in this report-involving macroeconomic structural change, industrial modernization, and specific technical improvements-takes on added urgency as a key component of the country's ervironmental strategy.l/ vi. In addition to the direct positive impact of reductions in energy consumption on the environment, energy efficiency gains and environmental protection also are interLwined in that policy and technical prescriptions for progre:s on both fronts are often the same, or at least highly related. The macroeconomic structural effects which lead to declines in energy intensity also tend to lead to declines in the intensity of use of odier natural resources and to lower emissions of other, nonenergy-related pollutants (j ara. 2.55). Tecnnical improvements yielding energy efficiency gains also often yield environmental gains over and above those derived from the use of less energy, especially ir cases involving broad industrial modernization and process technology changes. This further strengthens the case fGr further close interaction between agencies involved in energy conservation and those involved in environmental protection. Summary of Past and Prospective Energy Intensity Trends vii. China's High Energy Intenisity. Primary energy consumption per unit of Gross Domestic Product (GDP) in China is high, compared to most other countries. China's high energy intensity is caused both bv factors having to do with macroeconomic and energy consumption structure, and by technical inefficiencies. One "natural" structural factor is China's high residential sector energy use per unit GDP. This exists in all low-income developing countries (paras. 1.9-1.11 and 1.23-1.24). Other important structural factors stem from the economic development path chosen by China. The relatively high share of industrial output in China-46 percent of GDP in 1988-leads to high energy *.ntensity becaLse industry is far more energy-intensive than agriculture or services. Chinese industry also is dominated by the production of basic, intermediate industrial goods, and generally low levels of product quality or specialization. This creates low levels of value-added per unit energy, compared with more mature industrial economies (paras. 1.27-1.29). viii. Out-of-date, energy-inefficient technology remains pervasive. Energy consumption per physical unit of output of major energy-intensive products is still some 30- 100 percent higher in China than in more developed countries. Efficiency penalties associated with the dominance of solid fuels (coal and biomass) are a contributing factor. Continuing poor energy management practices in some areas is another. The most important technical factor, however, is the type of technology that has been employed. At issue is not only the relatively backward technical levels of older plants still in production, but also the choice of technology for the very large amount of new capacity added during the 1980s (paras. 3.11-3.18). ix. Trends in the 1980s. China's commercial energy intensity per unit GDP fell by over 30 percent between 1980 and 1990-a remarkable achievement by international standards. The elasticity of growth in commercial energy use relative to GDP growth was just 0.5. Commercial energy savings resulting from this decline in energy intensity totaled over 300 million tons of coal equivalent (TCE) by the end of the decade, which was almost as much as the increase in domestic commercial energy supply (346 million TCE). 1/ See The World Bank, China: Environmental Strategy Paper, 1992.  - vii - x. Structural factors were the most important causes of the decline in energy intensity, accounting for some 55-65 percent of the total energy savings over the period. Improvements in physical energy efficiencies accounted for the remaining 3545 percent. Among the largest energy-intensive industries, the most impressive gains were made in the steel industry, where unit energy consumption fell by over 20 percent between 1980 and 1990 (paras. 2.8-2.13 and 3.4-3.5). Government-sponsored programs to improve energy management, promote widespread adoption of energy "housekeeping" measures, and replace outmoded equipment have played an important role in achieving these gains (paras. 3.6-3.9). xi. Gutlook for the 1990s. China's development targets call for a further reduction in commercial energy intensity per unit GDP of at least 20 percent between 1990 and 2000. This corresponds to an elasticity of growth in commercial energy use relative to GDP growth of 0.6. The further requisite energy savings can be achieved, but pose a major challenge. Success will require both further substantial structural savings and an acceleration in technical energy efficiency gains over the slow rates of improvement observed in many subsectors during the last few years. Issues of Macroeconomic Structure and Energy Intensity xii. Changes in macroeconomic structure were the leading cause of the slow growth in China's energy demand relative to growth in GDP during the 1980s. These structural factors can continue to play a critical role in reducing energy intensity levels in the future. The magnitude of these future energy savings from structura! factors, however, will be closely tied to the rate of progress in economic system reform. xiii. Structural factors accounted for about 70 percent of the decline in energy intensity achieved during the Sixth Five-Year Plan (FYP, 1981-85). The major factors included (a) slow growth in residential sector energy use and energy industry losses, relative to the growth in national income, (b) increases in the imports of key energy-intensive industrial goods, and (c) changes in the mix of industrial products domestically produced. xiv. The overall rate of decline in China's energy intensity slowed to about 2.8 percent per year during the Seventh FYP (1986-90), compared to the rate of 4.8 percent per year achieved during the Sixth FYP. The major reason was that the net energy savings from the combined influence of all structural factors fell sharply from about 120 million TCE during the Sixth FYP to some 45-80 million TCE during the Seventh FYP. This has caused some Chinese energy analysts to conclude that the potential role of structural factors in reducing China's energy intensity is waning. Further analysis conducted in this study (paras. 2.8-2.44), however, shows that key structural factors worked against each other during the Sevv th FYP, to some extent canceling each other out: (a) Although the share of -d4ustry in national income in terms of current prices actually fell, the share be *adustry in real national income rose sharply between 1985 and 1990, producing a strong pressure towards greater energy intensity, and major "negative" energy savings. (1) Net imports of key energy intensive products fell during the period, in reverse of the trend during the Sixth FYP, creating an additional source of substantial  viii - "negative" energy savings, as domestic production of thesc products increased accordingly. (c) These twvo sources of negative savings largely obscure the major positive effect which other, nontrade-related changes in the industsial product mix had on reducing energy intensities. Energy savings here accelerated during the later part of the 1980s. Indeed, this factor alone is estimated to have produced energy savings more than twice as large as the total savings achieved through all technical improvements during the Seventh FYP. xv. The mission concludes that potential for major energy savings frum structural factors remains, because the factors creating negative savings above should diminish, but great potential remains for other factors to continue to provide major positive energy savings. xvi. Reviewing the outlook for the future, there are some structural effects which are expected to continue to produce energy savings, but have little to do with government policy. These include: (a) The "Residential Sector Effect." Over the long term. continued substantial energy savings can be counted on from slower growth in residential energy use relative to growth in GDP, following well-established trends for developing countries. Total residential energy use is expected to grow slower than GDP despite very rapid growth in household electricity use (paras. 2.16-2.18). (b) Slower Growth in Energy Industry Losses. Growth in energy production at slower rates than GDP growth, due to energy savings from other factors, will produce some modest energy savings through slower growth in energy industry losses, relative to national income (para. 2.19). xvii. Other structural effects, however, are tied to underlying trends of economic development, the progression of which is influenced by macroeconomic policies. These include: (a) The Sectoral Distribution of Economic Output. The key issue here for the 1990s is the relative roles of the industrial and services sectors. If real industrial net output grows at the same rate as GDP, and faster growth in the service sector makes up for the expected slower growth in agriculture, the major counterbalancing effect on energy savings of the increasing share of industry over the Seventh FYP would be eliminated (paras. 2.20-2.22). (t) Trade in Energy-Intensive Products. The sharp decline in net imports of energy embodied in industrial products of the Seventh FYP, which produced substantial negative energy savings, is not expected to continue during the 1990s. Steel imports, for example, have already fallen far from the peak levels of the mid-1980s (paras. 2.32-2.34). (c) Nontrade Changes in the Industrial Product Mix. Potential continues to exist for major energy savings through changes in the mix of products produced by Chinese industry. Key issues include: (i) improvements in the efficiency of use of energy-intensive commodities, such as steel and cement, in other industries  -ix - and sectors, (ii) increases in industrial value-added from greater product diversification and specialization, (iii) increases in value-added from imrprovements in product quality. This process of maturing in China's industrial sector is a long-term process. However, further policy reform in support of greater competition, cost-consciousness and profit-seeking among enterprises would provide a major boost in this direction, and a corresponding key source of energy savings over the medium telm (paras. 2.35-2.44). xviii. Effects (a) and (c) above-changes in the sectoral distribution of economic output and nontrade-related changes in the industrial product mix-are by far the most important structural effects in terms of the size of their influence on total energy intensity. The future role of both factors, but especially declines in energy use per unit value-added through improvements in product quality and other changes in the industrial product mix, depend largely upon further progress in wide-ranging reforms to improve overall economic efficiency. The two effects are interrelated, as increases in product diversific-tion and technological sophistication tend to require expansion of service sector inputs. Improving Techn.&al Energy Efficiencies x.x. The importance of structural factors does not in any way detract from the importance and urgencv of efforts to improve technical energy efficiency, both from macroeconomi.. and microeconomic perspectives. With the development of an extensive institutional and administrative system for promoting energy conservation initiatives, China made notable progress in ie3ducing unit energy consumption levels across the economy over the last decade. The mission was favorably impressed by the success achieved so far in widespread promotion of rudimentary energy management practices, energy "housekeeping" measures, and a variety of retrofitting projects. However, large gaps remain between energy efficiency levels in China and international norms. Broad estimates indicate that attainment of efficiency performance levels of the developed countries today would result in total energy savings of about one third of total current consumption (paras. 3.4-3.17). xx. Energy Efficiency and Industrial Modernization. Although further efforts to promote improved energy housekeeping and retrofitting projects remain important, there is a critical need to balance this thrust with more effort on modernizing the basic industrial technology employed. The fact is that too much of the new capacity added during the later 1980s is well below international efficiency standards. This is due both to continued deployment of out-of-date technology and plant scale which is too small to properly capture scale economies. During the boom years of the middle 1980s, it may have been easiest to meet rapid demand growth through less capital-intensive, smaller, and more rapidly gestating projects, using technology that was familiar. However, this now carries long-term penalties in terms of high recurring costs and high energy consumption rates for what is often a low-quality product. If major energy efficiency gains are to be made in the future, the required up-front investments must be made in modern, high-efficiency capacity of suitable scale. xxi. There also is a need for a more critical and aggressive approach to restructuring some of China's older, particularly out-of-date capacity. Promotion of marginal energy conservation projects can be a waste of resources in such cases, where major changes or plant closure may be more appropriate.  -x- xxii. To best realize the potential for energy efficiency gains, comprehensive energy conservation strategies should be developed and implemented as part of the overall modernization programs for the principal energy-intensive subsectors. The strategy should explicitly include (a) transfer and/or adaptation of modern international process technology, especially for new capacity, (b) priority energy conservation initiatives to improve the efficiency of mainstream existing capacity and processes, and (c) industrial restructuring to eliminate (or transform) the most inefficient elements of existing capacity (paras. 3.18-3.31). xxiii. Given the investment and technology transfer requirements, international assistance is important in this area. Although they include other goais as well, programs to provide support for restructuring and modernizing key industrial subsectors are especially significant means to foster improvements in energy efficiency in China. xxiv. Improving the Efficiency of New Equipment. The Government has increased emphasis on improving the energy efficiency of the energy-using equipment produced by Chinese industry in recent years. These efforts are vital and need to be strengthened and expanded. Although other types of equipment are also important, two particularly significant areas are industrial boilers and electrical machinery such as motors, pumps and fans. Because a widespread and lasting impact can be made through a relatively focussed effort, programs to improve the efficiency of new equipment are strategically attractive. Special efforts need to be made to (a) encourage transfer of foreign technology, especially through joint-venture production, (b) provide investment and policy support for putting the best items into mainstream, mass production, (c) implement rigorous quality control, so as not to undermine consumer acceptance, and (d) ensure that relative prices for different models of the same equipment are not biased against the more efficient models solely because they are new, and hence subject to less control eparas. 3.34-3.36 and 4.494.50). xxv. Integrated Industrial Energy Supply and Cogeneration. Major gains can be made in energy efficiency and environmental protection in dense industrial areas, through development of centralized heat, steam, gas and/or cogeneration facilities. Further expansion of industrial cogeneration with single-enterprise steam supply is an area where great potential remains. More ambitious integrated schemes also deserve support, but on a case-by-case basis, as development is complicated by issues of flexibility, equitable pricing, and institutional coordination (paras. 3.32-3.33). xxvi. Priority Programs in Electricity and Coal Conservation. Much of the nation's energy conservation work should focus upon process technology and other industry-specific technical improvements, best undertaken as part of overall industrial subsector modernization programs, as discussed above. In addition, there are more generic types of initiatives. Below, the mission singles out four areas concerning electricity and coal conservation where priority action is especially warranted.2/ Although a wide range of additional activities are worthwhile, and should be undertaken (paras. 3.37-3.86), the areas below have particularly large potential for economically viable energy savings. In the fieldwork, the mission put special emphasis on electricity conservation. Concerning the efficiency of coal use, the mission has drawn largely upon previous work (see The World Bank, China: Efficiency and Environmental Impact of Coal Use, 1991). Issues relating to the efficiency of petroleum products deserve future, detailed review.  - xi - (a) Reduction of Power System Transmission and Distribution Losses. Some 16- 20 percent of China's power generation is lost in the transmission and distribution system, compared to losses of 10-12 percent in most developed country systems. Losses in rural areas, which account for about one third of national power consumption,3/ are reported at a very high 33 percent. The reduction of losses will require expanded, but economically attractive, investment for network renovations, for replacement of technologically backward transformers and other substation overhauls, and for addition of capacity to improve system power factors (paras. 3.41-3.48). (b) Improvements In the Efriciency of Electric Motors and Associated Equipment. About two thirds of China's total final electricity use is to drive electric motors. This includes free-standing motors as well as motors integrated into pumps, fans and other machines. Although a number of actions are worthwhile, the mission feels that priority should be given to further improvements in the efficiency of motors currently produced, and expanded use of both improved fixed-speed and variable-speed motors in the production of key types of industrial equipment. Immediate steps required include completion of (i) an assessment of the potential for introducing true high-efficiency motor designs from abroad into Chinese production, and (ii) a market survey for motors and associated equipment (paras. 3.52-3.60). (c) Improvements in the Efficiency of Coal-Fired Industrial Boilers. China's current stock of 400,000 industrial boilers currently account for about one third of coal use. Actual operating efficiencies average 55-60 percent, compared to 75-80 percent in modern coal-fired boilers internationally. Key factors include small scale (85-90 percent of the boilers have capacities under 6 tons per hour), lack of modern efficiency design features, poor quality manufacturing, poor operation practices, and low fuel quality. A stronger effort to adapt modem technology for improved boiler designs to the needs of the Chinese market is urgently needed, followed by an effort to make higher-efficiency units widely available to consumers. Immediate steps required include completion of (a) an in-depth evaluation of tl.e characteristics of future boiler demand, and (b) a detailed evaluation of options to improve boiler efficiency, based on both domestic and international research and experience, focusing on the 2-20 tonlhour size range (paras. 3.68-3.74). (d) Improvements in Coal Quality. Coal quality problems greatly contribute to inefficient coal use in boilers and other applications. Much of the problem stems from unpredictable fluctuations in the type of coal supplied, lack of sizing or screening, and the use of fines in inappropriate applications. The principal constraints to improvement are not technical ones. Problems lie primarily with the nature of the coal allocation system and current pricing practices. As the country moves ahead with coal price reform, special attention is due to the issue of how to improve and stabilize coal quality through reform of the coal 1/ County-run industry located in rural areas is included as rural consumption in this esti-mte.  - xii - allocation and marketing system, and selected investments in associated infrastructure (paras. 3.75-3.77). Strengthening Energy Conservation Policies xxvii. The greatest single problem in the country's energy conservation program is that enterprise incentives to use energy efficiently remain inadequate. A fundamental improvement in incentives will require widespread economic reform, especially reforms designed to increase the autonomy and accountability of state enterprises This is outside the scope of direct concern of energy conservation policymakers. However, major improvements also can be made through energy price reform and other measures to better attune China's existing policies for promoting energy conservation to the needs of the evolving, more market-oriented, new economic environment. xxviii. Advantages and Disadvantages of the Current Framework. During the 1980s, China successfully developed a comprehensive energy conservation program, including major policy directives, procedures, regulations, technical assistance programs, and project financing initiatives. Compared to programs in other developing countries, China's program is especially strong in its comprehensive coverage of enterprises, monitoring of consumption practices, promotion of awareness of energy efficiency goals among enterprise managers, and domestic information dissemination. Efforts to improve energy efficiency have become a more integral and serious aspect of the energy planning process in China than in most developing countries. These strengths stem from the government's successful efforts to build up an institutional framework for overseeing and implementing energy conservatioc work. This framework consists of a series of national, provincial and county/municipal-level government units (see paras. 4.34. 10 and Annex 3). xxix. Built largely upon planned economy concepts, the existing system emphasizes administrative measures to prod enterprises to improve energy efficiency. Clearly, there are many cases where strong incentives for energy conservation have resulted. The problem is that, despite elaborate fine-tuning efforts, the administrative measures are too crude to consistently stimulate proper enterprise responses. A natural drawback with many of the measures is that they are not "automatic," or built into the economic system. Administration is difficult and complicated. The pressure applied to enterprises is greatly uneven, and for reasons that are arbitrary from an economic point-of-view. This creates serious distortions. In addition, the current system encourages mediocrity, rather than promotion of optimal efficiency levels. As performance evaluation tends to be referenced against domestic averages, conspicuous waste is discouraged, but there is a tendency towards marginal modification of prevailing, relatively energy-inefficient industrial technology (even for new capacity), rather than more bolder adoption of new appr"aches or processes (paras. 4.11-4.20). xxx. Much of the energy conservation promotion system built up through the 1980s will serve China well in the future; the institutional network, and its increasing capacity to execute serious energy conservation initiatives on a comprehensive scale, provide a critical advantage. Some of the administrative measures which have been relied upon heavily in the past, however, cannot be expected to work effectively or efficiently in a more market-oriented future. Greater emphasis is needed on policy tools that work in coordination with and complement market forces. The mission's chief recommendations are outlined below. The  - xiii - mission hopes that these observations will be considered in the preparation of the proposed new Energy Conservation Law. xxxi. Energy Price Reform. Further, major reform of energy prices is essential for the nation's energy censervation program to be effective. While progress has been made in increasing price levels, especially at the margin, the progress to date is insufficient. Reforms must include both substantial increases in price levels for in-plan supplies, and rationalization of the price structure. Reforms should include pricing for ele(icity, petroleum products and gas, but especially pricing for coal. A large portion of China's coal is still sold at in-plan prices which are based on ex-mine prices equivalent to about one half of the actual long-run margin?' cost of production. This sends false, distorted signals to key consumers that there is little real purpose or benefit to energy conservation. xxxii. In-plan energy prices must better reflect actual costs if the enterprises which benefit from them are to undertake increased investment in more efficient process technology, in high-efficiency equipment, and in major retrofitting projects. Currently, many types of investment which are attractive to the nation are not financially viable for those enterprises receiving in-plan energy supplies. As is well recognized, supplies of subsidized funding for such projects cannot come close to filling the gap-the bulk of funding must be arranged by enterprises themselves. xxxiii. In addition, the complexity and lack of transparency of the existing multiple tier pricing systems, especially for electricity, also erodes interest in investments in energy efficiency. Where energy costs in the future are difficult to define and/or subject to uncertainty, this greatly and unduly adds to the risk of investments to save on future energy costs. This is one among many reasons why simplification and unification of energy prices is also necessary (see paras. 4.35-4.43 and the additional studies and documents listed there). xxxiv. Energy Supply Quotas and Unit Consumption Standards. Movement towards unified prices and a greater role of the market will naturally reduce the applicability and usefulness of energy supply quota manipulation as a policy tool to promote energy conservation. In addition, the role of unit energy consumption standards in the future program should be carefully considered. These standards are useful as (a) reference points for factory managers and local officials as to how the unit consumption patterns of enterprises compare, and (b) a tool to identify "outlier enterprises" with dramatically inefficient use patterns, compared with others. However, these crude tools cannot be relied upon to properly encourage enterprises to reach their true energy efficiency potential. Over the short term, it may be necessary to continue to use these standards as a component of the system of administrative measures to promote energy efficiency, especially among large- or medium-sized state enterprises. However, this should be considered as transitory. The mission strongly recommends that the government not endorse a policy to rely on mandatory unit energy consumption standards for enterprises as a central tool to try to provide greater enterprise incentives for energy savings. Such a policy would be without precedence internationally (for good reasons), and would run counter to the spirit of other reforms (paras. 4.444.46). xxxv. Energy-Effciency Standards for New Equipment. The current system of setting and enforcing energy-efficiency standards for new equipment should be improved and strengthened, to better fulfill its function to encourage industries to improve the energy efficiency of mainstream equipment models. The mission recommends that true energy-efficiency standards  - xiv - be applied only for a selection of key equipment types, but where used, application should be mandatory and rigorous. The standards should be practical and clear for the industries concerned, and these industries s.hould continue to be closely involved in the formulation process. Pricing policies for the equipment types covered should be explicitly reviewed as part of the process of developing specific standards, in order to ensure that state price regulations are consistent with the energy-efficiency objectives of the standards. It also would be useful for the process of developing, applying and enforcing energy-efficiency standards for equipment to be legitimized in the proposed Energy Conservation Law (paras. 4.47-4.51). xxxvi. Strengthening Technical Assistance and Training. China has successfully built up capacity to provide enterprises with technical assistance and training in energy management and conservation. Given the enormity of the country's needs, however, further expansion and improvements in the energy auditing and training programs are still urgently required. There are needs to expand both basic energy management training and more detailed technical training catering to specific industries or types of technologies. Stronger programs are needed for smaller enterprises, including township and village industries. In addition, energy conservation service centers need increased supply of measuring equipment and related instrumentation needed to properly conducting energy audits on the scale required (paras. 4.524.53). xxxvii. Appraisal Criteria for Energy Conservation Investments. Greater attention needs to be given to financial and economic return criteria in the allocation of state funds dedicated for energy conservation projects. To improve the project selection process, the mission suggests that relevant Chinese agencies (a) use the current gross investment per TCE of energy savings concept only to establish a minimum requirement which all projects must meet to obtain funding from the dedicated facilities, and then (b) use economic rate-of-return criteria (complemented with additional, quantified environmental analysis, where necessary) to select the best projects from the pool of projects that meet the minimum energy-savings requirement (paras. 4.54-4.58). xxxviii. The mission also observed a number of cases where the existing broad guideline to utilize 20 percent of enterprise depreciation funds for energy conservation investments was being applied by local agencies as a regulation for individual enterprises. This practice is irrational from an economic point-of-view, and must be discouraged (para. 4.59). Priorities for Follow-up Action xxxix. The following table presents the mission's recommendations on the next steps which should be taken to strengthen China's energy conservation effort, in line with the broad findings of this study. This has been used as a basis for discussions between the Bank and the government on follow-up to this report. xl. The Role of the World Bank. Follow-up technical assistance and preinvestment work on energy conservation in China is organized under a major Chinese/Bank study supported by the Global Environment Facility (GEF), "China: Issues and Options for Greenhouse Gas (GHG) Emissions Reduction." Special focus is given in this study to detailed subsector-by- subsector analysis of technical options and their relative benefits and costs. Preinvestment studies on improving industrial boiler efficiency and urban residential and commercial sector coal use also are included. Additional follow-up also is being undertaken through the World  v xv v Bank/UNDP Energy Sector Management Assistance Programme (ESMAP), including a much- needed rural power system loss reduction technical assistance initiative. xi. The Bank also is expanding support for energy conservation through lending operations. Options Include continued support through industrial lending, support as part of energy sector projects (e.g., as in the proposed Sichuan Natural Gas Development and Conservation Project), and support through stand-alone operations.  - xvi - PROPOSED FOLLOW-up ACrlON PLAN Recommended action Responsible agenoies Policy 1. Reform energy price levels and structures. Immediate action is required to (i) implement SPC, General Price increases in in-plan prices for energy (especially coal) to levels reflecting economic costs over three Bureau, State Council years or less, and (ii) implement action programs to unify and simplify all energy prices. 2. Expanded assessment of indirect, structural energy savings. The energy conservation SPC/State Economic value of projects which provide major indirect energy savings should be explicitly recognized and Trade Office (quantified, where possible) in review of investment projects. A comprehensive evaluation of (SETO), ERI structural energy savings during the Seventh FYP and implications for the 1Q90s should be completed by thef Energy Research Institute (ERI) of SPC. 3. Pre p are an energy conservation policy transition p lan. A medium-term strategy should SPC/SETO be prepared by core government agencies on how to make the transition from reliance on adminmstrative measures to create pressure for enterprises to save energy to greater reliance on measures which complement and build upon market forees. 4. Strengthen energy efriciency standards for new equipment. The first step should be to SPC/SETO/National evaluate the level (in intemational perspective), and actual application and efficacy of existing Bureau of Technical standards for key equipment such as boilers and electrical machinery. This should be followed by Controlline ministries the design and implementation of a program to strengthen the standards and their application, so as to achieve efficiency levels for new equipme.nt comparable to those abroad. 5. Strengthen training and technical assistance capabilities. The existing network of energy SETO/Provincial conservation service centers needs to be further expanded and strengthened to expand coverage govermnents among smaller enterprises, and to improve the quality and depth of auditing and training. 6. Improve appraisal methodology for energy conservation investments. The first step is to SPC/SETO/ERVStatc design imnproved, practical methods to improve financial and economic assessments, and to apply Energy Conservation them on a trial basis for a number of projects under the GEF GHG study. Company Preinvestment/lnvestment 7. Prepare energy efficiency strategies for energy-intensive industrial subsectors. With SPC/SETOAline support through the P GHG study and other donor projects, these need to include strategies to ministries improve process technology and for subsector restructuring to eliminate or transform the most inefficient existing capacity, as well as priorities for renovation investments. 8. Strengthen efforts to reduce power system losses. An action program should be Ministries of Energy developed with support under the GEF GHG study and an ESMAP program for rural power grids (MOE) and Water to expand investment in (i) measures to reduce station losses, (ii) power factor correction, (iii) Resources (MWR) transformer replacement, and (iv) distribution network overhaul. 9. Implement a program to improve the efficiency of electric motors and associated SPC/SETO/Ministry of eu,uiement. Initial technology assessments, market surveys, and identification of investment Machinery and pnorities are being conducted through the GEF GHG study. Electronics Industries (MMEI) 10. Implement a program to improve the efficiency of new coal-fired Industrial boilers. SPC/SETO/MMEI The first steps are being undertaken through the GEF GHG study, including a boiler market survey, an evaluation of options to improve boiler design and manufacturing, and review of investment options. 11. Evaluate opportunities to improve the efficiency of coal use through improvements in SPC/SETO/MOE the aflocation/marketing system. Concrete demonstration projects need to be developed to improve the matching of coal varieties and sizes to meet consumer requirements through reform of the allocation and marketing system and selected investment in associated infrastructure. 12. Expand development of integrated energy supply systems for industrial parks. The SPC/SETOIlocal initial step is to complete detailed feasibility studies and rigorous financial/economic analysis for a governments small number of demonstration projects. 13. Extpand industrial cogeneration capacity. The first step is to conduct a study to evaluate SPC/SETO/MOE the potential for expanded, economically viable development within the various subsectors, to identify existing constraints inhibiting development, and to analyze options to alleviate these constraints.  THE ENERGY INTENSITY OF CHNIA'S ECONOMY A. ENERGY CONSUmpTION PATTERNS IN CEINA 1.1 China is the third largest energy consumer in the world, following the US and the former Soviet Union. China's total energy consumption of 1,245 million tons of coal equivalent 1/ (872 million tons of oil equivalent) in 1990 was much higher than any other developing country. Including biomass fuels, China's consumption was about three times India's, five times Brazil's, and almost twelve times South Korea's. 1.2 China leads the world in coal use, as consumption passed the one billion ton mark in 1989. China also leads the world in consumption of biomass fuels. Chinese farmers currently burn an estimated 284 million TCE of fuelwood, crop residues and other biomass, which is roughly 60 percent higher than the consumption level of India, the next largest consumer. China electricity consumption of 623 TWh in 1990 ranked fourth in the world. 1.3 Energy use patterns in China in many ways reflect its unusual status as a 1Nw- income developing country with an extensive industrial sector. The national energy balance for 1990 presented in Table 1.1 shows a blend of energy use patterns that are typical for low-income developing countries with patterns that are more characteristic of industrialized middle-income developing countries or developed countries. In addition, China's energy balance is noteworthy for the high share of solid fuels in primary energy consumption. Coal and biomass fuels together account for 81 percent of primary energy use. 1/ nStandard tons of coal equivalent' (rCE) are used as the basic energy unit in analysis of Chinese energy use patterns throughout this report, in order to conform with Chinese practice. A TCE is defined as 7 million kilocalories. One TCE is thus equivalent to 7/10 of a ton of oil equivalent. A TCE is different from a ton of coal, because the calorific values of coal vary substantially. Chinese coals typically have calorific values in the range of 4,500-6,500 kilocalories per kilogram. Accordingly, a ton of Chinese coal is typically equivalent to 0.65-0.95 TCE. lhe energy accounting of electrichty in this report also variesfrom standard international practice. At all stages (final as well as primary energy consumption), electricity is converted into TCE based on its thermal replacement value. This also is standard Chinese practice, and it provides a number of distinct advantages in analyzing energy efficiency issues in a country where thermal power production dominates. The thermal replacement value is the average amount of energy used to produce a kilowatt-hour of electricity in thermal power production. This is roughly three times the heating value of electricity (860 kilocalories per kWh), which is commonly used elsewhere, at least for final consumption. International figures used in this report have been recalculated, where necessary, based on the thennal replacement value for China in 1988 of 2,780 kilocalories per kWh. The energy value for electricity used in analysis of Chinese consumption trends in this report and Chinese studies also varies by year, following increases in the average energy efficiency of thermal power production.  - 2 - Table 1.1: ENERGY BALANCE, 1990 (million tons of coal equivalent) Total Com- mercial Total Coal Oil Gas la Power Energy Biomass Energy Primary Energy Production 771.8 197.6 20.3 49.7 1,039.4 284.0 1,323.4 Net trade -13.0 -33.6 - 0.7 -45.9 - -45.9 Change in inventory -31.6 -0.6 - - -32.2 - -32.2 Total Primary Energv Use 727.2 163.4 20.3 50.4 961.3 284.0 1.245.3 Power generation -174.8 -17.6 -1.5 193.8 0.0 - 0.0 Power station & transmission losses - - - -33.8 -33.8 - -33.8 Other conversions and losses -30.6 -11.9 15.6 - -27.0 - -27.0 Statistical discrepancies 24.7 0.7 0.0 0.0 25.4 - 25.4 Total Conversion and Losses -180.7 -28.8 14.1 160.0 -35.4 - -35.4 Agriculture 16.7 9.0 0.0 16.7 42.4 - 42.4 Industry 356.7 57.5 28.5 157.2 5S9.9 - 599.9 Construction 3.4 2.6 1.4 2.5 10.0 - 10.0 Transport/communication 16.5 48.8 0.1 4.2 69.5 - 69.5 Commerce 8.2 0.3 0.1 3.0 11.6 - 11.6 Public sector (nonproduction) 15.3 11.2 0.3 7.9 34.7 - 34.7 Urban residential 70.4 3.8 4.1 10.7 89.0 - 89.0 Rural residential 59.5 1.4 0.0 8.2 69.0 284.0 353.0 Total Final Energv Conoumption 546.5 134.5 34.4 210.4 925.8 284.0 1.209.8 La Includes both natural and manufactured gas. Excludes liquefied petroleum gas, which is included under oil. Source: Annex 1, Table 1. The Role of Different Fuels 1.4 Coal dominates China's primary energy use, accounting for 58 percent of total energy use and 76 percent of commercial energy use in 1990. About 24 percent of the coal was used in power generation, while almost all of the remainder was used directly. The massive consumption of coal as a direct fuel in industry and residences is a central, but unique, aspect of China's energy economy. Coal use accounts for about 59 percent of industrial energy consumption, and an exceptionally high 79 percent of urban household energy use. Coal is even important in the transport sector, where its 'e in steam railway locomotives brings the share of coal consumption to over one quarter of that sector's energy use. 1.5 Biomass fuels accounted for an estimated 23 percent of total energy use in 1990. Fuelwood, consisting primarily of low-quality brush and branches, provided some 138 million TCE in 1989. Crop residues provided a similar amount (an estimated 136 million TCE), and  -3- a small amount of dried dung was also burned (3 million TCE in 1989).2/ Biomass accounts for a lower share of total energy consumption in China than in rnost other developing countries. In India, the share of biomass fuel is about 45 percent, and in many African countries, the share exceeds 80 percent. The relatively low share in China is due primarily to the size of industrial commercial energy consumption and the fact that biomass fuels are used virtually exclusively by rural households. Per capita levels of biomass fuel use by rural households is of the same order of magnitude as in other low-income countries. 1.6 Oil accounts for a relatively low share of consumption, especially compared with most middle-income or developed countries. In 1990, oil accounted for 13 percent of total energy and 17 percent of commercial energy use. China is, however, a net oil-exporting nation. In 1990, China's net exports totaled 21.1 million tons of crude oil and 1.1 million tons of petroleum products, accounting for over 15 percent of crude oil production. Oil-fired generation accounts for only 9 percent of power supply. Agriculture, the public sector, and demands for industrial feedstock all compete with the transportation sector for distillate fuels. Even following some required statistical adjustment, the transport sector is estimated to account for only 35-40 percen of oil use.3/ 1.7 The share of natural gas use is very low-only about 2 percent of total and commercial energy consumption. In addition to the 20 million TCE of natural gas, however, about 16 million TCE of manufactred gas was consumed in 1990, produced primarily from coal. The bulk of gas consumption is in industry, where it is used both as a fuel and as a chemical feedstock. Urban household gas consumption amounted to just 4.1 million TCE, or 4.6 percent of total urban household energy use. 1.8 Primary power generation accounted for 4 percent of total and 5 percent of commercial energy consumption. Electricity generation from all sources accounts for a relatively small share of final energy consumption-about 17.4 percent of the total.4/ As with other low- income countries, a key reason is the relatively low use of electricity in the residential sector. Electricity accounits for just 34 percent of residential energy consumption in China and India, but it accounts for one half to two thirds in developed countries (see Annex 1, Table 3). In addition, however, the share of electricity in the total energy use in Chinese industry is low-about 25 percent, compared with 35-50 percent in other countries with major industrial sectors.J/ Z/ For more details, see the Joint ESMAP/Chinese Rural Energy Study Team, China: Training and Technical Assistance in integrated Rural Energy Development (1993, forthcoming). 3/ Due to the nature of the statistical reporting system, petroleum consumption by own-accouxit transport vehicles is listed under the sector where the vehicles are owned (industry, agriculture, etc.), rather than in the transportation sector. The mission made rough adjustments to the energy balances accordingly (see Annex 1, Table 1). 4/ Electricity accounted for 22.7 percent of total final commercial energy consumption in 1990, which also is relatively low. I/ The energy accounting of electricity used in these calculations, and others in this report, varies from standard international practice. See Footnote 1 in this chapter.  -4 - Sectoral Consumption Patterns in International Perspective 1.9 The residential sector typically dominates total er.ergy consumption in low- income developing countries, with all other sectors accounting for fairly small shares. As development proceeds, the share of residential energy use falls, while the share of the industrial sector rises sharply. As economies reach a mature stage, the share of industry in total energy use tends to fall off, with increases in the shares of transportation (especially road transport) and the service sector (see Annex 1, Table 4). 1.10 China does not fit the normal pattern. Although China's low Gross Domestic Product (GDP) per capita classifies it as a low-income country, industry accounts for about 50 percent of total final energy consumption.6/ This compares with 28 percent in India, and less than 10 percent in most other low-income countries. The role of industry in Chinese energy use is more akin to that in Hungary and South Korea, where the share of industry in total energy use is 41 percent and 45 percent respectively. Of the developed countries surveyed, only the Japanese industrial sector holds a share of energy use as large as China's. 1.11 The share of the residential sector of final energy use in China-37.5 percent-is low compared to other low-income countries. Residential energy consumption accounts for an estimated 57 percent of the total in India, and over 80 percent in the majority of other low- income developing countries. The absolute level of residential energy use in China is not low, however-per capita residential energy consumption is of the same order of magnitude as in the other low-income countries surveyed (see Annex 1, Table 5). Rather, the low share of the residential sector in China is caused by the relatively high level of industrial energy consumption. 1.12 Agriculture accounts for just 3.3 percent of total final energy use, while the transportation sector, with its heavy concentration on relatively energy-ef'icient rail transport as opposed to road transport, accounts for only 5.8 percent. Energy use in the remaining, other sectors totals 3.7 percent. These shares are all typical of low-income countries. 1.13 The sectoral use patterns in China for electricity show a similar, but yet more marked, pattern compared to total energy. The industrial sector accounts for a very high 78 percent of final electricity use. This is then followed by agriculture (8 percent), residences (7 percent), and others (7 percent) (see Annex 1, Table 8). Energy Growth Trends in the 1980s 1.14 Total primary energy consumption in China grew by 47 percent, or an average of about 4.0 percent per year, between 1980 and 1990. Of this, primary commercial (nonbiomass) energy use grew from 616 million TCE to 962 million TCE (4.6 percent per annum), while estimated biomass energy consumption grew slower, from 229 million TCE to 284 million TCE (2.2 percent per annum). 1.15 GDP more than doubled over the same period, growing at an average rat of 8.9 percent per year in real terms. The elasticities of growth in energy consumption relative to