China - Energy efficiency and pollution control in township and village enterprises (TVE) industry

ES~ESMAPGo 6 II Wmsr*T _NW Ifin qi~'c St Manement Assistance Prgramme at /qq4t China Energy Efficiency and Pollution Control In Township and Village Enterprices (TVE) Industry Report No. 168194  4 JOINT UNDP / WORLD BANK ENERG'C SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP) PURPOSE The Joint UNDP/World Bank Energy Sector Management Assistance Programme (ESMAP) was launched in 1983 to complement the Energy Assessment Programme, established three years earlier. ESMAP's original purpose was to implement key recommendations of the Energy Assessment reports and ensure that proposed investments in the energy sector represented the most efficient use of scarce domestic and external resources. In 1990, an international Commission addressed ESMAP's role for the 1990s and, noting the vital role of adequate and affordable energy in economic growth, concluded that the Programme should intensify its efforts to assist developing countries to manage their energy sectors more effectively. The Commission also recommended that ESMAP concentrate on making long-term efforts in a smaller number of countries. The Commission's report was endorsed at ESMAP's November 1990 Annual Meeting and prompted an extensive reorganization and reorientation of the Programme. Today, ESMAP is conducting Energy Assessments, performiuig preinvestment and prefeasibility work, and providing institutional and policy advice in selected developing countries. Through these efforts, ESMAP aims to assist governments, donors, and potential investors in identifying, funding, and implementing economically and environmentally sound energy strategies. GO VERIVAANCE AND OPERATIONS ESMAP is governed by a Consultative Group (ESMAP CG), composed of representatives of the UNDP and World Bank, the governments and institutions providing fimancial support, and representatives of the recipients of ESMAP's assistance. The ESMAP CG is chaired by the World Bank's Vice President, Finance and Private Sector Development, and advised by a Technical Advisory Group (TAG) of independent energy experts that reviews the Programme's strategic agenda, its work program, and other issues. ESMAP is staffed by a cadre of engineers, energy planners and economists from the Industry and Energy Departnent of the World Bank. The Director of this Department is also the Manager of ESMAP, responsible for administering the Programme. FUNDING ESMAP is . cooperative effort supported by the World Bank, UNDP and other United Nations agencies, the European Community, Organization of American States (OAS), Latin American Energy Organization (OLADE), and countries including Australia, Belgium, Canada, Denmark, Germany, Finland, France, Iceland, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Sweden, Switzerland, the United Kingdom, and the United States. PURTHER INFORMATION For further information or copies of completed ESMAP reports, contact: ESMAP c/o Industry and Energy Department The World Bank 1818 H Street N.W. Washington, D.C. 20433 U.S.A.  China Energy Efficien.y and Pollution Control in Township and Village Enterprises (TVE) Industry December 1994 Results of a Joint Study by ESMAP and the China Ministry ofAgriculture 's Department of Energy and Environmental Protection, the Department of Township Enterprises, and the State Planning Commission's Energy Research Institute. Power Development, Efficiency and Household Fuels Division Industry and Energy Department The World Bank 1818 H Street N.W. Washington, D.C. 20433 This document has restricted distribution and may be used by recLpients only in the petfonnance of their official duties. Its contents may not oth.wise be d rlosed wihout tNDP or World Bank authicontan.  ABBREVIATIONS AND ACRONYMS ABC Agricuktural Bank of China BAU Business as usual CO2 Carbon dioxide GDP Gross domestic product ESMAP Energy Sectr Maagement Assistance Programme FYP Five-Year Plan GEF Global Environment Facility IRkR innal rte of retrn Kgce Kilogram of coal equivalent kW Kilowatt kWh Kilowatt hour MOA Ministry of Agiculte MTCE Million tons of coal equivalent NEPA National Environmental Protction Agency SOE State-owned enterprise SO2 Sulphur dioxide TCE Tons of coal equivalent TVCE Township and village collective enterprise WVE Township and village enterpise tpa tons per annum Ipy tonsperyear  CURRENCY EQIIVALENTS Currncy Unit = Yuan (Y)= 100 fe 1US$ = Y 4.7 (1990) lUS$ =Y S.5 (1992) 1US$ =Y 8.7 (1994) FISCAL YEAR January 1 - Decemnber 31 WEIGHTS AND MEASURES bDlmon = 1,000 nilo kWh (of electricity) = 0.1229 kgce (heating value) = 0.392 kgce (themal replacment value in 1990) muI = 1/l5 hectare = 2,000/3 m2 TCE = 7 million kilocalories TOE = 1.4 tce TWh = 1 bilion kWh ton of coal = 0.7143 toe on aveme ton of crude oil = 1.43 tce  TABLE OF CONTENTS PREFACE EXECUITIV SUIvMARY ................. i I. OVERVIEW 1. Role of Township Enterprises in the National Economy . Key Chamaeteristics of TVEs . TVE hie ...2 Energy TUitization .3 Environmental Issues .4 Objectives and Methodology of the Study ............................ , . 5 Key TVE Industries Selected for the Study .6 IL. INDUSTRY PROFILES .7 A. The Brick Industry .7 Introduction .7 Technologies Currently Used .8 Technical Improvements .9 Size and Scale Factors . 1 Environmental Factors .12 B. TheCokeIndustry .12 Introduction .12 Technologies Currently Used .13 Technical Improvements .1 Size and Scale Factors .16 C. Metal Castings Industry .17 Introduction .17 Technologies currently used .18 Technical Improvements .19 Size and Scale Factors .20 Environmental Factors .20 m. CASE STUDIES OF INVESTMENT OPTIONS .22 A. The Brick Industry .22 Specific Investment Cases .22 Results of Case Studies .24 Energy and Pollution Impacts .26 B. The Coke Industry .26 Specific Investnent Cases .26 Case A Data and Assumptions .27 Case B Data and Assumptions .27 Case C Data and Assumptions .27 Results of Case Study .28 Energy and Pollution Impacts .29  C. The Metal Castings Indusy ....................................... . 29 Specific Investnent Cases ....................................... 29 Results of Case Studies ....................................... 31 Energy and Pollution Impacts ....................................... 3 1 Net Costs of Energy Savings and Carbon Dioxide Abatement ...................................... 32 Summary ............................... 33 IV. CONCLUSION4S AND RECO0MMENDATIONS .34 Introduction .34 Directions gor Technical Improvements . 34 Brickmaking .35 Metal Casing .36 Cokemaking .37 Policy Implications .37 Recommendations .39 REFERENCES ............................................. 41 ANNEXES Annex A Accelerated Investment Scenarios ............................................. 42 Annex I. Output Shares under Accelerated Scenarios ............................................. 53 Annex II. Cash Flow and Sensitivity Tables ............................................. 55 Annex Im. Energy Consumption of Metl casting Industry .......................................... 78 Annex IV. Brick Industry: Additional Information ............................................. 80 Annex V. Metal castings Industry: Intenational Comparisons .................................... 82  Preface This report is one of the outputs of a technical assistance activity to China by the UNDP/World Bank Energy Sector Management Assistance Program (ESMAP). Part of the financing for the activity was provided by the UNDP Project e:. Greenhouse Gas Emissions executed by the World Bank, into which results of the study was provided as inI;4L The study was conducted jointly by a World Bank/ESMAP team and a Chinese team consisting of staff of the Ministry of Agriculture's Department of Energy and Environmental Protection and the Department of Township Enterprises, the State Planning Commissior's Energy Research Institute and several local experts. Four reports were prepared by the Chinese teatn during the course of the study. In addition, short technical papers on the subject industries were commissioned with the Energy Technology Support Unit (ETSU) and the Coal Research Establishment, both of the United Kingdom. Thesr materials were used as bases for writing the overall report. The ESMAP team consisted of Ernesto N. Terrado, Principal Energy Planner (Task Manager), Barry Tunnah, Energy Conservation Specialist (Consultant) and Peter Johanssen, Industrial Policy Analyst (Consultant). The Chinese team was led by Mme. Deng Keyun and Mr. Zhang Lujiang of the Ministry of Agriculture. The valuable assistance of the local team as well as by officials in the cities of Chengdu, Jiexiu and Tianjin are gratefully acknowledged. Research assistance at the World Bank was provided by Zhang Zhihong. Donald Hertzmark (Consultant) assisted in the economic and financial analyses. The final report was writen by Emesto Terrado and Barry Tmnnah. Robert Taylor, Todd Johnson and Kurt Schenk reviewed the drafts and provided valuable suggestions.  ExecuiveSummary Overview: Role of Township Enterprises in the National Economy 1. As a consequence of China's rual economic reform, township and village enterprises in China experienced remarkable growth in the last decade and now play a vital role in the overall economy. Table I summarizes the breakdown by ownersnip types. Table 1. TVE Ownership Breakdown (1993) No. of Enterprises Output Value Number of Ownership (million) (bin Yuan) Employees (million) Collective (Township and Village) 1.5 (7%) 1170 (677%) 51.5 (49%/) Private (Joint and Individual) 19.3 (93 %) 588 (33%) 54.3 (51%) All TVEs 20.8 (100%) 1751 (100%) 105.8 (100%) Source: Sttical Digest of Township Enterpises (1993) 2. The output of TVEs increased at an average rate of about, 30% annually from 1985-1992. In 1992 they accounted for 32 % of the national social product and 66 % of the rural social product. Operating outside the framework of state ownership, TVEs are characterized by market orientation and autonomous financial operation. State control of TVEs is exercised only through taxation, allocation of credits, rules on employment of labor, safety regulations, environmental regulations and other indirect means. Despite their smaller scale, older equipment and less educated staff studies have shown that TVEs are generally more efficient in economic terms than State Owned Enterprises (SOEs). The reason appears to be the TVEs higher flexibility (due to their relatively small size) and their better ability to exploit local resources (due to close ties to the community). Furthermore, TVEs generally do not have the SOE's burden of financing employee social security and other benefits. The TVEs are administered by the local governments in accordance with the national and provincial economic and social development plan and the state industrial policy. lVE Induy 3. In this study, attention is focused on the collective enterprises because a vast majority of the industries in the three analyzed sub-sectors belong to this category. Industrial TVEs account for about two-thirds of total output value by all township enterprises, as shown in T-,le 2. It is projected that by the year 2000 TVEs will make up 50% or more of total national in istrial production. Table 2. Relative Share of Industrial Enterprises Compared to All TVEs, 1992 Number of Output Value Number of Employees Enterprise (bin Yuan) (million) (million) Indusirial TVEs 7.9 1319 63.4 All TVEs 20.8 1758 105.8 Shae of Industrial Enwrises 38% 75% 60% Souce: Statistical Digest of Township Etrpise (1993)  H ii - 4. In 1990, TVE industry consumed 142 million tce, consisting of 79 % coal, 16% electricity and 5.4% fuel oil. (See Figure 1). This represented 14.5% of total national energy consumption and about 24% of total industrial energy consumption. SeuaWm of EEnera S. TVEs tend to pay higher prices for consurnp (1#) fuels than SOEs (which until recently obtained fuels Totl: 142 million t largely at lower, in-plan prices) and thus may have more incentive to adopt energy conservation practices. 16ecttcIty Fue Oil Nevertheless, considering their generally small production scale, aging equipment and often outdated production processes, there is substantial potential for energy savings in. TVE industry. That energy 79% conservation efforts are imperative is underscored by projections indicating that TVE energy consumption will reach 240 million tce (of which raw coal will reach 230 million tons) in 2000 and 330 million tee (of which raw coal will be 290 million tons) in 2010. M.yectives and MebOdOQlog of e Stdv 6. Previous studies conducted by the Bankl (See, for example Ref 3) and others have already examined macroeconomic policy issues and have identified key structural reforms that need to be implemented to ensure the continued growth of the TVE sector. These studies recomn ended broad policy initiatives to improve the current legislative and incentive frameworks, the provision of services to rural firms, and reforms in coal allocation and pricing. The present study is focused on technical improvements in energy efficiency, and aims to identify specific policy measures, strategies and programs at the plant level that would promote energy conservation and help improve the economic efficiency of the WVE industry sector. The methodology involved conducting case studies for energy efficiency improvements in selected TVE industies, analyzing the costs and benefits of generic investment options and determining industry-wide replicability of the findings. 7. Brick and tile, coke and metal castings were selected for the case studies. These three TVE inductries collectively account for about 40% of raw coal consumed, almost half of the total energy consumed and almost half of the total CO2 released to the atmosphere by all TVE industries in China. Industry Profles Brickmaking 8. Bricks are the leading construction materials in China and WVE industries now produce over 90% of total market demand (See Table 3). The rest are produced by a few large state-run enterprises. Thirteen provinces account for about 85% of all TVE industry brick or a total of about 355 billion pieces in 1990.  - iii - Table 3. Position of TVE Brickmaking Industries (Outputs in 100 million pcs) Year 1985 1986 1987 1988 1989 1990 1991 1992 National Output 2942 3750 3911 4688 4716 4572 TVE Output 2573 3447 3824 4528 4346 4174 4254 4955 % TVE 87.5 91.9 95.8 96.6 92.2 91.3 Soure: Reference I 9. The most common brick production method in use in TVE industry today utilizes the basic annular kiln (also knowr as the "Hoffman" type) with natural drying, i.e., laying out in stacks in the open air and direct sunlight, of the green bricks. Over 90% of bricks are produced ir, this manner. The breakdown of production by kiln type for 1990 is shown in Table 3. Table 4. TVE Brick Output According to Kiln Type (1990) Kiln Type Output, Percent of TVE 100 million pcs Output Primitive indigenous kilns 313 7.5 Annular kiln Natal drying; solid bricks 3790 90.8 Artificial drying; solid bricks 54 1.3 Artificial dryig; hollow bricks 13 0.3 Tunnel kilns Artificial drying; solid bricks 3 0.07 Artificial drying; hollow bricks 1 0.03 Total 4174 100.0 Source: Reference I 10. Improvements that have been made over the last few years include the incorporation of increasing amounts of coal dust and high carbon fly ash (e.g. from power plants) in the raw material clay that contribute to the energy required in firing. A second development is the shift to the artificial drying process where combustion gases exhausted from the stack are channelled into a drying section through which the green bricks are passed.The typical Hoffman kiln operation is characterised by a relatively large land use, both for the production of the main raw material (clay) and for the stacking of green bricks for drying. A typical brick works making say 10 million standard bricks per year occupies 30 mu (20,000 M2). Artificial drying results in significant land savings and higher productivity (year round operation) but may result in higher energy intensity due to the need for supplemental fuel. Another relatively recent development is the production of hollow or perforated bricks that enable significant savings in material and energy with little effect on brick structural properties. Cok Making 11. Most of the coke used in China is produced by large (greater than 100,000 tonnes/yr) mechanized ovens in state-run enteprises. In 1990, of the total of 73 million tonnes of coke produced in China, about 70% was produced by mechanized ovens. The rest was produced in numerous, small scale TVE industries mainly by non-mechanized means, 90% of them in just seven provinces. A breakdown of TVE coke output by type of oven in 1990 is as follows:  iv. Iable 5. TVE Coke Output by Oven Type (1990) Coke Oven Type Million tonnes Pelcent Prmiive Indigenous 4 6 24.7 PX 11.8 63A JX-1 1.0 5.4 Types P9, 75 0.7 3.8 Small Mechanical 0.5 2.7 Large Mechanical 0.0 0.0 Total 18.6 100.0 Source: Reference I 12. Many of the ovens still used in TVE cokemaking, including the PX and JX-1 types, are relatively simple and do not recover the chemicals, tars or gases released in the process. Very roughly, this represents a loss of 3.2 to 4.0 million TCE annually, as well as severe pollution impacts from gaseous emissions and liquid effluents discharge. 13. The third generation Types 75 and 89 designs either burn most of the byprodu-.ts or recover the tar. Coal consumption is improved to about 1.4 TCE per ton coke and pollution is substantially reduced compared to the earlier models. However, there is little motivation for retrofit-conversion of an existing operational PX or JX- oven to Type 75 or 89 since the cost is not significantly less than building an improved oven on a clear site. Without stronger regulatroy measures, technical improvements are therefore only attractive to producers when an existing oven or plan' reaches the end of its economic life - typically ten years for most ypes of oven used in the TVE industry- and a new plant musi be built As regards mechanical ovens, only the very large ones (over 200,000 tpy) that recover and market gas products are likely to be economic. Their substantially higher cost is certain to be a major constaint to adoption by TVEs in the near term. Mestal Csings Idy 14. In 1990, Chinese industries used 10 million tonnes of metal castings, second highest in the world. About 42% of these were produced by 13,200 TVE enterprises. The output value of this contribution was about 6.3 billion Yuan. Eleven provinces account for nearly 80% of the total TVE castings output.. Nearly all (99%) of TVE metal casting work is on ferrous materials, i.e., iron and steel. The quality and durability of the products are way behind those produced by developed countries. The position and profitability of the China's TVE casting industry in the future will depend on how quickly it can upgrade the quality of its products that, in turn, depends on how quickly it can convert to more modern and efficient production methods. Such conversion will very likey also result in significant reduction in cool use per unit output. 15. TVE castings enterprises are divided in this report into four rough categories: (a) Backward -- typically using manual production methods, producing say 1000 tonnes of castings per year, (b) Less Backward -- using mostly manual methods and a small proportion of mechanized molding facilities, making say 3000 tonnes per year; (c) Moderate or General level - - using mechanized molding, a hot blast cupola, and making about 5000 tonnes per year, and (d) Advanced level -- using a mechanized or semi-automatic molding line, a complete sand processing system, using a hot blast cupola with computer controlled charging system or a duplex melting set, and making 5000 tonnes per year or more.  .V. 16. The shares of total output of the various categories in 1990 are shown below: Table 6. Output Distribution of Castings Industry by Technology Category (1990) Technology Output Percent million tonnes Backward 2.058 49.0 Less backward 2.100 50.0 Moderate level 0.042 1.0 Advanced level 0.0 0.0 4.200 100.0 Source: Reference I Case Studies of Investment Options 17. The technical improvements examined include conversion or retrofit of existing operation, consolidation into larger scale operation, establishment of new, more efficient plants and a combination of such actions. The base cases were chosen so that they represent typical situations in each industry, such that potential replicability of desirable improvements is maximized. TheBricdkIndugIr 18. Two basic cases were chosen for economic investigations: