Development of an Energy Conservation Voluntary Agreement Pilot Project in the Steel Sector in Shandong Province: Report to the State Economic and Trade Commission, People's Republic of China

TitleDevelopment of an Energy Conservation Voluntary Agreement Pilot Project in the Steel Sector in Shandong Province: Report to the State Economic and Trade Commission, People's Republic of China
Publication TypeReport
LBNL Report NumberLBNL-51608
Year of Publication2003
AuthorsPrice, Lynn K., Jiang Yun, Ernst Worrell, Wenwei Du, and Jonathan E. Sinton
Keywordsenergy, iron and steel industry, steel, voluntary agreement

China faces a significant challenge in the years ahead to continue to provide essential materials and products for a rapidly-growing economy while addressing pressing environmental concerns. Energy is a fundamental element of the national economy and the conditions of its use have a direct impact on China’s ability to reach its sustainable development goals. China’s industrial sector, which accounts for over 70% of the nation’s total energy consumption each year, provides materials such as steel and cement that build the nation’s roads, bridges, homes, offices and other buildings. Industrial products include bicycles, cars, buses, trains, ships, office equipment, appliances, furniture, packaging, pharmaceuticals, and many other components of everyday life in an increasingly modern society. This vital production of materials and products, however, comes with considerable problems. China’s industrial sector is heavily dependent on the country’s abundant, yet polluting, coal resources. Industrial production locally pollutes the air with emissions of particulates, carbon monoxide, sulfur dioxide, and nitrogen oxides, uses scarce water and oil resources, emits greenhouse gases contributing to the warming global atmosphere, and often produces hazardous and polluting wastes. Fostering innovative approaches to reduce the use of polluting energy resources and to diminish pollution from industrial production that are tailored to China’s emerging market-based economy is one of the most important challenges facing the nation today.

The pressures of rapid industrial production growth, continued environmental degradation, and increased competition create a situation that calls for a strategically-planned evolution of China’s industries into world-class production facilities that are competitive, energy-efficient and less polluting. Such a transition requires the complete commitment of industrial enterprises and the government to work together to transform the industrial facilities of China. Internationally, such a transformation of the industrial sector has been realized in a number of countries using an innovative policy mechanism called Voluntary Agreements. Voluntary Agreements are “essentially a contract between the government and industry, or negotiated targets with commitments and time schedules on the part of all participating parties.” These agreements typically have a long-term outlook, covering a period of five to ten years, so that strategic energy-efficiency investments can be planned and implemented. A key element of Voluntary Agreements is that they focus the attention of all actors on energy efficiency or emission reduction goals.

Voluntary Agreements were chosen by the State Economic and Trade Commission (SETC) as a new policy mechanism to test in China’s industrial sector where the movement toward a market economy is demanding innovative methods for supporting and transforming essential enterprises. Analysis of the potential for energy efficiency improvement in various energy-intensive industrial sectors in China led to the choice of the iron and steel industry for a pilot project to evaluate this new concept. SETC chose Jinan Iron and Steel Company (Jigang) and Laiwu Iron and Steel Company (Laigang) to test this innovative policy mechanism. The Pilot Project has been developed collaboratively with representatives from Jigang and Laigang, SETC, and the Shandong Economic and Trade Commission (ETC). This report provides information on international experience with Voluntary Agreements and then provides methodologies and guidelines for developing and implementing a pilot Energy Conservation Voluntary Agreement with the two steel enterprises in Shandong Province.

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