On the morning of June 21, Hebei province's Development and Reform Commission (DRC) welcomed its central government counterparts along with representatives from the Ministry of Finance, the State Environmental Protection Administration, and other agencies that make up the State Council's energy conservation assessment task force. At the same time, neighboring Shandong province hurried the preparation of materials in advance of its own visit on the 25th.

During the two congressional meetings this year the National Development and Reform Commission (NDRC) announced that it would no longer set targets for energy consumption. As a result, the State Council then arranged for the first national energy conservation assessment.

One official from a department involved in the assessment revealed to the EO that although this year the State Council has said that it will abandon consumption reduction targets, in private it has expressed that it will be even stricter with local government on energy consumption issues. "The premier and vice-premier stress this project at almost every meeting, and this major inspection came after a push on the project," the source said.

On June 20, a representative from the NDRC, the task force's leading body, told the EO that this assessment "is primarily for figuring out where local governments are [on the issue], ensuring that policy is being worked on."

According to the source, the NDRC intends to adjust the current tiered energy pricing policies, and they have become the focus of this round of assessments.

Eight ministries depart the capital

The eight teams left for 16 destinations including Henan, Hebei, Gansu, Ningxi, Jiangxi, Shandong, Liaoning, Jilin, Shanxi, Inner Mongolia, Zhejiang, and Fujian.

By June 21, three provinces had already received the State Council's representatives.

In a notice sent at the end of May, the Council said that this round will focus on high-energy-consuming, high-polluting industries-- in this case, iron and steel, copper, aluminum, lead, zinc, cement, electric power, and ferroalloys, along with other similar regional industries.

The work will be split up into three phases. The first phase involved self-inspection and reporting by local institutions, which lasted from May until mid-June. The second phase, which involves the dispatching of task forces by the State Council, was targeted for completion by the end of June. The third phase involves the summary of the assessment.

"They arrived just this morning, and are already being welcomed," said director Wang of Hebei's DRC. "Yesterday we held a working conference, and the related reports and materials were all ready." With iron, metallurgy, petrochemical, and other heavy industries serving as the industrial backbone of the province, Hebei is one of the first stops during every such assessment.

The day the task force arrived, the Hebei DRC website announced that the Hebei energy conservation working group had been established, with Guo Gengmao, the governor of the province, serving at its helm.

Establishing energy conservation-focused organs in regional government is one of the tasks emphasized by the State Council during this round. "Before, new local administrations focused on economic development. Now they are making energy conservation a priority," says one official.

One of the first places visited was Gansu province. "We made a systematic self-examination, with top leaders from the related departments personally leading teams to make assessment... The results have been fed back to the province, and there are no big problems," an official of the energy division of DRC of Gansu said. "The Provincial Party Committee demands that at least 50 percent of the special funds immediately be spent on energy conservation and emissions reduction initiatives, and also on the enforcement of regulation in industries with obsolete production processes—for example, small-scale power plants and cement, ferroalloy, and calcium carbide factories."

Data released by the National Bureau of Statistic show that in May, production in high-energy-consumption industries did not decrease. Pig iron production rose 14.7 percent, unrefined steel 15.7 percent, and aluminum a stunning 47.6 percent. This rapid growth puts tremendous pressure on energy conservation efforts.
 
"Although the yearly energy conservation quotas won't be set, the overall task will be accomplished," says the source. "The government at all levels must report the results of energy-saving and emission-reducing efforts to the National People's Congress. The pressure is still there.”

New policy will emerge

The NDRC source emphasizes that energy price levels are the key focus of assessments in order to prepare for policy adjustments.
 
In June of 2006, the NDRC upped the average price for electricity to 0.025 yuan kw/h on average. High-energy-consumption industries will continue to be targeted with tiered energy price regimes in order to accelerate industry upgrades and halt their blind and rapid growth.

From that point until April this year, the NDRC and Electricity Supervision Committee (ESC) jointly have issued prohibitions on local government handing favorable energy prices to local industry.

But the results haven't been satisfactory. The NDRC and ESC have found that local government does not have enough incentive to charge more for pollutors because presently, any revenue made beyond what would have been made according to the previous prices goes straight to the central government.

Therefore, the NDRC and ESC are working on a plan to earmark this extra income for industry re-structuring, energy conservation, and emissions reduction.

"The policy has passed discussion, and [we] estimate that it will face the public very soon," the source said. "The assessments have two purposes. One is to figure out how local governments are actually implementing tiered pricing; the other is to get a sense of their attitudes toward the new policy.

According to a report on electric power supply and demand released by the Chinese Electric Power Industry Institution (CEPII), in first quarter of 2007, Chinese electric power productions maintained rapid growth— 4 percentage points higher than 2006, at 15.5 percent.

You Min, chief of the development division of CEPII, has said, "From the beginning of this year, the supply and demand of electricity will be basically balanced. There will appear surplus in some areas." Because of growth in power production from January to May, investments fixed assets in cities and towns grew 25.9 percent. 

Zhou Fengqi, a researcher in the energy division of the NDRC, said that a surplus in electric power will only spur more investment in high-energy-consumption industries. Since China's electricity is mainly generated by thermal power, which itself is a high-energy consumer and highly polluting, implementing tiered energy pricing is a direct way to address these issues.