Many observers have raised doubts about the accuracy and reliability of China's energy statistics, which show an unprecedented decline in recent years, while reported economic growth has remained strong. This paper explores the internal consistency of China's energy statistics from 1990 to 2000, coverage and reporting issues, and the state of the statistical reporting system. Available information suggests that, while energy statistics were probably relatively good in the early 1990s, their quality has declined since the mid-1990s. China's energy statistics should be treated as a starting point for analysis, and explicit judgments regarding ranges of uncertainty should accompany any conclusions.

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 percent 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. Internationally, Voluntary Agreements have been shown to result in increased energy efficiency, with the more successful programs even doubling autonomous energy efficiency improvement rates. In addition, Voluntary Agreements have important longer-term impacts including changes of attitudes and awareness of managerial and technical staff regarding energy efficiency, addressing barriers to technology adoption and innovation, creating market transformation to establish greater potential for sustainable energy-efficiency investments, promoting positive dynamic interactions between different actors involved in technology research and development, deployment, and market development, and facilitating cooperative arrangements that provide learning mechanisms within an industry. The essential steps for reaching a Voluntary Agreement are the assessment of the energy-efficiency potential of the participants as well as target-setting through a negotiated process. Participation by industries is motivated through the use of carrots and sticks, which refers to incentives and disincentives. Supporting programs and policies (the carrots), such as enterprise audits, assessments, benchmarking, monitoring, information dissemination, and financial incentives all play an important role in assisting the participants in meeting the target goals. Some of the more successful Voluntary Agreement programs are based on some reduction of environmental regulations or taxes (the sticks) for participants. Overall, international experience shows that Voluntary Agreements are an innovative and effective means to motivate industry to improve energy efficiency and reduce related emissions, if implemented within a comprehensive and transparent framework. 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.

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 percent 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. Internationally, Voluntary Agreements have been shown to result in increased energy efficiency, with the more successful programs even doubling autonomous energy efficiency improvement rates. In addition, Voluntary Agreements have important longer-term impacts including changes of attitudes and awareness of managerial and technical staff regarding energy efficiency, addressing barriers to technology adoption and innovation, creating market transformation to establish greater potential for sustainable energy-efficiency investments, promoting positive dynamic interactions between different actors involved in technology research and development, deployment, and market development, and facilitating cooperative arrangements that provide learning mechanisms within an industry. The essential steps for reaching a Voluntary Agreement are the assessment of the energy-efficiency potential of the participants as well as target-setting through a negotiated process. Participation by industries is motivated through the use of carrots and sticks, which refers to incentives and disincentives. Supporting programs and policies (the carrots), such as enterprise audits, assessments, benchmarking, monitoring, information dissemination, and financial incentives all play an important role in assisting the participants in meeting the target goals. Some of the more successful Voluntary Agreement programs are based on some reduction of environmental regulations or taxes (the sticks) for participants. Overall, international experience shows that Voluntary Agreements are an innovative and effective means to motivate industry to improve energy efficiency and reduce related emissions, if implemented within a comprehensive and transparent framework. 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.

The total costs and impacts of expanding energy use in China will depend, in part, on a number of important factors, an understanding of which is vital for China's policy-makers. These issues include the additional environmental and public health impacts associated with energy use, the economic costs of infrastructure expansion to meet growing energy needs, and the potential role that renewable energy technologies could play if pushed hard in China's energy future. This short report summarizes major trends and issues in each of these three areas.

China has ambitious goals for economic development, and must find ways to power the achievement of those goals that are both environmentally and socially sustainable. Integration into the global economy presents opportunities for technological improvement and access to energy resources. China also has options for innovative policies and measures that could significantly alter the way energy is acquired and used. These opportunities and options, along with long-term social, demographic, and economic trends, will shape China s future energy system, and consequently its contribution to emissions of greenhouse gases, particularly carbon dioxide (CO2). In this study, entitled China s Sustainable Energy Future: Scenarios of Energy and Carbon Emissions, the Energy Research Institute (ERI), an independent analytic organization under China's Na tional Development and Reform Commission (NDRC), sought to explore in detail how China could achieve the goals of the Tenth Five-Year Plan and its longer term aims through a sustainable development strategy. China's ability to forge a sustainable energy path has global consequences. China's annual emissions of greenhouse gases comprise nearly half of those from developing countries, and 12 percent of global emissions. Most of China's greenhouse gas emissions are in the form of CO2, 87 percent of which came from energy use in 2000. In that year, China's carbon emissions from energy use and cement production were 760 million metric tons (Mt-C), second only to the 1,500 Mt-C emitted by the US (CDIAC, 2003). As China's energy consumption continues to increase, greenhouse gas emissions are expected to inevitably increase into the future. However, the rate at which energy consumption and emissions will increase can vary significantly depending on whether sustainable development is recognized as an important policy goal. If the Chinese Government chooses to adopt measures to enhance energy efficiency and improve the overall structure of energy supply, it is possible that future economic growth may be supported by a relatively lower increase in energy consumption. Over the past 20 years, energy intensity in China has been reduced partly through technological and structural changes; current annual emissions may be as much as 600 Mt-C lower than they would have been without intensity improvements. China must take into account its unique circumstances in considering how to achieve a sustainable development path. This study considers the feasibility of such an achievement, while remaining open to exploring avenues of sustainable development that may be very different from existing models. Three scenarios were prepared to assist the Chinese Government to explore the issues, options and uncertainties that it confronts in shaping a sustainable development path compatible with China's unique circumstances. The Promoting Sustainability scenario offers a systematic and complete interpretation of the social and economic goals proposed in the Tenth Five-Year Plan. The possibility that environmental sustainability would receive low priority is covered in the Ordinary Effort scenario. Aggressive pursuit of sustainable development measures along with rapid economic expansion is featured in the Green Growth scenario. The scenarios differ in the degree to which a common set of energy supply and efficiency policies are implemented. In cons ultation with technology and policy experts domestically and abroad, ERI developed strategic scenarios and quantified them using an energy accounting model. The scenarios consider, in unprecedented detail, changes in energy demand structure and technology, as well as energy supply, from 1998 to 2020. The scenarios in this study are an important step in estimating realistic targets for energy efficiency and energy supply development that are in line with a sustainable development strategy. The scenarios also help analyze and explore ways in which China might slow growth in greenhouse gas emissions. The key results have important policy implications: Depending on how demand for energy services is met, China could quadruple its gross domestic product between 1998 and 2020 with energy use rising by 70 percent to 130 percent (Figure 1). Continual progress in improving the efficiency and structure of industry is crucial to maintaining economic growth with minimal growth in energy use. In some industries, output may grow with no rise in energy use at all. Swelling ranks of motor vehicles will deepen China's dependence on imported oil up to 320 Mt per year by 2020 an amount that global markets can easily supply. To moderate growth in transportation energy use, the strong promotion of convenient public transport will be needed in addition to tighter fuel efficiency standards and advanced vehicles. Fuel switching, efficient appliances, better heating and cooling systems, and improved building envelope technologies will be needed in the fast-growing buildings sector. By 2020, China will still be dependent on coal for 54 percent to 65 percent of its primary energy, even with rapid growth of other fuels and substantial progress in raising the efficiency of coal use. Natural gas supplies, including imported pipeline gas and LNG, will have to expand tremendously to meet demand from households, commercial buildings, and electric utilities; obtaining sufficient supply is a crucial uncertainty. Sustainable growth in electricity generation will require strong policy support for a range of technologies, including advanced coal-fired generation, natural gas, hydropower, non-hydro renewables, and nuclear. If sustainable policies for energy development are not pursued, energy-related carbon emissions could more than double between 1998 and 2020, but if such policies are aggressively pursued carbon emissions could increase by only 50 percent. Although China's energy sector faces many future challenges, it is technically feasible for China to progress towards meeting its development goals while limiting the growth of energy use. However, each of the three scenarios in this report will require significant, long-term policy efforts to achieve the energy and emission trajectories described in the following pages.