Tale of Two Countries: Energy Efficiency Matters

Blogger's Note: What a comparison. China is the world's biggest user of energy but the most inefficient. Japan stands tall for making energy efficiency as one of its main objectives. The result is a country of little or no resources can outpace anybody in terms of energy-efficient production.

China's Wasteful Ways
APRIL 11, 2005 ASIAN BUSINESS
Colossally inefficient use of energy penalizes China twice: With high costs and the ravages of pollution

When Chinese Vice-Premier Zeng Peiyan swung by the Beijing headquarters of steelmaker Shougang Group on Mar. 24, it wasn't a courtesy call. He confirmed rumors China's State Council had ordered Shougang to wind down its Beijing iron-and-smelting operation by 2007 and transfer the facilities out of the city. Shougang plants, mainly fueled by coal, belch out 18,000 tons of dust and contaminants a year, and Beijing is determined to clean up in time for the 2008 Olympic Games.Shougang's departure will do more than reduce pollution: It will take a 40-year-old mill out of circulation and force Shougang to build a far more efficient facility. The energy needs of a fast-growing economy of 1.3 billion people are huge, of course. But China is also a world-class waster.

University of Alberta political economist Wenran Jiang calculates China spends three times the world average on energy -- and seven times what Japan spends -- to produce $1 of gross domestic product. It also is far more inefficient than nations like Brazil and Indonesia. "China needs to shift from a high energy-consumption model of development to a green model," says Hu Angang, director of Tsinghua University's China studies center.Chinese steelmakers on average use about twice as much energy as Japanese or Korean rivals per ton of output. Only 5% of the country's office and residential towers meet China's own minimal energy-conservation standards. China's waste has big implications for global oil prices: In 2004, China imported 2.4 million barrels per day. By 2030, the U.S. Energy Dept. estimates China will have to import 8.4 million bbl.NO QUICK FIXES President Hu Jintao's government has mapped out a plan that calls for hiking reliance on natural gas from 3% to 10% by 2020. Plants fired by gas burn fuel twice as efficiently as turbines fired by coal, which now accounts for two-thirds of China's fuel. The plan also calls for building 30 new nuclear reactors.

John Watkins, president of East Asian operations for diesel engine maker Cummins Inc. (CMI ), says nearly every government official he meets stresses "greater efficiency and cleaner air." Cummins imports and makes diesel engines for mainland buses that are 30% more efficient than gas engines. Royal Dutch/Shell Group (RD ) is licensing technology to fertilizer plants that converts coal into synthetic gas, which burns more efficiently. General Electric Co. (GE ) is making a killing selling gas turbines.All this helps. But it will take years to make a difference. China has many wasteful steel, paper, chemical, and power plants relying on decades-old coal-fired turbines.

Some steelmakers, such as Shanghai Baosteel Group Corp., boast modern facilities. But China is still dotted with the blast furnaces and smelters of many minor players. "There are instances of steel plants set up just to meet local needs," notes Jonathan E. Sinton, a China energy expert at Lawrence Berkeley National Laboratory. "These are terribly inefficient." Partly as a result, fuel consumption in China grew 1.5 times as fast as its economy in 2004. In most developed nations, the ratio is one-to-one or lower.China's consumer boom is stoking the appetite for energy-guzzling air conditioners, refrigerators, and bigger houses. Since 2001, Chinese cities have enacted new building standards that aim for 50% less energy use per square foot. But enforcement is weak.

Then there is China's auto boom. By 2020, vehicles on its roads are expected to swell from 24 million now to 100 million. By then, transportation will account for 60% of China's energy use, up from 33% now. Fuel efficiency rules have been weak. Starting in July, though, auto makers will have three years to boost efficiency by 5%. Now, only 44% of cars and 4% of sport-utility vehicles meet the new standards, estimates Washington's World Resources Institute. Still, skeptics doubt China has the regulatory muscle to punish violators.Meanwhile, China is paying an onerous price for its profligacy. The World Bank figures inefficient fuel use is costing China upwards of $120 billion in lost industrial output annually and health costs related to pollution. Not even fast-growing China can afford the long-term bills that will come due from the way it burns through energy.

By Brian Bremner in Hong Kong, with John Carey in Washington

Japan: Lessons From A Miser
APRIL 11, 2005 ASIAN BUSINESS

Into the gaping maw of a white-hot blast furnace, millions of plastic pellets rain down to fuel the fires that produce molten pig iron at one of Japan's biggest steelmakers. The pellets, made from recycled plastic soda bottles and other containers, account for about 10% of the fuel used by JFE Holdings Inc. (JFEEF ), Japan's second-largest steelmaker, at its two main blast furnaces.

Thanks to a strong law requiring recycling, the price of the processed pellets is competitive with imported coal. JFE is so happy with the pellets that it set up its own recycling plant in 2000 near one of its furnaces.If China is serious about improving its energy efficiency, it ought to look at its regional archrival -- Japan. Forty years ago, Japan imported some 99% of its oil. That's the same level as today. But Corporate Japan is so intent on keeping fuel costs down that its ratio of energy consumption to gross domestic product fell 33% between 1973 and 2000.

"In this resources-poor country, improving resource-consumption efficiency is the first priority in any line of business," says Mitsuhito Ono, chief economist at the Institute for International Trade & Investment in Tokyo.Japan's obsession with energy efficiency started when the oil shocks of the 1970s ended two decades of double-digit growth. It was a bracing wake-up call, and Japan responded in 1979 with a new energy-saving law and by jacking up gasoline taxes -- one reason gas in Japan costs twice as much as in the U.S. Japan also offers hefty tax breaks to consumers who pass over a Mazda RX-8 roadster for a super-fuel-efficient Toyota hybrid or Suzuki minicar.Japan has also invested heavily in nuclear reactors. There are 53 in operation, producing 26% of the country's electricity. And while Japan has suffered a string of nuclear accidents, more plants are being built.

As a percentage of nominal GDP, the government says the amount of energy derived from oil has fallen from nearly 5% of the total in 1980 to about 1% today. That helps explain why the Paris-based International Energy Agency reported last year that a $10 hike in oil prices would shave only 0.4 percentage points off Japan's GDP growth, compared with 0.8 points in the rest of Asia.Now the conservation effort is about to go into overdrive.

Under the terms of the Kyoto Protocol, Japan pledged to reduce greenhouse gas emissions to 6% below 1990 levels by 2012. That means cutting energy waste even more. And if any country can hit that target, it's Japan.

By Hiroko Tashiro in Tokyo, with Chester Dawson in New York