Implementation of energy-saving policies in China: How local governments assisted industrial enterprises in achieving energy-saving targets

Energy Policy 66 (2014) 170–184

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Implementation of energy-saving policies in China: How local governments assisted industrial enterprises in achieving energy-saving targets Xiaofan Zhao a,b,n, Huimin Li c, Liang Wu d, Ye Qi a,b a

School of Public Policy and Management, Tsinghua University, Haidian District, Beijing 100084, China Climate Policy Institute, Tsinghua University, Haidian District, Beijing 100084, China c Beijing Climate Change Response Research and Education Center, Beijing University of Civil Engineering and Architecture, Xicheng District, Beijing 100044, China d School of Humanities and Social Sciences, Beijing Forestry University, Haidian District, Beijing 100083, China b

H I G H L I G H T S








We employ a case study-based approach to study policy implementation in China. Local governments have played a major role in implementing energy-saving policies. Local public agencies collaborated in implementing five types of policy measures. Local policy measures reduced barriers to energy saving at industrial enterprises. Enterprises and local governments work together to achieve energy-saving targets.

ar t ic l e i nf o

a b s t r a c t

Article history: Received 12 May 2013 Received in revised form 26 October 2013 Accepted 28 October 2013 Available online 21 November 2013

Local governments have replaced the national ministries that are in charge of various industries to become the primary implementer of energy-saving policies in China since 2000. This paper employs a case study-based approach to demonstrate the significance of local governments’ policy measures in assisting industrial enterprises with energy-saving activities in China. Based on the longitudinal case of the Jasmine Thermal Electric Power Company, this paper hypothesizes that sub-national governments have played a major role in implementing energy-saving policies in China since the 11th Five-year-plan period. A wide range of provincial and municipal agencies collaborated in implementing five types of policy measures – informational policy, skill building, improved enforcement of central directives, price adjustment, and funding – that reduced barriers to energy saving and motivated active pursuit of energysaving activities at industrial enterprises. The case study demonstrates how an enterprise and local governments work together to achieve the enterprise's energy-saving target. The authors will investigate the hypothesis of this paper in the context of multiple case studies that they plan to undertake in the future. & 2013 Elsevier Ltd. All rights reserved.

Keywords: Energy-saving policy Policy implementation Industrial enterprises

1. Introduction Energy-saving policy in China has significant global impact. Since 2000, China's energy consumption has more than doubled (World Bank, 2012). In 2010, China overtook the United States to become the world's largest energy consumer, accounting for 19% of global energy consumption (International Energy Agency (IEA), 2010). As China becomes more affluent and urban, its citizens will consume more energy (Qi et al., 2013). Recognizing the unsustainable pace of growth n Corresponding author at: Tsinghua University, School of Public Policy and Management, Haidian District, Beijing 100084, China. Tel: þ86 18611809380; fax: þ86 10 62796617. E-mail address: [email protected] (X. Zhao).

0301-4215/$ - see front matter & 2013 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.enpol.2013.10.063

in energy demand and its consequences for the environment, security, and global climate change, China released the 11th National Economic and Social Development Five-Year Plan in 2006, which established a mandatory energy-saving target: a 20% decrease in national average energy intensity (i.e., energy consumption per unit of GDP) by 2010 (National Development and Reform Commission (NDRC), 2006a; Energy Information Administration (EIA), 2008). By 2010, China reversed its rising energy trend from the 2000–2005 period and reduced energy intensity by 19.1%, slightly short of the 20% target (Qi et al., 2013; Andrews-Speed, 2009). In China, policy performance often depends on implementation. In the 1980s and 1990s, the implementation of energy-saving policy in China relied on numerous national ministries (Qi, 2013; Appendix A in supplementary material). With these ministries

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abolished by 2000 as the central government reorganized itself during its adaptation to a market economy, local governments1 assumed responsibility for implementing energy-saving policies under the so-called target responsibility system (TRS).2 Specifically, the 20% national average energy intensity reduction target was to be met using “responsibility contracts,” which assign energy-saving targets to lower levels of governments and key energy-consuming enterprises3 and hold government officials and enterprise leaders accountable for target performance through an evaluation system, linking the local implementation of central policies to financial bonuses and career advancement of local cadre (Lo and Wang, 2013; Zhao and Ortolano, 2010; Zhou, 2010). In response to the barriers to industrial energy saving in China, including the relatively low priority of energy saving for enterprise managers (Chen and Porter, 2000; Li et al., 2013), the lack of systematic knowledge about energy-saving opportunities (Fleiter et al., 2012; Schleich, 2004), the insufficient energy management system (Chen and Porter, 2000; Fang and Zeng, 2007), incentives to continue production at small low-efficiency facilities (Price et al., 2011), and difficulties raising funds for energy-saving projects (Wang et al., 2008; Zhao and Ortolano, 2010), local governments in China instituted and implemented a series of policies and programs since the 11th Five Year Plan (FYP) period (Zhou et al., 2010; Zhang et al., 2011). This paper investigates whether and to what extent local governments’ implementation of energy-saving policies have alleviated barriers and facilitated energy-saving activities at industrial enterprises in China as well as whether the same trends will apply during the 12th FYP period. Historically, gathering empirical evidence about energy policy implementation in China has been difficult due to limited access to data. This paper contributes to the existing literature by employing a case study-based approach to demonstrate the impact of subnational governments’ implementation of energy-saving policies on energy-saving activities at industrial enterprises. Based on a longitudinal case study of the Jasmine Thermal Electric Power Company (JTEPC), the authors hypothesize that sub-national governments have played a major role in implementing energysaving policies in China. A wide range of provincial and municipal agencies collaborated in implementing five types of policy measures – informational policy, skill building, improved enforcement of central directives, price adjustment, and funding – that reduced the barriers to energy saving and motivated the active pursuit of energy-saving activities at industrial enterprises. The authors will investigate the hypothesis in the context of multiple case studies that they plan to undertake in the future.

2. China's industrial energy-saving policies The industrial sector consumes more than 70% of total energy in China (National Bureau of Statistics (NBS), 2010; 2011). Therefore, energy-saving policies have traditionally focused on the industrial sector. This section reviews representative national energy-saving policies for industrial energy efficiency during the 11th FYP period, followed by a discussion of local governments’ policies for industrial energy saving.

1 Local governments in China refer to all levels of sub-national governments, such as provincial governments and municipal governments. In this study, we use local governments and sub-national governments interchangeably. 2 For an extended discussion of the target responsibility system, please see Tsui and Wang (2004), O'Brien and Li (1999) and Zhou (2010). 3 According to the Energy Conservation Law in China, key energy-consuming enterprises refer to enterprises that consume a minimum of 5000 tce a year.

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2.1. National policies for industrial energy saving During the 11th FYP period, the central government of China launched several policies for industrial energy saving (Zhou et al., 2010). The three most representative policies are the Top-1000 Enterprise Program, the Ten Key Energy-Saving Projects, and the Obsolete Capacity Retirement Program. The national government launched the Top-1000 Enterprise Program in 2006 to achieve energy savings of 100 Mtce by 2010 (National Development and Reform Commission (NDRC), 2006b). The program originally covered the 1008 most energy-intensive enterprises in 9 major energy-consuming industries, each consuming a minimum of 180,000 tce annually. The Top-1000 Enterprise Program was implemented under the target responsibility system (TRS). The National Development and Reform Commission (NDRC) divided the national energy savings target among all provinces and signed responsibility contracts with provincial governments, specifying the provincial governments’ energysaving targets, rewards and penalties (Price et al., 2010). Target setting for provincial governments considers several factors, including industrial structure, total energy consumption, energy productivity, energy mix, and the stage of economic development (China Sustainable Energy Program (CSEP), 2007). Each provincial government divided the targets among the Top-1000 Enterprises within its jurisdiction, mainly based on each enterprise's share of energy consumption among all Top-1000 Enterprises, adjusted for the enterprise's potential for technological progress4 (LESO, 2012). Provincial governments signed responsibility contracts with Top1000 Enterprises within their jurisdictions (Appendix B in supplementary material) and assessed the target performance of the Top1000 Enterprises against a scoring table5 (Appendix C in supplementary material). Local governments and enterprises were rewarded or penalized depending on their target performance, which has become part of the criteria matrix for evaluating local governments and their officials as well as major energyconsuming state-owned enterprises (SOEs) and their leaders6 (Lo and Wang, 2013; Zhou et al., 2010). Energy-saving targets for local governments and SOEs are binding and follow the “one item veto” rule (yipiao-foujue), meaning that if a government or SOE fails to

4 For instance, if Enterprise A accounts for 0.5% of total energy consumption of all Top-1000 Enterprises, then the energy savings target assigned to Enterprise A will be approximately 0.5% of the energy savings target for all Top-1000 Enterprises, i.e., 100 Mtce. Therefore, the energy savings target for Enterprise A would be 0.5%  100¼ 0.5 Mtce. However, if the efficiency level of Enterprise A is already quite high and potential for further efficiency upgrade is limited, then the resulting target will be lowered accordingly. 5 Local government agencies responsible for energy saving review selfexamination reports submitted by the enterprises and organize an assessment group comprised of experts from a variety of energy-relevant agencies and research institutes to conduct on-site inspection of the enterprises before making a final assessment (Li et al., 2013). However, because assessment experts were not fulltime inspectors and were only able to commit a few hours at an enterprise each year, the final assessment was largely based on self-examination reports, followed by fine-tuning by the assessment group during on-site inspections (JTEPC, 2013a; JTEPC, 2013b; Placidity Energy Saving Office (PESO), 2013). 6 Local governments and SOEs that meet or exceed energy-saving targets in the responsibility contract will be commended and given awards in national energysaving commendation events. Subordinate governments that fail to meet targets assigned by their superior governments are required to submit a written report to their superior government within one month of the release of the assessment result. The written report includes a detailed rectification plan and specifies the timeframe for rectification. The NDRC suspends authorization and approval for energy-intensive projects in these regions. SOEs that fail to meet energy-saving targets will receive a formal notice of criticism from the NDRC and media exposure. In addition, these SOEs need to submit written rectification reports to their corresponding provincial governments. Government officials in regions that fail to meet their targets and leaders in SOEs that miss their targets will not receive promotions or honorary titles or participate in annual award evaluation programs. They are also held accountable if rectification proves ineffective.

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meet its energy-saving targets, then the government or SOE and the corresponding leaders will be penalized regardless of their performance in other fields. Media reports and the case study described below suggest that some local governments and enterprises were penalized for failing to meet their energy-saving targets, although we have found no reporting of penalties against government officials.7 By the end of 2010, the Top-1000 Enterprise Program saved 150 Mtce in total (National Development and Reform Commission (NDRC), 2011b). The Ten Key Projects was another important energy-saving initiative launched by the central government during the 11th FYP period (Appendix D in supplementary material). The goal of the initiative was to achieve approximately 240 Mtce energy savings capacity, with key industries reaching or approaching the same energy intensities for major products as those achieved by advanced international industries at the beginning of the 21st century. The project provides financial incentives to industrial enterprises that perform Ten Key Projects with a savings capacity of more than 10,000 tce: 200 RMB/tce for projects in the Eastern Region of China and 250 RMB/tce for projects in the Western Region of China8 (Ministry of Finance and the National Development and Reform Commission (MOF & NDRC), 2007). During the 11th FYP period, China's central government spent 30 billion RMB on more than 5200 Ten Key Energy-Saving Projects (National Development and Reform Commission (NDRC), 2011a). By 2010, the NDRC reported that the Ten Key Energy-Saving Projects accrued a 340 Mtce energy savings capacity but did not report how much energy was actually saved (National Development and Reform Commission (NDRC), 2011a; Ke et al., 2012). The 11th FYP also called for the elimination of obsolete production capacity9 in energy-intensive industries through the Obsolete Capacity Retirement Program. The NDRC employed the TRS to assign phase-out targets to provincial governments, which delegated the targets to lower levels of government and to key energy-consuming enterprises. The Ministry of Finance provided 21.91 billion RMB of subsidies to enterprises in less-developed regions to encourage their phase-out activities during the 11th FYP period (Yu, 2013). By 2010, China exceeded its phase-out targets for 13 energy-intensive industries (Appendix E in supplementary material; National Development and Reform Commission (NDRC), 2011d).

7 For instance, in July 2009, the Shandong Provincial Government released the assessment results for 17 municipal governments within its jurisdiction. Among the 17 municipal governments, only Rizhao Municipal Government failed to meet its energy saving target assigned by the Shandong Provincial Government. As a result, Rizhao filed a written report to Shandong Province within one month of the release of the assessment result, listing rectification measures that it planned to undertake. Shandong Provincial Government suspended authorization and approval of energyintensive projects in Rizhao City. Evidence that penalties have been implemented for enterprise leaders can be found in our case study in Section 4. When Jasmine Thermal Electric Power Company failed to meet the energy-saving target assigned by the provincial government, both the plant manager and the plant were denied eligibility for any medals and honors, although in previous years, Jasmine had almost always received the “Labor Day Honorary Medal” in Lotus Province (JTEPC, 2008b). News about Jasmine's failure to meet its energy-saving target appeared on several important governmental and commercial websites. 8 The financial subsidies apply to five industrial projects within the Ten Key Projects: renovation of coal-fired industrial boilers, waste heat and pressure utilization, oil conservation and substitution, electric motor system energy efficiency, and energy systems optimization. The other projects that fall into the Ten Key Projects category target residential and governmental energy use or specific technologies such as green lighting. 9 Obsolete production capacity is not clearly defined in Chinese policy literature. According to the “Catalogue for Industrial Structural Adjustment,” production techniques, facilities and products that meet the following criteria are considered “obsolete”: (1) do not comply with relevant laws and regulations, (2) severely waste resources and pollute the environment, and (3) do not meet safety conditions. The Ministry of Industry and Information Technology and the National Energy Administration are working on further refining the definition of obsolete production capacity.

2.2. Local governments’ policies for energy saving Local governments were the primary implementer of energysaving policies in China during the 11th and 12th FYP periods. To fulfill the central government's energy-saving targets, local governments strengthened the enforcement of central energysaving directives. For instance, as mandated by the Obsolete Capacity Retirement Program, Shanxi Province punished enterprises that did not phase out their outdated capacities within due time by the “Five Stops,” i.e., terminating power supply, water supply, coal supply, transportation services, and loans (Zhang et al., 2011). Moreover, local governments devised more concrete energysaving policies that targeted industrial enterprise, including informational, skill building, price adjustment, and funding policies. For instance, the Municipal Government of Beijing released a list of recommended energy audit consulting entities in 2011 following the procedures for open nominations, voluntary application, expert review, and public announcement. This informational policy provided industrial enterprises with authoritative references in their selection of qualified energy audit entities (Beijing Development and Reform Commission, 2012). Other local governments implemented programs to build industrial enterprises’ skills for energy management. The Shandong Provincial People's Government, supported by the Asian Development Bank, trained more than 7000 professional energy managers – experts in the technical and financial aspects of energy efficiency projects – for key energy-intensive enterprises in the province between 2007 and July 2013 (Asian Development Bank (ADB), 2011; Dai, 2013). Price adjustment was another policy measure that local governments used to promote energy saving. For example, Shanxi Province tightened the implementation of differential electricity pricing policy by increasing the price differential between enterprises with higher and lower energy efficiency (Zhang et al., 2011). During the 11th FYP period, all provincial governments and many sub-provincial governments established special funds for energy saving to subsidize energy-saving activities. The sub-national governments disbursed 29.7 billion RMB for technological retrofits and 11.24 billion RMB in subsidies for the phase-out of obsolete production capacity (Yu, 2013; Dai et al., 2012).

3. Methodology 3.1. A case study approach This study investigates whether and how local governments’ implementation of energy-saving policies in the 11th and 12th FYP periods, such as the activities outlined in Section 2.2, has reduced barriers to energy saving at industrial enterprises in China. Because the research question is a “how” question and energy-saving policy implementation in the 11th and 12th FYP periods is a contemporary issue, we have chosen a case study-based approach and followed Case Study Research Design and Methods (Yin, 2002). This study focuses on a longitudinal single case: Jasmine Thermal Electric Power Company (JTEPC) in Placidity City, Lotus Province, two real places with names anonymized.10 The data that we collected and analyzed are Jasmine's decision-making processes, particularly the key actors and policies that influenced Jasmine's decisions, and the specific steps that the company has taken to save energy since 2006. We recognize the limitations of using a single case study to make broader generalizations and consider this exploratory study 10 This study uses pseudonyms for the province (Lotus), municipality (Placidity), and the electric power generation company (Jasmine) to protect interviewees’ identities. All interviews were conducted on the condition of anonymity.

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to be the starting point for a set of multiple case studies. Our ultimate goal is to generalize the set of case study results to form a broad theory about the relationship between policy measures by sub-national governments and energy-saving activities at industrial enterprises. 3.2. Case selection The authors chose Jasmine as the case study subject for the following reasons: First, Jasmine is a major coal-fired electric power generator. The power industry accounts for more than 50% of China's total coal consumption and will likely contribute nearly 55% of China's total GHG emissions by 2020 (Fang and Zeng, 2007). With a total capacity of over 1000 MW, Jasmine is the largest power generator in Placidity City and supplies heat to 30% of the energy customers in Placidity. Jasmine's behavior provides an indicator of how energy-intensive enterprises in China responded to energysaving policy measures. Second, Jasmine is typical of China's older state-owned power plants because it has a large quantity of obsolete equipment. The coal consumption rate (CCR) at Jasmine, i.e., coal consumption per kWh generated, was 385 gce/kWh in 2005, 4% higher than the national average of 370 gce/kWh (China Electricity Council (CEC), 2006). Given its obsolete production capacity, Jasmine would likely encounter greater challenges in energy-saving efforts, which renders it a key target for government policies. Third, Jasmine is one of the Top-1000 Enterprises and a stateowned subsidiary of Huaneng Group, which is a centralgovernment-owned power generation corporation11 (Xinhuanet, 2006). We anticipate that Jasmine would receive extensive scrutiny from local governments and its parent corporation and that Jasmine would be motivated to respond to the central governments’ energy-saving mandates, thereby making it relatively easy to identify the impact of the policy measures implemented by subnational governments. Finally, the author had excellent contacts with Jasmine, a key factor influencing empirical studies in China. This network ensured the author's access to extensive information about the company in the form of paper and electronic documents, e-mails, and in-person and telephone interviews. Because of the trust developed in the past and the promise of anonymity, we feel confident about the accuracy of information obtained regarding Jasmine. 3.3. Data gathering In 2008, the first author conducted on-site fieldwork at Jasmine. Two questionnaires were first sent to the plant energysaving professional engineer, who completed part of the questionnaires and had the plant manager contribute information. Subsequently, 7 h of in-person interviews were conducted in a group setting with the plant manager, the Operations Division director, and two engineers, one responsible for energy saving and 11 Following the announcement of the goal of reducing energy intensity by 20% during the 11th FYP period, the NDRC translated the target into specific, binding reduction quotas for 30 provincial governments, the Xinjiang Production and Construction Corps, and 14 central-government-owned corporations, including Huaneng Group. Huaneng subsequently disaggregated its energy savings target (811.2 thousand tce) into 19 subsidiaries, all of which were Top-1000 Enterprises. However, Jasmine was not one of Huaneng's 19 subsidiaries in 2006. Before December 2008, Jasmine was an indirect subsidiary of the State Grid Corporation of China (SGCC). Specifically, Jasmine's parent company was a wholly owned subsidiary of Lotus Electric Power Corporation, a regional subsidiary of the central-government-owned SGCC. Huaneng Group acquired Jasmine in December 2008. Therefore, Jasmine was not assigned an energy savings target by Huaneng Group in the 11th FYP period.

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one responsible for environmental protection. The plant manager provided numerous documents via e-mail, and the energy-saving professional engineer took the first author on a tour of the facility. Two follow-up telephone interviews, one with the plant manager and the other with the plant energy-saving engineer, lasted approximately 45 and 15 min, respectively. Between 2008 and 2012, the first author recorded the energysaving performance of Jasmine during the 11th FYP period via e-mail correspondence, telephone interviews with the plant manager at Jasmine, publicly accessible government documents, and published books. In 2012, the first and second authors conducted follow-up fieldwork at Jasmine. The authors first sent a questionnaire to 10 major industrial enterprises in Placidity City, including Jasmine, to prepare for a roundtable discussion on industrial energy saving organized by the Lotus Provincial Energy Saving Office (ESO) and the Placidity Municipal ESO. On June 4, 2012, the first and second authors attended this roundtable, where the energy-saving professional engineer from Jasmine shared the plant's experience in energy saving and the challenges encountered. Following the roundtable, the first and second authors conducted 2 h of inperson interviews at Jasmine with the energy-saving professional engineer and the director of the Operations Division. In 2013, the first author again conducted fieldwork at Jasmine and 2 other Top-10000 Enterprises12 within Placidity City. The author interviewed the energy-saving professional engineer at Jasmine in-person for 2 h, followed by a 30-min telephone interview. The first author interviewed the director of the Placidity Energy Saving Office (PESO) and the head of the Division of Resource Conservation at the Lotus Energy Saving Office (LESO).

4. Case study 4.1. Case introduction Jasmine Thermal Electric Power Company was built in 1958 as the first high-temperature high-pressure thermal power plant in Lotus Province. In 50 years, Jasmine has expanded its capacity from 145 MW in the 1960s to 1360 MW in 2011 (Tables 1 and 2). Two of the most important indicators for power plant efficiency are thermal efficiency and auxiliary power ratio (APR) (Lin et al., 2012). Thermal efficiency is typically measured by the coal consumption rate (CCR). APR is the fraction of total electricity generated by the plant that is used within the plant. In 2005, Jasmine generally fell behind the national average and advanced global level in both CCR and APR except for plant average APR, which was slightly below the national average (Figs. 1 and 2). Small-capacity generating units have much poorer efficiency performance than do larger ones, which has important implications for Jasmine's “build big-close small” (shangda-yaxiao)13 project during the 11th FYP period (Figs. 1 and 2). During the summer of 2006, Jasmine signed a responsibility contract with the Lotus Provincial Government regarding its 12 The Top-1000 Enterprise Program was replaced by the Top 10000 Enterprise Program during the 12th FYP period. The Top 10000 Enterprise Program covers the top 17,000 key energy-consuming enterprises in China, most of which were industrial enterprises (National Development and Reform Commission (NDRC), 2011c). 13 The “build big-close small” project is required in the Energy Development 11th FYP and is widely viewed as a key strategy to improve energy efficiency. Mr. Xiaoping Zhao, then-director of the NDRC's National Energy Bureau, elucidated the significance of the “build big-close small” policy to meeting the energy-saving goal in the 11th FYP in an interview in 2007 (in Chinese). Available at 〈http://news. xinhuanet.com/environment/2007-02/01/content_5682137.htm〉, last accessed on April 5, 2013.

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Table 1 Profile of generating units 1–10 at Jasmine. Source: Internal documents provided by Jasmine. Generating units

Installed Capacity (MW)a

Start of operation

Time of shut-down

Model

1 2 3 4 5 6 7 8 9 10

25 35 35 50 100–110 100–110 300–330 300–330 300–350 300–350

1960 1959 1960 1965 1983 1983 1987 1990 2011 2011

November, 2011 November, 2011 November, 2011 November, 2011 April, 2010 April, 2011

Abstraction-condensing turbine, domestic Back-pressure turbine, imported Back-pressure turbine, imported Abstraction-condensing turbine, domestic Condensing units, domestic Condensing units, domestic Subcritical, domestic Subcritical, domestic Supercritical, cogeneration, domestic Supercritical, cogeneration, domestic

a

The first capacity number in each range indicates the installed capacity upon start of operation, and the second number indicates the capacity after expansion.

Table 2 Generating units under operation (2005–2011). Source: Internal documents provided by Jasmine. Year a

2005–2007 2008 2009 2010 2011

Generating units under operation

Total capacity (MW)

1,2,3,4,5,6,7,8 5,6,7,8 5,6,7,8 7,8 7,8,9,10

1025 880 880 660 1360

a The range 2005–2007 refers to the period until November 2007, when Units 1–4 were shut down.

energy-saving target for the 11th FYP period. The responsibility contract committed Jasmine to reduce its energy consumption by 157.1 thousand tce relative to the 2005 level within the five-year period. This overall target was evenly distributed over five years. Therefore, Jasmine was expected to achieve energy savings equal to one-fifth of the overall target each year, i.e., 1/5  157.1¼ 31.4 thousand tce. The provincial government assessed Jasmine annually against its cumulative energy savings, which were calculated by totaling the energy savings in previous years during the five-year period. For instance, for 2008, Jasmine's cumulative energy savings target would be 94.3 thousand tce, i.e., (2008  2005)  31.4 ¼94.3 thousand tce. According to the responsibility contract, Jasmine was subject to denial of eligibility for any honors or awards if it failed to meet its cumulative energy saving target in a given year, regardless of its performance on other criteria such as total power output (JTEPC, 2008a).

4.2. Administrative framework for enforcing industrial energy saving in the case study context Fig. 3 illustrates the three tiers of primary agencies implementing industrial energy saving for the Jasmine case.14 Agencies displayed in bold letters on the chart are the primary agencies responsible for energy saving at a particular level of government: the National Development and Reform Commission (NDRC), Ministry of Industry and Information Technology (MIIT), Lotus Economic and Information Commission (LEIC) and Placidity Economic and Information Commission (PEIC). At each level of government, other agencies complement LEIC and PEIC in 14 Please note that Fig. 3 only illustrates the primary agencies in charge of energy saving at each level of government. In addition to these agencies, more agencies play a supporting role in managing energy saving, such as the General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) within the central government of China (the provincial equivalent is the Lotus Bureau of Quality and Technical Supervision and the municipal equivalent is the Placidity Bureau of Quality and Technical Supervision) and the State-owned Assets Supervision and Administration Commissions (SASAC) at three levels of government.

implementing energy-saving policy measures. The Development and Reform Commissions are responsible for proposing and approving new energy projects, the Finance Bureaus are responsible for issuing subsidies to energy-saving projects, and the Environmental Protection Bureaus are charged with enforcing pollutant emissions standards, which indirectly impose pressure on enterprises to adopt higher-efficiency technologies. Fig. 4 displays the key divisions responsible for industrial energy saving within LEIC and PEIC. 4.3. Jasmine's response to the energy-saving target 4.3.1. Finding potential for energy saving through energy audit Prior to 2006, Jasmine had several maintenance engineers who were charged with regular equipment inspections and implementing energy-saving measures. However, the maintenance engineers were working in silos and were thus only aware of the efficiency upgrade potential within their specific workshop. Because energy saving was not considered one of Jasmine's top priorities, the plant did not create any mechanisms to compile information about plant-wide energy-saving opportunities from different divisions and inform the manager of these opportunities (JTEPC, 2008b). Consequently, the manager lacked a systematic understanding about the overall energy-saving potential at Jasmine (JTEPC, 2008a). With the advent of the Top-1000 Enterprise Program, Jasmine was informed of the mandatory requirement to perform energy audits by October 2006 and to formulate its energy-saving plan based on the audit report (National Development and Reform Commission (NDRC), 2006b). However, similar to most Top-1000 Enterprises in Lotus Province, Jasmine was unfamiliar with energy audits. In September 2006, Lotus Economic and Information Commission (LEIC) designated 18 energy audit companies – at least one in each Lotus municipality – to perform energy audits for the Top-1000 Enterprises within Lotus Province. In Placidity City, Placidity Energy Technology Service Center (PETSC), which was an experienced energy audit company affiliated with the Placidity Chemical Engineering Research Institute, was asked to conduct energy audits for the Top-1000 Enterprises within Placidity, including Jasmine. In November 2006, LEIC issued the “Interim Procedures for Energy Audit in Lotus Province,” setting concrete rules for energy audit practices that had not been specified in the Top-1000 Enterprise Program. For example, key energyconsuming enterprises in Lotus Province were required to perform energy audits at least once every three years. Because the technical expertise and abilities of energy audit companies vary widely, the Interim Procedures also set market entry regulations: only agencies authorized by the LEIC are qualified to perform energy audits for key energy-consuming enterprises, including Top-1000 Enterprises (Shen et al., 2012; Price et al., 2010). In January 2007, PETSC

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Fig. 1. Comparison of CCR between generating units of different capacity at Jasmine Thermal Power Generating Company (2005). Sources: China Electricity Council (CEC), 2006); Chen et al., 2009; Placidity Energy Technology Service Center (PETSC), 2007)

Fig. 2. Comparison of APR between generating units of different capacity at Jasmine Thermal Power Generating Company (2005). Source: China Electricity Council (CEC), 2008; Placidity Energy Technology Service Center (PETSC), 2007)

performed an energy audit for Jasmine and identified several problems relating to energy misuse, including the following: (1) The large share of small and outmoded generating units was the primary contributor to the low thermal efficiency of Jasmine. Units 1–4, which were below 50 MW and served for nearly 60 years, had much higher CCR and APR than other units and the plant average (Figs. 1 and 2). These units belonged to the “shut-down” category set by the National Development and Reform Commission (NDRC) and the National Energy Office (NEO).15 (2) Jasmine housed a large amount of low-efficiency electromechanical equipment, which was the immediate cause for the high APR. Specifically, only 12.5% of transformers could be

15 According to the “Opinion on Accelerating the Shutdown of Small Thermal Power Generating Units” by NDRC and NEO, thermal power generating units that meet any of the following criteria are supposed to be shut down: (1) thermal power generating units below 50 MW under the coverage of large grids; (2) regular thermal power generating units below 100 MW and with service time of longer than 20 years; and (3) other thermal generating units that do not meet energy efficiency or environmental standards, whose CCR greatly exceeds average, or service time exceeds design life.

characterized as high efficiency, whereas 53.4% of transformers were supposed to have been phased out long ago. (3) Jasmine has not been able to maintain close communication with local energy-saving agencies. Consequently, Jasmine was not informed of the energy consumption (efficiency) limit standard set by the Lotus Economic and Information Commission. Jasmine was also unaware of the public notice of assessment of target performance for the Top-1000 Enterprise Program in Lotus Province.16

The manager of Jasmine found the energy audit report helpful because it presented a comprehensive picture of Jasmine's energy consumption status and made specific suggestions for energy-saving opportunities in terms of energy management reform and technological renovations. Based on the audit report, Jasmine formulated its energy-saving plan in March 2007, charting the course of energy efficiency improvement in the near term and for the next years (JTEPC, 16 The design of this program resembles the national Top-1000 Enterprise program but targets the top 1000 most energy-intensive enterprises within the jurisdiction of Lotus Province.

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State Council

National Energy Commission (NEC)

Ministry of Environmental Protection (MEP)

Lotus Environmental Protection Bureau (LEPB)

Placidity Environmental Protection Bureau (PEPB)

Central Government of China

Ministry of Industry and Information Technology (MIIT)

National Development and Reform Commission (NDRC)

Lotus Economic and Information Commission (LEIC)

Lotus Development and Reform Commission (LDRC)

Lotus Province Finance Bureau (LPFB)

Lotus Provincial Government (LPPG)

Placidity Development and Reform Commission (PDRC)

Placidity Municipal Finance Bureau (PMFB)

Placidity Municipal Government (PMPG)

Placidity Economic and Information Commission (PEIC)

Ministry of Finance (MOF)

Fig. 3. The administrative framework of energy conservation management in China's power sector.

Lotus Energy Saving Supervisory Team (LESST) Lotus Economic and Information Commission (LEIC)

Provincial Level Lotus Energy Saving Office (LESO)

Placidity Energy Saving Supervisory Team (PESST) Placidity Economic and Information Commission (PEIC)

Municipal Level Placidity Energy Saving Office (PESO)

Fig. 4. Key divisions responsible for energy saving within Lotus Economic and Information Commission (LEIC) and the Placidity Economic and Information Commission (PEIC).

2007). In December 2007, LEIC published a list of 28 authorized energy audit companies within Lotus Province. In 2009, Jasmine hired one of the authorized companies for the second energy audit and implemented the recommended measures in 2010 (JTEPC, 2011).

4.3.2. Internal energy management reform Based on the scoring criteria for Top-1000 Enterprises (Appendix C in supplementary material), Jasmine implemented several management reforms to enhance energy saving. Jasmine established the Energy-Saving Leaders’ Group (Fig. 5) and the Energy-Saving Working Group, both comprised of heads and staff from all energyrelevant divisions and led by the plant manager. The Leaders’ Group convenes periodically to formulate plans for energy-saving projects and mobilize resources for these projects. Jasmine also arranged

positions for energy-saving professional engineers17 (jienengzhuangong) who were responsible for enforcing energy-saving activities in Jasmine and communicating with local energy-saving agencies on behalf of the plant. Energy-saving professional engineers are the primary point of contact for local energy-saving agencies when they pass information to enterprises (JTEPC, 2008b). Jasmine also established its internal target responsibility system to enforce energy saving. Jasmine disaggregated the overall energy-saving target into specific targets for 26 divisions with the plant. Each division further delegated the targets to each shift and

17 Although the positions for energy-saving professional engineers were officially established in the production division at Jasmine, these engineers are responsible for closely coordinating with other divisions in energy-saving activities.

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Plant manager

Vice plant manager (production)

Deputy manager of maintenance

Head of each maintenance team

Deputy manager of operations

Deputy chief economist

Head of operations division

Head of production division Energysaving professional engineer

Vice plant manager (business operations)

Head of business planning division

Head of scheduling division

Head of project construction

Head of fuel division

Accounting professional engineer

Fig. 5. Energy-Saving Leaders’ Group at JTEPC. Source: JTEPC, 2008c

every staff member. The Energy-Saving Leaders’ Group regularly assesses the target performance of each division. Jasmine adopted the “economic responsibility mechanism” to provide staff members with incentives for target attainment (Zhao and Ortolano, 2010). If the plant meets the annual energy-saving target, each employee is awarded 200 RMB, and staff at energy-related positions are rewarded 1000 RMB (JTEPC, 2011). The salaries of all plant staff are lowered if the plant misses its energy-saving target. Under the guidance of the local government agencies, Jasmine significantly improved its energy data processing and reporting skills. As a Top-1000 enterprise, Jasmine was required to submit an annual “energy use status report” through an online reporting system. The Placidity Energy Saving Supervisory Team (PESST) organized a training session on “energy use status reporting”, attended by the staff in charge of energy-saving at Top-1000 Enterprises. Energy-saving special engineers at Jasmine attended this session and found it helpful because the engineers did not have much experience processing and reporting energy data and were unfamiliar with the online system (JTEPC, 2011). In 2008, the Placidity Energy-Saving Office launched an innovative initiative mandating benchmarking management at enterprises within its jurisdiction, which was beyond the requirements of the Top-1000 Enterprise Program (JTEPC, 2009). Benchmarking allowed Jasmine to recognize that it ranked last within Huaneng Group on many major economic performance indicators, such as CCR. To close the gap, Jasmine selected several benchmarking enterprises and organized a special team to learn from their benchmarking enterprises and consult with the Xi’an Thermal Power Research Institute (JTEPC, 2012). 4.3.3. Technological renovations In addition to management reform, Jasmine conducted several minor technological retrofits in 2006 and 2007. By 2007, Jasmine had addressed most of the internal energy management reforms and minor technological retrofits. The slight increase in CCR and APR in 2007 suggests that this “low-hanging fruit” would no longer counterbalance the efficiency loss due to the outmoded small generating units. Jasmine consequently failed to meet its energy-saving target in 2007. Both the plant manager and the plant were denied eligibility for medals and honors, although in previous years, Jasmine had almost always received the “Labor Day Honorary Medal”18 in Lotus Province (JTEPC, 2008b). News about Jasmine's failure to meet energy-saving target appeared on several 18 The “Labor Day Honorary Medal” is the highest honor granted to enterprises that perform greater than expected in terms of overall contributions to society.

important governmental and commercial websites,19 severely hurting the plant's reputation. The salaries of all plant staff were lowered following the “economic responsibility mechanism.” Jasmine had to resort to more decisive but costly technological retrofits to fundamentally address its energy-saving challenge. Jasmine directed its attention to “build big-close small” projects and cogeneration20 (gongre-gaizao), the two most effective energy-saving approaches for coal-fired power plants (Kang et al., 2008; Ke et al., 2012; Li et al., 2011b; Lin et al., 2012). The Chinese “Build big-close small” policy requires that small, inefficient power plants be closed when large, efficient ones are built. The policy takes advantage of power plants’ incentive to expand but constrains the expansion through a phase-out of small, lowefficiency generating units. Jasmine's “build big-close small” project began in 2003, when the Placidity Municipal Government announced the plan to expand Eastern Placidity (Table 3). Foreseeing the emerging demand for electricity and heat supply, Jasmine proposed 2  350 MW supercritical cogeneration units as replacement for Units 1–6 (JTEPC, 2008b). Because approval procedures for largescale power generation projects generally take two to three years and construction takes another two years, Jasmine expected the project to start operation in 2009 (JTEPC, 2007). In contrast to its strong desire to “build big”, Jasmine was not so eager to shut down its small, low-efficiency generating units (Units 1–6), unless new large units are already available as replacements. Although Jasmine had renovated Units 1–6 for cogeneration, they still suffered significant heat losses due to backward steam heating technology. Moreover, Units 1–6 were not equipped with high-quality environmental protection facilities, resulting in high pollutant emissions. Based on their design lifetime, Units 1–4 were supposed to be phased out by 1995 (JTEPC, 2008b) and Units 5–6 by 2003 (National Development and Reform Commission and National Energy Office (NDRC and NEO), 2007). Directives from the State Economic and Trade Commission (SETC) also specified that Unit 1 be phased out by the end of 1999

19 These websites include Lotus Province's official website, the official website for Lotus Economic and Information Commission, and the website for the most widely read newspaper in Lotus Province (annual circulation is over 1 million). 20 Cogeneration is also referred to as combined heat and power (CHP). Compared to producing power and heat separately, cogeneration reduces coal consumption by 1/3, improving net efficiency from 50% to 75%, not including heat losses. According to experts from the NDRC's Energy Research Institute, cogeneration alone had the potential to achieve energy-saving of 100 Mtce during the 11th FYP period (Kang et al., 2008). Because of its high potential for energy-saving, cogeneration is listed as one of the Ten Key Energy-Saving Projects in China (Ke et al., 2012).

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Table 3 History of the “Build big-close small” heat supply project at JTEPC. Source: JTEPC, 2005, 2011, 2012. Year

Event

2003

In response to the Placidity Municipal People's Government's long-term plan for developing East Placidity, Jasmine proposed the "build big-close small" urban heat supply project Jasmine finished a preliminary feasibility study of the project Lotus Development and Reform Commission (LDRC) approved Jasmine's proposal, marking the initiation of the project. A formal feasibility study began The Electric Power Planning & Engineering Institute organized a review of the feasibility study of Jasmine's proposal; Jasmine obtained approval from several public agencies such as those responsible for planning, land, minerals, cultural relics, water resources, railway, aviation, military, and finance Jasmine passed the final review of the feasibility study by China Power Engineering Consulting (Group) Corporation The Lotus Provincial Government issued the "request letter for the build-big close-small urban heat supply renovation project of Jasmine Thermal Power Electric Company" and submitted it to the NDRC Units 1–4 (145 MW in total) were shut down The project obtained NDRC approval 2  350 MW generating units started construction Units 5–6 (220 MW in total) were shut down 2  350 MW generating units went into operation

June 2003 September 2004 July 2005

March 2006 June 2006 November 2007 December 2007 June 2009 April 2010 2011

and Units 1–4 be phased out by the end of 2003 (State Economic and Trade Commission (SETC), 1999a,1999b, 2002). However, similar to many policies in China, the gap between policy making and implementation in the phase-out of obsolete thermal power generating capacity remains significant (Fang and Zeng, 2007; Zhou, 2010). Neither Lotus Province nor Placidity City compelled Jasmine to phase out obsolete generating units. The turning point for the local governments’ tougher enforcement of small generating units’ shutdown occurred in 2007, when the NDRC and NEO issued the Notice on Accelerating the Shutdown of Small Thermal Power Units (National Development and Reform Commission and National Energy Office (NDRC and NEO), 2007). The Notice expands the shutdown coverage to generating units below 100 MW that have served over 20 years, such as Units 5–6, and mandates that cogeneration units that fall into the shutdown categories, such as Units 1–6, be phased out based on the principle of “first build big, then close small.” Moreover, the Notice encourages medium and large generating units in service for less than 15 years, such as Units 7 and 8, to be renovated for cogeneration. The Notice compels local grid companies to lower wholesale electricity prices for generating units within the shutdown category; noncompliant grid companies are subject to financial penalties. The NDRC employed the target responsibility system to ensure compliance with the Notice. After announcing the target of closing 50 GW obsolete generating capacity during the 11th FYP period, the NDRC signed responsibility contracts with provincial governments and the five central government-owned electricity corporations, including Jasmine's parent company, Huaneng Group, which further implemented the target responsibility system within their respective jurisdictions and corporations (State Electricity Regulatory Commission (SERC), National Development and Reform Commission (NDRC) (2008)). In Placidity City, the local public agencies implemented several policy measures to enforce the phase-out of small generating units. Placidity Environmental Protection Bureau (PEPB) strengthened surveillance and inspections for pollutant emissions and charged higher pollution fees for Jasmine because its small generating units could not meet the national emissions standards, whereas PEPB had not previously fined Jasmine despite its noncompliance with emissions standards (JTEPC, 2007). The Lotus branch of the State Grid Company lowered wholesale electricity prices for Jasmine to the lowest in the province in 2007. Meanwhile, Lotus Economic and Information Commission sent a notice to enterprises within the province that starting April 1, 2007, enterprises whose energy efficiency could not meet the provincial limit would be charged a higher “punitive” price for energy

(Placidity Energy Technology Service Center (PETSC), 2007). This news alarmed Jasmine, whose CCR in 2005 was only 1% lower than the provincial limit. The Lotus DRC and Placidity Municipal Government also assured enterprises that a subsidy would be provided for the shutdown of small generating units, which would be implemented by the Lotus Province Finance Bureau. On August 15, 2007, Jasmine signed the Agreement on Dismantling Small Thermal Generating Units with the Lotus Provincial DRC, Placidity Municipal Government, Lotus branch of the State Grid, and the Lotus LN Development Group (then Jasmine's superior corporation and subordinate to Huaneng Group) (LDRC, 2008). By signing the agreement, Jasmine promised to close Units 1–6 by May 2010 or whenever the “build big-close small” project starts operation, otherwise Lotus branch of State Grid would stop purchase of electricity generated by Units 1–6. In reality, Jasmine shut down Units 1–6 ahead of schedule (Units 1–4 in November 2007, and Units 5–6 in April 2010) and was rewarded with a subsidy of over 30 million RMB by the Lotus Province Finance Bureau (Huaneng Group, 2010). Meanwhile, Jasmine employed another decisive energy-saving strategy: upgrade Units 7–8 for cogeneration. This decision echoes the Notice on Accelerating the Shutdown of Small Thermal Power Units, which suggests that medium and large generating units be renovated for cogeneration. Another crucial driving force for Jasmine's cogeneration renovation was the rising price of coal, which increased 8% in 2007 and 10% in 2008 (China Central Television (CCTV), 2007; Sinanet, 2007). Jasmine had to pursue other means to cover the loss from power generation, and heat supply proved to be one of the best options based on past experience (LPPG, 2008). Jasmine renovated Unit 8 for cogeneration in October 2007 and renovated Unit 7 in 2008. Similar to when it shut small generating units, Jasmine received a subsidy of 13 million RMB from the Lotus Province Finance Bureau (Huaneng Group, 2010). Closure of Units 1–6 and cogeneration renovation of Units 7–8 dramatically lowered CCR and APR at Jasmine between 2007 and 2010. The decrease in CCR and APR at Jasmine in the 11th FYP period were greater than the levels achieved by national counterparts (Figs. 6 and 7). The significant efficiency improvement allowed Jasmine to consistently exceed its energy-saving targets starting in 2008 (Fig. 8). In 2010, Jasmine achieved cumulative energy savings of 250 thousand tce, 59% higher than the assigned target for the 11th FYP period. In fact, Jasmine met the overall target for the 11th FYP period by 2009, a year before the 11th FYP period ended. With the advent of the “build big” project in 2011, Jasmine's CCR further decreased to 313 gce/ kWh, and Jasmine qualified as a

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governments could not provide direct financial assistance to Jasmine due to its poor financial performance21, the Lotus Provincial Government played a crucial role as a “semi-guarantor.” The government negotiated with the Lotus branch of one of the “Big Four”22 banks in China, explained to the bank the promising payback of the “build big” project, and eventually convinced the bank to make loans to Jasmine (JTEPC, 2012). In summary, Jasmine has consistently taken steps to save energy since 2005 (Fig. 9). The contribution of different energysaving strategies again confirmed that “build big-close small” and cogeneration are the two most effective strategies for improving efficiency, contributing 45% and 47%, respectively (Fig. 10). Internal management reform and minor technological retrofits contributed only 8% of total efficiency improvement. Fig. 6. CCR of thermal power plants: JTEPC vs. national average ( Z 6 MW). Sources: China Electricity Council (CEC), 2006, 2008, 2009, 2011, 2012

Fig. 7. APR of JTEPC vs. national average ( Z6 MW). Sources: China Electricity Council (CEC), 2008, 2009; China Power News Net (CPNN), 2011.

Fig. 8. Cumulative energy-saving performance of JTEPC (2007–2010). Sources: JTEPC, 2011

high-efficiency cogeneration plant. The greatest challenge encountered by Jasmine in the “build big” project was raising funds. Coal price increases since 2007 and the “market-driven coal, statecontrolled electricity” (shichang mei, jihua dian) dilemma have driven many coal-fired power plants to near bankruptcy. Accordingly, banks were becoming increasingly disinterested in making loans to electric power generation companies. Jasmine, in particular, suffered a debt/asset ratio as high as 100% (LESO, 2012), which scared away its long-term bank partner. Although the local

5. Analysis The longitudinal case study of Jasmine Thermal Electric Power Company reveals that sub-national governments have indeed played a major role in implementing industrial energy-saving policies at Jasmine, particularly in the enforcement of the Top1000 Enterprise Program and the phase-out of obsolete production capacity (Price et al., 2010). A group of agencies within the Lotus Provincial People's Government and the Placidity Municipal People's Government implemented five types of policies, namely informational policy, skill building, improved enforcement of central directives, price adjustment, and funding (Fig. 11). The involvement of a variety of government agencies in the implementation of energy-saving policies confirms that energy saving requires the coordination and collaboration of a range of relevant government agencies (Lo and Wang, 2013; Li et al., 2013). The five types of policy measures addressed different barriers to energy saving and had different effects on Jasmine. Informational policy allowed Jasmine to get exposure to energy audit as a critical means to identify efficiency improvement opportunities. Skill building policies honed Jasmine's energy management skills. The improved enforcement of central directives and price adjustment policies imposed pressure on Jasmine to accelerate its shutdown schedule for small generating units. Funding policies provided crucial incentives for Jasmine to replace small, lowefficiency generating units with larger, high-efficiency ones and to conduct cogeneration renovation. Although some energysaving policy measures were directly specified in central directives, such as signing an agreement for and subsidizing the phase-out of small generating units, the local governments in Lotus Province have also implemented more concrete and innovative measures to assist Jasmine with energy saving, such as mandating energy benchmarking and negotiating bank loans for building large, high-efficiency generating units. Altogether, the five types of policy measures motivated Jasmine to make continuous efforts to improve its energy efficiency and eventually exceed its energy-saving target. Below, we clarify how each type of policy measure implemented by the provincial and municipal governments drove energy-saving activities at the case study enterprise. 21 State government and local governments (at provincial, municipal and county level) in Lotus Province have established Energy-Saving Special Funds to support enterprises that implemented the Ten Key Energy-Saving Projects. However, the Special Funds were competitive, therefore implicitly requiring that enterprise applicants own prime assets. As a result of Jasmine's high debt/asset ratio, Jasmine was not awarded any special funding despite repeated applications during the 11th FYP period. 22 The Big Four Banks in China include the Bank of China, China Construction Bank, Industrial and Commercial Bank of China, and Agricultural Bank of China.

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Fig. 9. Improvement of energy efficiency in JTEPC measured by the decrease in CCR, 2005–2011.

Fig. 10. Contribution of different energy-saving strategies in JTEPC.

5.1. Informational policy When Jasmine first learned about the need to perform energy audits as a core requirement for the Top-1000 Enterprises, it had never been exposed to the energy audit concept. To introduce Jasmine to energy audits, Lotus Economic and Information Commission (LEIC) enacted informational policies in a timely and consistent manner. LEIC designated the Placidity Energy Technology Service Center (PETSC) to perform energy audits and institutionalized energy auditing practice through the enactment of the Interim Procedures for Energy Audit in Lotus Province. Although the Top1000 Enterprise Program only required one energy audit for each participating enterprise unless they failed to pass the government review, LEIC required that key energy-consuming enterprises conduct energy audits at least once every three years. This policy measure addressed the lack of long-term and concerted policy mechanisms to promote energy auditing in China (Shen et al., 2012). LEIC also regulated energy audit market entry by authorizing 28 qualified audit companies. Through these informational policies, Jasmine became aware of and adopted energy audit practice, which allowed it to identify its energy-saving opportunities. 5.2. Skill building Local governments also played a key role in building Jasmine's energy management skills by training Jasmine on energy data reporting and mandating benchmarking practices. During the training session on energy reporting held by the Placidity Energy-Saving Supervisory Team (PESST), Jasmine engineers improved their energy data processing and reporting skills, which allowed them to gain a deeper understanding of Jasmine's energy

use. Although not required to do so by any central directives, including the Top-1000 Enterprise Program, the Placidity ESO also enforced mandatory benchmarking management at key energy-intensive enterprises. By adopting benchmarking practices, Jasmine learned about its significant efficiency gap compared to other power plants and attempted to close the gap by learning from benchmarking enterprises and consulting with an electric power research institute. Local governments’ efforts in building enterprises’ energy management skills addressed the underestablished energy management system at Jasmine, a key barrier to the company's energy saving, and allowed Jasmine to be more aware of energy-saving opportunities. 5.3. Improved enforcement of central directives During the 11th FYP period, local governments in Lotus Province improved enforcement of central directives about energy saving, which they had previously overlooked. Although small generating units closure policies had existed since 1999, Lotus Province and Placidity City took a liberal attitude toward continued production from small generating units before 2007 in part due to the high demand for electricity during the 2002–2005 period and the growing demand for heat supply in Placidity City (JTEPC, 2007; Li et al., 2011b; Price et al., 2011). In 2007, a series of central directives about the shut-down of small generating units and the adoption of the target responsibility system as the enforcement mechanism for these central directives urged local governments in Lotus Province to accelerate the shutdown of small generating units. The Lotus Provincial DRC convened a meeting with Jasmine and relevant government agencies, including the Placidity Municipal People's Government (PMPG) and the Lotus branch of State Grid Company (LSGC), to sign the Agreement on

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Policy Type

Policy Measures

Implementer

181

Policy Impact

Fig. 11. Impact of local governments’ energy-saving policy implementation on Jasmine (acronyms are defined in Figs. 3 and 4).

Dismantling Small Thermal Generating Units. According to the agreement, Jasmine was obligated to shut down Units 1–6 by May 2010, and the other relevant agencies were responsible for overseeing and supporting the initiative. Meanwhile, Placidity Municipal Environmental Protection Bureau (EPB) strengthened surveillance and inspections of emissions from

coal-fired power plants. The EPB punished Jasmine for not meeting the emissions criteria by charging higher pollution fees (JTEPC, 2007). The enforcement of the environmental pollution standards complemented the Agreement on Dismantling Small Thermal Generating Units to accelerate the shutdown schedule at Jasmine.

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5.4. Price adjustment In contrast to the stereotype of China's overreliance on administrative tools in energy governance, the case study of Jasmine revealed that the local governments also used economic means to facilitate the shutdown of small generating units (Loh, 2012). The Lotus branch of the State Grid Company lowered wholesale electricity prices for Jasmine to the lowest in the province. The Lotus Economic and Information Commission (LEIC) decided to charge a higher “punitive” price for energy as punishment for enterprises whose energy efficiency could not meet the provincial limit (Placidity Energy Technology Service Center (PETSC), 2007). The municipal ESOs in Lotus, including Placidity ESO, collect the “incremental” cost of energy, i.e., the portion above the regular cost of energy, and contribute it to the municipal energy-saving special fund to subsidize energy-saving projects within Placidity. The program therefore achieved two objectives simultaneously: punishing energy-intensive enterprises and rewarding energyefficient ones. Price adjustment measures significantly raised Jasmine's cost of production from small generating units, suppressing its incentives to continue production from the these units. Local governments’ improved enforcement of central directives and price adjustment compelled Jasmine to refrain from the continued use of small, low-efficiency generating units, which was a key barrier to industrial energy saving in China (Price et al., 2011). 5.5. Funding Finally, the local governments provided financial support to help Jasmine overcome difficulties in raising funds for energysaving projects. Although Jasmine did not qualify for the national or regional energy-saving special fund due to its poor financial track records, Lotus Province Finance Bureau awarded Jasmine a subsidy for the shutdown of Units 1–6 and cogeneration renovation of Units 7–8. Even more helpful was Lotus Provincial Government's assistance in negotiating with a major bank to make loans to the “build big” (Units 9–10) project, which Jasmine would not have acquired by itself.

6. Discussion The case study indicates that local governments, specifically the provincial and municipal governments, have played a major role in implementing energy-saving policies in China, which alleviated the barriers to energy saving and assisted Jasmine in achieving its energy-saving target. However, the question remains whether this trend can be sustained. Looking forward, Jasmine faces new challenges for meeting its energy-saving target for the 12th FYP period, suggesting new policy measures may be required to accommodate the change in its demand. Jasmine's energy-saving target for the 12th FYP period is 84.4 thousand tce, equivalent to cutting CCR by 4.3%. Although the target is lower than that in the 11th FYP period, it is still relatively unrealistic considering the lock-in effect of coal-fired power plants. Jasmine operates four cogenerating units in 2012: Units 9–10 started operation in 2011, and Units 7–8 in 1987 and 1990, respectively. Because generating units generally operate for at least 30 years, Jasmine is unlikely to have near-term opportunities for “build big-close small” projects or cogeneration renovation in the 12th FYP period. Therefore, further enforcement of the existing policy measures aimed at these two strategies is unlikely to excavate much more energy-saving potential. Many cogeneration plants are likely to encounter a predicament similar to Jasmine's

because China is already a world leader in terms of coal-fired power plants’ generating efficiency (Cai et al., 2010). Jasmine's shrinking energy-saving potential suggests that a new direction for reform of energy-saving policies targeting the coal-fired power plants is to shift the emphasis from conventional technologies to emerging technologies such as high back pressure cogeneration renovation and tri-generation fueled by natural gas, i.e., combined cooling, heat and power (CCHP) (Li et al., 2011a; Lin et al., 2012). As of 2013, Jasmine has started a feasibility study for high back pressure cogeneration renovation (JTEPC, 2013a). Although this technology has proved effective in reducing CCR for smaller generating units, it has not been successfully applied to generating units greater than 150 MW. Consequently, this technology cannot be commercialized until further research is conducted. Jasmine hopes that the national and local governments subsidize research and development for cutting-edge energysaving technologies such as back pressure cogeneration and provide technical assistance to power plants in the 12th FYP period (JTEPC, 2013a). Moreover, Jasmine has expressed strong interest in natural gas-powered CCHP. However, adopting this technology requires that the Placidity Municipal Government secure a stable natural gas supply and establish infrastructure such as gas pipelines, neither of which currently exist (Placidity Energy Saving Office (PESO), 2013). In addition to the technical challenges of adopting cutting-edge energy-saving technological upgrades, financing them is difficult. Because most of the low-cost energy-saving technologies have already been adopted, the cost for energy saving in the industrial sector in China has increased from approximately 2500 RMB/tce in the 11th FYP period to 4000 RMB/tce the 12th FYP period (Wu, 2013). This was evidenced by Jasmine's nearly seven-fold increase in energy-saving investment from approximately 10 million RMB in 2006 to 70 million RMB in 2010 (JTEPC, 2008a; 2011). Facing increasing costs for energy-saving projects, Jasmine is unlikely to fund these projects in full with internal capital (JTEPC, 2013a). Governments in China must therefore continue to provide incentives for energy-saving technological upgrades and, more importantly, promote market-based financing options such as financing through Energy Service Companies (Kostka and Shin, 2013). The increasingly stringent national requirement for environmental protection has also made it even more challenging for Jasmine to meet its energy-saving target (JTEPC, 2012; LESO, 2012). Jasmine is mandated by national policy to install denitration equipment on Units 7–8. Running denitration equipment, however, leads to a 3 gce/kWh increase in CCR. Finally, Jasmine's attempt to improve energy efficiency by boosting heat supply has been hindered by the limited quota set by the Placidity Municipal Public Utilities Bureau. The Bureau has a tendency to assign a high heat supply quota to its direct subordinate, Placidity Thermal Power Company, although it is less efficient than Jasmine. Increasing Jasmine's heat supply share would have improved both Jasmine's energy efficiency and the efficiency of the entire heat supply system in Placidity (JTEPC, 2012; LESO, 2012). These phenomena revealed another barrier to energy saving in industrial enterprises: vested interest groups (Wang et al., 2008). The current fragmented, sector-specific and enterprise-based energy-saving policy framework in China, however, is unable to solve this problem from a holistic perspective (Fang and Zeng, 2007).

7. Conclusion Based on the longitudinal single case of Jasmine Thermal Electric Power Company, the authors have generated the following hypothesis: sub-national governments have played a major role in

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implementing energy-saving policies in China since the 11th FYP period. A wide range of provincial and municipal agencies collaborated in implementing five types of policy measures – informational policy, skill building, improved enforcement of central directives, price adjustment and funding – that alleviated the barriers to energy saving and motivated the active pursuit of energy-saving activities at industrial enterprises. The case study demonstrates that Jasmine and local governments work closely together to achieve the energy-saving target of the enterprise. We believe that this case study serves as a good starting point for understanding the relationship between local governments’ policy implementation and enterprise-level energy-saving activities. As suggested in the methodology section, the authors will investigate this study's hypothesis in the context of a large set of future case studies. Despite the success of local governments’ and the studied power plant's collaborative energy-saving efforts during the 11th FYP period, the constantly evolving challenges or barriers that industrial enterprises face in pursuit of higher energy efficiency should be addressed by government policies at both the national and sub-national levels. If policy measures do not accommodate the changes in the barriers faced by enterprises, then the policy portfolio is unlikely to have the same positive impact on industrial energy efficiency during the 12th FYP period as it did in the 11th FYP period.

Acknowledgement The authors are deeply indebted to our anonymous interviewees at Jasmine Thermal Electric Power Company. We thank Oran Young, Tong Wu, Xufeng Zhu, Yuqing Yu, Andrew Perlstein, Yang Yu, Gang He, Anthony Suen, Kevin Hsu, Iris Cheung, Dan Guttman, and Xuehua Zhang for their helpful comments on the paper.

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