Managing China’s energy productivity potential: what lessons for policy makers

Maximizing the economic welfare extracted from the energy system is a key priority for all governments. This can be measured by a country’s energy productivity. Perhaps nowhere else in the world is this issue more salient than in China. China is the world’s largest energy consumer and has led global economic growth in the first part of the twenty-first century. Furthermore, in the interconnected world we live in, decisions in China have global impacts. In periods of some of its fastest growth (from 2002-2005) China experienced declining energy productivity. In 2006, China put in place ambitious energy intensity targets. Combined with policies at the sector and product level, these contributed to China reversing its falling energy productivity. Building on this success, China’s 12th Five Year Plan, extended and deepened these reforms. But within China’s system of provincial and industrial energy intensity targets there is a blind spot which could reduce the potential welfare gain from these plans. Assessing the embodied energy in interprovincial trade reveals these potential gains and provides the information required to encourage regional practices to align better with national objectives. The response from Chinese policymakers to the challenges of building new infrastructure while managing resource and environmental constraints provides a valuable lesson for governments in rapidly developing countries, such as Saudi Arabia. A summary of key lessons from the Chinese experience of managing energy productivity is presented in the conclusion.