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10 2010

Increasing energy efficiency in China: uncovering the hidden costs of energy

Syndicated from: The Bullfrog Blog

This morning’s Globe & Mail article on China’s order to close more than 2,000 antiquated and energy intensive factories is a strong reminder that the developing world understands that the world is transitioning to a low-carbon economy, in which energy prices will take into account the costs to health and the environment – costs that are currently hidden. The Globe reports that China has ordered more than 2,000 iron, steel, cement and other energy intensive factories be shut down by the end of September. The purpose of the order is to ensure that China increases its energy efficiency and also transitions to cleaner production methods. The order will help China achieve its goal of improving energy efficiency by 20% in 2010 compared to 2005 levels. The order is noteworthy on several fronts. It will certainly have an impact on the economy, but the Chinese are prepared to accept that short-term loss in order to support a longer-term transition to more efficient modes of production. The number of factories and industries covered, as well as the speed with which the order must be complied, also stand out. Two other points in the story are worthy of note because they emphasize that the Chinese understand the world is moving to a low-carbon economy, in which energy efficiency will be very important and energy will be priced appropriately. First, China’s Minister Of Industry And Information Technology, Li Yizhong, is quoted as saying of the plants and factories being ordered to close: “They reflect the very crude and quantitative mode of economic growth.” This comment implicitly recognizes the importance of full cost accounting, where the health and environment costs of production are considered, rather than overlooked as an economic externality. Second, China is aggressively removing subsidies from the cost of electricity. Last week, China’s National Development and Reform Commission announced that it had ordered 22 provinces to stop providing electricity at discounted rates to high-energy consumption industries such as aluminum. At Bullfrog, we are always interested in uncovering the ways in which energy is being subsidized here in Canada, as well as around the world. Increasingly, we’re seeing a commitment to identifying those hidden health and environmental costs that aren’t reflected in the price of energy. Which subsidies or economic externalities are you most concerned about? Can you point us to specific examples, and help us quantify the value of the subsidy? Tom Heintzman President, Bullfrog Power

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