The new energy consultation paper raises more questions than answers, disappointing many who had expected officials to explain the impacts of the two proposed options put forward for the future of the city’s power supply.

The first option involves sourcing 30 per cent of our electricity needs by 2023 from the China Southern Power Grid, while the second requires boosting the use of natural gas at the city’s power plants so that it accounts for 60 per cent of energy production by 2020.

Officials said the costs of generating power would double in both options, but what these costs are and how they will affect household bills are not known. Sources close to the government said there were simply too many unknowns to make even a rough but responsible forecast.

With the document now open to public consultation until June 18, the lack of detail makes it harder for people to reach any conclusions and easier for the debate to descend to a case of “local” versus “mainland”.

A key factor determining the tariff levels of the local option will be the number of new gas-fired generation units required.

Dr Tso Che-wah, former general manager at Hongkong Electric, estimated three to four extra gas generation units would be required to meet the 60 per cent target, estimating the total cost to be HK$12 billion, without pricing in extra operational costs.

How much of these investments will be apportioned to the end user is another uncertainty. What further complicates the matter is the expiry of the power firms’ regulatory regime in 2018, which currently allows them to base profit levels on assets.

New gas sources would also have to be secured. Its pricing might be influenced as the scale of availability of shale gas unfolds in both China and the US.

The import option seems to have even more uncertainties. Apart from fluctuating prices of the raw materials, predicting the fuel mix of the mainland grid in a decade’s time would appear to require a crystal ball. The best reference available is Macau, where nearly 90 per cent of power is imported from the mainland. In 2012, the average price was 85 cents per kilowatt-hour – around 20 per cent less than the import price in 2008.

For Hong Kong, it is not yet known how the two grids would hook up and whether the government or power firms would pay for this. Officials admitted that it might involve a costly operation to lay undersea cables.

And would the mainland grid be connected to both CLP Power and Hongkong Electric, the city’s two electricity suppliers?

With 50 per cent of energy needs coming via the mainland through China Southern Power Grid and nuclear power, Hong Kong would still need back-up facilities in case the cross-border transfer was disrupted. Again, any detail on how this would be achieved is nowhere to be seen in the consultation document.

The document also mentions an extra cost involved in this option: the peak adjustment fee. But officials have yet to spell out what this means.

They did hint that the import option might be the logical approach should Hong Kong prefer to head towards the liberalisation of the electricity market and a separation between the grid and power generation.

Prentice Koo Wai-muk, of Greenpeace, backed the import option. “We believe an open market will create more opportunity to import cleaner power from the mainland,” he said.

Dr William Chung Siu-wai, an energy researcher at City University, believed the debate would boil down to concern over energy security – “whether we can readily have access to the power we need at any time without restrictions, rather than which option is cheaper and cleaner”.

21 Mar 2014

One of the main advantages of using biofuels is that it achieves more than some 85% reduction in greenhouse gas emissions. The European Union has already mandated a policy of fuel blending: at least 5.75 per cent of all fuel sold has to be biofuel, with the percentage to increase further in the future, and other countries in Asia also have policies encouraging biofuel consumption. Hong Kong lags behind in such initiatives, and it is not difficulty to see why: Eric Ng, in a recent update on the issue, reports official Mok Wai-chuen of the Environmental Protection Department as saying in 2007 that “biodiesel did little to improve roadside air quality”, backed up by 2002 reports from the US National Biodiesel Board and the US Environmental Protection Agency that “suggested the use of biodiesel would result in a relatively modest reduction in roadside emissions”. The irrelevance of such an analysis – blending 5% biofuel into Euro V standard diesel containing 0.001% sulphur could never have meant reducing roadside pollutants – escapes officials; much of the roadside pollutants are carried by prevailing winds from shipping lanes and industries across the border.

If public policy on biofuels is to be decided on this factor alone, then the real benefits of biofuel would be ignored: once the biofuel industry is established, it can process the city’s waste and convert it to fuel; as mentioned before, biofuels hugely reduce greenhouse gas emissions; more importantly, by helping biofuel operations purchase waste cooking oil, the practice of smuggling waste cooking oil across the border to be converted into ‘gutter oil’ and re-used as cooking oil can be stemmed – which would happen to be quite the moral thing to do, given that such usage of recycled oil is carcinogenic and harmful to human health when ingested.

No smooth ride for biodiesel

Eric Ng, SCMP

Wan Po Road, or at least its English rendering – Environmental Protection Road – seems like a contradiction in terms to those living and working in the Tseung Kwan O Industrial Estate to which the road leads.

Neither will the irony of the name be lost on commuters who have to suffer intermittent whiffs from nearby landfills as they travel to and from the estate.

But the same road also leads to a genuine environmental protection industry player hoping to open for business in the estate – a company that has undertaken to turn used cooking oil into biodiesel, which is far cleaner than petroleum diesel.

Unfortunately, the plant’s construction has been suspended, with no official indication of when it will resume.

Hong Kong’s biodiesel producers, who use waste cooking oil as feedstock, say it is difficult to make a profit because of the lack of active government support for such initiatives. The Hong Kong government has set a goal to cut the city’s carbon emission intensity by up to 60 per cent by 2020, but is relying on the greater use of nuclear power to cut its carbon footprint – despite safety concerns raised in Japan after the deadly March 11 earthquake and tsunami.

According to a subcontractor for the project and security guards who declined to be identified, ASB Biodiesel (Hong Kong) has stopped work on a partially-built plant capable of churning out 100,000 tonnes of biodiesel annually.

It is not clear exactly when work stopped. A guard at the 18,000 square metre site said no work had been carried out for several months, while a guard at the entrance to a neighbouring building said it was more like a year since work ended.

No construction workers were seen during two visits to the site by the South China Morning Post on separate week days this month.

According to the final environmental impact assessment report by Environmental Resources Management for ASB in October 2008, construction on the plant was supposed to start in March 2009 and be completed in April last year. After trial runs, commercial production was slated for a June 2010 start.

When ASB chief executive Tom Uiterwaal was interviewed early last year, he said construction was expected to be completed by the end of last year. He declined to comment when asked about the delays and the company’s latest plans.

A person familiar with the company’s operation, who declined to speak on the record, claimed the project would resume construction within two months, and that biodiesel production was expected to start by the end of next year, but he would not elaborate.

He also declined to comment on talk among industry executives that construction was halted because of a lack of funding due to a deteriorating profit outlook for the biodiesel industry internationally, and tightened liquidity in the wake of the global financial crisis.

According to the Malaysian Palm Oil Board, only 10 biodiesel plants were operating last year, despite 29 having been built. A lack of overseas demand and high palm oil prices were blamed.

ASB’s project is funded mainly by the Middle East’s Al Salam Bank-Bahrain and six unidentified strategic partners.

Uiterwaal said early last year that the US$100 million plant would use technology from Austria, which enabled it to use multiple feedstocks, including waste cooking oil, grease trap waste collected from caterers, animal fat, and palm fatty acid distillate – a byproduct from the refining of crude palm oil.

ASB last year hired legislator Tommy Cheung Yu-yan, who represents the restaurant trade, as a consultant.

The European Union has led the world in policy support for the sector, requiring at least 5.75 per cent of all fuel sold to be biofuel – biodiesel or ethanol – rising to 8 per cent in 2015 and 10 per cent in 2020.

Within Asia, Hong Kong lags behind countries such as Malaysia, the Philippines, Taiwan and Thailand, in policy initiatives to encourage biodiesel consumption.

Biodiesel is generally more expensive than petroleum diesel, and requires large-scale production and consumption to be economical. To be truly emission-light, local sourcing of feedstock and local consumption of biodiesel is encouraged.

In some developed nations, restaurants pay biodiesel makers to get rid of waste cooking oil, but in Hong Kong, biodiesel makers have to pay for used oil, competing with traders who sell it to mainland recyclers for reprocessing into cooking oil. Consumption of such re-used oil is known to raise the risk of heart disease and cancer.

Beijing issued a policy circular a year ago ordering local governments to step up their fight against rampant illegal trading and recycling of cooking oil.

‘Based on my estimation, over 80 per cent of Hong Kong’s used cooking oil taken away by collectors is sold to the mainland for reprocessing into cooking oil,’ said Teddy Choi Wai-hung, executive director of Champway Technology which operates a biodiesel plant in the EcoPark in Tsuen Mun that can produce 20,000 tonnes of biodiesel annually.

Since it is not illegal to export waste cooking oil out of Hong Kong, and extremely difficult to tell reprocessed oil from previously unused oil without laboratory testing, it is difficult to fight the trade, said Choi.

Furthermore the trade is lucrative since used oil costs around HK$4,500 a tonne to buy and can fetch some HK$7,500 after processing. Fresh cooking oil costs anywhere from HK$10,000 to HK$20,000 a tonne, Choi said.

Champway’s plant has only produced around 4,000 tonnes since it started operating in April last year, due to difficulties in sourcing enough affordable waste oil, according to Choi.

‘Our operation is very difficult to run, given that waste cooking oil prices have been bid up to over HK$50 per 18 litres currently from just HK$20 a year ago,’ he said, adding that it would be difficult to recoup the plant’s HK$60 million investment without more government support.

To encourage proper disposal of waste cooking oil, he said the government should implement a licensing system for collectors of used cooking oil, and restaurants that sell their oil to such authorised dealers should be given a reduction in their waste water treatment surcharge currently collected by the Water Supplies Department.

Steve Choi, an executive director of Sha Tin-based Dynamic Progress International, the first firm in Hong Kong to set up a biodiesel plant three years ago, said the government should abolish an import levy on methanol, which accounts for 11 per cent of the content of biodiesel.

The levy amounts to around 50 HK cents for each litre of biodiesel made, he said. Each litre of petroleum diesel retails for around HK$11 to HK$12.

According to the annual report of its listed parent Alltronics Holdings, Dynamic posted a net loss of HK$6 million last year, down from a HK$8.4 million loss in 2009.

Steve Choi said the government should also be more proactive in promoting biodiesel by becoming a user itself.

‘I hope the government would push for an earlier timetable for its departments in becoming biodiesel users,’ he said. ‘The commercial sector has already made some moves, it is about time the government took some baby steps to promote biodiesel usage.’

So far private sector users mainly use biodiesel out of corporate social responsibility considerations as it is more expensive than petroleum diesel.

Asia Airfreight Terminal (AAT), which runs an air cargo terminal at Hong Kong International Airport, started buying biodiesel from Dynamic last November.

‘Our company adopted biodiesel mainly for the fulfillment of our corporate social responsibilities,’ said Wilson Cheung, AAT’s general manager of support services.

The company, which has a diesel bill of around HK$1.5 million a year, has now replaced almost all of its fossil fuel diesel consumption with biodiesel, except for its stand-by power generator, which is rarely used.

The Hong Kong Jockey Club said it had provided waste oil to Dynamic and bought biodiesel for some of its water-carrying trucks and power generators.

An Environmental Protection Bureau spokesman said the bureau was consolidating views from a public consultation on how to mitigate climate change, including how to promote clean fuels, including biofuels.

The government is also planning a tender for the supply of diesel with a blend of 5 per cent biodiesel made from waste oil, for a one-year pilot scheme. A source familiar with the situation said the government aims to roll out the scheme by mid-2012.

$4,500

The price, in Hong Kong dollars, traders will pay for a tonne of waste cooking oil, meaning supplies are scarce for biodiesel purposes

18 Jul 2011

Biofuel maker pushes product use in market

Eric Ng, SCMP

ASB Biodiesel seeks to jump-start market for cleaner fuel with fresh call for mandatory blending as it prepares to open plant in Tseung Kwan O

ASB Biodiesel, the developer of Hong Kong’s largest biodiesel plant, has renewed its call for the mandatory blending of biodiesel into diesel products sold in the city as a means to jump-start a market for the cleaner burning fuel.

Chief executive Anthony Dixon said Hong Kong had lagged some of its regional neighbours that had implemented mandatory blending, such as Indonesia, Malaysia, the Philippines, South Korea and Taiwan.

“Until now, biofuels have been largely absent from discussions about low-carbon transport and air quality,” Dixon said. “The start of production at our plant will raise awareness of what is possible in Hong Kong.”

Without policy support, ASB, one of three biodiesel producers in Hong Kong, will see its output consumed mostly in Europe – where the bulk of the world’s biodiesel is consumed, thanks to mandatory consumption requirements – after it is sold to international oil firms. Shipping biodiesel to Europe also generates pollutants in addition to the freight costs.

ASB’s plant in Tseung Kwan O is expected to start production soon, with used cooking oil as the biofuel source.

Biodiesel was 5 to 10 per cent more expensive than motor vehicle diesel now available in Hong Kong, the findings of a pilot scheme for government vehicles to test biodiesel use showed.

Noting that the government had focused on cutting roadside pollution by providing incentives for owners of old commercial diesel vehicles to swap them for cleaner models, Dixon said biodiesel also had a role to play. “There is no question from the scientific point of view that biodiesel contributes to the reduction in roadside pollution. It should be part of the solution.”

Mok Wai-chuen, an assistant director (air policy) at the Environmental Protection Department, said in 2007 that biodiesel did little to improve roadside air quality and the government had been taking other more effective measures such as giving grants to encourage early replacement of old diesel commercial vehicles.

Earlier this year, the government proposed providing more than HK$10 billion of subsidies for the phasing out of more than 80,000 pre-Euro IV commercial diesel vehicles by 2020. Hong Kong implemented the Euro V emission standards last year.

A diesel vehicle compliant with Euro V emits about 95 per cent less particulates and 78 per cent less nitrogen oxide than a pre-Euro vehicle manufactured before 1995.

Data cited by Dixon from the US National Biodiesel Board and the US Environmental Protection Agency collected in 2002 suggested the use of biodiesel would result in a relatively modest reduction in roadside emissions. Blending 20 per cent of biodiesel into fossil fuel diesel would cut carbon monoxide and particulate matter emissions by about 12 per cent, with no reduction in nitrogen oxide emission, the data showed.

Where biodiesel makes a bigger difference is in greenhouse gas emissions, data cited by Dixon from the European Union suggested biodiesel produced from recycled cooking oil emitted at least 85 per cent less greenhouse gases than fossil fuel diesel. Biodiesel made from plant oil results in a reduction of only about 40 per cent.

Dixon said Hong Kong’s neighbours that had imposed mandatory biodiesel blending required the addition of 1 to 5 per cent of biodiesel and blending rates ranged between 2.5 and 7 per cent in the EU.

He added that he was optimistic that all of ASB’s output would be consumed in Hong Kong in three years as the government was expected to step up efforts to tackle greenhouse gas emission.

Besides cutting pollution, domestic consumption of biodiesel would also help reduce smuggling of Hong Kong’s used cooking oil into the mainland for the production of so-called recycled “gutter” oil, which is known to contain cancer-causing substances.

Legislator Paul Tse Wai-chun told the Legislative Council in March that government figures showed about 10 million litres of Hong Kong’s 22.8 million litres of used cooking oil were exported annually, with the whereabouts of the remaining 12.8 million litres unknown. He said some of that oil was likely to be smuggled to the mainland badged as a “second-hand product” to escape regulations under the Waste Disposal Ordinance.

Under Hong Kong’s pilot scheme, 5 per cent of biodiesel is blended into diesel used by government vehicles. The vehicles involved accounted for about 8 per cent of the Euro V diesel consumption by the government.

A spokesman for the Environmental Protection Department said the two-year second phase of the scheme had been rolled out, with the addition of the Leisure and Cultural Services Department and the Government Logistics Department as biodiesel users.

Dixon said he hoped the government would require all departments to adopt a 5 per cent mandatory biodiesel blending policy by the middle of next year.

Undersecretary for the Environment Christine Loh Kung-wai said she had recently met the bosses of all three biodiesel makers from used oil.

“Hong Kong is fortunate to already have three biodiesel producers,” Loh said. “We are actively discussing with the producers and other stakeholders to join up all the pieces in a new policy as part of the work of the government’s steering committee on recycling. A new policy can be expected in the foreseeable future.”

Loh would not comment on whether it would include mandatory biodiesel consumption.

ASB chose Hong Kong for its plant due to the high density of restaurants in a relatively small land mass, which lowers the logistics costs for collecting the waste cooking oil. Dixon said that even if Hong Kong did not implement mandatory diesel blending, ASB’s plant would still be profitable selling to Europe.

The company, 75 per cent owned by Bahrain-based Al Salam Bank and other Middle Eastern investors pulled in by the bank, is looking to build a biodiesel plant in another Asian city.

The Tseung Kwan O plant, with the capacity to churn out 100,000 tonnes of biodiesel a year, cost US$165 million to build, compared with an original budget of US$100 million. It was originally slated to come on stream in mid-2011. Construction was halted for a year due to cost overruns and funding shortages.

ASB aims to source 30 to 40 per cent of its feedstock from Hong Kong within two years, with the rest from Southeast Asian countries such as Singapore and Malaysia.

28 Oct 2013

by Cheung Chi-fai, SCMP:

Chief of largest power firm says consumers will be told implications of each mix of sources

Hong Kong’s energy future will rely on an “open and transparent” public consultation that will tell people the implications of their choices in favouring a particular energy mix, says the chief of the city’s largest power firm.

Richard Lancaster, chief executive officer of CLP Holdings, said all relevant information, from energy security and environmental performance to costs, would be made available.

“All implications should be made as open and transparent as possible so that the community has all the information needed to make a judgment,” he said at the World Energy Congress in Daegu, South Korea, last week.

Environment Secretary Wong Kam-sing, also speaking last week, said the consultation aimed to find out the most acceptable energy mix in terms of the proportion of coal, gas, renewable and nuclear in electricity generation by the power firms.

Any decision on the future mix will have significant bearing not just on cost, but also the environment and reliability.

While the mix was a matter for policymakers, Lancaster said it should be “flexible” enough to meet challenges, including the volatility of international fuel prices. “It is important we don’t lose our flexibility and close all options,” he said.

In 2010, the Environment Bureau consulted on a climate-change strategy that proposed a plan for half of electricity demand to be met by nuclear fuel, 40 per cent by gas and 10 per cent by coal by 2020. But it decided to reconsider it last year after the 2011Fukushima nuclear disaster. The mix is now 54 per cent coal, 23 per cent from nuclear and 23 per cent from natural gas.

Lancaster said to ensure supply diversity, he opposed closing all coal-fired plants. “Coal is something we can reduce. But to go to the extreme of closing down coal-fired plants, it would be a bad thing for us,” he said.

Lancaster also wanted to diversify local gas supply by building a liquefied natural gas terminal in eastern Shenzhen which could bring in cheaper gas from around the world when international prices dropped.

On nuclear energy imports, Lancaster acknowledged there were “genuine concerns” that needed to be addressed. But he said one way of tackling these concerns was to have a Hong Kong firm involved in developing mainland nuclear stations.

“We have higher transparency, modern Hong Kong management style, Hong Kong standards of governance to apply for nuclear power stations,” he said.

Christine Loh Kung-wai, the environment undersecretary who also attended the congress, said that while “some people” in society hated nuclear, she had heard of no one who wanted to completely drop imports from the Daya Bay nuclear station.

“Instead of just telling us nuclear should not be allowed, there needs to be an objective discussion on how we look at coal and gas,” she said.

Loh, however, said it would be difficult for the government to tell the public exactly what future prices would be for different fuel mixes as even the most authoritative agency in the United Nations could only provide a loose range of prices.

21 Oct 2013

China should set firm targets to limit greenhouse gas emissions so they peak around 2030, a study by some of the nation’s top climate change policy advisers has proposed ahead of contentious talks on a new global warming pact.

The call for “quantified targets” to cap greenhouse gas pollution marks a high-level public departure from China’s reluctance to spell out a proposed peak and date for it.

“By last year China had become the world’s biggest national emitter of greenhouse gases and faces unprecedented challenges,” says the preface of the 900-page report, setting aside China’s reluctance to say it has passed the United States as the top emitter of carbon dioxide, the main greenhouse gas from burning coal, gas and oil.

“As soon as possible, study and draft relative and [then] absolute targets to cap the total volume of carbon dioxide emissions,” says the preface of the report, obtained by reporters.

“Establishing and acting on quantified targets and corresponding policies to address climate change in the medium to long-term is already a matter of great urgency.”

The 2050 China Energy and C02 Emissions Report proposes that, with the right policies, emissions growth could slow by 2020, with levels peaking around 2030.

If China can reach these goals, by 2050 its carbon dioxide emissions from fossil fuel “could fall to the same emissions levels as in 2005 or even lower”, the report says.

The report in Chinese is on open sale and builds on earlier research exploring pathways to a “low-carbon” economy. It adds to recent signals that Beijing wants to play an active role in seeking agreement for a new international climate change pact.

With its fast-rising greenhouse gas emissions, Beijing’s stance will be crucial in efforts to create a successor to the current Kyoto Protocol, which expires at the end of 2012.

Western nations have pressed Beijing to set specific goals on slowing emissions growth in coming years, leading to early cuts in absolute volumes as part of a new pact governments hope to seal in Copenhagen by the end of this year.

Under current treaties, China and other developing countries need not shoulder the quantified limits on emissions that rich economies must take on.

Beijing has said that principle must not change and resisted specifying when its emissions may peak, pointing out its average emissions per person remain much lower than the average in rich nations.

But the airing of proposals for emissions caps comes after signs that Beijing has become more open to stronger steps against global warming as negotiators struggle to build agreement before Copenhagen.

Early this month, China’s ambassador to the climate talks, Yu Qingtai, said his government wanted to curb greenhouse gas emissions as soon as possible.

“This report is intended to advise the Chinese government what its options are,” said Deborah Seligsohn, China programme director with the World Resources Institute, a Washington-based organisation promoting policies to fight global warming.

“I think they’re making a pretty concentrated push to move the negotiations forward,” said Mr Seligsohn.

The dozens of contributors to the report included climate policy experts from leading Chinese state think-tanks, including the Energy Research Institute and the State Council Development Research Centre, which advises the cabinet.

Participating scholars stressed that the study was a research exercise, not a definitive policy blueprint, and there was no suggestion that the senior officials listed as its advisers endorsed its specific proposals for targets and a 2030 peak.

But the proposals in the report have been circulated among officials and were echoed in a cabinet meeting last week that urged making “controlling greenhouse gas emissions” an important part of development plans, said an expert familiar with the project, speaking on condition of anonymity.

“I think this report reflects a growing consensus among domestic experts favouring more active steps against climate change, with a peak by 2030,” said Wang Yi, an expert at the Chinese Academy of Sciences who participated in the study.

The report spells out possibly disastrous consequences of global warming, as growing amounts of human-caused greenhouse gases retain more of the sun’s energy in the atmosphere.

“The potential threat to China from climate change exists and it is massive,” states the report, warning of worsening droughts and floods, retreating glaciers, shrinking farm productivity and threats to water supplies for the country of 1.3 billion people.

To curb emissions, China could push financial steps and price reforms to favour clean energy, a “carbon tax” on fossil fuels, emissions targets for local governments and cautious steps towards a “cap-and-trade” system for buying and selling emissions rights, says the report.

Beijing may seek to use such domestic initiatives to show other nations it is serious about fighting global warming, even if the steps are not directly included in any international pact.

“The problem now is not China making its own domestic commitments and targets, it’s how we treat those commitments internationally,” Dai Yande, a deputy director of the Energy Research Institute and one the report’s organisers, told reporters.

CLP Power (SEHK: 0002) will fire up its first upgraded lower-emission generating unit at its Castle Peak coal-fired power plant by the end of the year.

The upgrade is part of a programme aimed at meeting the company’s 2010 emission-reductions target. But the whole project, which requires upgrading of four such units, would not be completed until 2011, and the company would have to rely on other measures to meet its 2010 target, CLP Power commercial director Lo Pak-cheong said yesterday.

“We will also have to rely on the use of ultra low-sulphur coal and more natural gas consumption,” he said.

The project started in 2007 and was expected to “considerably” cut nitrogen oxides, sulphur dioxide and respirable suspended particulates emissions, a CLP Power spokeswoman said. She declined to give specific figures until the installations had been tested. Equipment is being installed in the boilers of Castle Peak’s four generating units to reduce nitrogen dioxides emissions during the coal-burning process.

Two limestone absorbers are being built near the coalfield to neutralise sulphur dioxide emissions.

CLP Power said the Castle Peak project would provide jobs for 500 construction workers by the middle of the year.

Under targets set by Hong Kong and Guangdong to improve regional air quality, Hong Kong’s two power companies are required by next year to reduce sulphur dioxide emissions by 54 per cent from 1997 levels, and nitrogen dioxide by 24 per cent.

The government has imposed emission caps on power plants and tightened them over the years to ensure targets are met. Castle Peak Power Plant’s licence renewal in 2007 required it to emit not more than 41,400 tonnes of sulphur dioxide and 27,650 tonnes of nitrogen dioxide in 2008. The caps this year are 39,400 tonnes and 27,300 tonnes.

Beijing will subsidise purchases of clean-energy vehicles in 13 mainland cities in a move to encourage carmakers to build environmentally friendly vehicles.

The trial scheme would promote the use of electric, hybrid and fuel-cell vehicles by public transport operators, taxi companies and postal and sanitary services in the cities, Xinhua reported, citing a Ministry of Finance statement at the weekend.

The 13 cities are Beijing, Changchun, Changsha, Chongqing, Dalian, Hangzhou, Hefei, Jinan, Kunming, Nanchang, Shanghai, Shenzhen and Wuhan.

Subsidies would be based on the price difference between vehicles with more energy-efficient engines and those with traditional engines, Xinhua said.

Local governments were asked to allocate money to build and maintain facilities for the green vehicles. The announcement is in line with the central government’s plan to promote the development of vehicles using alternative energy.

In November last year, Minister of Science and Technology Wan Gang said the government would launch a massive scheme to promote such cars. Ninety per cent of public vehicles would be hybrid initially, he said without giving a time frame.

China is widely believed to be the biggest source of carbon dioxide and greenhouse gas emissions from its manufacturing, energy and transport sectors, which have been blamed for rising global temperatures.

The central government is urging carmakers to take advantage of a reshuffle in the global car industry to speed up the development of vehicles running on alternative energy.

Local and global carmakers started to invest in green car manufacturing during the 11th Five-Year Programme lasting until next year.

Separately, Honda Motor, a pioneer in environmentally friendly cars, said yesterday it planned to increase its production capacity on the mainland by 23 per cent on expectation of solid demand for its fuel-efficient vehicles, according to a report.

The Nikkei business daily said Honda targeted a total output capacity of 650,000 vehicles per year by making multibillion-yen modifications to existing lines at its Dongfeng Honda Automobile unit, which assembles Civic cars and CR-V sport-utility vehicles.

Output at Dongfeng Honda on the mainland has steadily risen in recent years, producing more than 160,000 vehicles last year, up almost 30 per cent from the previous year, another company official said.

The company is hoping to raise its output to a full capacity of 240,000 vehicles, bringing Honda’s total mainland output to 650,000, she said.

The mainland vehicle sector grew 6.7 per cent last year. While outperforming developed nations, the rate was the country’s slowest in a decade and a sharp fall from 21.8 per cent the year before.

The central government will soon announce the rate cut for consumption tax, which is regarded as a move to further boost sales and entice consumers to buy “green” cars in a weak market.

Beijing aims to transform the industry, with zero emissions as the goal in the next decade, using tax policies. It regards the current financial crisis as the right time to encourage fuel-efficient vehicles.

“China needs to take policy steps to help counter a serious drop-off in car sales as a result of the global economic slowdown,” Minister of Industry and Information Technology Li Yizhong has said.

The vehicle industry is lobbying government departments for a favourable consumption tax rate. Mainlanders currently pay a consumption tax of 10 per cent when they buy a vehicle. Analysts said if the tax cut was less than 5 percentage points, there would not be a strong enough effect to boost sales of small-engined vehicles.

Under one set of proposals, the tax for vehicles with one-litre engines or smaller would be lowered to 2 per cent from 10 per cent. Vehicles with 2-litre to 2.5-litre engines and 2.6-litre to 3-litre engines, which are among the most widely bought cars, would be taxed at 7 per cent and 8 per cent, respectively.

Another proposal is to eliminate the consumption tax on cars with 1.6-litre engines or smaller. But it remains unclear how aggressive the government will be in the tax cuts.

The Ministry of Finance has already doubled the vehicle consumption tax in August on large-engined cars of 4.1 litres to 40 per cent from 20 per cent in a bid to fight pollution.

Before the government implements changes to the vehicle consumption tax, the country’s fuel consumption tax has been increased effective January 1, which is seen as a move to prompt the development of fuel-efficient vehicles.

The National Development and Reform Commission announced last month that the tax for petrol would be raised from 20 fen (23 HK cents) per litre to 1 yuan and the diesel tax from 10 fen to 80 fen per litre.

Road maintenance fees levied on motorists will also be cancelled, as a way to offset the higher fuel consumption tax.

The increase in fuel consumption tax has been discussed for a decade and was turned down seven times in the past.

Motorists have said they would drive less and use more public transport because of the higher fuel consumption tax.

The 4 trillion yuan (HK$4.55 trillion) stimulus package announced last month by the central government gives impetus to energy efficiency development and opportunities on the mainland.

The 2007 Energy Conservation Law came into force on April 1 last year against a backdrop of a fast-growing economy and rise in demand energy and fuel prices, a growing awareness of environmental issues and increasing world pressure on developing economies including China to use environmentally friendly and technologically advanced energy sources. While economic circumstances have since changed, the stimulus revitalises opportunities in the energy sector arising from the Energy Conservation Law.

The law has three principal goals: to promote policies for energy conservation and environmental protection; to restrict the development of high-energy consumption and high-pollution industries; and to encourage the development of energy-saving and environmentally friendly industries.

It proposes many policy initiatives to achieve energy conservation ranging from passive measures – education, energy efficiency labelling, accreditation systems for products, publication of energy use statistics and awards systems for energy conservation achievement – to more direct measures such as government funding, tax incentives, subsidies, prohibitions on the use of high energy consuming or polluting technologies, introduction of maximum emission standards for motor vehicles and focused government procurement of energy-saving products.

The law is supported by regulations in specific sectors. Banks, for example, are required to monitor and actively support energy-efficiency projects while developers must incorporate energy-efficient technologies into new projects.

The present economic environment is vastly different from that existing when the law was introduced, threatening the opportunities expected to arise from the new law. There has been a general slowdown in the Chinese economy and oil prices have dropped, making the introduction of energy-efficient technologies relatively more expensive.

However, the State Council’s announcement that one of the 10 measures of the stimulus package is the enhancement of environmental and ecological development makes the prospects of this sector brighter.

The law supported by the stimulus package creates opportunities for participants in the energy sector, including manufacturers of energy-efficient products and technologies, real estate developers, architects, banks, leasing companies, project sponsors, consultants and advisers.

The new regulatory environment should also foster collaboration. For example, manufacturers may link up with financiers or leasing companies to promote sales of their products, and manufacturers and financiers may co-operate with government entities for particular government initiatives. Independent of the new regulatory environment, the energy-efficiency market has already started to develop with support from international financial organisations such as International Finance Corp and Asian Development Bank.

Matthias Voss is a partner of the banking practice at Allen & Overy in Shanghai and Matthew Bisley is a counsel of the banking practice in Shanghai

TRUenergy, the Australian electricity and gas supplier owned by CLP Holdings, said it had A$2 billion (HK$10.25 billion) of proposed investments that hinged on the design of the nation’s emissions-trading system.

The spending on gas-fired power plants would not proceed if the design of the carbon-trading plan meant the company was forced to write down the value of its existing coal-fired plant, affecting its ability to refinance debt, managing director Richard McIndoe said yesterday.

On Monday, Australia’s government will announce the details of the carbon-trading system, expected to start in 2010, and national targets for reductions in greenhouse gases.

The plans had the potential to shut down as much as 23 per cent of power generation capacity on Australia’s eastern coast, depending on the targets, the Energy Supply Association of Australia said in July.

“For any investor in the electricity sector this is a critical issue; if we’re given clarity and the level of transitional assistance that keeps us whole, then there’s a raft of new generation investments that’s ready to go,” Mr McIndoe said.

“If it’s not a positive outcome and it causes massive impairments, then frankly there are many other markets that we would invest in.”

All TRUenergy’s investments had been put on hold by the board pending the details of the trading system, Mr McIndoe said.

The company owns the 1,480MW brown coal-fired Yallourn generator in Victoria, which is the most polluting of the state’s five biggest plants after International Power’s Hazelwood site, according to a 2005 report by Environment Victoria and the Australian Conservation Foundation.

The plant emits about 14 million tonnes a year of carbon dioxide.

Climate Change Minister Penny Wong in July proposed a one-off bonus to the most-affected coal-powered generators, without releasing details.

Australia’s power plants fuelled by brown coal, a more polluting variety of the fuel, might be the “worst sufferers” under the trading system, Fitch Ratings said on October 1.

The investments at stake comprised three potential gas-fired power projects each costing A$600 million to A$700 million, including an expansion of the Tallawarra plant that was expected to start operating this month in New South Wales, and two new power stations in Victoria over the next five years, Mr McIndoe said.

The board would also cut spending of as much as A$200 million a year at Yallourn, he said.

Of the government’s initiatives to get us to be more environmentally responsible, perhaps the most effective has been the one espousing that office air conditioners be set at 25.5 degrees Celsius. It is a number many people seem to be aware of, as a quick straw poll proved. Whether the knowledge is put into practice is another matter, of course, but the fact that it seems the message has been widely disseminated is impressive. Here the praise must end, though: the information is only partly right.

This is one of those cases where authorities have only done half their job; 25.5 degrees is a summer setting, not applicable to the other nine months of the year. During colder weather, thermostats should be lowered according to the outside conditions. If outdoor temperatures are less than those inside, we are on average doing more environmental harm than good. Every extra degree of cold or heat raises usage – and fuel bills – by 10 per cent, after all.

The government announced in October 2004 that air conditioners in all public buildings should be set at 25.5 degrees during summer. It launched a “no freezing summer” campaign the following June to encourage the private sector to follow suit. The figure has since been frequently bandied about by officials, most emphatically by Chief Executive Donald Tsang Yam-kuen in 2006 when he removed his jacket and trademark bow tie in front of legislators to promote his “Action Blue Sky” policy.

His clear message was that dressing more casually meant rooms did not have to be so cold. Less electricity would be needed, meaning lower bills and less pollution from power plants. It was a strategy that cost nothing to implement and would save money and the environment. Brilliant.

The rare image of a dressed-down Mr Tsang could well be the reason so many of us have “25.5” memorised. I am sure it flits subliminally through our minds whenever we drift near an office thermostat. A quick check, an adjustment if necessary, and the working environment is as it should be, we tell ourselves. We get back to our duties, satisfied that we have done our bit for Hong Kong.

Gerry McMahon, the director of the specialist building services company Facilities Analysis and Control, put the problem in a nutshell: attaining a 25.5 degree temperature in winter would, in most cases, mean heating a building to a point where the majority of people would feel uncomfortable. Ambient conditions naturally determined indoor temperatures, so when they changed, air conditioners should be adjusted accordingly. Some heating may still be required to achieve desired temperatures, but the notion of pushing the target up to 25.5 degrees in winter was ridiculous. Why waste energy in winter just because someone had decided the setting would save energy in summer, he rightly asked.

I have been unable to find out exactly where that 25.5 figure comes from. Authorities have attributed it to “overseas research”; I assume this means work done by the American Association of Heating, Refrigeration and Air-conditioning Engineers, whose standards are widely accepted. To be fair, the government has suggested it for summer. It has not made clear, though, that it is inappropriate for mild or damp conditions – as Hong Kong generally experiences from the end of August to the start of June.

Lantau environmental campaigner Eric Spain has long argued that it is wrong to make firm rules. The only solution for comfort and economy should be indoor and outdoor sensors and controllers, to automatically ensure appropriate settings, he says. Based on extensive research, he suggests that depending on humidity, comfortable summer office temperatures are generally between 24 and 27 degrees and, during winter, 20 and 23 degrees. Public transport settings should be at the upper end of the scale during hotter, more humid months, and between 18 and 20 degrees at colder times because of air flows.

I can see the convenience of settling on the 25.5 figure. But authorities have done no one – or the environment – a favour by failing to make clear what should happen at other times of year.

Peter Kammerer is the Post’s foreign editor. peter.kamm@scmp.com