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July, 2008:

The Most Energy-Efficient Countries

Special Report: Energy Efficiency

Joshua Zumbrun 07.07.08, 9:00 AM ET

Next year in Copenhagen, world leaders will assemble and attempt to write the successor agreement to the 10-year-old Kyoto protocol. In order for countries to make dramatic reductions for a greener future, energy efficiency will likely be a big part of the equation.

What they’ll find is a huge gap between countries with a head start, and those still in the blocks. Not surprising, the countries with the most energy-efficient economies are those who import their energy supplies.

Japan leads the way. It is, after all, birthplace of the Kyoto Protocols for climate change. More important, Japan has very little domestic energy production and is forced to import most of its fuel supply–creating a powerful economic incentive to use those expensive imports efficiently. (See “Japan’s Green Gold Mine.”)

In Pictures: The 10 Most Energy-Efficient Countries

The island nation uses 4,500 BTUs per U.S. dollar of gross domestic product, a measure known as “energy intensity,” the world standard for measuring how efficient an economy is at using energy.

A country with a very high GDP and relatively little energy consumed is likely to be a very energy-efficient economy. Conversely a country with huge energy consumption and relatively little GDP is unlikely to be efficient. A BTU, or British thermal unit, is the amount of heat energy needed to raise the temperature of one pound of water by one degree Fahrenheit.

Of course, the use of energy intensity as a measure is not perfect and the results can be misleading. By the EIA’s data, the country with the lowest energy intensity is Chad. True, Chad uses little energy, but the country is largely reliant on low-tech subsistence farming. Comparing it with the U.S. makes little sense.

So for our list we looked at only the 75 largest countries in terms of total GDP. Not surprisingly, the countries are wealthy and among the world’s greenest as well, according to the Environmental Performance Index, a joint product of Columbia University and Yale University, which measures performance against 25 indicators, such as measures of air pollution, water supply or use of natural resources. Switzerland, which ranks third for efficiency, is ranked as the greenest country. Austria is not far behind at sixth, with Germany and the U.K. also in the top 15.

The most energy-efficient countries are all similar to Japan. In many cases, they do not have access to abundant sources of energy and have sought efficiency as a matter of energy independence–in the case of (No. 2) Denmark as an urgent national priority since the oil shocks of the 1970s. Hong Kong, Ireland, Israel and Italy all make the list as well.

The U.S. doesn’t. Using energy intensity as a measure, the U.S. is using slightly more than 9,000 BTUs per dollar of GDP. The top 10 countries use 7,500 BTUs or less. China uses 35,000 BTUs per dollar of GDP. (See “China’s Power Problem.”)

They’re far from the worst, though. At the other end of the scale are former Soviet countries: Russia, Kazakhstan, Uzbekistan and Ukraine. Ukraine uses 138,000 BTUs of energy for every dollar of GDP–roughly 30 times the level of consumption in Japan. The aging energy infrastructure of these countries, a remnant from the not-so-efficient days of Soviet planning, has much room for improvement.

A note on sources: Different agencies give different estimates of energy consumption and GDP. For the purposes of our ranking, we looked at data released in October from the Energy Information Administration of the U.S. Department of Energy. The estimates of total primary energy consumption are those of the EIA. For GDP figures, the EIA used data from Global Insight. The October 2007 data is for the year 2005.

China’s Power Problem

Special Report: Energy Efficiency

Brian Wingfield, 07.07.08, 9:00 AM ET –

Already the largest producer of carbon emissions by some estimates, China has another energy problem: efficiency.

As part of its most recent five-year plan, Beijing set an ambitious goal to reduce its energy “intensity”–a common measure of a country’s energy efficiency–by 20% from the 2005 level by 2010. Problem is, China isn’t anywhere close to meeting its target.

In 2006, the first year of the plan, the country’s reduction in energy intensity, which measures energy consumption per unit of economic output, was a mere 1.23%. For the first half of 2007, this figure was close to 3%, Chinese officials say, but that’s still short of the 4% reduction needed each year from 2006 to 2010 to achieve the goal.

It’s crucial that they do. China lags far behind Western industrialized countries when it comes to energy efficiency. According to the U.S. Energy Information Administration, the energy intensity of China in 2005, the most recent year for which data are available, was 35,766 British thermal units per U.S. dollar. In the U.S., the Btu/dollar ratio was 9,113. In the U.K. and Japan, the figures were even lower, 6,145 and 4,519 respectively.

A variety of factors, including the exchange rate, can affect energy intensity when measured this way, but in general, the lower the number, the less drag on economic growth.

It’s not as if the government is standing idly by. According to the Paris-based International Energy Agency, Beijing has an array of policies in place to promote energy efficiency, including a comprehensive climate change program put in place last year.

Two years ago, the government required China’s 1,000 largest industrial consumers–which account for about a third of all Chinese energy demand–to establish their own programs and auditing systems to meet efficiency standards. Beijing also requires government agencies to buy energy-efficient products, and it has focused on improving building efficiency in hotels in the China’s cold northern regions.

There’s plenty more. According to a report by the World Resources Institute, an environmental think tank, the government discouraged investment in energy inefficient industries, such as steel and cement production, eliminating tax rebates and deterring loans for projects. In April, the government modified its conservation law, establishing new pollution taxes. Beijing is also rating local government leaders on their performance in reaching energy efficiency goals.

So why the struggle? Growth. China is growing so quickly that improvements in efficiency are often overwhelmed. “Since 2001, efficiency gains alone have not been nearly sufficient to compensate for the effect of heavy industrialization,” says a 2006 paper by the China Energy Group of the Lawrence Berkeley National Laboratory in California.

That shouldn’t be surprising. China’s industrial sector accounts for 70% of total energy consumption. Experts estimate the country builds, on average, two new coal plants per week–per week–to meet its booming energy demand.

The other barrier to energy efficiency–a lack of money–is far more surprising, considering China holds the world’s largest foreign currency reserves ($1.7 trillion and growing).

But as authors William Chandler and Holly Gwin explain in a recent study for the Carnegie Endowment for International Peace, China’s capital markets are extremely small for a country its size. Debt financing in the People’s Republic is virtually nonexistent, equity financing is only about a fourth of what it is in other developing countries and the financial system allocates a disproportionate amount of capital to state-owned enterprises rather than the private sector.

Chandler explains that China’s Value Added Tax, the country’s largest revenue raiser, creates a huge disincentive for investment in energy efficiency projects. Companies providing energy efficiency services pay the government a base VAT of 17%. Coal companies, on the other hand, pay a 13% VAT.

In addition, a cap on interest rates offered by banks–less than 10%–virtually eliminates the risk premium associated with energy efficiency investments. Red tape from municipal and provincial governments gums up foreign investment, and the reduction in loans to cement and steel companies cuts all investment–including money for efficiency projects–to those industries.

What can be done to boost China’s energy efficiency? “The first thing is getting the government out of the way with this high rate of taxes,” says Chandler. He and Gwin suggest tax holidays and clean energy exemption from industrial policies that discourage investment.

Toby Bath, an architect in Hong Kong and managing director of HOK International’s Asia/Pacific practice, says the government could take a more comprehensive approach to urban planning rather than focusing so precisely on energy efficiency in buildings.

“If it were less car-oriented, the energy consumed would be drastically reduced,” he says.

Beijing is also getting help from beyond its borders. In May, the World Bank pledged $441 million in loans to China for energy efficiency and environmental projects. Provincial governments will also use the funds to build more efficient heating systems and to reduce pollution from coal-fired power plants.

U.S. Treasury Secretary Henry Paulson has made energy and financial market reform in China a focus of the “Strategic Economic Dialogue” between Washington and Beijing. And the U.S. Department of Energy has signed several agreements with the Chinese to promote energy efficiency in the industrial sector, biofuels development and more efficient autos.

Makes sense–the U.S. and China have an abundance of dirty coal, rely heavily on oil imports and spew more greenhouse gases into the air than any other countries. But international agreements such as these–with relatively vague goals and no punishment for not meeting them–only go so far. Until China signs an international agreement to reduce carbon emissions, any pressure to increase is entirely self-imposed.

“They set ambitious goals, and if they miss them they recalibrate the goals,” says Chandler. “It’s remarkable to me that they’ve done as well as they have.”

The World Warms To A Solar Power Pioneer

One man’s dream of clean energy from mirrors in the desert comes close to reality

Billy Adams – SCMP – Updated on Jul 06, 2008

Given that he has developed a way to effectively save the world, it is probably best not to imagine the years of frustration David Mills experienced trying to enlist support. The respected scientist viewed a small contraption he built in a suburban Sydney car park as a first but important step towards solving the planet’s energy and climate crisis.

As investors baulked at the dollars required to get the technology up and running, only donations from relatives kept his company afloat.

The Australian government soon pitched in A$3 million (HK$22.4 million) but it was merely a stay of execution and as the funds drained, more than a decade of hard toil looked certain to go unrewarded.

At about the same time in 2006, Californian entrepreneur John O’Donnell was flicking through an obscure journal and stumbled on an article by Dr Mills.

It described how landscapes covered in mirrors could soak up the sun’s rays and provide vast amounts of energy. Enough – in theory – to satisfy most of the world’s power and transport demands, eliminating the need for coal, gas, oil and nuclear energy.

If that sounds like the stuff of fantasy, Mr O’Donnell was hooked and flew to Australia. His timing was perfect.

“We had spent most of the government money and we were highly concerned,” recalls Dr Mills. “It was getting close.”

The turnaround in his fortunes has been dramatic and swift. Within a few months of meeting Mr O’Donnell, the University of Sydney boffin and his Australian business partner Peter Le Lievre upped sticks and moved to Silicon Valley.

They were persuaded by US$43 million in funding from venture capitalists Ray Lane and Vinod Khosla, businessmen with formidable track records. Mr Lane is part of a company that invested early in Amazon and Google, while Mr Khosla co-founded Sun Microsystems.

“In Silicon Valley they think on a global basis,” said Dr Mills. It’s a place where the belief that “solar thermal” has the potential to change the world no longer appears to be a pipe dream.

The principle is simple enough. Unlike household solar panels, which have semiconductors to convert rays directly into electricity, sunlight is deflected off an array of large mirrors to heat tubes filled with water. That generates steam to drive a conventional turbine.

While the technology is proven and has operated for some time on a small scale, Dr Mills’ backers believe he has overcome the biggest hurdles preventing thermal’s entry into the mainstream energy mix.

Only working when the sun shines has been solar’s perennial Achilles’ heel, but Dr Mills has come up with a way of storing heat for up to 20 hours – ensuring, he says, reliable power day and night.

Within a few years, he believes, prices for thermal-powered electricity could rival today’s discount provider and major polluter – coal. Racing to drastically cut carbon emissions in the face of global warming, Dr Mills is at the forefront of the many operators seeking solutions through variations on the same solar theme.

Earlier this year the American business magazine Fast Company ranked his firm Ausra as the 20th most innovative in the world.

Dr Mills says these are “exciting times”. He compares today’s renewable energy landscape to the battle a century ago between electricity, gas and the combustion engine to propel the newly invented car.

“We are seeing an explosion in interest throughout the world,” he says from his office in Palo Alto. Governments from Chile to Africa have been on the phone wanting to know more.

“Solar companies are being set up every few weeks, especially in our field. It has turned around completely, to the point where some parts of the industry might consider it a bubble.”

For true believers the potential rewards are mind-boggling.

Dr Mills looks to a future in which massive solar parks filled with flat 16-metre mirrors as far as the eye can see will power vast tracts of our energy-thirsty world.

The Sun – the daddy of all nuclear reactors but without the waste – emits 6,000 times the energy needed by humans at any given moment. And the best places to collect all that natural light are hot, dry areas where few people live.

Ausra estimates mirrors laid out on an area just under 22,000 sq km – or about 10 per cent of the land mass of Nevada – could power the whole of the US. Europe’s needs would be met by linking to similar set-ups in the Sahara Desert.

“In China there is the northwest desert,” Dr Mills said. “In India, the Rajasthan Desert. We see that most areas, most big economies in the world, do have access to a desert or arid area where they can use this technology. The resource is there.”

A small pilot plant linked to a power station in New South Wales began life before Dr Mills left Australia.

Earlier this year utility Pacific Gas & Electric signed a deal to buy power from Ausra’s first US plant, which will be built in California. When it comes online in 2010, enough electricity will be generated for 120,000 homes.

Dr Mills hopes small first steps can inspire industry confidence to raise the billions required for expansion.

The question is not so much whether it will work, but how much it will cost.

Although significantly cheaper than other solar solutions, his thermal technology is almost twice as expensive as a new coal plant. But costs come down as more plants are built. Emissions-trading schemes and carbon taxes will also level the playing field.

For almost three decades Dr Mills has been a leading light in the solar industry.

Along with Qichu Zhang, a Chinese colleague at University of Sydney’s school of physics, he invented advanced heat-absorbing surfaces now used in the majority of solar hot-water heaters.

Most are made in China, which is keen to embrace solar power as a mainstream energy of the future.

Australia should also be on that list, and in the 1970s and early `80s the reputation of the “sunburned country” for encouraging research in renewable energies was second to none.

Dr Mills, a Canadian by birth, was one of a host of international scientists who had headed to Australia to work on scientific breakthroughs.

But the arrival of John Howard’s conservative government in 1996 signalled a downturn in support for alternative energy sources.

Emphasis shifted towards Australia’s biggest export and attempts to create “clean coal”, where carbon dioxide is extracted and pumped underground. The result was a brain drain as renewable firms went out of business or overseas.

Just over a year ago, Dr Mills avoided the former by reluctantly opting for the latter. Two weeks ago, he was visited by a group of Australian politicians who had paid precious little attention to his work when he was there.

“I have spent quite a long time in Australia, and battering my head against a wall for quite some time,” Dr Mills said, adding: “I think there is now real interest. And that is very, very gratifying indeed.”

Coal Shares Tumble

Coal shares tumble on concern over resource tax reform

Eric Ng – SCMP – Updated on Jul 05, 2008

Mainland coal stocks tumbled on speculation the central government would unveil a long-expected drastic rise in resource tax paid by coal miners as soon as this weekend, in a bid to reduce resource wastage and pollution.

The planned tax reform, first proposed in 2006, might also come as a kind of windfall tax after coal price soared, analysts said.

Like the windfall tax imposed on oil production revenues, the levy collected from miners could be used to subsidise loss-making power generators that suffered from tight government control on electricity tariffs to tame inflation, the analysts added.

Beijing this weekend will launch the much-anticipated reform of the coal resource tax from one collected on a per-tonne basis to one charged as a percentage of sales revenues, according to the National Business Daily, which did not cite anyone. It would also increase the levy, the report added, without giving the amount.

Coal producers now pay 2.50 yuan to 3.50 yuan (HK$2.85 to HK$4) per tonne or about 1 per cent of their revenues, according to Nomura Securities analyst Donovan Huang. Sun Yaohai, director of the National People’s Congress’ Regulation Office of Environmental and Resources Protection Commission, was quoted by China Business News last November as saying Beijing wanted to increase that to 3 per cent of revenues.

Mr Huang said a 3 per cent tax on the average price charged by coal miners to distributors, without the transportation cost of about 350 yuan a tonne, amounts to 10.50 yuan a tonne or 7 yuan to 8 yuan higher than at present.

Based on Yanzhou Coal Mining’s 34.4 million tonnes of planned sales of self-produced output this year, the tax increase could amount to as much as 275.2 million yuan. For China Shenhua, with planned sales of 177 million tonnes, that would be 1.42 billion yuan and for China Coal Energy’s 100 million tonnes, it would be about 800 million yuan.

The amounts would represent 8.38 per cent of Yanzhou’s net profit as forecast by Thomson Reuters, 4.26 per cent of China Shenhua’s and 8.33 per cent of China Coal’s.

However, some analysts have already accounted for the tax in their earnings forecasts.

The three coal miners’ shares yesterday fell 0.35 per cent to 4.7 per cent in Hong Kong, and a deeper 6.7 per cent to 8.13 per cent in Shanghai.

Mr Huang said he assumed the 3 per cent levy would take effect from this month.

However, it remained uncertain whether the government would impose a higher than 3 per cent levy, Mr Huang said, considering that the tax may become a kind of windfall tax and the heavy losses suffered by power companies. The other unknown is whether the tax would be levied in a progressive manner according to the level of coal price, similar to the windfall tax on crude oil revenues.

Beijing has imposed a temporary price freeze on coal prices charged by miners at mid-June levels. However, Mr Huang said this had not stopped distributors from charging more. The spot market price at Qinghuangdao port has surged 10.9 per cent since the price cap was imposed.

CLP’s HK$8b Gas Plant May Have Own Profit Control Plan

Government looks at framework for new LNG terminal

SCMP – Cheung Chi-fai – Updated on Jul 01, 2008

The government is considering excluding CLP Power’s proposed liquefied natural gas (LNG) terminal from the new scheme of control regulating its earnings.

The more the company invests in assets regulated by the scheme, the more profit it can earn. The plant on South Soko Island would cost HK$8 billion.

Suggesting the plant would be regulated separately, the environment chief made no mention of the profit factor. Rather, he cited the possibility of other firms using the terminal and bearing a share of its cost.

He said the government was still working out a regulatory framework for the proposed terminal and no decision had been made on whether the project would go ahead.

Keeping the terminal out of the scheme could hold down electricity prices. However, Environment Secretary Edward Yau Tang-wah did not explain how the cost of building the terminal would be reflected in CLP’s tariffs.

He would not offer members of the Legislative Council’s environmental affairs panel any assurance about the percentage return on investment in the terminal CLP would be allowed. The new scheme of control, which takes effect next year, allows the company to make an annual profit of up to 9.99 per cent of the value of its net assets.

“In any business negotiation, it is difficult to make any assurance as it needs to take into account the practical situation,” Mr Yau told the lawmakers.

He said regulating the terminal separately could provide greater transparency and accountability in operations, cost allocation and tariff setting.

CLP Power said that while it agreed that a clear, stable and transparent regulatory framework was important for energy infrastructure, it would seek further clarification from the government about the proposed alternative regulatory arrangement for the terminal.

The company proposed building an LNG terminal after finding the reserves in its gas field off Hainan would begin running out early in the next decade. The finding prompted it to reduce the proportion of electricity generated by its gas-powered plants and using more coal, which has aggravated air pollution.

Mr Yau said consultants hired to conduct due diligence of CLP’s plans had concluded that the Hainan field could provide stable supplies up to 2013. No suitable alternative reserves have been found that CLP can readily tap.

CLP says a terminal would have to come on stream by 2011. The company has signed a preliminary agreement with British firm BG Gas Trading for a 20-year contract for LNG supply.

To save time, Mr Yau said, the statutory planning process would start soon even though no decision has been made about whether to build a terminal. The minister said an LNG terminal should not cater only to CLP’s short-term needs but enable the company, or others, to expand their gas-fired power plants in order to improve air quality.