Energy Futures and Urban Air Pollution: Challenges for China and the United States (2008)

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5 Energy Intensity and Energy Efficiency Energy intensity is a measure of the energy required per unit of output or activity. At a national level, the ratio of the energy consumption to GDP is often used as a measure of energy intensity. For the economy as a whole, this is a broadly useful measure to compare countries and is frequently used as a proxy for energy efficiency, but it does aggregate numerous underlying factors and thus can obscure the lessons learned on specific efficiency improvements. Energy efficiency improves when a given level of service is provided with reduced energy inputs, or when services are enhanced for a given amount of energy input (EERE, 2007a). Efficiency improvement is generally the lowest cost method to reduce emissions, including CO2, and it also has a significant impact on consumption, thereby decreasing demand, saving money, and improving energy security. Energy efficiency can be predicted reliably and, in that respect, can be viewed as another energy resource, since it is technology-based (as opposed to conservation measures which are dependent upon behavioral changes). Effi- ciency improvements also provide a shorter time frame to meet energy needs and to reduce emissions relative to other approaches, such as increased usage of renewable energy technologies. This is not meant, however, to downplay the importance of investments in renewables in the medium to long term. The State of California has demonstrated remarkable decreases in energy demand relative to GDP growth over the last 35 years, due to improvements in energy efficiency. The Los Angeles region alone saves an estimated $700 million annually through energy-efficiency measures (Rosenfeld, 2007). Extrapolations Efficiency refers to improving productivity per unit energy versus conserving a given quantity of energy. 161 

162 ENERGY FUTURES AND URBAN AIR POLLUTION suggest that, if similar measures were employed nationwide, annual energy savings of $20 billion would be realized along with more than $250 billion in net societal benefits—though this would necessitate a four-fold increase in energy efficiency investments, which currently amount to less than $2 billion annually (NAPEE, 2006). Numerous recent reviews have likewise affirmed the centrality of improved energy efficiency in China’s drive towards sustainable development (Sinton et al., 2005; CASS, 2006). Despite its potential, energy efficiency remains underutilized as a way to modify energy demand in the United States (NAPEE, 2006). This chapter looks at energy intensity and energy efficiency in the United States and China broadly, both on the supply side, particularly in the power sec- tor, and on the demand side. It will provide a more detailed look at some of the most successful energy efficiency efforts. ENERGY INTENSITY Figure 5-1 shows the energy demand and GDP per capita for a variety of countries. To a rough level of approximation there is a “universal” relationship between energy and GDP, with the United States as a significant outlier, in that it has a much higher energy consumption per capita. The good news is that, as U.S. GDP has increased over the past 10 years, the energy consumption per capita has remained relatively constant. China, like most of the developing world, is experi- encing a growth in energy demand per capita as living standards increase. Figure 5-2 indicates that energy intensity in the United States has declined since 1985, suggesting that the United States economy as a whole has improved its energy efficiency. However, this does not capture some fundamental shifts, such as the structural change from a manufacturing economy (energy intensive) towards a services economy (less energy intensive), which is not related to energy efficiency per se. A newer measure, the intensity index, shown in the chart, was developed in order to account for some of these non-efficiency changes. From 1985 to 2004, it declined from 1 to 0.9, somewhat less rapidly than E/GDP, indi- cating an underlying improvement of efficiency of 10 percent. In China’s case, the economy has been shifting from agricultural to industrial, marked by strong GDP growth (Figure 5-3). China’s energy intensity declined markedly from 1980 to 2000, but energy consumption has outpaced GDP growth since 2000. Broadly speaking, China’s energy intensity is presently higher than that of many developed countries, albeit at a relatively low absolute value of energy consumption per capita. Both are rising rapidly, however, which will have implications both domestically and internationally. The traditional measure of energy intensity (E/GDP) is captured by the line with the most nega- tive slope. The Intensity Index, which attempts to account for structural, behavioral, and weather changes unrelated to efficiency, will be used throughout this chapter since it is a better approxi- mation of ­ changes in energy efficiency. An explanation of this methodology is available at http://­ intensityindicators.pnl.gov/methodology.stm. 

ENERGY INTENSITY AND ENERGY EFFICIENCY 163 400.0 US 350.0 Primary Energy Consumption per capita 300.0 Australia 250.0 (Million Btu)** 200.0 Japan UK Ireland 150.0 100.0 Mexico China 50.0 Brazil India 0.0 0 5000 10000 15000 20000 25000 30000 35000 40000 GDP per capita (PPP, $2000)* FIGURE 5-1  Energy demand and GDP per capita for select countries, 1980-2004. *Heston, A., et al., 2006. **EIA, 2006. International Energy Annual 2004. U.S. Department of Energy. 2.000 5-1 1.800 1.600 1.400 Index (1985 = 1.0) 1.200 1.000 0.800 0.600 Energy GDP 0.400 E/GDP 0.200 Intensity Index 0.000 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Time FIGURE 5-2  Energy intensity for the U.S. economy, 1985-2004. SOURCE: EERE, 2007a. 5-2 

164 ENERGY FUTURES AND URBAN AIR POLLUTION 20 20 18 18 Energy consumption (x 108 tce) 16 16 Energy consumption GDP (x 1012 yuan) 14 14 12 12 10 10 8 8 6 6 4 GDP 4 2 2 0 0 1975 1980 1985 1990 1995 2000 2005 Year FIGURE 5-3  Energy consumption and GDP in China, 1978-2004. SOURCE: NBS, 2005, 5-3 SUPPLY-SIDE ENERGY EFFICIENCIES Coal Combustion Efficiency in Electricity Generation The efficiency of electricity generation can be increased by improving coal- fired plant thermal efficiency; this simultaneously reduces both CO 2 emissions and conventional emissions such as SO2, NOx, particulates, and heavy metals. In the United States, the thermal efficiency of new supercritical pulverized coal (PC) plants and the projected efficiency of integrated gasification combined cycle (IGCC) plants (discussed further below) under commercialization are both in the range 39-43 percent on higher rank coals. This represents an 8-10 percent effi- ciency improvement over new subcritical PCs and over the two operating IGCC units, and more than a 20 percent improvement over the efficiency of the bulk of older operating coal generation plants. Figure 5-4 illustrates the relative effi- Ultrasupercritical PC and advanced next generation IGCC will increase efficiency to the 43-48 percent range, with CO2 reductions of an additional 10-15 percent. Efficiency improvements can be achieved for combustion technologies by operating at higher temperature and pressure steam conditions, utilizing advanced materials. The efficiency of IGCC can be increased by incorporating advanced heat recovery and improved plant component designs, including gas turbines. 

ENERGY INTENSITY AND ENERGY EFFICIENCY 165 FIGURE 5-4  Efficiency of U.S. coal-fired power plants as of 2002. SOURCE: NETL, 2002. 5-4 ciencies for U.S. coal-fired utilities (also see Chapter 6, Box 6-1, for an extended discussion of the future direction of efficient coal-based power). fixed image There is considerable potential for improving plant thermal efficiency in China. Compared with the international advanced level of power generation, C ­ hinese coal power plants are inefficient, averaging about 30 percent efficiency. This challenge is compounded by the rate at which such plants are being con- structed; it is estimated that a new plant comes online every 7-10 days. In 2004, coal consumption for power generation was about 376 g/kWh, which was 55 g/kWh higher than that in advanced countries (Chinese Electric Power Yearbook, 2005). This was due mainly to the use of many small, inefficient generation sets; less than 60 percent of power generation sets had a capacity exceeding 200 MW, and 27 percent had a capacity less than 100 MW. Thus, small-scale power generation sets have impeded China’s drive towards greater energy efficiency, although recent efforts to close smaller inefficient plants have moved forward, and plans call for additional closures in 2007 and beyond. While further improvements can be achieved, China’s power plants have made efficiency gains over the past 25 years. The standard coal consumption rate of elec- tricity generation decreased from 398 gce/kWh in 1985 to 343 gce/kWh in 2005, an average annual decrease of 2.8 gce/kWh. The standard coal consumption rate for 

166 ENERGY FUTURES AND URBAN AIR POLLUTION total power supply also fell from 431 gce/kWh in 1985 to 370 gce/kWh in 2005, a 3.1 gce/kWh annual reduction (China Energy Research Society, 2004,2006). A challenge for both countries is the large number of large-capacity but older, less efficient coal-fired plants. According to DOE’s National Energy Technology Laboratory, many existing U.S. plants are reaching their expected life­spans and face decisions on whether to modernize or to retire, if more stringent pollution standards cannot be met (NETL, 2002). These older plants lack pollution controls due to the fact that many were “grandfathered” under the Clean Air Act of 1970. Similarly, China’s newer power plants exhibit improved but not necessarily state- of-the-art efficiencies and, with an average lifespan of 50 years, these plants are essentially locked in for decades. Electricity Transmission and Distribution As mentioned in Chapter 2, electricity transmission and distribution continue to present challenges in terms of system losses. Transmission refers to electric- ity moving from the power generation station to a substation. In order to reduce losses, transmission occurs at high voltages (110 kV or above), typically via overhead power lines. Distribution refers to electricity moving from the substation to consumers at much lower voltage. Efficiency within these existing systems can be improved primarily by one of three ways: increasing the transmission voltage, decreasing transmission distances, or improving transformer efficiencies. High-temperature superconductivity (HTS) presents the most significant opportunity to improve efficiency in this sector. HTS cables can carry 3 to 9 times the AC power of conventional copper cables and can be either retrofitted for overhead lines or buried underground without significant losses (OETD, 2005). Conventional transmission lines are seldom buried underground due to higher costs and drastic power loss. HTS transformers also exhibit improved efficiency at approximately half the electric loss of conventional transformers. Commercial versions of these technologies are under development and could be available by 2010. Distributed Energy Systems Distributed energy (DE) is a strategy which makes use of small, modular gen- erating systems located close to points of use, thereby improving efficiency in the transmission and distribution of electricity. Moreover, DE systems, particularly because they are located in or near populated areas, are characterized by cleaner technologies. Wind turbines and small-scale gas turbines are examples of tech- nologies utilized in DE systems. In addition to improved efficiency, these systems offer other advantages such as reduced peak demand charges and increased system reliability, since they can be tied into the power grid. 

ENERGY INTENSITY AND ENERGY EFFICIENCY 167 Most DE systems in the United States and China currently rely on natural gas turbines, sometimes in combination with renewable sources. In the South Coast Air Basin (which includes Los Angeles), it was estimated that a realistic scenario of extensive distributed energy use would require 50 percent of its power from gas turbines, while photovoltaics and fuel cells might contribute 5 and 10 percent, respectively (Brouwer et al., 2006). In China, there are also significant opportuni- ties to establish DE systems based on renewable sources, particularly in remote areas currently lacking access to an electrical grid. Integrated Energy Systems In terms of energy use, there are a number of opportunities to combine currently available technologies into more efficient systems. These follow the principles of the cascade utilization of energy, where different technologies are arranged in a cascade way, according to their preferred energy quality (Wu, 1988; Jin et al., 2005, 2007a). Combined-cycle systems (typically gas and steam) are widely employed in the United States (and increasingly in China) and represent just one of many opportunities to use energy more efficiently. Combined Heat and Power (CHP) and Combined Cooling, Heating, and Power (CCHP) China is already making extensive use of CHP, particularly in its urban areas. These systems generate electricity and convert waste heat into steam for central heating. As of 2004, there were over 2,300 CHP units of at least 6 MW capacity, totaling 48 GW of installed capacity, or more than 12 percent of China’s total installed capacity, according to the China Electricity Council. CHP systems provide energy and heat more efficiently than do separate steam turbines and small-scale boilers and, as a result, can reduce coal consumption and its atten- dant emissions. CHP systems provide 82 percent of steam for heating and almost 27 percent of hot water nationwide, and the National Development and Reform Commission’s (NRDC’s) Energy Bureau has established plans to double CHP’s share of total installed electrical capacity by 2020. CCHP technology has also developed rapidly in recent years. These sys- tems combine distributed electricity generation with high-efficiency utilization of ­thermal energy, with the energy saving ratio as high as 20-30 percent. These systems can take many forms based on their fuel flexibility. Using fossil fuel (natural gas) as the major source, a CCHP system can integrate use of renewable energy to reduce the consumption of fossil fuel. A small gas turbine can be used as its energy supply and the system may incorporate solar energy, geothermal energy, a heat pump, and energy storage technologies (fuel cells). The gas turbine is used to generate electric power, and recovery of the exhausted heat is applied to produce refrigeration or heat. Refrigeration can be generated by the combina- 

168 ENERGY FUTURES AND URBAN AIR POLLUTION tion of absorption refrigeration and compression refrigeration. An absorption heat pump and compression heat pump are integrated to ensure that the heat supply system operates reliably even when the ambient temperature is very low. In North China, solar energy can provide domestic hot water in summer and can be used as a heat source for an absorption heat pump in winter. A geothermal energy system, adopted with an absorption heat engine, acts as a heat sink in summer and heat source in winter. Presently, there are few CCHP systems using only renewable energy due to the expensive initial investment, low profitability, and immature technology. However, natural gas-powered CCHP systems also face challenges in China, due to high natural gas prices and the inability to sell power back to the electrical grid, a feature which can help offset investment and operat- ing costs. CCHP systems may also provide an opportunity to be combined with desalination technologies. Desalination is generally energy intensive and requires heat at a temperature comparable to waste heat given off from CCHP systems. Integrating these two components into a system in coastal areas might reduce the cost of desalinating sea water for domestic and industrial use. Coal Gasification and Polygeneration Systems IGCC is an integration of the technologies of coal gasification, gas purifica- tion, gas turbines, heat recovery steam generation, and steam turbines. It includes an air separation unit if the system uses the pure oxygen gasification process. Coal gasification is widely used in the chemical industry and most of the technologies being adopted for power generation are mature ones. The gas turbine and steam turbine subsystems adopt the existing technologies of oil- or natural gas-based combined cycle, with the attendant advantages of mass production. The air separa- tion unit can employ the technologies of chemical engineering and metallurgy as well. At present, IGCC is mainly based on the gas turbine combined cycle and the power supply efficiency has reached 43-45 percent; it is expected to achieve 50-52 percent. However, China’s primary interest in IGCC technology is integrating it into polygeneration systems, producing power as well as important by-products, including liquid fuel (F-T fuels, methanol, and DME). Cities such as Huainan are considering gasification plants which will provide a 50-50 split between power generation and chemical production. Polygeneration systems are able to produce synthetic liquid fuels from coal, natural gas, biomass, heavy oil, and coke. The amount of coke produced in China is about 180 million tons per year, which is about half of the total coke produc- tion in the whole world. Coke oven gas (COG) by-produced in the coke-making process is about 36 billion cubic meters per year (0.65 EJ), of which about half is currently utilized. The rest of the COG is directly burned and exhausted to the atmosphere, which results in energy waste and pollution. Based on an energy conversion of 18 MJ per cubic meter of COG. 

ENERGY INTENSITY AND ENERGY EFFICIENCY 169 In the coal gasification-based methanol production process, composition adjustment is required for the feed gas, because the H2/CO ratio of raw syngas is much lower than the standard value required for methanol synthesis reaction. On the other hand, COG is higher in H2 content (about 60 percent in volume) than the standard value required for methanol synthesis reaction. Thus, coal syngas and COG can be mixed to provide the proper H2/CO ratio for methanol or DME production. Chinese engineers expect that a polygeneration system for methanol and power production based on both COG and synthesis gas will have economic benefits for both fuel consumption and initial investment (Jin, 2007b). DEMAND-SIDE ENERGY INTENSITY AND EFFICIENCIES Industry and Manufacturing As mentioned above, the U.S. economy has been transitioning from second- ary industries (e.g., manufacturing) to services (largely captured under “com- mercial” activity in terms of energy use). However, the industrial sector has made improvements in efficiency, as measured by its energy consumption divided by its contribution to GDP. Figure 5-5 shows the total energy consumption in the industrial sector and indicates that the sector’s energy intensity has declined by 19 percent since 1985, most of this occurring after 1993 (EERE, 2007a). 1.8 1.6 1.4 1.2 Index (1985 = 1.0) 1.0 0.8 0.6 GDP in Industry 0.4 Intensity 0.2 Energy Use 0.0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 Year FIGURE 5-5  Energy intensity in the U.S. industrial sector, 1985-2004. SOURCE: EERE, 2007a. 5-5 

170 ENERGY FUTURES AND URBAN AIR POLLUTION As an example, Table 5-1 provides a closer look at recent gains in energy efficiency in the U.S. iron and steel sectors. Gains made between 1998 and 2002 can be largely attributed to a decrease in coal consumption (and natural gas to a lesser extent), offsetting a slight increase in electricity consumption. Efforts aimed at reducing energy intensity in the U.S. industrial sector have focused on seven energy-intensive industries (aluminum, chemicals, forest products, glass, metal casting, mining, and steel)—though there are several additional industries ­(notably, petroleum refining which accounts for 17 percent of industrial energy consump- tion), which could benefit from energy-saving technologies (NRC, 2005). In China, 70 percent of energy is consumed by industries (compared to 32 percent in the United States). In recent years, industrial production has accounted for about 50 percent of GDP. Energy consumption of major industries remains high, and per unit energy consumption for major industries (e.g., iron and steel), was on average 40 percent higher than the international advanced level. China has been transitioning to a heavy industrial economy since the early 1990s. The proportion of heavy industry in gross value of industrial output increased from 50.6 percent in 1990 to 66.5 percent in 2004, and the energy consumption for heavy industry was about three times more than that for light industry. Between 1980 and 2000, the annual average increase ratio of energy con- sumption for industry was 4.2 percent. The building materials, steel production, and chemical engineering industries were the main energy consumers, accounting for 54 percent of energy consumption for all industries in 2000 (National Energy Strategy and Policy Report, 2004). At present, another interesting transition is taking place. Some heavy industry is being shifted from China to countries such as Vietnam that have lower labor costs, while China is gradually shifting to more sophisticated, higher value-added industries. Thus, China may be beginning to experience the same changes experienced by the United States and other devel- oped nations over the past century. While energy per unit of production for the main energy-intensive products exceeds international norms, it has decreased annually. As shown in Table 5-2, TABLE 5-1  Consumption of Energy for All Purposes per Value of Production, 1998 and 2002 Survey Years Iron and Steel Mills 1998 2002 Total 31.4 26.6   Net Electricity 3.1 3.7   Natural Gas 9.8 8.5   Coal 13.5 10.1 NOTE: 1000 Btu per constant 2000 dollar. SOURCE: EIA, 2006. 

ENERGY INTENSITY AND ENERGY EFFICIENCY 171 TABLE 5-2  Energy Consumption for Main Energy-Intensive Products 1980 1990 1995 2000 2002 2005 Energy Consumption for Steel Production 1201 997 976 898 823 741 (kgce/ton) Total Energy Consumption for Cement 218.8 201 199.2 172 162 149 (kgce/ton) Total Energy Consumption for Ethylene 2013 1580 1277 1097 1028 986 (kgce/ton) NOTE: Energy Policy Research, No. 6, 2006 (Data of 2000-2005); 1 kgoe = 10,000 kcal, 1 kgce = 7,000 kcal. SOURCE: China Energy Statistical Yearbook 2000-2002 (data before 2000). between 1980 and 2005, the energy consumption per ton of steel production decreased 38 percent; energy per ton of ethylene production was reduced by 51 percent, and, for cement, by about 32 percent. The gap of energy intensity for highly energy intensive products between China and other developed countries decreased gradually in the same period. China’s building material industry has the highest energy consumption rate of all industries. The amounts of coal consumption can exceed 200 Mt (6 EJ) of standard coal per year. Among building materials, cement production is the most highly consumptive. In 2000, energy consumption for cement accounted for 70.5 percent of total energy consumption for building materials. From 1990 to 2000, cement production rose from 210 Mt to 597 Mt, and plate glass production increased from 80,700 kilo weight cases to 184,000 kilo weight cases. The pro- duction of architectural ceramics and sanitary ceramics increased several times, though the average consumption increased just 5.9 percent, because the energy intensity for producing the main building materials decreased. For example, from 1990 to 2005, the coal consumption for cement per ton decreased from 201 kgce to 149 kgce, and the consumption for plate glass per weight case decreased also from 30 kgce to 22 kgce between 2000 and 2005 (China Energy Research Society, 2006; National Energy Strategy and Policy Report, 2004). A major challenge for improved industrial efficiency in China is the preva- lence of coal-fired boilers. At present, there are about 530,000 small- and medium- sized industrial boilers in China, which consume about 25 percent of the total coal production to heat water or generate steam for industrial and residential heating. However, their average energy efficiency levels only lie in the range of 60-65 percent, or 10-15 percent lower than that of the international advanced level. Pollution from industrial boilers nationwide is second only to that of power plants, A weight case refers to the total weight of plate glass with thickness of 2 mm and area of 10 m2,��������  ������� ~50 kg. 

172 ENERGY FUTURES AND URBAN AIR POLLUTION and it even exceeds power plant emissions in some cities. Currently, the industrial b ­ oilers in China use raw coal and scattered coal as fuels. The coal particle size does not meet the requirements of the combustion equipment; about 45~65 percent of the raw coal particles are smaller than 3 mm—so the thermal loss of mechani- cal incomplete combustion ranges from 10-27 percent. In addition, there are no effective dust-capturing or desulfurization equipments used to treat the boiler flue gas, so that the emissions of SO2 and dust typically exceed the standards. Both countries set energy efficiency targets as part of their broader energy strategies. Improving energy efficiency contributes to a variety of different goals, from pollution reduction to economic savings to energy security. In China, the NDRC currently sets these targets as part of the Five-Year Plan (FYP). Table 5-3 illustrates China’s key energy efficiency targets through 2020. The NDRC’s energy efficiency targets for the 11th FYP (2006-2010), announced in March 2006, indicated that the government would slash energy consumption, both per capita and per unit GDP, by 20 percent in 5 years. This equates to a 4 percent reduction per year. Given the experience from 2000 to date in which GDP growth has been outpaced by energy consumption, this seems like a very ambitious goal, one which is not typically observed in developing countries. But, if China can recapture the experience over the 20 years from 1980-2000, where GDP increased 9.7 percent annually and energy consumption increased just 4.6 percent annually, this goal would be reachable. However, in January 2007, China announced that it had failed to reach its first-year target. Specifics were not provided, but only six cities met their individual targets (Xinhua, 2007). This failure was attributed to strong economic and population growth, which, in effect, outpaced gains in energy efficiency. Nonetheless, Chinese leaders will continue to pursue their energy efficiency targets, particularly as part of a strategy to develop a “circular economy” (Box 5-1). TABLE 5-3  China’s Specific Energy Consumption Reduction Targets 2000 2010 2020 Coal Consumption for Power Supply (thermal power plant) (gce/ 392 360 320 kWh) Energy Consumption for Steel Production (kgce/ton) 898 685 640 Total Energy Consumption for 10 Non-ferrous Metal (tce/ton) 4.81 4.60 4.45 Total Energy Consumption for Synthetic Ammonia (kgce/ton) 1372 1140 1000 Total Energy Consumption for Cement (kgce/ton) 172 148 129 Total Energy Consumption for Ethylene (kgce/ton) 1097 930 860 NOTE: Data for 2000 are actual values. SOURCES: NDRC, 2005; China Energy Research Society, 2006. 

ENERGY INTENSITY AND ENERGY EFFICIENCY 173 BOX 5-1 China’s Circular Economy In recognition of the need to reconcile its rapid economic development with mounting environmental degradation, China has challenged its cities to develop a “circular economy.” This concept has quickly become a key theme of the 11th Five-Year Plan (2006-2010). Put simply, the circular economy borrows on principles such as the three R’s (reduce, reuse, recycle) and puts them into the context of a sustainably developing country. China’s experiments with developing such an economy build upon the efforts of Germany and Japan in the 1990s. The circular economy combines three major objectives: • Increased efficiency in the use of raw materials (including energy and w ­ ater); • Improved management of wastes, including enhanced reuse and recycling; and • Conservation and enhanced ecological sustainability through improved spa- tial planning and economic coordination. In order to develop a circular economy, Chinese cities also draw on the prin- ciples of industrial ecology, as embodied in the building of Eco-Industry parks. In 1999, China began developing such parks, which create networks or chains of firms within a region which can better utilize or share resources and utilize cleaner production methods. There are at present over 100 such parks spread across 20 provinces, all supported by the central government. Far more parks have been developed and supported by provincial and local governments. Early successes include the Guitang Sugarcane Eco-Industrial Park (also the first-national level park), a cluster of companies including an alcohol plant, a pulp and paper plant, a sanitary paper plant, a cement plant, a calcium carbonate plant, and a power plant, among others, all utilizing in some way one another’s by-products. Rather than simply improve efficiency and reduce waste, city leaders are encourag­ing the development of new industries to recycle or even reuse wastes. In this way, resource efficiency is being viewed as a new economic opportunity. As of 2005, 10 provinces and cities have developed pilot projects to develop c ­ ircular economies and, through 2010, hundreds more will be embarking on similar e ­ xperiments. Residential and Commercial In the United States, these sectors are traditionally considered separately, although they measure the same energy consumption factors: electricity use (for heating, cooling, lighting, appliances) and any additional energy consump- tion (typically gas) for heating and cooling. Commercial buildings tend to be less susceptible to weather fluctuations, but have more demand for appliances (including lighting). In China, data on energy efficiency are compiled for build- 

174 ENERGY FUTURES AND URBAN AIR POLLUTION ings, which essentially measure the same factors. However, data on residential energy consumption are less precise and therefore total consumption may not be sufficiently accounted for. Figure 5-6 shows the decrease in energy intensity for the U.S. residential sector from 1985 to 2004. It is important to note here that this index is based on energy use per unit area, and thus gains made in efficiency, which are reflected here, are somewhat mitigated by the steeper increase in both the number and size of housing units. The U.S. commercial buildings sector is the one sector which has experienced an increase in energy intensity between 1985 and 2004 (Figure 5-7). Owing to a number of confounding factors such as building type, an explanation for this observed trend is not currently available (EERE, 2007a). Presently, the rate of new construction in China far outpaces that of developed countries. By 2020, building floorspace in China will be approximately twice what it was in 2000. This might be viewed as an opportunity to build highly efficient buildings with currently available or emerging technologies. However, as of 2004, 95 percent of the newly built buildings and 99 percent of existing buildings were categorized as high-energy-consumption buildings (Lin, 2006). The peak loads for air conditioning can reach 45,000 MW, equal to 2.5 times the output of the 1.6 1.4 1.2 1.0 Index (1985 = 1.0) 0.8 Energy Use 0.6 Number of Households 0.4 Housing Size 0.2 Intensity (per sq. foot) 0.0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 Year FIGURE 5-6  Energy intensity in the U.S. residential sector. SOURCE: EERE, 2007a. 

ENERGY INTENSITY AND ENERGY EFFICIENCY 175 1.6 1.4 1.2 Index (1985 = 1.0) 1.0 Energy Consumption 0.8 Floorspace 0.6 Intensity Index (weather -adjusted) 0.4 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 Year FIGURE 5-7  Energy intensity in the U.S. commercial sector. SOURCE: EERE, 2007a. 5-7 Three Gorges hydropower station (located in central China). Presently the total energy consumption for buildings approaches 30 percent of the total energy con- sumption in China. According to the present trends, the energy consumption for buildings in 2020 will reach 1.1 billion tons (33.3 EJ) of standard coal, three times that in 2000; and the peak loads of air conditioning will correspond to 10 times the output of the Three Gorges hydropower station at full capacity. Moreover, the energy consumption for space heating in China’s buildings is about two to three times as great as that of developed countries with similar climate conditions (NDRC, 2005). Transportation Both countries’ transportation sectors are dominated by petroleum-based fuels and thus gains made in energy efficiency result either from improvements in fuel economy or shifts from one mode of transportation to another. This sec- tor combines passenger and freight transportation for all modes (highway, air, rail, and water). Figure 5-8 shows the changes in energy intensity for the U.S. transportation sector between 1985 and 2004. 

176 ENERGY FUTURES AND URBAN AIR POLLUTION 1.8 1.6 1.4 1.2 Index (1985 = 1.0) 1.0 0.8 0.6 Activity Index 0.4 Energy Intensity Energy Use 0.2 0.0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 Year FIGURE 5-8  Energy intensity in the U.S. transportation sector. SOURCE: EERE, 2007a. 5-8 Similar to the case for residential energy consumption and efficiency, the net effects of improvements in transportation efficiency are somewhat masked by the increase in total consumption. For example, on an energy per ­passenger- mile basis, air travel is less energy intensive than is highway travel (EERE, 2007a). Therefore a modal shift from highway travel to air travel can increase total mileage, while displaying less of an increase in energy consumed, resulting in a decrease in energy intensity. This same logic can be applied to public trans- portation systems, which offer even greater energy savings on a per passenger- mile basis. These changes are considered to come under the category of “other explanatory factors,” and are not reflected as efficiency gains or losses (which are measured within subsectors, e.g., air travel), though their impact on total energy consumption is noticeable. At present, China does not have aggregate data on energy intensity in the transportation sector. However, it is estimated that the fuel efficiency gap between vehicles in China and in developed countries is large (National Energy Strategy and Policy Report, 2004). China’s automobiles are thought to consume 20 per- cent more fuel per mile, and light- and middle-duty trucks consume 25 percent and 10 percent more, respectively. One possible reason for this is the shortage of research and development of automobile technologies, which are 10-20 years 

ENERGY INTENSITY AND ENERGY EFFICIENCY 177 behind advanced countries (Lin, 2006). Older automobiles, many of which con- sume 5-30 percent more fuel than new automobiles, account for 25 percent of all vehicles. Ninety percent of the trucks used for freight traffic are uncovered vehicles, which decreases their fuel economy. The number of diesel trucks is small and the diesel fuel used is often of poor quality. Low fuel prices may also serve as a disincentive to improving vehicle fuel efficiency. However, China’s recently enacted fuel economy standards (discussed later), if enforced, in combination with the fact that new vehicles will continue to supplement China’s rapidly grow- ing fleet, will certainly improve the transportation sector’s overall efficiency in coming years. DEMAND-SIDE EFFICIENCY INITIATIVES Both China and the United States have made progress in demand-side energy efficiency initiatives. Broadly, this refers to energy management, building and appliance standards, transportation energy efficiency policies, and other govern- ment programs and financial incentives. As climate change and air pollution and energy security increasingly influence energy policy, so too will the importance of demand-side energy efficiency increase. As one review of select U.S. programs (appliance standards, financial incentives, informational and voluntary programs, and government energy use) reveals, demand-side improvements in efficiency can save up to four quads of energy per year (4.2 EJ), and reduce carbon emissions by as much as 63 million metric tons (Gillingham et al., 2004). Electric utilities have also utilized demand-side management programs, though this peaked in the mid-1990s, after which some utilities were deregulated and consequently cut back or terminated such programs, which had previously been mandated (EIA, 2005). This final section looks in detail at some of the key programs in the United States and China. Energy Service Companies In the United States, many energy utilities have abandoned the business of power station operation and now focus their efforts on transmission and distribu- tion, labeling themselves energy service companies/providers. This has paved the way for these service providers to offer ratepayers additional options, such as purchasing renewable or green power, typically at a higher rate. Recently, some cities have broadened the energy management concept to treat energy efficiency improvements as a resource in and of themselves. Rather than build new plants to expand capacity, they seek efficiency improvements through demand-side man- agement, which creates “virtual power plants” that obviate new construction. Austin, Texas, can claim, perhaps, the nation’s first such virtual power plant. The local utility made use of enforced energy efficiency building codes, rebates for more efficient appliances, and other programs and policies intended to sig- 

178 ENERGY FUTURES AND URBAN AIR POLLUTION nificantly reduce local demand for energy. Over a period of 12 years, estimated savings totaled 550 MW, allowing the city utility to remove a coal-fired power plant from its planning books. The advantages of such plants are obvious: they are cheaper than new construction, are emissions-free, and create local jobs (EERE, 2007b). In China, a prototype may exist in some World Bank-sponsored pilot projects. The World Bank’s Energy Conservation Project has established three pilot Energy Management Centers in Shandong, Beijing, and in Liaoning; these centers have supported and promoted several small-scale local energy-efficiency projects. The Bank has also funded 11 global environmental facilities in China that focus on either renewable energy or energy conservation and efficiency. Appliance Technologies and Standards Appliance and equipment efficiency standards have contributed ­substantially to energy savings in the U.S. residential and commercial sectors. Interestingly, because many of these standards have been implemented without contro- versy, their effectiveness is not fully known or appreciated (Dernbach, 2007). R ­ efrigerators are typically the largest energy consumer in U.S. households, and DOE-supported research led to a reduction of more than two-thirds in the average electricity consumption of refrigerators since 1974—even as average unit sizes increased, performance improved, and ozone-depleting substances were removed (NRC, 2001). Energy Star is one of the most successful current U.S. programs focused on energy efficiency. EPA established its Energy Star program in 1992. Originally created to promote energy-efficient computers, the program has expanded to include more than 35 product categories for homes and businesses. Since its beginning, American consumers have purchased more than one billion Energy Star products, including 100,000 new homes that meet Energy Star standards. Thousands of buildings have been upgraded through energy-efficient improve- ment projects. EPA estimates that the Energy Star program has contributed to savings of 100 billion kWh of electricity, prevented discharge of more than 20 million metric tons of carbon elements, and saved more than $7 billion. China’s State Economic Trade Commission (now part of the NDRC) estab- lished the China Green Lights Program in 1996 to promote energy-efficient lighting technologies. The program has had success in increasing the production and use of efficient lighting technologies, but has also been challenged by the high ­initial cost of more efficient technologies and the limited quality of efficient technology produced by China. The Efficient Lighting Institute (ELI) is an inter- national branding system for high-quality energy-efficient lighting products. The More information on Austin’s innovative virtual power plant is available at http://www.­austin- chamber.org/DoBusiness/TheAustinAdvantage/Energy.html. 

ENERGY INTENSITY AND ENERGY EFFICIENCY 179 original ELI program tested the quality certification and labeling concept and focused on seven countries during the period 2000 through 2003. In 2005, the China Standard Certification Center (CSC) was commissioned by the Interna- tional Finance Corporation, with funding from the Global Environment Facility, to develop and expand the ELI certification and branding system globally. The expanded ELI program is operated by a new institute, the ELI ­Quality Certifica- tion Institute, which is led by CSC with assistance from a team of international experts from Asia, North America, and Latin America. Finally, the CFC-Free Energy-Efficient Refrigerator Project, established by the EPA and China’s State Environmental Protection Agency (SEPA), began in 1989 to promote the manufacture and sale of CFC-free energy-efficient refrigera- tors and, secondarily, to provide sustainable economic and environmental benefits to refrigerator manufacturers and owners (Phillips, 2004). The project focused on CFC substitutes research, energy-efficient design, developing prototypes, and testing in the field. Participants included ­ Chinese refrigerator and compressor manufacturers, the China ­Ministry of Finance, the NDRC, the China State General Administration for Quality Supervision, Inspection, and Quarantine, the Univer- sity of Maryland, and several Chinese industry trade groups. The project focused on “technology push” and “market pull” approaches to overcoming barriers to the adoption of energy-efficient technologies, such as lack of awareness of ben- efits of energy-efficient refrigerators, lack of expertise in energy-efficient design, and dealer reluctance to sell energy-efficient products. The key products of the project were a technical training program, a standards and labeling program, an incentive program for refrigerator and compressor manufacturers, and programs for retailers and customers. The project achieved the following results: • An increase in the production and sale of energy-efficient refrigerators (consuming less than 55 percent of the current energy use standard) from less than 400,000 units in 1999 to almost 5 million units in 2003; • A majority of refrigerators produced by a number of manufacturers are now energy-efficient products; and • It exceeded its goals of 20 million energy-efficient units sold, a lifetime product emissions reduction of 100 million tons of CO2 and energy savings of 66 billion kWh by a factor of 2 or more. Building Technologies and Standards New residential and commercial buildings in the United States are subject to energy-efficiency standards. These standards are primarily set by individual states through residential and commercial building codes, but updates to the codes do not apply to existing buildings. However, there is still great opportunity in the form of renovations and upgrades to existing structures (Dernbach, 2007). Moreover, 

180 ENERGY FUTURES AND URBAN AIR POLLUTION a comprehensive evaluation indicates that the net realized economic benefits associated with DOE’s energy-efficiency programs for the building sector were approximately $30 billion (1999 dollars)—substantially exceeding the roughly $7 billion (1999 dollars) in costs from 1978-2000 (NRC, 2001). The Energy Star label can be applied to buildings, and is available for new homes, renovation projects, and businesses. Buildings rating in the top 25 percent of energy-efficient buildings are eligible, calculated through a free online Portfolio Manager. Over 3,200 buildings in the United States have the Energy Star label, consuming on average 35 percent less energy, with some exceeding 50 percent in energy savings (Energy Star, 2007). Installing low-emissivity or selective film windows can be a cost-effective renovation to an existing structure, which can cut energy consumption in half. Adding reflective roofs (white or another specific pigment to reflect near-infrared radiation) can also significantly reduce building cooling costs and lessen the urban heat island effect. This latter technology has applications for automobiles as well. Green building is another movement which has taken hold in both countries, aided in part by the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) rating system. Although green building encom- passes more than just energy resources, energy efficiency is one of its five key areas, and among these, it provides the most economic return (Energy Star, 2006). The LEED system has been the preferred rating system for green builders locally, nationally, and even internationally. Installing solar panels and purchasing electricity from renewable sources will improve a building’s rating under most systems. However, there are a series of more conventional elements, from HVAC systems to passive heating and lighting, which dollar for dollar can have even larger impacts on energy performance. Vehicle Fuel Efficiency The largest efficiency gains in the transportation sector will come from improved fuel economy. In the United States, the need for improved fuel efficiency arose in the wake of the 1973-1974 oil embargo. In 1975 the Energy Policy and Conservation Act was adopted, mandating the U.S. Department of Transporta- tion to govern increased fuel efficiency for automobiles. The result was the still intact Corporate Average Fuel Economy (CAFE) standards. The passenger vehicle fleet, in general, is regulated by the CAFE standards. CAFE refers to the sales weighted average fuel economy (miles per gallon) of a manufacturer’s cars and light trucks with gross vehicle weight ratings of less than 8,500 lbs. Fuel economy values are evaluated using protocols developed by the EPA. Congress requires that CAFE standards be set at the maximum feasible level, considering techno- logical feasibility, economic practicality, and effect of other standards on fuel Available at http://www.energystar.gov/index.cfm?c=evaluate_performance.bus_portfoliomanager. 

ENERGY INTENSITY AND ENERGY EFFICIENCY 181 economy and on the need of the nation to conserve energy. In the United States, vehicle specifications are categorized within a two-class system: cars and light duty vehicles. A significant loophole in the standards is that light-duty vehicles weighing more than 8,500 lbs (including many pickup trucks and sports utility vehicles) are exempted from the standards and tend to have significantly lower fuel economy ratings that smaller vehicles. Tightening the CAFE standards is frequently proposed as a means of com- bating vehicle pollution and rising fuel use in the United States. In 2002, the U.S. National Academies examined the effectiveness and impact of the CAFE standards and concluded they had reduced oil consumption by about 2.8 million barrels per day (6.27 EJ per year), or about 14 percent, and contributed to reduced emissions (NRC, 2002). Further analysis building on this study has indicated that enhanced standards could reduce oil consumption and automobile emissions, save drivers money (in fuel costs), but also increase GDP and create job growth (Bezdek and Wendling, 2005). It is noted in the 2002 report, however, that other approaches, such as higher fuel taxes, tradable credits for fuel economy improve- ments, taxes on light-duty vehicles that fall below CAFE standards combined with rebates for vehicles exceeding the standards, and/or standards based on vehicle attributes, such as weight, size, or payload, might be more successful at improv- ing fuel economy. In 2004, the Chinese government proposed a set of vehicle fuel efficiency standards in an attempt to reduce the country’s rising dependency on oil. Designed to regulate China’s rapidly growing automotive industry, these standards have the power to change the way manufacturers behave by altering vehicle production. The Chinese standards are separated into two implementation phases: Phase 1, which began in 2005/2006, and Phase 2, which will begin in 2008. Unlike U.S. standards, Chinese-sold vehicles need to meet fuel-efficiency standards accord- ing to their weight class. The Chinese standards require that each vehicle within one of sixteen designated weight categories meet specific mpg (miles per gallon) standards. For example, according to the 2005 standards, the heaviest vehicles must reach 19 mpg and the lightest vehicles must achieve 38 mpg (Sauer and Wellington, 2004). If the standards are enforced correctly, China should see an increase in the amount of fuel-efficient and technologically advanced vehicles on the road. The demand for small cars is continuing to grow, due to increasing gas prices and strict vehicle fuel-efficiency standards. In the future, the demand for smaller cars is expected to rise in China’s domestic auto industry, as the govern- ment continues to implement the fuel efficiency standards (Li, 2006). Figure 5-9 displays comparative fuel economies for passenger vehicles in a number of countries. Though California is currently not permitted to enact fuel economy standards higher than the national standard, it is estimated that the more stringent California greenhouse gas emission standards would save up to $150 billion each year in fuel costs if adopted nationwide (Rosenfeld, 2007). 

182 ENERGY FUTURES AND URBAN AIR POLLUTION 55 EU 50 Japan MPG Converted to CAFE Test Cycle 45 40 China 35 Australia Canada California 30 (Pavley) 25 US (1) dotted lines denote proposed standards ~ (2) MPG = miles per gallon 2002 2004 2006 2008 2010 2012 2014 2016 FIGURE 5-9  Comparison of fuel economy for passenger vehicles. NOTE: California’s standards pertain to greenhouse gas emissions and not fuel ­economy. 5-9 Hybrids Hybrid electric vehicles have been commercially available since 1999 (1997 in Japan) in most markets. Their combination of an internal combustion engine and electric motor result in significant energy-efficiency gains, generally two to three times more efficient than conventional automobiles (EERE, 2007c). The most common hybrids do not need to be plugged in, as their electric battery is recharged using regenerative braking or by an on-board generator. They are also fuel flexible; hybrids have been developed to run on gasoline, methanol, compressed natural gas, hydrogen, or other alternative fuels. A deterrent to the use of such vehicles in the United States is that the increment of initial higher purchase cost will not be returned in the cost of fuel saved at present prices in the lifetime of the vehicle A new type of hybrid, the plug-in hybrid, is in the demonstration stage, and the U.S. National Renewable Energy Laboratory is leading efforts to develop such a vehicle, which would allow the driver to drive much longer on electric battery This is not to be confused with Flex-Fuel Vehicles which are designed to run on gasoline or an ethanol blend (E85). Rather, this is a reference to the fact that hybrids do not strictly have to be d ­ esigned to run on conventional gasoline. 

ENERGY INTENSITY AND ENERGY EFFICIENCY 183 power, which is cleaner and far less petroleum-consumptive. These plug-ins would literally be plugged into the electrical grid to recharge the batteries; the fuel tank is retained and easily filled for long trips beyond the charge of the batteries. The primary challenge to overcome is increased battery weight and cost. Transit Oriented Development Transit-oriented development (TOD) is another means for increasing effi- ciency in the transportation sector. Congestion has steadily grown in urban areas of the United States over the past two decades, and the problem has been perhaps more acute in Chinese cities. The response in both countries has largely been to build more roads to accommodate the burgeoning vehicle use, but in neither case has new construction been able to keep pace with demand. As a result, cities have developed laterally, increasing commute times while decreasing fuel efficiency (as a result of lower velocities), and creating challenges for more efficient public transportation systems. Perhaps no area demonstrates this conundrum more so than the Los Angeles metropolitan area. Yet, even Los Angeles is incorporating TOD into its urban planning. It announced in early 2007, plans to build a large mixed-use facility at an existing rail station, in order to reduce congestion and personal vehicle travel (LACMTA, 2007). Many TOD projects in the United States are developing around existing rail stations, although they are not limited to rail transportation systems, and indeed, in other countries, notably Latin America, similar developments are taking place in conjunction with bus rapid transit systems. In general, TOD is characterized by dense settlements which encourage the use of public transit. These developments have mixed uses, all within walking distance of public transit (TRB, 2004). By encouraging public transportation, efficiency in the transportation sector improves as personal vehicle trips and congestion both decrease. References Bezdek, R.H. and R.M. Wendling. 2005. Potential long-term impacts of changes in US vehicle fuel efficiency standards. Energy Policy 33:407-419. Brouwer, J., D. Dabdub, G.S. Samuelsen, M. Carreras, and S. Vutukuru. 2006. Urban Air ­ Quality I ­ mpacts of Distributed Generation in the South Coast Air Basin and San Joaquin Valley. P ­ resented to committee on April 5, 2006, University of California, Irvine. CASS (Chinese Academy of Social Sciences). 2006. Understanding China’s Energy Policy: Economic Growth and Energy Use, Fuel Diversity, Energy/Carbon Intensity, and International Coopera- tion. Background paper prepared for Stern Review on the Economics of Climate Change. Chinese Electric Power Yearbook. 2005. China Electric Power Press. China Energy Research Society. 2004. Energy Policy Research. No. 6. China Energy Research Society. 2006. Energy Policy Research. No. 6. 

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