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Chatham House - LCZ Chongqing - June 09


									   EERG: Programme Paper

   Chongqing’s global future:
   Towards a low carbon economy

   Felix Preston, Antony Froggatt and Bernice Lee

   June 2009

The views expressed in this document do not reflect the view of Chatham House, which does not
take institutional positions on policy issues. This document is issued on the understanding that if
any extract is used, the author(s)/speaker(s) and Chatham House should be credited,
preferably with the date of the publication or details of the event. Where this document refers to
or reports statements made by speakers at an event every effort has been made to provide a fair
representation of their views and opinions, but accuracy cannot be guaranteed. The published
text or summary of speeches and presentations may differ from delivery.

The authors gratefully acknowledge the financial support and strategic advice provided by
the British Consulate-General Chongqing and the British Embassy in Beijing. This report
benefited greatly from discussions and consultations with stakeholders, including officials in
Chongqing Development and Reform Commission, Chongqing Foreign Trade & Economic
Relations Commission, Chongqing Construction Commission, Chongqing Economic
Information Office, FCO and UKTI. Bryn James, the UK’s Climate Change & Energy Consul
in Chongqing, provided valuable guidance during the research. Special thanks to Lucy
Ellinas, Justine Ren and Robert Howgego who contributed to the research and the writing of
this report at Chatham House.



Introduction ................................................................................................................................ 6

Chongqing’s Strategic Objectives............................................................................................ 12

Overview of Energy and Industry Situation ............................................................................. 16

Chongqing’s Position in China................................................................................................. 19

Outline of Sections Two to Five............................................................................................... 23


Introduction to Key Sectors ..................................................................................................... 25

Energy ..................................................................................................................................... 26

Buildings and Construction ...................................................................................................... 33

Vehicles and Transport............................................................................................................ 39

Information and Communications Technology ........................................................................ 43


Low Carbon Planning .............................................................................................................. 47

Heavy Industry and Low Carbon Development....................................................................... 49

Balanced Urban-Rural Development....................................................................................... 53


International Linkages.............................................................................................................. 61


Conclusions ............................................................................................................................. 70

          SECTION ONE

Context for Low Carbon Development
          in Chongqing


Scope of the Study

This feasibility study was undertaken by Chatham House in the spring of 2009 to
assess the implications of Chongqing Municipal Government piloting a transformative
low carbon development model across the whole of the provincial-level city. At the
strategic level, it identifies the barriers and opportunities that a more energy- and
resource efficient economy could bring for economy and society. Focusing on
Chongqing’s industrial strengths and existing development objectives, it considers
key policies and technologies for Chongqing itself, but also the reorientation of
manufacturing toward growth in low carbon goods and services, for use in China and
for export around the world.

The research was undertaken without the full involvement of a local partner, and
much of the research was desk-based. However, meetings were held in Chongqing in
May and June 2009, with domestic and international companies, Government officials
and research bodies. The study developed the foundations for a more in-depth
assessment, being undertaken in 2009-10 by the Chongqing Academy of Social
Science, the environmental consultancy ERM and Chatham House.

The feasibility study focuses on key sectors in Chongqing, such as buildings and
transport manufacturing, identified via an initial round of consultations. Further
research could expand the range of opportunities and challenges to all sectors. In
particular, the cost-effectiveness of different options needs to be considered as a
priority, as this will be an important interface with development planning in

Global shift towards Low carbon development

The world is on the cusp of a new industrial revolution, as the global transition to a
low carbon economy is no longer a choice but a necessity. Governments at different
levels and businesses are calibrating decisions on trade, financing and production
planning. High prices and supply volatility are motivating the more efficient use of
energy. The tightening global supply of oil and natural gas is fuelling the
development of new technologies, as is the recent surge in global R&D investments
in new energy options – at least before the economic downturn.

Central to the vision for a low carbon economic future is increasing appreciation
about the environmental, economic, social and political benefits – rather than the
costs – of the transition. Many perceived costs could be offset by efficiency gains, for

example. And a shift to a low carbon development would create lucrative new
opportunities for regions involved in providing market solutions for such a shift.
Regions that have provided sustained, effective support for low carbon alternatives
are benefiting most from the early opportunities of low carbon transition.

This is just the beginning. As pressure for transition mounts, investment in low
carbon goods and services is set to expand rapidly; those that are moving fastest on
low carbon transition will gain significant competitive advantage. Markets for low-
carbon energy products are likely to be worth at least $500 billion per year by 2050,
and perhaps much more, according to the Stern Review1. China alone will need an
estimated $25 billion per year for investment in low carbon technologies 2 . A
McKinsey Quarterly article warns that ‘over the next 5 to 15 years the way a
company manages its carbon exposure could create or destroy its shareholder

The global financial crisis and economic downturn presents new opportunities and
challenges. The state of the financial markets is fuelling concern about meeting the
additional costs of a low carbon transition. However, low carbon economy can not
only be a useful way through the current economic woes but is the most viable means
to ensure sustained growth in the medium term. Investment opportunities in low
carbon goods and services may become increasingly appealing compared to risks
associated with investing in traditional sectors. A low carbon economy would also
mean a cleaner society, with improvements in air and water quality.

Globally, innumerable low carbon initiatives have sprung up at different level of
governments – from national to local. Local governments and business leaders are
also active in mobilising support and helping to promote an atmosphere of imminent
and long term change. For these leaders, the question is less about whether low
carbon transition is needed but how fast can they be implemented and at what scale.
And the key policy question is how states and markets can stimulate genuine
opportunities in low carbon economic activities and energy efficiency investments.
The scale of these markets should not be underestimated. As the International
Energy Agency (IEA) suggests, ensuring a climate-safe future requires an additional
$44 trillion of investment by 2050 over the Business-as-usual (BAU) requirements4.

Low Carbon Zone in the context of EU-China Interdependencies

China and the European Union (EU) together account for 30% of global energy
consumption and 30% of global greenhouse gas emissions. Their common interests
provide a foundation for deepening collaborative efforts on energy and climate
security over the next quarter-century.

China and the EU are already economically entwined. The EU has been the largest
source of foreign direct investment into China. China today is the EU’s largest trading
partner. The EU is also the largest supplier of technologies, foreign direct investment
and services to China. The two powers face common challenges in energy and
climate security. The International Energy Agency (IEA) estimates that both will be
importing 80% of their oil supply by 2030. China and the EU have remarkably similar
and ambitious energy policies to improve the security of supply through greater
energy efficiency and use of renewable energy. Both need to manage the impacts of
climate change, including water stress, shifting agricultural zones and extreme
weather events.

There are many opportunities to strengthen EU–China cooperation on energy and
climate change. Whatever the precise focus of cooperation, it is critical that it should
occur at sufficient scale and pace to make a global political impact. Building ‘low-
carbon zones’ (LCZs) in China was one of the initiatives put forward by Changing
Climates, a report published by Chatham House and E3G in November 2007. These
LCZs are conceived to provide the testing grounds for new policies and technologies.

In early 1980s China embarked on an extraordinary journey towards greater
economic openness. Special Economic Zones (SEZs) – geographical regions with
more liberal economic laws than the rest of the country – played a vital role. They
took many different forms including Free Trade Zones, Export Processing Zones,
Industrial Estates, Free Ports and Urban Enterprise Zones. Starting in Guangdong,
Fujian, and Hainan provinces, most famously in Shenzhen, SEZs were later
expanded to larger geographical areas, paving the way for the two decades of
spectacular economic growth.

Just as SEZs functioned as laboratories for liberal economic practices, Low Carbon
Zones (LCZs) could become testing grounds for the next transformation of China’s
economy towards a low carbon trajectory, building not least on existing initiatives.
Success would depend above all on active regional political leadership in China,
endorsed at the national level, to set the regulatory and public investment framework
to enable and accelerate transformative private investment.

China is a vast country with a highly diverse economy and will need a range of low
carbon development models to reflect this. A number of Chinese regional entities are

interested in developing LCZs as a means to accelerate their transition to low carbon
economies, including Guangdong province, Jilin province, Wuhan and Chongqing.

The municipality of Chongqing is confronting some of the key challenges facing China
as a whole today. These include managing rapid rate of urbanisation, modernising its
heavy industrial base and dealing with rural-urban challenges. A Chongqing Low
Carbon Zone (LCZ), although necessarily unique to Chongqing, would also be a
useful model for other large, non-coastal cities with similar economies, particularly
given the importance of Chongqing as a hub of economic growth and poverty
alleviation in western China. The other bespoke economic zones already established
or being established in this municipality show that Chongqing has a track record of
geographically-specific policy innovation.

The overall goal of this scoping study is to assess the viability of establishing a Low
Carbon Zone in Chongqing and to propose a framework to assist future policy
planning and action. Recommendations from this report would include policies on key
sectors such as manufacturing, power, transport and buildings.

Unique yet representative opportunities for low carbon development in

Low carbon development offers Chongqing considerable opportunities due to a
unique combination of characteristics such as scale, location, industrial base and
institutional capacity and ambition. The city has already established a strong base in
low carbon products such as wind power and efficient vehicles, and is focused on
developing high tech sectors. A move towards low carbon options would enable
Chongqing to pursue its strategic goal in attracting cutting edge technology and
investment and to connect with global export markets – including via the forthcoming
first bonded port in inland China. One OECD report notes that the city “disposes of
extraordinary characteristics to permanently increase its capacity to generate wealth
– for the wellbeing of its inhabitants as for China as a whole”5.

Chongqing is already innovating with policy across a range of strategic areas which
could be positively reinforced by adoption of a low carbon economy approach:

   1. Opening up: Facilitating a more dynamic economy and encouraging
       international investment will enable Chongqing to access global markets for
       low carbon products. The city already has a range of joint-ventures with
       international companies.

   2. Planning: Finding sustainable models of urbanization; improved rural-urban
       linkages; denser urban areas; and more efficient buildings are important areas
       of low carbon development. The municipality of Chongqing is uniquely suited
       for leading the way in creating and implementing sustainable models of
       urbanization in China.
   3. Balanced Urban-Rural Development: Chongqing is a pioneer in this key area
       of China’s economic and development planning, and is well placed to
       demonstrate how an integrated rural-urban development strategy could bring
       win-win opportunities for city and rural dwellers alike. The many opportunities
       to connect low carbon development with balanced urban-rural development
       are explored in Section 3.
   4. Finance: Chongqing seeks to become a financial centre in the upper reaches
       of the Yangtze River in 2015. The potential links with low carbon industries
       and carbon finance should be explored.
   5. Technology: a low carbon economy would have an important technological
       focus. A LCZ could attract investment and technology cooperation to establish
       Chongqing’s leadership in low carbon technology.
   6. Infrastructure: Chongqing could become a pioneer in global low carbon trade
       by focusing on shipping and international rail for its connections. The new
       bonded port and developments in high-speed rail are important steps on this
   7. Resource efficiency: Chongqing could be a production centre for technologies
       and a training centre for monitoring and installation of resource saving
       equipment. For example, Chongqing City (Chongqing Shi) already has higher
       than the national average building energy efficiency standards. To meet these
       requirements involves overcoming supply chain bottlenecks.
   8. Circular Economy: Chongqing has been designated as a demonstration zone
       for the movement towards a Circular Economy

Yet Chongqing is also representative of challenges faced by many areas of China
and especially those that were early industrial centres. These challenges include
rapid urbanisation and construction; improving the efficiency of heavy industry;
avoiding investment that locks-in unnecessarily high levels of energy consumption;
maintaining energy security of supply and tackling air and water quality. Chongqing
has a sub-tropical climate, reflecting one of four main climatic regions in China.

Harnessing low carbon development to address these challenges would generate
lessons for other parts of China with similar industrial, development and natural

resource characteristics. For Chongqing, taking on such a role could resonate with
Chongqing’s ambitions to regional and international leadership.

Chongqing therefore has unique strengths to explore in a Low Carbon Zone, while
lessons from Chongqing would be highly relevant to a range of other industrial areas
and their economic and development challenges.


In March 2007 President Hu Jintao announced the ambition to build Chongqing “into
an important growth pole in West China, an economic centre in the region of the
upper reach of Yangtze River and a municipality with development of urban and rural
areas as a whole in an expedite manner so as to take the lead in achieving the target
of establishment of moderately prosperous society in West China in an all-round

Building on this vision, the Chongqing government has set out its key strategic
objectives as being the generation in Western China and the upper Yangtze River of
a central hub for economic growth, manufacturing, transport, finance and logistics7.
The State Council has expressed these goals as a desire to develop Chongqing into
an integrated transport hub and major channel of international trade at the upper
reaches of Yangtze River and as a processing base for export-oriented goods.

Within this broad remit of leadership in western China lies a set of strategies and
goals for Chongqing which can be broken down as follows:

Urban/Rural Development
It is intended that development in rural areas of Chongqing will be driven by the
industrialisation of agriculture and the development of rural infrastructure.
Historically, there has been a strong emphasis on the urbanisation of rural areas
which has led to a reduction in the rural population.

Development in Chongqing will be developed on the ‘one circle and two wing’
concept whereby a single metropolitan demonstration zone is developed to support
the two wings of northeast Chongqing and the mountainous southeast, helping to
link rural and urban development. Focus will be given to improving rural living
conditions, providing better public services and accelerating poverty alleviation in
rural areas.

Industrial Development
Chongqing’s industrial priority will include developing modern manufacturing and
high-tech industries, promoting service industries such as logistics, financial
services and tourism. There will be a focus on innovation, environment protection
and energy efficiency – highly consistent with low carbon development. Reforms will
be taken forward in state-owned enterprises and growth in the private sector will be

encouraged. Promote regional economic co-operation and further openness to
domestic and overseas partners.

The five pillar industries in Chonqging are (i) automobile and motorcycle, (ii)
equipment manufacturing, (iii) chemical engineering of oil and natural gas, (iv)
materials industry and (v) electronic information. Attention will be given to
developing industrial clusters in each of these industries in order to increase

Priority is to be given to the development of high-tech industry, a modern services
sector with a focus on finance, a modern agricultural system, coordinated
development among the primary, secondary and tertiary industries and an industrial
system that features rational division of labour in urban and rural areas.

Energy intensive industries
Energy strategy focuses on energy intensity, energy sector reform, improving
environmental protection standards and reducing pollution. A commitment has been
made to develop Chongqing into a Circular Economy Demonstration Zone for
central and western China8. Chongqing’s iron-steel relocation project is presented
as the “world’s largest environmental project” with a 200bn RMB investment to
modernise and expand capacity from 3 million tons to 8 million tons by 2010.
Polluting steel mills will be closed in cities including Fushun, Qingdao, Shijiazhuang
and Chongqing9. The project has now been incorporated into the National Stimulus
Plan for Steel.

Innovation represents a key element of government strategy. The construction of
scientific and technological innovation centres and a pilot zone for urban-rural
scientific and technological reform and innovation are in the planning stage 10 .
Chongqing has provided support for research and development into key
technologies and implementation of technical standards in industrial technology and
energy saving and emission reduction. Chongqing already leads on key
technologies for low carbon development such as wind power and more efficient


Pathways for low carbon development will need to reflect the diversity of local
development and resource endowment situations in China.

The Chinese Academy of Social Science (CASS) has proposed a number of indices
that could be used to contextualize the current conditions for any region in China –
and to enable a methodological framework to be developed that would help determine
an appropriate low carbon development pathway. These factors include11:

   •   Economic development stage: embodied by industry structure, income per
       capita, and urbanization level.
   •   Resource endowment: including both human resource and natural resource
       as traditional fossil fuels, renewable energy, nuclear, and carbon sinks.
   •   Technology: mainly technologies concerning energy efficiency in producing
       energy intensive products.
   •   Consumption mode: the demand for carbon or emission from different
       consumption patterns

Based on these CASS has then developed four indexes which enable the
comparisons to be made of the status of the low carbon economy across countries or
regions.   These can help clarify the current status of a particular region, enable
comparisons with similar or more advanced low carbon economies and help to further
define the pathways to move away from business as usual emissions trajectories.
The indexes defined by CASS are:

   •   Low carbon development and human development index: Carbon emissions
       are affected by factors such as population, income, energy structure and
       policy and consumption patterns.
   •   Carbon resource index: considers three core indicators, the proportion of
       clean (low carbon) energy, forest coverage and level of carbon sinks.
   •   Carbon productivity index: derived from both the carbon intensity of energy
       sector and the energy consumption per unit of GDP of the economy.
   •   Carbon consumption index: measures the carbon demand and emission level
       from the consumption side, this therefore takes into account the export and
       import of goods from a particular region.

While this framework is still under development it offers an important insight into the
key factors and sectors that need to be assessed and monitored to determine the
extent to which Chongqing has achieved it low carbon development objectives.

The conditions around Chongqing’s development pathway offer a model for the
introduction of the low carbon economy not only because of its current industry and
societal structures but because of its aspirations. Some of the key elements that
demonstrate this are:

   •   Rate of urbanisation:    By 2020 70% of the population will be urbanised,
       compared to a current global average of 50%. Globally cities and urban areas
       consume 75% of the world’s energy and produce nearly 80% of the world’s
       greenhouse gases.

   •   Economic dependency on secondary industrial sector: Over time Chongqing’s
       economy has become more dependent on the secondary sector; in 2007 it
       created 45.9% of the regions GDP. This is a result of the expansion of the
       industrial (primarily mining, raw material processing and manufacturing) and
       construction sectors. In a number of areas Chongqing is a lead manufacturer
       of goods, including the motor industry (in particular motorbikes for which
       Chongqing producer one quarter of China’s total) aluminium products and

   •   Export lead economic development:        Since 1999 exports from Chongqing
       have increased ten fold along with a four fold increase in foreign direct
       investment. The opening of China’s first inland bonded port in 201512 along
       with the associated export zone status will enhance Chongqing’s reputation
       and location for production of goods for export and an attractive region for

   •   Energy mix:      Although Chongqing’s dependency on coal (around 50%) is
       lower than the national average it is far higher than the global average. The
       increased use of natural gas is the main difference to the Chinese average
       and the current contribution of natural gas in Chongqing is indicative of the
       strategic direction that China is expected to move.


                     This subsection attempts to outline the profile of Chongqing’s energy and industry.
                     Combined with the following section (which compares Chongqing to selected regions
                     elsewhere in China) these provide insight into the local development situation.

                     Much of the data is sourced from the Chongqing Statistical Yearbook 2008. Additional
                     layers of detail could be developed in further research, particularly on the technology
                     currently used in Chongqing.

                     Energy Consumption
                     Chongqing’s energy structure remains dominated by coal. Consumption of natural
                     gas, oil and electricity has roughly doubled since 1995, but coal consumption tripled
                     over the same period:

                     Figure 1 Energy Consumption in Chongqing (1980 to 2007)


million tonnes SCE

                                                                                                          Natural Gas



                                                                   Source: Chongqing Statistical Yearbook 2008

                     This rapid growth of consumption in Chongqing, driven by economic development,
                     highlights the energy and emissions challenge for the region. It also points to the
                     importance of energy efficiency measures.

                     Industrial Structure
                     Until 2000, the industrial sector in Chongqing was dominated by state-owned
                     enterprises (SOEs). They contributed around 65% to Chongqing’s GDP, with 35%
                     coming from the non-public owned economy:

Figure 2 Contribution to GDP from public and private sources

                                             Source: Chongqing Statistical Yearbook 2008

In 2005 the non-state sector made a larger contribution than the state sector for the
first time. Their share of Chongqing’s GDP climbed to 55% by 2007, including a
component of 10% from investment from Hong Kong, Taiwan and foreign companies
(up from about 3% in 2000).

The private sector could be key to low carbon growth in Chongqing. To date local
private companies have been making the largest contribution to GDP, but foreign
companies can be increasingly important – especially when they are engaged in joint
ventures with local companies. Although they will not be as dominant as before, state
owned companies will play a major role in low carbon development too – not least
because of their importance in sectors such as energy, waste and transport.

Figure 3 Share of total employment in the private, state and collective sectors

                                              Source: Chongqing Statistical Yearbook 2008

The last decade also saw a dramatic rise in employment in the sectors that are
privately or individually owned. Their share has nearly doubled to around 30% of the
total employment, creating around 3 million new jobs, reaching 5.5 million in total.
This equates around 85% of the total employment in urban areas. In contrast,
employment in the state-owned sector has been relatively constant over the last
decade at just below 10%.

Chongqing’s export sector increased rapidly in the past decade, surging from $1,000
million in 2000 to $4,500 million in 2007, with average annual growth rate at 64%.
Imports rapidly increased after 2003, tripling between 2003 and 2007 to $3,000
million. However imports have not exceeded exports in any year in 2007 exports were
50% higher. The rapid rise in exports took place at the same time as consumption
accelerated in the energy sector. This is an area for further exploration.

Figure 4 Imports and Exports - Chongqing (1987 – 2007)

                                               Source: Chongqing Statistical Yearbook 2008


This section compares Chongqing to other provinces in China. The purpose is to
highlight the range of development situations in China and the position of

Gross Domestic Product
There is great diversity in China with respect to income level, size of population and
geographical spread. Below is a selection of provinces and municipalities that seek to
outline their relative size of economy. Chongqing’s total GDP amounts to 349 billion
RMB of GDP in 2006:

Figure 5 Gross Domestic Product - selected Chinese regions (2006)



  10^8 Yuan
























                                                                                               Source: ERI, 2009

Chongqing is relatively poor in per capita terms, ranking 18 out of 31 regions in China
(including the four provincial-level municipalities). Ten or more provinces have very
similar GDP per capita levels. Chongqing’s rural areas and urbanisation challenges
are representative of much of western China.

 Figure 6 Regional Domestic Product for 31 Chinese regions (2007)
                  Per capita regional domestic product (RMB)



















































                                                                                                                           Source: China Statistical Yearbook 2008

 Energy Intensity
 The chart below illustrates the relative energy intensity of the nine selected regions in
 2006. The regions with the lowest energy intensity generally correspond with the
 regions with the highest GDP per capita while the two regions with significantly higher
 energy intensity levels (Ningxia and Shanxi) are also two of the regions with the
 lowest absolute GDP levels. High levels of energy intensity are generally associated
 with low energy efficiency and highly energy intensive industries.

 Figure 7 Energy Intensity for selected Chinese regions (2006)




tce/10,000 Yuan






                                                                   Guangdong       Jiangsu   Shanghai   Chongqing    Tianjin       Shanxi   Shandong   Guangxi   Ningxia

                                                                                                                    2005    2010

                                                                                                                                                  Source: ERI, 2009

In the cases of Ningxia and Shanxi the economy is highly dependent on energy
intensive secondary industry, especially petrochemicals. Chongqing, which also has
significant heavy industry, is the third most energy intensive in this selection.

Carbon Dioxide Emissions
Key drivers for CO2 emissions include level of industrialisation, energy efficiency and
fuel mix and consumer behaviour. Although China as a whole is far less emissions
intensive per capita than OECD countries, there is significant variation within the
country. For example, the relatively poorer provinces of Shanxi and Ningxia have
relatively high emissions per capita – well above the average for the EU27 (9.2 Mt

Coastal regions vary significantly, with Shanghai and Tianjin emitting over twice as
much as Guangdong and Chongqing – which are well under half the EU average.

Figure 8 CO2 Per Capita by Region (2006)



  tonnes CO2

               10     EU27 average 2006: 9.2 tCO2





                    Guangdong   Jiangsu   Shanghai   Chongqing        Tianjin   Shanxi   Shandong   Guangxi   Ningxia

                                      Source: ERI, 2009 (bar chart) and EEA, 200914 (EU27 average)

Energy Per Capita
CO2 emissions in China are driven by the energy sector in particular, with 70% of
energy being supplied by coal. The energy consumption per capita therefore closely
reflects the CO2 production per capita – in ranking terms the order is the same, with
the exception of Chongqing and Guangxi which are reversed.

Shanxi and Ningxia are the highest energy consumers per capita. Shanghai and
Tianjin follow reflecting their level of development and high population density.

Chongqing consumes the least energy per capita reflecting its large rural population,
relatively low dependence on heavy industry and level of development.

Figure 9 Energy Per Capita by Region (2006)

  Tonnes Coal Equivalent






                               Guangdong   Jiangsu   Shanghai   Chongqing    Tianjin   Shanxi   Shandong   Guangxi   Ningxia

                                                                                                           Source: ERI, 2009

Industrial Output
The chart below illustrates industrial output by low, medium and high energy
industries throughout different regions in China. This demonstrates that Chongqing
has a relatively high dependence on low energy intensive industry. This is particularly
evident when compared with a region which is largely dependent on high energy
industry such as Shanxi.

Figure 10                             Composition of industrial output by energy intensity – Chinese

                                                                Source: Development Research Centre, September 2008


Section Two reviews four sectors which would play an important role in a Low Carbon
Zone in Chongqing - energy, buildings, vehicles and transport and ICT. The sectors
are placed in the context of their role in local society (for example, providing secure
clean energy) as well as the opportunities such as exports and job creation.

Section Three explores important planning challenges for low carbon development.
The first part is on the role of institutions in implementing policy and assessing
progress, helping to ensure continuous improvement. The second part considers the
role of high carbon industry in a low carbon zone, taking the case of petrochemicals in
Chongqing and explaining why the sector could help enable low carbon development.
The third part is focused on the links between balanced urban-rural development – a
priority for Chongqing – and low carbon development.

Section Four looks at international links for a Low Carbon Zone – considering the
implications of developments such as energy efficiency standards, carbon labelling
and intellectual property, and reviewing types of potential technical and financial co-

Section Five will present conclusions and recommendations. This section will be
completed after discussions with stakeholders in Chongqing.

         SECTION TWO

Key Sectors in a Low Carbon Zone


A Low Carbon Zone will create opportunities across a range of sectors. Chongqing’s
priority industrial sectors include:

    -   Automobiles and motorcycles
    -   Petroleum and natural gas chemistry
    -   Equipment manufacture
    -   New materials and High Tech
    -   Labour intensive industry

To these we can add two key sectors for low carbon development

    -   Energy supply - including efficient use of coal and development of renewable
        energy, and possibly Carbon Capture and Storage (CCS)
    -   Buildings and construction – including energy efficiency standards and
        enforcement and urbanization strategy

In addition to looking at energy-efficiency in these key sectors, a low carbon strategy
would manage the energy use of key products by consumers, and also place each
sector in its wider social context.

For example, the transportation equipment sector is responsible for just 3% of
industry energy consumption in Chongqing and less than 2% of total energy
consumption 16 . However, emissions from automobile use in Chongqing are set to
grow rapidly (see the increase in distance travelled below). Moreover, transport will be
a key dimension to any low carbon urbanisation strategy, and for linking urban with
rural areas.

In a LCZ there is an opportunity to combine efficient industry with efficient products
and with local planning strategies. As described above, local deployment would help
to develop the industrial base more rapidly, and would demonstrate commitment to
the low carbon development concept, which in turn would be attractive to investors
and for technology cooperation.

This Section explores the role of key sectors in the LCZ, and presents key options for
these sectors to explore low carbon development. These represent ideas for
discussion and it is unlikely that all of the key options would be adopted in a LCZ. The
path taken by Chongqing will ultimately of course be determined by local government
and industry.


The energy sectors in China need to move away from investment that can be
classified as business as usual. The change in direction is driven by the need to
address the growing problems of energy and climate security.

Three factors characterise the difference between Chongqing and the global norm in
the energy sector. The first is its dependency on coal, which is far higher than the
global average and, secondly, the current and predicted growth rate in energy
demand. A third factor is the structure of energy use by the different sectors.
Chongqing’s secondary industrial sector is responsible for over 70% of final energy
consumption, while residential consumption of energy is around 8%. The graphic
below shows the growth in the energy consumption and the major sources that
provide it.

Figure 11 Growth in Energy Consumption 2000 - 2007
   10,000 ton nes SCE

















                         Total Consumption      Coal          Natural Gas       Oil        Electricity

                                                             Source: Chongqing Statistical Yearbook 2008

Many of the technologies that would help achieve a transformative change in the
production, transportation and consumption of energy are either currently available or
close to market. Rapid technological diffusion would require not only increased
investment throughout the supply chain for each technology but also a focus on
training and development to enable efficient installation, operating, maintenance and
oversight. Using (and producing) best available technology from both within China
and internationally would enable Chongqing to make wholesale changes to their
energy sector that would ensure its global leadership role in the move towards a low
carbon future.

Demand Side
Specific targets to improve energy efficiency were included in China’s 11th Five Year
Plan. At the provincial level these vary, but Chongqing’s target is consistent with the
China average – a 20% improvement between 2005 and 2010, or from 1.45 tonnes
SCE/10,000 RMB to 1.16. This is an ambitious target, requiring an improvement of
about 4% per year over the period.

The graphic below highlights the fluctuating energy demand and GDP growth over the
last few decades in Chongqing. There was a sharp increase in energy consumption in
2005 – where for a short period energy intensity increased for the first time since
1987. However energy intensity has tended to decrease by several percentage points
a year over the last two decades.

Further research could explore the role of each key driver in detail.

Figure 12 Energy Consumption and GDP Growth in Chongqing 1985 - 2007

                                                Source: Chongqing Statistical Yearbook 2008

Four key sectors in which energy efficiency could be addressed were identified and
discussed with local stakeholders during the research. These are:

   •   Buildings
   •   Vehicles
   •   Industrial efficiency
   •   Appliances

The specific measures that can be considered in buildings, vehicles and industrial
efficiency are covered in other parts of this report. A brief summary of energy efficient
appliances is provided in the box below.

Energy efficient appliances

While saturation of many products has been achieved in OECD countries, such as
televisions, the use of the majority continues to grow across China. As China is the
major appliance manufacturer for many products, the increased use of highly efficient
appliances both reduces domestic energy consumption, but also can become a
showcase for Chinese manufacturing.

Globally efforts are being deployed to gradually increase the energy efficiency of
appliances, through voluntary and mandatory standards, fiscal instruments and
greater consumer awareness. In Europe, the Eco-design directive is introducing
binding standards for a range of products including air conditions, machine tools,
refrigerating equipment, transformers, TVs and lighting17. The directive will play a
key role in setting standards across the whole of the European Union and, for
example, has resulted in plans to phase-out the use of incandescent light bulbs from
201218. In Japan a ‘top runner’ programme has been extremely successful in creating
the most energy efficient economy in the world, but encouraging the use of best
practice and best available technology across a whole series of industrial and
manufacturing processes19. While in the United States an initiative know as CLASP
(Collaborative Labelling and Appliance Standards Programme) has helps
policymakers and practitioners foster socio-economic development, alleviate poverty,
improve the environment, and stimulate global trade. Since 1999, CLASP has
assisted with the implementation of 21 new minimum energy performance standards,
energy efficiency endorsement labels20.

Supply Side
In Chongqing the majority of electricity is produced by coal fired power stations.
These, as with other parts of the world, vary in their efficiency levels. Although China
has one of the lowest national average efficiency for coal stations globally, only ahead
of India of the major coal exploiting countries, it is also deploying the world’s most
modern and efficient stations. This contradiction is due to the large number of smaller,
older and less efficient power stations that are still operated throughout the country.

Chongqing has considerable coal reserves. According to the IEA, and based on 2003
data, the four provinces of Guizhou, Yunnan, Chongqing, Sichuan have proven
reserves of 26 billion tonnes of coal, around 15% of China’s total.21

The current five year plan states that coal reserves of over 3 billion tons have been
discovered in Chongqing with 2.3 billion tons are able for immediate exploitation22.

Chongqing has therefore been expanding sourcing policies for coal reserves in
Western provinces including Guizhou, Yunnan and Xinjiang. More recently however,
Chongqing Energy Investment Group was given approval to exploit a 10 billion-ton
reserve of coal in Xinjiang in April 2009 - roughly four times Chongqing’s own

Chongqing Coal Group is the largest state-owned coal producer and owns 26 state-
owned    coal   enterprises    (including    Nantong,   Tianfu,   Songzao,   Yongrong,
Zhongliangshan and Juneng). In 2004, its annual production volume was over nine
million tons, around one fifth of the total production in Chongqing.

In parallel with the increasing production capacity of the coal industry, several coal
powered generating plants were contained in the 11th Five Year Plan – examples
include Huaneng Luohuang Plant, Hechuan Shuanghuai Plant, Yongchuan Songji
Plant, Songzao Anwen Plant, Wansheng Thermal Plant, Fengjie Thermal Plant, and
Shizhu Thermal Plant.24

Carbon Capture and Storage
Carbon Capture and Storage (CCS) is yet to be demonstrated commercially, but could
allow fossil fuel energy to be used while preventing up to 90% of the emissions from
reaching the atmosphere.

CCS is not under active consideration in Chongqing at present. Further research
could consider the technical and economic potential for CCS in the area, including
industrial CCS, such as for the cement sector.

The technical and economic potential of CCS is being explored around the world. A
number of countries are involved in partnership projects on CCS in China, including:

   •    In May 2008 Japan and China announced their intention to jointly develop a
        CCS and enhanced oil recovery (EOR) project which aims to recover 3-4 Mt of
        carbon dioxide (CO2) per annum from two coal-fired power plants in China.

   •    The China-EU Action Plan on Clean Coal calls for “by 2020 to develop and
        demonstrate in China and the EU advanced, near-zero emissions coal
        technology through carbon capture and storage”.

   •    The GreenGen and FutureGen projects are also being developed that aim to
        build advanced coal power plants including CCS. The GreenGen project is
        being lead by Chinese utilities while FutureGen has greater international

Coal Methane Capture
The capture of coal methane is an opportunity to not only reduce emissions of a
powerful greenhouse gas, but also capture a potential source of energy - a win-win
from an environmental perspective. In addition, the process has the advantage of
increasing safety in mining operations. Already mines in the South West of China,
including the Shongzao Coal Mine in Chongqing city area have developed methane
drainage systems and Coal Mine Methane power generation facilities.

China is already a world leader in the capturing of Coal Methane Capture and plans
to expand its own production to up to 10 billion m3 by 2010. International finance has
been made available in China to expand the number of coal methane projects.

There is a growing realization in Chongqing of the advantages that renewables could
bring to the region. Locally, renewable energies can help address Chongqing’s
resource challenges, offering enhanced energy security with reduced risk of price
fluctuation. They are also an important export opportunity for Chongqing, which
already has an established base in several key technologies. Renewable industries
are also a source of local employment – often in rural areas.

Both production of equipment of and deployment of wind power in Chongqing is set
to increase significantly.   The Haizhuang windpower equipment company has
ambitious plans and is expecting by 2012 to have an annual production capacity of 2
GW per year (via manufacture of one turbine rated at 0.85 MW and another at 2 MW
capacity). If achieved this would create sales of RMB 20 billion per year.

According to the Chongqing Economic Commission there are also plans to produce
larger offshore turbines (3-5 MW) with an objective of producing 2 GW per year.
Chongqing’s total investment in the wind power industry is expected to reach RMB
16.6 billion by 2015.

Low Carbon Employment
One of the priorities for a low carbon zone would be creating employment in the
context of rapid urbanisation and workers returning from eastern coastal provinces
due to the economic crisis. A recent UN report argues that “alternative energy creates
more jobs than conventional sources do - in other words, a switch from oil, gas, or
coal produces a net gain in employment”25. In addition, low carbon jobs tend to be
distributed geographically – especially energy efficiency in buildings and services for
renewable energy. For these reasons and to prepare for a broader shift to a low

carbon economy, a range of countries including the US, UK and Germany have put
“green jobs” at the centre of their economic recovery plans.

China has already created many jobs in the renewables industry, most strikingly in
solar thermal and biomass but also wind and solar PV:


    Number Employed




















                                                   Wind                                   Solar PV                        Solar Thermal                            Biomass

                                                                                                                                      Source: UNEP and ILO (2008)

The use of wind power in the region is also expanding with up to 8 wind farms under
construction in amongst others Wulong, Wushan and Wushi providing 450 MW of
installed capacity.

Large and small scale hydro power is also important for Chongqing.                                                                                                           Currently
estimates suggest that only 6% of the regions total hydro power is being exploited26.
Foreign aid is being used to develop some of the smaller projects, such as a 60 MW
project in Wuxi being funded by the French Development Agency or the CDM project
at Lanxi in Chengkou County, in co-operation with Mitsubishi. 29 of the 37 CDM
projects in Chongqing are in hydro (see Section 3).

Companies in Chongqing are also rapidly entering the solar market.                                                                                                 For example
the Chongqing Daqo New Energy Co.,Ltd. was created in January 2008. It focuses on
manufacturing solar grade and electron grade high pure polysilicon, researching and
producing solar silicon wafer, cell slice, cell module and solar photovoltaic power
station systems.

Assessments have also been undertaken to assess the production and potential for
the incineration of the municipal solid waste. In 2005, 1.02 million tons of municipal
solid waste (MSW), the average amount generated per day equalled 2800 tons and
the daily amount generated per person was 0.85 kg. About 53.6% of Chongqing’s
total MSW is disposed in the Tongxing MSW incineration power plant at present. This
capacity generates around 235 GWh’s of electricity27.
Given the importance of renewable energy to rural areas, details on renewables are
provided in a separate section on Balanced Urban-Rural Development.

The predicted increase in electricity demand as well as the changing energy mix will
require significant investment in the electricity infrastructure. Across China the cost of
upgrading the grids is expected to be higher than the total investment in new supply,
with an anticipated $1068 million out of a total investment of $1913, by 2030.28 This
is a one in a generation level of investment and it will shape and be influenced by the
location, type and size of new power generation.

By the end of 2007 the total length of HVDC (high-voltage direct current transmission
lines) in China was over 7000km and total capacity was over 18500MW, both ranked
first in the world. China has occupied a leading position in project design, construction,
operation management and equipment manufacture. It is planned that by 2020, China
will have 15 ultra HVDC projects set up making the global leader in the number of
HVDC projects, the length of transmission as well as the transmission capacity.

Technological advances allow the electricity grid to be more dynamic, giving greater
information to consumers – allowing them to modify their demand – and greater
penetration of renewable energy. The development of so-called smart grids is being
treated as a priority in a number of countries. In the United States the stimulus
package allocated around $10 billion to this area.

In Oct 2007, East China Grid launched a feasibility study for smart grid and
announced a “3-step” strategy - building advanced grid dispatch centre by 2010;
establishing a digitized grid by 2020; and upgrading to smart grid in 2030.

As part of North China Grid’s smart grid programme, a “three status” security defence
and comprehensive control system passed expert evaluation in Beijing in February
2009. As yet nothing has been announced in Western areas, and this would be an
important area for Chongqing to consider piloting in a low carbon zone.

Energy - headline options
Reform of the energy sector is essential in the transformation to the low carbon
economy in Chongqing. However, it is clear that the low carbon energy sector will
bring other important benefits for the economy, environment and security of
Chongqing.      In order to capture these advantages two key factors need to be

1)   Avoiding high energy use lock in.          There are clear technological and policy
choices that have to be made that will determine the level of energy use for the
decades ahead.      If the wrong technology choices are made, such as low efficiency
housing, then high levels of energy use will be needed during the whole operating life
of the facility – up to 50 years.

2) Some of the low carbon technologies and practises that need to be deployed are
already tried and tested in the market globally. For these technologies the main
challenge is to scale up the use of existing technologies. This requires an increase in
production across the whole of the supply chain as well as the human capacity to
install, monitor and regulate the new technology.

Specific actions in the energy field could include:

     •   Adopting an energy intensity plan in the 12th five year plan that goes being
         the national average in China (anticipated to be an additional 10% saving by
         2020, over 2010 levels)

     •   Development of the grid infrastructure that will accommodate a higher
         penetration of renewable energy, in particular wind power

     •   Increased manufacturing of renewable energy technologies, particularly those
         with large global market potential, such as offshore wind and Solar PV or
         Concentrated Solar Power

     •   Increase development and deployment of Coal Mine Methane to correspond
         to wider Chinese targets and to capture the increasing global market

     •   Accelerated efficiency improvements in the heavy industry sector, such as
         power stations and chemical production


Key Challenges
China is currently in an unprecedented construction boom, with an estimated 2 billion
m2 of new commercial and residential buildings added every year. Assuming current
trends continue, China will build half of all the world’s new buildings by 2015. An
assessment by the consulting group McKinsey estimated that moving the whole of
the Chinese housing stock to international energy efficiency standards would result in
a net emissions reduction of 480 million tonnes of C02 per year. This was the third
largest sector saving of CO2 (behind improving the industrial efficiency in China and
a global reform of the power sector).

Across China over the last decade incremental increases in efficiency standard are
being continually proposed and implemented. The main national target requires a
50% improvement on the 1980s energy efficiency level by 2010 and a further
increase to 65% by 2020. However, whole or parts of specific cities are moving
ahead of this target and aiming for the 65% target by 2010, this includes Beijing,
Shanghai, Tianjin, Jilin and Chongqing.

Global buildings standards
Globally, Governments are gradually increasing the building standards and codes for
new and, to a lesser extent, for existing buildings. The enforcement of standards is
the key to driving higher efficiency standards in buildings as there are many barriers
that stop the market delivering the necessary efficiency improvements.            These
barriers include :

   •   Many decision makers (millions of owners)
   •   Lack of financing mechanisms or economic restraints
   •   Too great an emphasis on construction and too little on running costs
   •   Short occupancy (< 30 years)
   •   Split incentives (owner/renter or different budgets in public buildings)
   •   Lack of knowledge by owners
   •   Lack of knowledge by constructors, advisers and banks
   •   Over-estimation of the cost of higher efficiency standards by some
   •   Efficient buildings not always available on the market
   •   Need to address all barriers at the same time as a package

In the EU, for example, the European Commission in 2008 put forward a proposal to
update and tighten the standards within the Energy Performance of Buildings
Directive (EPBD).    When fully adopted, the EU’s final energy use could be reduced
by at least 5-6% and CO2 emissions by at least 4-5% - 160 to 210 Mt/CO2 per year -
according to the Commission’s Impact Assessment. The directive would apply to
both new buildings and to existing buildings that are undergoing retrofitting.

Industry estimates suggest that the range of CO2 saving that would be possible with
a more ambitious EPBD could amount to as much as 460 Mt/CO2/eq reductions per

year 30 . The graphic below indicatively shows the extent to which other more
transformative building standards could be deployed, using best available

Figure 13 Illustrative Energy Consumption in Building Stock

Building Sector in Chongqing
The rate of growth in the region’s economy coupled with the increase in urbanisation
has resulted in a rapid increase in buildings.    Over the last ten years the rate of
completion of new build has doubled with the actual construction amount increased
four-fold, as can be seen in the graphic below.

Figure 14       Floor space completed and under construction in Chongqing –

Recognising the longer term negative implications of low efficiency housing has
resulted in the implementation of a higher than the national average efficiency target
in certain areas in Chongqing – a 65% improvement in the efficiency standard (a list
of the municipal areas included is available in an Appendix). In total this affects
around 1.6 million m2 (or around 5%) of the floor space completed in Chongqing
every year. The locations covered are in the central commercial sector – offices –
and the more expensive areas in the residential sector.

Chongqing is considered a leader on appraisal of buildings efficiency because, in
contrast to other parts of China, all buildings (not just those in the public sector) are
reviewed and building certificates are only given if they pass their appraisal. Pilot
programmes have also begun on retrofitting of public buildings.         As part of this
programme efficiency standards are being drafted.

Meeting the existing and stricter targets in the building sector raises a number of
challenges, including:

   •   The technological development of higher efficiency standards began in the
       north and some of it has not proved to be entirely appropriate to the climate.
   •   There could be a bottleneck due to lack of industrial capacity, for example the
       65% efficiency regulation requires higher standards for windows but these
       are not available on the local market. Local industry could hold off investment
       in R&D until they see market emerging.
   •   Supervision is better than elsewhere in China but is still not strong enough -
       there is still space for amelioration of laws and regulations
   •   Action needs to be appropriate to very different levels of development
   •   Interests are not aligned: Work in retrofitting is lagging behind partly because
       residential buildings have 100s of households, so difficult to negotiate.
   •   Focus is on building efficiency – with less focus on low carbon buildings
       materials and processes.
   •   The additional cost of going from 30% to 50% was around 5-10% on average.
       To go from 50% to 65% will cost an extra 3-5%.

International Action in China on Buildings Efficiency

Development of Energy Service Companies (ESCOs): China's energy
conservation industry began with three ESCOs created in 1998 in Shandong,
Liaoning, and Beijing by the US$151 million China Energy Conservation Project
backed by the Government of China, World Bank, Global Environment Facility
(GEF), and the European Commission. By 2006, about 100 ESCOs financed over
400 energy conservation projects in 16 provinces totalling US$280 million in
investment. Projects begun in 2005 and 2006 are expected to generate energy
savings equivalent to 18 million tons of standard-grade coal and 21 million tons of
coal, respectively, exceeding original targets by "several orders of magnitude,"
according to a recent assessment of the program31.

Energy Efficiency Loans: The World Bank, Asian Development Bank and other
financial institutions have targeted lending towards energy efficiency in the building
sector. These projects not only bring together the technical expertise to enable
retrofitting and new build projects to incorporate significant energy efficiency
measures, but they also demonstrate their commercial viability.

Bi-laterial Assistance programmes: Across China there are a wide number and
variety of state funded activities to demonstrate the viability of higher efficiency
standard buildings. This includes funding from the European Union, France,
Germany, United States etc.

Buildings - headline options
   1. Monitoring and enforcement of existing (higher than national average) energy
      efficiency standards

Confidence in the enforcement requirement for existing and future building
standards is the key to rapid energy saving. Setting clear short and medium term
energy efficiency targets further encourages the development of supply chains and
in the creation of a skilled workforce.

Within Chongqing a relatively small percentage of the building stock is required to
meet higher than national standards for energy efficiency. Knowing that the higher
standard will be required in the other parts of Chongqing, post 2010, offers an
opportunity to pilot higher efficiency housing and build up the supply chain.

   2. Piloting best available technology in public sector buildings and developments

Demonstrating the applicability of new technologies could be a vital role for State
actors, for new build and retrofitting.   These piloting programmes could seek the
further financial support from bi-lateral or multi-lateral sources as are current
deployed in China and in Chongqing.

   3. Supply chain analysis and action to address bottlenecks

Higher efficiency standards require not only changes in design but the introduction
of new materials, such as windows or insulation.       Early identification of these
potential bottlenecks can ease further problems and also open the way for export
lead production.

   4. Export potential analysis for key energy efficiency products for building sector.

 Chongqing’s active export drive can benefit from low carbon and in particular
energy efficiency driven technology.       Estimates suggest that to meet global
emissions reduction necessary from the building sector will require an additional
$1 trillion in investment by 2030.

   5. International Financial Institution funding

Large scale sectoral funding for energy efficiency in the residential sector has been
already made available in China. Attracting such funding can act as a catalyst for
other projects.


Vehicle production is a key industry for Chongqing. The city is the fourth largest
producer of vehicles in China (more than one million in 2008) and the largest for
motorbikes. Chongqing became the largest production base of natural gas vehicles in
Asia in 2005 – with sales revenue reaching 1.8 billion RMB in 200632.

At the same time, the transport network is growing rapidly. The distance passengers
travelled increased by 64% by rail and 24% by highway in 2007 compared with 2006.
The length of highways expanded by 9% over the same period.

Creating a vision for low carbon development in this sector could mean a combination
of producing low emission vehicles, introducing tighter standards for products sold
within the LCZ, and prioritising public transport as part of wider sustainable
urbanisation efforts.

Such an approach would complement existing action in Chongqing – the city has
recently been selected to be the second national transportation hubs pilot city, after
Beijing. A “one circle and three lines” communication system network is to be
established in downtown Chongqing by 2014 with ring roads linked to main lines by
large-scale bus hubs to provide maximum convenience for citizens.

Chang'an Motors produced the first Chinese-brand hybrid (Jiexun-HEV) in 2007 and
hybrids are part of the company’s export plans33. Major partners for Chongqing-based
vehicle manufacturers including Chang’an (e.g. Ford, Suzuki) and FAW (Volkswagen,
Toyota) are focused on developing hybrid and electric vehicle models.

The electric and hybrid project agreed between Chongqing, Denver and Ford at the
fifth China-US Strategic Economic Dialogue in December 2008 was a clear signal that
Chongqing is planning to build a world-class base in research and development
(R&D) as well as manufacturing hub for electric cars and parts.

Global trends and market opportunities
With Chongqing’s existing advantages, it is clear that the city has an opportunity to
take a lead in low carbon vehicles and to become a major exporter as global markets
develop. In many key markets there are signs that more efficient vehicles are a
priority for both government and industry.

In Europe, a compromise deal was reached in November 2008 that will gradually limit
CO2 emissions to 120 g/km for 65% of new cars in 2012, 75% in 2013, 80% in 2014

and 100% in 2015. Automakers will be fined for non-compliance. In the US, revised
vehicle emissions standards proposed by the Obama administration would require a
significant improvement in fuel economy of passenger cars to 39 MPG in 2016 (see
Figure 15) although there is still a long way to go before US targets catch up with
Japan and the EU.

Figure 15 Chinese-foreign fuel consumption comparison during 2002 - 06

                        Proposed US standard for
                        passenger cars: 39 MPG in 2016

                                               Source: ICCT December 2008 update34

The US Stimulus package contained $2.4 billion for electric vehicles and related
equipment. Norway’s stimulus includes 5,000 electric car charging points. The EU
coordinated stimulus agreed to focus €5bn to help speed the development of greener
vehicles. There are now serious commitments to electric vehicles in Germany,
Denmark, Australia and individual US states (California and Hawaii).

Vehicles and Transport – headline options

   1. Taking a lead in low carbon vehicle technology

Chongqing has the industrial base to pursue low carbon vehicles and local factories
are already involved in producing and researching more efficient, hybrid and electric
vehicles. A LCZ would help to accelerate this trend and would be a close fit with
Chongqing’s efforts to maintain a strong position in vehicle manufacturing.
   2. Aligning emissions standards with international trends

Chinese emissions standards have historically tracked European standards, with a
lag of a few years. Over time the gap has closed so that China will be four years
behind once new Chinese standards are introduced in 2010:

Table 1       Timeline of Euro Vehicle Emissions Standards and Chinese

           EU       China     Beijing     Chongqing LCZ
Euro 1    1992       2000       2000            2000
Euro 2    1997       2004       2002            2004
Euro 3    2001       2007       2005            2007
Euro 4    2006       2010       2008              ?
Euro 5    2011                                    ?
Euro 6    2015                                    ?

The table also demonstrates that other areas of China have adopted tighter standards
than the national average – Beijing has been enforcing standards adopted in Europe
in 2006 since 2008. Shanghai followed shortly afterwards.

   3. Raising fuel quality standards

Vehicle emissions are determined by a combination of the vehicle technology, the use
and the quality of the fuel. Improving fuel quality can therefore assist with the
efficiency of fuel use in transport, as well as reducing local air pollution. Improving fuel
quality is a priority for China’s Ministry of Environmental Protection. A LCZ could
choose to move quicker than the national standards (as is already the case in
Beijing). This would mean an important role for Chongqing’s large petrochemical
industry in producing and distributing higher quality fuels.

   4. Harnessing public procurement

Chongqing could pull the local market and infrastructure for low carbon vehicles
forward by procuring low carbon vehicles for the public sector and asking state-owned
companies to do the same.

   5. A roadmap for deploying electric vehicles, including production & infrastructure

Deploying electric vehicles in the LCZ would be a powerful statement and would
provide an excellent testing ground for local automakers and their international
partners. This would mean developing a network of charging points, perhaps initially
at existing charging stations in the urban area of Chongqing.

   6. Exploring the potential of sustainable biofuels

Chongqing has significant rural resources which could be used to produce biofuels,
reducing the amount of oil required for transport. It also has a petrochemicals base
which could be utilised to pursue second generation biofuels (these require the
breakdown of cellulose in woody waste products from agriculture and forestry).

To ensure environmental protection and to align local industry with global markets for
vehicles that use biofuels (as well as potentially the biofuels themselves), Chongqing
could choose to adopt EU biofuels sustainability criteria.

   7. Promoting walking and cycling

Although the topography of CQ presents challenges in some places, an LCZ could
promote walking and cycling (as well as public transport) to reduce congestion and
emissions and improve health. Many cities around the world make use of more
efficient vehicles and reduced use of vehicles in combination to improve quality of life.


ICT in Chongqing
The Information and Communications Technology (ICT) sector’s contribution to
Chongqing’s GDP climbed rapidly from 2% in 2002 to 6% in 2007, signalling its
emergence as a pillar industry for future growth. ICT is a top priority for China’s
development and is expected to play an important role in economic restructuring35. As
China’s southwest hub of ICT industry, Chongqing’s advantages include quality
communications architecture, a concentration of skilled labour; spatial arrangement of
the industry in clusters, organized by the local government; and an average salary
one third of eastern coastal provinces.36

Chongqing recently published an ICT industry adjustment and promotion plan 37 in
response to the economic crisis. This aims to create 1.5 million jobs between 2009
and 2011, taking many college graduates into employment. Between now and 2013
the growth rate of the ICT sector is expected to be three times GDP, reaching 20% of
total industry value by the end of this period - and in the process, becoming the
municipality’s top pillar industry.38

Specific local strengths lie in computer and electronic components manufacturing,
audio-visual equipment and services, telecoms and mobile e-business, software and
outsourcing. Along with the rapid growth of local companies, major multinationals -
such as HP, Honeywell, Oracle, Ericsson and IBM - have come to Chongqing to
launch their west China strategy.

The role of ICT in a Low Carbon Zone

Chongqing’s strategic goals for the ICT sector are to improve energy efficiency,
enhance supervision over environment pollution, promote the circular economy and
upgrade the industrial structure39. Each of these is highly relevant to the low carbon
development concept.

Emissions from ICT are around 2% of total global emissions and are rising rapidly. By
taking action to manage this footprint, the ICT sector can make an important
contribution to low carbon development. However, it is increasingly connected with all
areas of the economy and society. The potential for reducing energy consumption in
other sectors by 2020 is estimated to be five times the potential for reductions within
the ICT sector alone40 - making it a key enabling sector for low carbon development.

The global market for “green IT” products and services is expected to grow
aggressively rapidly despite the economic downturn – growth of 60 percent per year
into 2013, when it will reach $4.8 billion before starting to level off. This is a fraction of
the global IT market, but the strategic importance of green IT will keep it near the top
of many corporations’ consulting agendas41.

Specific links between ICT and a LCZ include:

    •    A key role in economic restructuring, growing faster as a sector and
         enabling growth in lower carbon sectors more rapidly than heavy industry –
         helping to help meet energy intensity targets

    •    A major contribution to the efficient use of resources and energy in Chongqing
         and beyond, through creating more effective systems and processes in
         industry, including efficient supply chain management and optimized logistics

    •    Manufacture and design of low energy using products such as efficient
         servers, networks and telecoms42, related services and other dimensions of
         “green IT”, including waste management and recycling

    •    Enabling the development of smart grids and energy services, smart
         buildings and smart transport and logistics 43 , which could be exciting
         areas for experimentation in a LCZ

    •    Enhanced virtual communications in Chongqing to reduce growth in
         demand for transport and dematerialization (reduced use of paper, for

    •    Monitoring energy consumption, relevant to industry but also for encouraging
         lifestyle change.

The impact of effective ICT on industrial efficiency is highlighted by analysis of
manufacturing in China by the Climate Group, which identified that without
optimisation 10% of China’s emissions (2% of global emissions) in 2020 will come
from China’s motor systems alone - and to improve industrial efficiency even by 10%
would deliver up to 200 million tonnes (Mt) CO2e savings. Applied globally, optimised
motors and industrial automation would reduce 0.97 GtCO2e in 2020, worth $107.2

Chongqing has an opportunity to be a major exporter of low carbon ICT goods and
services. It can also demonstrate its strength in these areas through local deployment
and experimentation. Chongqing’s ambitions in connecting ICT to development are
already evident in existing pilot projects.

Piloting and ICT
Reflecting its strategic importance, the ICT sector is already the subject of several
high level pilots in Chongqing. These could be connected with low carbon
development by focusing on the areas set out in the previous section.

Formal approval from the Ministry of Industry and Information Technology was given
to Chongqing in 2007 to set up the first state-level “informationalisation and
industrialisation pilot zone” in China and a “pilot zone of national mobile e-business”.
It is also a national centre of research excellence on China’s home grown and
internationally recognized 3G standard known as TS-SCDMA.

Chongqing is also a pilot zone of urban-rural informationalisation project. The
municipality has 1.8 million internet users (1.5 million of which are broadband) and
plans to incorporate 4.6 million internet users (80% broadband) by 2010. All of its
urban areas and 80% of the municipality will have the option of connecting to
broadband in 2012. In parallel, 3G and wireless networks are being expanded as a

Wulong        County   is   one   of   the   first   four   pilot   counties   for   a   separate
“Informationalisation and Poverty Alleviation Project”. Internet access and information
service centres will be installed in all the 187 villages to provide farmers with business
information for agricultural products, entertainment, long-distance diagnosis and
education, charity information management, and natural disaster forecast.46

Links between balanced urban-rural development and low carbon development are
discussed in Section Three.


Planning and development strategy


Local economic and development planning would be central to the success of the
Low Carbon Zone. Frameworks to encourage investment and innovation and ensure
Chongqing stays ahead of its competitors will help shape emerging low carbon
industries. Government approaches to infrastructure and urban design and buildings
standards will help to determine future emissions pathways.

Low carbon options for buildings and transport infrastructure will have additional short
term costs, but it would be even more costly to retrofit high carbon approaches in
future. The wider industrial and economic benefits resulting from the low carbon
economy – seen in the opportunities for individual sectors in this report – are also
important context.

International experience of action on Low Carbon Economy shows the importance of
a clear, sustained strategy that gives confidence to potential investors and
implementers. Another lesson is that a basket of policies are required. This means
integrating planning across a range of government departments. The figure below
highlights just some of the potential linkages:

Figure 16 Urban and Rural Planning

Planning and design – headline options
   1. The Five Year Plan process is an opportunity to identify and coordinate the
       roles and priorities of each government department for low carbon
       development. Drafting of the next national five year plan is currently

   2. The economic stimulus package is a short-term opportunity to pursue growth
       in low carbon sectors, avoid locking in emissions and accelerate efforts on
       energy efficiency.

   3. A strong basis for measuring low carbon development will help to ensure
       effective policy making in the LCZ. Benchmarking emissions in each sector
       would be a first step. Chongqing could seek to develop an appropriate
       greenhouse gas inventory for the Low Carbon Zone.

   4. Sustainable urbanisation is a key challenge for Chongqing. A low carbon zone
       would need to find appropriate models for planning considering urban density,
       rural-urban linkages and public transport.

Chongqing has a unique opportunity to connect low carbon development with its
efforts on Balanced Urban Rural Development (see third part of this Section)


Heavy industries are important technological assets for developing countries and it
is critical to ensure that they contribute to low carbon transition. They can do so
through energy efficiency improvements and the circular economy – but also by
enabling wider low carbon transition, a role that is often overlooked.

Heavy industry in Chongqing
Heavy industries     can achieve significant energy and resource efficiency
improvements which are often highly cost-effective and result in large emissions
savings. In China this is reflected in the energy intensity target; the Top-1000
Enterprises Program; and the circular economy concept (including the Changshou
chemical industry park in Chongqing). Some of the most efficient steel and coal
power plants in the world are to be found in China, but older sites often make use of
less advanced technology.

Table 2   Energy consumption in sectors with high Gross Output Value (2007)

                                       Gross Output     Overall Energy
                                      Value of Industry Consumption     tonne of SCE
Sector                                    (bn RMB)      (tonne of SCE) to 10,000 RMB

Transportation Equipment                   158.2           831,475          0.05
Smelting and Pressing of Nonferrous
Metals                                      31.9           863,691          0.27
Electricpower and Hot Power
Production and Supply                       28.0          6,878,877         2.46
Raw Chemical Materials and Chemical
Products                                    24.3          4,556,382         1.87
Smelting and Pressing of Ferrous
Metals                                      22.2          3,149,938         1.42

Electric Equipment and Machinery            21.3            62,847          0.03

Nonmetal Mineral Products                   18.9          4,817,659         2.54

Ordinary Equipment                          17.5           212,530          0.12
Farm Products and By-food
Processing                                  13.8            86,993          0.06

Coal Mining and Dressing                    10.6          1,901,591         1.80

                                            Source: Chongqing Statistical Yearbook 2008

The secondary industrial sector in Chongqing is responsible for around 70% of final
energy consumption – compared to a global average of around one third. The
secondary sector includes chemical, mineral production, smelting, equipment
manufacturing and power generation. The three largest coal consuming sectors are
the power sector (45% of total consumption); non-metal mineral production (14%)
and chemical production (6%). Globally, the use of best available technology would
result in reduction of one third of energy use in the heavy industrial sector, while in
China and Chongqing savings would be far greater. In Chongqing energy intensity
of the heavy industrial sector is expected to fall by 25% during the period of the 11th
five year plan.

Finding effective strategies for energy efficiency in heavy industry is central to low
carbon development, but it could be seen as part of a wider industrial strategy.
Established heavy industries have significant existing capacities in terms of know-
how; access to technology and innovation; and logistics. They can play a positive
role in low carbon development if these advantages were to be harnessed.

For Chongqing, the petrochemicals sector provides a relevant case study. Using the
classification in Table 2, petrochemicals contributes RMB 24.3bn to local GDP and
is the third most energy intensive industrial sector in Chongqing (per RMB output
value) after the power and heat sector and the mineral product sector – although it is
important to note that significant amounts of carbon are stored in petrochemical
products, lowering the emissions intensity of the sector.

Over thirty major companies domestic and multinational are situated in Chongqing47,
including CNPC, Chongqing Global Petroleum Chemical Co., Kingboard (Hong
Kong), Mitsubishi (Japan), Evonik and BASF (Germany), Air Liquide (France) and
Eastern Communications (US). Significant international cooperation in the
petrochemicals sector includes a joint venture between BP (UK), Sinopec (the
publicly traded arm of CNPC) and Chongqing’s energy investment company48,49.

Petrochemicals and low carbon development
The nature of the petrochemicals business is that it provides the inputs and materials
for other sectors. As a consequence, it is hard to imagine low carbon development
without a major contribution directly and indirectly from the sector. CNPC explains
that   its   products     are “widely    used        in automobiles,    buildings,   electronics,
pharmaceuticals,        printing,   household    appliances,    daily   chemicals,     insulating
materials, packing, papermaking, textile, pigments, shoes, furniture manufacturing”50.

Both natural gas and oil are available as feedstocks for the petrochemical sector in
Chongqing (the 11 FYP aims for a breakthrough in the natural gas chemicals sector,
already well-established, and also in the downstream ethylene industry). This has
resulted in a wide range of products being produced at scale. Products typically made
from gas feedstock include fertilizer (over 1.5 million tonnes produced in 2007 in
Chongqing), pesticides (23,000 tonnes) and methanol (over 400,000 tonnes).

Products made from either oil or gas include plastics and synthetic rubber (over 7
million tyres and 30,000 tonnes of raw material) 51 and ethylene. The Chongqing
Development and Reform Commission (DRC) approved China National Petroleum
Corporation’s (CNPC) request to build an ethylene plant with an annual capacity of
800,000 tonnes in 200552. Ethylene is the most common chemical intermediate, used
to produce a host of final products from food packaging to antifreeze53.

The petrochemicals sector has important industrial advantages that could have a
transformative effect on low carbon development. These include:

   •   Integration with other key sectors
   •   Skilled labour force
   •   Research capabilities
   •   Distribution and logistics capacity
   •   Technology and innovation
   •   Market awareness
   •   Scaling up potential
   •   Political recognition

Figure 17 below highlights some of the potential linkages between the
petrochemicals sector and opportunities for low carbon growth. Each of these could
represent commercial interests as well as low carbon benefits.

“Low carbon sectors” are taken to include both technologies and approaches that
reduce energy or emissions directly (such as efficient vehicles, renewable energy
and sustainable land use management) and sectors which require are less energy
emissions intensive per unit output than heavy industry - including many high tech
and service sector firms.

Figure 17 Petrochemicals and low carbon development – some linkages
                                                             agricultural product processing
                                                             • fertilisers and pesticides
automobile industry                                          • preservatives
• inputs to manufacturing                                    • biogas - pigs
• fuel quality and efficiency
                                petroleum chemical industry

                                    energy sector
 pharmaceuticals and
                                    • CCS
                                    • biofuels technology         high-tech industry, inc.
 • inputs to manufacturing
                                    • next gen PV                 photoelectron and ICT
 • reducing solvent use
                                    • nanotech and biotech        • inputs to manufacturing
 • packaging materials
                                                                  • materials science
                                                                  • skilled labour

                                                        Source: Chatham House (2009)

Potential linkages include:

   •   The vehicle supply chain requires various inputs from petrochemicals but
       more importantly, the fuel for vehicles is a direct link. Efficiency
       improvements in vehicles depend to a significant extent on fuel quality –
       for example, direct injection petrol vehicles require low sulphur fuels.

   •   Agricultural inputs such as fertilisers and pesticides come from the
       petrochemicals industry, especially ammonia (the source of nearly all
       nitrogen fertilisers). Agriculture and forestry themselves provide many
       avenues for low carbon development. The petrochemicals sector has the
       capacity to bring biomass to market at scale. It also has the research
       capacity to explore, for example, the breakdown of cellulose for second
       generation biofuels.

   •   Oil and gas extraction and petrochemicals have many links with energy
       technology. The latter has been one of the largest users of CHP since the
       1980s – CHP is one of the key areas for energy efficiency improvements
       for the sector54. Access to and understanding of distribution and supply
       chains for fuels may, however, be the key areas for petrochemicals in the
       low carbon energy sector.

   •   Petrochemical industries affect lifecycle emissions from products in a
       number of ways, including efficiency at the petrochemicals plant; the
       recycleability of materials used in industrial processes and of end

       products such as plastics and rubber; and the characteristics of these
       products. For example, lighter weight materials or more effective
       insulation both help to reduce energy consumption. In some cases the
       resulting emissions savings will be larger than the embedded emissions in
       the petrochemical product55.

   •   The role of nanotech and biotech in a low carbon economy is yet to be
       defined, but they are likely to offer transformative potential in a range of
       applications. It may be significant that nanotech technology and research
       is concentrated partly in the petrochemicals sector – in particular on
       carbon black (one of the few widely commercialised nanotech applications
       used in the automobiles sector to make tyres and other products).

Piloting the role of heavy industries in low carbon development

Being highly integrated with other key sectors and with important industrial
advantages, heavy industry could play an important and positive role in low carbon
development. Energy efficiency will remain critical, but can be seen as part of a
wider industrial strategy.

A Low Carbon Zone would be an opportunity to experiment, developing the most
effective models for Chongqing that would also be valuable for industrial regions
across China. Piloting could build on activities for a circular economy in Chongqing,
for example in the Changshou Chemical Industrial Park.

Local piloting of low carbon development activities would be relatively low risk for
high carbon industries. Working with local government, they could explore new
approaches with the aim of identifying the most exciting links and commercial
opportunities – before deciding whether to apply these across their businesses.

For local officials, such an approach offers an integrated model of industrial
development, where all key sectors have a role to play in low carbon transition. It
recognises local development challenges while not detracting from the urgency of a
low carbon economy.


Low carbon development often focuses on the reform of heavy industry and growth
of emerging low carbon sectors, as well as energy efficiency in buildings and

transport. This is logical – and necessary – since together these contribute a large
share of greenhouse gas emissions.

However, to ensure the long term viability of low carbon development, in addition to
delivering greenhouse gas emissions reduction, low carbon development must also
deliver on local development objectives.

As is clear from Chongqing’s emphasis on Balanced Urban-Rural Development,
rural areas (and urban-rural linkages) are critical to the success of local
development models. This section describes some of the linkages between low
carbon development and the rural dimension. The conclusion is that Chongqing has
many opportunities to explore low carbon development in its rural areas – and these
can be harnessed to help drive balanced urban-rural development.

Challenges for sustainable urbanisation and rural development
Chongqing has undergone a rapid process of urbanization after being designated as
a municipality directly under the central government – rising from 29.5% in 1997 to
46.7% by the end of 2006, slightly above the national average. This strong trend of
increase is expected to continue, reaching 70% of urbanization in 2020, when the
national average is estimated to be 55%. 56 In 2007 Chongqing created around
300,000 urban jobs (a 5% increase):

Figure 18 : Urbanization rate in Chongqing







                                                Simple projection based on
     30                                         2003-2008 growth trend



















































                                      Source: Chongqing Statistical Yearbook 2008

Incorporating additional labour into the urban economy is an important challenge for
Chongqing’s development, particularly in the light of the global economic downturn
and declining demand for rural migrant workers in export coastal areas. A report
published in 2004 by Chongqing Academy of Social Science                      notes that
unemployment, increasing living pressure, fragile environment, unsecured social
welfare, and idle land plots after enclosure have been significant by-products of a
rapid urbanization process.

China is considering sustainable alternatives to an urbanisation model focused on
mega cities. This includes satellite urban areas; developing sustainable economies
in rural areas; and transport orientated urbanisation.

One proposal is for “agriculture towns”, advocated by Professor Zou Deci, Fellow of
Chinese Academy of Engineering and Ex-director of China Academy of Urban
Planning and Design. 58 Zou argues that development of agriculture town can
effectively accelerate urbanization as well as extend the industry chain of agriculture
(as an industry) so that the employment problem of rural labour can be properly
solved. Longgang Town (situated in Wenzhou City, Zhejiang Province) – the first
organic rural town in China is a model of this new developmental approach.

Balanced Urban-Rural Development
The per capita income of urban areas in Chongqing is around 15,000 RMB – over
three times higher than the rural income of 4,500 RMB59. Chongqing is seeking to
pioneer Balanced Rural-Urban Development (BURD), reducing income inequalities
to 2.5:1 by 2020 and providing more equal access to social benefits. Chongqing was
designated China's first pilot area for BURD reforms in June 2007.

To achieve BURD, Chongqing has enhanced policy flexibility in key areas such as
including land reform, access to finance and the location of financial organizations. It
is important to consider how these BURD policy innovations connect and are in
sympathy with Low Carbon Development.

Low Carbon and Balanced Urban-Rural Development
The natural and social endowments of Chongqing are highly suitable for piloting low
carbon, sustainable and ecologically efficient rural development models. This is not
least because Chongqing has abundant water resources, large-scale forestry and
various commercial crops.

The figure below highlights some of the linkages between low carbon and rural
development in Chongqing. The rural energy dimension is explored in the following

text. Developing a full understanding of the links between BURD and low carbon
development will be an important dimension of the second phase of research:

Figure 19 Rural Low Carbon Development
                                                                     • Carbon Sink Capacity
• Biomass tanks                                                      • Bio-energy – bio-diesel, bio-
• Micro-hydro                                                        ethanol, fuel pellets
• Solar house, solar stoves                                          • Forestry as a new industry
• Biomass to electricity & heat                                      for absorbing surplus migrant
                                    Rural Low Carbon                 workers
                                  Development Linkages
Rural industries                                                       • Corn processing – fuel
• Eco-tourism                                                          alcohol, modified starch
• Processing of organic           Husbandry                            • Biomass feedstocks
specialities                      •Biogas from pig farming             from rice, corn, wheat and
•Coal-biomass briquettes          •Livestock: biomass, or              sweet potatoes
• Local building materials        cultivation of edible fungi          • Biodiesel production (e.g.
• Distribution of low             • Fungi stick: fertilizer            Gushan plant)
carbon fuels, products            • Biogas residue: fertilizer         • High value food
                                  and eco-pesticide                    processing industry (e.g.
                                                                       tea, bamboo)

                                                                 Source: Chatham House (2009)

Low carbon rural energy

Low carbon rural energy can be harnessed to provide quality energy services for
households and rural industry (such as paper factories) while generating income
and employment for rural populations. Different renewable energy options have very
different end uses and different implications for technology level, markets and labour

Chongqing, for example, has excellent opportunities to harness energy from
biomass, taking advantage of agricultural and forestry residues and the
development of eco-husbandry. The end use options include providing energy
services to rural areas (biogas from animal husbandry is a particularly important
area for Chongqing), biomass for electricity production and biofuels for transport
(Chongqing is reported to have agreed a framework with CNPC to launch a fuel
alcohol project in Changshou and Wanzhou by the end of 2010 and 2011 with a
combined production capacity of around 1 million tonnes per year.)60

The top four staple crops produced in Chongqing (rice, corn, wheat and sweet
potatoes) have biomass potential. Chongqing also has significant forest cover, for
example in Youyang County, Wuxi County and Wushan County. Wushan County
could become the largest tallow tree production base in China. 61 China’s first

commercial biomass project for rural households has been agreed between
Chongqing and Japan and will be operated during the next five years.

It is important to assess the potential impacts of expansion in biomass energy
upfront, especially implications for a range of important environmental and social
goods such as food security (where food crops are substituted), soil and water
quality, biodiversity and water resource management. Positive solutions are
available in each case but these impacts should be managed carefully to ensure
development benefits can be sustained.

Chongqing has abundant water resources with a theoretical hydropower potential
of 14 million KW capacity. In 2007 Chongqing had 1083 small hydro plants, making
up 12.4% of installed capacity and 47.3% of hydro installed capacity. The potential
for small hydro is attractive to international partners as the statistics from CDM
China show - as of the first quarter of 2009, 29 out of the current 37 CDM projects in
Chongqing are small-to-medium hydro plant projects.

Chongqing’s wind power resource is poor compared to some Chinese regions, with
a total potential of 22.5 million KW. However several localities such as Wuxi, Fengjie
and Nanchuan do have good opportunities. In Dec 2008, Chongqing installed the
first wind farm in Southwest China in Wulong County (installed capacity 49.3 MW).
Another eight farms are expected to be completed in the next five years.

Chongqing is one of the least sunny districts in China. Its annual solar radiation is
around 3200-3900 MJ/m2/year (Mongolia, for example, receives over 5000
MJ/m2/year). However, Chongqing has the ambition and resource endowment to
move into the multi-crystalline silicon industry. Wanzhou, for example, is rich in
silicon ore, a raw material for the production of polysilicon.62

Rural Circular Economy Pilot Studies

Since 2007 pilot studies in animal husbandry circular economy have been conducted
in Chongqing. These projects include industrializing dairy and pig breeding in Beibei,
Wanzhou, Hechuan, Qianjiang and Jiangbei. In Fuling, a sustainable development
project was launched from 2007 to 2010 to develop a circular rural economy around
the feeding of pigs. To encourage the farmers to feed pigs, ten large scale pig
feeding farms and 10 organic vegetable cultivation bases are planned and liquid
biogas has been developed for the cultivation of 4,500mu organic vegetables. A
50,000m3 liquid biogas storage tank as well as liquid biogas flow pipe of 50,000m
long are also planned. Besides emission reduction, these approaches offer
opportunities for farmers in increase their income.
Illustration of Circular Economy Revolving Around Modern Husbandry




      pasture                                                liquid

         vegetables                                  eco-pesticide


International Linkages


Despite the benefits brought by global trade, trade-related CO2 emissions are likely
to come under increasing scrutiny in the coming decades. This is especially
problematic for developing country regions dependent on export-led growth. Some
US legislators have championed proposals to impose border tariffs on exports from
developing countries not taking ‘comparable actions’ to limit GHG emissions. These
ideas are also favoured by a number of European governments and legislators.

In late 2008 the United Nation’s International Maritime Organisation (IMO) voted to
clean up harmful particulates from vessel smokestacks but reached no agreement on
carbon emissions starting in July 2010. The global shipping industry accounts for 3%
of the global total – around 912 million tonnes of CO2 a year – more than the aviation
sector. Many new developments and initiatives – whether from governments,
businesses or consumers – are redefining the calculus for exporting countries. To
ensure long term survival, it is becoming critical for exporters to understand and
adapt to the dynamics of an increasingly carbon-constrained world.

Standards and labelling
Driven by mounting consumer pressure, a number of private and public initiatives are
underway in the EU and the US to assess the embedded carbon content of specific
products, with a view to developing carbon labelling schemes for consumers. 63
Product standards and labels have been widely used to address market information
failures, principal agent problems and other barriers to disseminating high efficiency
products and services. Emission reductions from energy efficiency gains can also be
highly cost effective, as most have negative overall costs from a life-cycle
perspective. Unlocking the market potential of the energy efficiency has proved
challenging for businesses and policymakers alike in many parts of the world. This
further underscores the potential role of private and public standards in driving
emission reductions and climate mitigation, whether through setting minimum
standards or encouraging best available ones. Furthermore, there are a number of
sector initiatives, which are investigating the possibilities of set regional or
international standards or benchmarks for goods, especially those from the heavy
industrial sectors.

Carbon Labelling
In the UK, food retailers like Tesco are developing a carbon footprint labelling
scheme that evaluates and ranks foods by the grams of carbon per kg produced

during the entire lifecycle of the product. Currently about twenty products are ranked
at Tesco, with a view to expanding this coverage towards over 100 products. On a
parallel basis, the Carbon Trust and the UK government are developing a
methodology for evaluating the life cycle carbon impact of products and working
towards common standards including the development of carbon reduction labels.
Factors that go into the evaluation include: product shelf life, country of origin,
infrastructure in the country of origin, and how far the food product must travel. To
this end, the Carbon Trust has produced a Carbon Reduction Label which is
underpinned by the PAS 2050, a set of standards and guidance developed in
partnership with the UK Government and other stakeholders worldwide. The use of
the label also commits the company to reduce its GHG emissions. The use of the
PAS 2050 is being piloted in 20 projects; in addition, organisations from 40 countries
are involved in a consultation process.

For non-food products, some form of carbon accounting has been increasingly
experimented in supply chain management, not just for European companies but
also those from the US, including Wal-Mart. Moving forward on carbon labelling, it is
important to caution against overly simplistic methodologies or processes for carbon
life cycle assessments. Especially for manufactured goods, daunting methodological
challenges await, as hundreds of processes contributed to the final product of any
given good. Some analysts have suggested that carbon labelling is likely to make
sense or operational on primary products or on those few goods where few entities
control the supply chain. Others cautioned against using carbon labelling as a low
carbon policy tool, not least because its impact on consumer behaviour remains
uncertain. The development implications of these schemes had also been
highlighted by many developing countries as causes for concern.

Many in the private sector anticipate the adoption of a global carbon label (or labels)
that would be enforced across supply chains. Consequently, there is a persuasive
case that those companies that move first into carbon accounting will have
significant benefits. As carbon labels start to be widely applied in a range of sectors,
a range of manufacturing and food processing industries will need to consider the
strategic implications

The Carbon Trust and the China Energy Conservation Investment Corporation
(CECIC) began work on developing carbon labelling in China in July 2008. Initially
an assessment of the carbon footprint of the supply chain of ten Chinese
manufactured products was proposed.

Harmonizing Standards

A Low Carbon Zone could explore opportunities to pilot harmonisation of standards
with the EU in key low carbon sectors, with the aim of facilitating exports to the EU
and stimulating high technology European FDI in Chongqing. For Chongqing,
examples include enhanced vehicles emissions standards (for local sales and
export), fuel quality and energy using products such as air conditioners. Taking such
action would also help meet energy intensity targets and have environmental
benefits (especially improved air quality).

In many countries voluntary and (increasingly) binding targets are considered a key
tool in energy efficiency policy. For example in appliances, building materials;
vehicles and industrial equipment. More details can be found in the Energy,
Buildings and Vehicles and Transport sections of this report.

Experience indicates that the most effective standards are not fixed but are
continually reviewed, taking into account technical and design improvements. This is
the case with the Japanese top runner programme that continually updates its
standards rewarding companies and developers who are producing the most
efficient equipment and systems.

Engaging Chongqing’s manufacturers in the process of setting standards would help
to ensure that manufacturers help shape have an early start on implementation of
the standards, which is likely to increase competitiveness in export markets as well
as increase the sale of higher efficiency goods within China. The EU would need to
facilitate such an approach by allowing access (to companies participating in a LCZ)
to the process of standard setting in key European legislation. For example, it could
invite Chinese firms from the LCZ to participate in EU working groups on
implementation of the Eco-Design Directive64

Chongqing as a Model IP City
Governments can play a key role in providing the right mix of incentives to drive key
technologies down the innovation chain for both developed and developing
countries. Strategies such as the public provision of necessary infrastructure,
subsidized research and priority public procurement are major tools used to
encourage the development of these technologies.

For the proponents of a patents-based innovation system, intellectual property rights
(IPRs) are the bedrock of societal innovation and the propeller of speedy diffusion.
But some developing countries question the basis for the temporary monopolistic

rights accrued to patent-holders, especially when the knowledge or know-how is
essential for promoting public policy goals. Given the early stage of research, and
without appropriate GHG pricing in most of the world, most analysis in this area has
been speculative.

What we do know is that the incentive structure differs along the innovation chain,
and that more than 95% of global R&D takes place in OECD countries. There is also
broad understanding that incentives for innovation and diffusion are often
technology-specific, rendering legislation in general terms impractical. Appropriate
measures and incentives may depend on the context of the technology, including its
market structure, the countries to and from which it is to be transferred and
deployed, and other local considerations. The stage of development is also
important: pre-commercial power generation technologies such as IGCC, for
example, pose different risks and different IPR issues to commercial end-use
technologies seeking wider diffusion.

Weak IP protection certainly slows efforts in diffusion in more advanced developing
countries. Patents can provide powerful financial incentives that shape the incentive
calculus for technological deployment. The interplay between financing and access
to patents is a critical issue for the new entrants – in developed and developing
countries alike. The failure of obtaining the latter, particularly in low-tech products,
reduced the chance of securing finance. Patents also provide powerful signalling
mechanisms of quality by developing country companies seeking investment, or a
trading currency to negotiate cross-licenses.

The need for a pragmatic approach in addressing IPR issues is therefore central to
the long term health of low carbon transition.

Types of Potential Technical Co-operation
There are a range of avenues to increase technical co-operation across key sectors.
These have been established on a multilateral and bilateral governmental basis and
also through business to business activities. They include:

Joint Research and Development programmes: For example in the EU’s Framework
Programme parties from outside the EU are actively engaged in many projects.
Likewise the Japanese and US Government programmes are open to co-operation
with Chinese researchers.

International Energy Agency, Technology Programmes: The IEA hosts a number of
agreement on technology development that encourage co-operation and joint work

plans. Existing areas of work include, fossil fuels, renewables, end use efficiency,
and nuclear fusion.

Asia Pacific Economic Co-operation: Sector specific dialogues have been developed,
including in chemicals, energy and sustainable development.

Technology specific platforms: These bi-lateral and multilateral initiatives engage the
business community and government agencies to develop key technologies. This
has included the GreenGen Project for the development of CCS65.

Multilateral Financing Possibilities
A variety of multilateral funds are available for low carbon projects and sector
initiatives.   These include the Clean Technology Fund: a World Bank hosted fund,
(although jointly managed with regional development banks, including the Asian
Development Bank) but funded through bilateral contributions from individual
countries ($6.1 billion in total).

The fund is intended to support projects in line with the Bali Action Plan although
there has been some discussion of its design and relevance to obligations under

Separate and additional funds are available for adaptation projects, these include:

 GEF               Strategic Priority on Adaptation ($50 million)

                   Special Climate Change Fund ($34 million)

                   Least Developed Country Fund ($180 million

                   Strategic Climate Fund
 World Bank
                   (Pilot Program for Climate Resilience has a target of $0.5-1bn

China hosts more CDM projects than any other country – over one third of the global
total67 – and has a strong interest in the current discussions of possible changes to
CDM beyond 2012.

The chart below shows the geographical spread of CDM projects across China (in
terms of Certified Emissions Reductions (CER)). Chongqing has not been a major
focus for CDM in this context, providing only 2% of Chinese CERs.

Figure 20 : CERs - shares by Chinese provinces


 Share of Chinese AERs





                                                                       S h an

                                                                                            H e'n
                                                                                            H u'n
                                                                                            Ga n
                                                                                            Gu a n
                                                                                            H eb e

                                                                                            Fu jia

                                                                                            A n hu
                                                                                            H ub e
                                                                                            C ho n

                                                                                            J ilin
                                                                                                                              S h an
                                                                                                                                B e ij in

                                                                                                                                J ian g

                                                                                                                                Tia nji
                                                                                                                                H ain
                                                                                                                                Tib et
                               J ian g
                                         Z h e ji
                                                    S ic hu
                                                              S h an

                                                                                Y u nn
                                                                                         In n er
                                                                                                   L ia o

                                                                                            Gu a

                                                                                            H eil o

                                                                                            X inji a
                                                                                            G u iz

                                                                                                                                S h an

                                                                                                                                N in g
                                                                                                                                Qin g
                                                                                                   nin g

                                                                                                   ng x i


                                                                                                    ho u

                                                                                                                                         x ia
                                  a ng

                                                                         d on g

                                                                                                    n g jia

                                                                                                                                         g ha i
                                                       x i1


                                                                                                    g d on

                                                                                                    gq in g

                                                                                                                                          x i3



                                                                                                       M og o

                                                                                                              li a

                                                                                                                              Source: UNFCCC (2009)

Chongqing’s CDM activities focus strongly on small-to-medium hydro – 29 out of 37
projects. There are four projects on municipal solid waste landfill gas energy recovery
and three on recovering waste heat.

Figure 21 : Chongqing – number of CDM projects by type

                                                                                                                 3   1

                                                      Hydro                                                 4
                                                      CH4 Energy
                                                      Waste Heat/Gas
                                                      N2O Emission Reduction


                                                                                                                              Source: UNFCCC (2009)

At least seven countries have invested in CDM projects in Chongqing – all of them
EU Member States with the exception of Japan. The UK has the largest number with
15 registered projects.

Figure 22 : Chongqing – number of CDM projects by country
                                        Chongqing - number of CDM Projects by country


                                                         0               5               10             15             20

                                                                                                                             Source: UNFCCC (2009)

EU bilateral cooperation
At least ten European Member States plus the European Commission have recent or
ongoing projects in China related to sustainable low carbon development.

These fall into a range of categories as shown below. Over 80% of the grants
provided were aimed at improving energy efficiency in industry and developing
renewable energy. There are also significant efforts on energy efficient vehicles and

Figure 23 : Relevant ‘recent and ongoing’ project grants in China from EU
            Member States and EC

                                                     Relevant "recent and ongoing" project grants in China
                                                               from EU Member States and EC
   Total grants - million Euros















































                                                     Source: Chatham House analysis of European Commission data (2008)

The data shown in the chart are almost certainly an underestimate since these are
projects officially recorded as cooperation projects – and a significant number of
projects are not listed in this way. The vast majority of the projects represented in the
data occurred in the last five years.

In Chongqing cooperation often focuses on energy efficiency in buildings. Countries
with current projects in Chongqing include the UK and Denmark. The Chongqing-UK
Memorandum of Understanding on Balanced Urban-Rural Development is another
area of cooperation with importance for low carbon development. This is explored in
the next section.

A low carbon zone might attract a greater range and number of cooperation projects
with the EU and other countries since it would demonstrate a broad commitment to
experimenting with low carbon development models. Active support on the EU side
would also be important.


Conclusions and Recommendations


Chongqing has the opportunity to become a leader in China in the development of a
low carbon economy. This would not only assist in ensuring the city’s influence in
China continues to grow, but would, given its scale and ambition put it contention to
be a global leader for the demonstration and manufacturing of low carbon goods and
services. The challenges that Chongqing will face should not be underestimated, but
on the other hand the prize is considerable.

Chongqing is already innovating with policy across a range of strategic areas, such as
in the Balanced Urban-Rural Development; the implementation of the bonded port;
higher than the national average regulations in key areas of resource efficiency, such
as energy efficiency codes for the building sector; and plans for Chongqing to
become a financial centre in the upper reaches of the Yangtze River.

Yet Chongqing also faces many of the challenges exhibited by many areas in China
and especially those that were early industrial centres. These challenges include
rapid urbanisation and construction; improving the efficiency of heavy industry;
avoiding investment that locks-in unnecessarily high levels of energy consumption;
maintaining energy security of supply; and tackling air and water quality.

In the industrial sector the five pillar industries in Chongqing are: automobile and
motorcycles; equipment manufacturing; chemical engineering of oil and natural gas;
materials industry and electronics. Across all of these, priority could be given to
technologies and practises that can rapidly introduce incremental changes, to reduce
their carbon intensity, while simultaneously developing new high tech sectors and
modern services.

The growth in the global market for green or low carbon technologies has slowed with
the economic downturn, but by much less than that of the traditional energies and
high carbon technologies. Furthermore, many of the economic stimulus packages
around the world, including that of China, prioritised investments that will lead to low
carbon activities, such as railways, energy efficiency in buildings and renewable
energy. Those countries and regions that position themselves to capture the
opportunities that this situation creates will potentially bring huge benefits on the short
and long term.

The building sector also offers Chongqing the opportunity to both reduce its carbon
emissions profile for a generation, but also become a showpiece for low carbon

technology, planning and oversight and regulation. Stricter energy efficiency targets
require new skills and more equipment than are currently available. By moving ahead
of the rest of China in its building efficiency standards Chongqing is already able to
demonstrate leadership.    However, by creating the supply chains to meet these
standards gives Chongqing a clear advantage in manufacturing as the rest of China
also adopts, after 2010, these higher standards.

Appendix: Chongqing Districts with a 65% Energy Efficiency
              Improvement Standard for Buildings

Yuzhong District and Dadukou District – all areas included

Jiangbei District includes Guanyinqiao street, Huaxin street, Dashiba street,
Wulidian street, Shimahe street, Jiangbeicheng street, Cuntan street, and Tangjiatuo

Shapingba District includes Shapingba street, Xiaolongcan street, Yubei street,
Ciqikou street, Tongjiaqiao street, Shijinpo street, Zanjiaxi street, Jinkou street,
Geleshan street, Shandong street, Xinqiao street, Tianxingqiao street, Tuwan street,
Tanjiagang street, Jinkou street , and Geleshan township;

Jiulongpo District covers the executive range including Yangjiaping street,
Xiejiawan street, Shipingba street, Hiangjiaoping street, Zhongliangshan street,
Shiqiaopu street, Yuzhou street, Jiulong township and Huayan township;

Nan’an District covers the executive range including Nanping street, Huayuan
street, Longmenhao street, Haitang street, Tongyuanju street, Danzishi street,
Nanshan street, Nanping township, Tushan township, Jiguanshi township, and
Changshengqiao township;

Beibei District covers the executive range including Chaoyang street, Tiansheng
street,and Beiwenquan street;

Banan District covers the executive range including Lijiatuo street, Yudong street,
Huaxi township, and Nanquan township;

Yubei District covers the executive range including Longxi street, Longshan street,
Longta street, Renhe street, Tiangongdian street, Cuiyun street, Huixin street,
Shuangfengqiao street, Shuanglonghu district, Dazulin street, Yuanyang street, and
Lijia township.


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23     st
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the China Datang Corporation, the China Huadian Corporation, the China Guodian
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