06 April 2010

Questions About China's 2010 Energy Intensity Target

[UPDATE 4/7: Michael Levi at the Council of Foreign Relations weighs in here.]

Stephen Howes, an economist at the Australian National University, has taken a look at data related to China's 2010 energy intensity target and raises some questions:
. . . while there is some uncertainty, the published data suggest that China is well off-track from meeting its 2010 target.
His analysis is as follows:

A recent China Daily article reported Premier Wen Jiabao as saying that China’s energy intensity had fallen by 14.38 per cent between 2005 and 2009, which would put the country on track to come close to if not hit its 20 per cent target with a year still to go.

The published data, however, seem to tell a different story. The National Statistical Bureau’s recently released 2009 Statistical Communique puts energy consumption for 2009 at 3.10 billion tons of standard coal equivalent up from 2.25 billion in 2005 (from China’s 2008 Statistical Yearbook). That’s growth of 37.97 per cent. The same 2009 Communique gives GDP growth for 2009 and 2008 at 9.6 per cent and 8.7 per cent respectively, and the previous year’s 2008 Communique gives 2007 and 2006 GDP growth at 13 per cent and 11.6 per cent. These annual figures give cumulative GDP growth of 50.24 per cent from 2005 to 2009.

So GDP grew 12.27 percentage points faster than energy between 2005 and 2009. The reduction in energy intensity is equal to this difference divided by 1 plus GDP growth, which, after rounding, is 8.2 per cent. This implies that China is less than half way towards its 2010 target with only one year out of five to go.

2009 was always going to be a difficult year because of the fiscal stimulus and all-out effort for growth. The 2009 Statistical Communique reports that energy intensity fell in 2009 by only 2.2 per cent. But the record for 2005-2008 doesn’t look too good either, with a cumulative reduction in energy intensity over these three years of only 6 per cent, much lower than earlier estimates.

Frequent readers may recall a similar analysis that I did (here and here), leading to similar questions. The graph at the top of this post, which is based on BP and IMF data, is discussed here.


David Stern said...

Yes, I don't know how they could reconcile the two numbers...

Ian Castles said...

In his speech at Copenhagen on 19 December, Premier Wen Jiaboa said that by the end of the first half of 2009, “China’s energy consumption per unit of GDP had dropped by 13% from the 2005 level...” This was consistent with data given in the National Development and Reform Commission (NDRC) Report “China’s Policy and Actions for Addressing Climate Change – The Progress Report 2009” (November 2009) and implied that China was on track to meet the 20% energy intensity reduction objective.

Elsewhere in the NDRC report, the Commission noted the progress it had made in monitoring enterprises’ energy conservation targets:

“The NDRC organized the performance assessment of 1000 enterprises in fulfilling the annual energy conservation targets of 2007 and 2008, and published the results for social supervision. Judging from these results, the 1000 enterprises have accomplished their energy conservation targets for the 11th Five-Year Plan two years ahead of schedule, and the NDRC together with relevant departments also organized special supervision and inspection activities for energy conservation and pollution reduction, so as to supervise the regions that had failed to reach their objectives.”

With respect to the GDP data in the National Bureau of Statistics’ Statistical Communique of 25 February 2010, it is notable that all of the key numbers - the nominal value of GDP; the distribution of value added as between the primary, secondary and tertiary sectors; and the real rates of growth for each quarter of 2009 and for 2009 as a whole - were identical to those released by the NBS at a press conference on 21 January. No amendments had been made in the light of new or corrected information that had become available between three and eight weeks after the end of the reference period. National statistical agencies in OECD countries cannot produce reliable quarterly estimates three weeks after the quarter concerned.

Another peculiar feature of the official Chinese national accounts estimates for 2009 emerged when the GDPs of the China’s provinces were released on 26 February (“GDP of 31 provinces in China released”). The sentence immediately above the table said that “Despite experiencing a nationwide slide, China’s gross domestic product (GDP) still rose 8.7 per cent year-on-year in 2009 to reach 33.53 trillion yen.” But the total GDP of the 31 provinces, which was not shown explicitly, was some 8% greater, at 36.22 trillion yen – and the real increase of the total of the 31 provinces compared with 2008, which is not revealed but is derivable from the growth rates for each of the provinces, comes to 11.6%, not 8.7%. The reported GDP estimate for China as a whole was far less than the sum of the parts, and the growth rate for the country was far less than the consolidated growth rate of the provinces.

Ian Castles said...

Michael Levi speculates that the Chinese Premier's statement may be based on a calculation by which nominal GDP is deflated by the CPI (i.e., prices of consumer goods and services), rather than the prices of goods and services making up GDP as a whole. I doubt this, but such a procedure would in any case be illegitimate.

In 2005, individual consumption expenditure by households in China amounted to only 38.0% of China's GDP. The corresponding proportion for the US was 70.4%. Conversely, expenditure on gross fixed capital formation was 41.5% in China and only 19.2% in the US (all data from World Bank, 2005 International Comparison Program, Tables of Final Results, 2008, Table 11).

Emissions per unit of expenditure on capital formation would of course be far greater than emissions per unit of expenditure on consumption in both countries. It would be entirely wrong to deflate GDP by a consumer price measure if the purpose is to measure emissions intensity.

David CT said...

If China's energy intensity reduction were calculated by deflating GDP by the CPI deflator rather than the GDP deflator, as Michael Levi suggests, then the implied reduction would actually be 14.8% over the period, not 14.2% as Levi initially argued.
It’s certainly not impossible, but at least slightly less probable, that the statistic cited by Wen Jiabao would *understate* China’s progress in reducing energy intensity so far. The reduction calculated based on a CPI-adjusted GDP is actually even stronger than what Wen officially announced. This leads me to believe that either (a) Levi's hypothesis is incorrect and Chinese statisticians were *not* using CPI here; or (b) the picture is more complicated than we may have initially assumed.

Ian Castles said...

It can't be assumed that the GDP volume measure implicit in the energy intensity number announced by the Premier was derived by applying a price deflator(s) to the current-price GDP series.

A "China Daily" report on 28 February ("China mulls unified GDP calculation: NDRC") refers to "different accounting reference, calculating methods and standards adopted by the national and local statistics departments", and notes that to close the gap there is "already a system of monthly sample investigation on service industry including wholesales, retail trade, accommodation and catering." The report also says that other measures used to assess the local data include "means of taxation, power consumption and turnover of commodities."

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