Energy efficiency and conservation in China's manufacturing industry

Highlights

• We test the relationship between CMI's energy consumption and its three explanatory variables.

• We use scenario analysis to predict the future energy consumption of CMI.

• Policy suggestions are made based on China's Five Year Plan and it is practical.

Abstract

China's energy conservation has received extensive attention. As the most important sector of the economy, the manufacturing industry plays a vital role in China's energy issues. Conserving energy in China's manufacturing industry (CMI) is of great significance for both China and the world. In this paper, the co-integration method is applied to test the long-term equilibrium relationship among energy consumption and three explanatory variables during the period 1980–2013. Furthermore, we use scenarios analysis method to forecast the energy demand of CMI. The results show that if the government does not properly manage the economy, the energy demand of CMI will reach 2558.97 Mtce in 2020 and 2594.18 Mtce in 2030. On the contrary, if the government attaches importance to energy conservation and takes necessary actions, energy demand in the industry will reduce to 1113.79 Mtce by 2030, which implies a large energy conservation potential for CMI.

Introduction

The manufacturing industry plays an important role in China's economy. It supports both economic and social developments and also influences every aspect of people's life. Whether the manufacturing industry can be upgraded successfully is vital to China's economic transformation and industrial restructuring. In the past 20 years, especially after 2001 when China entered the WTO, the manufacturing industry (CMI) has been developing at a remarkable rate. China is widely regarded as the global manufacturing workshop. The manufacturing industry has become the largest employer of labor. On one hand, the industry is the engine of China's economy. On the other hand, it accounts for nearly one third of China's total energy consumption and plays a significant role in China's energy problem.

As shown in Fig. 1, from 2004 to 2013, industrial added value of CMI accounted for about one third of China's GDP. In 2013, the energy consumption of CMI accounted for 82.1% of the energy consumption of the secondary industry and 53.3% of the whole country. Therefore, as an energy-intensive and important sector of the economy, whether the manufacturing industry can be upgraded with low-carbon technologies is of great significance to China's future economic growth.

From Fig. 2, the proportion of China's primary energy consumption in the global total increases annually. What's more, the increment in the proportion of China's primary energy consumption from 2005 to 2013¹ was more than 50%. Half of the increment in global energy consumption emanates from China. Obviously, solving China's energy problem can bring worldwide benefits including the mitigation of global environmental deterioration. As the major energy consumer in China, the manufacturing industry will have a positive influence on global climate change through energy conservation and CO₂ reduction. Fig. 3 shows the importance of the energy consumption of CMI. In 2010, the total energy consumption of Japan, United Kingdom, Germany and France are 713.00 Mtce,² 289.30 Mtce, 467.69 Mtce and 373.09 Mtce, respectively, accounting for 37.83%, 15.35%, 24.81% and 19.79% of the energy consumption of CMI (1884.98 Mtce). In 2013, the energy consumption of CMI (2390.5 Mtce) exceeded the total energy consumption of the four countries (1738 Mtce). This is evidence that the energy consumption of CMI is large by measure of absolute quantity. Therefore, it plays a significant role in achieving global energy conservation and mitigating global energy problems. Conducting a research on the energy conservation potential of CMI is essential.

Energy issues in CMI are so important that there is need to study the factors that influence its consumption as well as the degree of the influence. China's economy is currently in a “new normal” period, characterized by a relatively low economic growth rate. It is meaningful and imperative to know how changes in economic reality influence the (future) energy consumption of CMI. First, it will provide useful policy suggestions on the energy consumption of CMI and also help to improve its productivity and competitiveness. Moreover, it provides useful suggestions on how to develop under a relatively low economic growth rate, with specific references to developing countries.

The rest of this paper is organized as follows: Section 2 provides a literature review on the energy demand and conservation potential of CMI, and also highlights the innovation of our research. Section 3 describes the framework of our empirical methods. In addition, we explain the choice of the relevant parameters in our model and the source of the data. Section 4 reports the numerical results. In section 5, we discuss energy potential under different scenarios. In the last part, we provide the conclusion and policy implications.