Over the past 30 years, China’s burgeoning demand for energy has created significant challenges for its energy security and sustainable development. Due to its substantial industrial sector, growing middle class, rising manufacturing and export of energy-intensive goods, and seemingly non-stop construction, China uses more energy than any other nation on Earth. In response, policy leaders in China have made energy efficiency a top priority for the country.
In 2004, China enlisted the help of the International Finance Corporation to create a new private-sector based finance initiative for energy efficiency, known as the China Utility-Based Energy Efficiency (CHUEE) program. CHUEE promotes energy efficiency in two major ways. First, it provides a risk-sharing facility through partial credit guarantees to local banks for qualified energy efficiency loans. Second, it provides technical assistance to relevant stakeholders, including banks, energy service companies and end-users.
The risk-sharing facility of CHUEE guarantees commercial banks for green loans to energy service companies and end-users. These loans cover efficiency projects such as power generation from gas and heat recovery, biogas production from waste, and the optimization of various industrial processes. Through the first two phases of the program (running through 2015) the International Finance Corporation committed USD 207 million for the risk-sharing facility, which was leveraged by a USD 16.5 million grant from the Global Environment Facility to cover initial losses from defaults.
By the end of 2011, CHUEE had helped finance over 160 projects throughout China, resulting in approximately USD 700 million in loans for energy efficiency investments and leading to greenhouse gas reductions of about 18 million tons CO2-equivilent per year, far surpassing its target of 13.6 million tons of CO2-equivilent by 2015. Due to its success, CHUEE has been recognized as a valuable program to help private banks develop the institutional capacity for energy efficiency lending, and has been replicated in other nations.
Risk-sharing mechanisms like CHUEE are valuable tools for overcoming financial barriers that can roadblock the energy efficiency sector, but are not the only pathway for countries to reduce energy intensity. Other countries in Asia are taking innovative approaches to improving efficiency in their industrial sectors as well. For instance, India implemented a market-based mechanism known as the Perform, Achieve, and Trade (PAT) scheme to facilitate industrial investment in energy efficiency through trading energy savings certificates. Also, Thailand established a special fund to provide concessional loans and other supports to banks that made loans for energy efficiency projects.
This blog entry is part of a series that highlights successful climate change mitigation actions around the world, as described in The Road to NAMAs. CCAP hopes that by sharing these success stories, developing countries will see policies or programs that could aid in the development of NAMAs.