ENERGY POLICY FROM AN ENVIRONMENTAL PERSPECTIVE
(ACE Paper 48/98)
for information
INTRODUCTION
This paper describes the Government's energy policy and how it is being implemented and invites members' views and advice on the policy from an environmental perspective.
GENERAL BACKGROUND
The Government has an economic policy of minimum interference in, and maximum support for, the business sector. Market forces determine allocation of resources; business decisions are left to the private sector; the Government intervenes only when there are over-riding social considerations. This policy has shaped the development of the energy sector, in that it is the private sector that supplies energy of all forms to meet market requirements; there are no regulatory, technical or financial barriers to investment in energy supply; there are no subsidies or exclusive supply rights for any energy supplier; and regulation of the energy sector is relatively light-handed.
In recent years, international concern over global warming and local concern over air quality have resulted in a greater focus on minimising the environmental impact, and maximising the efficiency, of energy production and use. Considerable emphasis is now being placed on development of strategies for sustainable development, involving the balancing of economic, environmental and social considerations, and development of more environmentally friendly forms of energy production. Hong Kong's open market welcomes technology transfer and capital investment in and import of equipment, facilities and services that can contribute to high energy efficiency and sustainable development. Government policies in these areas will exert increasing influence on energy policy and the future development of the energy sector.
ENERGY POLICY
The Government's energy policy, which has been formulated against the above background, is to -
(a) ensure that the energy needs of the community are met reliably, efficiently, safely and at reasonable prices; and
(b) promote the efficient use and conservation of energy and the minimisation of the environmental impact of energy production and use.
MEETING HONG KONG'S ENERGY NEEDS
The policy objective of ensuring that the energy needs of the community are met reliably, efficiently, safely and at reasonable prices (paragraph 4(a) above) involves consideration of security of supply, efficiency of energy production, public safety requirements and the regulatory environment (including competition). The following paragraphs provide a brief review of what is being done in these areas.
Security of supply
Effectively, all of Hong Kong's energy supplies originate from external sources. Energy is either imported directly (oil products and nuclear power from the Mainland), or produced from imported commodities (coal, diesel oil and natural gas for electricity production and naphtha for towngas production). Sources of fuels and energy are well diversified and arrangements are in place to ensure that Hong Kong can expect a secure supply of essential fuels and energy in all but the most exceptional circumstances.
Efficiency of energy production
The Government examines carefully any proposals by energy suppliers to build major new facilities, whether as additional capacity or to replace plant due for retirement, to be satisfied that they are justified by forecast demand and will be efficient in production. We are able to monitor through the scheme of control mechanism the efficiency with which electricity is produced. Hong Kong's power stations and main towngas production plant are efficient facilities of their type.
Public safety
The Electricity Ordinance and the Gas Safety Ordinance regulate the supply and use of electricity and fuel gas in the interests of safety. Experience indicates that the ordinances are serving their respective purposes without compromising the efficiency of the energy sector. As regards nuclear safety, the Secretary for Economic Services and the Secretary for Security serve as Directors of the Hong Kong Nuclear Investment Company, a partner in the joint venture company operating the Daya Bay nuclear power station.
Regulatory environment and competition
(a) Regulation
As the power companies are the sole suppliers of electricity in their respective service areas, we consider it prudent that they should be subject to regulation in the form of profit control and government monitoring of their electricity-related financial affairs, in order to protect the interests of the consumer. The mutually agreed Scheme of Control Agreements (SCAs) with the power companies aim to ensure that -
(a) consumers get a reliable and efficient supply of electricity at a reasonable price and that there is no unjustified expansion of generation, transmission and distribution facilities; and
(b) the companies' shareholders get a reasonable return on their investments and have a reasonable incentive to propose additional investments, subject to government approval, to ensure sufficient supply of electricity to meet demand.
The SCAs strike a reasonable balance between the above objectives, enabling heavier-handed forms of regulation to be avoided. The SCAs expire in 2007-08, but may be modified at interim reviews by mutual agreement. Our policy is to propose such modifications in response to changing circumstances and public views. Among other things, we wish to ensure that there are clear commitments by the companies in the SCAs to environmental protection and energy efficiency and conservation. The current interim reviews of the SCAs are addressing this issue.
In the fuel gas sector, having regard to the dominant position of the towngas supplier, the Government has concluded an Information and Consultation Agreement with the supplier which increases the transparency of their operations, tariff-setting mechanism and the justification for tariff increases. The agreed arrangements include consultation with the Energy Advisory Committee and briefing of the legislature.
(b) Competition
The Government is committed to the promotion of fair trade and competition as the best guarantee of economic efficiency, low prices and consumer protection. We have studied the feasibility of establishing a common carrier gas distribution network, based on the future availability of natural gas, as a means of bringing more competition to the sector. We issued a policy statement in June 1998 indicating that, for environmental reasons, the Government supports the introduction of natural gas as a fuel for power generation and domestic uses and will consider the common carrier concept further once sufficient natural gas is available.
In the light of public sentiment that competition in the electricity supply market should bring about economic and environmental benefits, the Government commissioned a study of the feasibility and potential costs and benefits to consumers of increasing the interconnection between the two power companies and encouraging competition in the electricity supply sector. The study is approaching completion. The study report will be published for public comments and the Government will publish a policy statement in 1999.
PROMOTING EFFICIENT USE OF ENERGY AND MINIMISATION OF ENVIRONMENTAL IMPACT
The policy objective of promoting the efficient use and conservation of energy and the minimisation of the environmental impact of energy production and use (paragraph 4(b) above) includes consideration of efficient use of energy (particularly in commercial buildings), demand side management, control of emissions from power stations and vehicles, development of renewable sources of energy, sustainable development and research into patterns of energy use. The following paragraphs provide a brief review of what is being done in these areas.
Energy efficiency and conservation
There is much potential in Hong Kong for energy, particularly electricity, to be used more efficiently. The Government is actively promoting energy efficiency and conservation in the community through statutory control on the Overall Thermal Transfer Values of new commercial and hotel buildings; progressive introduction of codes of practice for various uses of energy in commercial buildings; and energy efficiency labelling schemes for certain electrical appliances. Experience gained in government's pilot programme indicates that payback periods for energy efficient equipment have been reduced to 4 to 5 years. Installation of such equipment in new buildings and planned renovations is even more attractive. Information on retrofitting existing buildings with energy efficient equipment is being disseminated to the private sector. We are also examining through a consultancy study the potential for wider use of water-cooled air conditioning systems for non-domestic developments. Such systems could produce electricity savings of 20% to 30%.
Demand side management
Effective demand side management (DSM) can reduce peak demand for electricity and longer term growth in demand, enabling the community to postpone or avoid construction of additional generating plant. The power companies are committed to pursuing DSM under the terms of their DSM Agreements with the Government. The companies' first plans for implementation of extensive DSM programmes, and the capacity and energy savings to be expected from them, will be published shortly.
Environmental protection and control of greenhouse gas emissions
It is the Government's policy to contribute effectively to international efforts to stabilise greenhouse gas concentrations in the atmosphere. Power generation accounts for about two-thirds of CO2 emissions, with vehicles, aircraft, vessels, stationary fuel users and waste disposal processes accounting for the rest. In 1996, compared with 1990, Hong Kong's total emissions were reduced by 5.2%, due mainly to the import of electricity from Daya Bay nuclear power station and the use of natural gas by China Light and Power to generate electricity, though emissions from road transport, which contribute only about 10% of our total emissions, increased by about 23% in that period. LPG-fuelled taxis are under trial with a view to their replacing diesel-engined taxis.
As a result of the switch to cleaner fuels for power generation and the emphasis on emission-reducing technologies, we expect our greenhouse gas emissions by the year 2000 to be at about our 1990 levels. Such emissions are however expected to rise substantially beyond our 1990 levels by 2010. The Government has recently commissioned a study to examine control measures and policy instrument in detail to stabilise greenhouse gas emissions into the atmosphere in the longer term. Among others, the progressive switching from coal to natural gas for power generation could make a contribution.
The Government is very concerned about the potential adverse environmental impacts from all sorts of polluting sources. Stringent control requirements have been imposed under various environmental protection legislation to ensure the environmental impacts are minimised. As from April 1998, proposals for new generating capacity must go through a statutory process of environmental impact assessment before they can be approved.
Renewable energy
Hong Kong does not as yet make significant use of renewable resources to meet energy needs. Solar thermal systems using sunlight to heat water directly or indirectly have been installed in nine government premises with a total solar collection area of about 1,700 m2. Pilot schemes are being undertaken with a view to developing other applications for the use of renewable energy. A pilot scheme on a photovoltaic system for lighting is being carried out in the Kowloon Walled City Park. A second pilot scheme on a photovoltaic system provides power to the equipment in the Tai Mo Shan radar station. A research project at the University of Hong Kong is investigating the application of a combined photovoltaic and building fabric system. China Light and Power have installed equipment to collect wind data with a view to examining the feasibility of applying wind energy technology for electricity generation in Hong Kong. The Government is planning to build waste-to-energy facilities and maximising the use of landfill gas for power generation. These projects and pilot studies are a useful start, but there is clearly scope for more research to be done into the feasibility and potential application of renewable energy resources in Hong Kong.
Sustainable development
A major consultancy study on Sustainable Development for the 21st Century (SUSDEV21) is under way. Initially, the study will define what sustainable development should mean for Hong Kong and develop guiding values, indicators and criteria for decision-making on the sustainability of future development in the context of the economic, social and environmental objectives of the community. The outcome of the study might have considerable implications for energy policy, energy suppliers and energy consumers in Hong Kong.
Energy end-use database
Formulation of an energy end-use database is nearing completion. The main objective of the database is to provide the Government with the information base and analytical tools for evaluating the costs, benefits and likely impacts of alternative policies. The database will comprise a set of aggregate energy end-use statistics classified into the four energy sectors in Hong Kong, namely residential, commercial, industrial and transport. The statistics are further divided into segments (e.g. private housing under residential sector), end uses (e.g. cooking under private housing) and the different technologies employed (e.g. rice cookers under cooking).
Typical applications include identification of areas representing the best opportunities for improving energy productivity in Hong Kong; establishment of energy intensities for benchmarking and international comparisons; estimation of potential for savings from energy efficiency; assessment of the impact of transportation and environmental policies upon Hong Kong's energy consumption; tracking of the trend in energy consumption and intensity over time; and evaluation of cost-effectiveness of energy efficiency programmes and policies. In the long term, the database will enable the Government to monitor and oversee developments in various energy sectors and achieve more effective strategic planning.
ADVICE SOUGHT
While the Government places great emphasis on the environmental side of energy policy, it is clear that this is a developing field and that there is scope for further policy consideration of alternative approaches to energy production and use. Accordingly, members are invited to consider the existing energy policy and give their views on it from an environmental perspective. Members are also invited to advise on areas for further attention by the Government and their relative priority from an environmental point of view.
Economic Services Bureau
November 1998
