China is the world's largest producer and consumer of coal, using over 2 billion tons in 2008. Much of this coal is used to generate electricity for China’s power sector, which is the fastest growing energy sector in the world.

At current rates of growth, China's power sector alone will account for an estimated 16 percent of the increase in global energy demand to 2020. Furthermore, if development in China continues unchanged, China will contribute an estimated 38 percent of total global CO₂ emissions growth over the next fifteen years.

Within this context, the implementation of widespread energy efficiency represents an immense opportunity. Through the effective support and implementation of energy efficiency, much of China's growing demand for electricity can be offset, resulting in the construction of fewer coal-fired power plants.

Energy efficiency allows factories to increase their output, and residential consumers to improve their standard of living, while reducing their electricity use and greenhouse gas emissions. For over 30 years, places like California have successfully developed and implemented comprehensive energy efficiency plans that have cut electricity demand while improving the economy. These programs have enabled California to keep its per capita energy use flat since 1975 while U.S. per capita energy consumption has grown by 50 percent.

China has already set an ambitious national target of improving its energy intensity (energy use per unit of GDP) by 20 percent by 2010, but major barriers exist to achieving this goal. The McKinsey report explained these market barriers in detail.

For example, the Report notes that:

Market forces alone will not capture the substantial potential for higher energy productivity and lower energy demand growth. Global energy markets are rife with market inefficiencies and distortions. Consumers lack the information and capital needed to improve energy productivity...

The Report goes on to say that:

If policy makers want to raise energy productivity and be successful in shifting global energy demand from its rapid current trajectory, they have the option of implementing a range of targeted policies to remove these market barriers.

The role of the China-U.S. Energy Efficiency Alliance (the Alliance) is to help China develop and implement targeted policies to overcome market barriers to energy efficiency. By leveraging the tremendous American knowledge base in energy efficiency planning, design, engineering, monitoring and verification, the Alliance is forging partnerships between the U.S. and China that are laying the foundation for China’s energy efficient and carbon conscious future.

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Energy efficiency presents a great opportunity for foreign companies interested in operating in China. While the Chinese government has set extremely ambitious targets for energy efficiency and clean energy, there is a real lack of capacity to achieve these targets. This opens up enormous opportunities for U.S. companies offering energy efficiency services or technologies.

The Alliance is playing a key role in working with the Chinese government at the national, provincial and municipal levels to help identify appropriate policies, and develop and implement energy efficiency programs. For example, the Alliance is currently working with the province of Jiangsu to design a comprehensive Demand Side Management program that is borrowing from best practices in the U.S. and developing a program specific to the province’s needs.

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Energy efficiency represents one of the single greatest opportunities for environmental protection in China. Reducing the need to produce electricity, which in China comes primarily from coal fired power plants, will significantly reduce air and water pollution associated with burning coal.

For example, mercury from Chinese power plants is contaminating U.S. fish and soils. At least 40 percent of the mercury in U.S soil comes from Asia, predominantly China. Working with China to plan and implement energy efficiency programs will therefore protect US and global resources as well as China’s fragile environment.

One of the reasons energy efficiency is such an important solution is because of China’s inefficient use of energy and raw materials. China’s energy consumption per unit of GDP in 2003 was 11.5 times that of Japan, 4.3 times more than the US, and nearly 4 times the world average. Thus, there is enormous opportunity to reduce the amount of energy and materials consumed.

By supporting the Chinese government’s efforts to incorporate energy efficiency into all sectors of the economy, the Alliance is addressing resource scarcity and environmental protection issues that are relevant in San Francisco as well as Beijing.

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