China's Office of the National Energy Leading Group
(ONELG) recently released its fifth draft Energy Law for public
comment. The new law reveals key insights into the issues that
the Chinese Government will, in the coming years, place at the
top of its policy agenda concerning cleaner energy
The draft law specifically requires Chinese oil companies to
build up their own Government-managed reserves to supplement
existing reserves. China's state-owned oil producers
have been irritated by the proposed measures because the costs
of building up the required reserves will be borne by the oil
The balance sheets of China's oil refiners have
already been hit by the nation's state-mandated price
ceilings on refined oil. The ceilings are well below the market
price of crude oil, which China's refiners have to
purchase as inputs.
The Government will continue to control the ultimate price
of energy. ONELG has explained that energy pricing should
reflect "the scarcity of resources and the cost of damage
to the environment".
In November 2007, the Chinese Government raised the retail
prices of petrol, diesel oil and aviation kerosene by around
ten per cent to encourage refiners to release more product to
ease a wave of nation-wide fuel shortages.
The draft law establishes a new energy department under the
direct control of the State Council (China's cabinet)
to oversee relevant industries. The department would not have
ministry-level status, but it is expected that it would unify
the management of the country's energy industry, with
smaller independent departments to be established for
overseeing specific sectors.
The proposed new department is expected to exercise stronger
control over market entry and pricing than the energy division
that is now part of the National Development and Reform
Commission. ONELG recently announced the establishment of an
expert-led advisory commission that will assist with
energy-related policies, planning and other energy issues.
The draft law makes little mention of specific measures for
tackling climate change. However, it does call for China to
adjust its energy use to help protect the environment.
The draft also suggests that, among other penalties,
enterprises that over-exploit energy resources would face a
fine of up to five times their illegal gains.
Peter Corne, Managing Director of Eversheds'
Shanghai office commented: "The draft Energy Law is
another significant step in China's progress towards
cleaner energy production. Whilst it lacks detail on how China
will uphold its commitment to raise energy efficiency and
reduce carbon emissions, it lays down a useful basis for
further developments in this area."
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