Provisional Measures on the Assessment and Examination of Energy Conservation of Fixed Asset Investment Projects

Issuing Body: National Development and Reform Commission
Issuing Date: September 17, 2010
Effective Date: November 1, 2010

The National Development and Reform Commission (NDRC), which oversees investments in fixed assets made by government and enterprises in China —including foreign-invested enterprises—has issued a broadly worded piece of legislation that provides the framework for assuring that fixed asset investments conserve energy, limit pollution, and otherwise conform to the country's energy and environmental goals. Released by NDRC on September 17, 2010, and effective November 1, the Provisional Measures on the Assessment and Examination of Energy Conservation of Fixed Asset Investment Projects (Fixed Asset Conservation Measures) are designed to curb excessive energy consumption and increase the efficiency of energy use across China.

NDRC examines and reviews proposed fixed asset investments from various perspectives, such as the safeguarding of economic security, environmental protection, reasonable exploitation of resources, and the public interest. Its oversight encompasses myriad important sectors of the Chinese economy, including natural resources, transportation, machinery manufacturing, infrastructure construction, and technology.

General Provisions

The Fixed Asset Conservation Measures require enterprises, governments, and government agencies contemplating an investment in fixed assets to conduct an assessment of energy conservation before applying for approval of the proposed investment. The measures also require NDRC offices to examine the energy conservation assessment reports before making decisions on proposed investments.

All fixed assets investments are subject to energy conservation assessment and examination. Investment projects that have not been properly analyzed, or that fail to meet energy conservation guidelines, may not be constructed or operated.

Assessment of Energy Conservation

In accordance with the Fixed Asset Conservation Measures, enterprises and governments must analyze and assess whether the proposed investment is based on sound scientific principles and is reasonable in light of relevant rules, regulations, and standards governing energy conservation. Enterprises and agencies are required to provide a written record of their assessment as a report or by completing a registration form assessing energy use and conservation. The written format varies depending on the proposed investment's estimated energy consumption.

For projects large enough to require a written assessment report (rather than simply a registration form), the Fixed Asset Conservation Measures require those seeking to invest in fixed assets to engage a "capable institution" to draft and issue the assessment report. Since the measures do not say what constitutes a "capable institution," such details will need to be defined by additional regulations. For investments that simply require a registration form of energy conservation, the would-be investor may complete the form.

An energy conservation assessment report should include the following:

• The basis of the assessment;
• An overview of the investment;
• An assessment of the supply of energy;
• An assessment of energy conservation;
• An assessment of energy efficiency;
• An assessment of energy conservation measures;
• Existing problems and solutions; and
• Conclusions.

Examination of Energy Conservation

NDRC and its local offices ("examination authorities") are responsible for examining energy conservation reports. NDRC is responsible for the examination of investments subject to NDRC or State Council approval; local NDRC offices are responsible for other projects.

The Fixed Asset Conservation Measures direct NDRC and its local offices to entrust a "relevant institution" to examine energy conservation assessment documents and formulate evaluation opinions within the time limit prescribed by NDRC or its local offices. Such evaluation opinions provide the fundamental basis for NDRC's energy conservation examination. Again, however, the measures remain silent about what constitutes a "relevant institution"—presumably, an engineering firm, research institution, or consulting firm.

The Fixed Asset Conservation Measures say NDRC and its local counterparts should conduct their energy conservation examination from the following perspectives:

• Assure that there has been an accurate application of laws, regulations, standards, and policies in the energy conservation assessment.
• The energy conservation assessment document meets content requirements.
• The assessment contains an objective and precise analysis of energy consumption, based on scientific approaches, and has correct conclusions.
• There are reasonable and enforceable solutions that meet energy conservation measures.

NDRC and its local offices are required to formulate their examination opinions of energy conservation within five to 15 working days after the receipt of assessment documents. The examination opinions should be issued together with approval documents for the proposed investments (if the investment is approved).

Conclusions

Even though the Fixed Asset Conservation Measures are generally and broadly worded, they signal the formal enforcement of a system of energy conservation assessment and examination for fixed asset investments nationwide. To some extent, this legislation merely provides structure for what is already happening, as China's four provincial-level municipalities (Beijing, Shanghai, Tianjin and Chongqing) and provinces have already issued rules concerning energy conservation and examination of fixed asset investments on a trial basis. From a broad perspective, these existing municipal and provincial rules generally conform to the Fixed Asset Conservation Measures. The NDRC rules, however, additionally specify the contents that must be included in an energy conservation assessment report, outline the aspects from which an examination should be made by NDRC offices, and add provisions relating to non-compliance, including the possible revocation of already-granted approval as well as orders to cease construction, manufacturing, or the use of unapproved fixed asset investments.

Provincial NDRC offices that have already issued guidelines are expected to revise existing rules in order to comply fully with the NDRC measures. Other provincial NDRC offices are expected to issue detailed implementing rules for enforcement. The rules likely will not vary to a great extent from province to province, though enforcement may. In any event, the Fixed Asset Conservation Measures certainly impose additional regulatory burdens on enterprises proposing to make fixed asset investments in China.