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Author: Candy Au, Antonio Da Roza

Originally: Bill Barron, Simon Ng Ka Wing and Ben Lin Chu-bin (published by Civic Exchange) Civic Exchange logo

Date: 9/8/10

Originally: March 2006


Hong Kong is the largest source of outside investment in Guangdong’s manufacturing with more than 53,000 plants there in 2003.


Over the past decade, manufacturing in Guangdong has grown rapidly but the infrastructure for energy supplies has failed to keep pace. Local grids are not well interconnected and so supply is highly localized. In some cases power is directed to preferred customers (with long established factories) that leads to lack of supply of official fuel. As a result, the gap in supply relative to demand for particular types of fuel tends to be filled by local private refineries that provide fuel of lower quality.


Cost and availability encourages the use of fuel oil with higher sulphur content. For many firms, energy is a small enough part of their operating budget a they can absorb a moderate price penalty for cleaner fuel if necessary.


Sources of air pollution in Guangdong include inefficient coal-fired power plants lacking effective emissions controls, growing vehicle fleets, heavy industry and the manufacturing sector.


In 2003, manufacturing in Guangdong consumed 205 PJ of fuel oil and 152 PJ of diesel fuel. This was 78% as much fuel oil as used for public power generation, and 90% as much diesel fuel as consumed by transport. Manufacturing is also responsible for three fourths of all coal (highly polluting) used in Guangdong.


Until cleaner fuels become much more readily available in Guangdong, Hong Kong’s manufacturing in the province should focus on energy efficiency improvements and conservation.


In 2003 China became the third largest oil importer in the world (after the United States and Japan) and has become the second largest oil consumer (after the United States). Suppliers and traders believe that as much as 40% of the oil products in Guangdong today come from non-official sources (small local private refineries). Many factories self-generate power but this is more costly than getting power from the grid – self-generation provides backup during power shortages and greater control over production.


Oil imports offer the potential to reduce pollution by sourcing higher grades. However, while importers must pay international prices, the state control on fuel prices have not allowed the costs to be reflected in the prices paid by consumers. Voluntary measures alone are unlikely to create a substantial demand for higher priced cleaner fuels.

Problems

First, coal will remain the major source of power generation and a major industrial fuel in Guangdong. Secondly, those sub-sectors relying on coal or heavy fuel oil are likely to continue to self-generate their own power because it is cheaper. Thirdly, the constraints on public power supply are not only ones in generation, but in some case of transmission line capacity. Fourth, to initiate a widespread clean up, higher quality fuels must be readily available. This is unlikely until price controls are eased. Higher energy prices are providing an incentive for manufactures to switch to cheaper dirtier fuels. There needs to be enforced stringent environmental mandates on manufacturing, but given our experience, we see little hope in voluntary measures beyond token feel good initiatives. Finally, we must reduce manufacturing emissions before we face the effects of high manufacturing emissions combined with emissions from an exponentially expanded Guangdong motor vehicle fleet.

Recommendations

The Hong Kong government should be explicit in stating that Hong Kong has a direct interest in Guangdong’s fuel sector. The Government should work with Hong Kong-owned manufacturing establishments in China, and raise awareness among members of business associations in both Hong Kong and the Pearl River Delta region about responsibility to reduce imports of air pollution.

Endnote

http://www.civic-exchange.org/eng/upload/files/200603_ResposibilityPearlRiver.pdf - last accessed 9/8/10

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