Draft energy law to boost strategic oil reserves
Dec 5th, 2007 by Julian
A draft of China’s first comprehensive energy law has been released for public comment. The law sets out broad principles, leaving detailed regulations to be promulgated by the relevant government agencies at a later date. The draft law still provides telling tidbits of what to expect.
As expected, the law contains provisions on the promotion of clean an renewable energy and energy efficiency.
Boosting Reserves
Another key feature of the draft law is energy security—In addition to the government-managed strategic oil reserves, Chinese oil companies are required to build additional reserves on top of their existing corporate reserves as a supplement and to serve as an cushion against unexpected shortages. Needless to say, this proposal has the oil industry up in arms (subscription required), as the costs of building such reserves will be borne by the companies.
China wants to stock up
Oil refiners are already bleeding money because of state-mandated price ceilings on refined oil which are currently significantly below the price of crude oil, which the oil refiners have to purchase as inputs. The new law would allow for the markets to be the “leading factor” in setting energy proces, but the government will still be in charge of setting the prices. (For a critique on such price controls, read this interesting article…this is surely the first time I am in general agreement with someone from the Cato Institute!) And with increased oil hoarding to increase Chinese oil imports, expect pressures on the global oil price to increase, thereby exacerbating the woes of the Chinese oil refiners.
Still No Ministry?
The law also creates an energy department directly controlled by the State Council or the Cabinet. While falling short of minsitry-level status, it is hoped that such a department will address the concerns of critics who have lamented the lack of a centralized government body overseeing and coordinating the various energy policies of the country.
Taking It to the Villages
The government is also committed to further its rural energy plan. The law makes overtures to extending the electricity grid to, and promoting the use of renewable energy in, the rural areas.
Public comments on the law are being solicited until February 1, 2008. The law is expected to take effect no sooner than 2009.
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