Restoring Blue Skies:
Review of the Policy Agenda on Air Pollution
Hong Kong General Chamber of Commerce

April 2008

(Full Paper)

Synopsis of ideas and recommendations

One: Global citizenship
Two: Cooperation with the Mainland
Three: Energy policy

21.   The government¡¦s energy policy objective is ¡§To ensure the public can enjoy reliable, safe and efficient energy supplies at reasonable prices, and to minimize the environment impact caused by the production and use of energy¡¨.  The statement itself shows how inseparable energy is from the environment, and likewise, energy policy from environmental policy. 

22.   From the environmental point of view, we fully support stringent emission requirements for power plants.  At the same time, Hong Kong needs a clear and effective energy policy that ensures that the territory continues to be supplied with the energy that we need with full regard to reliability, quality, social values and affordability, now and for the long term.

23.   Now that environment and energy both come under the responsibility of the same policy bureau, there is an opportunity to re-formulate our energy policy so that it meets both energy and environmental objectives concurrently.  In addition to a statement of aspiration, the energy policy should be truly comprehensive with clear philosophy and principles, e.g. an integrated approach across sectors; influencing energy choice at the production or consumption level; promoting efficiency, etc., as well as explicit goals and objectives.  In this paper we would like to put forward three policy aspects which should be addressed by such an energy policy, namely, clean fuel, energy conservation, and cross-border relations.

24.   The demand for clean energy means we have to contend with the reality that all fuel-generated energy gives out emissions. Large scale renewable energy is not a practical option for Hong Kong , given our high population density and scarcity of land.  This does not mean we give up on developing renewable energy ¡V we support setting ambitious targets and Hong Kong¡¦s geography does favour the development of some wind power and photovoltaic systems in certain locations; but we recognize that conventional combustion-generated electricity will remain the mainstay of Hong Kong ¡¦s energy supply.  The key question for a ¡§clean¡¨ energy policy thus lies in the right fuel mix and emission control.

25.   Currently, Hong Kong maintains a balanced fuel mix including coal, natural gas and nuclear energy, to ensure supply reliability.  The need for energy security requires that the fuel mix remain diversified.   The more specific question is how far the more polluting fuel, namely coal, should be retained in the fuel supply for Hong Kong .  Should we switch completely to natural gas and nuclear energy?

26.   If this is put in the global context, demand for energy continues to be strong for major developing nations like China and India .  In Mainland China , electricity demand for the next 15 years is expected to grow by 6% per annum, as compared to 2.6% for the world as a whole.  By 2030 energy consumption is expected to increase by 164% in India , and 100% in China , over today¡¦s levels.  However, like the advanced countries before them, coal is likely to remain the dominant fuel for electricity for both China and India , given that they have limited reserves of oil and natural gas, and in any case global demand for the cleaner fuels is going to be increasingly competitive.

27.     Given this reality and the need for fuel diversity, it seems coal will still remain part of Hong Kong ¡¦s fuel mix, at least in the medium term.  Instead of giving up coal altogether, there should be renewed investments to reduce emissions from coal-fired generation plants such as flue gas desulphurization facilities (to reduce SO2 emissions) and selective catalytic reduction plants (NOx emissions).  For the longer term, to facilitate increasing use of natural gas, a reliable and sustainable supply of liquefied natural gas must be secured. (14)

28.   The second issue on energy policy has to do with the demand side, how to reduce energy by end users.  From 1990, Hong Kong ¡¦s population has increased by more than 20% (1.2 million), vehicle number has increased by almost 50% (by 200,000 vehicles), GDP by 78%, and electricity consumption by 65%.  The increase in energy consumption, though less than GDP, has been much greater than population increase.  Put simply, every citizen is using more energy than before.  The most effective way of reducing emissions is thus for every one to use less electricity. 

29.   In terms of electricity generation, the new Scheme of Control Agreements between the government and the power companies have incorporated incentives for renewables and energy efficiency, which should be recognized.  Elsewhere in this paper below, we have made some suggestions on demand side management.  From the point of view of energy policy, we believe it important for the government to adopt the right regulatory approach to tariffs.  Government¡¦s current approach is to regulate and limit the power company¡¦s profits, and to return the gains on efficiency to the public in the form of lower tariffs.  While we agree with the policy intention, we have doubts over whether tariff reduction is the best means of returning the benefits to the public.  If tariffs were to be a regulatory tool, it should be employed not just to contain the power company¡¦s profits, but also to encourage energy conservation by end users.  Indeed, a drive to lower tariffs is inherently conflicting with the objective to conserve energy.  Within the confines of affordability, therefore, tariffs should be higher, not lower, in order to induce energy conservation.  We are reminded of the situation of the cross-harbour tunnel: when the franchise expired, the government did the right thing by not reducing the fee to ¡§return the benefits to consumers¡¨, but instead collected the same fee both to regulate traffic and to contribute to general revenue.

30.     This raises the issue of a possible ¡§energy tax¡¨, on which the Chamber does not yet have a set view.  In principle the Chamber is skeptical of any changes to our current tax regime; on the other hand we have not ruled out simple, specific and well-designed charges for environmental purposes, and have indeed supported the sewage charge, landfill charge and plastic bags levy. (15)

31.     The third issue in energy policy is the cross border dimension.  Here we reiterate the suggestion earlier in this paper that the emission trading scheme with the Mainland be developed further and consideration given to a local trading scheme for green house gas emissions.  The HKSAR government and the Guangdong government should jointly establish an emissions monitoring system as a matter of priority, so as to establish the capacity limits on emissions and to enable regulation of the trading scheme and subsequent target setting.  For the long term, our energy policy should also address the question of regional integration, tackling subjects such as possible opening of the energy market in Hong Kong to competition and liberalization of the utilities sector in the Mainland. (16)

Four: Demand-side Management
Five: Infrastructure and urban planning
Six: Sustainable transport
Seven: Green procurement
Eight: Pollution tracking
Nine: Transparency and reporting
Ten: Building human capital for sustainability

The Way Forward

(Full Paper)