Dual Control of Energy Consumption in China

Evolution and Optimizations

Abstract

This paper examines the evolution and optimizations of China’s dual control system for  energy consumption, a pivotal policy framework implemented to address the country’s growing energy intensity and environmental challenges. As the world’s largest energy producer and consumer with a coal-reliant energy structure, China faced unprecedented energy consumption growth between 2002-2005, prompting a fundamental shift in energy policy from supply-focused strategies to demand-side management and efficiency measures. The dual control system, formally introduced during the 11th Five-Year Plan (2006-2010), establishes binding targets for both energy intensity reduction (energy consumption per unit of GDP) and total energy consumption control across all provinces. The system operates through three core mechanisms: target allocation among regional governments, comprehensive assessment and evaluation procedures, and accountability measures integrated into the target responsibility system for government officials. The paper analyzes four key complementary systems that have emerged around dual control: (1) Energy efficiency standards with advanced, access, and limited values for different industries, updated in 2021 and 2023 editions; (2) Energy conservation review mechanisms for fixed asset investment projects, requiring mandatory approval before construction; (3) Energy Performance Contracting (EPC) ; and (4) Energy consumption rights trading pilots launched in four provinces in 2016, though recently phased out to avoid overlapping with carbon markets. The system has undergone significant reforms to enhance flexibility, including special treatment mechanisms for major national projects, exclusion of energy used as raw materials from total consumption caps, and exclusion of newly added renewable energy from consumption controls. Despite remarkable achievements, the system faces key challenges: difficulties in reasonable target allocation across diverse regions, mismatches between administrative cycles and market dynamics, insufficient precision in implementation methods, and inadequate internal drivers for enterprise emission reduction. The research concludes by examining China’s strategic transition from dual control of energy consumption to dual control of carbon emissions, scheduled for full implementation during the 15th Five-Year Plan period, representing a fundamental evolution toward more comprehensive climate governance while maintaining the system’s core accountability mechanisms.