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In the first three quarters of 2007, significant progress was made in China’s efforts to reduce energy consumption and emissions, and the policy environment for such efforts is expected to improve in 2008. It is expected that in 2008, the rate of decline in energy consumption per unit of GDP will for the first time exceed the annual target of 4.4%, and sulfur dioxide emissions are also expected to drop by more than 2%; however, it will be difficult to meet the targets for chemical oxygen demand emissions. Saving resources and protecting the environment has become a fundamental national policy in our country. In the first three quarters of 2007, while economic growth reached 11.5%, significant progress was also made in energy conservation and emission reduction. A turning point was reached in terms of reduced energy consumption per unit of GDP as well as a decline in the total emissions of key pollutants, representing valuable efforts to achieve energy conservation and emission reduction goals amid rapid economic growth. However, whether in terms of the difficulty of achieving the goals set out in the 11th Five-Year Plan or considering the efforts invested and the results obtained, the situation regarding energy conservation and emission reduction is not optimistic. The task of achieving energy conservation and emission reduction in 2008 remains quite arduous. In 2007, China made significant progress in energy conservation and emission reduction. In recent years, the country has achieved notable results in these areas. In the first three quarters of 2007, energy consumption per unit of GDP declined by about 3%, showing a continued improvement in the situation. During the first three quarters, energy utilization efficiency continued to improve, the energy consumption of key products kept falling, and for the first time, the total emissions of major pollutants across the country decreased in both categories. First, actively phase out outdated production capacity, and curb the rapid growth of industries with high energy consumption and high emissions through structural adjustments. Since 2007, in accordance with the Guidelines for Industrial Structure Adjustment and relevant laws and regulations, backward technologies, processes, and equipment have been strictly phased out. Enterprises that fail to meet the deadlines for elimination are ordered by law to suspend production or be shut down; their production licenses and pollution discharge permits are revoked in accordance with the law, and power supply is cut off as required by law. The entry barriers for the energy-saving and environmental protection sector have been raised, and relevant policies and regulations regarding project commencement have been strictly enforced, yielding significant results. Second, the desulfurization rate of coal-fired power units and the capacity for urban sewage treatment have improved significantly. In the first three quarters of 2007, 227 new coal-fired desulfurization units were added, with an installed capacity of 74.12 million kilowatts. The total installed capacity for desulfurization across the country reached 223 million kilowatts, accounting for 42% of the total installed capacity for thermal power generation ； Our country has added over 20 million tons of capacity for urban pollution treatment; more than 1,700 key enterprises have implemented advanced wastewater treatment measures. In the papermaking industry, which accounts for one-third of the country’s total chemical emissions, over 1,000 enterprises have been shut down for rectification or required to carry out treatment within a set time frame. The water quality in the Dongting Lake basin has improved significantly after more than 200 paper-making enterprises were shut down. Third, implement regional and watershed-based approval restrictions to urge the rectification of illegal projects and control pollution at its source. In 2007, environmental protection authorities applied the administrative penalty measure of \"regional approval restrictions\" for the first time in nearly 30 years, suspending or restricting approvals for all construction projects in 4 administrative regions and 4 power groups, and suggesting that relevant personnel be held administratively accountable. In July, the Environmental Protection Administration imposed \"regional approval restrictions\" on 6 cities, 2 counties, and 5 industrial parks in the four major river basins of the Yangtze River, Yellow River, Huai River, and Hai River, where water pollution was severe and environmental violations were prominent. It also placed 32 highly polluting enterprises as well as 6 sewage treatment plants under special supervision. Fourth, strengthen statistical monitoring and assessment of energy conservation and emission reduction, and implement the target responsibility system for these efforts. In November 2007, the State Council approved the implementation plans and methods put forward by ministries and commissions such as the National Development and Reform Commission regarding statistics, monitoring, and assessment of energy conservation and emission reduction. The progress achieved in reducing energy consumption and emissions was incorporated into the comprehensive evaluation systems for economic and social development in various regions, thereby further clarifying the role of local authorities as the main responsible parties for energy conservation and emission reduction. In this way, energy conservation and emission reduction targets serve as an important basis for the comprehensive assessment of local leadership teams and officials, with accountability mechanisms and a \"veto\" system in place. Currently, China faces five major challenges in its efforts to save energy and reduce emissions. While acknowledging the achievements made, it is also necessary to clearly recognize that the situation regarding energy conservation and emission reduction remains extremely severe. First, high inflationary pressures increase the difficulty of adjusting factor prices. At present, the price formation mechanisms for some resource-based products still fail to fully reflect the scarcity of resources, the costs of environmental damage, and supply and demand dynamics; the principle of \"polluter pays\" is not properly implemented. Rectifying the prices of factors represented by resource-based products undoubtedly plays an important role in establishing a market mechanism for energy conservation and emission reduction, but it will also further increase the pressure on overall price levels. Second, it is difficult to carry out energy conservation and emission reduction efforts in small and medium-sized enterprises under heavy employment and tax pressures. At present, a considerable number of small and medium-sized enterprises (especially those in resource-based industries that require large-scale economies) have outdated processes and equipment, resulting in low resource utilization rates and severe environmental pollution. Some localities and departments have not truly embraced the scientific outlook on development and a correct concept of political achievements, treating GDP growth as a mandatory goal while considering energy conservation and emission reduction as less important indicators. Third, transitioning from administrative measures to market-based approaches and establishing a sustainable mechanism for energy conservation and emission reduction will take some time. At present, energy conservation and emission reduction efforts in our country are still primarily driven by the central government through administrative measures, with the use of hierarchical targets for energy conservation and emission reduction to compel local governments and enterprises to take action; there is a lack of long-term mechanisms, and these efforts have not been transformed into voluntary actions on the part of enterprises. As a result, issues such as persistently low prices for resource-based products, low costs of breaking the law, and high costs of complying with the law have arisen. It will take a long time to address these problems effectively. Fourth, funding is severely insufficient, and the supporting role of technology is not fully utilized. Most enterprises in our country serve as the main actors in energy conservation, emission reduction, and environmental protection, but they lack the internal motivation and external pressure to increase their investments. Furthermore, investment at all levels is generally low, and a stable investment mechanism to support energy conservation and emission reduction has not yet been established. At the same time, research and development in key technologies for resource conservation and environmental protection are still relatively weak, and the adoption of advanced and applicable technologies is not widespread enough. Fifth, during periods of rapid industrialization and urbanization, it is particularly difficult to achieve energy conservation and emission reduction. At present, our country is in a period of rapid industrialization and urbanization. The proportion of the secondary industry in the overall national economy continues to increase, and the issue of an unbalanced industrial structure remains prominent; the development of the energy-efficient tertiary industry is lagging behind, with a low proportion in the economy. It remains very difficult to phase out outdated production capacities that are energy-intensive and cause heavy pollution. The policy environment for energy conservation and emission reduction will further improve in 2008. 2008 is the third year of the 11th Five-Year Plan, and it is also a crucial year for achieving the mandatory targets for energy conservation and emission reduction set out in this plan. Compared to previous years, the policy environment for energy conservation and emission reduction in 2008 is expected to improve to some extent. It is expected that in 2008, the rate of decline in energy consumption per unit of GDP will for the first time exceed the annual target of 4.4%, and sulfur dioxide emissions are also expected to drop by more than 2%; however, it will be difficult to meet the targets for chemical oxygen demand emissions. First, the legal, policy framework, and standard system for energy conservation and emission reduction have been further improved. In 2007, the State Council established a leading group for energy conservation and emission reduction to be responsible for task deployment and coordinating the resolution of major issues ； A Decision on Strengthening Energy Conservation Work was issued, a Comprehensive Work Plan for Energy Conservation and Emission Reduction was formulated, and departmental responsibilities for implementing the plan were assigned. Various regions have also successively studied and formulated their own proposals or decisions to strengthen energy conservation efforts, and established corresponding leadership bodies and coordination mechanisms. In terms of legal development, the revised Energy Conservation Law has been promulgated and implemented, while the Energy Law is currently subject to extensive public consultation, with its official implementation expected by mid-2008. Preparatory work was carried out for the legislation of the Circular Economy Law, and documents such as the Comprehensive Work Plan for Energy Conservation and Emission Reduction were issued. This indicates that the policy environment for energy conservation and emission reduction in 2008 was further improving. Second, improve the tax system that facilitates energy conservation and emission reduction, in order to support the development of a scientific and rational system for the utilization of energy and resources. In 2008, it is expected that China will expand the scope of entities subject to the resource tax, raise its rates, and shift from a volume-based taxation system to a value-based one, linking taxes directly to the market prices of resources in order to reflect the cost associated with the paid use of state-owned resources. Fully taking into account environmental protection requirements, explore the establishment of an environmental tax system to use fiscal levers to promote the development of a resource-conserving and environment-friendly society. Leverage price mechanisms to establish emission pricing and fee systems that reflect the costs of pollution control. Third, investment in energy conservation and emission reduction will increase significantly and play an increasingly important role. It is expected that in 2008, **investments in energy conservation and emission reduction will continue to increase significantly, with such investments driving broader societal investment. The Premier of the State Council said in his keynote speech at the China-EU Business Summit on November 28 that China is expected to invest $300 billion in energy conservation and environmental protection over the next five years, accounting for 30% of the global market. Fourth, strengthen efforts to reduce energy consumption and emissions in key enterprises and major projects, and continue to prioritize the implementation of energy-saving projects. Continue to fully implement the ten key energy-saving projects and key environmental remediation projects. In 2008, efforts to improve energy efficiency will continue to be focused on key energy-intensive industries such as steel and non-ferrous metals, as well as the construction and transportation sectors. Greater emphasis will be placed on managing energy consumption in enterprises that use more than 10,000 tons of standard coal per year, and activities will be carried out to compare the energy efficiency levels of these enterprises, so as to achieve some of the energy-saving targets set for the 11th Five-Year Plan period, such as achieving an energy-saving capacity of 240 million tons of standard coal. In addition, it supports key energy-saving projects, the promotion of high-efficiency energy-saving products and new energy-saving mechanisms, as well as the development of energy-saving management capabilities. Fifth, further intensify structural adjustments and phase out backward production capacities in accordance with the law. Adhere to taking \"reducing scale\" as a prerequisite for \"expanding scale\", earnestly implement the responsibilities for shutting down enterprises, and properly arrange for the employees of these enterprises. Efforts will be made to accelerate the development of the service sector and high-tech industries; during the 11th Five-Year Plan period, the share of the value added from services in GDP is expected to increase by 3 percentage points, while the share of the value added from high-tech manufacturing in total industrial value added is set to rise by 5 percentage points. Advance the adjustment of the energy structure, vigorously develop renewable energy, and steadily develop alternative energy; by 2010, the share of renewable energy in total energy consumption is to rise from 7.5% in 2005 to 10%. (Umbrella Edge) January 2, 2008, 10:32 Source: China Securities Journal