October 2003

A major challenge for China’s policy makers is to determine how best to provide the necessary energy to fuel China’s extraordinary economic growth. The traditional approach has been to rely on increasing the supply of conventional energy resources, particularly coal, which accounts for nearly three-quarters of China’s current energy consumption. One tool that has proven effective in many countries for delivering energy efficiency, but has not yet been widely adopted in China, is demand-side management, or DSM. DSM is a mechanism in which a utility or some other state-designated entity uses funds derived from the electrical system to promote energy efficiency through targeted educational or incentive programs whose effects are measured quantitatively. Demand-side management is an important mechanism that can complement and extend government, private sector, and international assistance efforts to help electricity endusers capture the full range of efficiency opportunities available today in China and induce the development of next-generation energy efficiency measures. After summarizing the benefits of DSM for China, exploring China’s experience to date in developing DSM policies and programs, and analyzing the main structural, financial, and regulatory barriers to further implementation, the report describes a number of recommended policies and strategies for overcoming these barriers.