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China: State Council Circulates Opinions in Promoting Energy Management Contracts

(Apr. 23, 2010) On April 2, 2010, the General Office of China's State Council circulated the Opinions on Accelerating the Implementation of Energy Management Contracts to Promote the Development of the Energy Service Industry (hereinafter Opinions) (Guo Ban Fa [2010] No. 25). (Text of the Opinions [in Chinese], National Development and Reform Commission website, (last visited Apr. 21, 2010).) The Opinions outline China's goals that: 1) by 2012, the government will support and cultivate a group of professional energy-saving service companies (ESSCs), and 2) by 2015, China will establish a mature energy-saving service system with the energy management contract (EMC) as one of the primary methods of energy conservation.

According to the Opinions, the EMC was introduced in China in the late 1990s. The EMC is described as “an effective energy-saving mechanism based on market methods.” Under the EMC model, ESSCs sign contracts with energy consuming companies to provide services such as energy diagnosis, financing, and retrofitting and to generate returns by sharing energy-saving profits during the contract period. (Id.)

The Opinions provide policies in support of energy conservation projects that use EMCs. These policies include financial subsidies, tax incentives, preferential accounting policies, and financial services. The ESSCs may be exempted from business tax and value-added tax and be given a three- year tax break, followed by another three–year break in the form of a 50% reduction in the enterprise income tax, according to the Opinions. (Id.)