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Cablegate: China/Energy - Pdas Fredriksen Holds Wide-Ranging Energy

VZCZCXRO7712
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #4331/01 1782331
ZNR UUUUU ZZH
P 272331Z JUN 07
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 9412
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 03 BEIJING 004331

SIPDIS

SIPDIS
SENSITIVE

STATE FOR EAP/CM PSECOR, GWARD AND EEB/ESC SIMONS, HAYMOND, WECKER
DOE OEA FOR BISCONTI, GEBERT, NAKANO
TREASURY FOR OASIA DOHNER, CUSHMAN
USDOC FOR 4420/ITA/MAC/CEA/MCQUEEN
USTR FOR BHATIA/STRATFORD/WINTER/ALTBACH/MCCARTIN

E.O. 12958: N/A
TAGS: ECON ENRG EINV EPET EFIN SENV TRGY KNNP CH
SUBJECT: CHINA/ENERGY - PDAS FREDRIKSEN HOLDS WIDE-RANGING ENERGY
DISCUSSIONS WITH NDRC ENERGY BUREAU


-------
SUMMARY
-------

1. BEGIN SUMMARY: United States Department of Energy (DOE)
Principal Deputy Assistant Secretary for Policy and International
Affairs Katharine Fredriksen discussed a wide range of bilateral
energy issues during a meeting with National Development and Reform
Commission (NDRC)/Energy Bureau Deputy Director-General XU Yongsheng
on June 12, 2007. The meeting included discussions relating to
upcoming bilateral energy meetings (i.e. Energy Policy Dialogue, Oil
and Gas Industry Forum), expansion of proposed biofuel and
industrial energy efficiency frameworks, status of Global Nuclear
Energy Partnership (GNEP), and an impending letter relating to
China's special oil levy that Secretary Bodman will send to NDRC
Chairman MA Kai. DDG Xu requested that Washington consider moving
the venue of the September EPD and OGIF events from San Francisco to
the East Coast or the Midwest because the Vice Chairman will have
other meetings in New York City and Chicago. DDG Xu mentioned that
the EPD has always been a closed door dialogue between the two
governments on policy issues. (Note: This is to respond to DOE's
request that a U.S. Industry workshop be considered in conjunction
with EPD during the conclusion of the Second EPD). DOE will submit
a draft agenda of EPD by June 15 and NDRC will fax its detailed
consideration for OGIF to DOE/Beijing Office immediately. PDAS
Fredriksen passed along a Chinese version of the draft biofuel
roadmap to NDRC for revisions. The NDRC suggested that the current
USG proposal on biofuel roadmap be broadened to biomass energy
production, which could include electricity generation, biogas, and
biofuel. PDAS Fredriksen then discussed NDRC hosting a delegation
from DOE to discuss and finalize the plans for conducting the
Industrial Energy Efficiency Assessments program as agreed to during
the September EPD and SED I. NDRC stated that they want to have a
broader energy efficiency agreement to be signed during the Third
EPD. However, NDRC did agree to a delegation from DOE in
July/August to finalize plans to implement the Efficiency
Assessments once an MOU is signed. NDRC offered a draft
conservation MOU for DOE review and comment. NDRC prefers to
coordinate EPD and OGIF through DOE/Beijing Office; biomass and
energy efficiency frameworks via PDAS Fredriksen of PI and PDAS
Mizroch (Office of Energy Efficiency and Renewable Energy.) END
SUMMARY.

--------------------------------------------- ---------
NDRC: EPD, OGIF DATES SET, BUT NDRC WANTS VENUE CHANGE
--------------------------------------------- ---------

2. (SBU) National Development and Reform Commission (NDRC) Energy
Bureau Deputy Director-General (DDG) Xu Yongsheng began the meeting
by stating that NDRC Vice Chairman Chen Deming has three planned
events while visiting the U.S. during September 9-12, 2007: Energy
Policy Dialogue (EPD); the Oil and Gas Industry Forum (OGIF); and GE
meetings in New York and Chicago. Due to travel time constraints,
Vice Chairman Chen will most likely only attend the closing ceremony
for the OGIF, but plans to be present for all of the EPD. DDG Xu
requested that the Department of Energy (DOE) move the planned
location of the meetings from California to either the East Coast or
the Midwest to accommodate Vice Chairman Chen's tight schedule. The
NDRC has formulated its initial thoughts on the EPD topics and will
pass along its thoughts through DOE's Beijing Office. NDRC also
raised the question about how to communicate with each other on
these two events. NDRC prefers coordination through DOE's Beijing
Office. The NDRC's Point of Contact is Gu Jun, Division Director,
Department of International Affairs. DDG Xu closed discussions on
the OGIF and the EPD by noting that the NDRC considers the EPD to be
a "closed" government policy forum.


-------------------------------
GNEP STATEMENT REVIEW UNDERWAY
-------------------------------

3. (SBU) In response to Principal Deputy Assistant Secretary (PDAS)
Fredriksen's query on the status of Beijing's review of the Global
Nuclear Energy Partnership (GNEP) Statement of Principles (SOP), DDG
Xu stated that the NDRC will pass along its comments soon. In a
related matter, the NDRC is unclear whether it is appropriate to
invite new GNEP members before finalizing the SOP. DDG Xu noted
that doing so could delay the finalizing the SOP. In response, PDAS
Fredriksen noted that non-full fuel cycle countries invited to
participate in GNEP would have no say in drafting the SOP. This
means that inviting new non-full fuel cycle participants and the
work on the SOP could move in parallel, according to PDAS

BEIJING 00004331 002 OF 003


Fredriksen.

------------------------
BIOFUEL ROADMAP PROPOSAL
------------------------

4. (SBU) DDG Xu stated that the NDRC wants to collaborate on biomass
energy production rather than the biofuel roadmap that they
previously agreed to undertake. The expanded biomass cooperation
could include electricity generation, biogas, and biofuels, which
will be more in-line with the Chinese Government's own broader
biomass fuel strategy. In response, PDAS Fredriksen noted that the
NDRC had requested during an April 2007 high-level NDRC visit to the
National Renewable Energy Lab (NREL), led by DDG Xu, that DOE and
China collaborate in developing a biofuel roadmapping exercise for
China. There could be budgetary implications by delaying the
roadmapping exercise in order to create a broader biomass project,
the PDAS added. PDAS Fredriksen passed along a draft of Chinese
version of the proposed U.S.-China Biofuels Collaboration to NDRC
for comments. DDG Xu stated that the NDRC fully understands United
States Government budgetary issues and will do its best to ensure
that the change does not significantly delay implementation and will
get back to DOE as soon as possible with edits to expand the
proposal. Regarding coordination, NDRC wants to have direct contact
with PDAS Fredriksen and PDAS for Energy Efficiency and Renewable
Energy John Mizroch.

--------------------------------------------- -----
NDRC LOOKING FOR BROADER PLAN ON ENERGY EFFICIENCY COLLABORATION
--------------------------------------------- -----

5. (SBU) In response to PDAS Fredriksen's request for a DOE
industrial energy efficiency assessment team visit to Beijing, DDG
Xu stated that the NDRC wants to have a broader energy efficiency
agreement in place before moving forward with an industrial energy
efficiency initiative. PDAS Fredriksen noted that DOE Secretary
Bodman signed such an agreement with MOST during the first US-China
Strategic Economic Dialogue (SED) meeting. Moreover, there has been
a significant amount of bilateral discussions in the EPD held in
September 2006 as well as SED on establishing an industrial energy
efficiency program. DDG Xu stated that DOE's agreement with MOST
relates merely to science and technology issues. The NDRC is the
lead Chinese Government agency for energy efficiency and as such, an
overarching agreement must be signed by them, even though energy
efficiency is NOT within the Energy Bureau's authority. [Note: the
NDRC's lead interlocutor for energy efficiency issues was unable to
attend the meeting. Energy efficiency related activities are
handled by the Department of Energy Conservation and Resources
Protection. End Note.] The EPD would be a good occasion for signing
such an agreement, according to DDG Xu.

6. (SBU) DDG XU stated that the NDRC passed its proposal for an
energy efficiency agreement to DOE on 20 May, but had so far not
received any comments on the draft. PDAS Fredriksen replied that
she looked at the NDRC proposal for the first time on June 11.
(Note: PDAS Fredriksen observed that the NDRC's draft obviously did
not make it through DOE's email firewall. This demonstrates the
need for the NDRC to confirm DOE's receipt of such documents by
working with DOE's Beijing Office, said PDAS Fredriksen. End Note)
The NDRC's proposal calls for cooperation in several areas handled
by other agencies in the United States Government, such as labeling
conducted by the Environmental Protection Agency (EPA), according to
PDAS Fredriksen, thus DOE could not enter into agreements on
subjects under the jurisdiction of other United States Government
agencies. Increasing the scope of the original industrial energy
efficiency collaboration such as EnergyStar would necessarily
involve engaging multiple agencies (i.e. DOE and EPA) for the United
States and China, with each country responsible for managing their
respective interagency coordination.

7. (SBU) PDAS Fredriksen went on to reiterate that the DOE position
is that bilateral cooperation on energy efficiency issues are much
better served by completion of a series of discrete projects, such
as conducting the energy audit for 8 to 10 of the largest energy
consumers within Chinese industry firm, rather than trying to manage
projects under an umbrella agreement. In that regard, working
together on the industrial energy efficiency assessment plan would
be a good first step in energy efficiency cooperation. DDG Xu
stated that the NDRC appreciates DOE willingness to work on
industrial energy efficiency, but must have an overarching agreement
in place first. DOE should make edits to the draft NDRC umbrella
agreement as quickly as possible to ensure that it is ready to be
signed during the EPD, said DDG Xu. However, DDG XU agreed to DOE's

BEIJING 00004331 003 OF 003


request to send an 8-10 person industrial energy efficiency
assessment team to Beijing in July or August to finalize details of
the audit plan, and should be coordinated through the NDRC's
International Cooperation Department.

------------
PUNT WRAP-UP
------------

8. (SBU) PDAS Fredriksen provided the NDRC with a record of the 4th
Joint Coordinating Committee Meeting under the U.S.-China Peaceful
Uses of Nuclear Technology (PUNT) Agreement signed between NDRC and
DOE. DDG Xu noted that although the NDRC did not attend this PUNT
meeting, it has a close working relationship with China Atomic
Energy Authority (CAEA), which implements PUNT activities and
follows PUNT developments closely. PDAS Fredriksen closed the PUNT
discussions by noting that DOE has arranged a visit to the Savannah
River nuclear facility and a meeting with Secretary Bodman for a
delegation led by the CAEA's Chairman, Sun Qin.

----------------------------------
SPECIAL OIL LEVY LETTER ON ITS WAY
----------------------------------

9. (SBU) PDAS Fredriksen and DDG Xu closed their meeting by
discussing China's Special Levy on Earnings from Petroleum. PDAS
Fredriksen stated that Secretary Bodman will be sending a letter to
NDRC Chairman Ma asking for him to work with the Ministry of Finance
(MOF) to find a solution that will not discourage or inhibit
investment in production and to reconsider the oil profit levy
because of its impact on contractual obligations by United States
oil companies doing business in China as well as Chinese companies.
The United States had a similar windfall tax in the 1970's, but
repealed the tax after discovering it discouraged production, said
PDAS Fredriksen. DDG Xu stated that NDRC Chairman Ma will be told
to expect the letter. PDAS Fredriksen and DDG XU agreed that since
this is a taxation issue, China's MOF is the lead agency for this
matter and DDG Xu observed that the levy applies equally to both
foreign and domestic companies.

---------------------------
PARTICIPANTS AND CLEARANCES
---------------------------

10. (U) United States participants:

Katharine Fredriksen, PDAS, Office of Policy and International
Affairs, DOE
Lee Gebert, Staff, Office of Policy and International Affairs, DOE
James Quinn, Technology Manager, Industrial Technology Program,
Office of Energy Efficiency and Renewable Energy, DOE
Maria Holleran-Rivera, Staff, DOE China Office
Brian Jones, Economic Officer, Embassy Beijing

Chinese participants:

Xu Yongsheng, DDG, Energy Bureau, NDRC
Gu Jun, Division Director, Department of International Affairs, NDRC

Liang Zhipeng, Deputy Director, Renewable Energy Division, Energy
Bureau, NDRC
Liu Deshun, Director, International Cooperation Division, Energy
Bureau, NDRC
Cheng Xin, International Cooperation Division,
Energy Bureau, NDRC
Qin Zhi Jun, Power Division Engineer, Basic Industries
Department, NDRC
Liu Hong, Oil Stockpiling Office, Energy Bureau, NDRC
Dong Wan Cheng, (need title), NDRC
Li Chao, Department of International Affairs, NDRC


11. (U) PDAS Fredriksen cleared this cable.

Randt

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