Environmental Management of Tourism Growth in China White Paper Prepared for Wyndham Hotel Group Linda Powers Tomasso Tourism-related expenditures in China, US$, Source: Deloitte & Touche, E118 presentation 11/17/2011

WTO PREDICTS THAT CHINA WILL BE THE WORLD’S TOP DESTINATION FOR INTERNATIONAL TOURISM BY E118 presentation 11/17/2011 2

Inbound international visitation:  slowing of business travel > boom in leisure/adventure travel  promoted by successful hosting of 2008 Beijing Olympics  100 million visitors by 2015 = 8% of global tourism market  5.2% of Chinese GDP, US $20 billion in foreign exchange Chinese D omestic Tourism fueled by:  political restrictions on mobility lifted  newly mobile middle class with disposable income  government investment in national infrastructure  1.9 billion domestic trips in 2010, 3.3 billion by 2015 Compound growth rates: 8-10% luxury / 25% domestic travel Twin Pillars of Tourism Growth in China: 3 E118 presentation 11/17/2011

Key Environmental Challenges To Hotel Sector Growth In China:  Water Scarcity  Energy Needs & Energy Delivery Systems  Indoor Climate Management (IAQ)  Air Quality at Building Sites  Grey and Black Water Management  Food and Solid Waste Management  Workplace Health and Productivity  Worker and Managerial Training  3-week vacation = “emergency situation” E118 presentation 11/17/20114

Environmental impacts specific to hotel expansion trends in China: 1. Luxury hotel focus = average guest resource consumption  lighting and electricity draw business centers, personal computers & electronics water for bath, kitchen, & laundry HVAC use: larger room size > more heating/cooling 2. Resort area development (Boao) stresses environmentally pristine areas & creates tourist-related impact to coral reefs. 3. Rising income reflected in hotel celebration of Chinese banquets, generating huge amounts of hotel food waste. E118 presentation 11/17/2011 5

Chinese response to hotel industry growth: MoC goal to create 10,000 Green Hotels by 2012 “Green Measures,” or sustainability, officially added as core criteria of CNTA’s Hotel Ratings System on 1/1/2011 ◦ Points for green design, procurement & consumption, food safety, waste treatment, customer education ◦ use targets of 20% less water and 20% less electricity ◦ waste reduction by foregoing one-off disposable amenities Unclear oversight of hotel energy efficiency requirements: Construction or Commerce Ministry? CNTA’s National Hotel Rating System vs its Green Ratings System -- integration of five-star and five-leaf systems? E118 presentation 11/17/20116

Building Energy Use in China: China has the world’s second- highest building energy use behind U.S. Energy for building operation & construction currently =  45% of China's total annual energy use vs. a worldwide average of 39%. Warning the hotel sector, MoC faults hotel hot water use as a major driver of China’s increased building energy. LBNL, 2010 E118 presentation 11/17/20117

Ministry of Construction Building Energy Mandates: 2005 Energy Conservation Law> energy reductions over pre-code buildings of 50% by 2010 and 65% by five-year plan> 1- star rating for all new construction, including hotels. Government sell-off of State- owned hotels primed for energy retrofits and hotel chain growth. E118 presentation 11/17/20118

Tools for managing building energy sector from an environmental perspective:  International Green Building Support  Certification schemes: LEED vs 3-Star  Best Practices and Tools suited to China  Renewable Energy Strategies:  15% government target by 2017  Global share of solar hot water/heating=58.4%  Low level technologies like insulation E118 presentation 11/17/2011 9

Sheraton Hotel Shenzhen Jing Ji Dameisha, China Aecom Construction E118 presentation 11/17/ Sustainable Features: S-shaped design complements surrounding environment Orientation that makes maximum use of natural sunlight All rooms have an exterior view to oceanfront Energy-saving strategies: low-emissivity glass, lighting sensors, LED

Training franchisees in sustainable hotel management will be key for chain expansion: Franchising a late-comer to hotel industry in China. Ability to maintain branded standards past detriment to hotel franchising in China now changing. Pool of franchise managers from State-owned hotels: 83% expressed interest. 2- & 3-star hotel managers looked to Super 8 and Jin Jiang as models. E118 presentation 11/17/201111

Future challenges to sustainable hotel management in China: Rising living standards raise comfort expectations for heating/cooling. ◦ Higher overall energy consumption and energy costs ◦ Large hotel energy footprints will face mandated reductions Climate change: ◦ Southern hot zone creeping northward, requiring more energy- intense cooling than heating ◦ Hotel building portfolios will reach emissions thresholds Regional water shortage ◦ Spread of drought in Northern cities ◦ Glacier melt >  water irrigation, food prices  E118 presentation 11/17/

Conclusions: Large-scale building environment dwarfs sustainable development in hotel sector ◦ Few hundred buildings out of 50,000 high rises Water use in water-scarce regions presents special challenges > water reclamation & reuse Advancing technology hopeful but pace of change reduces payback window to 3 years for retrofits Franchising opportunities pushing domestic owners toward foreign partnerships >  influence toward sustainability E118 presentation 11/17/201113

Conclusions, continued: Employee education in sustainable hotel management necessary & key: IHG Academies Stakeholder education critical to shape attitudes toward sustainable hotel travel among new generation of tourists Domestic market is yet to be captured, although some previous brand loyalty for early entrants. Sustainability can be a differentiator, but Chinese mass market not yet ready for value proposition sustainable tourism offers if it means more $. E118 presentation 11/17/201114