Implications of China's Energy Growth | Wilson Center

Implications of China's Energy Growth

Webcast available

Webcast Recap

Growing Energy Hunger

Speaking at this CHINA ENVIRONMENT FORUM meeting, Doug Ogden (Energy Foundation) and Michael Wang (Argonne National Laboratory) provided rich information on the current and potential impacts of China's rapid energy growth. They noted that high global oil prices have been linked in part to China's increasing energy consumption (10% per year), due to faster-than-anticipated industrial growth and China's embrace of the private automobile. China's electricity demand outstrips supply in 24 provinces and for the past two years, the country has been plagued with serious brownout problems. Coal consumption surpassed 2 billion tons in 2004—a third of the world's total and twice the level of the U.S.—and could grow another 15 percent this year. To fuel the country's economic boom, China is building a new 1,000-megawatt coal-fired power plant every week, and the country is consuming half the world's cement, a quarter of all steel, and two-fifths of all copper. Not surprisingly, fifty percent of China's outward FDI is in extractive industries.

Doug Ogden highlighted how China already consumes more energy (most of it low-grade coal) and emits more greenhouse gases than any country except the United States, and may surpass the United States in both categories within two decades. Moreover, by 2020 the country will import 80% of its oil, mainly to satisfy growing car use. In comparison to developed countries, however, China's per capita energy consumption is low—a mere 11% of that in the United States.

Fluctuating energy prices worldwide, as well as growing air pollution problems, have encouraged the Chinese government to diversify its energy sources, both in location of sources and types. However, coal will continue to be China's main source of energy far into the future because of the size of its domestic coal reserves.

Car Explosion

Over the past several years, annual car sales have been increasing about 30 to 35 percent and there is potential for further growth. Wang noted that car ownership in China trails the U.S. by a wide margin— with only 22 cars per 1,000 people in China as compared to 764 per 1,000 in the United States. However, since cars are becoming more affordable (thanks to WTO tariff reductions) the number of vehicles on Chinese roads is rapidly increasing and will most likely rise from 24 million today to 100 million by 2020. The explosion of private passenger vehicles explains why auto emissions are now the main source of air pollution in Chinese cities.

Pollution stemming from cars and coal in China poses major health and environmental threats domestically and internationally. China has 16 of the world's 20 most air-polluted cities. Air pollution in China is responsible for 500,000 premature deaths and 75 million asthma attacks annually. Besides high CO2 emissions, China emits 25% of global mercury and is responsible for nearly 50% of the acid rain affecting Japan.

As part of meeting the government's energy security plans to diversify energy sources, China has been increasing research and development into alternate energy sources, in particular coal liquefaction technology, and its oil companies have been investing in oil holdings in nearly 50 countries. In terms of coal liquefaction, however, Wang predicts that unless the United States also explores and develops this technology, it will progress slowly in China. While the Chinese government did quickly convert to lead-free gas in the 1990s, it has been unwilling to change the price of gas or charge taxes for fear of social instability. Thus the price of gas remains far below the market price at $1.75/gallon.

Needed Reforms

The speakers stressed that improving energy efficiency and increasing the use of renewable energy will be crucial to address China's energy shortages and the growing human health and environmental costs from the country's heavy reliance on coal. Despite lofty sustainability goals in the Chinese government's 2020 Development Target, China's investment in energy continues to be predominantly in old, inefficient technologies. Moreover, China's investments into energy efficiency have fallen from 13% of total energy investment in the 1980s to a low 4% since 2000, which partially explains why energy growth has now grown faster than GDP since 2001. China has concentrated funds on speed of supply of energy rather than end use efficiency—the result is a bottleneck of demand that continues to increase faster than domestic supply can be transported, forcing imports to make up the difference.

Pricing reform to allow the price of producing energy to reflect actual cost could help in improving energy efficiency. Further impeding energy efficiency and pollution control is the limited size of the State Environmental Protection Administration, which has just under 300 on its staff. Increasing the size and power of SEPA would be one essential step to help improve enforcement of energy efficiency and pollution regulations.

The China Sustainable Energy Project (CSEP)

To address China's growing vehicle emissions problems and clean energy needs, the Energy Foundation's China Sustainable Energy Program (CSEP) has been working with Chinese government agencies, research centers, and nongovernmental organizations for nearly 8 years promoting energy efficiency policies and projects in the transportation, buildings, appliances, industry, electric utilities, renewable energy, and low carbon development sectors.

The main challenges to the building and appliance standards project has been getting builders to comply and collecting reliable data. However, this project has succeeded in getting new residential and commercial building codes passed. Industry standards have focused on making electric motors more efficient. The CSEP electricity standards program focuses on utility reform and making the price of energy reflect its cost in order to make energy efficiency more profitable than building more facilities. Major results of this electrcity standards program was a National Regulatory Policy with the State Electricity Regulatory Committee and energy efficient standards being piloted in power plants in three big cites.

One of the possible developments within CSEP's cleaner industries program is to promote technology for the integrated gasification cycle for coal, which captures carbon while generating electricity. Ogden says that China is holding back on this technology waiting for the United States to take the lead. CSEP's renewable energy work has focused on encouraging bulk purchases to keep costs low. China's new Renewable Energy Law mandates ten percent of primary electricity to be from renewable sources by 2010. To help meet this goal wind concessions are planned throughout the country to increase electricity by 3,570 MW by 2010.

CSEP and its Chinese partners have developed six target areas to reduce oil use and vehicle emissions: (1) fuel economy standards, (2) vehicle emission standards, (3) cleaner conventional fuels, (4) alternative fuels, (5) advanced vehicle technologies and (6) Bus Rapid Transit (BRT) systems.

The vehicle codes that CSEP has helped to pass aim to prevent SUVs from getting a foothold in the Chinese market. These include a tax on vehicles ranging from one to twenty percent of the cost of the vehicle, with the heaviest tax burden falling on the largest, least efficient cars. Wang commented that if these regulations are expanded to the industrial fleet, it could save three million barrels of oil and 100 million metric tons of carbon by 2030. China plans to adopt EURO IV levels of emission standards by 2010 and put diesel sulfur content below 50 ppm. Another major policy development that CSEP helped support was the passage of fuel efficiency standards in early 2005. When fully implemented in 2007, 90% of U.S. SUVs would not pass these standards.

The BRT program supported by CSEP has been implemented in Beijing, Kunming, Xian, Shanghai, and Chengdu, but is planned to expand to 15 more cities. In this program, high capacity hybrid buses run in express lanes. While they cost about U.S. $0.12 to $0.19 more to ride than other buses they are much faster and more fuel efficient.

Pollution problems stemming from energy use, as well as China's investment into international oil reserves have been raising concerns internationally, for it has become increasingly clear that China's choices on energy policy will have major global impacts on oil markets and geopolitics of energy, as well as on human and environmental health in China and beyond. While both the U.S. and China could easily turn China's energy growth into a contentious "energy nationalism" issue, the speakers believe the situation offers an important opportunity for the United States to become a leader in energy conservation by adopting cleaner technologies at home while also assisting China onto a more sustainable energy path.

Drafted by Linden Ellis and Jennifer L. Turner.