Sustainable Energy in China: The Closing Window of Opportunity

Citation

Bhattacharyya, S.C. (2008), "Sustainable Energy in China: The Closing Window of Opportunity", International Journal of Energy Sector Management, Vol. 2 No. 2, pp. 300-304. https://doi.org/10.1108/17506220810883270

This book presents the results of a two‐year study jointly carried out by the Development Research Centre under the China State Council and the World Bank's Infrastructure Department of the East Asia and the Pacific Region. The growing Chinese energy demand is receiving greater global attention due to its supply‐side implications, business opportunities as well as environmental consequences. This report is a timely contribution to the debate about the sustainability of Chinese energy demand. It provides a clear message: the business‐as‐usual scenario is not sustainable because it would seriously compromise the ability of the future generations to meet their needs. But, China has the opportunity of following a less‐energy intensive path to its economic development. This would reduce the energy demand growth and hence the environmental consequences of energy use. However, the challenge is daunting and the opportunity will be available for a limited time when the investment decisions will be made.

Seven chapters and 12 appendices of the book analyse the Chinese energy situation and policies leading to the suggestion of an integrated and co‐ordinated national policy for China with a greater emphasis on the institutional aspects.

Chapter 1 introduces the theme of the book – concerns about the energy future despite impressive achievements of the past. The chapter also defines energy sustainability by adapting the definition given in the Brundtland report to reflect the security of supply concerns (access to adequate and reliable supplies of environmentally and socially acceptable forms of energy at competitive prices without compromising the energy needs of future generations).

Chapter 2 (China's energy future: the challenge of recent trends) dwells on the future energy demand in China. The chapter highlights the following:

• •

  The quality of Chinese energy and economic statistics is somewhat doubtful as is evident from the retrospective revisions to the GDP and energy consumption data in recent times. The report calls for urgent rethinking and overhauling of the data systems.

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  China's energy demand doubled between 1980 and 2000 but its GDP quadrupled, resulting in a 0.43 GDP elasticity of energy demand. This clearly marks a shift away from the wasteful consumption pattern of the 1970s.

• •

  While coal remains the dominating fuel both at the primary and final energy demand levels, the share of coal is falling. This change in the fuel mix is clearly evident at the final consumption level, where coal has lost 23 per cent market share to other competitors, namely oil and electricity.

• •

  Based on the past growth, it is expected that Chinese primary energy demand is likely to be two times its 2000 level by 2020. The transport sector and the residential and commercial sector are likely to gain in importance in the final energy demand by 2020 while coal domination in the final energy is likely to disappear as oil for transport gains importance.

• •

  However, the country seems to be breaking away from the past trend as is evident from the first five years of this century. The GDP elasticity of primary energy demand has jumped from 0.4 to more than 1.0, showing an energy intensive path to development in recent times. Clearly, the demand would reach unsustainable proportions if the country aspires to reach similar consumption levels as followed in the developed economies. Supplying such quantities of energy for the huge population would have economic, social, environmental and security of supply consequences, making the proposition unsustainable in the longer term.

• •

  Hence, the need for searching alternative development paths to ensure a harmonious growth.

While the chapter has signalled the rapid growth in energy demand in recent times, the drivers for such an increase were not identified. In fact, the reasons for such a jump in energy intensity and GDP elasticity have to be traced at a more detailed level to identify the changes in efficiency, activity and structural as well as fuel‐related factors. If the change is really a permanent one, there are reasons for concerns. This needed to be established first. Similarly, the assumption that China would reach the OECD levels of energy consumption (on a per capita basis) in the next two decades is not supported by any evidence. Consequently, the analysis becomes somewhat weak and any policy recommendation based on such unfounded analysis can be quite dangerous as well.

Chapter 3 (Reining in future energy consumption) discusses past energy efficiency achievements during 1980‐2000 period when the GDP elasticity has declined to 0.43. The average energy intensity has fallen from 4.29 toe/10,000 Yuan (constant 2,000) in 1980 to 1.46 toe/10,000 Yuan (constant 2,000) in 2000. This improvement has been attributed to energy efficiency improvements, structural change and poor data. However, since 2000 there is a departure from the above trend of improvement and the GDP elasticity has averaged more than 1.0 between 2000 and 2005. This upward trend causes concerns as the demand will grow unsustainably in such a scenario. To control such a growth scenario, the Chinese Government has set a target of 20 per cent reduction in energy intensity by 2010 (i.e. by the end of 11th Plan). Although this is a step in the right direction, it is not an easy target and would require appropriate sector‐specific plans. The chapter also suggests that China is passing through a crucial phase where huge investments are being made in creating capital stocks that would influence future energy demand. Instead of following a development path that steeply raises energy intensity as per capita income increases, as exemplified by the industrialised countries, China can leap‐frog to an energy efficient path of development. However, setting such an example would “require long‐term vision, innovative approaches and strong policies”. This would not be an easy task and the opportunity for chartering such a path would not exist for long. This “closing window of opportunity” has to be seized to reach a sustainable path.

The chapter also analyses major energy consuming activities – electricity generation, industry, transport, residential and commercial activities – and highlights the potentials of and constraints for an energy efficient future. The need for improved policy making and establishing appropriate institutions is identified as an important task. This is an interesting chapter as it has succeeded in portraying the big challenge China is facing. Although the embedded philosophies of reform and getting prices right are clearly visible, the emphasis on institutions is a welcome departure.

Chapter 4 (Greening the energy sector) highlights the environmental consequences of a coal‐dominated energy sector development and points out that even in the low‐growth scenario, the level of pollution generated from energy consumption in 2020 would exceed the targets set by the government. As China is expected to continue with coal to fuel its economic growth, the chapter suggests technological fixes and innovative policies to reduce environmental damages. The chapter clearly acknowledges the lack of any ready‐made solutions and the need to find China‐specific solutions through trial‐and‐error. There lies the gravity of the problem: technological solutions are unlikely to have any significant penetration in the time horizon considered; no practical guidance is available; and the tension between development and environment remains. The question of sustainable energy future remains unanswered.

Chapter 5 (Securing energy supply) focuses on the growing concerns of securing energy supply due to adverse effects of increasing import dependence of China, especially for oil, and the possibility of a California style failure of the electricity system. This chapter discusses various options for enhancing oil and gas supply security: developing domestic resources, developing renewable energies, through trade and diplomatic relationships with exporters, stock piling, developing fuel switching capabilities in large consumers, international co‐operation, etc. There is a discussion for ensuring electricity supply security as well through better planning and maintenance and improving physical security of the system. It is suggested that the policy makers have to adopt the right mix of options but does not provide any practical guidance on how to do this. This long chapter is informative and avoids any complicated modelling exercises but its value to Chinese policy makers remains unclear.

Chapter 6 (Getting the fundamentals right) comes back to the reform agenda with a call for better price signals for energy products. The chapter indicates the progress made by China in this respect and calls for a gradual movement towards market‐based price determination for oil and gas and better regulation for electricity prices. It notes that coal pricing comes closer to competitive solutions with recent market liberalisation efforts. The chapter also stresses on the need for providing signals for external costs of energy use through prices. It also indicates that the fuel taxes are low in China and there is scope for higher taxes. This chapter essentially reflects the standard bank agenda of reform and is meant for creating the desired noise. Despite all efforts over the past two decades for “getting prices right”, the achievement is insignificant.

The last chapter (Chapter 7: Shaping the future toward sustainability) presents the building blocks for creating a sustainable future. The Chinese authorities have already identified four policy areas of focus: energy efficiency, reliance on market forces, enforcing law and making energy a national priority. But, the chapter suggests that the policy and the strategies to implement the policies are not properly connected together. The chapter identifies four main characteristics of a comprehensive policy for sustainable energy:

1. 1.

   commitment of policy makers to strong, effective and timely decision making;

2. 2.

   long‐term vision, policy planning and policies for sustainability;

3. 3.

   comprehensive energy policy; and

4. 4.

   horizontal and vertical co‐ordination.

It also suggests four pillars for sustainability policy:

1. 1.

   ensuring low‐GDP elasticity of energy consumption;

2. 2.

   better use of domestic energy resources;

3. 3.

   environmental safeguard; and

4. 4.

   better preparation for withstanding supply disruption.

This essentially introduces the security of supply as the fourth pillar of sustainability.

The chapter then goes on to suggest eight building blocks for ensuring a sustainable energy path:

1. 1.

   developing an integrated, coordinated and comprehensive energy policy within a sound legal framework;

2. 2.

   focusing on energy efficiency;

3. 3.

   strengthening the institutions of energy policy;

4. 4.

   getting the prices right;

5. 5.

   deploying the leapfrogging technologies;

6. 6.

   broadening international cooperation;

7. 7.

   mitigating social impacts of reforms; and

8. 8.

   mobilising the civil society for the energy cause.

The chapter ends with a suggestion for an action plan to implement the building blocks. Clearly, this chapter is aimed at helping the policy makers.

Overall, the book is a timely edition that is essential for developing a better understanding of the Chinese energy situation. The material presented in the book is highly accessible and anyone without any advanced skills in modelling or economics would find it useful. This would be an essential reading for policy makers and students of energy policies, especially those who focus on China. The main problem is that the book did not really establish a sustainable path that China or any other country can follow. Instead, it has suggested building blocks for policy making and strategy development. While there is nothing inherently wrong in them, only time will tell how much of it is implemented or can be implemented and whether sustainable energy policies and hence development paths are established or not.