The China Report: China’s Energy Aspirations Based in Long Tradition of Self-Preservation

Posted by Jeff Jorve on November 17, 2009 at 4:46 pm

The parallel expansion of fossil fuel and renewable energy use in China can both be traced to a centuries-old tradition of self-preservation and self-reliance. (image: jbrussellphoto via flickr.com and Greenpeace Southeast Asia via flickr.com)

Editor’s Note: President Obama began his first visit to China this week, and energy issues and action on climate change are prominent items on his agenda. With this in mind, we thought it would be a good time to learn more about the most populous nation on earth and the rising economic superpower’s energy strategy. What are China’s energy priorities? What are the motivations behind its efforts to secure massive foreign supplies of oil and natural gas? How are those efforts related to China’s push into the green energy sector? We asked these questions of our contributor Jeff Jorve, a former business journalist in Shanghai, and he filed this report.

Listening to a speech given by Yvo de Boer, Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC), on the eve of Chinese president Hu Jintao’s speech to the G20 Summit in Pittsburgh on September 19th, it was easy to see the idea that China will lead the world into a greener future as not so far-fetched. While Mr. Hu’s speech the following day contained fewer specific targets and promises than did Mr. de Boer’s, the Western media has taken the secretary’s claim at face value and run with it. As world leaders prepare for the Copenhagen conference on December 6th, one last opportunity to hammer out a replacement emissions-reduction framework for the expiring Kyoto Protocol, all eyes are on China (the world’s largest CO2 emitter) as Mr. Hu considers agreeing to cap emissions. But agreeing to a binding cap on carbon emissions and taking a global leadership position on green tech are not as inexorably linked as Mr. de Boer and other China hopefuls might believe.

China’s push into green technology is not a matter of desire for global prominence but a direct result of two concerns: an increasing reliance on foreign sources of oil and natural gas, and the limits of reliance on coal as a viable energy source.

Energy Independence

During the presidencies of Deng Xiaoping and Jiang Zemin in the ‘80s and ‘90s, Chinese energy policy was characterized by a fear of vulnerability that resulted in government insistence on virtual energy self-sufficiency. By the end of Mr. Jiang’s tenure in 2001, China met 96 percent of national energy demand with domestic resources while accounting for 10 percent of global demand.

Following the transition of leadership from Mr. Jiang to Hu Jintao in late 2001, energy policy loosened and domestic demand began to increase dramatically. In 2008, China accounted for 17.7 percent of global energy demand, and met a greater percentage of that demand with foreign supplies.

At the end of 2008, China reported 15.5 billion barrels of proven oil reserves, accounting for only 1.7 percent of the world total, while accounting for 20 percent of the world’s population. Limited domestic oil reserves and increasing domestic demand (projected to double by 2013) have intensified China’s race to secure resources abroad, including a recent US$25 billion in loans to Russia’s Rosneft and Transneft, as well as US$10 billion to Brazil’s Petrobras, in exchange for guaranteed supplies of oil and natural gas.

But China’s appetite for greater amounts of oil and natural gas continues to undermine the national perception of security. Part of the government’s solution to this perceived weakness was launched in 2003 with the introduction of the National Strategic Oil Reserve Plan. The plan entails the construction of four coastal oil reserves, with capacity to reach the equivalent of one month’s consumption by 2010 and three month’s consumption by 2020.

Projected increases in energy demand led the government to target increased efficiency in energy utilization rather than absolute levels of energy usage —a 20 percent reduction target in China’s energy intensity, or energy per unit GDP, became part of the China’s 11th five-year plan for the period from 2006 to 2010. Through 2008, the Chinese government has largely achieved its goals.
Coal’s Untenable Future

While reliance on volatile foreign powers to supply oil and natural gas stokes the security fears of hard-line nationalists in China, the dirty reality of coal-fired plants is finally settling on the government in Beijing in the wake of the 2008 Olympics. Despite the over US$20 million spent by the government to improve air quality for the 2008 Games, Beijing’s particulate counts violated WHO guidelines over 81 percent of the last three months of the year.

Yet despite the smog-filled skies, China added 65.8 gigawatts (GW) of fossil fuel-fired electrical capacity in 2008, an increase of 11.9 percent from the 554 GW capacity reported in 2007. The US Energy Information Administration projects China’s coal consumption to grow at an average annual rate of 2.7 percent through the year 2030, reaching 98.3 quadrillion BTUs annually.
China boasts 13 percent of the world’s coal reserves, enough to sustain 2.7 percent annual growth in coal consumption well into 2050. And as the country’s most abundant domestic energy resource, China will continue to meet a majority of domestic demand with coal-fired power through 2030. But given the enormous costs of pollution, to the environment and to public health, China must look to mitigate the effects of increased coal consumption on the country’s already smog-blanketed cities. China became the world’s largest emitter of greenhouse gasses in 2006, and while it won’t surrender that position any time soon, the government has shown intentions of cutting back emissions.

Yet the notion that China will limit such emissions by moving away from its heavy reliance on coal energy is wishful thinking. To meet rising domestic demand while limiting reliance on foreign energy supplies, coal will need to remain the nation’s principle energy source. But the government, as data from the UN Millennium Development Goals show, is working to decrease carbon intensity by making its coal-fired plants more efficient.
Green Self-Interest

Mr. Hu’s pledge to derive 20 percent of domestic energy from renewable resources by 2020, seen in the light of China’s increasing dependence on foreign energy supplies, seems as much a throwback to the legacy of self-sufficiency as an application for leadership in the battle against climate change. But the paranoid fear of energy vulnerability is bringing China to the forefront of the green revolution. The China Greentech Report 2009, published jointly by PriceWaterhouseCoopers and the Shanghai Chamber of Commerce, estimates that China’s green technology market could grow to as much as 15 percent of China’s forecasted GDP for 2013.

With China’s green tech industry set to take flight in the coming years, Chinese leaders will occupy a key seat at the table for talks on global climate change. Their privileged position will only render an agreement on absolute caps for carbon emissions more difficult to achieve. Any absolute cap on China’s carbon emissions will likely be ignored. A more plausible scenario would be a targeted reduction in carbon intensity, or emitted carbon per unit GDP. Su Wei, director of the Leading Committee on Climate Change for China’s National Development and Reform Commission (NDRC), hinted in April that targets for carbon intensity reduction could find their way into the country’s 12th five-year plan in 2011.

But neither investment in green technology nor a commitment to reducing carbon intensity should cause world leaders to assume that China’s crowning as poster child for the green revolution has been anything but the result of pursuing the status quo. Chinese leaders are not taking such steps in an effort to be placed on a green pedestal—rather, any international prestige garnered from their green tech initiatives is an added bonus for policies of pure self-interest.

Offline Sources

1.) UN Millennium Development Goals Data for CO2 1998-2006
2.) IMF Data for GDP in US$ 1998-2008
3.) Energy Information Administration for projected coal supply 2009
4.) BP Statistical Review of World Energy for energy consumption 1998-2008
5.) Rosen, Daniel and Houser, Trevor “China Energy: A guide for the perplexed” China Balance Sheet, May 2007