China's energy industrial
revolution By John A Mathews
and Hao Tan
China's energy strategies have
attracted a huge amount of attention, precisely
because they have been so effective. Chinese
energy companies - from global oil and gas giants,
to new wind and solar power success stories as
well as electric grid operators, not to mention
rising electric vehicle producers - have all had
an impact on the industry and have sometimes
shaken it up.
In solar photovoltaic cells
there are aggressive counter-moves being made by
both the US (and potentially the European Union)
against Chinese subsidized
exports. These threaten to spill over into related
sectors and could trigger an all-out trade war.
In such a setting, it is important we
argue to understand just what the aims of the
Chinese strategies and associated policies might
be.
Of course China is offering all kinds
of subsidies, both direct and indirect, to its
nascent renewable energy and nuclear power
industries, which are viewed in China as essential
guarantors of energy security and export platforms
for the future.
The fact that they can
deliver lower carbon emissions is a convenient
side effect. We make this point not to belittle
the efforts of those who take seriously the
environmental threat (after all, we count
ourselves as amongst them) but to emphasize the
primacy of "growth" in China's "green growth"
strategies.
The fact is that China is
undergoing an astonishing energy transformation
that underpins an industrial revolution that is
making it the workshop of the world. It is
building its "black" energy system at a prodigious
rate - building the equivalent of a 1-gigawatt
thermal power station every week [1], and burning
vast amounts of coal in doing so.
But at
the same time it is building a "green" energy
system based on non-fossil sources (renewables and
nuclear) faster than any other country. China's
green revolution is reflected in its targets for
building renewable energy systems, which are being
expanded as fast as is humanly and technically
possible - in the name of energy security and
nation-building infrastructure as much as for
decarbonizing the economy.
Which wins in
this close race between black and green
development is a matter of the highest importance,
for China and for the world.
There are two
facets to China's energy revolution. There is a
black side, where the focus is on China's
relentless mining and burning of coal - billions
of tons of it - and building new coal-fired power
generators on a scale that dwarfs efforts in the
rest of the world. China's coal production and
consumption moved rapidly into a new gear after
the country's accession to the World Trade
Organization in 2001 - and it has been on a steep
upward curve ever since, as shown in Chart 1.
Figure 1: China's black face: Chinese
power generation and rising coal
consumption Source:
total coal consumption and electricity generation
from US the Energy Information Agency; coal
consumption for thermal power from the National
Bureau of Statistics of China.
China
consumed 3.4 billion tonnes of coal in 2010,
doubling its consumption over just six years - and
burnt 1.5 billion tonnes of this coal in power
stations (46%). In the face of predictions of
coal's falling away as an energy source, China's
rise has put it back at the center of the world
energy industry. The steep upward curve in coal
consumption and energy production since 2001 is
clearly evident. [2]
But China also has a
green face, where it is building new renewable
energy industries also on a scale that dwarfs
efforts in the rest of the world. Renewable
energies had been a "plaything" of the West,
ramped up in the 1970s in response to the 1973 oil
price increase by the Organization of the
Petroleum Exporting Countries and the price
increase following the Iranian Revolution in 1979,
but fading away until their resurgence in the last
decade with growing realization of the
consequences of global warming.
China's
adoption of renewables, by contrast, has been
serious, dedicated and relentless. It was as if
China viewed the events in New York of September
11, 2001, as a warning of what total dependence on
fossil fuel imports might mean - endless war and
terrorism. A future based on renewable energies by
contrast could be taken to mean one based on new
technologies, the building of new export
industries, and massive infrastructure development
to accommodate the new, fluctuating sources.
This is precisely what we observe in
China, after a lag of a couple of years. Since
2005, the wind power sector, for example, has
grown from being insignificant to become the
largest in the world, doubling every year, and
based on a substantial value chain now supplying
all components needed. This green facet of China
is shown in Chart 2.
Figure 2: China's
green face: Chinese build-up of wind power Source:
US EIA International Energy Statistics
Database
Which tendency wins - the
green or the black face of China's energy
development - is a matter of huge importance, for
China and for the world.
If China's vast
fossil fuel sector becomes dominant (as it is in
most of the West) then we can anticipate a century
of vicious resource wars, fought through disputes
over access to oil fields not just in the Middle
East and Persian Gulf but also in the Caspian
Basin and Central Asia, in Africa and in the
territorial waters off the coasts of China and
Southeast Asia, as well as continued and growing
dependence of China's power and industrial sector
on coal and all its attendant problems of air
pollution and deaths from mining.
If, on
the other hand, the green sector wins out, and
fossil fuel dependence declines, up to 2020 and
beyond, then China's industrialization and
modernization would proceed and promise to make
China a "normal" nation, interested in peace,
preoccupied with its own technological development
- and dramatically reducing its carbon emissions
and setting a standard for the rest of the world.
There are strong indications that it is
the green tendency that may indeed be winning. In
October 2012, China's State Council (cabinet)
released its Energy Policy white paper, locking in
some stringent goals prior to the leadership
transition that moved ahead in November and
updating previous targets that had been spelt out
in the 12th Five-Year Plan, covering 2011 to 2015.
In the White paper, China committed itself
to achieving by 2015 no less than 30% of its
electric power generation coming from non-fossil
fuel sources - mainly hydro, wind and some solar,
as well as nuclear (after a period of close
examination of the industry's safety,
post-Fukushima).
Semi-official projections
(not idle "scenarios" but signposts for the
industry pointing to investment behavior and
financing by state-owned banks) up to 2020
indicate that renewables (or at least non-fossil
sources, which include nuclear and hydro) could be
accounting for as much as 40% of electric power
generated, and coal and fossil fuels for just 60%
- and falling.
These projections are given
more weight by new data on investment in new
electric power capacity being built, released in
2012. There are indications that the significance
of coal in China's electric power sector may be
declining faster than the official projections
indicate.
The current projected increase
is for 223 GW of coal-fired power to be added over
the four years 2011-2015, or a rate of 55 GW per
year (that is, a 1-GW power station being built
every week). But in March 2012, the China
Electricity Council (CEC) issued a report stating
that it expected coal consumption in 2015 to be
below the 2011 level - thus reversing a
long-standing pattern of growth.
The CEC
also indicated in early December that for the
first 11 months of 2012 investment in new capacity
additions in power generation was following a new
trajectory, with coal accounting for only 26% of
investment in new capacity additions, while
non-fossil sources - hydro, wind, nuclear - made
up 72%. [3]
Data from the same source for
the actual installation of electricity capacity
for the first 11 months of 2012 support this: they
indicate that addition of capacity of coal-fired
power stations dropped by 28% from the level of
the last year, accounting for 62% of new capacity
additions, while hydro and wind on their own
accounted for 23% and 14% of new capacity. [4]
Indeed, investment in coal-fired power
stations has been falling for the last six years,
while that for non-fossil sources has been rising.
[5] If capacity additions themselves follow these
new trends in investment, then this would
represent a decisive shift towards clean energy in
China. This is certainly very good news for China,
and for the world.
Regulation of the
price of coal Reductions reported in
investment and capacity additions in coal-fired
power have not been brought about by a carbon tax
or by a cap-and-trade system - the most popular
instruments favored by Western neoclassical
economists.
Instead, in China, the
National Development and Reform Commission (NDRC)
seems intent on deregulating the price of coal as
far as is feasible - as a means of restraining
growth in coal consumption.
Prices have
traditionally been set by direct negotiation
between large coal producers (like Shenhua) and
large power companies. But soaring prices led the
NDRC to step in and impose a limit, setting a band
within which contract prices were allowed to float
by no more than 5% in 2012 over the 2011 level.
This moderating of price increases had the
desired cooling effect, and the price controls
were removed at the end of 2012. [6] So by 2013
China is forcing power generators to pay the world
price for thermal coal - which is proving to be
far more effective in limiting production than any
carbon tax.
These reductions in thermal
coal capacity additions are feasible because of
the complementary additions in renewable energy
capacity, allowing wind, solar, geothermal
etcetera to take up the slack.
This too is
a feasible strategy in China because of the
extraordinarily rapid take-up of renewable energy
options. The swing away from coal is also "fueled"
by the increasingly stringent controls over coal
consumption in the power sector, requiring power
companies to utilize the most recent and efficient
technologies.
Projected energy
intensity reductions All countries as they
industrialize have followed a characteristic
trajectory, during which their energy intensity
(energy consumed per unit gross domestic product)
rises, peaks, and then falls.
Great
Britain was the first to chart this pathway,
peaking in 1880; then the US peaked in around
1920, and Germany around 1930; then in the
post-war period, Japan peaked at around 1960.
Countries are less energy-efficient as they
industrialize, then become more energy-efficient
as they grow wealthy.
Moreover, the
successive peaks are lower for each country. There
are good theoretical reasons for observing such a
pattern, based on secular improvements in the
efficiency of energy technologies being deployed.
The characteristic patterns are exhibited in
Figure 3.
Through the history of
industrialization, the peaks in energy intensity
of "follower" countries have been always lower
than their forerunners, suggesting that less
energy-intensive industrialization paths become
available to the latecomer.
Figure 3 -
Historical trends in energy
intensity Source:
Adapted from Wallace (1996)
p18.
Figure 4 - China's energy
intensity, 1980-2008, and projected to 2050.
Source
of primary data: historical energy intensity
calculations based on National Bureau of
Statistics of China data; energy intensity data
2010-2050 based on projections from the Energy
Research Institute of China.
China,
however, has been following a quite different
pathway in terms of its energy intensity. In
Figure 4 we plot its energy intensity since 1980,
and project its energy intensity forward based on
projections of researchers at China's official
Energy Research Institute. [7]
Since the
growth of GDP is expected to be substantially
higher than that of energy consumption in the next
decades, the estimated energy intensity can be
anticipated to decline quickly after 2010.
We interpret this chart to mean that China
was able to accomplish the quite unprecedented
feat of quadrupling GDP from 1980 to 2000 while
"only" doubling energy consumption - thus
accounting for the continuing decline in energy
intensity (admittedly from a very inefficient
starting point).
Then in the early 2000s,
China experienced the full force of its nascent
"energy revolution", when there was a big swing
back to coal as primary fuel and the dominance of
energy-intensive heavy industry. But then in 2003
it "peaked" - at an energy intensity of 0.128 tce
(tonnes of coal equivalent) per yuan (2005 level)
- and since then it has been declining, just as
the earlier industrializing countries experienced.
China's period of rising energy intensity
has been greatly compressed; it is as if it
"tunneled" through the rising and then falling
energy intensity pathway, as discussed by some
commentators in the context of the more general
setting of the Environmental Kuznets Curve.
China has thus been reducing its energy
intensity as a matter of national policy - rather
than relying simply on markets and technology as
happened elsewhere. Of course, China is using
these tools to bring about the intensity
reductions; in the electric power sector, all
efforts are being made to introduce more
energy-efficient generation technologies.
This provides the background to China's
well-known commitment made at Copenhagen to reduce
energy intensity by a further 16% between 2011 and
2015, after having almost achieved the goal of
reducing it by 20% over the previous five years
2006-2010. (The actual achievement in 2006 to 2010
was a reduction in energy intensity of 19.1%. The
first year of the new period of the 12th Five-Year
Plan (2011-2015) saw a further reduction in energy
intensity of 2%, down to 0.79 tce per unit GDP.
[9]
Projected carbon
emissions It is the carbon intensity of
China's energy industrial revolution that gives
rise to most concern. What emissions are likely to
be generated from China's massive burning of
fossil fuels - before the substitution by
renewables reduces their consumption?
Using Chinese data on carbon emissions, we
can now sketch the actual carbon emissions likely
to be generated by China's electric power
revolution. We exclude potential carbon emissions
from renewable and nuclear-based electric power
stations in this calculation as we assume those
would be minimal compared with those from the
coal-fired power stations. [10]
In 2010,
China burned around 3.4 gigatonnes (Gt - or 3.4
billion tonnes) of coal, of which 1.5 Gt were
burnt in thermal power stations to generate 3,000
terawatt hours (one terawatt is 10 to the power 12
watt hours) of electricity. Based on Chinese
estimates for carbon emissions from thermal power
generation, we would expect this level of power
generation to result in 3.1 Gt carbon dioxide - or
0.84 Gt carbon. (Multiply level of CO2 by 12/44 to
get the level of carbon; or the level of carbon by
44/12 to get the level of carbon dioxide.) The
approximate 1.5 Gt of coal thus produce around
0.84 Gt carbon emissions, or 3.1 Gt CO2.
Now let us add up all the anticipated
carbon emissions from China's future generation of
electric power (accounting currently for no less
than 50% of China's total carbon emissions). (We
do not include emissions from agriculture,
transport and other industrial activities because
we do not have reliable data or projections for
such sources. But our focus on power generation is
certainly justified since it accounts for 50% of
carbon emissions at the moment.)
According
to our estimate, we expect the carbon emissions
from China's electric power sector will continue
to grow till around 2025 then start to decline
thanks to the take-off of the renewable energy
used in the sector. This means that, for all its
efforts to reduce energy intensity and carbon
intensity, China is likely to be increasing its
total carbon emissions from generating power for
another decade or more.
Figure 5:
China: Projected carbon emissions from thermal
power generation, 2000-2040 Source:
Authors' calculation.
This fifth chart
tells a remarkable story. We can read off the
level of CO2 emissions for 2000 (around 0.5 Gt
CO2) rising to more than 3 Gt CO2 by 2010 and an
anticipated level of 5.3 Gt CO2 by 2020 from
conventional thermal power stations.
By
integrating under the curve, we estimate that
total CO2 emissions due to China's
fossil-fuel-based electric power generation over
the next three decades between 2011 and 2040,
would be about 140 billion tonnes.
Yes,
China's carbon emissions from electric power
generation will continue to rise - but we
anticipate that they will plateau in the 2020s and
then start to decline - steeply, as thermal power
generation declines.
What will be the
impact on carbon dioxide levels of these extra
gigatonnes of carbon emitted as a by-product of
China's industrialization? We know (for example
from the Carbon Mitigation Initiative at
Princeton) that carbon dioxide levels rise by 0.22
parts per million (ppm) for each Gt carbon
emitted. [11] Thus, the addition of around 140 Gt
carbon dioxide up to the year 2040 from electric
power generation would force carbon dioxide
concentrations to rise by around 30 ppm.
So we have a clear outer limit to the
"carbon emissions" cost of China's energy
revolution and associated industrialization,
especially those in relation to burning coal and
other fossil fuels in the electric power sector
(the largest user of coal in the Chinese economy).
This outer limit of 140 Gt CO2 up to 2040
is likely to drive up carbon dioxide
concentrations by 30 ppm. Since the CO2
concentration stands at 391 ppm (in 2012), China's
net increase in carbon concentration (what the
Intergovernmental Panel on Climate Change, or
IPCC, calls "forcing") from electric power
generation can be expected to drive this up to 421
ppm - taking the world close to the "prudent
level" of 450 ppm established by the IPCC.
Of course, China's and other countries'
carbon emissions have to be added to this to gain
a global perspective. China's industrialization is
the first where its carbon emissions implications
can be anticipated in advance.
Nevertheless it has to be stated again
that China's energy-intensive and carbon-intensive
industrial revolution (its coal-based black
transformation) is exacting a fearsome toll in
terms of polluted skies, waterways and earth, and
the health risks and costs associated with all
this.
The human consequences of China's
energy transformations are felt first in the
cities - and it is here that most pressure for a
new green approach will be felt first. Our
projections are not meant to gloss over the
fearful consequences of all these changes.
However, as we stated in an earlier
article (see here,
we do not see this as an argument that China
should hold back its industrialization efforts.
Rather we see China's strategies as designed to
build the green energy sector as fast as is
technically and humanly feasible, so that the
logistic industrial dynamics that drive the green
energy revolution may overtake the dynamics of
continued fossil fueled development.
The
prospects for our industrial civilization are
being shaped not so much by what happens in
Washington or Brussels or Tokyo, but increasingly
by decisions being taken in China.
Notes: 1. According to
the data available at the China Electricity
Council, China added 58.3 GW of conventional
thermal electricity capacity in 2010, 58.9 GW in
2011, and 35.6 GW from January to November in
2012. 2. Accounts of China's energy revolution
that emphasize its dependence on fossil fuels, and
particularly coal, include the regularly updated
accounts from the US Energy Information
Administration (see here
) and the report from Goldman Sachs, Sustainable
growth in China: Spotlight on energy, August
2012. 3. The data from China Electricity
Council are: total investment in new capacity for
the first 11 months of 2012: 302 billion yuan
(US$48.3 billion), of which 79.4 billion yuan in
thermal, 102.8 billion yuan in hydro, 49.5 billion
yuan in wind and 65.0 billion yuan in nuclear,
with the balance coming from solar and bioenergy.
4. According to the China Electricity Council,
for the first 11 months of 2012 China added 57.3
GW of electricity capacity in total, of which
thermal, hydro and wind account for 35.6 GW, 13.1
GW and 8.2 GW respectively. See the latest
brief (in Chinese). 5. According to Lin
Boqiang, director of the China Center for Energy
Economics Research at Xiamen University,
investment in coal-fired power stations in 2012
would amount to about 100 billion yuan (US$15
billion) - half the level of 2005. 6. See China
cancels 1-yr control on thermal coal prices,
China Daily, December 23, 2012. 7. See Energy
Research Institute, 2009. "China's Low Carbon
Development Pathways by 2050: Scenario Analysis of
Energy Demand and Carbon Emissions", NDRC Energy
Research Institute Research Team. Science Press.
Beijing (in Chinese). 8. These energy intensity
data include projections of China's future GDP:
Period, followed by average GDP growth per year -
2005-10, 9.67%; 2010-20, 8.38%; 2020-30, 7.11%;
2030-40, 4.98%; 2040-50, 3.6%. Source: adapted
from Energy Research Institute, 2009. "China's Low
Carbon Development Pathways by 2050: Scenario
Analysis of Energy Demand and Carbon Emissions",
NDRC Energy Research Institute Research Team.
Science Press. Beijing, (in Chinese). 9. See China's
latest energy consumption data reveals new
opportunities and challenges, China FAQs,
November 5, 2012. 10. This is supported by Liu
et al. (2011), "Development forecast of renewable
energy in China and its influence on the GHG
control strategy of the country", Renewable
Energy, 26: 1284-1292, who estimate that the
emission factors of hydro, wind, solar and
biomass-based electricity are 17, 36, 57, and 46 g
CO2 / kWh compared with 1,017 g CO2 / kWh by
coal-fired power plants. 11. See the Carbon
Mitigation Initiative website, and
the presentation
on stabilization wedges.
John A
Mathews is Professor of Management, Macquarie
University, Australia, and Eni Chair of
Competitive Dynamics and Global Strategy at LUISS
Guido Carli University in Rome. Hao Tan,
Newcastle Business School, University of
Newcastle, Australia.
(Used with
permission, JapanFocus.
To see the original article, click here.)
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