Page 1 of
2 China gets energy issues down on
paper By Jianjun Tu
The long-anticipated plan for structural
reforms to the Chinese energy sector through the
merger of a ministries, commissions and
departments to form an energy super-ministry or
super-commission passed, with some tweaks to
satisfy the powerful vested interests that
dominate the sector.
The conclusion of the
11th National People's Congress revealed that,
however much needed, government consolidation and
reform will be a drawn out process especially for
the energy sector. For instance, the newly created
National Energy Commission lacks jurisdiction over
the three state oil and gas monopolies and other
government-controlled energy and electricity
conglomerates.
Nevertheless, Beijing's
efforts signal a step in the right direction
and Zhang Guobao, the
newly appointed director of the National Energy
Bureau, will have to implement the policies set
forth by Beijing in its white paper on national
energy strategy.
Beijing gradually lost
control of its energy industry after China's
official coal statistics were distorted in the
late 1990s, and it has tried with marginal success
to pick up the pieces ever since. Spiking oil
prices, widespread blackout, greenhouse gas (GHG)
championship, deteriorating air quality and
undisciplined oil companies all made energy policy
a major headache for Beijing.
After
numerous legislative efforts in recent years, the
white paper that was issued by the Information
Office of the State Council on December 26, 2007
finally addressed the country's energy
circumstances and policy, the first of its kind.
The white paper comprehensively laid out the
National Energy Commission's work for the years to
come [1].
China's energy
predicament Since Beijing lost its
cherished status of energy self-reliance in 1993,
the country's primary energy consumption increased
rapidly at 6% annually, and China is now the
world's second-largest energy producer and
consumer. In 2006, it burned 2,392 million tons of
coal, accounting for 39% of the world total [2].
In the same year, it connected 104.8 GW to the
electric grid, almost the capacity of the entire
African continent [3]. Between 2001 and 2006,
China’s oil imports more than doubled,
representing 27% of world oil imports expansion
[4]. Rapid growth, however, does not necessarily
translate to success, especially when
environmental quality and energy security need to
be taken into consideration.
With limited
petroleum reserves, the country has to count on
its own abundant resources of coal for its
industrialization ambitions. Three decades after
Deng Xiaoping opened up the economy, coal still
represents 69.4% of China's primary energy
consumption, compared with 71.3% in 1979. The
heavy reliance on coal makes the country the
leading polluter of air contaminants and GHGs.
As early as 1995, China's sulphur dioxide
(SO2) emissions ranked the worst in the world,
accounting for 24.2% of the world total. Since
then - while the United States, the second-largest
emitter, lowered its emissions by 19% in 2005 -
70% of Chinese thermal power plants have not
installed sulphur scrubbers, and China's SO2
emissions increased steadily from 23.7 million
tonnes in 1995 to 25.5 million tonnes in 2005 [5].
Moreover, a preliminary estimate by the
Netherlands Environment Assessment Agency reveals
that China has overtaken the United States as the
world's biggest producer of carbon dioxide (CO2)
in 2006, which increases anxiety about China’s
growing role in driving man-made climate change.
Some Chinese pundits argue that the CO2
coefficient of average coal used to prepare the
country's National Communication on Climate Change
is much lower than the International Panel on
Climate Change (IPCC) default coal emissions
factor used by the Dutch agency; China's 2006
energy statistics used for the estimate are only
preliminary. In actuality, China used IPCC default
factors to calculate the baseline emissions
intensity of coal-generated electricity under the
Clean Development Mechanism [6], and the heavy
tolls paid for the recent botched coal statistics
make the government unlikely to play with the coal
statistical report against rising CO2 emissions.
Beside the risks of choking on smoke and
other environmental side effects, China also faces
enormous risks from potential energy supply
disruption. In 2007, the country's coal output
reached a record 2,523 million tonnes, a 6.3%
spike on a year-over-year basis, but it still
could not keep pace with the booming economy [7].
As a result, China became a net importer of coal
in January 2007 and maintained that status for
most of last year.
Mass volume of coal
supply coupled with the long distance amongst the
country's major energy consuming centers and coal
supply regions put tremendous strain on transport
infrastructure. Moreover, during the first 10
months of 2007, China's dependency on imported oil
has risen to 49% of its demand (China Securities
Journal, November 23, 2007), and the International
Energy Agency (IEA) projects that this ratio will
increase to 80% in 2030 along with rapid growth of
natural gas import [8].
China's heavy
reliance on foreign fuel combined with the
unstable geopolitics of major oil-producing
regions stir national security concerns, so the
government reorganized most state-owned oil and
gas assets into two vertically integrated firms in
1998: the China National Petroleum Corporation
(CNPC) and the China Petroleum and Chemical
Corporation (Sinopec). The attempts at reform have
so far produced only mixed results. While major
Chinese oil companies have had some success in
terms of overseas acquisitions and record high
profit in recent years, their stifling of domestic
competition and their suspicious role in recent
oil shortages were much criticized by the media.
China's per capita energy consumption is
still very low. In 2006, per capita consumption of
oil reached only 39% of the rest of the world
average, and reached 5% for gas and 37% for
electricity. Compared with the United States, the
similar ratios drop to 8%, 2% and 15% [9]. As
average Chinese become wealthier, it is hard to
imagine they will not be interested in a more
luxurious and thus energy-intensive life style
enjoyed by their counterparts in the developed
world. To address these challenges, and to
"realize the coordinated and sustained development
of all energy resources to the fullest possible
extent", the government increasingly regards
energy-related issues as a higher policy priority,
which culminated in the release of its first
energy white paper at the end of 2007.
Alleviating China's energy
predicament The energy white paper
emphasizes the importance of energy conservation
in terms of attaining sustainable development.
Beijing started energy conservation efforts in the
early 1980s and achieved the goal of quadrupling
economic growth while only doubling energy
consumption by the late 1990s.
Starting
from 1997, an unsuccessful campaign to close small
coal mines seriously distorted official energy
statistics; moreover, the lack of open discussion
has worsened the whole situation, and the chaos
lasted too long. When the stated value of China's
energy conservation in the late 1990s seemed
overly impressive, the posted energy consumption
spike during the early 2000s inevitably resulted
in unnecessary pressure on the country's energy
sector and distrust between the government and the
industries. As a result, the energy conservation
campaign did not regain momentum and credibility
until the National Bureau of Statistics and the
Energy Bureau jointly revised energy balance
tables in 2007.
The second remedy
prescribed by the white paper is the expansion of
energy supply capacity. China has primarily relied
on domestic energy resources to develop its
economy, and the rate of self-sufficiency has been
above 90%, much higher than that in most developed
countries.
As the bad memory of the Cold
War and the possibility of confronting the United
States in the Taiwan Strait made China's
decision-makers nostalgic for the era of energy
self-reliance, the government is determined "to
rely mainly on domestic energy resources, give
priority to optimizing its energy mix, and work
hard to increase its energy supply capacity in the
process of building a moderately prosperous
society".
The white paper even echoed an
unrealistic goal set by the 11th Five-Year Plan
(2006-2010), which states that China’s energy
supply will meet the demands of national economic
and social development by 2010. Ignoring the fact,
however, that the country will inevitably increase
its petroleum-dependence to drive its booming
economy and alleviate environmental degradation,
Beijing risks the possibility of burning too much
coal than otherwise it should under an optimized
fuel mixture scenario.
In 2005, the
government promulgated the Outline of the National
Plan for Medium- and Long-term Scientific and
Technological Development (2006-2010), and the
white paper confirms that the top priority will be
continuously given to the development of energy
technology in the fields of energy conservation,
fuel substitution, recycling and pollution
control.
Nevertheless, overemphasis on the
"localization rate of technical equipment" might
act as a deterrent for introducing much-needed
overseas technology into the domestic market.
Moreover, the
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
