Page 2 of
2 China
makes breakthrough on energy By
Jianjun Tu
loopholes of China’s
intellectual property protection system not only
hurt foreign companies but also reduce the
incentive of Chinese enterprises to invest in
research and development of advanced technologies.
Furthermore, Beijing needs to be aware of
the risk of being too technologically aggressive.
In August 2004, Shenhua Group, China's largest
coal producer, started the construction of the
country's first industrial scale direct coal
liquefaction plant in Inner Mongolia, which would
eventually process 15 million tonnes of coal to
produce five million tonnes of oil products
(Financial Journal, November 8, 2007). Since
Shenhua's engineering adventure has not gone
through the same rigorous scaling up
experiments practiced by
most Western companies, the affirmative support by
the government for such types of projects is
debatable, especially when a national coal-to-oil
strategy directly contradicts with Beijing's
energy conservation goal.
While
coordinating energy and environment development is
highlighted as one of the key development
policies, climate change has been given
unprecedented emphasis. The white paper not only
defends China's position of not accepting legally
binding GHG emissions targets with a lengthy
paragraph, but also places "comprehensive control
of GHG emissions" as the highest environmental
priority ahead of "fighting ecological destruction
and environmental pollution" for the first time.
After China released its much-anticipated
National Climate Change Strategy on June 4, 2007,
the recent change of Beijing's environmental
priority clearly demonstrates that China will act
proactively to address the increasing pressure
from the international community on this global
environmental issue (China Brief, June 27, 2007).
Ironically, the rejection of the Kyoto
Protocol by the United States provided a perfect
opportunity for China to excuse itself from a more
concrete commitment other than harnessing
auxiliary benefits from energy intensity-based
reduction initiatives. In comparison, the white
paper promises that China will introduce
regulation that is more stringent accompanied by
enforcement for fighting local environmental
issues such as ecological destruction, air/water
contamination, vehicle emissions and energy
project development.
Deepening energy
system reform is considered an intrinsic
requirement of China's energy development. The
government started to deregulate the energy
industry in the late 1990s, but major state energy
companies today are still too powerful to be tamed
by regulators. For instance, historically, CNPC
had focused mainly on oil and gas exploration and
production while Sinopec had primarily engaged in
downstream activities such as refining and
distribution. Beijing always needed to subsidize
at least one of them when oil prices were tightly
regulated, so one objective of restructuring these
companies is to reduce the heavy subsidy by the
government.
However, while both CNPC and
Sinopec enjoy the monopoly status of their
upstream operations and earned record-high profit
in recent years, they cut production at their
refineries to minimize economic losses whenever
they perceive that the price limit of oil products
set by the government is too low. Unsurprisingly,
the hard lessons learned from recent diesel oil
shortages clearly suggest that China has an urgent
need to 1) introduce more competition to the
energy industry; and 2) advance price mechanism
reform to make the operations of state energy
companies subject to market rules.
International energy
cooperation The white paper states that
China regards strengthening international
cooperation a key component of its energy reform,
and expresses the intention to further open its
energy industry by forging closer ties with the
rest of world. Nevertheless, to prosper in the
Chinese market, foreign companies should memorize
the caveat: China's primary intention is to
introduce foreign advanced technology, management
experience and people of technical expertise.
While China increasingly relies on international
trade to fuel its booming economy, its support for
major state energy companies' direct overseas
investment will be further strengthened according
to the white paper.
Moreover, realizing
the importance of regional stability for global
energy security, China calls the international
community to work collaboratively with the country
to maintain regional stability, especially in the
oil producing and exporting countries.
Smoothly merging China's energy industry
into the global market imposes a major challenge
for the government, and accommodating the
country's increasing presence is also unlikely an
easy task for the outside world.
To deal
with China's emergence as a major energy player,
two views dominate the policy debate: one, a
hostile attitude, which is evident in the US
Congress' vehement objection to China's
unsuccessful bid to buy Unocal in 2005; and two,
engaging China. While continuous hostility towards
China certainly guarantees retaliation sooner or
later, the resulting backfire is likely to become
intolerable even for countries like the United
States as China quickly gains political clout in
the international sphere through multilevel
engagement with third-country suppliers.
Therefore, cooperating with China should
serve the interests of the international community
better; a good example is the IEA's continuous
dialogue with China on energy-related issues.
In the process of building a prosperous
society that benefits all Chinese, energy has a
significant bearing on the country's sustainable
development. To address its tremendous energy
challenges, Beijing is investing in any global
solution. Similarly, understanding China's energy
circumstances is the first step to engaging the
country in international cooperation to ensure it
plays by the rules. Finally, though China's
national energy strategy has been laid out in its
first energy white paper, it is in its best
interest to continuously refine its energy policy
in the years to come, ideally, with substantial
help from the international community.
Notes 1. Full text available here. 2. National
Bureau of Statistics, China Statistical Yearbook
2007. 3. China Electricity Council, 2006
Statistical Report of China’s Electricity
Industry. 4. National Bureau of Statistics,
China Statistical Yearbook 2007; British
Petroleum, World Energy Statistical Review
2007. 5. US EPA, Air Emissions Summary through
2005; State Environmental Protection
Administration (various years) China Environment
Yearbook. 6. Click here. 7. China Coal
Industry Association. 8. International Energy
Agency, World Energy Outlook 2007. 9. National
Bureau of Statistics, China Statistical Yearbook
2007; British Petroleum, World Energy Statistical
Review 2007; World Bank, World Development
Indicators online.
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