As the second largest economy in the world, China’s energy demand is growing at a speed never seen before, representing more than 80% of the growth in both oil and coal consumption internationally in the past few years. When a country is developing at this scale, anything it does will have huge implications on a variety of global issues, from energy markets, commodity prices, energy security, to climate change.
However, people trying to understand what energy path the country is heading toward are often puzzled by the complexity of the picture: On the one hand, the country is the biggest emitter and the largest net importer of coal. On the other, China also leads renewable energy manufacture and installation, and has helped push down the cost of renewable generation globally.
At a World Affairs Council event titled “Energy Access: China’s Impact on Global Energy Markets” this February, two panelists, Mikkal Herberg from the National Bureau of Asian research and Seth Kleinman from CitiGroup Global Markets, joined CPI’s Senior Director David Nelson in discussing China at its crossroads, and the implications for energy trends and changes. The panel discussed a range of issues – from how the country invests in overseas assets, to how its increasing dependence on imports affects global prices. Some of this discussion was particularly illuminating for those seeking to understand China’s complex climate and energy signals.
One point generated in this discussion that is particularly interesting is that all concerns filter through China’s main lens: to maintain growth and political stability. Put through this lens, there are a series of daunting domestic challenges which threaten these goals. The smog covering Beijing and a dozen other provinces in China this past winter is a reminder of the gravity and urgency of China’s environmental issues. Before letting local pollution threaten social stability, the Chinese government also needs to deal with its aging population and subsequent less abundant cheap labor, to rebalance the ever-increasing power of state-owned enterprises, to ensure food safety and public health, and most importantly, to transfer wealth and welfare to the growing middle class.
Many of these domestic challenges are also key concerns in the energy and climate sphere. Take the power of state-owned enterprises as an example. As the panelists pointed out, despite being state-owned enterprises, China’s national oil companies increasingly operate like real oil companies, seeking economic profits rather than state energy security interests by reselling overseas-produced oil to regional markets rather than importing it to China. Similarly, state-owned grid companies often ignore renewable targets and prefer to connect cheaper coal-fired energy than wind to the grid. The Chinese government is becoming more and more concerned about the expense of providing loans and support to keep state-owned enterprises’ monopoly position, and is experimenting with ways to incentivise the private sector’s participation in many industries.
To solve global problems like climate change, one must take into consideration China’s development priorities such as restraining state-owned enterprises’ power, growing rich before growing old, etc., and align global sustainability goals with these domestic interests. The more they help China solve inequality, pollution, and achieve growth, the more climate change goals are likely to succeed.
In fact, China has already been taking action to achieve domestic goals that bring about energy and climate co-benefits. Propelled by local pollution problems and energy security concerns, the country has been diversifying its energy mix to reduce its reliance on fossil fuels and increase its use of renewable and nuclear energy.
Clean technology and global competitiveness provide another juxtaposition where this alignment of interests is happening. Part of the 12th Five-Year Plan released last year listed renewable energy as a strategic emerging industry, as the government foresees the deployment and technological breakthrough in this area will play a central role in enhancing China’s global competitiveness and leadership in the long-term. Instead of serving as the manufacturing plant it did in the electronic and internet revolution, China has a real opportunity to move up the value chain or even become the innovation hub in the new wave of technology revolution that includes renewable energy. We have already seen how China developed a leading wind industry in merely a decade’s time, and with the economy transforming from an investment-driven growth toward a demand-driven one, we may be able to see China develop its own new technology for the consumption of its growing middle class.
These are examples of how, in pursuing its self-interest, China can bring itself closer to a low-carbon development path, and how the same intention may eventually serve to combat global challenges like climate change. We need to seek further opportunities that can bring about the alignment of global need and domestic interest, and promote policies that help in this process.