A New Energy Model

Moisés Naím / World Energy & Oil

The year 2049 marks the 100th anniversary of the founding of the People’s Republic of China. It is also the year when, according to President Xi Jinping, China would have become a “fully developed nation.” At least that is his goal. This enormously ambitious goal has myriad implications and even more unknowns and unintended consequences. There is, however, one clear implication for which there are no uncertainties: to attain such a lofty goal China needs both more energy and new ways of procuring, distributing and using it.

President Xi obviously understands this. He has repeatedly stressed the imperative of becoming a more ecologically-friendly nation, a purpose that requires drastic changes in the kinds of energy the nation uses to fuel its development.

In October 2017, Xi gave an important speech to the 19th National Congress of the Chinese Communist Party. He said “The entire Party and the whole country have become more purposeful and active in pursuing green development… in taking a driving seat in international cooperation to respond to climate change, China has become an important participant, contributor and torchbearer in the global endeavor for ecological civilization.”

Xi went on to outline a specific timetable for reaching this goal. By 2035, he said, the environment will be significantly improved and by the mid of the century “new heights [will be] reached in every dimension of… ecological advancement.” He also promised to “step up efforts to establish a legal and policy framework that promotes green production and consumption, and promote a sound economic structure that facilitates green, low-carbon development...

Fulfilling Xi’s energy and ecological promises will not be easy given the current situation of China’s energy sector. Although the country has been aggressively trying to upgrade the quality of its energy mix and change its consumption patterns, significant obstacles remain in the path of China’s desire to combine energy self-sufficiency with a high quality, less polluted, environment.

There are at least five aspects of China’s current energy situation that will greatly influence the outcomes of Xi’s efforts in this area.

1. Adverse initial conditions
Although China has made impressive strides on its road to a lower carbon environment, it still generates about 29 percent of total global warming emissions, twice as much as the U.S. (14 percent) and almost three times as much as the European Union (10 percent). Projections by the International Energy Agency, IEA, indicate that by 2035, Xi’s important milestone, the country would still be the world’s largest emitter of greenhouse gases. This frustrating outcome will obtain despite a dramatic increase in the utilization of cleaner, renewable sources of energy, which, in 2035, are expected to provide up to one quarter of Chinese energy needs.

2. A wasteful energy situation
Currently, China not only uses energy from the most polluting sources, but it is also very inefficient and wasteful in its energy usage. Each one percent of economic growth in China requiresfourtimes more energy than the average of OECD countries and three times as much as the Latin American average.

The reasons for this extreme energy inefficiency are varied, complex and not easy to overcome. Perhaps the most important factor is that China’s industrial plant and equipment still in use are obsolete and extremely polluting.

This is especially true in the case of electric power plants. Large scale industries such as steel, aluminum, cement, glass and chemicals are also extremely inefficient in their energy use. Chinese buildings, both commercial and residential, are well known for having above average energy requirements for heating and air conditioning.

3. A lingering coal addiction
A third factor is related to China’s overdependence on coal, the most polluting of all fossil fuels. Not only is China the largest coal consumer in the world, with almost half of global consumption, but also the largest coal importer. Low prices for coal stimulate its large scale use. Changing this is a politically explosive task everywhere and China is not an exception. Attempts by the government to minimize this dependence by closing down coal mines have met with fierce resistance from coal miners, who have taken to the streets in protest against a government’s proposed cut of over one million jobs. Moreover, complex policy contradictions now bedevil the government’s efforts. Perhaps the most revealing one is that at the same time that Beijing is trying to close down coal mines, it is also planning to build some 700 new coal-fueled power plants. The current overdependence on coal is exacting a high price in human lives and overall quality of life. A 2016 World Health Organization report reveals that up to 1.3 million people will die prematurely in China as a result of air pollution, as compared to second place India, where 645,000 premature deaths are forecasted. A study by Tsinghua University professor Teng Feishowsthat over 70 percent of China’s population is exposed to levels of pollution that are ten times higher than those considered safe. While such a critical situation should accelerate China’s efforts to minimize its dependence on coal it also poses thorny political decisions.

Booming imports of polluting energy
A fourth factor is that China energy imports, mostly heavy oil and coal, are on the rise and projected to increase from 16 percent of total consumption in 2015 to 21 percent in 2020. The country is now importing about 7.6 million barrels of oil per day, including over one million barrels per day of a largely heavy Ural blend from Russia and some 300,000 barrels per day of heavy Venezuelan oil, both of which are highly contaminating. Unlessreplaced by cleanersources of energy, these imports of contaminating oil will impact negatively Xi’s 2035 environmental goals.

It’s not shale, it’s water
According to the World Resources Institute (WRI) China has about 1200 trillion cubic feet of shale gas, the world’s largestreserves. The problem is that a large-scale development of these resources needs massive volumes of water that China may not have.

Water is essential for hydrofracking, the technology used to extract hydrocarbons from shale formations. The WRIreport stresses that over 60 percent of these shale gas resources are located in arid regions of China where water is critically scarce.

The water used for hydrofracking is less available for agriculture or other competing uses. This poses a difficult tradeoff for any country. In fact, large scale hydrofracking in China could conflict with another of Xi’s objectives, which is to “ensure China’s food security” by mid-century. Although data on water availability is still inadequate, there is no doubt that the full exploitation of China’s giant shale oil and gas reserves could be constrained by insufficient water availability.

For the past several decades, China has surprised the world with its continued economic growth and its ability to translate this growth into massive poverty alleviation. Perhaps China will also surprise us by rapidly moving from a polluting and inefficient high carbon energy model into a low carbon, ecologically friendly one. Making this shift will be as challenging as it is indispensable, for China and for the entire planet.