China’s energy revolution strategy

Written by Manish Vaid.

There has been a visible shift from China being portrayed as a giant energy buyer to a rising energy seller. Accordingly, the world’s most populace nation is thought to have the potential to reset the global energy order, which in turn will earn a greater say in existing Global Energy Governance (GEG) platform.

China’s energy consumption, which surged during the period 1995-2015, is now witnessing a decline under “new normal” economic conditions. The ‘new normal’ is a stage of economic development characterised by a slower economic growth targeted at sustainable development, which aims not only to curb energy consumption, particularly dirty fossil fuels, but also strives towards greater energy efficiency and carbon emissions mitigation. In 13th Five Year Plan, China targeted a growth rate of 6% per annum over the next few years, a drop of 2% compared with the previous year, initiating supply-side reform, which inter-alia aims to reduce excess capacities in sectors like coal.

It is in this context, President Xi Jinping on June 2014 called for an ‘Energy Revolution’, aimed at curbing energy consumption by reducing coal share and increasing the shares of non-fossil fuels in China’s primary energy consumption basket while enhancing energy efficiency measures. Consequently, the National Development and Reform Commission released the “Energy Revolution Strategy” (ERS) on April 25, 2017, which sets out the key targets and strategies of Chinese energy sector by 2030. This strategy is a pathway beyond the 13th Five Year Plan for Energy (2016-2020), with an objective ‘to make the skies blue again’, as pledged by Chinese Premier Li Keqiang.

The New Normal and ERS

Currently, China is at the tipping point of energy transition, wherein, being the largest energy consumer and greenhouse gas emitter in the world, it has a critical role to play not only for the sustainability of its own “new normal” economy but also for the good of the plant as whole.

Coupled with China’s population growth levelling off at around 1.4 billion people and per capita income approaching the level of developed economies, a structural shift from a manufacturing and export economy to high-tech and service sectors is anticipated, significantly pushing down energy consumption.

The ERS sketched out a roadmap for 2020 and 2030 and also outlined a vision for 2050. In its roadmap to 2020, ERS calls for capping of primary energy consumption to 5 billion tonnes of coal equivalent (BTCE), lowering the share of coal to 58% (13th FYP); reducing GDP energy intensity and GDP CO2 intensity by 15% each and accounting for a 15% share of non-fossil fuels in the energy mix.

The roadmap to 2030 includes capping primary energy consumption to within six BTCE; lowering GDP Co2 intensity by 60%-65% by 2030 as of 2005 levels; taking GDP energy intensity to the world’s average level; and taking the share of natural gas in the energy mix to 15%, with that of non-fossil fuels to 20%.

Looking toward 2050, ERS has predicted that primary energy consumption will stabilize and non-fossils will account for more than half. Finally, ERS predicts that China will become an important participant of GEG by 2050.

Opportunities and Challenges

Reasonable implementation of ERS strategy therefore offers a broad range of opportunities to China. First would be a clearer and cleaner sky due to reduced coal consumption and adoption of clean energy technologies.

Implementation of ERS goals would also help China to reduce its energy intensity through enhanced energy efficiency and restructuring of its economy under the current  planned settings. Energy efficiency efforts would get further support if China establishes a market-oriented energy pricing mechanism under its current energy reform. Additionally, allowing greater competition from private companies would help break state-owned monopolies.

ERS would provide stability in light of global supply-demand imbalances through China’s engagement with the world economies. Such engagement would strengthen China’s  Belt and Road Initiative (BRI) due to world’s clearer perception of China’s energy policy goals and the role that Beijing can play in meeting underlying objectives of respective GEG institutions, such as the International Energy Agency. This would bridge the trust deficit gap between the global energy fraternity and China.

While one of BRI’s objectives is to strengthen China’s energy security by securing massive investments to develop energy infrastructure such as oil and gas pipelines, liquefied natural gas terminals and renewable energy, energy cooperation would also help China to meet integrate energy networks across respective energy stakeholders. This would eventually address existing GEG gap, which President Xi aims to address. Furthermore, this would also help China to leverage existing GEG institutions such as, Shanghai Cooperation Organisation, Asia-Pacific Economic Cooperation and the G20 on issues concerning environment, energy security, market integration, energy cooperation as well as energy pricing and transportation costs.

As far as challenges are concerned, the country’s increasing dependence on both oil and coal continues to put pressure on ERS targets and thwarts China’s attempts to make its skies blue again. China, which became net oil and coal importer in 1993 and 2009 respectively, repeatedly struggles to bring down the share of fossil fuels in energy mix.

According to BP Energy Outlook 2018, China will remain the world’s largest consumer of coal, accounting for 41% of global coal demand in 2040. Oil import dependence will rise from 63% in 2016 to 72% in 2040 according to the same report. The case in point is the country’s huge dependence on coal to charge its electric vehicle (EV) fleet. While China is making great progress towards electrification of its EVs, several studies conducted by Tsinghua University state that China produces two to five times as much particulate matter and chemicals as would be expected from gas-engine cars.

On the clean energy front, China, which has become world’s largest producer of photovoltaic (PV) power, is already facing challenges from other global players. Recently, it has received a blow from the US, which has imposed 30% tariffs on imported solar panels. India too is mulling a 70% safeguard duty on cells and modules shipped from China in order to insulate its domestic industry.

Thus, while ERS creates an opportunity for China to make its sky blue while meeting its energy demand, it can also help China to plug the gap in the existing GEG and eliminate any market distortion and imbalances in energy supply, through greater transparency in energy cooperation.

Manish Vaid is a Junior Fellow with the Observer Research Foundation. The views expressed in this article are those of the author. Image credit: CC by Land Rover Our Planet/ Flickr

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