GPSolo Magazine - September 2005
China ’s Energy Security and the Climate Change Conundrum
China is an energy superpower. During the past three years, China has accounted for one-third of global economic growth, twice as much as the United States. The energy consequences of China’s explosive growth will be a massive increase in demand for all forms of energy. China, endowed with rich resources of coal, has the dubious distinction of being both the world’s largest producer and consumer.
China is shaping the world’s energy and geopolitical landscape. The widening gap between China’s limited domestic fossil fuel energy supply and its huge and rapidly growing energy demand is a fundamental threat to global energy security and climate change. Coal will remain its largest fuel source in the overall energy mix, while oil will continue to be of critical importance to China’s energy security. However, if China continues its “business-as-usual” trajectory, satisfying China’s soaring demand may destabilize global energy markets and create irreversible climate impacts. Thus, China’s policy direction in the development of cleaner sources of energy, such as natural gas, hydro, and renewables, will play a significant role in determining the sustainability of future energy supplies.
In light of domestic production constraints, China worries about its vulnerability to supply disruptions and price volatility in international markets. At present, China imports about one-third of its oil requirements and expects to import one-half by 2010. Currently, around 60 percent of these imports come from the politically unstable Middle East, a figure that is expected to increase to around 80 percent by 2010. Recognizing these security concerns and the need to diversify its sources, China has been negotiating with Russia and Kazakhstan to build oil pipelines. Chinese President Hu Jintao also recently visited three energy-exporting African nations to secure oil sources and build energy relationships for the future.
The rising demand from fast-growing China may shift the political and economic dependence of many Middle Eastern oil producers from the West to East Asia. China has already joined the European Union, Russia, and the United States in taking a significant interest in the Middle East to ensure a reliable and stable flow of oil. China may also start flexing its military muscles in the South China Sea over the oil and gas reserves off its coast and those of neighboring countries. The shift in centers of global demand may make national economies more vulnerable to supply disruptions and price shocks and may increase the risk of resource conflicts and competition between countries, such as China and the United States.
China ’s impact on global climate change is equal to if not greater than its impact on global energy security. After the United States, China is the second-largest emitter of greenhouse gasses (GHGs), about 14 percent of world totals. Its absolute emissions continue their upward trajectory; depending on its growth path, China’s GHG emissions may exceed the industrialized world’s within the next 25 years.
About 90 percent of China’s total GHG emissions are in the form of CO2. Coal is the primary source of GHGs in China, contributing up to 75 percent of CO2 emissions. As coal is the most abundant and the least expensive domestic fuel resource in the country, it will continue to play a preeminent role in the energy mix and hence China’s industrial development. Given China’s stated goal of quadrupling its economy by 2020, this poses an enormous threat to the global climate. As the world increasingly sees China as the environmental keystone in the climate change conundrum, there will be growing international pressure on China to reduce GHG emissions.
China ’s most urgent and over-arching priorities are social and economic development and the elimination of poverty. The march toward a “well-off society” is already in progress, and China has little choice but to maintain rapid economic growth to provide for its burgeoning population. Unless it can shift to a low-carbon development path, China will continue to rely heavily on coal and other fossil fuels.
China has launched a “great leap forward” to a more sustainable energy future. It is a party to the United Nations Framework Convention on Climate Change, and in 2002 it ratified the Kyoto Protocol, committing itself to a low-carbon path. Consistent with these international commitments, China has aggressively adopted policies and implemented programs to encourage foreign direct investment to improve energy efficiency and promote renewable and clean energy technologies.
China is now the largest recipient of foreign direct investment in the world. With proper legal and economic incentives, it also has the largest potential market for renewable and clean energy technology as well as carbon mitigation projects. The Chinese government and private enterprise should join with foreign investors to aggressively develop incentives and market-based mechanisms to promote renewable energy, energy efficiency, and clean technology projects.
There are, however, significant institutional and statutory challenges impeding access by foreign companies to the clean energy technology market. Foreign firms continue to face significant obstacles, such as high tariffs, low rate of return, lack of hard currency, inadequate protection of intellectual property, and a nontransparent, fragmented regulatory bureaucracy. Most importantly, China lacks well-developed financial mechanisms critical to reducing risk and generating investment funds. Financing constraints are probably the most significant impediments to sales by foreign firms to clean energy markets.
While it still may take some time, changes are inevitable. With China’s accession to the WTO in December 2001, and China’s policy and institutional changes now moving inexorably toward market orientation, China will have to even the playing field—reducing discriminatory practices and enhancing transparency of the country’s legal regime. To develop effective incentives and market-based mechanisms, the central government must formulate a comprehensive national energy strategy and implement it consistently at both national and provincial levels.
Laws must be improved or even created in such areas as property rights, contractual protection, guarantees, competition, bankruptcy, rulemaking, public participation, conflict of interest, separation of power, and respect for an independent judiciary. In addition, market-based mechanisms must be instituted in conjunction with mandatory environmental laws and regulations, aggressive compliance standards, and vigorous enforcement. China also needs to bolster domestic capabilities to enforce compliance with these regulations; currently there is a lack of both funding and highly skilled manpower to carry out their functions.
It is important for the United States to help China make this transition, not only because of the commercial opportunities but because it is in our national interest to help China avoid excessive reliance on foreign oil and slow its growth in GHGs.
Unlike the governments of the European Union and Japan, the U.S. government has not played a prominent role in encouraging energy efficiency, renewable energy, and clean energy projects in China. Although there are currently at least 20 U.S. government agencies involved in some type of environmental or energy collaboration with their Chinese counterparts, their work is funded completely by their own agency budgets rather than by formal development assistance. This is because congressional restrictions and limited budgets prevent agencies such as the U.S. Agency for International Development from operating environmental assistance and governance programs in China. Also, for political reasons, U.S. government agencies have been scrupulously avoiding actions and programs relating to climate change and the Kyoto Protocol.
Margret J. Kim is public advisor to the California Energy Commission; she can be reached at email@example.com.
Robert E. Jones is president of EcoLinx Foundation; he can be reached at firstname.lastname@example.org.
For More Information About the Section of Environment, Energy, and Resources
- This article is an abridged and edited version of one that originally appeared on page 3 of Natural Resources & Environment, Winter 2005 (19:3).
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