December 2008 Monthly Update: China's Future in an Energy-Constrained World

By Crystal Davis and Lisa Raffensperger

EarthTrends on Tuesday, January 8, 2008

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In the last quarter century, China's breakneck economic growth has lifted over 50 million people out of poverty and tripled energy demand. Experts predict that China will surpass the United States to become the world's largest consumer of energy and fossil fuels soon after 2010. And because of its heavy reliance on coal, China already emits more carbon dioxide than any country on earth.

The rate and path of this energy growth is of enormous consequence for both China and the world. At stake are issues of global importance, including climate change and competition over dwindling oil resources. Perhaps more important for China, however, are domestic concerns such as severe urban air pollution, energy security, and sustained economic growth.

Figure 1: Energy Demand in Top Energy Consuming Countries

Source: EarthTrends 2008
(Using energy data from the IEA and population data from the UN)

Charting China's Energy Growth

China's real GDP growth has averaged over nine percent per year since 1980, growing the economy ten times larger today than it was three decades ago (World Bank 2007). Although per capita consumption will remain low relative to that of the developed world for decades to come, the sheer magnitude of China’s population--currently over 1.3 billion people--means that collective consumption has a significant global footprint. With regard to energy, China accounts for 15 percent of the world's energy demand (see figure 1), most of which is satisfied by fossil fuels.

Industry accounts for 71 percent of total energy demand, which is a large proportion relative to both developed and developing country standards (see figure 2). Approximately one-half of global cement production and one-third of global steel production occur in China, fueling a proliferation of new buildings and roads and a strong manufacturing sector. However, with rising incomes and urbanization, the commercial, residential and transportation sectors promise to surpass industry as the major driver of future energy demand (Rosen & Houser 2007).

Figure 2: Energy Demand by Sector, 2005

Source: EarthTrends 2008
(Using data from Rosen and Houser 2007)

The Fossil Fuel Problem

China's current energy mix is strongly influenced by resource availability. With 13 percent of global coal reserves--compared to only one percent for oil and natural gas--China meets over two-thirds of its domestic energy needs with coal (BP p.I.c 2007). As the dirtiest of fossil fuels, coal combustion accounts for the vast majority of domestic emissions of carbon dioxide (CO₂), sulfur dioxide (SO₂), and nitrogen oxides (NO_x). As a result, China has many of the world's most polluted cities: urban air pollution accounted for 3.4 percent of all deaths in 2001 (DCP2 2006). When burned in homes, coal and other solid fuels create indoor air pollution responsible for even more deaths (five percent in 2001).

In addition, acid rain caused by SO₂ pollution has affected one-third of China's land, rendering some soils uncultivable (BBC News 2006). In 2005 alone, there were $60 billion in direct economic damages from SO₂ (Rosen & Houser 2007). Some of this pollution is also carried by the wind into neighboring countries and as far as the west coasts of the United States and Canada.

Although coal will inevitably continue to play a large role in China's energy supply, Chinese oil consumption is now rising fastest in the world thanks to a burgeoning transportation sector. By 2015, new vehicle sales in China will exceed those of the United States (IEA 2007). However, with Chinese oil production anticipated to peak and then decline beginning in 2015, satisfying future oil demand presents a significant energy security problem. China now imports half of its oil, making it the world's third-largest net importer. By 2030, the IEA predicts that China will be importing 80 percent of its oil.

Figure 3: Projected Energy Growth in China by Energy Source
*Projections based on the IEA's Reference Scenario, which estimates future trends based on existing government policies

Source: EarthTrends 2008
(Using data from the World Energy Outlook 2007)

At the global level, China's rapid growth in coal and oil consumption is widely recognized for its contribution to climate change. The International Energy Agency estimates that in late 2007, China bypassed the U.S. to become the world's largest emitter of carbon dioxide and predicts that if the current policy scenario remains unchanged, China will account for 40 percent of the total growth in CO₂ emissions worldwide between 2005 and 2030. Within the Kyoto Protocol Framework, China is not an Annex 1 Country and thus has not had any international commitments to control CO₂ emissions. However, in June 2007 the Chinese government issued its first climate change strategy, and domestic Chinese policy emphasizes energy efficiency, increased use of renewable energy and robust reforestation.

Opportunities for Sustainable Growth

China's current path of energy growth is not sustainable. Although the country's leaders have already taken many steps toward achieving greater sustainability (China's policies to combat climate change ranked very high in the 2008 Climate Change Performance Index), significant opportunities for improvement remain.

• Improve energy efficiency
  China has set a goal to quadruple GDP by 2020 while only doubling energy consumption, a challenging proposal considering that energy demand has grown faster than the economy since 2001. Reversing this trend will require decreasing energy intensity (energy use per unit of GDP produced) in all of China's economic sectors. Chinese industry, for example, requires 20 to 40 times more energy to create one dollar of goods than does industry in OECD countries (Rosen & Houser 2007). Greater efficiency could be encouraged by pricing energy, particularly electricity generated from coal, to reflect its full environmental and social costs. Other opportunities include installing energy-efficient appliances in homes and buildings and setting rigorous fuel efficiency standards for vehicles.
• Transition to renewable fuels
  Even with improved energy efficiency, demand for fossil fuels will continue to grow unless alternative energy sources are pursued. China has set a preliminary goal to increase the share of renewable energy in total energy use to 16 percent by 2020. Much of this growth will be achieved via hydroelectric power, although wind power is also becoming cost competitive in some areas and contains enormous potential. The controversial Three Gorges Dam, which displaced nearly two million people, will become the largest hydroelectric facility in the world upon completion in 2009. However, building new dams is also environmentally problematic, especially considering escalating water scarcity throughout the country.
• Minimize pollution
  For the foreseeable future, China will remain heavily dependent on fossil fuels. Technologies exist, however, to mitigate some of the worst effects of fossil fuels, and introducing taxes or incentives will facilitate the adoption of such technologies. For example, in 2006, Beijing raised the sulfur pollution tax on power plants and introduced a market incentive to help offset the cost of installing flue gas desulfurization (FGD) equipment, which removes SO₂ from a plant's emissions stream. Virtually all of coal power plants built since then have installed FGD systems. This instance reveals the potential of market-based incentives in regulating other pollutants, including NO_x and CO₂.

A New Focus on Environmental Priorities

Many of China's environmental laws are directly copied from European statutes and are some of the best in the world. In 2007, the Chinese government declared Energy Efficiency and Pollution Abatement to be a national policy, one of just three such top national policies. As a result, central scrutiny of local and provincial pollution control efforts has increased substantially.

While for many years a focus on economic development typically trumped pollution control at the local level, the central government has now increased the monitoring and enforcement tools available to it. Over the past two years, the State Environmental Protection Administration has established regional districts to increase enforcement scrutiny and has mandated not only FGD equipment, but also the installation of continuous emissions monitoring equipment in power plants. The greatest increase in enforcement has thus far been in China's major cities. However, these cities are rapidly realizing they cannot succeed in emissions control unless there is also control in the wider airsheds.

China and the international community agree that a change of course is needed for its energy future. The question at hand is whether China can chart a novel development course, fast-forwarding through the period of ecological destruction in most nations' histories and instituting 21st-century sustainable alternatives as quickly as possible. Since China remains in the early stages of industrialization, now is a period in which much about the country's energy future is still open to influence. And the implications of this influence are substantial: while China has 300 million new consumers, there are 756 million more in the rest of the rapidly developing world. Policy precedents set with China in the next decade will likely shape the future landscape of sustainable development worldwide.

© 2007 World Resources Institute

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