Sustainable Growth Requires Wiser Energy Use

By AMEL BELOUASSAA & DONG YINGUO

CHINA used to be tagged as “the worlds largest...”– the worlds largest exporter, the worlds largest mobile market, the worlds largest online population– it seems that in most markets and measurements, China wins the superlative.

There is a notable exception to the trend: “the worlds largest economy” still goes to the U.S. But even conservative estimates see China usurping that throne by 2030.

One Chinese “worlds largest” could prove a spanner in the works, rather than a blessing, for the countrys future economic development – the worlds largest energy consumer.

Until very recently, the boiler room of Chinas economic engine was powered by primary and secondary industry growth. Rapidly urbanizing populations provided the manpower while expanding rail, road and inland shipping route networks greased the way. Economic success brought benefits, but has also led to extreme increases in national energy consumption.

Big Growth Brings Bigger needs

Since its period of reform and opening up got underway in 1979, Chinas economic track record has been impeccable. The country has boasted one of the fastest growing economies in the world for decades.

But a fast-growing economy has meant fast-growing energy consumption.

Except during the Asian financial crisis (1997-2000), energy demand in the country has increased every year for the last three decades. From 1979 through 2001, energy use grew at a much lower pace than GDP – an average of 4.1 percent, compared to GDP growth of 9.7 percent. After joining the WTO in 2001, annual energy demand surged, growing fourfold between 2001 and 2006.

According to British Petroleum statistics, in 2010 Chinas consumption of energy sources, ranging from oil and coal to wind and solar power, was equal to 2.432 billion tons of oil, compared to 2.286 billion tons for the U.S. This marked the first time China consumed more energy than the U.S.

Energy markets in China have become increasingly influential, and all forecasts point to sustained rise in the countrys energy needs into the future.

Coal continues to dominate Chinas energy mix, accounting for 70 percent of the countrys total energy output. Coal dominance is one of the particularities of its energy market.Its hardly surprising that China is also “the worlds largest” in consumption and production of coal.

Another particularity in China is that while the country is the largest energy consumer in the world, on a per capita basis Chinese energy consumption levels are far lower than those of developed economies such as the U.S., Germany or Japan. Chinas per capita oil consumption is a mere one-tenth of the U.S.s.

A lack of knowhow in energy utilization technologies has resulted in low efficiency of energy use. At present, Chinas energy consumption per unit of industrial value-added output is much higher than in advanced economies. This has led to the country having some of the worlds highest rates of land deterioration and air and water pollution. For instance, Chinas building sector consumes two to three times the energy used in their counterparts in developed countries. Chinese factories are three to five times less efficient than their Indian, U.S. and Japanese peers, and steel factories use one-fifth more energy per ton than the international average.

In 2007, Chinas energy intensity ratio – the amount of primary energy consumed per unit of GDP produced – was 25 percent higher than that of the U.S. and EU. Nevertheless, it is encouraging that the countrys energy intensity has declined substantially since 1980.

For all these reasons and more, energy issues will be among the most serious problems China faces in its long-term economic development. Even today, Chinas growing energy demands have raised concerns and are posing grim challenges for policymakers.

The major concern for China is to ensure sufficient, reliable, cheap, clean and convenient energy for sustainable economic and social development. Until the early 1990s, China was a net energy exporter. Now, the countrys domestic production falls short of domestic demand.

Chinas reliance on imported oil in particular has increased, and it has overtaken Japan to become the second largest oil importer in the world, just behind the U.S.The countrys oil import dependency ballooned from six percent in 1993 to 48 percent in 2008 and 56.5 percent in 2011. This heavy reliance on world energy markets and the widening gap between domestic energy supply and demand is seen as a major constraint on Chinas future economic and social development.

The International Energy Agency projected Chinas energy demands to double between 2004 and 2030. As part of this increase, the demand for oil is expected to increase by more than 130 percent. Growth in demand will need to be met by considerable imports.

Hence, Chinas emergence as a huge energy consumer will continue to have wide implications for global energy markets. The situation portends fierce competition for resources in a context of declining nonrenewable resources.

A Long Way to Go

With increased dependency on foreign energy has come concern over energy security. Worried about exposure to the vagaries of international energy markets, China has been trying to increase the security of its oil supply by encouraging its oil companies to invest in major oil-producing countries. One of the primary objectives is to diversify its supply sources both in terms of primary sources and geographical location, while continuing to invest in coal-based power generation.

The reality is that China is relatively poor in energy resources. It lacks significant reserves of oil, and even now is facing a considerable decline in its proven recoverable petroleum reserves. Most of its major producing fields have passed peak production.

Furthermore, Chinas growing appetite for energy has led to severe environmental degradation. Extensive coal use has exacerbated pollution and wreaked havoc on the natural environment. Coal burning fouls the air and is a major source of greenhouse gas emissions. Air pollution not only results in soil acidification, reductions in crop output and the destruction of vegetation, but also provokes respiratory diseases, which directly threaten peoples health.

Looking forward to 2020, continued rapid growth of industrial output and GDP suggests China will import increasing quantities of coal and oil from world markets.

China is aware of the threat that its soaring energy consumption poses and has acknowledged that under the current trend, development is unsustainable.

Over the past decade, the Chinese government has implemented a large number of measures and policies designed to promote renewable energy and increase energy efficiency. China has already made energy efficiency and conservation its highest priority. As a result, energy intensity has steadily improved over the past few years, declining by about 70 percent between 1979 and 2000 and by over 40 percent from 1994 to 2009.

The central government has also devoted great attention to the promotion of renewable energy and low-carbon technologies, such as nuclear energy and clean-coal energy forms. Chinas renewable energy sector has been steadily expanding, and it now ranks among the top few countries globally in solar heating and small hydropower production.

Wind power generation is another“worlds largest” for China, with capacity forecast to expand by 20 billion watts annually over the coming years. At present, China also has over 3,000 solar cooker manufacturers. This “green” energy device is used by millions across the nation.

The path to energy sustainability is certainly not an easy one. Changes must be made and practical steps taken to improve Chinas energy efficiency and ensure a better use of domestic resources, protect the environment and enhance supply security. Most importantly, the prerequisite for sustainable development is an ongoing commitment to shifting from a growth model focused on heavy industrialization to a more balanced approach.

While still a work in progress, it is clear that China can be proud of its achievements in increasing domestic energy efficiency. Efforts to move toward a green economy and use cleaner fuels have been particularly impressive. But there is still a long way to go toward sustainability.