Already the world’s second largest energy consumer, China needs to develop new energy sources to fuel future economic growth and urbanisation while minimising environmental impacts. The national leadership has set an ambitious target of quadrupling per capita incomes by 2020 while only doubling energy consumption. Is that really possible? Matt Perrement reports.

China’s economic rise over the last two decades was achieved with relatively low energy intensity. Close to 10% annual GDP growth has been matched by only 4.6% average annual increase in energy consumption. But “Since 2002 growth in energy consumption has outstripped economic growth” according to Wang Wanxing, Program Officer with the Energy Foundation’s China Sustainable Energy Program.

Over the last year, 24 provinces suffered temporary electricity ‘brownouts’ at periods of peak demand. These shortfalls in existing capacity point to a future in which China is no longer be self sufficient in energy.

Increased demand has been caused by the pressures of urbanisation and industrial growth. The industrial sector accounts for a much higher proportion of total energy demand than in more developed economies – two-thirds, as against around one third in OECD (Organisation of Economic Cooperation and Development) countries. But an energy-thirsty industrial sector is only part of the story. As more Chinese consumers become able to afford electrical appliances, travel, and a wider range of services, demand is rising steeply in the residential and service (especially transport and telecommunications) sectors. Proportionally their combined consumption of oil has grown from 17.5% in 1990 to 31% in 2002, whilst industry, by contrast, has trimmed its share from 64% to 50% over the same period. Moreover, China is the fastest-growing, major automobile market in the world, but is producing only two-thirds of its crude oil needs.

The scramble for oil

In the 1990s, the government still hoped to see China become a major oil producer but subsequent exploration has been disappointing. According to a 2003 assessment by World Oil, China ranks number ten in a world league of proven oil reserves, with only 23.7 billion barrels available. BP’s Statistical Review of World Energy for 2005 also ranks China tenth in the world – with enough reserves for just thirteen more years of production at current rates.

In the short term, Xinjiang is expected to overtake Heilongjiang and become China’s most important oil producing area. Ismail Tiliwaldi, Chairman of the Xinjiang Uyghur Autonomous Region, said in June that Xinjiang plans to more than double production to 50 million tonnes per year, building up to annual output of 100 million tonnes. But the faster the oil is pumped out of the Tarim basin, the sooner the wells will run dry.

This leaves China, like much of the rest of the world, engaged in oil diplomacy and trade with the oil-rich nations. The government has been active in securing deals in Russia, Iran, Central Asia and Canada, as well as concessions in Africa and Burma. A proposed pipeline linking Angarsk in Russia with Daqing in Heilongjiang could yet be scuppered by a rival bid from Japan, but work has already begun on a USD 3.5 billion pipeline that will see black gold flowing from Kazakhstan to refineries now under construction in Xinjiang’s Karamay region. Billion dollar deals with Canada, which include the Chinese oil giant, Sinopec, acquiring a 40% stake in a project to suck bitumen out of the sands of northern Alberta, could see 200,000 barrels of crude arriving each day from Canada as early as 2009.

Coal is the backbone

China still has abundant coal reserves and these are likely to remain the main source of electricity generation for decades to come, but at high environmental cost. A substantial amount of international aid over the last twenty years -- notably from Japan, which has suffered acid rain emanating from China’s sulphur dioxide emissions -- was aimed at upgrading coal-fired power stations to improve their environmental performance.

The safety record of China’s mines remains extremely poor. Mining accidents claimed 1,113 lives in the first quarter of 2005, an increase of 21% on the previous year, prompting the recent announcement of new safety regulations.

The mining industry is likely to have a long future, with demand coming not only from thermal power plants, but also from the application of new, energy technologies.

‘Integrated gasification combined-cycle’ (IGCC) is a clean, efficient technology that can operate on all grades of coal according to the latest US studies. China is monitoring developments, and the energy multinational, Shell, is reportedly considering investments options in IGCC in China.

BP is more likely to invest in ‘liquefaction’ technologies to produce oil from coal. One of China’s largest energy companies, Shenhua, is already experimenting with a liquefaction plant in Shaanxi. However, unlike gasification the liquefaction process relies on geologically young, low-carbon coal or lignite, which accounts for a relatively small proportion of global coal reserves and only 16% of China’s, according to the World Energy Council. China’s reserves are not inconsiderable, but way below US and German levels, which account for the bulk of world deposits.

Liquefaction is also “dirty and expensive” according to Wang Wanxing. The high-heat, high-pressure paralysis process generates carbon dioxide as a major by-product, and this has to be sealed in underground waste dumps. “Based on current oil prices this process is competitive,” says Wang. But, he argues, oil prices are currently artificially high because of distortion by futures markets, and could drop again below the USD 35 per barrel threshold that makes liquefaction competitive. “Five years ago prices were below USD 15,” Wang recalls.

Nukes, dams and renewables

China also plans further investments in nuclear energy, recently announcing that it will build 40 new nuclear plants. By 2020, this will double the proportion of China’s power produced from electricity, but nuclear power will still only account for a modest 4% of the total.

A leading official from the Commission of Science, Technology and Industry for National Defense nevertheless recently declared that “Nuclear power will become the pillar of energy supply in coastal areas of east China.” According to a source in the Chinese Academy of Sciences, the longer term hope is to derive 16% of China’s energy needs from nuclear power. But, the same source suggests, this may just be political wishful thinking -- because 16% of power generated from nuclear is the average proportion for OECD economies.

China’s increasingly confident anti-dam movement may dampen official enthusiasm for hydroelectric growth, despite this being an area where China has clear comparative advantage. Hydroelectric output could triple to 300 GIGO watts according to Wang, who favours case-by-case assessments of social and environmental impacts, rather than a blanket ban.

Meanwhile, the renewable energy industry (including small-scale hydrowpower, wind and solar energies) was boosted by the approval in February of a Law on Renewable Energy Resources. Renewables are expected to provide around 10% of China’s energy needs by 2020, much to the delight of Wang, who co-manages a program, within the China Sustainable Energy Program, to support accelerated commercialisation of renewable energy in China.

Efficiency is the first priority

But “Efficiency savings are the number one priority,” says Wang, who was also involved in the design of an End-Use Energy Efficiency Programme recently launched by UNDP and National Development Reform Commission. Upon the programme’s launch, UN Chief Representative, Khalid Malik, noted that “China’s energy consumption per unit of output value in 2000 was 2.4 times more than the world average.”

Vaclav Smil, a longstanding observer of China’s energy sector, has written extensively about its inefficiencies. Smil singles out coal for poor extraction methods that result in recovery rates 30%-40% below Western levels and a final product that burns poorly and is impure, and therefore highly polluting.

There is as yet little public participation in debate about energy efficiency. ‘It is needed,’ concedes Wang, ‘but we are not directly engaged with the public.’ The Foundation has supported energy efficiency labelling on refrigerators and air-conditioners and this, says Wang, is helping to raise consumer awareness. With compulsory labelling set to expand to other products, public awareness and debate may follow.

The Foundation also made a grant to Global Village of Beijing for a ‘media club’ that brings print and broadcast journalists and government representatives together in open forums four or five times each year, to discuss themes such as fuel efficiency. This may take some of the credit for a spate of recent media articles looking into China’s energy sector.

The existing inefficiencies in China’s production and use of energy do at least mean that there is plenty of scope for efficiencies gains. Does Wan Wanxing believe, then, that it is feasible to quadruple GDP while only doubling energy consumption? ‘Using the last three years as a baseline the government’s target is in jeopardy,’ he says, and pauses before adding ‘But with the correct policies in place it can be met.’

• The Energy Foundation is a grant-making non-profit organization created, in 1999, as a result of Sino-US dialogue amongst scientists, policy-makers and business leaders from both sides of the Pacific. It has received financial backing from The David and Lucile Packard Foundation, and more recently The William and Flora Hewlett Foundation. The foundation states its principal aim as ‘To assist in China's transition to a sustainable energy future by promoting energy efficiency and renewable energy’ and operates a grant programme under five headings: Low-Carbon Development Paths, Transportation, Buildings, Industry, Electric Utilities and Renewable Energy. Most grants are currently awarded to think-tanks that help provide policy solutions and options, with a particular focus on efficiency and renewables.
• The UN-NDRC End-Use Energy Efficiency Programme is a twelve-year, multi-million dollar project that will seek to increase efficiency in industry and remove barriers to the widespread application of energy conservation and efficiency among China’s major energy users – industry and buildings.
• Vaclav Smil is a Professor at the University of Manitoba and one of the world’s leading authorities on China’s environment. His latest book, China’s Past, China’s Future – Energy, Food, Environment (Routledge Curzon, 2004) summarises and updates his many previous publications on China. Two of the three chapters offer a rigorous audit of the food and energy sectors, and the results are then pieced together to demonstrate trends likely to shape China by the end of the first quarter of the 21st century.