China’s Energy Agenda: Obstacle or opportunity for the US?

In the global energy industry, China has become a critical driver that is essential for any significant progress on energy security or climate change mitigation. This panel hopes to place the country’s energy policy in context of its socio-economic development plans, and will tackle topics such as technology innovation, international trade, and infrastructure investments with a view of analyzing what impacts there are for the United States and the rest of the world.

Moderator: Julian Wong, Attorney, Wilson, Sonsini, Goodrich, & Rosati

Julian Wong is an attorney Wilson Sonsini Goodrich & Rosati, where he assists technology startups with venture financing and corporate governance. Previously, Julian was a China policy advisor at the U.S. Department of Energy, and a senior energy policy analyst at the Center for American Progress in Washington.  Julian is the founding chair of the Beijing Energy Network and editor of the Green Leap Forward blog.

Panelists:

David Roland-Holst, UC Berkeley Professor, Department of Agricultural and Resource Economics

David Roland-Holst is a professor in the Department of Agricultural and Resource Economics at UC Berkeley. He has researched China’s economic emergence since the early 1990’s and teaches UCB’s main course on the Chinese economy. Recently, his work has focused on China’s energy economy, its structural change, and prospects for sustainability. China’s pivotal role in global food markets and climate negotiations are also among his active research interests.

Bo Shen, Principle Scientific Engineering Associate, Lawrence Berkeley National Laboratory

Dr. Bo Shen has over 18 years of experience in the energy field, and is a Principal Scientific Engineering Associate in LBNL–China Energy Group. Prior to joining LBNL, he led the China Energy Efficiency and Demand-Side management Project at the Natural Resources Defense Council (NRDC). From 1999-2007, Dr. Shen has worked on electricity restructuring, retail competition, wholesale power market development, integrated resource planning, energy efficiency, demand response, and distributed generation.

David Gong, Entrepreneur

David Gong has over fourteen years of technology business creation, operation and investment experience in the high tech, retail and clean-tech sectors. David is advising Burson-Marsteller, China Association for Science and Technology, and CCDIC/Ministry of Civil Affairs of China, among other organizations, and was previously a venture partner at China Environment Fund and a Managing Director at Terraza Venture.

 

prE-Symposium

China’s Economy

It’s hard to believe that it has been only 38 years since the death of Mao Ze Dong and the first opening of China’s Markets. Since then, China’s economy has risen by an average annual growth rate of ~10% to become the world’s 2nd largest economy. However, with the world’s largest population of 1.3 billion, China’s GDP per capita of $5,400 ranks a mere 89th in the world. Currently, China is now trying to increase this number and expand the middle class, which will undoubtedly increase energy demand.  To give an assessment of how big China’s economy is, in 2011 China was the world’s…

  • largest producer and consumer of electricity
  • largest steel producer, largest cement producer
  • 3rd largest oil consumer
  • 5th largest natural gas consumer.

China is now the world’s largest importer and exporter. Steering this gigantic economy will be a delicate dance between sustainability and growth, as the latest 12th Year Plan has put the growth of a green economy as one of its forefront priorities. Even though the nation is racing to develop its renewables, the truth is, roughly 70% of its energy used is still derived from coal, and 92% from fossil fuels:

The Current Fossil Fuel Industry

According to the US Energy Information Agency, coal supplies 70% of China’s energy profile and when combined with the numbers for oil (18%) and natural gas (4%), fossil fuels in general supply virtually all of China’s energy at 92%.

Much of the Chinese energy industry actions can be traced to its organizational structure.  Companies like Sinopec and Shenhua, which develop China’s petroleum and coal resources respectively, are state-owned enterprises.  With such strong connections to the government, these companies advance an energy agenda with little regard to geopolitics. As such, China is heavily involved in investing in energy infrastructure in resources-rich Africa, like Niger and Chad.  By sponsoring projects in these African countries, China secures relatively friendly diplomatic and business ties that result in a constant stream of oil, gas, and other natural resources sent back to China.  Besides Africa and other developing countries, China is also active in energy investments here in North America.  For example, when Obama turned down the Keystone XL pipeline, TransCanada turned their attentions to another eager customer, China’s Sinopec. Sinopec has also made significant strides in the US energy space, investing in power plants and natural gas reserves.

The picture is not all bleak, though. In China’s 12th Five Year Plan, its main social and economic development blueprint, the Chinese government has taken carbon emissions reduction into consideration. China certainly faces many challenges on the energy consumption and carbon emissions front, but coupled with rapid developments in cleantech and conscious governmental efforts, the goal to peak carbon emissions by the end of this decade does not seem to be out of sight.

Developing Greener Energy

By now, it is no surprise that China is a global leader in cleantech and renewable energies. It has earned its place of being the world’s largest manufacturer of solar panels, and has the largest wind power generating capacity. The 12th five year plan has a series of quotas, including a goal of a 20% greenhouse gas reduction per capita GDP, a 10% renewable energy portfolio by 2015,  a10% NOx and a 8% SO2 reduction. .

Going beyond ambitious goals and the manufacturing successes, recent policies are tackling other links in the energy chain. Among these efforts are voluntary emissions trading pilots set to begin in 2013, regulations set to prevent inefficient wind capacity installation in grid-poor areas, and quotas targeted at electricity distributors of renewable sources. To increase domestic use of solar power, it has also initiated a feed-in-tariff to foster solar energy demand.

Global Economy’s Role

Many of the developments mentioned above are conditional to the fact that China continues its economic growth. The Chinese economy has shown remarkable resilience in the Asian and global economic downturns of 1997 and 2008, but amid the ensuing European sovereign-debt crisis and a weak US economic recovery, it is showing signs of an ostensible slowdown. Part of the slowdown can be attributed to shrinking export markets and slowing domestic production. However, it should be noted that the Chinese government has also taken measures to minimize economic fluctuations.

It is important to note that regardless of the current obstacles, China is leading the world in renewables investment. In 2011 about 1/5th of the global investments in renewable energy came from China alone, totaling $52 billion (US came a close 2nd with $51 billion). The 2009 GreenTech Report claimed a conservative estimate of its greentech market as $100 million per year. This spells out a continuing growth that can have various consequences to the U.S.: First, there could be the intense competition with China in a style not unlike that of the current solar and wind tariff disputes. However, a more productive e approach would be to recognize all the collaboration opportunities between the two investment powerhouses. Two factors influencing collaboration extent would be the global economy and each nation’s willingness for open political discourse. As for the rest of us, there are various ways that we can practice a softer diplomacy that can push both the US and Chinese renewable industries towards a common goal. Stay tuned to our China Panel to see what the research, economic, and investment perspectives have to say in this field.