Energy & Climate

Some General Concerns About Energy and Climate Change in China

  1. 1. Introductory note about this text
  2. 2. China’s Current Energy Development
  3. 3. China’s Energy Mix: National and Global Structures Driving Factors, and Constraints
  4. 4. Ownership, Control, Decision Making, Actors in China’s Energy Sector: Priorities, Cooperation and Conflict
  5. 5. Key Challenges Facing China’ Energy Sector

Part 1: Introductory note about this text 

This text is meant by way of a general introduction into the issues covered in much greater depth in the articles and web-links on this site. It is a summary of some of the basic impressions that we drew from our brief visit to China. It does not seek to include much in the way of detail, especially not in the form of statistical data. We were not in a position to accurately obtain such information, and we cannot pretend that we were. A similar proviso note also applies to the introductory texts to each thematic section of the website. Rather, this introductory summary, together with the individual section introductions, is a pointer to these issues, all of which can be found in the material on the site, which is material from organization, institutions and individuals all of whom have many years working in China (or in some cases about China, from outside), and who are in a far better position to do this than we are. Consequently, we have limited our own writings about our visit to China.

Part 2: China’s Current Energy Development 

The Chinese government is giving increasing priority to energy development and the issue is becoming of increasing importance for a range of organizations. The country is experiencing a massively expanding energy demand and a corresponding expansion of supply. An increased awareness of climate change means that there is a strong push to diversify the country’s energy supply. All energy sources and technologies are expanding. Energy efficiency measures are also a key part of the government’s strategy, and this is an area where there is a lot of room for change. The Chinese government has made important commitments to international community to reduce energy intensity by 2020. The 10th, 11th and 12th 5 Year Economic Plans have all prioritized issues relating to energy development.

The country’s energy system must be understood within the wider process of change in China, and China’s changing role within the world division of labour. On the one hand, what exists in China today could not have developed outside of the history of China, especially from its revolution and the founding of the People’s Republic of China in 1949. On the other hand, as with the country in its entirety, there have been major changes in the energy sector, as the country has moved towards what it terms a socialist market economy. The energy sector has experienced major restructuring, especially since the late 1990s/early 2000s. The process of creating a market based system is being accelerated, increasingly, giving full scope to the basic role of the market in allocating resources, and encouraging various forms ownership in the energy sector.

In 1998, the petroleum sector was restructured, featuring the establishment of new vertically integrated management system of oil industry. In 2002, China’s power industry went through a process of major reform, in which the generation and distribution aspects were separated from one another. In 2005, the coal industry was also restructured. Nonetheless, in spite of these changes, China’s energy make-up and the relative weight of each energy source/technology are still decided upon in a coherent integrated political manner, rather than being left exclusively to the market.

The Chinese government’s approach to energy is based on an understanding of science and technology as the primary productive forces. The government is working to gradually establish a market-oriented system for technological innovation, in which enterprises play the leading role and which combines the efforts of enterprises, universities and research institutes. It uses market measures to promotes R&D and the application of advanced energy technologies, guides enterprises to expedite techno-logical progress and enhance energy utilization efficiency. It nurtures domestic technology development through training and skills development in energy science and technology, and also places great emphasis on developing policies, legal and regulatory frameworks and technical standards. An important pillar of this approach is to develop China’s capacity to manufacture energy equipment. This is often done through key state projects. Basic scientific research is key to independent innovation. In this way, China has made impressive gains in narrowing its technological gap with the developed countries in the energy sector, and  great efforts have been made to both develop and popularize technologies in various fields, including energy technologies in general, energy saving, substitution, recycling and pollution control.

China’s legal framework is also an important area for developing its energy sector. China has enacted and put in force the Clean Production Promotion Law and Renewable Energy Law, combined with several supporting policies and measures. There is a new Energy Conservation Law. The Energy Law, Circular Economy Law, Law on the Protection of Oil and Natural Gas Pipelines and Regulations on Energy Conservation of Buildings are being formulated. The Mineral Re-sources Law, Coal Industry Law, and Electric Power Law are also being revised.

At the international level, China actively participates in international energy cooperation. It is a member of the energy working group of the Asia-Pacific Economic Cooperation (APEC), Association of Southeast Asian Nations (ASEAN) plus China, Japan and ROeK (10+3) Energy Cooperation, International Energy Forum, World Energy Conference, and Asia-Pacific Partnership for Clean Development and Climate. China is also active in a number of bilateral energy cooperation initiatives, both with energy consuming and energy producing countries, such as the USA, Japan, Russia, the European Union, Venezuela, and Iran, to name but a few of the countries. China is not a member of the International Energy Agency, as membership is currently limited to members of the OECD. However, China maintains close relations with it. Similarly, it maintains close relations with the Organization of Petroleum Exporting Countries (OPEC). At a regional level, energy cooperation is becoming an increasingly important aspect of the Shanghai Cooperation Organization.

Part 3: China’s Energy Mix: National and Global Structures Driving Factors, and Constraints 

Energy development in China (as elsewhere) is shaped and constrained by a variety of local, regional, national and international factors. Energy production and consumption is characterized by a number of features.

On the one hand, throughout the country’s history since 1949, there has been a very strong political commitment from the state to ensure that the bulk of the population has access to affordable electricity and other energy sources. This has always been, and still remains, a key political concern. Most (but not all) communities, including in rural areas, have access to electricity and can meet their energy requirements, but domestic consumption levels are very low in rural areas as compared to big cities, and just cover basic domestic needs. Heating and cooling are a big issue for residential use, especially in urban areas. Modern houses are electrified and have gas. However, many of the older and poorer houses still rely on coal in some cities and rural areas. Many houses have solar water heaters on their roofs, and these have been made widely available by due to their cheap pricing on the market. There is an important programme to develop small scale wind use in remote off-grid areas, and rural use of biogas is important in some areas.  In recent years, the massive and extremely rapid urbanization process that China has gone through (and is still experiencing), and the corresponding growth of middle class consumerism has been an extremely important driving force behind a rapidly increased energy demand and consumption. This has many aspects. In particular, the growth of consumerism and the increased use of private automobiles are all massively increasing demand for both electricity and oil.

On the other hand, the bulk of energy consumed is consumed in industrial processes, with production for both the domestic market and, especially, the world-market. The urbanization process requires the production of enormous quantities of industrial products, especially in relation to construction and the production of materials such as steel and cement and the mining of key minerals, but also in relation to agricultural chemicals that enable increasing large cities to meet their food needs. In relation to the world-market, China has rapidly become “the workshop of the world”, in manufactured goods such as clothing and other textiles, computers and other electronic goods, cars, cements, fertilizers, steel and many other manufactured goods or processed material products. All of these industries, which are mostly concentrated in the eastern part of China, are enormous consumers of energy. Importantly, recent years have seen a massive mechanization and automation process in many of these industries, a factor which further increases energy consumption.

However, it is worth stressing, that although China’s energy consumption is growing rapidly, its per-capita energy consumption level is still fairly low compared to that of many other countries. It is lower than the world average, and far lower than per capita levels in the European Union or the USA. Similarly, with regard to its per-capita oil consumption and imports. The country still frequently suffers electrical supply shortages during certain months of year (with regulated and planned seasonal reductions in consumption, and regulated seasonal power cuts). Nonetheless, the fact that basic energy needs for the whole population have been fairly well met, and continue to be met in the face of massively rising expectations, is no small achievement, given that China is home to about quarter of the world’s population. Another important factor is that much of the energy used in manufacturing is to produce goods which are actually exported on the world market. This means that the energy consumed in their production is, in effect, exported for consumption in other countries. As such, the question of China posing a “threat to the world’s energy security”, either now or in the future, need to be taken extremely sceptically. This is a highly political discourse that has very little base, and is more about scare-mongering and building anti-Chinese sentiments in the USA and western Europe than it is about seriously understanding the energy sector. This is not to say that there are not extremely important geopolitical issues at play. The question of how Chinese energy companies operate in the world-market (as well as, of course, the question of how foreign companies operate within China) is extremely important. Similarly, so is the question of Chinese imports and exports of fuels, and also energy infrastructures. However, the question of how to approach these concerns needs to be disentangled from a crude China-bashing politics.

The country’s energy matrix consists of virtually all fuels and energy technologies. Government is expanding all main energy sources in order to meet increased production levels. Security of energy supply is the dominant factor. However, climate change commitments that have been taken both nationally and globally, are also important driving factors. The question of energy in general, and “clean energy” in particular, is becoming increasingly important, for government, industry , and civil society.

The bulk of the country’s electricity supply is met from coal. The overall volume of coal being consumed continues to increase, while its percentage in the total energy mix is gradually decreasing. These are somewhat contradictory trends. However, denial of the scale and scope of the problem does not seem to be a major factor.  The government is strongly committed to reducing the overall percentage that is supplied by coal due to the different social and environmental problems it causes. This is driving the expansion of other energy sectors. In addition to diversifying away from coal to the extent that it considers feasible, the Chinese government’s commitment to “clean coal” is some of the most advanced in the world.

In particular, recent years have seen a major expansion get underway in the use of wind energy, large hydropower, and also nuclear energy, all of which are seen as important substitutes for coal. There is also a big expansion of solar energy  (especially Concentrated Solar Power) planned for the future, but this is not yet as advanced as the other branches of the sector. There is already large scale use of solar water heating used in rural and some urban areas. There is also an important role for primary biomass and biogas digestion, especially in rural areas. In addition to diversifying energy sources, energy reduction and efficiency measures  are seen as an equally important part of a “clean energy strategy”, and major improvements have been made.

The government sees that all energy sources have a necessary contribution to make to China’s energy mix, in the context of rapidly rising energy demand which is defined both by national and global factors and is set to continue many years into the future. However, while all energy sources are being committed to, it is also acknowledged that large scale hydropower and nuclear energy are not without their own problems. Large hydropower, which is controversially defined by the government as a renewable energy technology, has a massive social and environmental impact, often leading to the displacement of literally millions of people and the flooding of large areas of land. The increased use of nuclear energy presents major long-term safety concerns. As with coal, it is not seen as possible to abolish these energies in the short and medium and maybe even in the long term. Instead, efforts are made to “clean up” the social and environmental impacts of these energy industries as best as possible, in terms of making their immediate consequence less damaging and less dangerous. There is a strong government commitment to this.

Bearing this in mind, renewable energy is acknowledged as being much cleaner than other energy forms, and it is understood that the sector should be encouraged to grow. Government efforts have ensured that this has happened and will continue to in the years ahead. China’s commitment to renewable energy is amongst the strongest in the world. In addition to being a major consumer of energy from renewable energy source, China has also rapidly become a world leader in the manufacture of renewable energy equipment, such as both large and small wind turbines, solar photovoltaic panels and solar water heaters, and also turbines for hydropower stations (both large and small), as well as in technology development.

A major constraining factor is related to the fact that energy production in China, as in many areas of the world, is characterized by the fact that the energy rich areas are not areas where there is high energy demand (electricity of otherwise). Certain regions are important energy regions (eg Shanxi, Inner Mongolia have coal, Xinjiang, Ganzu  for wind (actually 7 national wind bases), Tibet will become  solar and hydro region. Hydropower is important in Yunnan, Szichuan and Tibet. Several of these regions are ethnic minority regions. On the other hand, most of the energy consumption occurs in the east of the county. This means that the transportation of energy (either in the form of electricity on the grid, or fuel (especially coal) in vehicles ) is an extremely important issue. Lack of infrastructure is an important concern here, eg the grid is not strong enough to integrate all wind turbines and other renewable energy.  Energy storage options are also not yet as advanced as they need to be.

Another key constraint at the national level is the need to ensure political stability through high economic growth and urbanization. The last thirty years of China’s open economic development has led to a rapid process of urbanization, industrialization and consumerism. This economic growth based development model is heavily pushed by the government. It has brought greater wealth and higher living standards for many people, especially in cities, though has also led to great inequalities. This form of economic growth has also been based on an increased energy production and consumption,  that are still for the most part based in fossil fuels. As such, energy supply is increasingly central to ensuring political stability.

Constraints also exist at the international level.  The Chinese government has made climate change targets. The question of the “Right to development” is a defining feature of the political landscape, which makes it extremely difficult to question the energy intensive (fossil intensive) development model based on “catching up” with industrialized countries.  The concept of the “right to development” is becoming a bargaining tool for the government in international climate change negotiations. As China’s political and economic weight grows in relation to its position in the world-economy, the political stance is that it should not continue to be excluded from benefitting from the kind of economic development that until now it has been excluded from, whilst other more powerful countries have benefited from such development. A big concept here is the question of “allowances”, and the continued right to protect its economy, based in development rights and shared but differentiated responsibilities.

Part 4: Ownership, Control, Decision Making, Actors in China’s Energy Sector: Priorities, Cooperation and Conflict 

A number of actors operate within China’s energy sector. This includes: a wide range of governmental agencies in the area of energy policy and development; energy companies, some of which are state owned, some of which are Chinese private companies, and others which are foreign private companies; financial institutions, some of which are Chinese state companies, and others which are foreign private companies, as well as multilateral financial institutions; international political institutions; communities and workers affected by energy production and consumption; universities; think tanks, NGOs and other civil society organizations, both from China and from other countries. At times these different actors have common interests and close cooperation with one another, while at times their interests diverge from one another and conflicts develop.

Key to understanding this is the issue of the political and economic restructuring that has occurred in recent years, and the effects of this process on both decision making structures and also ownership structures within the sector. Since the early 2000s, in parallel to the restructuring of the different energy sectors, was a fundamental restructuring of the political institutions in the energy sector. The energy companies were made independent of the main Ministry of Energy, which in turn was later dissolved. As such, the political power in the energy sector was reduced. After several restructurings in a short space of time, the main government body responsible for energy planning and decision making is the National Reform and Development Commission (NRDC), which has within it the Energy Research Institute (ERI). Central government still retains a powerful role, but much less so than when the Ministry of Energy existed. Local governments are mainly responsible for negotiating with companies about infrastructure.

A key political goal of the different institutions is to ensure economic growth and social/political stability, based on continuing to improve people’s living standards. At the same time, these political institutions must also create a policy environment that is favourable to China’s energy companies, and allows them to expand, both economically and politically at both the national and international level. At the same time, is the question of how to fulfil international climate change commitments. As such, policy makers have to juggle with many different, and at times conflicting, goals.

The restructuring of China’s energy sector has mainly not involved privatization, but rather a process of corporatization. The state-owned companies which have been created operate at least somewhat autonomously from, but in close cooperation with, the political structures. A fundamental change is that they are now mandated to operate according to profit logic. This presents the difficult challenge of both meeting the energy needs of the population and also industry, agriculture and other needs (not least including the military), while also ensuring that the energy companies make a profit. In the past, before restructuring, the energy sector often ran at a loss, and was heavily subsidized by other sectors of the economy.

There are 5 major state owned enterprises in the electricity sector:  Datang, Huaneng, Huadian, Guodian, Gezhouba, Sanxia, and two power grid companies, the National Grid, and Southern Grid. The coal industry is also still largely organized around state-owned companies, and there has been an important concentration in the sector in recent years. Major state-owned enterprises include Shenhua Group Corporation Ltd, China Coal Energy Company Ltd, and China National Coal Group Corporation. The oil industry is also largely state based, including such major companies as Petrochina Company Ltd, China National Petroleum Corp (CNPC), China National Offshore Oil Corporation Ltd (CNOOC Ltd) China Oilfield Services Ltd (COSL), China Petrochemical Corporation (Sinopec Group) and China Petroleum and Chemical Industry Federation and the SINOCHEM Group. In nuclear, the major state-owned players are China National Nuclear Corp, China Guangdong Nuclear Power Group and China Power Investment Corp, and in hydropower they include Sinohydro Corporation (Sinohydro), China Three Gorges Project Development Corporation (CTGPC), and China Gezhouba (Group Corporation).

Not only do all of these state-owned enterprises play a vital role in China’s energy system, but they are also experiencing an important overseas expansion. In many ways the corporatization process has meant that the companies operate in quite similar ways to multinational companies, and they are becoming obliged to project themselves globally in pursuit of profits, which in turn means they have to compete in global markets with other private and state-owned companies from around the world. However, their pursuit of profits is closely guided, if not actually controlled by and subordinated to, China’s domestic energy policy. Sometimes there is a strong overlap of interests, and sometimes there is a conflict.

However, as the renewable energy sector develops, this is producing some significant developments with regard to ownership. While most of the major renewable energy projects and installed infrastructures are owned by state-owned companies (mainly the electric power companies), the major manufacturing capacity of wind turbines and solar panels is being undertaken by private companies, which benefit from extensive state support. Examples of this include as Goldwind, Sinovel, or Suntech Power (which recently entered into bankruptcy). However, there is also one major state-owned enterprise that manufactures wind turbines, Dongfang Electric Corporation (DEC). As with the other branches of the energy sector, there is a significant concentration of ownership occurring in the renewable energy sector, and the companies are becoming increasingly important world leaders in the world-market.

The electrical grid, which is essentially still a monopoly, is interested to maximize profits, making the relative bargaining power of each branch of the power sector more important. This means that, despite the fact that government has an overall policy in which the targets for different energy technologies and sources is determined, economic competition between the different energy sectors nonetheless becomes important in determining the country’s energy mix. This is especially so as ownership within the different branches becomes more concentrated. One important factor in this regard is the role that coal plays. Coal constitutes an important inertia factor in relation to moving towards other energy sources and industrial sectors associated with these sources. China’s coal industry is incredibly economically and politically powerful compared to these other branches of the energy sector. As coal mining consolidates into larger companies due to restructuring, this gives the sector greater corporate weight with which to compete with other sectors.  Another factor is that many industrial companies use coal directly, rather than using electricity. This benefits coal with respect to other energy sources. Another important concern is the inability to sell renewable energy due to companies’ reluctance to purchase it, due to the (real and perceived) lack of stability of supply as compared to coal.

All of this has important implications for scale. The main thrust of the energy sector favours large technology, large corporate ownership structures and centralized decision making structures. Increased centralization and concentration is occurring in all branches of the energy sector, with a corresponding intensification of competition and global expansion of the energy companies.  This is motivated mainly by profitability, efficiency and competiveness factors. In relation to coal, this process is also driven by safety concerns. However, in the past there was a strong emphasis on smaller scale technologies as well; eg decentralized small coal mines (this was also linked to a partial privatization process), small scale dams under local government and community control; household and village level biogas digestors, often under village or individual household control. China still has the world’s biggest use of small scale hydropower, biogas and solar water heaters, though its definition of small scale hydro involves a bigger scale than most other definitions. China is also an important user of small scale wind energy (especially in remote rural areas that are not served by the grid), and manufacturer of small turbines. However, these are not significant in comparison to the overall use of the large technologies.

Closely linked to the above is the question of energy prices, markets and trade. These are also important mechanisms for distributing resources in the sector, and for shaping structures of ownership and control. The need for energy companies to make a profit, instead of functioning at a loss, means that now the companies are expected to introduce “cost reflective pricing” in the energy sector, so as to reflect changes in market supply and demand, resource availability and environmental costs. This is essential for creating a functioning market. However, in order to avoid political instability, the government is implementing market-based price reforms with great caution. Energy prices for residential use are currently still heavily subsidized, regulated and, to a certain extent, also politically controlled. Consequently, energy is still largely affordable to the bulk of the population. The government faces the difficult task of introducing price reforms in such a way as to make it acceptable to all interests and social sectors. In relation to market reforms, China has made active efforts to introduce legal reforms that make joint ventures and other foreign co-operations in the energy sector easier and more attractive for foreign investors. These are based on transparency and rule based systems, and China’s entry into the World Trade Organization (WTO) in 2011 had a major impact on its energy sector.

In addition to government and corporate actors, there is also a growing role for several other sectors in influencing decisions in the energy sector. This includes universities, research institutions, think tanks and non-governmental organizations (NGOs), as well as other civil society actors. In addition to Chinese think-tanks and NGOs, there are also a number of significant international think-tanks and NGOs that operate within China in the energy sector, especially including from the USA, Germany and Denmark.

Part 5 Key Challenges Facing China’s Energy Sector 

There are a number of key challenges which the energy sector faces, as a whole.  On the one hand is the enormous challenge of how to secure a continuous supply or energy, in the face of rapidly expanding demand both from industry and from residential users. Related to this is the fact that there is a need to transport energy over large distances across the country, either in the form of fuels (both liquid and solid), or in the form of electricity. This presents an enormous infrastructural challenge.  Another key concern is how to reduce the negative environmental impacts of energy technologies. Especially important here is Chinas’ heavy reliance on coal, which is the most energy source that makes the largest contribution to climate change. This dependency on coal presents a huge challenge, and will continue to do so for many years into the future. Energy pricing is also becoming a key concern, and avoiding major price inflation in the energy sector is seen as very important in order to preserve social and political stability. These are just some of the important questions facing the different actors within China’s energy sector.

On the one hand, these questions all have a dimension that is largely technical, and the issues are often approached from this angle. New and improved technologies are seen as major contributing factors to finding solutions to the problems at hand. “Innovation”, “progress” and “development” through technological improvement in the sector are seen as central. At the same time, there is clearly a very strong social, political, economic and also geopolitical dimension to these challenges.  On the one hand, policy makers are acutely aware that an affordable, reliable and continually increasing energy supply is necessary for continued urbanization based economic growth,  and for social, political and economic stability. They face the difficult task of balancing the different and at times conflicting interests of different sectors and actors. On the other hand, the energy sector is, albeit slowly, becoming an increasingly important focus for many other social sectors, as a range of new social, environmental and labour tensions are emerging in both the energy and energy intensive industries. In this respect, China is not very different from many other countries, where energy is a major source of social, environmental and political tension between different sectors.

Tensions are emerging in relation to a number of important themes. The expansion of hydropower infrastructure has produced a number of important social and environmental conflicts in recent years. Many large energy infrastructure projects (including hydropower, but also other energy sources) are located in regions where ethnic politics is important, and has the potential to generate “ethnic conflict”. Coal continues to be an ongoing source of environmental pollution and concern for a number of civil society organizations. Although nuclear energy has not yet produced much in the way of civil society organizing, environmental and health and safety concerns relating to the sector’s rapid expansion are slowly becoming issues for discussion. Keeping the lid on energy price inflation, is another important area, and in the last years the price of fuel has become a major area of contention involving truck drivers, taxi drivers, and also a growing car-driving urban middle class and the possible impact on social and political stability. These are just some of the growing concerns in the energy sector.

However, for many civil society organizations, the question of energy is still quite new (with the exception of hydropower), and it is often quite difficult to obtain information about energy, as the sector is characterised by a relative lack of transparency and participation. As such, discussions are still in their early stages, and are very often focused on technical dimensions, as described above, rather than rooted in a critique that examines power relations in the sector.