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China’s energy industrial revolution John A. Mathews* and Hao Tan** * Eni Chair in Competitive Dynamics and Global Strategy LUISS Guido Carli, Rome **

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Presentation on theme: "China’s energy industrial revolution John A. Mathews* and Hao Tan** * Eni Chair in Competitive Dynamics and Global Strategy LUISS Guido Carli, Rome **"— Presentation transcript:

1 China’s energy industrial revolution John A. Mathews* and Hao Tan** * Eni Chair in Competitive Dynamics and Global Strategy LUISS Guido Carli, Rome ** University of Western Sydney DPTEA Seminar LUISS Guido Carli, Rome 3 March 2011

2 Chinese power generation and rising coal consumption Source of primary data: US EIA

3 Sources of China ’ s power generation, Source of primary data: US EIA International Energy Statistics Database

4 Chinese rising coal consumption having global impact

5 China as a black energy system China as a microcosm (!) of the global energy situation – and China prefiguring many of the solutions Energy supplies now seen as #1 strategic issue by Chinese leadership – as the power driving the export and manufacturing machine Coal and thermal capacity being rapidly expanded, but renewable sources (incl. nuclear and hydro) being rapidly ramped up as well. In 2010, China burning more than 3 billion tonnes (Gt) of coal In 2010, China added 85 GW in electric power capacity, 55 GW of which is thermal  ‘China adding a 1 GW coal-burning power station each week’ is TRUE

6 China as a green energy system Coal and thermal capacity being rapidly expanded, but renewable sources (incl. nuclear and hydro) being rapidly ramped up as well By 2050, 33% of China’s energy will be renewable (ERI of NDRC) – creating unstoppable momentum (logistic industrial dynamics) China’s contribution to carbon emissions growing – but will probably be smaller than that of US or Europe in 21° century China’s renewable energy policies focus on production and building new industries, rather than on consumption In 2010 China is building MORE GENERATING CAPACITY in ‘hydro, nuclear and renewables’ than in thermal: Of 179 GW under construction, 80 GW is thermal, while 100 GW is alternatives (hydro 68 GW; nuclear 23 GW; wind 7.7 GW; other 1,3 GW) China as a microcosm (!) of the global energy situation – and China prefiguring many of the solutions

7 Chinese build up of wind power Source of primary data: the wind electricity net generation data are available from U.S EIA; and the installed wind electricity capacity data are extracted from the 2008 and 2009 World Wind Energy Report.

8 China as a ‘black and green’ energy system Dependence on fossil fuels is still growing – but the industrial dynamics of renewables will take over, and after 2050 renewables can be expected to rapidly displace FFs In this sense, China is a microcosm (!) of the global energy situation – and China is prefiguring many of the solutions that other countries will follow Note while fossil fuel subsidies are rising or being maintained elsewhere (a $500 billion waste!) in China fossil fuel subsidies are being phased out – energy markets coming to reflect real production prices Renewables being built not on basis of subsidized markets (although some of this – limited feed in tariffs) but on basis of production incentives and genuine market ‘mandates’ through planning 11th 5-year Plan ; 12th 5-year plan – just announced (strong emphasis on REs) NDRC targets for REs in 2020 Christina Larson, The great paradox of China: Green energy and black skies, Yale Environment 360, Aug 17, 2009:

9 China ’ s energy pathways to 2100: Fossil fuels versus renewable energies Source: Authors, based on sources discussed in text.

10 China’s energy trajectories: two curves China’s energy trajectories are reasonably well understood and mapped Hao Tan and I project forward to 2100 We utilize two ‘master curves’ A convex curve for fossil fuel consumption – growing to around 6 billion tonnes coal-equivalent (Gtce) by 2080 and then declining A logistic curve for renewable energy substitution – reaching near 100% displacement by 2100 These are not extrapolations or linear forecasts These are realistic projections based on underlying industrial dynamics How have such transitions looked in the past?

11 Systemic transitions Logistic industrial dynamics: Adoption rates of communications technologies,

12 Systemic transitions Logistic industrial dynamics in 17 cases of technological substitution Source: Adapted from Fisher & Pry (1971, p.87) Note: the ordinate of the figure is f, which refers to the fraction substituted by the new technology.

13 US energy transitions: primary sources by proportion Source: A.G.M. Layzell

14 China’s energy trajectories for the 21° century China’s energy trajectories are reasonably well understood and mapped The Energy Research Institute (ERI) of the NDRC, Beijing, monitors every aspect in detail Projections up to 2050 provided (e.g. Jiang and Liu 2009) These authors depict China’s energy trajectories up to 2050 with coal, oil and gas at the bottom of the chart, then with hydro, nuclear and renewables Hao Tan and I redrew, to show renewables at bottom – to capture the logistic industrial dynamics of their uptake Primary energy demand: Enhanced Low Carbon Trajectory Consistent with many other sources, e.g Martinot and Li 2007; Pew Charitable Trust report ‘Who’s winning the green energy race?’, or Worldwatch special report ‘Powering China’s development: The role of renewable energy’

15 China ’ s energy pathways, (ERI) Source of primary data: Jiang et al (2009)

16 Energy pathways extended to 2100 Source: data generated from models developed by authors based on projection data from Jiang et al. (2009). See Appendix A for more details.

17 China’s carbon emissions Based on energy projections, can forecast China’s fossil fuel consumption and carbon emissions Note: First country in world to industrialize with (reasonably) known carbon emissions Total carbon emissions we estimate to be Gt carbon up to (i.e. 650 Gt CO2: multiply by 44/12) Peak in 2040s Carbon emissions just from burning coal would be around 100 Gt carbon and peak in the 2030s So China’s carbon emissions can be expected to keep rising for at least another 20 years This sets China’s stance in international climate change forums (UNFCCC: Copenhagen Dec 2009, Tianjin (Oct 2010) and Cancun (Nov 2010)

18 Carbon emissions to atmosphere, Source: data generated from models developed by authors based on projection data from Jiang et al. (2009). See Appendix A for more details.

19 China’s carbon emissions compared to world’s Developed countries have emitted cumulative total of around 500 Gt carbon since Industrial Revolution They are continuing to emit large quantities – despite Kyoto commitments China is likely to emit 160 to 170 Gt carbon up to 2100 So China’s cumulative contribution by 2100 dwarfed by US, Europe and Japan According to recent papers in Nature, world as a whole must limit cumulative carbon emissions to 1 trillion tonnes to avoid warming in excess of 2° C Cannot blame China if the world goes beyond this limit – but instead blame the ‘carbon lock-in’ of the developed countries Technological lock-in buttressed by continuing financial subsidies to fossil fuels $500 billion per year: IEA

20 China replicating fossil fuel dependent development pathway All industrialized countries went through their fossil fuel dependent phase Indeed, the ‘Industrial Revolution’ now understood to be basically an energy-driven revolution, substituting fossil fuels for traditional, organic fuels (largely firewood and charcoal) Britain’s ‘subterranean forest’ of coal (Access to coal was one of the ‘fortunate’ factors in why Europe industrialized earlier than China) Case: The industrialization of the USA

21 Fossil fuels and industrialization: U.S Source of primary data: US EIA (2008) Annual Energy Review

22 China’s growing dependence on oil imports China’s dependence on fossil fuels is still growing Imports of oil overtook domestic production in 1995 Gap between imports and domestic production getting larger every year – but the industrial dynamics of renewables will take over, and after 2050 renewables will rapidly displace fossil fuels In this sense, China is a microcosm (!) of the global energy situation – and China is prefiguring many of the solutions that other countries will follow Note while fossil fuel subsidies are rising or being maintained elsewhere (a $500 billion waste!) in China fossil fuel subsidies are being phased out – energy markets coming to reflect real production prices Renewables being built not on basis of subsidized markets (although some of this – limited feed in tariffs) but on basis of production incentives and genuine market ‘mandates’ through planning 11th 5-year Plan ; 12th 5-year plan Christina Larson, The great paradox of China: Green energy and black skies, Yale Environment 360, Aug 17, 2009:

23 The energy issue and development: China’s looming oil/energy gap

24 China now world’s third most dependent oil importer

25 China’s electrification: Electricity as a rising proportion of total energy Source: Historical data up to 2008 is calculated based on the primary data available from U.S. EIA; the projected ratio from 2010 onwards is calculated based on the projection under the mitigation scenario in Liu, Shi and Jiang (2009)

26 China’s electrification China ramping up its degree of electrification, from around 15% of total energy today to around 25% by Note that this is a very conservative estimate of ‘electrification’ The IEA use a much more liberal notion of ‘homes connected’ as a measure of electrification Electricity access in 2008 – World 1,456 Population without access to electricity (million) 78.2%Electrification rate 93.4%Urban electrification rate 63.2%Rural electrification rate Now let us examine the various renewable sources of electric energy

27 China ’ s projected power sector, up to 2050 Source of primary data: the projection for electricity generated from wind, solar, biofuel, nuclear are directly taken from those in the ‘ Enhanced Low Carbon Scenario ’ in Jiang et al (2009); the projection for electricity generated from traditional coal power is based on Liu, Shi & Jiang (2009) under their ‘ Mitigation Scenario The projection for hydro electricity is based on the resource potentials indicated in NRDC (2007) which is subject to our logistic curve as explained in Appendix A. We do not include consumption of oil and gas for thermal power generation in this chart because they are insignificant compared with other sources depicted in the chart

28 Figure A1: Logistic model for wind energy in China: Source: the ‘ existing data ’ up to 2050 is available from Jiang et al. (2009) including the historical data for the period and the projections for period See Appendix A for more details.

29 Figure A2: Logistic model for solar energy in China: Source: the ‘ existing data ’ up to 2050 is available from Jiang et al. (2009) including the historical data for the period and the projections for period See Appendix A for more details.

30 Figure A3: Logistic model for nuclear energy in China: Source: the ‘ existing data ’ up to 2050 is available from Jiang et al. (2009) including the historical data for the period and the projections for period See Appendix A for more details.

31 Figure A4: Logistic model for bio-energy in China: Source: the ‘ existing data ’ up to 2050 is available from Jiang et al. (2009) including the historical data for the period and the projections for period See Appendix A for more details.

32 Figure A5 – Hydropower projections for China Source of primary data: the historical data up to 2008 is available from U.S. EIA; the projection from 2010 is based on authors ’ calculation

33 Figure A5: Quadratic model for coal in China: Source: the ‘ existing data ’ up to 2050 is available from Jiang et al. (2009) including the historical data for the period and the projections for period See Appendix A for more details.

34 Figure A6: Quadratic model for oil in China: Source: the ‘ existing data ’ up to 2050 is available from Jiang et al. (2009) including the historical data for the period and the projections for period See Appendix A for more details.

35 Fig. A7: Quadratic model for gas in China: Source: the ‘ existing data ’ up to 2050 is available from Jiang et al. (2009) including the historical data for the period and the projections for period See Appendix A for more details.

36 China’s electrification and the smart grid China now pouring investments into upgrading its national electricity grid China (NDRC) anticipates that the grid will have to carry current twice the current level of 1500 TWh – i.e. up to 3000 TWH of electricity by 2020 This will be by far the largest such electric power system in the world China has already had substantial reforms of the electricity sector – privatizing state- owned eolectric power monopolies and introducing competition Now it is upgrading the grid with IT (both for managing fluctuating inputs and demand) and introducing new HVDC long-distance lines to link sources of power in the west with eastern seaboard cities This is an example of China leapfrogging to world leadership in smart grid implementation

37 China ’ s projected national grid with main HVDC lines Source: State Grid Corporation of China

38 Investment in electric power: generation vs. distribution Source of primary data: China Electricity Council

39 Passenger- dedicated line China ’ s High-Speed Rail plans to 2020: North-south and East-west corridors Source: Ministry of Railways, China

40 China: Energy intensity, efficiency, carbon intensity Energy and carbon intensity now monitored extremely closely in China C/Y = (C/E) x (E/Y) C/E ‘Carbonization’ carbon produced per unit energy used E/Y Energy intensity: energy used per unit GDP produced C/Y Carbon intensity: Carbon emitted per unit GDP produced Historically, industrializing countries exhibit rapidly rising levels of energy intensity i.e. more energy used as GDP rises Then they peak, and start to exhibit falling levels of energy intensity (i.e. improving energy efficiency This is the picture as revealed for the historical experience (first plotted by Reddy and Goldemberg in a famous Scientific American article)

41 Historical trends in energy intensity Source: Adapted from Wallace (1996) p.18

42 China ’ s energy intensity, , and projected to 2050 Source of primary data: the historical energy intensity data up to 2008 is available from U.S. EIA; the energy intensity projections for the period is based on the authors ’ calculation

43 China: Energy intensity, efficiency China’s energy intensity did grow, from 2001 (when China entered WTO) until 2005 – and it has been falling since then This is historically unprecedented!! China has in effect ‘tunnelled through’ the Environmental Kuznets curve -- and come out the other side Now improvements in energy efficiency are set as part of the 5-year plans, e.g. improvement of 20% over the years Will China be able to reach this ambitious target?

44 Progress in cutting energy intensity in China: Source of the primary data: National Bureau of Statistics of China

45 China: Improving energy efficiency China is taking direct and decisive steps aimed at improving energy efficiency There are new regulations on energy use in buildings And there are new rules on fuel efficiency of vehicles Note that these rules put China in advance of the US in terms of fuel efficiency (or fuel economy) 35 mpg cf US standard of 25 mpg Obama Administration taking action to improve US fuel economy standards -- but still well behind China

46 Fuel economy in vehicles: China vs. other countries Source: Adapted from An and Sauer (2004) Note: 1, MPG = mile per gallon of gasoline; 2 dotted lines denote proposed standards

47 China ’ s carbon intensity, , and projected to 2050 Source of primary data: the historical carbon intensity data up to 2008 is available from U.S. EIA; the carbon intensity projections for the period is based on the authors ’ calculation

48 Carbon intensity across countries Source of primary data: the historical carbon intensity data up to 2008 is available from U.S. EIA; the carbon intensity projections for the period is based on the authors ’ calculation Hao – I suggest you adjust this chart to make it look more plausible – by modifying the reduction in China ’ s energy intensity and/or by reducing advanced countries ’ intensity below a straight line extrapolation

49 China and carbon emissions While China’s energy intensity and carbon intensity is improving, these are measures relative to GDP While GDP growth continues at around 10% per year, even dramatic improvements in energy and carbon intensity will be swamped by rising GDP So carbon emissions will continue to rise Other measures of resource intensity How much steel will be used as China builds vast numbers of wind turbines? How much concrete/cement will be used? Good questions – need answers Now consider policy and strategy

50 China’s energy strategies China as latecomer is building renewable energy industries Capturing latecomer advantages (e.g. in EVs, PVs, HVDC) China’s policy settings designed to decarbonize the energy system Fossil fuel subsidies being dismantled Rationalization in electric power sector New National Energy Commission created in 2010 Renewable Energy Law passed in 2005, implemented in 2006 Favours building of RE industries Subsidies and tax advantages Concession system for wind power in exchange for technology and local supply chain creation VAT remissions for domestically produced components Government procurement as policy instrument Government mandated market shares Renewable energy industries being developed within clusters

51 Clusters and Special Economic Zones The SEZs grew out of earlier experiences with Export Processing Zones and Free Trade Zones (and note prior European experience with competitive advantages of FTZs, e.g. free ports like Hamburg or Bremen) Sharp increase in the number of SEZs around the world – from 79 SEZs across 29 countries in 1975, to 3500 SEZs across 130 countries in 2006 The mean number of zones per country increased from 3 to 27 Employment within SEZs tripled in ten years, from 22.5 million employed in 1997 to 66 million in 2006 China alone employed 40 million people in SEZs in SEZs and the clusters they embody are phenomenal wealth-generating machines e.g. China Renewable Energy clusters in Wuxi; and Binhai (Tianjin Economic Zone)

52 Top 100 industrial clusters in China Source: Li & Fung Research Centre

53 China’s 12 th Five-year Plan China’s 12 th five year plan announced end 2010 To cover the years 2011 to 2015 Emphasis on promoting seven strategic industries Energy-saving and environmental protection – e.g. recycling (Circular Economy) Next-generation IT – next-gen communications, TV/internet networks etc Bio-industries – biopharmaceuticals, bio-agriculture, bio-manufacturing High-end assembly and manufacturing industries – aerospace, rail and transport, ocean engineering, smart mfg New energy sources – nuclear, solar, wind, biomass, smart power grids New materials – advanced structures, high-performance composites, rare earths New energy-powered cars – electric vehicles, EV charging infrastructure Now that China has overtaken Japan to become world #2 economy, emphasis in the 12° Five-year Plan is on the development of China’s own market and on promotion of strategic industries (following the East Asian development model) Investment in the seven strategic industries earmarked to be RMB 10 trillion over next five years This is why logistic industrial dynamics can be expected to drive uptake of REs – effect of cumulative investment China as a microcosm (!) of the global energy situation – and China prefiguring many of the solutions Energy supplies now seen as #1 strategic issue by Chinese leadership – as the power driving the export and manufacturing machine Coal and thermal capacity being rapidly expanded, but renewable sources (incl. nuclear and hydro) being rapidly ramped up as well By 2050, 33% of China’s energy will be renewable (ERI of NDRC) China’s contribution to carbon emissions growing – but will probably be smaller than that of US or Europe in 21° century China’s renewable energy policies focus on production and building new industries, rather than on consumption The creation of renewable energy industrial clusters central to the strategy

54 Summary China as a microcosm (!) of the global energy situation – and China prefiguring many of the solutions Energy supplies now seen as #1 strategic issue by Chinese leadership – as the power driving the export and manufacturing machine Coal and thermal capacity being rapidly expanded, but renewable sources (incl. nuclear and hydro) being rapidly ramped up as well By 2050, 33% of China’s primary energy will be renewable (ERI of NDRC) – and 50% of its electric power will be generated from non-fossil sources China’s contribution to carbon emissions growing – but will probably be smaller than that of US or Europe in 21° century China’s renewable energy policies focus on production and building new industries, rather than on consumption The creation of renewable energy industrial clusters central to the strategy China promises to be the world’s first major country to build an entire green economy and to industrialize with known carbon emissions In this sense, China is a model for the rest of the developing world – and for the developed world as well


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