Economic Sustainability in China: Energy & Environmental Issues

October 14, 2018

Introduction

 

The unprecedented growth in global economic output that has occurred over the past few centuries is tightly linked to the increased use of fossil fuels as an energy source. This surge in energy demand is a result of many factors, including increased consumer demand for goods and services and technological innovations requiring more power. Energy drives the capitalist system that thrives today; it is a crucial aspect of any modern economy.

 

This holds true for the People’s Republic of China (hereafter referred to as “China”), which has experienced high economic growth following the economic and political reforms of the late 1970s. The energy and environmental consequences of China’s recent economic boom are beginning to be realised as global concerns over energy security and supply, along with environmental degradation and public health problems are forcing the Chinese to rethink and rebalance their energy portfolio. China is among the world leaders in renewable energy and energy efficiency investments. Moreover, they have made formal international commitments stating their intention to reduce greenhouse gas emissions resulting from their most polluting industries, including heavy industrial and manufacturing sectors and electricity generation.

 

What remains in question is whether or not China, one of the globe’s largest energy consumers, and fastest growing countries in terms of economic and population growth, can maintain it’s growth patterns while transitioning their energy portfolio to a cleaner, more sustainable and more diversified system. This paper will attempt to answer this question by providing an overview of Chinese economic growth over the past thirty to forty years. It will then assess Chinese energy demand and consumption patterns over this time period, and the subsequent energy and environmental issues associated with these growth patterns. Current energy and environmental policies will be presented, followed by future scenarios and an analysis on the sustainability of growth in the context of energy, environment and economy.

 

Country Economic Overview

 

The communist period from 1949-1978 led by Mao Zedong stifled China’s economic growth and political stability. The Maoist period can be characterised by a Soviet-style planned economy with nationalisation of private businesses, massive land redistribution, condensation of agriculture, and forced industrialisation. This time period created social discontent and distrust between the people and the state; it also resulted in violence and death.1

 

After Mao’s death in 1976 and beginning in 1978, economic reforms launched by Deng Xiaoping’s regime began laying the foundations for China’s new economic and political system. Signs of the first free agricultural market economy developed as the socialist system fizzled. In addition to more open agricultural markets, increased industrial production in rural areas in the form of collective small sized companies emerged. Four special economic zones throughout Southern China were developed to attract foreign direct investment and to test out the market economy in small, controlled environments. And finally, a double track system was established after 1984, which allowed companies to produce and sell goods beyond the state mandated quotas. These reforms gave the Chinese government and people a taste of the outcomes associated with a market economy.2

 

Broad economic changes after 1992 were necessary for China to keep itself from falling into the same collapse as the Soviet Union. Further reforms by Deng Xiaoping were necessary to address a few key factors: huge population growth as fifteen to eighteen million people per year were arriving on the labor market; modernisation and globalisation of Chinese enterprises; and maintaining good relationships with Chinese citizens. Xiaoping attempted to address these issues by establishing a stock exchange, restructuring state owned enterprises and labor market systems, implementing state fiscal reforms, and initiating social reforms.3

 

The reforms beginning in 1978 set the stage for Chinese economic growth. But perhaps the most significant development was China’s World Trade Organisation Integration in 2001. According to Gregory Chow’s speech, “The Impact of Joining WTO on China’s Economic, Legal and Political Institutions,” entry into the WTO “opens up China’s market for more international trade and investment, and opens up the world economy for China’s exports.”4 Lifting these barriers allowed money, goods, technology and information to flow freely in an out of China.

 

China’s entry into the WTO was coupled with lower tariffs, more open sales regulations between foreign firms and Chinese domestic markets, and relaxed telecommunication and financial sector regulations to promote foreign competition.5 Chow cites a dynamic computational general equilibrium model of the Chinese economy that analyses the impact of WTO membership on Chinese economic growth. He concludes that gains from specialisation through international trade and gains from increases in efficiency within each industrial sector are the two main sources of growth. These factors, combined with increased production of durable and nondurable goods has set China apart from the world in terms of global output and exports. 

 

Damien Ma of the Paulson Institute writes, “After it entered the World Trade Organization (WTO) in 2001, China managed an impressive decade of GDP growth, peaking around 14 percent in 2007. That boom was anchored in an economic model that had two basic pillars: fixed asset investment (for example, pubic works infrastructure and housing) and becoming a producer that exported to the world.”6 It is clear that these, among other factors contributed to China’s dominant GDP growth during this time period. An overview of Chinese annual GDP growth compared to the United States and the world average annual GDP growth since 1980 is shown below. 

 

 

China’s growth in heavy industry has been a catalyst for their economic growth over the past few decades. Ma cites steel, aluminium and cement, which constitute about 46, 45, and 60 percent of global production respectively, as major contributors to economic growth and determining factors in China’s overall energy choices.8 The country’s increased production and export growth has driven their energy consumption growth, which has increased over 600 percent since 1980.9

 

 

Energy Overview

 

China’s economic growth exhibited over the past few decades is linked to the global demand for their goods and services. This global demand for Chinese products has caused their energy demand and consumption to skyrocket. Paul Crompton and Yanrui Wu’s Elsevier Energy Economics Journal report, Energy consumption in China: past trends and future directions, asserts that “China’s demand for energy has surged to fuel its rapidly expanding industrial and commercial sectors as well as households experiencing rising living standards.”10 

 

According to Crompton and Wu, “China’s energy consumption since 1953 has several distinct characteristics.”11 First, Chinese energy intensity, energy consumption per unit of GDP, has declined over the past three decades due to “improvements in energy efficiency and development of new materials.”12 Next, China’s energy mix (see chart below) is unbalanced, and because of their abundant natural resource reserves, dominated by high levels of coal production and consumption.13 

 

Crompton and Wu also recognise that while China’s total energy consumption is large in absolute numbers, per capita energy consumption is very small relative to that of other developed economies, suggesting further energy demand growth potential.15 And finally, Chinese energy consumption is geographically unbalanced, with urban energy consumption far outweighing rural consumption.16 These characteristics of China’s energy trends have influenced their overall growth and output over the past few decades and have put China on the map as an economic powerhouse and export heavy country, but at a social and environmental cost.

 

China has been blessed with massive coal reserves and naturally has reverted to exploiting their domestic energy sources. Consequently, they are the largest coal producer and consumer in the world.17 Ma points out, “The Chinese economy consumes nearly as much coal as the rest of the world combined. The majority of power generation in China relies on coal, and the steel industry consumes large amounts of coking coal.”18 In addition to abundant reserves, their heavy reliance on coal is also due to “tight control of commodity prices, and resultant underpricing of coal products during the central planning era and a lack of environmental awareness for many decades.”19 

 

China is also a global leader in oil consumption; moreover, natural gas use has rapidly increased over the past decade.20 Still, while coal remains the dominant Chinese energy source, the Chinese government is only recently beginning to realise the importance of diversifying its energy portfolio by integrating cleaner energy sources and energy efficiency measures. The government’s lack of attention paid to the social and environmental costs of their energy consumption in the past is forcing them to restructure their energy plans in an attempt to mitigate the environmental and health damages resulting from their massive fossil energy consumption.

 

Environmental Costs of Chinese Economic Growth

 

China’s recent economic upturn, which is paired with a dramatic increase in natural resource demand, including water, land, forest and energy sources, has developed environmental and public health problems that must be addressed. There are twenty Chinese cities on the globe’s list of the top thirty most polluted cities in the world; moreover, according to Elizabeth Economy’s book, The River Runs Black, “only one percent of China’s urban population breathed air considered safe by European Union standards.”21 Economy claims “over the course of the reform period, China’ s coal use has more than quadrupled from just over 600 million metric tons in the late 1970s to more than 2.75 billion metric tons in 2008, making it the world’s largest consumer of coal.”22 This coal consumption has been the main contributor to China’s energy related greenhouse gas emissions, which have increased around 500% to over 8,000 Mt CO2

since 1980.23 And CO2 is not the only problem; coal burning also creates other harmful materials, including particulate matter, sulfur oxides, and methane, which create other problems for Chinese air quality. A chart of total CO2 emissions in relation to other global emitters is shown below:

 

 

The environmental and health problems that this coal-fueled economic boom has produced are far reaching. Economy finds that the number of children being born with birth defects is constantly increasing, especially in heavy industrial locations.25 Other instances of health problems include increased cancer rates in certain geographic areas and improper waste disposal leading to a variety of health conditions.26 And the economic upturn has produced other environmental problems in addition to these health issues, including water and soil contamination. 

 

Issues of water scarcity and pollution in northeastern China, where industrial pollution is the most prominent, are taking a bigger toll on the Chinese population. More than half of the underground water in this area is considered polluted or heavily polluted; in a sense, one can argue that water pollution is more serious than air pollution, because once the source of air pollution is treated, air quality tends to improve soon after.27 However when considering polluted groundwater, it can take decades or even centuries to recover the water quality to safe levels. Finally, in terms of soil pollution, nearly 20% of arable land is heavily contaminated by toxic heavy metals, including cadmium and arsenic.28 While many of these environmental effects of Chinese economic growth and energy consumption are either irreversible or long lasting, policy change is still necessary to prevent as much environmental degradation and public health issues as possible.

 

Current Energy & Environmental Policy

 

Energy issues are fundamental to the country’s future growth and development strategies. In June 2014, Chinese President Xi Jinping “called for a sweeping energy revolution in China, centred on five areas, demand, production, technology, institutional governance, and global markets.”29 New Chinese energy policies are key to maintaining sustainable economic growth and energy security; in November 2013 according to the Communist Party’s Third Plenum, a higher priority is being placed on achieving environmental goals and developing cleaner energy sources. Ma writes, “China’s top leadership, too, has embraced a strategy to more aggressively diversify away from coal, improve industrial energy efficiency, and invest billions in clean energy and pollution mitigation.”30

 

Coal 

 

Coal has bolstered China’s economic development, but the government realises a need for policy adjustments to clean up this dirty energy source. China’s 11th Five-Year Plan put into effect an effort to phase out or improve the efficiency of coal-fired electricity generation plants.31 Between 2006 and 2009 alone, over 54 GW of small, low-efficiency coal-fired plants were forced to shut down.32 This effort has been extended in the government’s 12th Five-Year Plan, where more coal plants are to be shut down, and producers are being encouraged to consolidate and channel assets to larger, more efficient coal plants.33 In an effort to reduce air pollution levels in coal-fired generation plants, the Chinese government also passed regulations for plants to install and operate SO2 scrubber systems; however, many of these scrubber-equipped plants do not operate as often as the existing dirtier plants in an effort to cut costs.34 Regardless of these coal regulations, according to Bloomberg New Energy Finance, in 2014, coal fired power generation still represented 62% of total installed power capacity, and coal is likely to remain as China’s primary energy source in the future.35

 

Oil & Transportation

 

A key obstacle ahead for Chinese air quality levels rests in the country’s rapidly growing transportation sector. Despite Chinese political support for energy diversification and clean energy development, China still remains the second largest consumer of oil behind the United States.36 According to Fergus Green and Nicholas Stern’s “China’s ‘new normal’: structural change, better growth, and peak emissions,” total oil consumption has grown rapidly over the last 25 years, mainly resulting from a large increase in road transportation.37 This increased oil consumption has been coupled with a corresponding increase in transportation-related greenhouse gas emissions, which accounts for only 6% of China’s greenhouse gas output.38 To put this into context, according to the Harvard University Belford Center for Science and International Affairs’ “China’s Carbon Emissions Report 2015,” the “United States transportation sector produces 32% of their total carbon emissions.”39 Chinese oil consumption and consequent greenhouse gas emissions are likely to increase in the future as consumer demand for personal automobiles increases.

In preparation for a spike in consumer demand for automobiles, the government has implemented more stringent vehicle fuel economy standards, set at 36 miles per gallon.40 Transportation related greenhouse gas emissions currently account for only a small percentage of China’s total emissions, which mainly come from their manufacturing and industrial sectors, but the expected growth in passenger car ownership would add yet another layer of difficulty to China’s environmental hardships through increased oil consumption and consequent greenhouse gas emissions related to increased driving patterns.

 

 

Natural Gas

 

China has been active in promoting cleaner energy sources, and while natural gas is not an emissions-free energy source, it burns far cleaner than coal or oil. In his book, The Geopolitics of Energy, Jean-Pierre Favennec writes:

 

Natural gas, like oil, consists of hydrocarbons, but contains a higher proportion of hydrogen and a lower proportion of carbon. Thus, for the same amount of energy, natural gas releases less CO2 than oil. It has far lower CO2 emissions and an energy efficiency of nearly 60% in combined cycle gas turbines (CCGT), versus barely 40% for other thermal fuels such as coal, heavy fuel oil, etc. This means that, in competition with other sources of primary energy, it has significant advantages for the production of electricity.41

 

While Chinese natural gas consumption has consistently increased, year over year since 1998, today, natural gas constitutes only 5.7% of Chinese primary energy demand.42 And although it is not a carbon free energy source, gas is an attractive alternative to coal and oil because of its cost competitiveness, comparable energy content, and cleaner emissions profile. Moreover, it is often referred to as a “bridge fuel” which can facilitate the transition from dirtier fossil fuels to clean energy production and consumption.

 

Renewables

 

China has realised high levels of growth while exploiting fossil fuels, but the health and environmental costs of burning fossil fuels are forcing the country to rethink their growth strategy. As a result, China has imposed a number of clean energy policies in an attempt to develop the new industry, reduce their consumption and dependence on coal, and to mitigate their greenhouse gas output. Clean energy policies that have been implemented include proposed minimum quotas of electricity from renewable sources by 2020, an energy intensity reduction target, national feed-in tariffs for wind, solar and biomass power generation, and finally, cheaper credit for state-owned large-scale solar and wind projects.43 

Renewable energy sources are key to China’s future low-carbon energy mix. Consistent policy support has supported the growth in renewables over the past few years; China is the world leader in terms of installed wind and solar capacity.44 Annual investment in Chinese clean energy has consistently increased over the past five years, reaching a growing total of $343.2 billion between 2009 and 2014 (see chart below).45 

 

 

Still, clean energy only represents 13% of total Chinese power capacity.47 Moreover, renewable energy sources like solar, wind, and hydro, which are the most prominent clean sources in China, can only replace energy consumption in the electricity space. Some of China’s heavy industrial sectors rely on directly burning fossil fuels like coal and gas, so it will be hard to replace these greenhouse gas emission sources if these sectors remain dominant drivers in the country’s economy.

 

Nuclear

 

Nuclear electricity generation is another attractive alternative that is gaining a larger share of the Chinese energy mix. According to the International Energy Agency’s (IEA) 2015 Nuclear Energy Technology Roadmap, China is the fastest growing nuclear energy market in the world; nuclear is a promising option for China because it is an emissions-free energy source, however there are other environmental implications to consider including accident risk and nuclear waste storage.48 In fact, “the number of reactors under construction is currently the highest in 25 years, with the People’s Republic of China leading the way in terms of new projects.”49 Half of the world’s nuclear facilities currently under construction are in China.50 China currently has 21GW of nuclear generation capacity, and according to their Mid to Long Term Nuclear Development Plan (2011-2020), they plan expanding to 58GW by 2020.51 This is still a small portion of total electricity capacity, but it highlights the country’s low-carbon future plans.

 

Carbon Markets & Carbon Capture, Utilisation and Storage

 

Carbon pricing and quotas are important strategies that can play crucial roles in mitigating greenhouse gas emissions. This could be in the form of directly taxing coal more heavily, or taxing the amount of emissions generated from burning coal and other fossil fuels. If it becomes more expensive to emit greenhouse gasses, companies will implement efficiency measures to reduce their carbon output and to get below their allotted carbon limit. Further, expensive carbon output may incentivise companies to shift their energy inputs to cleaner sources. A joint effort by Energy Innovation LLC, China’s National Centre for Climate Change Strategy and International Cooperation (NCSC) and China’s Energy Research Institute (ERI) built a model which assesses “the combined effects of 35 climate, energy and environmental policies on a variety of metrics, including CO2 and PM2.5 emissions, use of various fuels, cash flow changes, and monetised social benefits from avoided public health impacts and climate damages.”52 The report seeks to identify policy combinations, which meet China’s emissions goals in the most cost-effective way.

 

The report’s “reference scenario reflects the continuation of existing trends and policies without the addition of new policies;” it is a baseline scenario to compare with the low and accelerated low carbon scenarios.53 In both emission-reduction scenarios, carbon pricing is the most effective cross-sectoral policy, contributing to approximately 30% of total emissions reductions.”54 Fergus and Stern write, “Coal is currently taxed very lightly in China, and thus fails to tax coal resource rents to a reasonable degree, let alone to reflect coal’s impacts on human health, the local environment and the climate.”55 This is a promising area of opportunity for the Chinese government, which up until this point has not widely explored carbon markets and pricing.

 

In addition to carbon markets, the rising technology of Carbon Capture, Utilisation and Storage (CCUS) can play a key role in reducing China’s greenhouse gas emissions. According to Yan Gu’s Columbia Law School Centre for Climate Change Law report, “Carbon Capture & Storage Policy in China,” “CCUS’s promise is great. If successfully commercialised and properly regulated to ensure its longevity as a solution, it could potentially enable the capture and storage of all or most of the CO2  emissions from both existing and planned new sources within China.56 China’s 2007 National Development and Reform Commission’s National Climate Change Program states that “CCS, together with other new industrial techniques, is recognised as a way of developing clean coal and efficient coal use.57 While this is a promising field which has gained interest from Chinese policymakers, it is a costly option, and according to Gu, barriers to deployment of this technology include “the lack of a systematic development plan and enforceable technical roadmap, insufficient funding and immature financing mechanisms, lack of safety regulations and other relevant laws, and low public acceptance.”58 Large scale research, development and deployment of CCUS would play a huge role in limiting China’s environmental damage and degradation, but further policy development is needed to get this technology off the ground 

 

Energy Efficiency

 

China is a global leader in energy efficiency measures, which has allowed them to consume less energy while producing similar or larger outputs. Energy efficiency measures are just as important as investing in clean energy technologies in terms of greenhouse gas mitigation strategies. According to the International Energy Agency’s Energy Efficiency Market Report 2016:

 

Between 2006 and 2014, investment in energy efficiency in China totaled USD 370 billion, generating multiple benefits including reduced air pollution and lower energy expenditure by consumers. The energy savings from efficiency were as large as China’s entire renewable energy supply, making efficiency and renewable energy China’s twin clean fuels.59 

 

Strong energy efficiency targets have been set in China’s 13th Five-Year Plan (2016-2020), and private investment is expected to follow. Furthermore, “the avoided emissions from efficiency improvements were 1.2 billion tonnes of CO2 in 2014,” which is almost one eighth of China’s total greenhouse gas output.60 Still, there is room for further integration of energy efficiency developments, which would reduce energy consumption, reduce overall greenhouse gas emissions, and avoid energy imports.

The most influential greenhouse gas saving energy efficiency measures come from the manufacturing, industrial and power generation sectors. The Top 1000 Program, which targets the 1000 largest enterprises in nine energy-intensive sectors, includes a mandatory energy savings program, and company manager’s performance evaluations based their energy savings.61 The government has also created a special electricity pricing system for cement and aluminium sectors, and imposes fees for those with poor energy performance. And finally, some inefficient iron, steel, cement, glass and power plants have been completely decommissioned.62 There is room for progress in this context, and China’s efforts are expected to continue. The IEA’s Energy Efficiency Market Report expresses, “To achieve China's role in the global 450 Scenario [IEA scenario which aggregates the globe’s energy and environmental policies which will limit average global temperature increases well below 2°C by 2100], the government needs to successfully manage the structural change of its economy and continue to promote and mandate energy efficiency improvements across all sectors.”63

 

United Nations Framework Convention on Climate Change, Conference of Parties 21 

 

China has been a global leader in setting energy, environmental and greenhouse gas emission reduction targets to guide their low-carbon transition. Although a larger focus is being put on cleaner, more efficient energy sources, even in the most optimistic scenarios, coal is still set to represent over 50% of primary energy consumption and will continue to surpass the rest of the world’s coal consumption in the near to medium term future.64 But as the world’s largest energy consumer, the country has taken the initiative to make strides toward reducing the environmental impacts of their economic development.

To drive their transition to a less carbon intensive economy the Chinese government submitted their Intended Nationally Determined Contributions (INDCs) to the UNFCCC COP21 in June 2015. By 2030, China’s intended actions are as follows: 

 

To achieve the peaking of carbon dioxide emissions around 2030 and making best efforts to peak early; to lower carbon dioxide emissions per unit of GDP by 60% to 65% from the 2005 level; to increase the share of non-fossil fuels in primary energy consumption to around 20%; and to increase the forest stock volume by around 4.5 billion cubic meters on the 2005 level.65

 

These INDCs have been key contributors to the clean energy movement in the country. Other important drivers in the movement include factors such as environmental and public health risks and the realisation that the country can achieve economic growth while utilising clean energy sources. Following the INDC proposal, China developed national and regional strategies to clean up their air and economy. Some of these key strategies include strengthening climate change laws and regulations, integrating climate change into economic and social development plans, formulating a long-term strategy for low carbon development, and implementing regionalised climate change policies to develop area-specific approaches.66 

 

Looking Forward

 

China has a long road ahead, and their published policies and measures complementing their COP21 climate targets are complex and comprehensive. To achieve their intended climate change targets in their INDC proposal, the country laid out policy areas and measures to focus on; some of these key areas are listed below:

 

Implementing proactive national strategies on climate change; Improving regional strategies on climate change; Building low-carbon energy systems; Building energy efficiency and low-carbon industrial systems; Controlling emissions from building and transportation sectors; Enhancing overall climate resilience; Innovating low-carbon development growth pattern; Enhancing support in terms of science and technology; Increasing financial and policy support; Promoting carbon emission trading market; Improving statistical and accounting systems for greenhouse gas emissions; Promoting international cooperation on climate change.67

 

Each of these areas seek to develop and maintain a low-carbon Chinese economy in the future. But the future is uncertain, and even the most renowned sources of information in the energy field have differing outlooks for China. The 2016 BP Energy Outlook for China projects that China will reach peak coal demand in 2027.68 However the IEA takes a different view. 

Tim Gould’s presentation of the International Energy Agency’s 2016 World Energy Outlook on November 23, 2016 shed some light on the IEA’s projections for Chinese energy growth. The 2016 World Energy Outlook claims:

 

The structural economic shift towards non energy-intensive industry and services sectors hits coal use hard and means that, barring an unexpected dry year for hydro, China’s coal use is likely to have peaked in 2013... Coal demand in China stalled in 2014 and is estimated to have dropped by some 3% in 2015 as a result of China’s transition: having established the largest heavy industry in the world, China now prioritizes the expansion of its services sector. The transformation is well underway, with crude steel and cement production in China having peaked in 2014.69 (see table below):

 

In the opinion of the IEA, China has actually reached peak coal demand; Gould finds, “The peak in Chinese demand is an inflexion point for coal; held back by concerns over air pollution & carbon emissions.”70 China’s total coal consumption greatly impacts global consumption, and their recent political and economic shifts favouring new industries and low-carbon development will drive their energy demand and consumption patterns going forward.

 

 

Coal is in decline for a few main reasons: because the country is realising the harmful environmental and health impacts of using this fuel, because the world is realising economic growth can be achieved while using cleaner energy sources, and because China is experiencing a structural economic shift from heavy manufacturing and industry to the less energy intensive services industry. But while coal may have reached its peak, this fuel source will continue to play a key role in the Chinese economy in the future. From 2014 to 2040, the IEA expects overall coal demand to decrease in China, but their total demand will still surpass the rest of the world

 

With the larger Chinese middle class changing their consumption patterns, it is likely that Chinese oil consumption will increase in the future. This is largely driven by higher demand for automobiles among Chinese citizens. Going forward, severe traffic gridlock in major cities and transportation-sourced greenhouse gas emissions pose a pressing problem for Chinese air quality. The IEA projects almost a two-fold in Chinese oil consumption through 2040:

 

In terms of natural gas consumption, the United States Energy Information Administration projects that China will account for almost two-thirds of the growth in non-OECD Asian natural gas consumption through 2040.73 And while Chinese gas reserves are dwarfed when compared to their coal resources, gas consumption will likely play a key role in China’s energy portfolio going forward because of its global availability and cleaner emissions profile. Moreover, the 2016 BP Energy Outlook also sees natural gas playing a bigger role in China’s energy mix, along with increased shale gas production and gas imports rising through 2035.74

 

Coal, oil and natural gas will likely remain the largest contributors to the Chinese energy mix in this century, but renewables are marking their place and technological improvements in energy efficiency will decrease the overall energy needs of the country. The Chinese energy case is somewhat of a paradoxical situation. On the one hand the country is the worlds largest clean energy investor, and on the other, it remains the world’s most polluting country. As for the future, even in the most optimistic scenarios, coal will still represent more than 50% of energy consumption, and their domestic coal consumption will still add up to more than the rest of the world combined. But coal consumption has been vital to their growth and development, and it will continue to play a role in their future because the energy infrastructure they have developed over the past few decades supports this fuel source. A key issue for China is to use this fuel source more efficiently, and to be active in attempting to mitigate the greenhouse gas emissions associated with coal burning.

 

Achieving Sustainable Economic Development 

 

The IEA’s Energy Efficiency Report examines the future of Chinese growth, emphasising that a structural change and economic reorientation is necessary to develop a sustainable system. According to the IEA:

 

"This model of growth cannot continue indefinitely. Since 2013, the government has decided to steer China’s economic strategy to a “new normal”, emphasizing services, innovation, and improving income inequality and environmental sustainability. This would bring significant structural change, driving investments in services and higher value-added manufacturing while also rebalancing the economic engine towards domestic consumption.75"

 

A greater focus must be placed on decoupling energy consumption and GDP growth. The wave of economic reforms that the country experienced after the 1980s set the country up for impressive growth, but this growth path has proven unsustainable because of it’s heavy reliance on fossil fuels and subsequent environmental and public health problems. 

 

This leaves us with the question of whether or not China can maintain it’s growth patterns while transitioning their energy portfolio to a cleaner, more sustainable and more diversified system. On the energy side, the country has taken the right steps, to some extent implementing more controls on fossil fuel consumption and to a larger extent incentivising clean energy and energy efficiency development. But the government can do more to facilitate this transition, including aiding the development of carbon markets and CCUS technology. With continued government support and further policy development in clean energy, energy efficiency, carbon markets, and CCUS technology, the Chinese economy will certainly be less reliant on energy to produce economic output, leading to an overall less energy intensive economy.

 

The other aspect of the Chinese growth pattern is the sectoral composition of their output. The anticipated transition from the heavy industrial to a service-based economy will inherently yield a different growth pattern from what was experienced over the past few decades. What remains uncertain in the future is exactly how the social, political and economic circumstances will alter the structure of the economy, and how to growth pattern will unfold. Based on conventional economic theory, one could argue that the consumption patterns of more highly paid, skilled, and educated consumers will change and increase, resulting in a demand for what the services industry provides. Citizens with higher incomes and living standards will begin demanding larger quantities of high value services, such as financial and professional services, social services, health care services, and entertainment and recreation services. These service sectors require different inputs on the production side, and yield different outputs on the consumption side. 

 

Therefore, a more technological and service-based economy with higher income citizens should yield continued, less energy intensive economic growth. Considering the government energy and environmental policies, coupled with the resulting investment and development in these areas, it is possible for the Chinese economy to maintain economic growth while transitioning their system from a fossil fuelled industrial powerhouse to a service-based economy powered by more renewables. But this is not to say one should expect to see the 14% GDP growth numbers exhibited in 2014. Industrial development is clearly different from service-based development, so while there is overall growth in both cases, the magnitudes will differ, depending on the investment and institutional climates that lay ahead. A key issue that lies ahead for China as it grows to compete with over developed countries is the connection between the growth of the country as a whole in terms of macroeconomic factors like GDP, exports, and technological innovation, and the growth of the Chinese public in terms of socioeconomic factors like inequality, HDIs, wages and employment. For the country to continue its development as a global economic powerhouse, it must achieve long-term, sustainable and inclusive economic growth. 

 

 

Bibliography:

 

Bloomberg New Energy Finance, “Climatescope 2015 – China,” Accessed November 20, 2016. http://global-climatescope.org/en/country/china/#/details.

 

BP. “BP Energy Outlook: Country and regional insights – China,” 2016.

 

BP. “BP Statistical Review of World Energy June 2009” & “BP Statistical Review of World Energy June 2016,” 2009, 27; 2016, 23. Accessed November 25, 2016.

 

Chow, Gregory C. “The Impact of Joining WTO on China’s Economic, Legal and Political Institutions,” (Princeton University, Princeton, NJ, 2001).

 

Crompton, Paul and Yanrui Wu. “Energy consumption in China: past trends and future directions,” (Elsevier Energy Economics Journal, 2004).

 

Economy, Elizabeth. The River Runs Black (Ithaca, NY: Cornell University Press, 2010).

 

Energy Innovation LLC, China’s National Center for Climate Change Strategy and International Cooperation and China’s Energy Research Institute. “Climate and Energy Policy Solutions for China: Quantitative Analysis and Policy Recommendations for the 13th Five-Year Plan,” 2016.

 

Favennec, Jean-Pierre. The Geopolitics of Energy, (Editions OPHRYS, 2011).

 

Green, Fergus and Nicholas Stern. “China’s ‘new normal’: structural change, better growth, and peak emissions.” Grantham Research Institute on Climate Change and the Environment & the Centre for Climate Change Economics and Policy, 2015.

 

Gu, Yan. “Carbon Capture & Storage Policy in China,” Columbia Law School Center for Climate Change Law, 2013.

 

International Energy Agency, “2015 Nuclear Energy Technology Roadmap,” 2015.

 

International Energy Agency, “Energy Efficiency Market Report 2016.” 

 

International Energy Agency, “World Energy Outlook 2016.”

 

“Key China Energy Statistics 2014,” Lawrence Berkeley National Laboratory: China Energy Group.

 

Lecture Notes, Sciences Po Paris, France (29/09/16).

 

Lecture Notes, Sciences Po Paris, France (03/11/16).

 

Lecture Notes, Sciences Po Paris, France (10/11/16).

 

Lecture Notes, Sciences Po Paris, France (17/11/16).

 

Ma, Damien. “Rebalancing China’s Energy Strategy,” The Paulson Institute.

 

People’s Republic of China National Development and Reform Commission Department of Climate Change, “Enhanced Actions on Climate Change: China’s Intended Nationally Determined Contributions,” 2015.

 

Tim Gould, International Energy Agency, “World Energy Outlook 2016, Launch Presentation” (Sciences Po, Paris, France, November 23, 2016).

 

US Energy Information Administration, “China – International – Analysis” Updated: May 14, 2015.

 

US Energy Information Administration, “International Energy Outlook 2016.”

 

World Bank, “GDP growth (annual %), data.worldbank.org. http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG, date extracted: November 13, 2016. Data extracted from World Bank and converted into an author-generated Excel table.

 

Zhu Liu, China’s Carbon Emissions Report 2015 (Cambridge, MA: Harvard Kennedy School Belfer Center for Science and International Affairs, 2015).

Endnotes

 

1 Lecture Notes, Sciences Po Paris, France (29/09/16).

 

2 Lecture Notes, Sciences Po Paris, France (03/11/16).

 

3 Lecture Notes, Sciences Po Paris, France (10/11/16).

 

4 Gregory C. Chow, “The Impact of Joining WTO on China’s Economic, Legal and Political Institutions,” (Princeton University, Princeton, NJ, 2001), 2.

 

5 Ibid., 3.

 

6 Damien Ma, “Rebalancing China’s Energy Strategy,” The Paulson Institute, 4.

 

7 World Bank, “GDP growth (annual %), data.worldbank.org. http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG, date extracted: November 13, 2016. Data extracted from World Bank and converted into an author-generated Excel table.

 

8 Ibid.

 

9 “Key China Energy Statistics 2014,” Lawrence Berkeley National Laboratory: China Energy Group, 19.

 

10 Paul Crompton and Yanrui Wu, “Energy consumption in China: past trends and future directions,” (Elsevier Energy Economics Journal, 2004), 196.

 

11 Ibid., 198.

 

12 Ibid.

 

13 Ibid.

 

14 Lawrence Berkeley National Laboratory, Key China Energy Statistics 2014, China Energy Group, 19.

 

15 Paul Crompton and Yanrui Wu, “Energy consumption in China: past trends and future directions,” 199.

 

16 Ibid.

 

17 US Energy Information Administration, “China – International – Analysis” Updated: May 14, 2015, 3.

 

18 Damien Ma, “Rebalancing China’s Energy Strategy,” 7.

 

19 Paul Crompton and Yanrui Wu, “Energy consumption in China: past trends and future directions,” 196.

 

20 US Energy Information Administration, “China – International – Analysis,” 1-3.

 

21 Elizabeth Economy, The River Runs Black (Ithaca, NY: Cornell University Press, 2010), 73.

 

22 Elizabeth Economy, The River Runs Black, 74.

 

23 Lawrence Berkeley National Laboratory. Key China Energy Statistics 2014, China Energy Group, 36.

 

24 Zhu Liu. “China’s Carbon Emissions Report 2015” (Cambridge, MA: Harvard Kennedy School Belfer Center for Science and International Affairs, 2015), 2.

 

25 Elizabeth Economy, The River Runs Black, 87.

 

26 Ibid., 88.

 

27 Lecture Notes, Sciences Po Paris, France (17/11/16).

 

28  Ibid.

 

29 Damien Ma, “Rebalancing China’s Energy Strategy,” 1.

 

30 Ibid., 9.

 

31 Elizabeth Economy, The River Runs Black, 75.

 

32 Ibid.

 

33 Damien Ma, “Rebalancing China’s Energy Strategy,” 9.

 

34 Elizabeth Economy, The River Runs Black, 75.

 

35 “Climatescope 2015 – China,” Bloomberg New Energy Finance. Accessed November 20, 2016. http://global-climatescope.org/en/country/china/#/details, 99.

 

36 US Energy Information Administration, “China – International – Analysis” Updated: May 14, 2015, 1.

 

37 Fergus Green and Nicholas Stern. “China’s ‘new normal’: structural change, better growth, and peak emissions.” Grantham Research Institute on Climate Change and the Environment & the Centre for Climate Change Economics and Policy, 2015, 29.

 

38 Ibid.

 

39 Zhu Liu. “China’s Carbon Emissions Report 2015,” 2.

 

40 Elizabeth Economy, The River Runs Black, 77.

 

41 Jean-Pierre Favennec, The Geopolitics of Energy, (Editions OPHRYS, 2011), 20.

 

42 BP. “BP Statistical Review of World Energy June 2009” & “BP Statistical Review of World Energy June 2016,” 2009, 27; 2016, 23. Accessed November 25, 2016.

 

43 “Climatescope 2015 – China,” Bloomberg New Energy Finance, 99.

 

44 Ibid.

 

45 Ibid.

 

46 Bloomberg New Energy Finance, “Climatescope 2015 – China,” 100.

 

47 Ibid., 99.

 

48 International Energy Agency, “2015 Nuclear Energy Technology Roadmap,” 2015, 1.

 

49 Ibid. 

 

50 Ibid., 15.

 

51 Fergus Green and Nicholas Stern. “China’s ‘new normal’: structural change, better growth, and peak emissions,” 38.

 

52 Energy Innovation LLC, China’s National Center for Climate Change Strategy and International Cooperation and China’s Energy Research Institute. “Climate and Energy Policy Solutions for China: Quantitative Analysis and Policy Recommendations for the 13th Five-Year Plan,” 2016, iv.

 

53 Ibid.

 

54 Ibid.

 

55 Fergus Green and Nicholas Stern. “China’s ‘new normal’: structural change, better growth, and peak emissions,” 41.

 

56 Yan Gu, “Carbon Capture & Storage Policy in China,” Columbia Law School Center for Climate Change Law, 2013, 2.

 

57 Ibid., 8

 

58 Ibid., 18.

 

59 International Energy Agency, “Energy Efficiency Market Report 2016,” 13.

 

60 Ibid.

 

61 Ibid., 44

 

62 International Energy Agency, “Energy Efficiency Market Report 2016,” 44.

 

63 Ibid.

 

64 Lecture Notes, Sciences Po Paris, France (17/11/16)

 

65 People’s Republic of China National Development and Reform Commission Department of Climate Change, “Enhanced Actions on Climate Change: China’s Intended Nationally Determined Contributions,” 2015, 5.

 

66 Ibid., 6.

 

67 People’s Republic of China National Development and Reform Commission Department of Climate Change, “Enhanced Actions on Climate Change: China’s Intended Nationally Determined Contributions,” 2015, 6-15.

 

68 BP. “BP Energy Outlook: Country and regional insights – China,” 2016, 1.

 

69 International Energy Agency, “World Energy Outlook 2016,” 64, 204.

 

70 Tim Gould, International Energy Agency, “World Energy Outlook 2016, Launch Presentation” (Sciences Po, Paris, France, November 23, 2016), slide 10.

 

71 Tim Gould, International Energy Agency, “World Energy Outlook 2016, Launch Presentation” (Sciences Po, Paris, France, November 23, 2016), slide 10

 

72 Tim Gould, International Energy Agency, “World Energy Outlook 2016, Launch Presentation” (Sciences Po, Paris, France, November 23, 2016), slide 6.

 

73 US Energy Information Administration, “International Energy Outlook 2016,” 41.

 

74 BP. “BP Energy Outlook: Country and regional insights – China,” 2016, 1.

 

75 International Energy Agency, “Energy Efficiency Market Report 2016,” 55.

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