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

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Chinese power generation and rising coal consumption

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Source of primary data: US EIA

Sources of China’s power generation, 1980 -- 2008

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Source of primary data: US EIA International Energy Statistics Database

Chinese rising coal consumption having global impact

China as a black energy system

China as a microcosm (!) of the global energy situation – and China prefiguringmany of the solutions

Energy supplies now seen as #1 strategic issue by Chinese leadership – as the powerdriving 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

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 prefiguringmany of the solutions

Chinese build up of wind power

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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.

China as a ‘black and green’ energy system

Dependence on fossil fuels is still growing – but the industrial dynamics of renewableswill 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 billionwaste!) 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 2005-2010; 12th 5-year plan 2011-2015 – just announced (strong emphasis on REs)NDRC targets for REs in 2020

Christina Larson, The great paradox of China: Green energy and black skies, YaleEnvironment 360, Aug 17, 2009:

http://e360.yale.edu/content/feature.msp?id=2180

China’s energy pathways to 2100: Fossil fuels versus renewable energies

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Renewable Energies Fossil Fuels

Source: Authors, based on sources discussed in text.

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?

Systemic transitions

Logistic industrial dynamics: Adoption rates of communications technologies,1920 -- 2000

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.

US energy transitions: primary sources by proportion

Source: A.G.M. Layzell

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 aspectin 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 Trustreport ‘Who’s winning the green energy race?’, or Worldwatch special report ‘Powering China’s development: The role of renewable energy’

China’s energy pathways, 2000-2050 (ERI)

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Source of primary data: Jiang et al (2009)

Energy pathways extended to 2100

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

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 170-180 Gt carbon up to 2000-2100(i.e. 650 Gt CO2: multiply by 44/12)

Peak in 2040s

Carbon emissions just from burning coal would be around 100 Gt carbonand 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)

Carbon emissions to atmosphere, 2000-2100

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

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China’s carbon emissions compared to world’s

Developed countries have emitted cumulative total of around 500 Gt carbon sinceIndustrial 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 carbonemissions 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

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-drivenrevolution, 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

Fossil fuels and industrialization: U.S

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Source of primary data: US EIA (2008) Annual Energy Review

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 billionwaste!) 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 2005-2010; 12th 5-year plan 2011-2015

Christina Larson, The great paradox of China: Green energy and black skies, YaleEnvironment 360, Aug 17, 2009:

http://e360.yale.edu/content/feature.msp?id=2180

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

Chart 2. China’s oil production and consumption, 1977-2005

Source of primary data: BP Amoco, BP Statistical Review of World Energy

© Euromonitor International 2006

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Net Imports

China now world’s third most dependent oil importer

China’s electrification: Electricity as a rising proportion of total energy

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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)

China’s electrification

China ramping up its degree of electrification, from around 15% of total energy todayto around 25% by 2050.

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 –

World1,456 Population without access to electricity (million)78.2% Electrification rate93.4% Urban electrification rate63.2% Rural electrification rate

Now let us examine the various renewable sources of electric energy

China’s projected power sector, up to 2050

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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

Figure A1: Logistic model for wind energy in China: 2000-2100

Source: the ‘existing data’ up to 2050 is available from Jiang et al. (2009) including the historical data for the period 2000- 2005 and the projections for period 2010 - 2050. See Appendix A for more details.

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Figure A2: Logistic model for solar energy in China: 2000-2100

Source: the ‘existing data’ up to 2050 is available from Jiang et al. (2009) including the historical data for the period 2000- 2005 and the projections for period 2010 - 2050. See Appendix A for more details.

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Solar: Existing Data Solar: Logistic

Figure A3: Logistic model for nuclear energy in China: 2000-2100

Source: the ‘existing data’ up to 2050 is available from Jiang et al. (2009) including the historical data for the period 2000- 2005 and the projections for period 2010 - 2050. See Appendix A for more details.

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Figure A4: Logistic model for bio-energy in China: 2000-2100

Source: the ‘existing data’ up to 2050 is available from Jiang et al. (2009) including the historical data for the period 2000- 2005 and the projections for period 2010 - 2050. See Appendix A for more details.

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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

Figure A5: Quadratic model for coal in China: 2000-2100

Source: the ‘existing data’ up to 2050 is available from Jiang et al. (2009) including the historical data for the period 2000- 2005 and the projections for period 2010 - 2050. See Appendix A for more details.

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Coal: Existing Data Coal: Quadratic

Figure A6: Quadratic model for oil in China: 2000-2100

Source: the ‘existing data’ up to 2050 is available from Jiang et al. (2009) including the historical data for the period 2000- 2005 and the projections for period 2010 - 2050. See Appendix A for more details.

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Fig. A7: Quadratic model for gas in China: 2000-2100

Source: the ‘existing data’ up to 2050 is available from Jiang et al. (2009) including the historical data for the period 2000- 2005 and the projections for period 2010 - 2050. See Appendix A for more details.

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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

China’s projected national grid with main HVDC lines

Source: State Grid Corporation of China

Investment in electric power: generation vs. distribution

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China’s High-Speed Rail plans to 2020: North-south and East-west corridors

Source: Ministry of Railways, China

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 intensityi.e. more energy used as GDP risesThen they peak, and start to exhibit falling levels of energy intensity (i.e. improving

energy efficiencyThis is the picture as revealed for the historical experience

(first plotted by Reddy and Goldemberg in a famous Scientific American article)

Historical trends in energy intensity

Source: Adapted from Wallace (1996) p.18

China’s energy intensity, 1980-2008, and projected to 2050

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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 2010-2050 is based on the authors’ calculation

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 2006-2010

Will China be able to reach this ambitious target?

Progress in cutting energy intensity in China: 2006-2009

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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

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

China’s carbon intensity, 1980-2008, and projected to 2050

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Carbon intensity across countries

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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 2010-2050 is based on the authors’ calculationHao – 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

China and carbon emissions

While China’s energy intensity and carbon intensity is improving, these aremeasures 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

China’s energy strategiesChina 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 dismantledRationalization in electric power sectorNew National Energy Commission created in 2010

Renewable Energy Law passed in 2005, implemented in 2006Favours building of RE industriesSubsidies and tax advantagesConcession system for wind power in exchange for technology and localsupply chain creationVAT remissions for domestically produced components

Government procurement as policy instrumentGovernment mandated market shares

Renewable energy industries being developed within clusters

Clusters and Special Economic Zones

The SEZs grew out of earlier experiences with Export Processing Zonesand 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 2006.

SEZs and the clusters they embody are phenomenal wealth-generating machines

e.g. China Renewable Energy clusters in Wuxi; and Binhai (Tianjin Economic Zone)

Top 100 industrial clusters in China

Source: Li & Fung Research Centre

China’s 12th Five-year PlanChina’s 12th five year plan announced end 2010To cover the years 2011 to 2015Emphasis 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 the12° 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 prefiguringmany of the solutions

Energy supplies now seen as #1 strategic issue by Chinese leadership – as the powerdriving 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

Summary

China as a microcosm (!) of the global energy situation – and China prefiguringmany of the solutions

Energy supplies now seen as #1 strategic issue by Chinese leadership – as the powerdriving 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 strategyChina promises to be the world’s first major country to build an entire green economy

and to industrialize with known carbon emissionsIn this sense, China is a model for the rest of the developing world – and for the

developed world as well