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Energy Policy 32 (2004) 1225–1229

Energy for sustainable development in China$ Ni Weidoua, Thomas B Johanssonb,* b

a Tsing-hua University, Beijing 100084, China International Institute for Industrial Environmental Economics, Lund University, P.O. Box 196, Lund 22100, Sweden

Abstract To ensure energy to meet needs for economic growth and sustainable development more emphasis should be given to energy efficiency, renewable energy and new technologies for both energy end-use and supply. One key technology is gasification of coal to produce liquid and gaseous fuels, and electricity. The overall conclusion is that there are plausible energy-technology strategies, well within reach if early action is taken, that would enable China to continue social and economic development through at least the next 50 years, while ensuring security of energy supply and improving local, regional and global environmental quality. Such desired energy futures will not happen in the present policy environment, and options to enhance the energy systems for sustainable development are discussed. r 2003 Published by Elsevier Science Ltd. Keywords: Energy for sustainable development; Energy strategy; Energy policy

1. The challenges China’s achievements over the last 20 years are impressive. Economic growth has been rapid, development extensive and poverty has been drastically reduced in rural areas. Food supply and demand has been brought into balance. A socialist market economy is successfully negotiating its difficult initial stages, and there is a wider opening to the outside world. Remarkably, this has been achieved without incurring foreign exchange imbalances. China has also met its soaring needs for energy services while at the same time has improved the efficiency of its energy use by a factor of nearly three. Even coal use has been reduced in recent years notwithstanding the nation’s coal dependency and its outstanding economic growth. $ This paper is based on the July 2001 Report at the end of Phase II to the China Council on International Co-operation on Environment and Development from the Working Group on Energy Strategies and Technologies, of which the authors were Co-Chairs. See www.harbour.sfu.ca/dlam/organization.html. The journal Energy for Sustainable Development, Vol. V. No. 4, published a Special Issue on the work of the Working Group on Energy Strategies and Technologies, December 2001. This issue contained a longer version of the present article. *Corresponding author. Tel.: +46-46-222-0222; fax: +46-46-2220220. E-mail address: [email protected] (T.B. Johansson).

0301-4215/03/$ - see front matter r 2003 Published by Elsevier Science Ltd. doi:10.1016/S0301-4215(03)00086-7

At the same time, large challenges lie ahead. Population growth continues and with it a parallel trend of urbanization. The demands of modernization and of rapid economic growth will stretch material and human resources. Poverty alleviation and the satisfaction of basic human needs remain as urgent priorities. Market reform is far from complete and adjusting to globalization and WTO entry will need to be accomplished without further widening disparities between rich and poor. As recognized in the 10th Five Year Plan, growth will have to be more geographically balanced. Continuous attention needs to be paid to environmental and health issues induced by energy supply and use, including high levels of indoor and urban air pollution, increasing acidification, ongoing climate change, among other environmental challenges, all of which are increasing. China is a Party to the United Nations Framework Convention on Climate Change, and has as all Parties an obligation to mitigate climate change, taking into account common but differentiated responsibilities. Energy is an important element in all these challenges, in both positive and negative senses. China’s economic aspirations will lead to large increases in demand for energy services. So it is crucial to analyze the energy choices confronting China if all the challenges are to be addressed. It is from these options that strategic energy policies will emerge. A long-term view is clearly

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necessary if these issues are to be fully addressed. Stepby-step advances appear the most promising development mode in energy technologies, as do open-ended rather than closed technical pathways. Equitable access to modern energy services needs to be provided to all people in China. Concerns over energy supply security arise, especially for liquid fuels in light of increased needs for mobility and transportation. Energy transport within China, from north to south (coal) and from west to east (oil and gas, and electricity) is an active trend, and will incentivize continuing growth in the electricity, liquid fuels and gas grids, and limit energy imports from outside China. If all of the above considerations, derived from China’s Agenda 21, are to be addressed, China’s energy strategies are required at the earliest opportunity, to fulfill four key objectives: *

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to deliver the power needed for economic growth and sustainable development; to ensure security of energy supply; to ensure that energy supply and use are conducted in ways that safeguard public health and the environment; to achieve an equitable distribution of energy services throughout the nation.

2. Energy system aspects Attainable and affordable energy systems for practical application in China today and tomorrow that are capable of meeting all the above objectives urgently need to be identified and implemented. The Working Group reviewed existing and emerging technologies that already contribute to sustainable development, or which clearly have the potential to do so. Also identified by the Working Group were certain barriers to the establishment of desirable technologies in energy markets, and, conversely, those proven policies and institutional changes that would facilitate their utilization, if put in place. Various combinations of technological options have been considered, based upon the actual conditions pertaining today in China, together with their respective capacities to satisfy the key energy objectives above. The technological options considered included improved energy efficiency, especially at the point of enduse, in all sectors. Energy supply options have been studied extensively, logically based upon China’s strong energy resource endowments, utilizing coal, oil, natural gas, large and small-scale hydro, nuclear, wind, biomass, solar and other renewable sources of energy. These supply options have been prioritized in ways compatible with the set of short- and long-term objectives. A

number of innovative conversion options were also evaluated in light of these requirements. The recent application by the Working Group of the Markal model to the options reviewed and prioritized has made an important contribution to understanding both the attraction and the urgency of gaining a consensus for action in energy decision-making, in order that the key objectives above can be met in a timely manner. For a summary of the key assumptions and working of the Markal study, see Larson et al. (2003). Two chief cases have been examined, to describe the outlines of two different energy futures for China up to 2050; the first being solely based upon today’s commercially available (or soon to be) technologies, the ‘‘Base Case’’. The second ‘‘Advanced Case’’ uses only technologies that are not yet commercially ready but are well within reach when early actions are taken. Some are indeed near to being so, while others are more distant. The technological options studied were introduced into an energy system modeling tool (called Markal) to study the interactions within the entire energy supply and demand system. Using the model, different scenarios for the evolution of energy supply and demand in China from 1995 to 2050 were explored. The model is provided with demand for energy services, resource limitations, and characteristics for supply and demand technologies. It then calculates the least-cost combination of technologies to meet the demand under specified levels of emissions or other constraints. This work provided insights about the different energy development choices that China might make. General assumptions were made on China’s desired economic growth and development were based on official Government of China reports. For example, population is projected to grow from 1.3 billion in 2000 to 1.58 billion by 2050, urbanization to expand from 31% to 70%, and GDP to grow from US$1104 billion to US$13,900 billion. Scenarios were developed for unconstrained imports of oil and gas and no emission limitations for sulfur dioxide, and carbon dioxide. Constraints were then applied in these dimensions to reflect some of China’s sustainable development objectives. Through 2020 sulfur emissions are capped at levels officially targeted by the Chinese government, which plans to reduce emission from the current level of about 24 million tonnes/year to 16.5 million tonnes/year in 2020, and the total allowed annual SO2 emission continues to decrease to a level of 10.4 million tonnes in 2050. The case is also shown where, additionally, carbon emissions are restricted to a level that would be compatible with a stabilization of the global atmospheric CO2 concentration at 450 ppm (up from the present 360 ppm). China’s carbon emission rights on an equal per capita basis globally (based on year-2000 population) would be a

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cumulative 66 GtC between 1995 and 2050. In the Base Case, it is not possible to simultaneously meet an oil and gas import target of 30%, the sulfur emissions cap, and cumulative carbon emissions of 66 GtC. Although this work represents only a first cut at integrated modeling that includes advanced technology options, some important insights have already emerged from comparing these two cases. Even with relatively aggressive pursuit of end-use efficiency improvements (China reaches mid-1990s OECD level of energy/GDP by 2050), the use of ‘‘Base’’ technologies alone will not enable China to meet her sustainable development objectives. This finding is consistent with many analyses by the government of China, and other bodies/authors. Using the set of ‘‘Advanced’’ technologies, however, enables China to achieve economic growth and development objectives, in a sustainable manner according to today’s understanding, at the same time ensuring security of supply and improving local, regional and global environmental quality. Placing emphasis on energy efficiency, a mix of energy resources, and the development of advanced technologies will achieve this desirable outcome. Coal continues to be the main source of primary energy, where it is increasingly utilized for oxygen-blown syngas generation used in polygeneration of clean fuels and electricity (see the Working Group’s report to CCICED in the year 2000, and Williams, 2001). Moderate quantities of oil and gas are imported, reflecting and accommodating China’s concerns over supply security. Major expansion of renewable energy, especially large wind power plants in remote areas and biomass, is part of the solution. These energy futures are probably not more expensive in terms of total costs than business as usual futures. Innovation is a necessary element in the desirable scenario. This refers both to domestic innovation and to innovation via integration in world markets to make use of technologies developed elsewhere. The overall conclusion from the analysis presented here is that there are plausible energy-technology strategies, well within reach if early action is taken, that would enable China to continue social and economic development through at least the next 50 years, while ensuring security of energy supply and improving local, regional, and global environmental quality. This is a remarkable and extremely important result, and this is a new finding in the history of energy analysis in China.

3. Energy strategies for sustainable development In addition to the above considerations, strategies to define and implement a sustainable energy future for China were informed and guided by four influential realities which, if taken into account, enhance the

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probability of achieving the desirable energy future that the Working Group activities have suggest could be possible. These are, firstly, that the starting point of energy strategy development should be China’s own endowment of natural energy resources, the greatest in potential being coal and renewables (chiefly hydro, wind, solar and biomass). China does not have sufficient oil or natural gas resources to meet its projected needs. Secondly, modernizing the energy system must go hand in hand with the modernizing of the economy. As China’s commitment to Agenda 21entails the pursuit of sustainability in achieving the latter, it is clear that modernizing the energy system should be done in as sustainable a manner as possible. The Working Group has over a period of 10 years delineated important elements of a sustainable energy system for China, and the clear conclusion emerges that a high priority must be given, not only to modernization, but also crucially to innovation in energy technologies and practice. A strong emphasis is therefore urged to be placed upon research and technological development (RTD) of new cleaner technologies, enabling commercial access to the full potential of China’s natural energy resource endowment to be realized well before the year 2050. Coal and biomass should be converted to clean liquid and gaseous energy carriers, and this should be done through a combination of domestic RTD and international cooperation. The Working Group thus believes that focussed RTD is required in all energy sectors (supply and demand side), and envisages that co-operation between public and private sectors is to be encouraged, as well as between Chinese and international entities. Thirdly, the specific realities (e.g. scale, rural and urbanized conditions, geographical disparities) of the existing and still to be created energy markets strongly influence the nature and timing of strategy implementation. On balance, the strength conferred by the sheer scale of the internal market and forecasted demand for China’s energy products outweighs the very real challenges of distance and terrain. Fourthly, notwithstanding the Working Group’s confidence in the capacity of China’s natural endowment to deliver the energy needed, contingency planning should be built in to strategy development. There are no guarantees that new barriers will not arise in the five decades under consideration here to China being able to access coal’s full potential or to realize renewable energy’s giant commercial potential. The insights gained from the Markal work are predicated upon long lead-times for the turn over of the energy sector’s capital stock. While much more detailed work is required to give further shape to the options it is already clear that at least four decades will be required before the establishment of a sustainable energy industry could be claimed. It is also clear that

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this will be further delayed unless a consensus is established now on what strategies are to be adopted. Elements of these include: *

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Continued strong emphasis on energy efficiency improvements in all sectors, especially at the point of end-use. This will reduce costs for energy services and help meet other sustainable development objectives. The drive towards a sustainable energy future manifests itself in a push away from smoke-generating direct combustion towards the cleaner energy carriers, such as electricity, gas and hot water/steam. China’s coal and renewable resources are all amenable to development of such cleaner energy carriers. Clean coal development, however, requires major investment funding in the near and medium term; much hydroelectric potential remains to be developed in the near and medium term; renewable energy can contribute large amounts of electricity in the near and medium term, where wind and biomass markets are developed through government action. Modernizing coal conversion through oxygen-blown gasification, with CO2 disposal in the sub-surface (for permanently sequestered storage, and where commercially realistic, for assisting recovery of CBM and secondary recovery of residual oil) provides clean electricity with no atmospheric penalty, and is the key to the sustainable use for China’s chief energy resource endowment, in the late-near and medium term. The process permits the large-scale manufacture of synthetic liquid fuels should this become desirable, and/or necessary in the medium term. It also permits the large-scale manufacture of hydrogen, the market for which in mobile fuel cell applications, and others, could expand rapidly in the medium and long term. Large- and small-scale hydropower contributes significantly to China’s electricity generation. The technical potential for expanded hydropower generation is very large, but mostly located far from load centers. The potential utilization of these resources and the transport of power to distant markets must continue to be carefully evaluated, in social, environmental, and economic terms. China’s wind, solar and biomass resources are currently very under-utilized and thereby wasted from day to day. The economic and institutional barriers to their development can only be overcome through government intervention, with the object of market creation. Renewable technologies have advanced remarkably over the last 20 years and would be capable today of delivering at least 10% of China’s energy needs, if market development had followed the pattern (for wind) in Germany, Denmark and Spain. Biomass has much to contribute in the rural

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context for clean electricity and synthetic liquid fuel synthesis (e.g. di-methyl-ether (DME)), if market obstacles could be overcome through governmental support and policies. China’s smaller endowment of petroleum and rising demand for petroleum products results in a net import position that is not likely to be reversed. There is a strong case to rely increasingly upon imported oil in the near term, and to retain the internal oil resources for a national reserve as a contingency. At the same time strong efforts should be made to find commercially viable alternatives to imported oil and products, for transportation, such as DME, for the late-near and medium term. Concurrently, international development of hydrogen fuelled PEM-fuel cell vehicles will open the door to hydrogen becoming the dominant energy carrier in transportation and to the prospect that petroleum imports can eventually be phased out. In the eventual phasing out of the internal combustion engine, and the need for petroleum imports, China can manufacture all her hydrogen needs for transportation from abundant home-based coal (as above). Natural gas discoveries are revealing more domestic potential than in recent years, sufficient to support an expanding pipeline network stimulated also by the prospects of major imports from gas basins to the west and to the north of China. Domestic gas will play an increasing role in the next 20 years, supplemented by larger volumes of imports in the medium term. LNG imports to southern mega-cities will make a further, and much needed, contribution to a cleaner energy environment in these areas. Energy supply will be augmented by a moderate level of nuclear generation in the broad portfolio of energy options that China must have available, when facing a period of massive economic and population growth. The Working Group believe that where strategies are followed that maximize China’s use of her natural endowment of energy resources (coal, hydro and renewables), imported fuels and the nuclear option can be kept at low to moderate levels throughout the next five decades. The continued integration of China with the world economy will make easier the essential access China needs to the best of advanced energy technologies if the desired energy future is to be obtained. Cooperation in RTD activity, joint ventures in longterm energy projects in coal, gas, hydro, wind and biomass, will transform the way energy is supplied and used in China over the next 50 years.

The desired energy futures will not happen in the present policy environment. Continued development of

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a socialist market economy is critical, creating a level playing field. Options to enhance the desired functioning of the market include measures that: *

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Reflect external social costs in institutional and market reforms, either in market prices or through regulations, or through regulatory measures. Stimulate energy technological innovation, both in China and accessed from abroad; Facilitate foreign direct investment (FDI), joint ventures and private public partnerships to access capital and advanced technologies. Continue power sector reform, to increase economic efficiency and access to electricity supplies land markets. Providing grid access for independent power producers (IPP) is key to introducing needed new electricity generating and polygeneration technologies. Create markets for renewable energy technologies (RETs), aimed at at least 10% contribution of RET by 2020. Promote the use of efficient vehicles and other energy efficient devices, through the use of market-based instruments. This could include mandatory market share measures with green certificate trading; wind energy concessions (based on well functioning mechanisms widely used in oil and gas exploration and production); temporary subsidies combined with feed-in laws to stimulate major investments in the utilization of China’s huge wind resources. Such measures will be helpful in buying down the costs of RETs and efficient end-use technologies.

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4. Conclusions The energy system in China is in tremendous development. The Working Group has identified initial options and strategies and policies to guide the development of a sustainable energy system development based squarely upon China’s indigenous energy resources. This system has the capacity to become fully compatible with and supportive of China’s economic growth and socio-economic development. This hopeful message has a corollary that much difficult work remains to be done at all levels, and serious strategic decisions involving capital and human resource commitment need to be made early on. This is to enable timely systems analysis, research and development, and the demonstrations necessary to refine strategic thinking and innovative policy development. All this is being conducted on an unprecedented scale and yet must remain compatible with the historic changes brought about by the new socialist market economy unfolding in China.

References Larson, E.D., Wu, Z., DeLaquil, P., Chen, W., Gao, P., 2003. Future implications of China’s energy-technology choices. Energy Policy 31, 1189–1204. Williams, R.H., 2001. Toward zero emissions from coal in china. Energy for Sustainable Development V, 39–65.