China, What's Next?

China’s Challenges: Energy Security

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China, What's Next?

China’s Challenges: Energy Security

In the coming decades, China will face serious challenges to its energy security unless sustained economic development can be achieved.

In the coming decades, China will face serious challenges to its energy security unless sustained economic development can be achieved without ramping up its dependence on oil and coal imports. Yet the transition to a more secure, greener economy is also a huge opportunity. Strong government action on energy efficiency, renewable energy and electric vehicles are helping Chinese industry establish a global competitive advantage in low carbon technology.

The pace of urbanisation and economic growth in China has required an extraordinary expansion of energy supplies. Parts of the country have often struggled to keep up. Electricity blackouts are a common occurrence in many provinces whenever cold weather drives up demand for heating. Meanwhile, from now until 2025, China will need to add capacity to the electricity sector equivalent to the entire United States today.

For the time being, access to ever more fossil fuel resources are essential for China’s continued growth. But as its leadership has made very clear, China can’t replicate the industrial pathway taken by the United States and Europe. New models of resource consumption and development are urgently needed that reduce dependency on these fuels without compromising on prosperity.

It is growing oil imports that pose the greatest challenge in the medium term. Today, the Chinese own 30 cars per 1000 people, compared with 700 in the United States. As this gap closes, there could be a six-fold increase in passenger vehicles by 2035, according to the IEA. With about 60 million cars on the roads in China, major cities like Beijing and Shanghai are already plagued by congestion and poor air quality.

By 2030, China will be importing about 85 percent of its oil, a similar share to the EU but far above the United States. This is equivalent to imports of $400 billion per year if oil prices fall back to 80 dollars per barrel, a huge impact on China’s trade balance. Yet this may well prove conservative—most analysts expect oil prices to rise in the coming decades. As the IEA has warned, the era of cheap oil has come to an end.

During the last five years, Chinese policymakers placed increasing emphasis on energy security. While its national oil companies pursued access to resources around the world, back home China’s most energy thirsty industries have been faced with ever more stringent measures to improve efficiency. Provincial leaders were required to make the 20 percent energy intensity target in the 11th Five Year Plan a top priority, with serious political consequences if they failed.

Maximising the efficiency of China’s vehicle fleet will be central to its response to oil security in the short run. But fuel efficiency standards are already far tougher than the United States and will soon be aligned with Europe. China needs alternatives to an oil-driven transport sector if it’s to avoid becoming ever more dependent on volatile international markets.

It therefore comes as no surprise that electric vehicles are one of the seven new pillar industries identified in the forthcoming 12th Five Year Plan. There will be a huge push on research and development combined with a target to produce a million electric cars by 2015. Chinese policymakers see electric vehicles as a win-win opportunity to curb oil consumption and capture a share of the future global market. In helping to drive down the cost of a range of low carbon technologies, China can contribute to global energy security at the same time as tackling domestic challenges.

Felix Preston is a research fellow at Chatham House’s Energy, Environment and Development Programme.