China’s energy transformation in the era of

deglobalization 逆全球化时代的中国能源变革

Kevin Tu 涂建军Beijing 北京 | April 10th, 2019 年4月10日

Structure of the presentation

Opening session

A world turning upside down by global disruption

China’s energy sector in the international context

King coal, addictive oil, promising gas, complicated power

A few other issues

Energy governance in China

Belt and road initiative

Sino-U.S. energy trade

Take-home messages

A world turning upside down by global disruption

The era of deglobalization driven by ascendance of emerging economies led by China in general and energy transitions in particular:

Different perception amongst China, OECD and others..

Resetting of Sino-U.S. relations:

China with a four-confidence doctrine vs. U.S. with rising populism

Rapid aging in China:

Aftermath of one child policy, coupled with dramatic improvements in health care in China

Technology innovation and dissemination:

ICT makes it difficult for both IP protection and information censorship

New type of environmental awakening:

Tailored supply exclusively targeting elites is no longer working for air pollution alleviation

Absence of suitable energy paradigm in emerging economies:

Not necessarily applicable for industrialized nations

Ascendance of emerging economies led by China

China’s rise, fall and re-emergence as a global power: self perception vs. reaction by the rest of world.

Share of global GDP over time

Source: Augus Maddison

0%

10%

20%

30%

40%

50%

1 1000 1820 1900 1962 1978 2008

USA China W. Europe India Rest

Energy transitions: a contentious debate

To achieve Paris Agreement, the global energy system must undergo a profound transformation, from one

largely based on fossil fuels to one that enhances efficiency and is based on renewable energy (& natural gas?).

Energy-related fossil fuel demand (EJ)

Source: IRENA (2019).

Share of primary energy

Source: BP (2019).

Impacts of the energy transition on GDP

Percentage difference in GDP from reference scenario

Source: IRENA (2019).

石油净进口国

石油净出口国

Rising Sino-U.S. geopolitical tension

Despite an ongoing trade war, U.S. trade deficit in goods with China rose to $419.2 billion in 2018,

from the previous record of $375.5 billion in 2017.

U.S. trade deficit history with China

Source: U.S. Census Bureau

Model used to predict Trump’s win

-600

-400

-200

0

200

400

600

1988 1993 1998 2003 2008 2013 2018billio

n U

S$

Exports to China

Imports from China

Trade deficit

Drivers underlying U.S.-China trade war

Around 2010, China started to surpassed U.S. to become the world’s No. 1 in various fronts, with

profound impacts on mentality of Americans.

When did China become No.1 in the world? Outcome of 2016 U.S. presidential election

Size of the economy (PPP) 2013

Carbon dioxide emissions 2006

Number of internet users 2008

Energy consumption 2009

Fast supercomputer 2010

Manufacturing industry 2011

Trading nation 2012

Largest middle class & billionaires 2015

Solar power capacity 2016

Crude oil imports 2017

Natural gas imports 2018

Source: World Bank - size of the economy, IEA – energy indicators, and G. Allison (2017); Wikipedia.

Nature of U.S.-China trade war and its profound implications

When a rising power threatens to displace a ruling one, the most likely outcome is war. Twelve of 16

cases in which this occurred in the past 500 years ended violently.

Rapid aging in China and its implications

China has begun the aging process at an earlier stage of development, and at a more accelerated pace

than most countries have experienced.

Source: World Population Prospect 2017, medium variant forecast; NBS.

0

10

20

30

40

50

1950 1970 1990 2010 2030 2050

Change of average age

World China

100.37

103.17 103.05 103.19 102.97

100

101

102

103

104

105

2013 2014 2015 2016 2017

Millio

n

Number of employees in the Chinese

manufacturing industry

An aging China is inevitably attracted by technology innovation

Source: HIT Robot Group

Chinese robotic market by type

Digital technologies will make energy systems more connected, intelligent and reliable, with uncertain

implications on energy demand

Digitalization: bless or curse?

Intellectual property protection used to be not so politicalized

Silk Porcelain (1712) Tea (1848) Opium War

Imperial China’s ability to guard trade secrets of tea, porcelain and silk led to sustained trade surplus with

British Empire until the introduction of opium, followed with two wars in 1839-42 and 1856-60

Energy transformation in China: quest for a guiding paradigm

Fallout of the 3E principle

Following the tragic Fukushima Daiichi Nuclear Accident in March 2011,

Japan was forced to adopt 3E + Safety to guide its national energy development.

Economic

Development

Energy

Security

Environmental

Protection

Energy transition: may be defined as a long term changes in energy systems, both in the past and in the future

Contemporary ones differ in terms of motivation and objectives, drivers and governance

Lack of consensus among proponents beyond energy efficiency & renewables. In addition, it is also difficult to reach consensus regarding definition of clean energy

Low carbon development: optimize the energy sector against one single constraint, namely, carbon or greenhouse gas emissions

Synergy with other pressing policy challenges in emerging economies such as air pollution control or energy access may not always be achievable

U.S. energy policy disruption brings additional uncertainties:

New era of “energy dominance”, “making coal great again”, withdrawal from Paris Agreement, and “new energy realism” made U.S. national energy policy increasingly unique amongst OECD countries

Given U.S. economic and political weights, the impacts of U.S. policy disruption cannot be simply ignored

Lack of guiding paradigm on sustainable energy development has already impeded both the pace and direction of energy sector reforms in China

Quest for a guiding energy paradigm

Air pollution: a new type of environmental awakening in China

Air Pollution in India, ongoing

Los Angeles Photochemical Smog, 1940s Great London Fog, 1952

China Smog Outbreak, ongoing

Sources of PM2.5 emissions

China

Source: Deutsche Bank & Beijing Municipal Government

Sources in Beijing over time

Coal & Secondary

Emissions, 45%

Vehicle,

20%

Construction

& Industrial,

20%

Others,

15%

Source Apr 2014 May 2018

Adjacent regions 28-36% ~33%

Local pollution 64-72% ~67%

Vehicles / mobile sources 31.1% 45%

Coal combustion 22.4% 3%

Industrial sources 18.1% 12%

Dust 14.3% 16%

Household sources N/A 12%

Other sources 14.1% 12%

Total 100% 100%

Chinese president XI

Jinping’s called for four

energy revolutions in

areas of energy

consumption, supply,

technology and

governance +

international

cooperation in June

2014.

Following a major

earthquake, a 15-metre

tsunami disabled the

power supply and

cooling of three

Fukushima Daiichi

reactors, causing a

nuclear accident on 11

March 2011. All three

cores largely melted in

the first three days.

The study aims to

evaluate the role of

nuclear power in

China’s ongoing energy

transitions, coupled

with assessment of

China’s overseas

nuclear activities and

associated implications.

Four energy

revolutions

Fukushima Daiichi

Nuclear Crisis

Role of nuclear

power in China

What prompt my research on a new energy paradigm?

Economic

development

Energy

security

Environmental

protection

SECTOR+ principle-based Inclusive energy transformation

A new energy paradigm is in urgent need to guide sustainable energy development in emerging

economies including China.

From 3 E to SECTOR+

3E SECTOR+

Security of

energy

system

Economic

development

Climate

changeTechnological

maturity

Other

environmental

issues

Regulatory

burden

Security of energy system

Energy security needs to be redefined beyond oil supply security: gas supply security, electricity

security, consumers vs. producers etc.

Oil and gas dependency rates: China vs. U.S.

Source: NBS, US EIA

Economic development: Chinese economy enters the new normal

The Chinese economy is moving away from a heavy industry-, investment- and exports-oriented old

model to a new one that largely to be defined.

Climate change: China’s role in international climate politics

Drivers of Chinese climate leadership in 2015: international pressure? better understanding of China’s

own climate vulnerability? Political concession in exchange of ?

Source: CAIT, IEA

Technological maturity

If fusion power were harnessed directly on Earth, it could produce inexhaustible clean power, using seawater as

the main fuel, with no greenhouse gas emissions, no proliferation risk, and no risk of catastrophic accidents.

Nuclear fusion: answer for a sustainable energy future?

Source: Market Business News, Atomic Archive, Duke Energy.

Other environmental challenges

Selection of other environmental challenges should depend on national circumstances of individual

countries.

Examples: air pollution, water & soil contamination etc.

Source: NBS, US EIA

Regulatory burden

Regulatory requirement of energy development has long been ignored during national energy debates.

Source: Postcarbon, Reuters

Energy statistical collection in China may need further improvement to be more compatible with

international practices, and the future of coal in China is a key policy issue.

Source: IEA (2017).

Overview of Chinese energy markets

China as share of

global consumption growthEvolvement of China’s energy mix

Fuel1990 2015 2040

Mtoe % Mtoe % Mtoe %

Coal 533 61% 1,992 67% 1,706 45%

Oil 122 14% 538 18% 716 19%

Gas 13 1.5% 160 5.3% 469 12%

Nuclear 0 0% 45 1.5% 287 7.6%

Hydro 11 1.2% 96 3.2% 130 3.4%

Bioenergy 200 23% 114 3.8% 192 5.1%

Other renewables 0 0% 46 1.5% 297 7.8%

Total 879 100% 2,990 100% 3,797 100%

Fuel 199-2015 2015-2040

Coal 90% -312%

Oil 38% 35%

Gas 12% 22%

Nuclear 31% 73%

Hydro 57% 17%

Bioenergy -21% 16%

Other renewables 28% 27%

Total 43% 20%

Coal producing regions in China: lost in transformation?

2018 Taiyuan Energy Low Carbon Development Forum and China (Taiyuan) International Energy

Industry Expo was held in 16-18 September 2018.

Data quality: Achilles' heel of inclusive energy transformation?

In Sept 2015, NBS published China’s revised energy statistics for year 2010 to 2012, which show

significant changes both on supply and demand side for a number of energy products especially coal.

Source: Tu (2011)

Statistical revisions of China’s Coal Output in 2006 and 2010

Ranking Top 10 steel producer in 2011

1 China excluding Hebei province

2 Heibei excluding Tangshan city

3 Tangshan excluding underreporting

4 Japan

5 US

6 India

7 Russia

8 S. Korea

9 Tangshan underreporting

10 Germany

Alleged top 10 steel producers in 2011

Source: Chinese internet

Could China duplicate the success of U.S. shale revolution?

Except for underground barriers, above-ground constraints play a event more important role to retard

shale gas development in China.

Source: U.S. EIA (2019).

Third party access is key for oil and gas sector reform in China

China’s gas transmission network is planned to expand from 64 thousand km in 2015 to 163

thousand km in 2025, near 10% growth annually.

Map of China’s gas transmission network

Flexibility: the cornerstone of tomorrow’s power systems

Higher shares of variable renewables raise flexibility needs and call for reforms to deliver

investment in power plants, grids & energy storage, and unlock demand-side response.

Phases of integration with variable renewables share, 2017

Source: IEA.

Recent development in Chinese nuclear power sector

Given the new U.S. restriction, HPR1000 has been further propelled to gain equal footing with AP1000

family reactors in China.

Reactor Capacity IP

AP1000 1157 MW U.S.

EPR 1750 MW France

HPR1000 1170 MW China

CAP1400 1534 MW China

VVER-1200 1197 MW Russia

In Oct 2018, U.S. DOE announced measures to prevent China’s illegal diversion of U.S. civil nuclear technology for military or other unauthorized purposes.

Presumption of denial for: 1) exports related to light water SMRs; 2) non-light water advanced reactors; 3) new technology transfers after 1 January 2018; and 4) any transfer to China General Nuclear (CGN) and/or CGN subsidiaries or related entities.

In Jan 2019, Bill Gates shelved traveling-wave nuclear reactors construction in China, citing U.S. policy restrictions. As only China, France and Russia have sufficient technical capacity, the announcement is a big blown to Gates’ nuclear ambitions.

Recent nuclear development in China

First AP1000 reactor in Sanmen, Zhejiang was commissioned in Sept 2018, and first EPR reactor in Taishan, Guangdong was commissioned in Dec 2018.

In Nov 2018, two CAP1400 reactors in Shidaowan, Shandong was approved by the State Council, which is the first nuclear construction permit during the 13th Five Year Plan period between 2016 and 2020.

In Jan 2019, 4 HPR 1000 reactors was approved by the State Council. 2 in Huizhou, Guangdong by CGN, and 2 in Zhangzhou, Fujian by CNNC.

Major third generation

nuclear reactors in China

Energy governance: should China have a Ministry of Energy?

International practices

Canada – Natural Resource Canada.

France - Ministry for the Ecological and Inclusive Transition

Germany – Federal Ministry of Economic Affairs and Energy

Italy – Ministry of Economic Development

Japan - Agency for Natural Resources and Energy, Ministry of Economy, Trade and Industry (MITI)

UK - Department of Energy & Climate Change

US –Department of Energy

India – Ministry of Coal, Petroleum & Natural Gas, Power, New & Renewable Energy

34

China’s role in global energy governance

Sub-Saharan Africa lags far behind in terms of achieve universal electricity access. Universal access to

clean cooking cannot be achieved unless it is elevated on the political agenda

Source: IEA Energy Access Outlook 2017.

Million

200

400

600

2000 2005 2010 2016

Sub-Saharan Africa

IndiaOther Asia

2020 2025 2030

Population without electricity access

Today 2030

500

1 000

1 500

2 000

2 500

3 000Millionpeople

Population without

access to clean cooking

Gained accessin New Policies

Scenario

Gained accessin Energy

for All Case

2000

Belt and Road Initiative: implications for China and energy

Prospect of Sino-U.S. energy trade

In absence of a trade war, Sino-U.S. energy trade possess substantial potential to lower bilateral trade

deficit, with certain energy security implications in the years to come.

Source: U.S. EIA.

0

200

400

600

Feb

-2016

May-2

016

Au

g-2

016

No

v-2

016

Feb

-2017

May-2

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Au

g-2

017

No

v-2

017

Feb

-2018

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g-2

018

No

v-2

018

U.S. crude oil exports to

China (kbbl/d)

0

5

10

15

20

25

Jun

-2016

Sep

-2016

Dec-

2016

Mar-

2017

Jun

-2017

Sep

-2017

Dec-

2017

Mar-

2018

Jun

-2018

Sep

-2018

Dec-

2018

U.S. LNG exports to China

(billion cubic feet)

0

2

4

6

Q1 2

009

Q4 2

009

Q3 2

010

Q2 2

011

Q1 2

012

Q4 2

012

Q3 2

013

Q2 2

014

Q1 2

015

Q4 2

015

Q3 2

016

Q2 2

017

Q1 2

018

U.S. coal exports to China

(million short tons)

Steam coal

Coking coal

Coke

Take-home messages

In the era of deglobalization, a much more security conscious China

is likely to adjust its attitude towards foreign supply of strategically

important commodities, with profound implications for its energy

and environmental policy making in the years to come.

SECTOR+ principle-based Inclusive energy transformation could be

formulated as a new energy paradigm to promote sustainable

energy development in China and beyond especially in coal

producing regions.

Belt and Road Initiative and U.S.-China energy trade are two

promising research fields that deserve continuous attention from the

energy and environmental community.

Thank You 谢谢！

Kevin Tu 涂建军Fellow, Center on Global Energy Policy, Columbia University

哥伦比亚大学全球能源政策中心研究员Email: kevin.j.tu@gmail.com