china’s energy future

China’s Energy Future

How economic rebalancing, environmental concerns,

and policy reforms will accelerate change

Richard G. Newell

Director, Duke University Energy Initiative and Gendell Professor of Energy and Environmental Economics,

Nicholas School of the Environment, Duke University

KAPSARC Workshop on ‘Reforming China’s Energy Economy’

November 12, 2015 | Riyadh, Saudi Arabia

Overview

Richard Newell, 11/12/2015, Riyadh 2

• Historical growth in China’s energy consumption

• Future energy projections

• Key drivers of China’s energy future

– Scale and structure of China’s economic growth

– Local and global environmental concerns in China

– Economic, energy, and environmental policy reforms

Historical growth in

China’s energy consumption

3Richard Newell, 11/12/2015, Riyadh

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1970 1975 1980 1985 1990 1995 2000 2005 2010

China’s energy mix is evolving…


Data source: IEA World Statistics and Energy Balances

Coal

Oil

Natural gas

Biomass & biofuels

Nuclear

Hydro/other renewables

Fuel mix shifts as societies become wealthier


Data source: IEA via Paul J. Burke

Coal

Oil

Natural gas

Biomass and biofuels

Nuclear


0

10

20

30

40

50

60

70

80

90

100

Low-incomecountries

Middle-incomecountries

China High-incomecountries

Sh

are

of e

ne

rgy m

ix (

%)

0

20

40

60

80

100

120

1970 1975 1980 1985 1990 1995 2000 2005 2010

Quadrilli

on B

tu…but mainly through addition rather than substitution


Data source: IEA World Statistics and Energy Balances

Coal

OilNatural gas

Biomass & biofuels Nuclear


China primary energy consumption

Richard Newell, 11/12/2015, Riyadh 7

Regional energy consumption has been

shifting east

1971

8

$0.4 trillion

China’s GDP

Richard Newell, 11/12/2015, Riyadh

Country size

scaled by share

of global energy

consumption

Data source: IEA World Statistics. China’s GDP reflects purchasing power parity in 2005 US dollar.

.

1978

9

$0.6 trillion

China’s GDP


Country size

scaled by share

of global energy

consumption


.

1990

10

$1.6 trillion

China’s GDP


Country size

scaled by share

of global energy

consumption


.

2001

11

$4.6 trillion

China’s GDP


Country size

scaled by share

of global energy

consumption


.

2012

12

$13.3 trllionChina’s GDP

$13.3 trillion


Country size

scaled by share

of global energy

consumption


.

Future energy projections


Global energy consumption projections suggest

wide variation in potential pathways

14

History Projections

(quadrillion Btu per year, left axis) (million barrels per day of oil equivalent, right axis)

150

200

250

300

350

400

450

300

400

500

600

700

800

900

1980 1990 2000 2010 2020 2030 2040

IEA Historical

IEA Current Policies

IEA New Policies

IEA 450

BP

U.S. EIA

ExxonMobil

OPEC

Shell Mountains

Shell Oceans

primary energy consumption

2010-2040

growth range

59%

21%

Note: U.S. EIA and BP estimates omit non-marketed biomass.


China’s uncertain energy future comprises a

significant part of this global uncertainty

15

Note: U.S. EIA estimates omit non-marketed biomass.


History Projections

(quadrillion Btu per year, left axis) (million barrels per day of oil equivalent, right axis)

0

25

50

75

100

125

0

50

100

150

200

250

1980 1990 2000 2010 2020 2030 2040

IEA Historical


IEA New Policies

IEA 450

U.S. EIA

primary energy consumption

2010-2040

growth range

70%

21%

Data sources: Historical data from IEA World Statistics; Projections from IEA World Energy Outlook (2014); U.S. EIA International Energy Outlook (2013)

2040

16

$50.0 trillion

China’s GDP


Country size

scaled by share

of projected

global energy

consumption

Data source: IEA World Statistics. Map reflects IEA New Polices scenario. China’s GDP reflects purchasing power parity in 2005 US dollar.

.

1971

17

$0.4 trillion

China’s GDP


.


Country size is

scaled by share

of global energy

consumption

Global energy flows shifting towards Asia


Source: Newell, Raimi, and Qian (forthcoming) derived from IEA 2014 World Energy Outlook, New Policies Scenario

net energy exports

Key drivers of China’s energy future


The Kaya Identity in China (growth rates add up)


%P + %G/P + %E/G = %E

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

IEA historical (1980-2010)

IEA Current Policies (2012-2040)

IEA New Policies (2012-2040)

IEA 450 Scenario (2012-2040)

%E + %C/E = %C


.

Scale and structure of

China’s future economic growth


How quickly will China’s economy grow?


Source: AFP/Getty Images

Source Real GDP growth rate (%) estimates

2015 2016 2017 2018 2019 2020

IEA (GDP PPP) 6.7 6.7 6.7 6.7 6.7 6.7

IMF 6.8 6.3 6.0 6.1 6.3 6.3

World Bank 7.1 7.0 6.9

Economist IU 6.8 6.5 6.1 5.9 5.6

UN 6.9 6.8

OECD 7.3 6.7 6.2 5.8 5.5 5.1

• China’s Energy Research Institute assumes average annual

GDP growth of 6% during 2020-2030

• Some economists predict much lower growth around 4%

The structure of China’s economic growth will

also impact energy consumption

24

• How quickly will China transition from heavy industry, infrastructure

investment, and manufacturing to a more service- and consumer-

based economy?


Data source: World Bank

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% o

f va

lue a

dd

ed

to

GD

P

Industry

Services

Agriculture

?

9

48

43

Market-oriented policy changes could also

accelerate change in China’s energy system


Example market-oriented policy reforms

Opening up fossil fuel assets to independent exploration

Reorganization of state-owned energy companies

Pricing deregulation

Expanded market mechanisms in the power sector

Liberalization of interest rates

Allowing Chinese to more easily buy foreign assets

Local and global environmental

concerns in China


Air pollution drawing attention in China


Data source: U.S. State Department

Very Unhealthy

to Hazardous

Unhealthy

Healthy to

Moderate0

50

100

150

200

250

300

350

400

450

500Average daily PM2.5

readings in Beijing

winter peaks

Air quality has been improved before in other

large cities


Data source: U.S. EPA

Very Unhealthy

to Hazardous

Unhealthy

Healthy to

Moderate

Daily max ozone

concentrations

in Los Angeles

0.00

0.05

0.10

0.15

0.20

0.25

ppmsummer peaks

Efforts to reduce CO2 emissions are likely to

further accelerate change in energy


Data source: IEA World Statistics

0

5

10

15

20

25

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

An

nu

al e

mis

sio

ns (

bill

ion

me

tric

to

ns o

f C

O2) Sum of China,

EU, India,

Russia, US

Rest of world

China

US

EUIndiaRussia

Energy and environmental policy

reforms in China


Transport Efficiency4%

Industrial Efficiency18%

Building Efficiency6%

Grid Efficiency0.4%

CCS Coal11%

CCS Gas…Hydro 2%

Wind8%

Solar7%

Biomass Power3%

Natural Gas4%

Nuclear12%

Renewables (excl. biofuels)

1%

Total fuel switching in

industry11%

Biofuels1%

Reduced Transport Demand

0.3%

Reduced GDP3%

2050 cost-effective CO2 mitigation opportunities in China

31

Data source: Analysis based on AMPERE results


China has launched policy goals and reforms

to transform its energy system and reduce CO2


Existing policy initiatives

40-45% reduction in CO2/GDP by

2020

15% share of non-fossil energy by

2020

Carbon-trading pilots in 7 regions

Low-carbon development pilots in

42 municipalities

Energy efficiency measures by

industry and energy sector

Renewable energy supports

Concerted reforestation efforts (+40

million hectares by 2020)

2014 status relative to 2005

34% reduction in CO2/GDP

90 times more installed wind

capacity

400 times more installed solar

capacity

Three times more hydro and

nuclear capacity

Forest stock expansion (21

million hectares; 1.3 billion m3)

Source: Enhanced Actions on Climate Change: China’s Intended Nationally Determined Contributions, submitted June 2015 as part of the UNFCCC

China’s INDC identifies key targets and

policies and measures for achieving them


2030 targets relative to 2005 levels

Peak CO2 emissions around 2030; best efforts to peak early

Reduce CO2/GDP by 60-65%

Increase non-fossil share of primary energy to around 20%

Increase forest stock by around 4.5 billion m3

Source: Enhanced Actions on Climate Change: China’s Intended Nationally Determined Contributions, submitted June 2015 as part of the UNFCCC

• Commitment also to launch national carbon trading program in

2017

China’s INDC 2030 goals require new non-fossil electricity

capacity equivalent to total U.S. capacity today


China’s uncertain energy future has important

implications for CO2 emissions

35

Data sources: Historical data from IEA World Statistics; Projections from IEA World Energy Outlook (2014); U.S. EIA International Energy Outlook (2013), ExxonMobil Outlook for Energy (2015).

History Projections

0

5

10

15

carb

on

dio

xid

e e

mis

sio

ns

(billion

me

tric

ton

nes)

1980 1990 2000 2010 2020 2030 2040

United States

History Projections

1980 1990 2000 2010 2020 2030 2040

China

IEA Historical


IEA New Policies

IEA 450

U.S. EIA

ExxonMobil




China coal consumption: When will it peak

and decline?

History Projections

(billion metric tonnes)

0

1.5

3

4.5

6

1980 1990 2000 2010 2020 2030 2040

IEA Historical


IEA New Policies

IEA 450

U.S. EIA

Coal consumption

China oil consumption: Possible pathways



History Projections

(million barrels per day of oil equivalent)

0

5

10

15

20

25

1980 1990 2000 2010 2020 2030 2040

IEA Historical


IEA New Policies

IEA 450

U.S. EIA

Oil consumption



History Projections

(trillion cubic feet, left axis) (billion cubic metres, right axis)

0

150

300

450

600

0

5

10

15

20

25

1980 1990 2000 2010 2020 2030 2040

IEA Historical


IEA New Policies

IEA 450

U.S. EIA

Natural gas consumption

China natural gas consumption projected to

rise 3-4 fold

China nuclear plants to rise from 29 to hundreds



History Projections

(Terawatt-hours)

0

1000

2000

3000

4000

5000

6000

1980 1990 2000 2010 2020 2030 2040

IEA Historical


IEA New Policies

IEA 450

U.S. EIA

Nuclear consumption

China hydro projected to rise by >50%



History Projections

(Terawatt-hours)

0

500

1000

1500

2000

1980 1990 2000 2010 2020 2030 2040

IEA Historical


IEA New Policies

IEA 450

U.S. EIA

Hydro consumption

Conclusions

42

• China experiencing rapid growth in energy consumption since

~2000

• The link between economic growth and energy is weakening, but

growth is still a key driver

• Economic rebalancing will further reduce overall energy intensity

• Environmental concerns are spurring action in the energy sector

• There are a wide range of options in play for China’s policymakers

to accelerate change in its energy systems


For more information

43

Richard Newell

Duke University Energy Initiative

energy.duke.edu

[email protected]

+1-919-681-8663


http://www.energy.duke.edu/

mailto:[email protected]

china’s energy future

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