China’s Energy Revolution in the Context of the Global Energy Transition

Shell and DRC Editors

Advances in Oil and Gas Exploration & Production

in cooperation with

Advances in Oil and Gas Exploration &Production

Series Editor

Rudy Swennen, Department of Earth and Environmental Sciences,K.U. Leuven, Heverlee, Belgium

The book series Advances in Oil and Gas Exploration & Productionpublishes scientific monographs on a broad range of topics concerninggeophysical and geological research on conventional and unconventional oiland gas systems, and approaching those topics from both an exploration anda production standpoint. The series is intended to form a diverse library ofreference works by describing the current state of research on selectedthemes, such as certain techniques used in the petroleum geoscience businessor regional aspects. All books in the series are written and edited by leadingexperts actively engaged in the respective field.

The Advances in Oil and Gas Exploration & Production series includesboth single and multi-authored books, as well as edited volumes. The SeriesEditor, Dr. Rudy Swennen (KU Leuven, Belgium), is currently acceptingproposals and a proposal form can be obtained from our representative atSpringer, Dr. Alexis Vizcaino (Alexis.Vizcaino@springer.com).

More information about this series at http://www.springer.com/series/15228

mailto:Alexis.Vizcaino@springer.comhttp://www.springer.com/series/15228

Shell International B.V. •The Development Research Center(DRC) of the State Council of thePeople’s Republic of ChinaEditors

China’s EnergyRevolutionin the Context ofthe Global EnergyTransition

EditorsShell International B.V.The Hague, the Netherlands

The Development Research Center(DRC) of the State Council of thePeople’s Republic of ChinaBeijing, China

ISSN 2509-372X ISSN 2509-3738 (electronic)Advances in Oil and Gas Exploration & ProductionISBN 978-3-030-40153-5 ISBN 978-3-030-40154-2 (eBook)https://doi.org/10.1007/978-3-030-40154-2

The data and analysis contained in this publication was produced in 2019 when aMandarin version of this book was published. The English translation of this book,published in 2020, does not contain updated data or analysis.© The Editor(s) (if applicable) and The Author(s) 2020. This book is an open access publication.Open Access This book is licensed under the terms of the Creative Commons Attribution 4.0International License (http://creativecommons.org/licenses/by/4.0/), which permits use, sharing,adaptation, distribution and reproduction in any medium or format, as long as you give appro-priate credit to the original author(s) and the source, provide a link to the Creative Commonslicense and indicate if changes were made.The images or other third party material in this book are included in the book’s CreativeCommons license, unless indicated otherwise in a credit line to the material. If material is notincluded in the book’s Creative Commons license and your intended use is not permitted bystatutory regulation or exceeds the permitted use, you will need to obtain permission directlyfrom the copyright holder.The use of general descriptive names, registered names, trademarks, service marks, etc. in thispublication does not imply, even in the absence of a specific statement, that such names areexempt from the relevant protective laws and regulations and therefore free for general use.The publisher, the authors and the editors are safe to assume that the advice and information inthis book are believed to be true and accurate at the date of publication. Neither the publisher northe authors or the editors give a warranty, express or implied, with respect to the materialcontained herein or for any errors or omissions that may have been made. The publisher remainsneutral with regard to jurisdictional claims in published maps and institutional affiliations.

This Springer imprint is published by the registered company Springer Nature Switzerland AGThe registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

https://doi.org/10.1007/978-3-030-40154-2http://creativecommons.org/licenses/by/4.0/

Foreword 1

In June 2014, at a conference of China’s Central Leading Group for Financialand Economic Affairs Commission, General Secretary Xi Jinping launchedthe idea that China should initiate an energy revolution. The revolutionwould be comprehensive in scope. It would encompass demand, supply,technology and the energy system itself, and it would strengthen internationalcooperation and guide China’s energy reforms. As part of this reform pro-cess, the Development Research Center (DRC) of the State Council of Chinaand Shell International, building on their long-term collaboration, started ajoint research programme on China’s Energy Revolution in the Contextof the Global Energy Transition in late 2015.

The research focuses on how to promote China’s energy revolution byreforming the energy system, bolstering innovation policy and motivating allstakeholders, including government, industry, companies and citizens. Ourfindings show that China will learn from international energy transitionexperience and strive to improve and build a modern, high-quality energysystem. This will improve people’s living standards, help make China ahigh-value manufacturer, protect the environment, and drive China’s eco-nomic development. In short, China will provide high-quality energy forhigh-quality growth.

A high-quality energy system should have the following three features.First, energy should be clean and low carbon. The entire energy life cycle—from production and conversion to transmission and consumption—shouldbe low pollution with minimal emissions of harmful local pollutants and withCO2 from energy production and consumption minimised. Second, energyshould be efficiently priced and affordable. China has not yet completed itsindustrialisation process and is still in a critical period of upgrading themanufacturing value chain. As energy is a key component of production andcirculation, the price of energy should be competitive internationally andbolster Chinese manufacturing. Third, energy should be secure and reliable.The energy system should guarantee basic and stable supply, even duringabnormal conditions like natural disasters or geopolitical tensions. It shouldalso be sufficiently flexible to integrate ever-increasing volumes of renew-ables in the energy mix.

To build a modern and high-quality energy system, China needs to pro-mote energy revolution in a comprehensive way through supply-side struc-tural reform and improvement of the system itself. In terms of energy supply,China should take effective action in the following four areas:

v

First, by systematically cutting coal overcapacity and through efficient andclean coal utilisation. To address air pollution and reduce greenhouse gasemissions, China should continue to cut coal overcapacity and reduce coal’sshare of the energy mix. However, as coal will remain a main energy sourcein the longer term, China should continue to promote efficient and clean coalutilisation.

Second, by coordinated development of fossil fuels and renewable energy.Thanks to technological progress and business model innovation, the cost ofrenewable energy is decreasing rapidly, and its share of the energy mix hasrisen significantly. Renewables have great growth potential. As energytransition is a progressive process, fossil fuels will remain important in thenear future, and renewable energy must rely on them for support.

Third, by coordinated development of centralised and distributed energysystems. Centralised energy supply is the long-standing mainstream model.But as demand changes, China should focus more on distributed energy andgradually shift to a modern energy supply system that adapts centralised anddecentralised energy supply to local needs and conditions.

Fourth, by increasing the share of natural gas in the energy mix. In theshort term, there are still many constraints on the development of renewableenergy, and natural gas has great potential to offset these constraints. Chinawill strive to ensure that the share of natural gas in primary energy con-sumption will reach 10% by the end of the 13th Five-Year Plan in 2020 andincrease to 15% by 2030, turning natural gas into the third largest energysource after coal and oil.

Innovation is the foundation of the energy revolution. China should firmlyimplement energy system reform, consider energy a commodity, and build amarket structure and system that feature effective competition. Moreover,China should strengthen regulatory and policy incentives, and vigorouslypromote the transition to clean and low-carbon energy that is efficientlypriced and affordable, secure and reliable. In addition, China should sys-tematically consider how to open itself to the outside world and make greaterefforts to improve its participation in international energy cooperation andgovernance.

As China enters a new era of economic development, and in the face ofadvancing energy technologies and changing business models, the questionof how to promote energy revolution should be continuously explored. AsChina can achieve its energy revolution only in phases, the research needs tobe continuously deepened over time. Dozens of experts at home and abroadhave contributed to this book, which means it will inevitably contain errors oroversights. We kindly invite readers to provide corrections and suggestions.

Li WeiDirector of the Development ResearchCenter of the State Council of China

vi Foreword 1

Foreword 2

It is an honour for Royal Dutch Shell to have worked with the DevelopmentResearch Center (DRC) of the State Council on this book. The fact that this isthe third book we have produced together on China’s energy system is amatter of great pride to me and to the company. It is a partnership of mutualrespect and understanding.

The book you are holding is the greatest achievement so far in a collab-oration which started in 2011. This collaboration brings together the DRC’sdeep understanding of China’s energy system and the development chal-lenges which need to be addressed, with Shell’s international experience andknowledge of energy markets, regulatory mechanisms and the drivers ofenergy demand.

In the first publication, the DRC and Shell took a broad look acrossChina’s energy system. The second focused on the role of natural gas indiversifying China’s energy mix. This book explores China’s energy revo-lution in the context of a changing world energy system.

It is hard to miss the changes taking place in China’s energy landscape. In2019 China produced 40% of all the wind turbines in the world. It madethree-quarters of the world’s solar panels. Nearly half of the electric vehicleson the planet today, and half the hydrogen-fuelled vehicles, are owned byChinese people.

The role of renewables in China’s energy system is also gaining groundfast. The amount of wind energy could double and the amount of solarquadruple between 2015 and 2020. And the Chinese government’s movetowards establishing a national carbon pricing mechanism is yet another signof the country making progress towards a new era of cleaner energy.

Of course, China’s challenge is the world’s challenge: to meet growingenergy demand while causing as little harm as possible to the environment.

The world population is growing, from 7.5 billion today to 9.8 billion in2050, according to the United Nations. That population, which currentlyincludes around 1 billion people without access to basic electricity, is seekinga better standard of living. Many of the people who improve their lives willdo so by consuming more energy. So, we can expect global energy demandto rise.

vii

Yet, if the world is also to achieve the goals of the Paris Agreement,credible scenarios suggest it must collectively stop adding greenhouse gasesto the stock in the atmosphere by 2070. It needs both more energy andcleaner energy. There is a lot of work for the world to do if it is to succeed.

China’s goal, as President Xi told the 19th Party Congress, is a “New Era”with a better quality of life. This is in tune with Paris. For China’s energysystem it means cleaner energy with better air quality and lower greenhousegas emissions. It also means affordable energy, secure energy supplies andreliable delivery to consumers.

The main message of this book is that this is a goal that is well withinChina’s grasp—even if reaching that goal does require new thinking of thesort that has been laid out in these pages. The recommendations made in thisbook are intended to be a route to reaching this goal. It is important to notethat they are recommendations that are only possible because of the trans-formational moves China has already made in its energy system.

They draw on the lessons from other countries going through energytransition, taking on-board what has worked and avoiding the less successfulpaths.

They also point out opportunities to move towards a system which har-nesses the best of both government and the free market. The direction andpolicy interventions that only government can provide, with the marketsystem’s inbuilt drive towards efficiency.

One of the findings is that China has the chance to build a unified, efficientand flexible electricity market. Electrification enables an increasing amountof energy use to be powered by renewables. So, electrification can be acritical part of any shift to a low-carbon energy system, as long as electricityis increasingly generated by zero-carbon sources.

Of course, coal is likely to remain in China’s energy mix for some time tocome, and the report suggests reforms aimed at driving out inefficiencies andensuring high quality. Ultimately, however, coal is expected to decline inimportance within China’s energy system and other cleaner sources of energysuch as renewables and gas will rise. The book goes on to look at ways todeepen the reform of the oil and gas landscape to encourage investment anddevelopment. It looks at reforms to the mining rights system, the natural gaspipeline network, pricing and industry regulation.

It recommends establishing new regulatory authorities and suggests anenhanced system of energy laws to back this up. These suggestions build on,and deepen, the recommendations made in the second book that came fromthe DRC-Shell collaboration.

The study also explores how to make the most of the plans for a nationalcarbon market. It is here that it becomes most clear how interconnectedChina’s energy system is, and also how a harmonious approach can have agreater impact than more dramatic, but less coordinated, action. Finally, thebook looks at the opportunities China can take by playing an ever-moreactive role in shaping global energy governance. It suggests ways that Chinacan help address global energy concerns as part of the international com-munity: making China’s voice heard clearly and influencing the outcomes.

viii Foreword 2

It is right that China’s voice is heard. The change it has already gonethrough is impressive, and the change proposed in this book can bring thecountry’s energy goals within reach. The world should take note. It shouldalso take note of what can be achieved when governments and companiescollaborate as effectively as the DRC and Shell have done since 2011. I lookforward to what comes next.

Ben Van BeurdenChief Executive Officer of Royal

Dutch Shell plc

Foreword 2 ix

Acknowledgements

Project Chairs

Li Wei Director and Researcher of the Development ResearchCenter (DRC) of the State Council of the People’sRepublic of China.

Ben van Beurden Chief Executive Officer of Royal Dutch Shell plc.

Project Executives

Long Guoqiang Deputy Director and Researcher of DRC, the StateCouncil of China.

Maarten Wetselaar Member of the Executive Committee and Director ofIntegrated Gas and New Energies, Royal Dutch Shell.

Zhang Xinsheng Executive Chairman, Shell Companies in China.Simon Henry Former Chief Financial Officer of Royal Dutch Shell.

Project Core Advisors

Xu Kuangdi Vice Chairman of the 10th Chinese People’s PoliticalConsultative Conference and Former President andAcademician of the Chinese Academy of Engineering.

Chen Qingtai Former Secretary of the Party Leadership Group andDeputy Director of DRC, the State Council of China.

Fu Chengyu Former Chairman of China Petrochemical Corporation(Sinopec Group).

Wang Jiaxiang Former General Manager and Member of the PartyLeadership Group of China National Offshore OilCorporation (CNOOC).

xi

Huang Weihe Vice President of China National Petroleum Corporation(CNPC) and Academician of the Chinese Academy ofEngineering.

Zhai Guangming Former Director of CNPC Consulting Center andAcademician of the Chinese Academy of Engineering.

Xu Lin Chairman of the U.S.-China Green Fund and FormerDirector of the City and Small-Town Reform andDevelopment Center of the National Development andReform Commission.

Project Review Expert Panel

Shi Dan Secretary of the Institute of Industrial Economics of theChinese Academy of Social Sciences.

An Fengquan Deputy Director of the International Department of theNational Energy Administration.

Li Junfeng Former Director of the National Center for ClimateChange Strategy and International Cooperation.

Sun Jinhua Vice President of the Central Research Institute of StatePower Investment Corporation.

Zhao Lianzeng Vice President of China Petroleum Planning and Engi-neering Institute.

Jiang Liping Vice President of State Grid Energy Research Institute(SGERI).

Wu Guogan Deputy Director of CNPC Consulting Center.

Project Sponsors

Zhao Changwen Director and Researcher of the Research Department ofIndustrial Economy, DRC of the State Council of China.

Jeremy Bentham Vice President Global Business Environment, ShellInternational B.V.

Project Team Leads

Yang Jianlong Deputy Director and Researcher of the ResearchDepartment of Industrial Economy, DRC of the StateCouncil of China.

Mallika Ishwaran Senior Economist and Policy Advisor, Shell Interna-tional B.V.

xii Acknowledgements

Shi Yaodong Deputy Director and Researcher of the ResearchDepartment of Industrial Economy, DRC of the StateCouncil of China.

Wang Ling General Manager Government Affairs, Shell China Ltd.

DRC Project Team Members

Xu Zhaoyuan Director and Researcher of the Research Office, theResearch Department of Industrial Economy, DRCof the State Council of China.

Wang Xiaoming Former Director and Researcher of the Research Office,the Research Department of Industrial Economy, DRCof the State Council of China.

Wei Jigang Director and Researcher of the Research Office, theResearch Department of Industrial Economy, DRCof the State Council of China.

Song Zifeng Director and Researcher of the Research Office, theResearch Department of Industrial Economy, DRCof the State Council of China.

Guo Jiaofeng Assistant to the Director of the Research Department ofResource and Environment Policies, DRC of the StateCouncil of China.

Hong Tao Director and Researcher of the Research Department ofResource and Environment Policies, DRC of the StateCouncil of China.

Chen Jianpeng Director and Researcher of the Research Department ofResource and Environment Policies, DRC of the StateCouncil of China.

Zhou Jianqi Director and Associate Researcher of the ResearchDepartment of Business, DRC of the State Council ofChina.

Li Weiming Deputy Director and Associate Researcher of theResearch Department of Resource and EnvironmentPolicies, DRC of the State Council of China.

Zhou Yi Associate Researcher of the Research Department ofIndustrial Economy, DRC of the State Council of China.

Li Jifeng Deputy Director and Associate Researcher of the PolicySimulation Laboratory, the Department of EconomicForecast, State Information Center.

Zeng Ming Professor of North China Electric Power University.Liu Xiaoli Researcher of the Energy Research Institute of the

National Development and Reform Commission.

Acknowledgements xiii

Shi Shude Deputy Director of the Research Department of Man-agement and Consulting, State Grid Energy ResearchInstitute Co., Ltd.

Yang Guang Associate Researcher of the Energy Research Instituteof the National Development and Reform Commission.

Liu Ying Associate Professor of the School of Economics andManagement, University of Chinese Academy ofSciences.

Duan Hongbo Assistant Professor of the School of Economics andManagement, University of Chinese Academy ofSciences.

Ji Qiang Associate Researcher of the Institutes of Science andDevelopment, Chinese Academy of Sciences.

Mo Jianlei Associate Researcher of the Institutes of Science andDevelopment, Chinese Academy of Sciences.

Chen Jinxiao Associate Researcher of the Institute of Quantitative &Technical Economics, Chinese Academy of SocialSciences.

Liu Bing President of Shanghai AILNG Energy Technology Co.,Ltd.

Zhang Wenqiang Manager of IoT, Shanghai AILNG Energy TechnologyCo., Ltd.

Li Zhenyu Senior Engineer of the Petrochemical Research Institute,CNPC.

Xing Lu China National Petroleum Corporation (CNPC).Zhang Jun State Grid Energy Research Institute Co., Ltd.Huang Bibin State Grid Energy Research Institute Co., Ltd.Tu Junming Strategic Investment and Business Management, China

National Travel Service Group Corporation Limited[China Travel Service (Holdings) Hong Kong Limited].

Kang Xiaowan Energy Research Institute of the National Developmentand Reform Commission.

Huang Yanghua Associate Researcher of the Institute of IndustrialEconomics of the Chinese Academy of Social Sciences.

Feng Yujia Ph.D. candidate of the School of Economics andManagement, Tsinghua University.

Fan Jingli Ph.D. candidate of China University of Mining andTechnology.

Wu Lin Ph.D. candidate of China University of Mining andTechnology.

Wang Yuqing Ph.D. candidate of North China Electric Power Univer-sity.

Long Zhuhan Master’s degree candidate of North China ElectricPower University.

Gu Lin Researcher of the Liaowang Institute.Meng Yiming Ph.D. candidate of the Graduate School of Chinese

Academy of Social Sciences.

xiv Acknowledgements

Shell Project Team Members

Wang Wei Vice President Government Affairs and BusinessSupport, Shell Companies in China.

Angus Gillespie Former Vice President Group CO2, Shell GlobalSolutions.

Nie Shangyou Business Development Manager, Shell Exploration andProduction Company.

Martin Haigh Senior Energy and Climate Change Advisor, ShellInternational B.V.

Nigel Dickens Economics and Analysis Manager—New Fuels, ShellInternational Petroleum Company Ltd.

Peter Webb Government Relations Advisor, Shell International B.V.Gu Jing Former General Manager Coal-to-Gas Business Devel-

opment Technology, Shell China Ltd.Ren Xianfang Gas Strategy and Portfolio Manager, Shell China Ltd.Su Wu General Manager New Ventures Development, Shell

China Exploration and Production Company Ltd.Yuan Yuan Shell China Downstream LNG Business Lead, Shell

China Ltd.Fu Xiao Chemical Research Engineer of Shell Projects &

Technology.Tobias Chen Energy Transition Manager, Shell China Ltd.Cameron Hepburn Project Director, Vivid Economics Ltd.Philip Gradwell Project Manager of Vivid Economics Ltd.Thomas Nielsen Project Manager, Vivid Economics Ltd.Rob Bailey Head of the Department of Energy, Resources and

Environment, Chatham House.Felix Preston Project Officer, Chatham House.Daniel Quiggin Researcher, Chatham House.Wang Yunshi Professor, University of California Davis.

Acknowledgements xv

Contents

Overview: High-Quality Energy for High-Quality Growth:China’s Energy Revolution in the New Era . . . . . . . . . . . . . . . . . . 1Xu Zhaoyuan and Mallika Ishwaran

Special Report 1: A Study of China’s Energy SupplyRevolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41Wang Xiaoming, Nie Shangyou and Wang Yunshi

Special Report 2: Research on China’s Energy DemandRevolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213Yang Jianlong and Martin Haigh

Special Report 3: A Study of China’s TechnologyRevolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287Song Zifeng and Nigel Dickens

Special Report 4: China’s Energy System Revolution . . . . . . . . . . 393Shi Yaodong and Angus Gillespie

Special Report 5: International Energy Cooperationand Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 591Wei Jigang and Peter Webb

xvii

List of Figures

Overview: High-Quality Energy for High-Quality Growth:China’s Energy Revolution in the New Era

Fig. 1 Countries go through energy transition as they develop . . . 2Fig. 2 Energy transition paths of various countries. . . . . . . . . . . . . 3Fig. 3 There have been four global transitions in energy supply

since 1800 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Fig. 4 The cost of many clean energy technologies is declining

rapidly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Fig. 5 Industry 4.0 will have a significant impact

on energy demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Fig. 6 Changes in the energy systems of G7 countries . . . . . . . . . . 6Fig. 7 Energy consumption and CO2 emissions per unit of GDP

are declining globally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Fig. 8 Electrification in the transport sector is accelerating. . . . . . . 7Fig. 9 Electrification increases with income . . . . . . . . . . . . . . . . . . 7Fig. 10 Carbon pricing is accelerating globally . . . . . . . . . . . . . . . . 8Fig. 11 Low- and middle-income countries can leapfrog

the historical patterns of energy consumptionof high-income countries . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Fig. 12 Evolution pathways of China’s energy consumptionper unit of GDP in two scenarios. . . . . . . . . . . . . . . . . . . . . 11

Fig. 13 Comparison of energy cost per unit of GDP betweenChina and several major countries . . . . . . . . . . . . . . . . . . . . 12

Fig. 14 The drivers behind energy revolution: four pillarsand international cooperation . . . . . . . . . . . . . . . . . . . . . . . . 13

Fig. 15 The four intensifiers for transition act together. . . . . . . . . . . 14Fig. 16 Private economics and the public good have strong

positive feedback loops between them . . . . . . . . . . . . . . . . . 15Fig. 17 Policy plays a crucial role in driving energy transition . . . . . . . 16Fig. 18 Forecast of China’s end-use energy consumption

in agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Fig. 19 China’s total vehicle energy demand in two EV

development scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Fig. 20 China’s electrification rate growth potential . . . . . . . . . . . . . 20

xix

Fig. 21 Changes in China’s end-use energy mixin the Recommended scenario . . . . . . . . . . . . . . . . . . . . . . . 22

Fig. 22 Changes in China’s primary energy mixin the Recommended scenario . . . . . . . . . . . . . . . . . . . . . . . 23

Fig. 23 China’s carbon trading market system . . . . . . . . . . . . . . . . . 31Fig. 24 Influence of carbon pricing and non-fossil energy

subsidies on total energy consumption and theenergy mix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Special Report 1: A Study of China’s Energy Supply Revolution

Fig. 1 Structural shifts will alter the business strategiesand organisational structure of oil and gas companies . . . . . 52

Fig. 2 Megaprojects, and the pyramid organisational structurethat facilitates them, have been motivatedby historical trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Fig. 3 The trends of the oil and gas industry will likely resultin significantly tighter margins for producers . . . . . . . . . . . . 54

Fig. 4 The fall of oil prices in late 2014 coincided with sharpdrops in the share price of major oil companies. . . . . . . . . . 54

Fig. 5 New tight oil sources have pushed total US oilproduction to heights that exceeded forecasts. . . . . . . . . . . . 55

Fig. 6 Primary demand for oil and gas falls sharply underthe IEA’s 2-degree scenario (2DS), presenting achallenge to the oil and gas sector . . . . . . . . . . . . . . . . . . . . 56

Fig. 7 R&D is shifting towards new areas, increasingthe potential for disruptive technologies to emerge . . . . . . . 56

Fig. 8 Investment in smaller projects has been greaterthan investment in megaprojects since 2009 . . . . . . . . . . . . 57

Fig. 9 We study archetypical responses in comparable sectorsto understand how oil and gas might change . . . . . . . . . . . . 58

Fig. 10 Structural shifts lead to changes in business strategy, whichin turn lead to changes in organisational structure—but theexact changes depend on motive and context . . . . . . . . . . . . . 58

Fig. 11 USPS remained under government control with atop-down regional structure that helped promoteefficiency in a large operation . . . . . . . . . . . . . . . . . . . . . . . 61

Fig. 12 Royal Mail was separated from the Post Office andprivatised to facilitate intense cost-cutting . . . . . . . . . . . . . . 62

Fig. 13 Deutsche Post imposed a flatter organisational structureand central service divisions to maximise synergies. . . . . . . 63

Fig. 14 Once Innogy was separated from RWE it adopted aconsumer-focused structure, aligning its divisions withareas of the value chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Fig. 15 DONG Energy reframed its organisational structureand applied it to offshore wind . . . . . . . . . . . . . . . . . . . . . . 66

xx List of Figuresxx

Fig. 16 Motive and context will determine how Chinese oiland gas companies strategically respond to lower pricesand new technology disruptions . . . . . . . . . . . . . . . . . . . . . . 67

Fig. 17 Motive and context are not set in stone but controlledby stakeholders—the Chinese government can thereforeshape outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Fig. 18 Total mail volume did not begin to fall consistently untilafter 2006, although first-class mail volumes have beenfalling since 2001. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Fig. 19 USPS has suffered huge losses and depressed profitssince 2006, illustrating the dangers of inaction . . . . . . . . . . 73

Fig. 20 Royal Mail letter volumes peaked in 2004,but experienced sharp falls after 2007 . . . . . . . . . . . . . . . . . 74

Fig. 21 Privatisation in 2013 led to a return to profitability,despite a continuous decline in letter volumes . . . . . . . . . . . 75

Fig. 22 The decline in Germany’s postal market beganin 2008, later than in the USA and the UK . . . . . . . . . . . . . 77

Fig. 23 Since the early 2000s, Deutsche Post’s revenue hascome from several areas; total revenue has not beenappreciably reduced by declining domesticletter volumes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Fig. 24 The institutional framework of the Chinese electricitysector comprises several organisations with overlappingresponsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Fig. 25 Electricity networks transport electricity from generatorsto end users . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Fig. 26 Example of system balancing with network constraints . . . 86Fig. 27 The objective of an electricity market is to supply

services so that demand and supply can be balanced,while correcting market failures . . . . . . . . . . . . . . . . . . . . . . 86

Fig. 28 Future electricity grids will be shaped by two broadtrends: decarbonisation and decentralisation . . . . . . . . . . . . . 88

Fig. 29 The transmission system operator (TSO) andindependent system operator (ISO) are the two maininstitutional models for system ownershipand operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Fig. 30 Several countries shifted to the TSO and ISO modelswhen they liberalised their electricity markets . . . . . . . . . . . 90

Fig. 31 Under the RPI-X mechanism, the TSO takes measuresto decrease its costs because it retains revenue from costsavings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

Fig. 32 Nodal pricing reflects the cost of supplying additionalelectricity at a given node . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Fig. 33 UK offshore wind farm zones identifiedfor the development of renewable energy. . . . . . . . . . . . . . . 97

Fig. 34 There are several possible models for coordinatingdistributed energy resources . . . . . . . . . . . . . . . . . . . . . . . . . 99

List of Figures xxixxi

Fig. 35 A coordinated approach can ensure efficient investmentin electricity system resources . . . . . . . . . . . . . . . . . . . . . . . 101

Fig. 36 A microgrid contains generation and flexible resources,as well as sources of electricity demand. . . . . . . . . . . . . . . . 103

Fig. 37 Structure of the Chinese electricity system. . . . . . . . . . . . . . 105Fig. 38 The US transmission system is segmented into several

regional transmission networks . . . . . . . . . . . . . . . . . . . . . . 108Fig. 39 Structure of FERC’s standard market design . . . . . . . . . . . . 109Fig. 40 Structure of PJM’s electricity system . . . . . . . . . . . . . . . . . . 113Fig. 41 Structure of the Great Britain electricity system. . . . . . . . . . 114Fig. 42 Structure of the German electricity system. . . . . . . . . . . . . . 118Fig. 43 Structure of the Australian electricity system . . . . . . . . . . . . 121Fig. 44 Forecast trend of China’s total population

and population aging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132Fig. 45 Comparison of residential floor space per person

in selected countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133Fig. 46 China’s floor space predictions . . . . . . . . . . . . . . . . . . . . . . 134Fig. 47 Trends in China’s major manufacturing sectors . . . . . . . . . . 135Fig. 48 Energy consumption in Chinese agriculture . . . . . . . . . . . . . 136Fig. 49 Energy consumption in industry and buildings. . . . . . . . . . . 137Fig. 50 China’s energy consumption in transport . . . . . . . . . . . . . . . 138Fig. 51 China’s energy consumption in the service sector . . . . . . . . 138Fig. 52 China’s energy consumption by households. . . . . . . . . . . . . 139Fig. 53 China’s overall energy use by sector and type . . . . . . . . . . . 140Fig. 54 China’s use of scattered coal by sector in 2015 . . . . . . . . . . 141Fig. 55 China’s scattered coal consumption in three SEGFSC

scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141Fig. 56 China’s total energy use by vehicles in two EV

development scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143Fig. 57 China’s total power consumption in three scenarios. . . . . . . 146Fig. 58 China’s total primary energy demand and share

of non-fossil energy in three scenarios . . . . . . . . . . . . . . . . . 147Fig. 59 China’s primary energy supply system in the

Recommended scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165Fig. 60 China’s end-user energy system in the Recommended

scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166Fig. 61 Employment trend in the energy industry

in the Recommended scenario (in 100,000) . . . . . . . . . . . . . 173Fig. 62 Channels to address surplus worker reemployment . . . . . . . 179Fig. 63 Energy consumption (Reference case) in quadrillion

British thermal units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180Fig. 64 Energy production (Reference case) in quadrillion

British thermal units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181Fig. 65 Renewable electricity generation (Reference case)

in billion kilowatt-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182Fig. 66 Energy-related CO2 emissions in billion metric tonnes

of CO2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

xxii List of Figuresxxii

Fig. 67 U.S. DOE Mid-Century Strategy scenario, electricityand transport energy projections. . . . . . . . . . . . . . . . . . . . . . 183

Fig. 68 Growing oil demand in emerging economies . . . . . . . . . . . . 183Fig. 69 Renewables share of power generation and by region . . . . . 184Fig. 70 Renewables growth is driven by increasing

competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185Fig. 71 Electric vehicle sales projections . . . . . . . . . . . . . . . . . . . . . 185Fig. 72 CO2 emissions for GDP/per capita for

different countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186Fig. 73 Levelised cost projections by technology, 2022

(in 2016 $ per megawatt-hour). . . . . . . . . . . . . . . . . . . . . . . 186Fig. 74 Building sector on-site generating capacity

in gigawatts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187Fig. 75 Projected sales of new light-duty electric vehicles

in thousands of vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187Fig. 76 Projected stock of electric vehicles. . . . . . . . . . . . . . . . . . . . 188Fig. 77 Norway is one of the largest producers of hydrocarbons,

yet consumes green energy and is a leader in dealingwith climate change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191

Fig. 78 The most recent example of Norway’s commitment todecarbonisation is its reduction of transport emissions,driven by an unrivalled uptake of fully battery-poweredelectric vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192

Fig. 79 Denmark is a world leader in integrating offshore windinto its electricity system . . . . . . . . . . . . . . . . . . . . . . . . . . . 192

Fig. 80 Interconnectors with neighbouring countries provideenergy security supply while reducing the need forinvestment in energy storage facilities . . . . . . . . . . . . . . . . . 194

Fig. 81 Technological advances and government initiatives havemade electric vehicles ever more attractive sincethe 1990s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

Fig. 82 Norway’s policies made EVs price-competitive withconventional internal combustion engine vehicles, whichare heavily taxed in Norway . . . . . . . . . . . . . . . . . . . . . . . . 195

Fig. 83 Falling battery costs reduce the need for subsidies, whichincreases demand as batteries make up one-thirdof EV costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196

Fig. 84 Uptake of EVs has reduced carbon emissions becauseNorway has a low-carbon, hydropower-based electricitysystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197

Fig. 85 Norwegian policies have unequally favoured cities,where EVs are more practical and in-kind subsidies aremore valuable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197

Fig. 86 Denmark’s wind transition has been financed by taxingenergy, but is supported by security concerns and apro-climate movement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198

List of Figures xxiiixxiii

Fig. 87 The tax burden has been uneven, with residentialconsumers and small and medium-sized businessespaying a higher price than industrial consumers. . . . . . . . . . 198

Fig. 88 Energy taxes do not align with carbon costs acrosssectors and energy carriers . . . . . . . . . . . . . . . . . . . . . . . . . . 199

Fig. 89 Public willingness to participate in the transition remainshigh, despite expensive and inefficient energy taxes. . . . . . . 199

Fig. 90 Car tax revenues could fall by up to 50% by 2025 if allnew vehicles are zero emission and current subsidies arecontinued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201

Fig. 91 Oil and gas revenues have enabled high levels ofgovernment spending and reduced dependence on taxes . . . 201

Fig. 92 Resource rents have been collected mostly by taxingEquinor and IOCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203

Fig. 93 Government grants and subsidies have given windenergy producers the financial support they neededto flourish. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203

Fig. 94 Government subsidies have supported Danish companiesto become leaders in the manufacture and deploymentof offshore wind. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204

Fig. 95 DONG Energy illustrates how a conventional national oilcompany can be transformed into a renewable energyservices company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204

Fig. 96 Government support, together with favourablegeographic and investment conditions, enabled DONG’stransformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205

Fig. 97 Wind power growth is enabled by utilities enhancing theoperational flexibility of conventional power plants . . . . . . . 205

Fig. 98 CHP plants are incentivised to produce only heat whenelectricity prices are low, providing greater flexibility forwind integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206

Fig. 99 eV demand has not translated into Norwegianmanufacturing jobs, but China already has an automotiveindustry to take advantage of . . . . . . . . . . . . . . . . . . . . . . . . 207

Fig. 100 Oil and gas employment is falling and is expectedto continue to do so . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

Fig. 101 Denmark’s early adoption of offshore wind has made itsdomestic industry globally competitive, creatingmore jobs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208

Fig. 102 The development of wind energy has created sustainableand high-value jobs in Denmark . . . . . . . . . . . . . . . . . . . . . 208

Fig. 103 Wind jobs are concentrated in less-affluentrural areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

Fig. 104 The Port of Esbjerg has been dynamic in exploringsynergies between conventional and renewable energysystems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

xxiv List of Figuresxxiv

Fig. 105 Norway’s oil and gas production is projected to be stableuntil 2020; longer-term forecasts are conditional onclimate change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

Fig. 106 DONG Energy’s average return on capital (ROC) hasbeen higher than the average ROC in oil and gas over thepast 10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210

Fig. 107 Improving the operational flexibility of conventionalpower plants has been in focus for 20 yearsin Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210

Fig. 108 Denmark’s oil production is projected to continueto decline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211

Special Report 2: Research on China’s Energy Demand Revolution

Fig. 1 No need for energy demand growth in quantity whenGDP per capita reaches a moderately prosperous level . . . . 214

Fig. 2 Predictions of US energy demand . . . . . . . . . . . . . . . . . . . . 215Fig. 3 Changes in China’s 2030 energy demand . . . . . . . . . . . . . . 216Fig. 4 Not all sectors can see improvement in both

the flexibility and cleanliness of energy carriers. . . . . . . . . . 216Fig. 5 Comparison of China’s transport model with

international experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219Fig. 6 Higher population density can restrict transport service

demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219Fig. 7 China’s steel demand exceeds that of most countries . . . . . . 220Fig. 8 Physical capital investment is a key factor in China’s

industrial energy demand pathway . . . . . . . . . . . . . . . . . . . . 220Fig. 9 China’s current building energy service demand is

consistent with international experience . . . . . . . . . . . . . . . . 221Fig. 10 China’s meat consumption is consistent with

international experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222Fig. 11 Urbanisation and accompanying cold-storage supply

chains are two key drivers of meat consumption . . . . . . . . . 222Fig. 12 Demand for key services develops differently with

economic growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223Fig. 13 Rising income can drive improvements in fuel quality

when there are no trade-offs. . . . . . . . . . . . . . . . . . . . . . . . . 226Fig. 14 Electric transport is less flexible than internal combustion

engines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227Fig. 15 China’s average home size indicates higher

population density . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228Fig. 16 Block diagram of the optimal 3E integrated system

model for growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230Fig. 17 Relationship between energy structure and technical

substitution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235Fig. 18 China’s macroeconomic development in the Baseline

scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

List of Figures xxvxxv

Fig. 19 Cross-study comparison of China’s economicexpectations by 2050 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

Fig. 20 Energy demand and carbon emissions path in theBaseline scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237

Fig. 21 Energy structure in the Moderate scenario . . . . . . . . . . . . . . 238Fig. 22 Energy technology share path in the Moderate

scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238Fig. 23 Impact of different incentive polices on the evolution of

energy technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239Fig. 24 Impact of non-fossil energy technology on

carbon emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240Fig. 25 The relationship between policy optimisation

and peak carbon emissions. . . . . . . . . . . . . . . . . . . . . . . . . . 242Fig. 26 The relationship between policy optimisation

and the non-fossil energy development goal . . . . . . . . . . . . 242Fig. 27 The relationship between the peak carbon emission

and non-fossil energy development goals . . . . . . . . . . . . . . . 243Fig. 28 Impact of policy choice on China’s macroeconomy under

the energy and climate policy goals . . . . . . . . . . . . . . . . . . . 244Fig. 29 Evolution of China’s total coal consumption . . . . . . . . . . . . 245Fig. 30 Price movements in the coal market of major countries

and regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246Fig. 31 Evolution of China’s oil consumption and dependence

on oil imports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246Fig. 32 Crude oil spot prices in major countries and regions . . . . . . 247Fig. 33 Development paths for installed capacity of renewable

energy in China and the world. . . . . . . . . . . . . . . . . . . . . . . 248Fig. 34 Evolution of solar PV and wind power generation costs

(LCOE) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249Fig. 35 Evolution of wind and solar power consumption

in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250Fig. 36 Price trends in China’s seven pilot carbon markets . . . . . . . 252Fig. 37 Evolution of fossil energy prices in three scenarios . . . . . . . 253Fig. 38 Evolution of total energy demand, energy mix and

energy intensity for different fossil energy price paths . . . . . 254Fig. 39 Total energy demand, energy mix and energy intensity

in different non-fossil energy technologyevolution scenarios. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256

Fig. 40 The effects of carbon pricing and non-fossil energysubsidies on total energy demand and the energy mix . . . . . 257

Fig. 41 Evolution of China’s future carbon emissions intensity indifferent policy scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . 258

Fig. 42 Evolution of China’s future carbon emission paths indifferent policy scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . 258

xxvi List of Figuresxxvi

Fig. 43 Evolution of China’s non-fossil energy development indifferent policy scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . 259

Fig. 44 China’s coal consumption in 2014 . . . . . . . . . . . . . . . . . . . . 266Fig. 45 China’s annual coal consumption, trend and forecast . . . . . . 267Fig. 46 China’s production and consumption of oil and major oil

products, 2000–15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270Fig. 47 China’s oil consumption growth rate . . . . . . . . . . . . . . . . . . 270Fig. 48 China’s natural gas consumption in 2014. . . . . . . . . . . . . . . 274Fig. 49 China’s natural gas consumption, 2001–30 . . . . . . . . . . . . . 274Fig. 50 Electrification rates tend to increase with income, with

China achieving rapid electrification over a short periodof time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278

Fig. 51 Technological progress has historically been the mostimportant driver of electrification . . . . . . . . . . . . . . . . . . . . . 278

Fig. 52 Sectors have different power intensities, which areexpected to increase over time with new technologyand higher incomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279

Fig. 53 Structural change tends to shift activity to lesspower-intensive sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280

Fig. 54 Country-specific characteristics affect the potentialfor electrification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280

Fig. 55 Income effect on electrification . . . . . . . . . . . . . . . . . . . . . . 281Fig. 56 China’s electrification rate could increase

from 23 to 32% by 2050 . . . . . . . . . . . . . . . . . . . . . . . . . . . 281Fig. 57 The share of passenger electric vehicles is expected to be

more than 60% by 2050, due to falling battery costs . . . . . . 282Fig. 58 Several decarbonisation scenarios suggest up to

two-thirds of energy demand in OECD buildings couldbe electrified by 2050 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

Fig. 59 Less than a third of OECD industry energy demand willbe electrified in 2050, according to the IEA Beyond 2°CScenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

Fig. 60 China’s electrification rate could rise to 32% by 2050given macroeconomic drivers, or to 40–48% givendecarbonisation drivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284

Special Report 3: A Study of China’s Technology Revolution

Fig. 1 Technology innovation can have long lead times. . . . . . . . . 291Fig. 2 Small-capacity investments . . . . . . . . . . . . . . . . . . . . . . . . . 294Fig. 3 Four stages of innovation pathway. . . . . . . . . . . . . . . . . . . . 295Fig. 4 Innovations can be assessed on their final outcome . . . . . . . 298Fig. 5 Denmark successfully delivered innovation

in wind power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299Fig. 6 Germany eventually successfully deployed

wind capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299Fig. 7 Synfuels in the USA ended as a slow failure . . . . . . . . . . . . 300

List of Figures xxviixxvii

Fig. 8 Changes in total energy consumption of OECDand non-OECD countries (1965–2016) . . . . . . . . . . . . . . . . 306

Fig. 9 World energy consumption in three economic growthcases (2015, 2030 and 2040) . . . . . . . . . . . . . . . . . . . . . . . . 306

Fig. 10 Energy consumption by region. . . . . . . . . . . . . . . . . . . . . . . 306Fig. 11 World energy consumption by industry . . . . . . . . . . . . . . . . 307Fig. 12 UtilityCo’s home energy report provides

energy-efficiency comparisons between households . . . . . . . 310Fig. 13 Global economic growth versus energy consumption

(1965–2015). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311Fig. 14 Energy intensity, per capita GDP and population growth

in selected regions (2015–40). . . . . . . . . . . . . . . . . . . . . . . . 311Fig. 15 Growth in GDP and primary energy (2015–35) . . . . . . . . . . 312Fig. 16 UK history demonstrates that new technology can trigger

revolutionary energy system change. . . . . . . . . . . . . . . . . . . 314Fig. 17 Major energy technologies must develop through the

three stages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314Fig. 18 Definition of revolutionary energy technology . . . . . . . . . . . 316Fig. 19 The lag from citations to deployment of a technology . . . . . 317Fig. 20 Hype does not translate into R&D and deployment

of new technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317Fig. 21 Technology requires alignment of supply, demand and

markets if it is to change energy systems. . . . . . . . . . . . . . . 319Fig. 22 US tight gas illustrates how the sequencing of supply,

demand, markets and technology determines whenrevolutionary change is triggered . . . . . . . . . . . . . . . . . . . . . 320

Fig. 23 G7 energy systems have been stable in the pastfour decades. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320

Fig. 24 Recent G7 energy revolutions have mainly occurredupstream. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321

Fig. 25 Most G20 energy revolutions are not drivenby technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321

Fig. 26 Revolutionary technologies tend to rely on large stateinvestments and/or require incrementalnetwork investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322

Fig. 27 Conventional power grid . . . . . . . . . . . . . . . . . . . . . . . . . . . 324Fig. 28 Future smart grid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324Fig. 29 Pan-European power system 2050 . . . . . . . . . . . . . . . . . . . . 326Fig. 30 Japan’s smart grid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326Fig. 31 Typical AMI architecture . . . . . . . . . . . . . . . . . . . . . . . . . . . 328Fig. 32 Configuration and functions of advanced distribution

automation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328Fig. 33 Microgrid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329

xxviii List of Figuresxxviii

Fig. 34 Demand response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331Fig. 35 Vehicle-to-grid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332Fig. 36 CO2 reduction after deployment of AMI . . . . . . . . . . . . . . . 333Fig. 37 Reduction of air pollutants after deployment of AMI. . . . . . 333Fig. 38 Monthly increase/reduction of CO2 emissions

with SMART Shift, SMART Shift Plus andSMART Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334

Fig. 39 Monthly increase/reduction of SOx, NOx and PM2.5with SMART Shift, SMART Shift Plus and SMARTChoice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335

Fig. 40 Architecture of Sino-Singapore Tianjin Eco-City SmartGrid demonstration project. . . . . . . . . . . . . . . . . . . . . . . . . . 336

Fig. 41 Sino-Singapore Tianjin Eco-City Smart Griddemonstration project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337

Fig. 42 Belo Monte UHV DC project, Brazil . . . . . . . . . . . . . . . . . . 357Fig. 43 Annual installed capacity and output of nuclear power . . . . 367Fig. 44 Gas output in the USA by product, 2007–15 . . . . . . . . . . . . 378Fig. 45 Comparison of prediction data of China’s recoverable

shale gas reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381

Special Report 4: China’s Energy System Revolution

Fig. 1 Share of oil, natural gas and coal in globalenergy production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395

Fig. 2 Global primary energy production . . . . . . . . . . . . . . . . . . . . 395Fig. 3 Share of global primary energy demand. . . . . . . . . . . . . . . . 396Fig. 4 Global primary energy demand . . . . . . . . . . . . . . . . . . . . . . 396Fig. 5 Global oil demand and supply in 2035 . . . . . . . . . . . . . . . . 396Fig. 6 Energy consumption in OECD and

non-OECD countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397Fig. 7 Natural gas production in the USA (trillion cubic feet) . . . . 398Fig. 8 Distribution of basins with shale oil and gas resources

across the world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399Fig. 9 Price of imported natural gas ($/MMBtu) . . . . . . . . . . . . . . 401Fig. 10 Global monthly mean CO2 concentration . . . . . . . . . . . . . . . 403Fig. 11 Global CO2 emissions from fossil fuels . . . . . . . . . . . . . . . . 403Fig. 12 GDP, energy consumption and CO2 emissions . . . . . . . . . . 404Fig. 13 Change in global average temperature, sea level

and snow-cover in the northern hemisphere . . . . . . . . . . . . . 405Fig. 14 Total energy consumption and share of various energy

sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413Fig. 15 China’s primary energy production and share

of various energy sources. . . . . . . . . . . . . . . . . . . . . . . . . . . 415

List of Figures xxixxxix

Fig. 16 The evolution of power market policy focus, measuresand outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 490

Fig. 17 Progress towards efficient power market structures . . . . . . . 492Fig. 18 Progress towards carbon pricing and market competition

between fuel sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493Fig. 19 Progress towards efficient management

of the power grid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493Fig. 20 Efficient power market structures and policies for a net

zero emissions world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495Fig. 21 The power system comprises three markets, which

can be managed through central control or marketmechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496

Fig. 22 Most countries are slowly moving from central to marketmechanisms; this is expected to accelerate withdecarbonisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 497

Fig. 23 Market power is mainly managed through regulation,rather than incentives, especially the power grid . . . . . . . . . 497

Fig. 24 Decarbonisation in most countries is driven by centralcontrol, rather than by market mechanisms . . . . . . . . . . . . . 498

Fig. 25 Targets and tasks of the new round of powersystem reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 503

Fig. 26 Competition in the power market beforeand after reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504

Fig. 27 The gains from better climate policy will grow over time,as low-cost mitigation is exhausted and more mitigationis required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522

Fig. 28 Achieving cost-effective abatement makes some policyobjectives easier, but may require trade-offs with others . . . 523

Fig. 29 The social objectives frontier represents all potentiallyoptimal outcomes based on societies’ preferencesregarding two objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . 524

Fig. 30 An effective carbon price will be both efficientand robust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 525

Fig. 31 The transition trap explains how a carbon market maybecome stuck in an ineffective equilibrium . . . . . . . . . . . . . 526

Fig. 32 Carbon markets have experienced persistentlylow prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 526

Fig. 33 Targets and coverage decisions largely determineETS caps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 527

Fig. 34 Projections of continued growth in energy use may haveresulted in the adoption of a weaker target in the EU . . . . . 528

Fig. 35 EU ETS grandparenting contributed to overallocation,which lowered prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529

Fig. 36 The manner of assistance provided to companiesdetermines the mitigation possibilities available . . . . . . . . . . 530

Fig. 37 Differentiated and declining assistance in the AustralianETS signalled transition to auctions . . . . . . . . . . . . . . . . . . . 531

xxx List of Figuresxxx

Fig. 38 Coverage decisions and the level of cost pass-throughdetermine the mitigation options available . . . . . . . . . . . . . . 531

Fig. 39 When coverage or cost pass-through is limited, any giventarget will require more costly abatement. . . . . . . . . . . . . . . 532

Fig. 40 The decision of RGGI member states to limit coverage tothe power sector exaggerated the impacts of theunconventional gas technology shock . . . . . . . . . . . . . . . . . 533

Fig. 41 Production shock concentrated in EU ETS sectorsexaggerated the impact of the EU recession on demandfor emission units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533

Fig. 42 Banking ensured prices remained positive despiteoversupply in the EU ETS . . . . . . . . . . . . . . . . . . . . . . . . . . 534

Fig. 43 Volatility in country emissions can be stabilised bylinking markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535

Fig. 44 Compliance rules determine relative prices . . . . . . . . . . . . . 536Fig. 45 Soft price floors and ceilings may result in prices

deviating outside their target range . . . . . . . . . . . . . . . . . . . 537Fig. 46 California’s auction reserve price has limited falls in the

carbon price, but also reduced revenues . . . . . . . . . . . . . . . . 537Fig. 47 The EU’s market stability reserve adjusts the quantity of

units in the market in response to over- or undersupply . . . 538Fig. 48 As markets mature and participation increases, trading

tends to move to secondary exchanges. . . . . . . . . . . . . . . . . 539Fig. 49 The growth of futures markets provides new

opportunities for risk management and improves pricediscovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539

Fig. 50 The design of the EU registry system has become morecentralised, and has developed to facilitate thedevelopment of exchange trading platforms . . . . . . . . . . . . . 540

Fig. 51 The efficiency of climate policy is affected by theinteraction of carbon pricing with complementary,overlapping and countervailing policies . . . . . . . . . . . . . . . . 541

Fig. 52 Labels may have helped improve consumer choice ofrefrigerators in Australia. . . . . . . . . . . . . . . . . . . . . . . . . . . . 541

Fig. 53 Energy efficiency standards in the USA have reducedenergy use at a low cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . 542

Fig. 54 California’s low-carbon fuel certificates duplicate carbonprice incentives, with their high price reducing bothdemand and price in the carbon market . . . . . . . . . . . . . . . . 543

Fig. 55 Many countries retain expensive fossil fuel subsidies thatcounteract the goals of their carbon markets . . . . . . . . . . . . 543

Fig. 56 Evolutionary and revolutionary change differ in theirrate, level and type of impact. . . . . . . . . . . . . . . . . . . . . . . . 544

Fig. 57 The appropriate approach to policy change should bebased on the rate and level of change required, the

List of Figures xxxixxxi

certainty of impacts, and the political and institutionalfeasibility of the change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 545

Fig. 58 The choice between evolutionary and revolutionarychange is context-dependent. . . . . . . . . . . . . . . . . . . . . . . . . 545

Fig. 59 Evolutionary and revolutionary change can differ withregard to all aspects of scheme design . . . . . . . . . . . . . . . . . 546

Fig. 60 Sequencing of evolutionary and revolutionaryapproaches to creating carbon units . . . . . . . . . . . . . . . . . . . 547

Fig. 61 Sequencing of evolutionary and revolutionaryapproaches to distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 548

Fig. 62 Sequencing evolutionary and revolutionary approachesto governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 550

Fig. 63 Example of system balancing with network constraints . . . 559Fig. 64 Future electricity grids will be shaped by two broad

trends: decarbonisation and decentralisation . . . . . . . . . . . . . 561Fig. 65 The transmission system operator (TSO) and

independent system operator (ISO) are the two mainalternative institutional models for system ownership andoperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563

Fig. 66 Several countries shifted to the TSO and ISO models asthey liberalised their electricity markets . . . . . . . . . . . . . . . . 564

Fig. 67 Under the RPI-X mechanism, the TSO takes measures todecrease its costs because it retains revenues from costsavings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 565

Fig. 68 Nodal pricing reflects the cost of supplying additionalelectricity at a given node . . . . . . . . . . . . . . . . . . . . . . . . . . 568

Fig. 69 UK offshore wind farm zones identified for developmentof renewable energy capacity . . . . . . . . . . . . . . . . . . . . . . . . 571

Fig. 70 There are several possible models for coordinatingdistributed energy resources . . . . . . . . . . . . . . . . . . . . . . . . . 573

Fig. 71 A coordinated approach can ensure efficient investmentin electricity system resources . . . . . . . . . . . . . . . . . . . . . . . 575

Fig. 72 A microgrid contains generation and flexible resources,as well as sources of electricity demand. . . . . . . . . . . . . . . . 577

Special Report 5: International Energy Cooperation and Governance

Fig. 1 Strategic path for international energy cooperation. . . . . . . . 594Fig. 2 The two key variables within which China’s future

strategic international actions should be considered . . . . . . . 602Fig. 3 Cumulative number of climate laws passed in

159 countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 604Fig. 4 Global primary energy consumption by fuel type,

1850–2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 606Fig. 5 Share of global fossil fuel consumption growth by

country, 2000–15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 606Fig. 6 Global energy mix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 607Fig. 7 Global electricity generation. . . . . . . . . . . . . . . . . . . . . . . . . 608

xxxii List of Figuresxxxii

Fig. 8 Global energy accumulated capex in the energy industry,2012–35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 608

Fig. 9 Selected international energy and governancemembership organisations and their respective primaryenergy consumption and production shareof global totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 610

Fig. 10 G20 initiatives on energy . . . . . . . . . . . . . . . . . . . . . . . . . . . 611Fig. 11 G20 share of primary energy demand

and production (2013) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 611Fig. 12 Reserves and current production (2015) . . . . . . . . . . . . . . . . 612Fig. 13 Liquefied natural gas (LNG) demand by region . . . . . . . . . . 613Fig. 14 Levelised cost of electricity (LCOE) of various

generators—global, historical, Chinese andUS forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 614

Fig. 15 Global primary energy consumption . . . . . . . . . . . . . . . . . . 615Fig. 16 Global power generation by source . . . . . . . . . . . . . . . . . . . 615Fig. 17 New-build capacity additions, 2001–15 . . . . . . . . . . . . . . . . 615Fig. 18 Swanson’s Law—lithium-ion EV battery experience

curve compared with solar PV experience curve . . . . . . . . . 616Fig. 19 Global commissioned energy storage by region, 2009–16

(MW) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617Fig. 20 Growth in high-voltage interconnection capacity . . . . . . . . . 618Fig. 21 Regional interconnector capacity planned and

commissioned in 2030 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618Fig. 22 Production and reserves of critical materials for

lithium-ion batteries in selected countries, 2015. . . . . . . . . . 619Fig. 23 Predicted 2050 emissions for the five key materials under

various future strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 621Fig. 24 Oil production in the USA in response to shale oil . . . . . . . 622Fig. 25 Gas production in the USA in response to shale gas . . . . . . 622Fig. 26 Crude oil displacement from electric vehicle sales . . . . . . . . 623Fig. 27 IOC natural gas production and as a share

of total production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 624Fig. 28 GCC government revenue and expenditure (per cent of

non-oil GDP, weighted average) . . . . . . . . . . . . . . . . . . . . . 624Fig. 29 Estimates for global fossil fuel consumption subsidies

and subsidies for renewables . . . . . . . . . . . . . . . . . . . . . . . . 624Fig. 30 Imperatives for a low-carbon, energy-secure transition,

alongside examples of actions that could enable thoseimperatives to be met. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 625

Fig. 31 TCFD implementation path of recommendations onclimate-related financial disclosures . . . . . . . . . . . . . . . . . . . 628

Fig. 32 Analysis of clean technology progress . . . . . . . . . . . . . . . . . 630

List of Figures xxxiiixxxiii

Fig. 33 Timeline of action plans under strategic pathway: reformthe IEA to make it more representative, effectiveand relevant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 637

Fig. 34 Timeline of action plans under the strategic pathway:harmonise global energy and climate governance tofacilitate the transition to a low-carbon, energy-securefuture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 639

Fig. 35 Investment requirement in energy, 2015–30 ($ trillion,constant 2010 dollars) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 640

Fig. 36 Global investment in energy supply by fuel. . . . . . . . . . . . . 641Fig. 37 EU ETS non-linked: energy emission leakage peaks

at 16% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 642Fig. 38 EU-China ETS linked: energy emission leakage peaks

at 8.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643Fig. 39 Estimates for global fossil-fuel consumption subsidies

and subsidies for renewables . . . . . . . . . . . . . . . . . . . . . . . . 643Fig. 40 Timeline of action plans under the strategic pathway:

collaborating with G20 states to support the developmentand adoption of FSB TCFD energy sectorrecommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 645

Fig. 41 Timeline of action plans under the strategic pathway:global phase-out of fossil fuel subsidies and establishingcarbon pricing mechanisms fit for a low-carbon,energy-secure system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 646

Fig. 42 Recommendations for incremental resource governanceimprovements by the Chatham House New PetroleumProducers Discussion Group . . . . . . . . . . . . . . . . . . . . . . . . 648

Fig. 43 Timeline of action plans under the strategic pathway:multilateral coordination of phasing down high-carbonFDI and development support, and enhancingbest practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650

Fig. 44 Timeline of action plans under the strategic pathway:cooperation strategies with developing countries, MDBsand climate finance providers to increase access to cleanenergy technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 651

Fig. 45 Timeline of action plans under the strategic pathway: theavoidance of supply-side shortages and trade disputes inthe global supply chain of critical metals and mineralsrequired for low-carbon technology deployment . . . . . . . . . 654

Fig. 46 Timeline of action plans under the strategic pathway:minimising the need for additional extraction capacity bylowering the dependency of countries on critical metalsand minerals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 654

xxxiv List of Figuresxxxiv

Fig. 47 Various forecasts of global EV fleet size as a percentageof 2016 ICE fleet size, and how those forecasts haveincreased over the past few years. . . . . . . . . . . . . . . . . . . . . 656

Fig. 48 eV peak electrical demand in the UK, depending onadoption of smart charging. . . . . . . . . . . . . . . . . . . . . . . . . . 656

Fig. 49 Timeline of action plans under the strategic pathway:regional cross-border trade of electricity . . . . . . . . . . . . . . . 658

Fig. 50 Timeline of action plans under the strategic pathway:smart EV charging and deployment of cost-effectiveelectricity storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 658

Fig. 51 Each international energy cooperation and governanceopportunity placed within the spectrum of unilateral tomultilateral and policy-led to market-led approaches . . . . . . 661

Fig. 52 China’s strategic vision of future international energycooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 670

List of Figures xxxvxxxv

List of Tables

Overview: High-Quality Energy for High-Quality Growth:China’s Energy Revolution in the New Era

Table 1 Two EV development scenarios . . . . . . . . . . . . . . . . . . . . . 19

Special Report 1: A Study of China’s Energy SupplyRevolution

Table 1 Differences in motive and context can lead to a rangeof organisational and strategic responses. . . . . . . . . . . . . . . 60

Table 2 There have been diverging responses among utilitycompanies in response to a similar trend. . . . . . . . . . . . . . . 63

Table 3 Summary of network arrangements in China . . . . . . . . . . . 107Table 4 Summary of network arrangements in the USA . . . . . . . . . 110Table 5 Summary of network arrangements in PJM . . . . . . . . . . . . 112Table 6 Summary of network arrangements in Great Britain . . . . . . 117Table 7 Summary of network arrangements in Germany . . . . . . . . . 120Table 8 Summary of network arrangements in Australia . . . . . . . . . 124Table 9 Total energy consumption and energy consumption

structure, 2000–15. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126Table 10 Electricity and natural gas demand in three SEGFSC

scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142Table 11 Two EV development scenarios . . . . . . . . . . . . . . . . . . . . . 142Table 12 Comparison of China’s future end-use energy

demand in four different scenarios (Mtce). . . . . . . . . . . . . . 144Table 13 Output of power generation types in the Recommended

scenario (GWh). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145Table 14 Installed capacity of power generation types

in the Recommended scenario (GW). . . . . . . . . . . . . . . . . . 145Table 15 Total primary energy demand in the Recommended

scenario. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146Table 16 China’s fossil energy demand and capacity forecasts . . . . . 148Table 17 Fossil energy capacity changes in the Recommended

scenario. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168Table 18 Secondary energy changes in the Recommended

scenario. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169

xxxvii

Table 19 New capacity and transmission capacity demandin the Recommended scenario. . . . . . . . . . . . . . . . . . . . . . . 169

Table 20 Decrease in unit investment in energy projectsin one cycle (one cycle = 5 years) . . . . . . . . . . . . . . . . . . . 170

Table 21 Forecast unit investment in energy projects. . . . . . . . . . . . . 171Table 22 Forecast new investments in the Recommended

scenario. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171Table 23 Average employment in the energy sectors

in the Recommended scenario. . . . . . . . . . . . . . . . . . . . . . . 172Table 24 New employment in the energy sectors

in the Recommended scenario. . . . . . . . . . . . . . . . . . . . . . . 172

Special Report 2: Research on China’s Energy Demand Revolution

Table 1 Assumptions of key macroeconomic initial valuesand parameter values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234

Table 2 Initial share of technology, energy cost, rateof technical substitution and learning rate . . . . . . . . . . . . . . 235

Table 3 Feed-in tariff adjustment for solar and wind powerin China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250

Table 4 Adjustments to the feed-in-tariff surcharge forrenewable energy in China . . . . . . . . . . . . . . . . . . . . . . . . . 250

Table 5 Trading status in China’s pilot carbon markets . . . . . . . . . . 252Table 6 Future fossil energy price scenarios . . . . . . . . . . . . . . . . . . 253Table 7 Learning parameters of non-fossil energy

technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255

Special Report 3: A Study of China’s Technology Revolution

Table 1 Consecutive waves of technology change . . . . . . . . . . . . . . 289Table 2 The chosen case studies cover a range of interventions

and learnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292Table 3 The example of renewable energy generation . . . . . . . . . . . 294Table 4 The example of ethanol fuel . . . . . . . . . . . . . . . . . . . . . . . . 295Table 5 The example of the Human Genome Project. . . . . . . . . . . . 296Table 6 The example of synfuels . . . . . . . . . . . . . . . . . . . . . . . . . . . 297Table 7 A different approach may have led to the programme

being better received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300Table 8 The Human Genome Project also has opportunities

to succeed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301Table 9 A reduction in subsidies led to increases

in the efficiency of ethanol production in Brazil . . . . . . . . . 302Table 10 Comparison between Demark and Germany

on wind turbine development . . . . . . . . . . . . . . . . . . . . . . . 304Table 11 Profile of the AEP GridSMART Demonstration

Project. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332Table 12 China supports energy storage related development

policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351

xxxviii List of Tables

Table 13 UHV transmission in China (up to June 2017) . . . . . . . . . . 362Table 14 UHV projects under construction in China

(up to June 2017) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363Table 15 CBM reserves in major countries

(trillion cubic metres) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379Table 16 China’s future gas supply capacity . . . . . . . . . . . . . . . . . . . 383Table 17 China’s energy strategy orientation in different

historical periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388

Special Report 4: China’s Energy System Revolution

Table 1 Top 10 countries in terms of shale oil reservesin 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399

Table 2 Top 10 countries in terms of shale gas reservesin 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400

Table 3 NEA internal organisation. . . . . . . . . . . . . . . . . . . . . . . . . . 428Table 4 China’s energy administration institutions

and their responsibilities (2014) . . . . . . . . . . . . . . . . . . . . . 429Table 5 China’s energy regulation institutions

and their responsibilities (2014) . . . . . . . . . . . . . . . . . . . . . 443Table 6 Additional power market incentives required

in a net zero emissions world . . . . . . . . . . . . . . . . . . . . . . . 491Table 7 Measures, objects and purposes of the new round

of power system reform . . . . . . . . . . . . . . . . . . . . . . . . . . . 504Table 8 Opinions on promoting transmission and distribution

tariff reform. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505Table 9 Opinions on advancing the creation of power

markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 506Table 10 Opinions on establishing power trading institutions

and standardising their operation. . . . . . . . . . . . . . . . . . . . . 507Table 11 Opinions on implementing an orderly liberalisation

of power generation and consumption planning . . . . . . . . . 508Table 12 Opinions on promoting power sales reform . . . . . . . . . . . . 509Table 13 Guidance on strengthening and standardising

the supervision and management of privately ownedcoal-fired power plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 510

Table 14 Administrative measures for access and withdrawalof electricity sales companies . . . . . . . . . . . . . . . . . . . . . . . 511

Table 15 Administrative measures for deregulating powerdistribution networks in an orderly manner . . . . . . . . . . . . . 512

Table 16 Power traded through bidding in Guangdong,up to March 9, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 512

Table 17 Evolutionary and revolutionary change can differin all aspects of scheme design . . . . . . . . . . . . . . . . . . . . . . 520

Table 18 Summary of progress in the reform of state-ownedenergy enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 587

List of Tables xxxix

Special Report 5: International Energy Cooperation and Governance

Table 1 The key strategic interests of major economiesand the potential impacts of a revised perspectiveon energy security and cooperation. . . . . . . . . . . . . . . . . . . 597

Table 2 Relevant actors and international experiencein the strategic pathway of reforming the IEA to makeit more representative, effective and relevant. . . . . . . . . . . . 690

Table 3 Relevant actors and international experiencein the strategic pathway of developing and adoptingthe TCFD framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 691

Table 4 Relevant actors and international experiencein the strategic pathway of rationalising public energyfinance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 691

Table 5 Relevant actors and international experience in thestrategic pathway of regionally connected, coordinatedand secure electricity markets enabling cross-bordertrade of electricity through interconnectors . . . . . . . . . . . . . 692

Table 6 Relevant actors and international experiencein the strategic pathway of international cooperationto accelerate smart management of EV electricitydemand and deployment of cost-effective electricitystorage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 692

xl List of Tables

Overview: High-Quality Energyfor High-Quality Growth: China’sEnergy Revolution in the New Era

Xu Zhaoyuan and Mallika Ishwaran

In June 2014, General Secretary Xi Jinpingremarked at a conference of the Communist Partyof China’s (CPC) Central Leading Group forFinancial and Economic Affairs Commission that arevolution in energy production and consumptionwas needed to safeguard national energy security.New patterns in supply and demand, compoundedby changing trends in international energy devel-opment, were presenting China with opportunitiesto develop and drive a new energy era.

In December 2016, the Chinese governmentpublished its Energy Production and Consump-tion Revolution Strategy (2016–30), which setout the specific actions needed to promote theenergy revolution that President Xi had referred

to. In October 2017, the report of the 19th CPCNational Congress noted that:

Socialism with Chinese characteristics has crossedthe threshold into a new era. China’s economy istransitioning from a phase of rapid growth to astage of high-quality development.China must put quality first and prioritise perfor-mance; and China should make supply-sidestructural reform its main task and work hard toachieve better quality, higher efficiency, and morerobust drivers of economic growth.The new era provides a new background and posesnew requir