Overview

Sustainable Development of the Energy Sector in China: Challenges and Options

Overview

This initiative addresses the environmental implications of energy policies in China and the challenges posed by energy initiatives for environmental policy. Together with scholars from Tsinghua University and practitioners from China’s Ministry of Science and Technology, the National Development and Reform Commission, and the Development Research Center of the State Council, this initiative explores how China can manage these issues. China‘s economic growth has relied on a resource intensive strategy. It is now the largest consumer of energy and largest emitter of greenhouse gases. China’s cities suffer from severe air pollution and water resources are rapidly depleting. China has ambitious programs to improve energy productivity, increase the use of renewables, and revisit its use of market incentives to reduce water use and greenhouse gas emissions. China is actively exploring the feasibility of electrifying its transportation and commercial sectors in key population centers. Research focuses on promoting policies that contribute to the thoughtful use of China’s natural resources and the adoption of cleaner and less carbon intensive industrial and energy technologies.

Background

During the first decade of the twenty first century, China’s growth in both the production and consumption of all forms of energy was unprecedented in human history. China’s consumption of coal grew from 752 million tonnes oil equivalent in 2001 to over 1.8 billion tonnes of oil equivalent in 2011. Hydro-electricity production doubled. Solar and wind generation has been increasing at a rate exceeding 40% per annum. Altogether, primary energy consumption increased 2.5 times in the past ten years. While this accelerated production fueled economic growth and pushed it into the nine percent range, it also dramatically impacted the environment. Eight of the world’s ten most polluted cities are in China. Toxic pollution of China’s lakes and soils has serious health impacts. Water shortages in the northern part of the country are impacting energy production and development, and this problem is likely to worsen in the next two decades unless there are dramatic policy changes. Huge increases in consumption of both electricity and coal have raised concerns about future supply availability and led China to implement significant efforts to improve energy productivity.

The sustainable development problem

China faces the daunting challenge of continuing to supply the resources it needs to fuel its economic growth, while simultaneously reducing its pollution levels, improving the efficiency of its resource utilization, and moving to a more sustainable energy future. This challenge will require developing and commercializing new technologies, designing policies to allocate, price, and consume natural resources more efficiently, and building networks between government, private business, and academia at all levels of governance. These changes must occur within the context of a society that is rapidly changing from a poor agrarian population to one characterized by a growing middle income population. In addition, Chinese governance and economic institutions face significant political and social pressures and are evolving as they attempt to cope with them. Tensions between the provincial and central governments are more frequent and visible.

Research question

In an economy that has historically relied on large state-owned enterprises, a growing entrepreneurial sector is emerging, raising the questions, to what extent does China want to encourage these entrepreneurial businesses and to what extent does it want to protect the incumbent state-owned enterprises?

Solving a practical problem of sustainable development

This project will aim to assess the tensions and better understand the factors that are driving them, with the hope of informing decision makers at both local and central levels, and of helping them shape the policies and programs to more effectively manage the sustainability challenges they will face in the next two decades. To do this in a credible way, the project will construct a network of scholars and practitioners in both China and in the international expert community. Hence, this program will emphasize both world-class research and the development of a working network of scholars and stakeholders.

Research strategy

The research effort will focus on three basic topics: 1) water and energy; 2) energy technology innovation, and 3) electrification.

1) Water and energy

Researchers will analyze the governance institutions and practices that shape policies and regulations to manage water resources. We will pay special attention to the implications of allocation and pricing practices to China’s capacity to generate energy supplies. In 2012-2013, we will focus on water allocation institutions and practices in the Yellow River basin. We believe that given the importance of this basin to China’s economic growth, the lessons learned will be transferable to other basins in China. To contextualize this analysis, researchers will compare these practices and regulations to those in comparable basins in India, the United States, and France.

In a parallel effort, researchers will analyze the linkages between water and energy. For example, water affects energy production, but in many areas, especially those reliant on desalinization for their potable water, energy costs have a major impact on the price and availability of water. There are a number of pricing, regulatory, and programmatic policies offered to more efficiently manage the use of water. How much these would cost is a question which decision makers at all levels are asking.

2) Energy technology innovation

Researchers will assess the factors that have contributed to China’s rapid growth in the solar and wind sectors. China’s solar PV industry has grown from a minor producer in terms of global market share to the largest producer in the world and has done so in seven years. How did this happen? What were the factors, institutions, and decisions that contributed to this success, and are they transferrable to other energy options?

Additionally, researchers will continue to assess how government policies shape risk-sharing models between state and private actors. The central government retains control of much of the Chinese industrial sector, but in the last decade, China has begun to nurture and support the emergence of a strong private entrepreneurial sector. Why did this change happen, and how is it likely to evolve in the next ten years? Further, what are the implications to the economy, regulation, and the country’s efforts to reduce environmental externalities?

3) Electrification

As China faces the prospect of increasing imports of oil and natural gas —and in the last two years, coal, concerns around energy security have grown. Policy makers at both central and regional government levels have begun exploring the costs and benefits of greater electrification of China’s cities. They are closely examining the transportation and heating sectors. However, if the source of the electricity is coal-fired facilities, electrification might come with a steep environmental price tag. Researchers will explore both the environmental and energy implications of electrification.

Partners

Over the past six months, we have begun developing a partnership with both the energy and environmental departments at Tsinghua University. Two post-doctoral fellows from these departments are residence at Harvard Kennedy School. This partnership will form the core of a Harvard-China network and will allow us to expand it to other organizations in government, business, and academia. We have already begun this process. We have established relationships with both the China State Council Development Research Center and the China Southern Grid Company and are talking with China National Petroleum Corporation (the national oil company) and the Shenhua Company. Moreover, we have historically worked closely with both the National Development and Reform Commission and the Ministry of Science and Technology. Finally, in addition to our partnership with Tsinghua University, we are working with the Center for Energy Studies at Beijing Normal University’s School of Management and Natural Resources. To supplement this effort, we are working with faculty at the Tufts Fletcher School and Boston University.

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