Sustainable Development of the Energy Sector in China: Challenges and Options (2012-2016, updates here)


Henry Lee [lead], Laura Diaz Anadon


This initiative addresses the environmental implications of energy policies in China and the challenges that arise when designing and implementing environmental and energy policy. Our research is on developing low-carbon pathways for sustainable development, inducing low-carbon energy technology innovation, and overcoming transmission-capacity barriers for wind power. We have completed work on water resources and market mechanisms for water rights trading, buildings and energy efficiency, low-carbon development policies for Shanghai, and electrification of China’s transport sector. We are collaborating with scholars at Tsinghua University and the Chinese Academy of Science (CAS) and practitioners from China’s Ministry of Science and Technology (MOST), the National Development and Reform Commission (NDRC), and the Development Research Center of the State Council (DRC). We jointly sponsored two workshops with the Center for Science, Technology and Education Policy at Tsinghua University. The first in 2014 was on the use of market mechanisms to achieve a low-carbon future for China. The second in 2015 was on energy technology in the wake of the China/U.S. emissions reduction agreement.

The sustainable development problem

China’s economic growth has relied on a resource intensive strategy. It is now the world’s largest consumer of energy and largest emitter of greenhouse gases. China’s cities suffer from severe air pollution and traffic congestion. Its water resources are being rapidly depleted especially in the Northern provinces. 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 faces the daunting challenge of continuing to supply the energy, water, and land 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.

Research question

Tensions between the provincial and central governments are more frequent and visible. 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?

Contributing to solving a practical problem of sustainable development in China

The China Initiative 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. We aim to assess sustainable development tensions and better understand the factors that are driving them, with the hope of informing decision makers at both local and central levels, and to help Chinese leaders to 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, we are constructing a network of scholars and practitioners in both China and in the international expert community. The China Initiative emphasizes both world-class research and the development of a working network of scholars and stakeholders.

Research strategy for connecting research to practice

The China initiative has as goals: develop a research program and produce papers on issues at the intersection of Chinese energy policies and environmental sustainability; build a network of partners in China; and lay the groundwork for a series of workshops in Beijing jointly with Tsinghua University.  We have made measurable progress towards meeting each of these goals.

Low Carbon Pathway for Sustainable Development
We are designing new analytical tools and an accounting framework for evaluating energy technology performance. China’s national, provincial, and city-level annual energy use, water consumption, air pollution, and carbon emissions are being quantified to determine their relationships at the regional and sectoral level. The research assesses the energy saving and emission mitigation potential of key technologies on the basis of an input-output life-cycle analysis model. We present low carbon scenarios based on factors such as energy use, and emission baselines, technology development, and efficiency improvement and aim to uncover the social and economic forces driving China’s energy growth. We will produce an open access data set on China’s energy consumption and carbon emissions from 1950 to 2013. We assessed the impact of technology innovation on reducing energy consumption and emissions from the energy sector, paying particular attention to the possible co-benefits of energy technologies beyond efficiency and emission reductions, such as reductions in water consumption (Feng et al., 2014; Liu et al., 2013). We are producing a case study on Shanxi Province, China’s largest producer of coal, and coal-fired electricity, and will make recommendations for how it can move toward low-carbon development.

Cap-and-Trade Plan for Emission Reduction
China announced the launch of a national cap-and-trade system for greenhouse gas emissions by 2017. We are examining the role of central-local interaction in shaping China’s national cap-and-trade scheme, particularly how national emission allowances are allocated among provinces that have vast social and economic disparities. We will look at the effects of China’s distinctive political and economic characters on a cap-and-trade system. Particularly, China’s state-owned energy corporations have nearly monopolistic control over energy supply and strong influence on national policy making. What would be their potential reactions to a cap-and-trade system, as a result of their complicated political and economic interests? Economic models will be applied to assess the potential of a national cap-and-trade system in optimizing China’s energy structure, such as reducing coal and increasing renewables. We are developing a data set of province-level carbon emission inventories.

Innovation in the Energy Sector
Inducing low-carbon technology leapfrogging in China is a complex, systemic innovation problem involving not only the creation and diffusion of technological innovation, but also adapting related regulation, user practices, and institutional contexts. Existing approaches to low-carbon leapfrogging mainly focus at a national level, leaving international interdependencies underexplored. We are developing a new analytical framework that relates low-carbon leapfrogging to systemic changes at an international level. It takes the technological innovation system approach as a conceptual basis for assessing innovation trajectories in the Chinese wind power, solar photovoltaic, and water recycling sectors. We will assess the performance of Chinese innovation systems in inducing low-carbon leapfrogging and compare that performance based on a mix of quantitative social network analysis and qualitative expert interviews. This comparison will provide policy recommendations that reflect China’s role in global innovation systems and enhance conventional market failure based policy approaches with a focus on broader system building failures. We completed an analysis on how China and India mobilized financial resources to build domestic technological innovation systems in wind energy. We show that the two countries' distinct development strategies for wind energy ― China developed wind energy largely through its state-owned enterprises, while India opened up wind energy investment to the private sector in the early 1990s ― influenced system outcomes in terms of technology diffusion, domestic industry structure, competitiveness, and ownership. Our analysis provides novel insights about the process of financial resource mobilization in technological innovation systems, the dynamics of innovation-system growth, and the policy trade-offs that must be reconciled by countries that aim to promote the diffusion of a particular technology (Surana and Anadon, 2015).

Overcoming Transmission Barriers for Wind Power
With policy support from the Chinese government, China’s wind industry has developed rapidly over the past ten years and China has become the world’s largest generator of wind power in terms of cumulative installed capacity since 2010. However, the biggest challenge for the continuous development of wind power in China is the mismatch between the massive wind capacity expansion and the inadequacy of the power transmission grid. We will investigate this emerging challenge and examine how access to the transmission grid and the capacity of the transmission grid affects the actual utilization of the existing wind capacity, measured by the capacity factor of wind farms; and the share of wind power in electricity generation across provinces. This effort will be the first empirical research to quantify the transmission issues that could influence wind generation, and estimate the impact and size of these transmission factors. Our results will help policy analysts in the electricity sector get a more accurate estimation about the losses from curtailment of wind generation due to transmission inadequacy, and inform Chinese government’s policymaking on improving the transmission infrastructure and promoting technologies for wind power integration.

Water Footprint, Allocation, and Hydropolitics
There is a geological mismatch between water resource endowments and energy-related water needs in China. For example, more than half of the energy-related water withdrawals occur in the affluent eastern and southern coastal areas, while water consumption appears to be much higher in the arid northern region of China. Our research presents the water footprint of China’s energy system using a mixed-unit multi-regional input-output (MRIO) model disaggregated at the provincial level and shows that China’s entire energy production system is responsible for 61.4 billion m3 water withdrawal, 5.0 billion m3 wastewater discharge, and 11.0 billion m3 water consumption, which are equivalent to 12.3%, 8.3% and 4.1% of the national totals, respectively (Zhang and Anadon 2013, 2014). Current plans for the energy sector in China do not seem to be consistent with water scarcity concerns.  Most assessments of this water scarcity tend to emphasize ecological and economic aspects of the challenge, rather than the political actors, interests, and processes that decisively shape China’s response to water scarcity. Because of China’s distinctive political system where policymaking is highly centralized but implementation is largely delegated to provincial and local governments, these actors, interests, and processes are key to understanding China’s progress and prospects toward meeting the challenge of water scarcity. This research analyzes the current and future response of the Chinese government to conditions of water scarcity in the Yellow River Basin (Moore 2013, 2014a,b). 

Energy Efficiency in Buildings
At least 20% of total energy consumption in China comes from buildings. China is looking for strategies to mitigate the environmental impact of its energy supply and reduce energy intensity. The State Council calls for a 20% reduction in energy intensity during the “Eleventh Five-Year Plan” period. Our research seeks to answer two questions: Why are buildings not energy efficient in China? And what policy instruments can improve the energy efficiency of the building sector? This research adopts an integrated assessment perspective of the built environment to evaluate the efficiency, economics, and political feasibility of a range of energy strategies. A cross-region comparison with the United States allowed us to develop best practices for China. Due to the distinct land use, urban morphology, and related policies in the United States and China, the comparative study contributes to the emerging trend of harnessing human-environment interactions for sustainable energy and the transformation of the concept of green infrastructure in the built environment (Xu et al., 2014).

Meeting Electric Vehicle Goals
Electric vehicles (EVs) exist at the intersection of three critical and interlinked priorities for China – economic upgrading, environmental sustainability, and energy security. China has set ambitious goals for domestic EV development and deployment - 5 million EVs on the road by 2020. Progress has fallen well short of these goals. In mid-2013, China had only about 40,000 EVs on the road, more than 80% of which were public fleet vehicles (e.g., taxis and buses). We investigated the external and internal factors that have caused China’s EV program to stall, including high battery costs, a fragmented auto industry that limits capacity, and both foreign and inter-provincial trade barriers. If China is to meet its EV goals, it must seriously explore alternative paths that place greater emphasis on domestic consumers, greater international cooperation, and increased emphasis on collaboration between regions, companies, and countries (Howell et al., 2014).

China Network Development

Decisions made in China over the next decade will shape the country’s environment and economic framework for the rest of this century. We have found that simply doing studies to inform decision  makers is not sufficient and that we must reach out to officials in all sectors of society to provide opportunities to enhance their skills and understanding of the key issues facing China. We are developing a strong network in China, centered at the School of Public Administration at Tsinghua University and the Energy Research Institute (ERI) within the National Development and Reform Commission (NDRC). The network includes faculty at two additional schools at Tsinghua, the School of the Environment and the Engineering School. We also have linkages with the Energy Foundation, the Development Research Center, Tongji University, and the World Resources Institute – all of whom have strong China programs located in Beijing. We have held discussions with the Lawrence Berkely Laboratories, Tsinghua's Real Estate School, and the Ministry of Housing and Rural Development on building efficiency in China.

China Environmental Sustainability Fellows Program
The Environment and Natural Resources Program awards fellowships to practitioners who are working in the Chinese government at the central, provincial, or local level; or in the private sector. Fellows analyze opportunities and challenges to design, develop, or implement policies and programs to enhance China’s environmental or energy goals. Fellowships are for one semester and funding is provided by the Energy Foundation China.

Low Carbon Shanghai Project
A team of five HKS students, led by Professor Henry Lee, prepared a report for the Chinese Academy of Social Sciences (CASS) on developing a low carbon strategy for the megacity. Recommendations were developed for three policy areas: land use planning and transportation; building energy efficiency; and electricity consumption by end users. The recommendations require adjustments to the policymaking process to enable flexible policy design, increased use of baseline data, and incorporation of externalities into economic analysis. Focusing on these three principles should increase the Shanghai Municipal Government’s ability to implement a low carbon policy framework that can adapt to changing trends, is consistent with the city’s other policy goals, and facilitates ongoing monitoring and evaluation. This style of evidence-based and adaptive policy making is critical for responding to the challenges of rapidly changing cities. Our hope is that this project may become a model for other cities across China (Cheng et al., 2014).

Policy Dialogue

2014 Harvard-Tsinghua Workshop on “Market Mechanisms to Achieve a Low Carbon Future for China”
The purpose of the joint workshop organized by the Tsinghua University School of Public Policy and Management and the Harvard Kennedy School in June 2014 was to advance our understanding on how market mechanisms might contribute to a low carbon future for China. The participants included senior Chinese government officials as well as leading scholars from China, the United States, and Europe. The workshop began with two open sessions, which introduced the topic of market mechanisms to mitigate environmental problems, support a low carbon economy, and spur innovation, from the United States, the European Union, and China. The subsequent three sessions were closed to the public: 1) Implementing a Carbon Tax or a Cap and Trade Program, 2) Incentivizing Low Carbon Technology Innovation through Policy, and 3) Designing Water Policies in an Era of Climate Change and Scarcity (Lee et al., 2014).

In advance of the workshop we and Tsinghua researchers prepared case studies on each of the three session topics – two on carbon market policies, two on technology innovation, and one on water. The cases describe specific policies enacted at the country level. For the “Implementing a Carbon Tax or Cap-and-Trade Program” session we prepared a case on North America’s first revenue-neutral carbon tax introduced in British Columbia, Canada, in 2008. For the “Incentiving Low Carbon Technology Innovation through Policy” session we developed a case on how the United States finances innovation in the private sector through the Small Business Innovation Research Program. The cases are not meant to be prescriptive, but are designed to be discussion tools.

2015 Harvard-Tsinghua Workshop on “Energy Technology Innovation Policy in the Backdrop of the U.S.-China Emissions Agreement
In June 2015 we held a second workshop organized by the Tsinghua University School of Public Policy and Management and the Harvard Kennedy School. The objective of the Workshop was to discuss the current state of affairs in China, in the United States, and in selected other countries as well as academic research on: (1) the funding and allocation of government investments in R&D, with a particular focus in energy; (2) the impact of policy on private sector innovation in energy; and (3) the management of publicly funded R&D organizations (Binz et al., 2015).


Binz, Christian, Gabriel Chan, Claudia Doblinger, Joern Huenteler, Dongbo Shi, Tian Tang, Lei Xu, Laura Diaz Anadon. 2015. Energy Technology Innovation Policy in the Backdrop of the U.S.-China Emissions Agreement: Workshop Report. Workshop held in Tsinghua University, June 18-19, 2015. Cambridge, MA: Belfer Center for Science and International Affairs, Harvard Kennedy School.

Cheng, Wing Ho Tom, Gautam Kamath, Kevin Rowe, Eleanor Wood, and Taisen Yue. 2014. Low carbon Shanghai: Avoiding carbon lock-in through sustainable urbanization. Belfer Center for Science and International Affairs, Cambridge, Mass: Harvard University.

Feng, Kuishuang, Klaus Hubacek, Laixiang Suna, Zhu Liu. 2014. Consumption-based CO2 accounting of China’s megacities: The case of Beijing, Tianjin, Shanghai and Chongqing. Ecological Indicators. DOI: 10.1016/j.ecolind.2014.04.045.

Howell, Sabrina, Henry Lee, and Adam Heal. 2014. Leapfrogging or stalling out? Electric vehicles in China. HKS Faculty Research Working Paper Series RWP14-035, Cambridge, MA:  Harvard Kennedy School.

Lee, Henry, Sabrina Howell, Scott Moore, and Alice Xia. 2014. Harvard-Tsinghua Workshop on Market Mechanisms to Achieve a Low-Carbon Future for China. Summary of a Workshop at Tsinghua University, Beijing, June 3-4, 2014. Belfer Center for Science and International Affairs, Cambridge, MA: Harvard University.

Liu, Zhu, Dabo Guan, Douglas Crawford-Brown, Qiang Zhang, Kebin He, and Jianguo Liu. 2013. Energy policy: A low-carbon road map for China, Nature 500: 143–145, doi:10.1038/500143a.

Moore, Scott. 2013. The Politics of Thirst: Managing Water Resources under Scarcity in the Yellow River Basin, People’s Republic of China. Discussion Paper 2013-08, Belfer Center for Science and International Affairs and Sustainability Science Program, Cambridge, MA: Harvard University.

Moore, Scott. 2014a. Hydropolitics in China: The pursuit of localized preferences in a centralized system. The China Quarterly. 218:1-21.

Moore, Scott. 2014b. Modernisation, authoritarianism, and the environment: The politics of China’s South–North Water Transfer Project, Environmental Politics, DOI: 10.1080/09644016.2014.943544.

Surana, Kavita and Laura Diaz Anadon. 2015. Public policy and financial resource mobilization for wind energy in developing countries: A comparison of approaches and outcomes in China and India. Global Environmental Change, 35: 340–359.

Xu, Xiaoqi, John E. Taylor, and Anna Laura Pisello. 2014. Network synergy effect: Establishing a synergy between building network and peer network energy conservation effects. Energy and Buildings. 68:312-320.

Zhang, Chao and Laura Diaz Anadon. 2013. Life cycle water use of energy production and its environmental impacts in China, Environmental Science and Technology, 47(24):14459-14467. DOI: 10.1021/es402556x.

Zhang, Chao and Laura Diaz Anadon. 2014. A multi-regional input-output analysis of domestic virtual water trade and provincial water footprint in China. Ecological Economics. 100: 159-172, DOI: 10.1016/j.ecolecon.2014.02.006.