Caixin
Apr 11, 2013 07:04 PM

The Next Energy Revolution

Revolutions in the energy sector have always led to great improvements in production capacity. The latest example can be seen in the shale gas sector in the United States, a development that cut prices of crude oil and electricity in the country, thus boosting the competitiveness of local manufacturing.

In China, a stable and cheap energy supply is a key condition of the country meeting its growth target. The Communist Party proposed during its 18th National Congress in November that the country should push forward with the next "revolution in energy production and consumption." That means significant changes not only in technology, but also the energy structure and system, and concepts of energy security.

To adjust the energy structure, China should reduce its reliance on coal and introduce more gas and oil. Globally, oil and gas account for 59 percent of total primary energy consumption, while the figure for coal is 29 percent. But in China, the figures are 22.4 percent and 70 percent, respectively.

The huge coal use has deteriorated the environment and put great pressure on transport. China has achieved quite a high standard for efficient and clean use of coal, but room for further improvement is constrained due to limited water resources and economic considerations.

To meet the demands of future industrial development and protect the environment, the country has to replace coal with cleaner and more convenient energy sources, such as oil and natural gas.

The revolution in energy structure requires a change in thinking about energy security. A common concern on reducing coal consumption is that China will have to rely more on oil imports, which would be risky. But in fact, there is no simple correlation between oil imports and energy security.

A common consensus about the global political environment is that following the Cold War there is little possibility that a world war will erupt in the foreseeable future. Nowadays, with the weakening position of the Organization of the Petroleum Exporting Countries, the supply structure has become more diversified. Meanwhile, global supply has exceeded demand. All of these are positive conditions for China to increase imports.

Of course, risks from oil price fluctuations and access to resources will still exist, and that cannot be solved by a single country. Only by increasing participation in global governance and expanding security concerns from one single country to a broader range, can we achieve energy security of ourselves and the world. 

An energy revolution would also require reforms in China's energy system. Many of the country's problems in the energy sector, such as inadequate coal supply for power generation, low efficiency of energy usage and hesitation to cut pollution, are not rooted in a lack of natural resources or production capacity. These are the result of the current energy system not being fully market-oriented.

Many of China's energy products are still under government control in terms of supply and pricing. New projects and market access require government approval. Moreover, the boundary between enterprise and government remains ambiguous in some monopolized sectors.

A switch to a fully competitive market is necessary. China is undergoing government reforms, including to the energy regulatory body. The new National Energy Administration is facing crucial tasks regarding adjust its capacity and responsibility. Policies that do not fit market economy development and the process of globalization should be revised. The regulator should also reconsider its old supervision approach which based on the approval system.

An energy revolution is also characterized by upgraded technology and improved efficiency. Compared with information technology and biotechnology, the cycle for developing energy technology is always longer and requires large-scale facility replacement or renovation.

In recent years, China has launched some heavy chemical projects that have high technology standards. Under a policy of reducing energy consumption and pollution, these kinds of projects have been strictly controlled and face many hurdles. However, at the same time, no close scrutiny has been given to existing small and low-efficiency projects.

To push forward with the development and reform of the energy sector, China must change its administrative method in the sector by allowing more advanced technology and projects while renovating the outdated ones. Only by gradually getting rid of the old capacities can the country realize a leap forward in the sector.

The author is a researcher at the China Center for International Economic Exchanges

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