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Fossil Fuels
China’s energy industrial revolution
John A. Mathews* and Hao Tan**
*Eni Chair in Competitive Dynamics and Global Strategy
LUISS Guido Carli, Rome
** University of Western Sydney
DPTEA Seminar
LUISS Guido Carli, Rome
3 March 2011
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Source of primary data: US EIA
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Chinese power generation and rising coal consumption
Sources of China’s power generation, 1980 -- 2008
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Hydroelectricity
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Source of primary data: US EIA International Energy Statistics Database
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Other Renewables
Chinese rising coal consumption having global impact
China as a black energy system
China as a microcosm (!) of the global energy situation – and China prefiguring
many of the solutions
Energy supplies now seen as #1 strategic issue by Chinese leadership – as the power
driving the export and manufacturing machine
Coal and thermal capacity being rapidly expanded, but renewable sources (incl.
nuclear and hydro) being rapidly ramped up as well.
In 2010, China burning more than 3 billion tonnes (Gt) of coal
In 2010, China added 85 GW in electric power capacity, 55 GW of which is thermal

‘China adding a 1 GW coal-burning power station each week’ is TRUE
China as a green energy system
Coal and thermal capacity being rapidly expanded, but renewable sources (incl.
nuclear and hydro) being rapidly ramped up as well
By 2050, 33% of China’s energy will be renewable (ERI of NDRC) – creating
unstoppable momentum (logistic industrial dynamics)
China’s contribution to carbon emissions growing – but will probably be smaller than
that of US or Europe in 21° century
China’s renewable energy policies focus on production and building new industries,
rather than on consumption
In 2010 China is building MORE GENERATING CAPACITY in ‘hydro, nuclear and
renewables’ than in thermal:
Of 179 GW under construction, 80 GW is thermal, while 100 GW is alternatives
(hydro 68 GW; nuclear 23 GW; wind 7.7 GW; other 1,3 GW)
China as a microcosm (!) of the global energy situation – and China prefiguring
many of the solutions
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Chinese build up of wind power
Wind Electricity Net Generation
Installed Wind Electricity Capacity
Source of primary data: the wind electricity net generation data are available from U.S EIA; and the
installed wind electricity capacity data are extracted from the 2008 and 2009 World Wind Energy Report.
China as a ‘black and green’ energy system
Dependence on fossil fuels is still growing – but the industrial dynamics of renewables
will take over, and after 2050 renewables can be expected to rapidly displace FFs
In this sense, China is a microcosm (!) of the global energy situation – and China is
prefiguring many of the solutions that other countries will follow
Note while fossil fuel subsidies are rising or being maintained elsewhere (a $500 billion
waste!) in China fossil fuel subsidies are being phased out – energy markets
coming to reflect real production prices
Renewables being built not on basis of subsidized markets (although some of this –
limited feed in tariffs) but on basis of production incentives and genuine market
‘mandates’ through planning
11th 5-year Plan 2005-2010;
12th 5-year plan 2011-2015 – just announced (strong emphasis on REs)
NDRC targets for REs in 2020
Christina Larson, The great paradox of China: Green energy and black skies, Yale
Environment 360, Aug 17, 2009:
China’s energy pathways to 2100: Fossil fuels
versus renewable energies
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Fossil Fuels
Source: Authors, based on sources discussed in text.
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China’s energy trajectories: two curves
China’s energy trajectories are reasonably well understood and mapped
Hao Tan and I project forward to 2100
We utilize two ‘master curves’
A convex curve for fossil fuel consumption – growing to around 6 billion tonnes
coal-equivalent (Gtce) by 2080 and then declining
A logistic curve for renewable energy substitution – reaching near 100% displacement
by 2100
These are not extrapolations or linear forecasts
These are realistic projections based on underlying industrial dynamics
How have such transitions looked in the past?
Systemic transitions
Logistic industrial dynamics: Adoption rates of communications technologies,
1920 -- 2000
Systemic transitions
Logistic industrial dynamics in 17 cases of technological substitution
Source: Adapted from Fisher & Pry (1971, p.87)
Note: the ordinate of the figure is f, which refers to the fraction substituted by the
new technology.
US energy transitions: primary sources by proportion
Source: A.G.M. Layzell
China’s energy trajectories for the 21° century
China’s energy trajectories are reasonably well understood and mapped
The Energy Research Institute (ERI) of the NDRC, Beijing, monitors every aspect
in detail
Projections up to 2050 provided (e.g. Jiang and Liu 2009)
These authors depict China’s energy trajectories up to 2050 with coal, oil and gas
at the bottom of the chart, then with hydro, nuclear and renewables
Hao Tan and I redrew, to show renewables at bottom – to capture the logistic
industrial dynamics of their uptake
Primary energy demand: Enhanced Low Carbon Trajectory
Consistent with many other sources, e.g Martinot and Li 2007; Pew Charitable Trust
report ‘Who’s winning the green energy race?’, or Worldwatch special report
‘Powering China’s development: The role of renewable energy’
China’s energy pathways, 2000-2050 (ERI)
Million tons of coal equivalent
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Biofuel Electricity
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Biofuel as Gasoline
Source of primary data: Jiang et al (2009)
Biodiesel
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Gas
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Energy pathways extended to 2100
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T otal Energy Consumption
Source: data generated from models developed by authors based on projection data from Jiang et al. (2009).
See Appendix A for more details.
China’s carbon emissions
Based on energy projections, can forecast China’s fossil fuel consumption and carbon
emissions
Note: First country in world to industrialize with (reasonably) known carbon emissions
Total carbon emissions we estimate to be 170-180 Gt carbon up to 2000-2100
(i.e. 650 Gt CO2: multiply by 44/12)
Peak in 2040s
Carbon emissions just from burning coal would be around 100 Gt carbon
and peak in the 2030s
So China’s carbon emissions can be expected to keep rising for at least another 20 year
This sets China’s stance in international climate change forums
(UNFCCC: Copenhagen Dec 2009, Tianjin (Oct 2010) and Cancun (Nov 2010)
Carbon emissions to atmosphere, 2000-2100
Million tonnes of carbon
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T otal Carbon Emissions from Fossil Fuels
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Carbon Emissions from Coal
Source: data generated from models developed by authors based on projection data from Jiang et al. (2009).
See Appendix A for more details.
China’s carbon emissions compared to world’s
Developed countries have emitted cumulative total of around 500 Gt carbon since
Industrial Revolution
They are continuing to emit large quantities – despite Kyoto commitments
China is likely to emit 160 to 170 Gt carbon up to 2100
So China’s cumulative contribution by 2100 dwarfed by US, Europe and Japan
According to recent papers in Nature, world as a whole must limit cumulative carbon
emissions to 1 trillion tonnes to avoid warming in excess of 2° C
Cannot blame China if the world goes beyond this limit – but instead blame
the ‘carbon lock-in’ of the developed countries
Technological lock-in buttressed by continuing financial subsidies to fossil fuels
$500 billion per year: IEA
China replicating fossil fuel dependent development
pathway
All industrialized countries went through their fossil fuel dependent phase
Indeed, the ‘Industrial Revolution’ now understood to be basically an energy-driven
revolution, substituting fossil fuels for traditional, organic fuels
(largely firewood and charcoal)
Britain’s ‘subterranean forest’ of coal
(Access to coal was one of the ‘fortunate’ factors in why Europe industrialized
earlier than China)
Case: The industrialization of the USA
Fossil fuels and industrialization: U.S
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Source of primary data: US EIA (2008) Annual Energy Review
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China’s growing dependence on oil imports
China’s dependence on fossil fuels is still growing
Imports of oil overtook domestic production in 1995
Gap between imports and domestic production getting larger every year
– but the industrial dynamics of renewables
will take over, and after 2050 renewables will rapidly displace fossil fuels
In this sense, China is a microcosm (!) of the global energy situation – and China is
prefiguring many of the solutions that other countries will follow
Note while fossil fuel subsidies are rising or being maintained elsewhere (a $500 billion
waste!) in China fossil fuel subsidies are being phased out – energy markets
coming to reflect real production prices
Renewables being built not on basis of subsidized markets (although some of this –
limited feed in tariffs) but on basis of production incentives and genuine market
‘mandates’ through planning
11th 5-year Plan 2005-2010; 12th 5-year plan 2011-2015
The energy issue and development:
China’s looming oil/energy gap
Chart 2. China’s oil production and consumption,
1977-2005
Production of crude oil(mn tonnes of oil equivalent)
Consumption of crude oil (mn tonnes)
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Source of primary data: BP Amoco, BP Statistical Review of World Energy
© Euromonitor International 2006
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China now world’s third most dependent oil
importer
China’s electrification: Electricity as a rising
proportion of total energy
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Source: Historical data up to 2008 is calculated based on the primary data available from U.S. EIA; the
projected ratio from 2010 onwards is calculated based on the projection under the mitigation scenario in Liu,
Shi and Jiang (2009)
China’s electrification
China ramping up its degree of electrification, from around 15% of total energy today
to around 25% by 2050.
Note that this is a very conservative estimate of ‘electrification’
The IEA use a much more liberal notion of ‘homes connected’ as a measure of electrifica
Electricity access in 2008 –
World
1,456 Population without access to electricity (million)
78.2% Electrification rate
93.4% Urban electrification rate
63.2% Rural electrification rate
Now let us examine the various renewable sources of electric energy
China’s projected power sector, up to 2050
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T raditional Coal Power
Source of primary data: the projection for electricity generated from wind, solar, biofuel, nuclear are directly taken from those in the ‘Enhanced Low
Carbon Scenario’ in Jiang et al (2009); the projection for electricity generated from traditional coal power is based on Liu, Shi & Jiang (2009) under
their ‘Mitigation Scenario The projection for hydro electricity is based on the resource potentials indicated in NRDC (2007) which is subject to our
logistic curve as explained in Appendix A. We do not include consumption of oil and gas for thermal power generation in this chart because they are
insignificant compared with other sources depicted in the chart
Figure A1: Logistic model for wind energy in China: 2000-2100
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Wind: Existing Data
Wind: Logistic
Source: the ‘existing data’ up to 2050 is available from Jiang et al. (2009) including the historical data
for the period 2000- 2005 and the projections for period 2010 - 2050. See Appendix A for more details.
Figure A2: Logistic model for solar energy in China: 2000-2100
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Solar: Existing Data
Solar: Logistic
Source: the ‘existing data’ up to 2050 is available from Jiang et al. (2009) including the historical data
for the period 2000- 2005 and the projections for period 2010 - 2050. See Appendix A for more details.
Figure A3: Logistic model for nuclear energy in China: 2000-2100
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Source: the ‘existing data’ up to 2050 is available from Jiang et al. (2009) including the historical data
for the period 2000- 2005 and the projections for period 2010 - 2050. See Appendix A for more details.
Figure A4: Logistic model for bio-energy in China: 2000-2100
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Biofuel: Logistic
Source: the ‘existing data’ up to 2050 is available from Jiang et al. (2009) including the historical data
for the period 2000- 2005 and the projections for period 2010 - 2050. See Appendix A for more details.
Figure A5 – Hydropower projections for China
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Hydro
Source of primary data: the historical data up to 2008 is available from U.S. EIA; the projection from 2010 is based on
authors’ calculation
Figure A5: Quadratic model for coal in China: 2000-2100
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Coal: Existing Data
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Coal: Quadratic
Source: the ‘existing data’ up to 2050 is available from Jiang et al. (2009) including the historical data
for the period 2000- 2005 and the projections for period 2010 - 2050. See Appendix A for more details.
Figure A6: Quadratic model for oil in China: 2000-2100
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Source: the ‘existing data’ up to 2050 is available from Jiang et al. (2009) including the historical data
for the period 2000- 2005 and the projections for period 2010 - 2050. See Appendix A for more details.
Fig. A7: Quadratic model for gas in China: 2000-2100
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Source: the ‘existing data’ up to 2050 is available from Jiang et al. (2009) including the historical data
for the period 2000- 2005 and the projections for period 2010 - 2050. See Appendix A for more details.
China’s electrification and the smart grid
China now pouring investments into upgrading its national electricity grid
China (NDRC) anticipates that the grid will have to carry current twice the current level
of 1500 TWh – i.e. up to 3000 TWH of electricity by 2020
This will be by far the largest such electric power system in the world
China has already had substantial reforms of the electricity sector – privatizing stateowned eolectric power monopolies and introducing competition
Now it is upgrading the grid with IT (both for managing fluctuating inputs and demand)
and introducing new HVDC long-distance lines to link sources of power in the west
eastern seaboard cities
This is an example of China leapfrogging to world leadership in smart grid
implementation
China’s projected national grid with main HVDC lines
Source: State Grid Corporation of China
Investment in electric power: generation vs. distribution
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Source of primary data: China Electricity Council
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China’s High-Speed Rail plans to 2020:
North-south and East-west corridors
Source: Ministry of Railways, China
China: Energy intensity, efficiency, carbon intensity
Energy and carbon intensity now monitored extremely closely in China
C/Y = (C/E) x (E/Y)
C/E ‘Carbonization’ carbon produced per unit energy used
E/Y Energy intensity: energy used per unit GDP produced
C/Y Carbon intensity: Carbon emitted per unit GDP produced
Historically, industrializing countries exhibit rapidly rising levels of energy intensity
i.e. more energy used as GDP rises
Then they peak, and start to exhibit falling levels of energy intensity (i.e. improving
energy efficiency
This is the picture as revealed for the historical experience
(first plotted by Reddy and Goldemberg in a famous Scientific American article)
Historical trends in energy intensity
Source: Adapted from Wallace (1996) p.18
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China’s energy intensity, 1980-2008, and projected to 2050
Source of primary data: the historical energy intensity data up to 2008 is available from U.S. EIA; the energy intensity
projections for the period 2010-2050 is based on the authors’ calculation
China: Energy intensity, efficiency
China’s energy intensity did grow, from 2001 (when China entered WTO) until 2005 –
and it has been falling since then
This is historically unprecedented!!
China has in effect ‘tunnelled through’ the Environmental Kuznets curve
-- and come out the other side
Now improvements in energy efficiency are set as part of the 5-year plans,
e.g. improvement of 20% over the years 2006-2010
Will China be able to reach this ambitious target?
Progress in cutting energy intensity in China: 2006-2009
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Source of the primary data: National Bureau of Statistics of China
China: Improving energy efficiency
China is taking direct and decisive steps aimed at improving energy efficiency
There are new regulations on energy use in buildings
And there are new rules on fuel efficiency of vehicles
Note that these rules put China in advance of the US in terms of fuel efficiency (or
fuel economy)
35 mpg cf US standard of 25 mpg
Obama Administration taking action to improve US fuel economy standards
-- but still well behind China
Fuel economy in vehicles: China vs. other countries
Source: Adapted from An and Sauer (2004)
Note: 1, MPG = mile per gallon of gasoline; 2 dotted lines denote proposed standards
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China’s carbon intensity, 1980-2008, and
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Source of primary data: the historical carbon intensity data up to 2008 is available from U.S. EIA; the carbon intensity projections
for the period 2010-2050 is based on the authors’ calculation
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Carbon intensity across countries
Brazil
Source of primary data: the historical carbon intensity data up to 2008 is available from U.S. EIA; the carbon intensity
projections for the period 2010-2050 is based on the authors’ calculation
Hao – I suggest you adjust this chart to make it look more plausible – by modifying the reduction in China’s energy intensity
and/or by reducing advanced countries’ intensity below a straight line extrapolation
China and carbon emissions
While China’s energy intensity and carbon intensity is improving, these are
measures relative to GDP
While GDP growth continues at around 10% per year, even dramatic improvements
in energy and carbon intensity will be swamped by rising GDP
So carbon emissions will continue to rise
Other measures of resource intensity
How much steel will be used as China builds vast numbers of wind turbines?
How much concrete/cement will be used?
Good questions – need answers
Now consider policy and strategy
China’s energy strategies
China as latecomer is building renewable energy industries
Capturing latecomer advantages (e.g. in EVs, PVs, HVDC)
China’s policy settings designed to decarbonize the energy system
Fossil fuel subsidies being dismantled
Rationalization in electric power sector
New National Energy Commission created in 2010
Renewable Energy Law passed in 2005, implemented in 2006
Favours building of RE industries
Subsidies and tax advantages
Concession system for wind power in exchange for technology and local
supply chain creation
VAT remissions for domestically produced components
Government procurement as policy instrument
Government mandated market shares
Renewable energy industries being developed within clusters
Clusters and Special Economic Zones
The SEZs grew out of earlier experiences with Export Processing Zones
and Free Trade Zones (and note prior European experience with
competitive advantages of FTZs, e.g. free ports like Hamburg
or Bremen)
Sharp increase in the number of SEZs around the world –
from 79 SEZs across 29 countries in 1975,
to 3500 SEZs across 130 countries in 2006
The mean number of zones per country increased from 3 to 27
Employment within SEZs tripled in ten years,
from 22.5 million employed in 1997 to 66 million in 2006
China alone employed 40 million people in SEZs in 2006.
SEZs and the clusters they embody are phenomenal wealth-generating
machines
e.g. China Renewable Energy clusters in Wuxi; and Binhai (Tianjin Economic Zone)
Top 100 industrial clusters in China
Source: Li & Fung Research Centre
China’s 12° Five-year Plan
China’s 12° five year plan announced end 2010
To cover the years 2011 to 2015
Emphasis on promoting seven industries
Energy-saving and environmental protection – e.g. recycling (Circular Economy)
Next-generation IT – next-gen communications, TV/internet networks etc
Bio-industries – biopharmaceuticals, bio-agriculture, bio-manufacturing
High-end assembly and manufacturing industries – aerospace, rail and transport,
ocean engineering, smart mfg
New energy sources – nuclear, solar, wind, biomass, smart power grids
New materials – advanced structures, high-performance composites, rare earths
New energy-powered cars – electric vehicles, EV charging infrastructure
Now that China has overtaken Japan to become world #2 economy, emphasis in the
12° Five-year Plan is on the development of China’s own market and on
promotion of strategic industries (following the East Asian development model)
Investment in the seven strategic industries earmarked to be RMB 10 trillion over
next five years
This is why logistic industrial dynamics can be expected to drive uptake of Res –
of cumulative investment
Summary
China as a microcosm (!) of the global energy situation – and China prefiguring
many of the solutions
Energy supplies now seen as #1 strategic issue by Chinese leadership – as the power
driving the export and manufacturing machine
Coal and thermal capacity being rapidly expanded, but renewable sources (incl.
nuclear and hydro) being rapidly ramped up as well
By 2050, 33% of China’s energy will be renewable (ERI of NDRC)
China’s contribution to carbon emissions growing – but will probably be smaller than
that of US or Europe in 21° century
China’s renewable energy policies focus on production and building new industries,
rather than on consumption
The creation of renewable energy industrial clusters central to the strategy