Good Energy in China

1. What is “Good Energy” for China Good Energy in China Michael Huston Energy Law Spring 2006 Michael Huston mhuston@kentlaw.edu Energy Law, Spring 2006

2. Introduction • Problem: • GHGs from China threaten to offset reductions in GHG emissions made by developed nations • China is expected to double its GHG emissions by 2020, and quadruple GHG emissions by 2050 [1] • China to pass US as largest GHG emitter around 2020 [2] • Est. 60% of future GHG emissions will be from Asia [3]

3. Outline • I. Background • Identify the key roles China plays which steer energy policy and the points of tension arising from these roles • II. Evaluate “Good Energy” candidates for China… • by looking at 1. Current status of source, 2. Outlook, and 3. Obstacles facing the source and changes necessary in order to make it good energy in the future • III. Suggest policy ideas for increasing the use of good energy sources

4. Background (1) • What makes China unique? • Several characteristics/ points of conflict which are likely to influence China’s energy decisions • Role #1: Emerging economic superpower • Demand for energy fueled by economic growth has outpaced generating capacity increases • In 2004, energy shortages in 24/31 provinces [1] • China needs more energy now!

5. Role #2: Responsibility of raising the quality of life for hundreds of millions of people Challenges as a result of strain caused by population/ geography 1.3 billion people, most in the world Population, wealth concentrated along east coast Poverty: In 2005, 200 million people living on less than one dollar per day [1] Population Distribution Map [2] Background (2)

6. Background (3) • Role #3: Key player in global environmental movement (by virtue of roles 1 and 2) • Domestic Pressure • Tendency for government to address local pollution issues • World Bank: 16/20 most polluted cities in the world [1] • Environmental problems costing China billions annually [2] • International Pressure • Kyoto Protocol- non-Annex I country so no binding obligations • Montreal Protocol- eliminate manufacture of CFCs by 2010. • Is environmental sustainability compatible with economic development and raising the quality of life for such a large number of people?

7. Good energy addresses aforementioned roles • Good energy must: • Be able to supply energy affordably to large number of people, sustain rapid economic growth, and minimize the environmental impact of development domestically and internationally while making efficient use of the resources China currently has • How can this be done? Economy Envmt. Quality of Life ResourceEndwmnt.

8. Primary Energy Sources • Focus on electricity generation through… • Coal • Natural Gas • Nuclear Power • Renewables • Why? • Shouldn’t everyone have electricity? • Significant percentage of total GHG emissions attributable to electricity generation. • I omit energy in transportation • Recent increase in number of automobiles. China now the world’s 3rd largest auto market [1]

9. Coal (1) • Current Status of Coal • World’s largest producer of coal • China has enough to last for several hundred years at mid 1990s rate of extraction [1] • Roughly ¾ of China’s electricity comes from coal [2] • Mining coal is labor intensive and provides jobs • Outlook • Demand for coal will rise, but coals share of energy generation will decline • China wants less than 60 % of energy generation to come from coal by 2020 [3]

10. Location of Coal

11. Coal (2) • Challenges facing the coal industry: • 1. At mines: • Safety • Environmental concerns • Efficiency • 2. At power plants: • Environmental concerns • Inadequate infrastructure • Inefficient domestic uses

12. Coal (3 ) • Addressing the challenges to make coal good energy for China. What future changes are necessary? • 1. At mines: • Do away with small scale mining • 2. At power plants: • “Coal by wire” - Locate power plants by mines • Clean coal technologies • Coal gasification • Supercritical boilers • Beyond electricity generation: coal liquefaction

13. Natural Gas (1) • Current Status: • Currently the source of only 3% of energy supplied [1] • Recent large investment: $24 b. pipeline from the west connecting Shanghai and SE China [2] • Pipeline from Russia to South Korea via China? [3] • Discovery of large natural gas field in 2001; production began in 2005 [4] Launch of Chinese LNG Tanker

14. Natural Gas (2) • Outlook for natural gas • Can natural gas meet 10% of China’s total energy demand by 2020? [1] • Benefits: Environmentally advantageous and provides energy portfolio diversity • Drawbacks: • Low natural gas endowment • Expensive • Inadequate legal framework to encourage investment

15. Natural Gas (3) • China’s future with natural gas • Biggest obstacle is cost: • Natural gas 10x more expensive in Shanghai than in Thailand [1] • Coal bed methane • Expensive to recover, but may soon be economical source of natural gas as prices of natural gas increase

16. Nuclear Power (1) • Current Status: • As of July 2005, 9 operational nuclear reactors and plans to build 30 more [1] • New reactors commissioned at a rate of nearly two per year between 2005 and 2020 [2] • Even if goals met, nuclear power will supply only 4% of electricity needs in 2020 [3]

17. Nuclear Reactors (2006)

18. Nuclear Power (2) • Benefits of using nuclear power in China • Advantageous for areas away from coal mines and hydroelectric power resources • Makes sense as baseload power source in populous areas • Is China ready for nuclear power? Possible obstacles include: • Safety/ adequate regulation • Waste disposal • High initial investment costs • Dependent on foreign technology

19. Nuclear Power (3) • China could benefit from using nuclear power plants with same reactor design to minimize capital and operating costs • French model = savings • Must consider cost of the plant throughout its entire lifecycle- waste disposal, closing the plant, and security

20. Renewables (1) • Current Status: • Two primary sources of renewable power: • Hydroelectric Power • Three Gorges Dam • Other major hydroelectric projects approved late 2005 • Wind • Currently generating 600 MW from wind [1] • Greater potential?

21. Three Gorges Dam- World’s Largest Hydropower Project

22. Renewables (2) • Outlook: • China pledged to be generating 10 percent of power through renewable sources by 2010; 12% by 2020 [1] • Legislative encouragement- 2005 law provides for reduction in tariffs for renewable sources [2] • Short term future- small scale hydro electric [3] • Long term future- wind [4] • Challenges: • Renewable resources tend to be located far away from where power is needed • Renewable sources, while reducing GHG emissions, can be costly in other ways

23. Great potential for rural applications China Township Electrification Program- provided power to 1000 villages [1] Plans to bring electricity to 20,000 more rural villages [2] Windmill in rural China Renewables (3)

24. Summarizing Energy Source Projected Growth Trends (1995)

25. Choices Confronting China • China appears willing to focus on national/ international environmental problems • 1997 Energy Conservation Law [1] • 2005 Asia-Pacific Partnership on Clean Development and Climate [2] • US-China Renewable Energy Development and Energy Efficiency Protocol [3] • Question facing China now is where to invest money • “Good Energy” sources useless without proper implementation

26. Getting to Good Energy • Two steps towards use of good energy in China: • 1. Better governmental/ institutional infrastructure to develop and implement policy • 2. Policy geared toward maximizing efficiency and the use of market mechanism to incorporate environmental costs into the price of energy

27. Institutional Infrastructure • Stronger central energy policy-making and regulatory authority required • This allows for improved enforcement • Greater government accountability • Implement NEPA-like statute holding the government and state-owned enterprises to a high environmental standard?

28. Policies for Getting to Good Energy (1) • To produce $1 million in GDP, China requires 2.5x the energy of the US, 5x the energy of the EU average, and 9x the energy required by Japan. [1] • Investments in efficiency necessary • Evaluation of China’s Energy Strategy Options report “strongly recommends prioritizing investment in energy efficiency rather than pouring money into expanding supply.” [2] • Is this possible? • Should not be done to the exclusion of expanding supply. • Efficiency should be part of broader policy seeking to incorporate full cost of electricity generation into prices

29. Policies for Getting to Good Energy (2) • Policy possibilities- incorporate total cost of producing power • Taxes • Increasingly relying on taxes rather than admin. orders • GHGs and chopsticks • Market based solutions • Cap and trade • Application to coal mining • Environmental Adder • Subsidies

30. Conclusion • Half-century transition time for new energy source to be dominant • In the meantime, what is good energy for China? • Potentially all sources • Primary short term goals should be to maximize efficiency in electricity generation from coal while continuing to increase relative percentages of renewables, natural gas and nuclear power. Energy policies should focus on efficiency and providing the electricity generators market-based incentives to use clean technologies. Natural Gas Coal Nuclear Rnwables