Renewable energy in China, a strategic future?
Rhett Butler
August 2, 2005
With a host of environmental and domestic social concerns -- and potential future international conflict -- China could be well suited to pursue renewable energy sources.
China's failed bid for American petroleum firm Unocal may prompt it to further focus on its development of alternative energy sources.
While China has been actively investing in exploration and development operations in Africa, South America, and other parts of Asia over the past five years, China has also significantly expanded its interests in renewable energy sources including wind, solar, biofuels, tidal, and small hydroelectric dams.
In February 2005, the government passed a renewable energy law that both requires power operators to buy electricity from alternative energy providers and provides economic incentives to such producers. China is striving to reduce its dependence on coal, which supplies 65-70% of the country's energy needs but is responsible for a number of its energy-related environmental problems. According to a recent report by the World Health Organization (WHO), seven of the world's ten most polluted cities are in China and almost two thirds of the country's largest cities fail to meet the organization's air quality standards. With its use of unwashed coal, China is the planet's largest emitter of sulfur dioxide and acid rain plagues about a quarter of the countryside. The World Bank estimates that pollution is costing the country 8-12% of its $1.4 trillion GDP in direct losses (The Economist).
China has expressed a strong interest in cleaner coal-based technologies like coal liquefaction and gasification, but the government appears to put official hope in renewable energy, setting a target of 12% of its power generation capacity coming from renewables by 2020 -- up from a mere 3% in 2003. The government's interest in reducing China's use of coal and petroleum products extends beyond environmental and health concerns; it sees both the strategic value of mitigating its reliance on foreign oil and the economic advantages of being on the technological leading edge of energy production.
The passage of the Renewable Energy Promotion Law appears to be the first step in making this goal a reality. The legislation, which takes effect in 2006, will give funding and tax incentives to renewable energy projects. Environmentalists hope the sheer size of the Chinese market will spur further interest in the economic prospects of renewable energy well beyond the borders of China.
China's appetite for oil
With its massive population, surging economy, and nascent car market, China has become the world's second largest consumer of petroleum products and the number two producer of carbon dioxide, trailing only the United States. The International Energy Agency predicts that by 2030 Chinese oil imports will equal current imports by the U.S. The country's demand for oil, which the US Energy Information Administration projects will increase by 130% to 12.8 million barrels/day (bbl/d) by 2025, is commonly cited as a major contributing factor to the recent run up in global oil prices. Economists have found a close correlation between Chinese demand for oil and crude prices in recent years.
"The development of China's new renewable energy law, which is expected to be finalised early next year [2005], has generated great interest internationally. China's anticipated entry into the global renewable energy market is expected to have a profound impact on the global industry," said Li Junfeng, Secretary General of the Chinese Renewable Energy Industry Association, in a release from environmental group, Greenpeace. 'We have spent a lot of time and energy learning from the successes and failures of our partners in Europe and around the world. We believe that this law can start a renewable energy revolution in China."
China is off to a quick start in its renewable energy push. The market for wind energy in China grew by 35% in 2004, while the government has sponsored research into the development of fuel cells and tidal power station technologies. In December 2004, the YaSheng Group, a $1.5 billion China-based agricultural and biotechnology conglomerate, purchased 80% of Montana-based fuel fuels firm Sustainable Systems, LLC, a maker and developer of biorefineries and bio-based fuels. With car demand expected to grow 12.5% this year, China, which already has the world's largest biofuels plant, is working with European agencies to see how plant matter and animal waste-based fuels might serve as alternatives to fossil fuels.
All these developments are promising but whether China can actually meet its renewable energy goals is another question. With its decentralized government and historically poor local enforcement capabilities, only time will tell. An economy fueled by domestic renewable energy is certainly more sound than one built around polluting hydrocarbons lying in distant and sometimes hostile lands.
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