China ratchets forward with energy efforts

By Frank-Jürgen Richter

Global Times, March 15, 2017

During China’s annual two sessions last week we saw the Chinese leaders taking a sober, measured view of the future, while in the US, President Trump continued to irritate the media and his own administration with his continuous tweets. We don’t yet see the newly elected US government projecting stable economic policies. In contrast, the widespread stability within China should ensure growth continues smoothly.

Headlining this year’s two sessions both President Xi Jinping and Premier Li Keqiang emphasized that China’s projected growth was about 6.5 percent, indicating that they would be happy if it is higher, but not too upset if it is a little lower as they acknowledge the present global turmoil. According to the Organisation for Economic Co-operation and Development, global GDP growth is projected to pick up modestly to 3.3 percent through 2017, though India and China are tagged at 7.3 and 6.5 percent respectively – though India grows from a much lower economic base than China. I hope that President Xi will continue to strengthen business sentiment following his January call to strongly continue globalization, for it is only through concerted equable globalization that we can minimize the use of our finite global resources.

Returning to the two sessions, I noted the expressed themes of urban regeneration and growth. It was stated that some 13.14 million new jobs had been created through 2016 and that about 11 million more will be needed in 2017. It is quite a balancing act as many of China’s rural population continue to migrate to urban areas, and the growing middle class search for desirable products even while the government introduces reforms to tame unruly financial forces.

One of the government’s concerns is energy supply. Ever greater supplies of energy are demanded, most often as electricity, while globally there is a demand to reduce atmospheric pollution. China is one of the founders of the 2015 Paris Agreement to which all governments agreed. That meeting was a landmark success, initiated by an earlier meeting between President Xi and former US President Barack Obama when they jointly agreed to curb their greenhouse gas emissions. Thus China is expected to introduce more eco-friendly methods of iron and steel manufacturing and cement manufacturing. The country will also moderate overcapacity in its State-owned industries to reduce the coal extraction needed for electricity generation, favoring instead oil, gas or nuclear options with their lower potential of creating CO2. China will also implement greater renewable electricity generating capacity from solar, wind, hydro and geo-thermal sources.

The Paris Agreement contained pledges by governments about their future levels of pollution via their Nationally Determined Contributions wherein they state how they will evolve their modes of energy creation. BP’s 2016 annual Statistical Review notes the slow growth of “new fuel” consumption: renewables hit 2.8 percent of energy consumption worldwide in 2015, an increase of 0.8 percent in 10 years, while oil reached 32.9 percent of worldwide energy consumption and coal and natural gas accounted for 29.2 percent and 23.8 percent, respectively. BP suggests that natural gas, as it is much less polluting than coal, will be the substitute to combat pollution.

We must not forget that pollution arises not only from the consumption of energy sources, like fossil fuels used massively for electricity generation, but also from inefficiencies, as heat escaping from buildings, and the transport sector. As GDP rises everyone will consume more energy. All governments (and the Chinese are no exception) expect a global doubling of GDP over the next 20 years but they will attempt to restrict their energy growth to only 30 percent or so. Premier Li at the People’s Congress stressed innovation and entrepreneurship to increase energy efficiency to reduce China’s energy intensity and help it meet its Paris Agreement targets.

These changes in the commercial sector of China’s vast enterprise, including populating and re-jobbing new cities, result in reducing real poverty and eliminating fuel poverty for millions more. The transparent policies represent a commitment to the management of an intricate social and fiscal stability program. But, the International Energy Agency just announced in their 2017 Five-year Forecast that oil supplies will tighten in the coming years, creating future concerns for China. With oil priced at $50 it made no sense to invest in new extractive capacity. Plus US shale oils were gushing. It was inevitable that multi-national exploration teams were held back. New oil and gas fields will be found in costly places – in deep off-shore seas and in very cold places like the Arctic – and it is inevitable that fuel prices will rise. But the short-term effect of low fuel prices has been the too-low income of the oil majors, and thus their cost-cutting and lack of exploration.

Such future trends are the bedrock of the Chinese government’s careful planning. I am pleased to see the deep concern about the Chinese people expressed in the targets of the People’s Congress. One aim is to nurture a sense of long-term purpose and to navigate smoothly as though by an expert helmsman facilitating guided changes in strategic directions.

The author is founder and chairman of Horasis, a global visions community.