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October 7, 2010

Obama’s Energy-Policy Goals Versus China’s

October 7, 2010
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The Obama Administration is continuing its goal of making the United States reduce its carbon footprint by enacting climate and energy legislation, although it may come in “chunks” rather than in one comprehensive bill. According, to President Obama, his proposed energy policy “is good for our economy, it’s good for our national security, and, ultimately, it’s good for our environment.”[i] Of course, those words are motherhood and apple pie, and could apply to almost any set of national goals posed in a convincing manner. But are those goals really the best for our economy, national security, and environment? Well, not according to the Chinese, who are taking a different path to continue their rapid pace of economic growth even in these dire times, by ensuring that future oil supplies are available, and having goals to increase their energy efficiency and decrease their carbon intensity. Might it be wiser to follow China’s lead?

Obama’s Major Energy Policy Goals

President Obama wants to reduce our over-reliance on fossil fuels, and he has made that his top priority for 2011. He wants to achieve that goal by reducing greenhouse gases and promoting renewable energy. The Obama administration’s preference is a cap-and-trade bill and a renewable electricity mandate. A cap-and-trade bill will put a limit on emissions of greenhouse gases and allow companies to trade credits so that those who can comply at lower cost would sell credits to other companies who would use them towards meeting their reductions. Many such bills have been proposed, and, in fact, the House of Representatives passed one this spring, though it was stalled in the senate. Included in some of those proposals was a renewable electricity standard that requires electric generating companies to produce a required amount of electricity from renewable sources of energy by a certain date or purchase credits from other companies that find it easier to comply.

If legislation doesn’t work, the Obama Administration has already set in motion a regulatory scheme to regulate greenhouse gases. The Environmental Protection Agency (EPA) is ready to control greenhouse gas emissions through the Clean Air Act. Beginning January 2011, the EPA will require facilities that need to obtain New Source Review permits for other pollutants based on the Clean Air Act to include greenhouse gases in those permits if they increase their emissions of those gases by at least 75,000 tons of carbon dioxide equivalent per year. Six months later, beginning July 1, 2011, the rule will be extended to additional facilities. The rule is “tailored” to be primarily aimed at power plants, refineries, and large industrial establishments, exempting smaller establishments such as farms, schools, and restaurants. According to EPA, the rule will encompass facilities that are responsible for 70 percent of the greenhouse gases from stationary sources.[ii] Although EPA wants to finalize the rule before January 2, 2010, there are a number of legal challenges to the rule, and it is anticipated that there will be legal delays.

How Is China Dealing With These Issues?

China has for a long time stated that they would not agree to fixed targets for greenhouse gas emissions reductions, but instead, they would reduce greenhouse gas intensity. Greenhouse gas intensity is the amount of greenhouse gas emissions per unit of Gross Domestic Product (GDP). Last year, China pledged it would cut the intensity of its carbon (the largest component of greenhouse gases) by 40 to 45 percent by 2020 from its 2005 level.[iii] One way to lower it is to increase energy efficiency and reduce energy intensity, the amount of energy used per unit of GDP. In 2005, China’s 11th Five Year Economic Plan included a goal of reducing energy intensity by 20 percent between 2005 and 2010, which they most likely have exceeded, according to forecasts from the Energy Information Administration.[iv] The United States has been reducing its energy intensity for decades, having reduced it by over 40 percent between 1980 and 2008.[v]

China is willing to become more energy efficient as long as it does not hurt its economy. Reducing greenhouse gas emissions requires increasing the cost of fossil fuel-burning technologies through technology modifications that are not yet commercial or through the substitution of more expensive technology, which may also result in making some perfectly good existing technologies obsolete. The extra costs are passed onto consumers through their purchase of goods from manufacturing companies, power plants, and industrial facilities. Firms that cannot handle the increased cost based on their competition, at home and overseas, will either go under or move offshore where energy costs are more affordable.

China’s Energy Path

China is building renewable technologies, particularly hydropower and wind power, but it is also building coal-fired and nuclear power plants. In 2009, China built about 13 gigawatts of wind turbines, 3 gigawatts more than the United States, but they also built almost four times more total capacity than the United States, with the other technologies being mainly hydropower and coal. So while wind turbines represented about 55 percent of all of the new capacity built in the United States in 2009, it represented less than 20 percent of China’s new capacity.

The Chinese government has a target of building 300 gigawatts of hydroelectric capacity by 2020. That is almost four times the hydroelectric capacity the United States has currently or expects to have by 2020. China’s Three Gorges Dam project, which many at one time thought was not doable because of its engineering complexity, was completed in 2008 and now China plans to increase the capacity at that facility to 22.4 gigawatts by 2012, an additional 4.2 gigawatts. China also has projects on the Jinsha and Yalong rivers, scheduled to be completed within the next 5 years.[vi]

China has a goal, not a mandate, to produce 15 percent of its energy from non-hydroelectric renewables by 2020.[vii] China’s wind construction program has been aided by the Clean Development Mechanism of the United Nations, where wealthy countries can earn credits for greenhouse gas reductions by funding qualified renewable projects in developing countries. China was the main beneficiary of the U.N.’s program for many years.[viii] In fact, about 30 percent of their wind capacity is not operational because it is not connected to their electric grid.[ix]

China is the world’s largest consumer of coal, using more than three times the amount of coal that the United States uses. In 2009, China’s steel industry, which is fueled mainly by coal, increased by an estimated 13 percent. While China’s coal reserves are the third largest in the world, behind those of the United States and Russia, its production is not sufficient to meet its growing demand, and it must import coal from overseas and inland from Mongolia and Russia. To make coal imports more cost competitive, China removed its coal import tariffs, is planning to build strategic coal stocks to protect against volatility in coal import availability and prices, and is obtaining an influx of dry bulk carriers to lower the cost of freight shipments.[x] It surely does not look like China will be giving up consuming coal, the fossil fuel with the greatest carbon emissions, any time soon.

China currently has 24 nuclear plants under construction and more starting construction soon.[xi] Four AP 1000 reactors are under construction at 2 different sites: Haiyang and Sanmen.[xii] These are the same reactors that the U.S. Nuclear Regulatory Commission (NRC) has ruled need additional analysis, testing, or design modifications of the shield building in order to ensure compliance with NRC requirements before they can be constructed in the United States.[xiii] China expects to achieve a total nuclear capacity of 80 gigawatts by 2020, and 200 gigawatts by 2030,[xiv] double the total nuclear capacity of the United States.

China has become the world’s largest market for new vehicle sales, surpassing that of the United States. In 2009, light-duty vehicle sales reached 13.6 million in China, 3.3 million more than in the United States. Car sales in China grew by 50 percent in 2009, aided by government subsidies and incentives for small car purchasers and buyers in rural areas.[xv] To fuel its expanding fleet of vehicles, China needs to have an adequate supply of oil imports, because its own oil reserves represent only 1.5 percent of the world’s total.[xvi] To do that, it has invested widely in foreign countries with oil potential. China has spent nearly $200 billion on oil deals during the past few years, joining with more than 19 countries—including Russia, Turkmenistan, Kuwait, Yemen, Libya, Angola, Venezuela, and Brazil—and paying for exploration, production, and infrastructure construction, as well as extending “loans for energy.”[xvii]China lends money to countries to build power plants, highways, and other projects that will be repaid in the future with crude oil. Most recently, state-owned Sinopec (China Petroleum & Chemical Corporation) invested $7.1 billion in Brazil’s Repsol, giving China a 40 percent stake in that business and access to Brazilian offshore sub-salt oil fields.[xviii]

Conclusion

China’s economy is booming, even while much of the rest of the world is finding it difficult to recover from the global recession. China knows it needs affordable energy to continue its economic growth, so it is not mandating renewable standards nor is it in favor of cap-and-trade programs to reduce greenhouse gas emissions. Rather, it is ensuring oil supplies through its “energy for loans” program, has removed import tariffs on coal and plans to stockpile it as a hedge on availability and price, is setting goals for constructing all sorts of power plants to ensure an adequate electricity supply, and like us, is reducing its energy intensity. We might want to follow China’s lead in pursuing all forms of energy rather than promoting policies that will limit the most affordable energy sources, reducing our ability to compete globally.



[i] The Washington Post, Policy on energy could change, September 29, 2010

[ii] The New York Times, EPA Issues Final ‘Tailoring’ Rule for Greenhouse Gas Emissions, May 13, 2010, http://www.nytimes.com/gwire/2010/05/13/13greenwire-epa-issues-final-tailoring-rule-for-greenhouse-32021.html

[iii] U.N. Climate Head: World Must Find Common Ground, Oct. 4, 2010, http://www.cbsnews.com/stories/2010/10/04/tech/main6925140.shtml

[iv] Energy Information Administration, International Energy Outlook 2010, http://www.eia.doe.gov/oiaf/ieo/index.html

[v] Energy Information Administration, Annual Energy Outlook 2010, Figure 39, http://www.eia.doe.gov/oiaf/aeo/demand.html

[vi] Energy Information Administration, International Energy Outlook 2010, http://www.eia.doe.gov/oiaf/ieo/index.html

[vii] USA Today, “China Pushes Solar, Wind Power Development”, http://www.usatoday.com/money/industries/energy/environment/2009-11-17-chinasolar17_CV_N.htm

[viii]CNN, U.N. halts funds to China wind farms, December 2, 2009, http://edition.cnn.com/2009/BUSINESS/12/01/un.china.wind.ft/index.html

[ix] Energy Information Administration, International Energy outlook 2010, http://www.eia.doe.gov/oiaf/ieo/index.html

[x] Energy Information Administration, International Energy Outlook 2010, http://www.eia.doe.gov/oiaf/ieo/index.html

[xi] World Nuclear Power Association, Nuclear Power in China, August 20, 2010, www.world-nuclear.org/info/inf63.html

[xii] Westinghouse News Releases, “Westinghouse and the Shaw Group Celebrate First Concrete Pour at Haiyang Nuclear Site in China”, September 29, 2009, http://westinghousenuclear.mediaroom.com/index.php?s=43&item=200

[xiii] Westinghouse Statement Regarding NRC News Release on AP1000 Shield Building, http://westinghousenuclear.mediaroom.com/index.php?s=43&item=203

[xiv] World Nuclear Power Association, Nuclear Power in China, August 20, 2010, www.world-nuclear.org/info/inf63.html

[xv] Energy Information Administration, International Energy Outlook 2010, http://www.eia.doe.gov/oiaf/ieo/index.html

[xvi] Ibid.

[xvii] Politico, To compete with China, U.S. must tap natural gas, April 13, 2010, http://www.politico.com/news/stories/0410/35689.html#ixzz0kyYru8gb

[xviii] Money Morning, China Continues Game-Changing Energy Moves with Sinopec’s $7 Billion Brazil Buy, October 4, 2010, http://moneymorning.com/2010/10/04/sinopec/


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