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RICE

UNIVERSITY Energy and Environment in

China

Kenneth B Medlock III

Senior Research Fellow in Energy Studies, James A Baker III Institute for Public Policy

Visiting Professor, Economics Department

Rice University

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RICE

UNIVERSITY

Framing the discussion

The following appeared in a recent article in the Washington Post,

“…the water in five of China’s largest rivers is so polluted it is dangerous to touch because it causes skin diseases; the Huai River, in the fertile province of Anhui, is filled with garbage, yellow foam and piles of dead fish. Several of the country’s main waterways, including the Yellow River, a vital artery, run dry before reaching the sea. More than 600 million Chinese, roughly half the country’s population, now drink water contaminated with animal and human waste…”

While these statements may contain an element of shock value, they should nonetheless raise awareness that China has challenges to face if it is to continue its torrid pace of economic development.

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RICE

UNIVERSITY

Framing the discussion

The attainment of higher standards of living for all citizens is a prime factor in motivating economic progress.

Energy is crucial to economic progress.

Most energy services are facilitated by the combustion of fossil fuels (petroleum, natural gas, and coal)… about 86% globally in 2002.

The combustion of fossil fuels releases sulfur and nitrogen compounds, and soot and particulate matter, and carbon monoxide. These present immediate health risks.

The combustion of fossil fuels also releases carbon dioxide. (However, it is unlikely this ranks high on the list of priorities.)

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RICE

UNIVERSITY

Energy, Environment, and Economic Development

Energy use per person increases with GDP per person

0

500

1000

1500

2000

2500

3000

3500

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000

Real GDP per capita 1985 PPP $

Final EnergyConsumption

per capita kg oil eq

Total

Transport

Industrialand

Other

Residentialand

Commercial

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RICE

UNIVERSITY

Energy, Environment, and Economic Development

Emissions are a function of total energy consumption Emissions rise with energy use, absent the introduction of

technologies aimed at reducing emissions per unit energy consumed

Emissions are a function of primary fuel composition Coal combustion results in greater emissions of SOx, NOx,

particulate matter, and CO2 per BTU of energy output than either petroleum or natural gas

Natural gas is the cleanest of the fossil fuels Hydro and Nuclear are “zero” emissions energy sources,

but each comes with its own costs

Emissions are a function of the technology employed in energy-using capital equipment

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RICE

UNIVERSITY

China: Energy Today

Per capita energy use in China is only one-tenth of that in the US…

33.3

339.1

0

100

200

300

400

China US

million BTU

A result of economic

development…

USEnergy =

10.2*ChinaEnergy

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RICE

UNIVERSITY

China: Energy Today

…but an enormous population means that total energy use is just under one-half of that in the US.

43.1

97.7

0

50

100

150

China US

quad BTU

An offset t ing result

of populat ion…

USEnergy =

2.2*ChinaEnergy

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RICE

UNIVERSITY

China: Energy Today

Coal dominates China’s energy mix Coal use in China is about 65% of total primary

energy requirement. While coal’s share is down from 10 years ago, total

coal use is still on the rise.

Chinese Primary Energy Supply, 1992

Hydro

4.79%

Petroleum

19.01%

Natural gas

2.08%

Nuclear

0.02%

Coal

74.09%

Total Primary Energy Supply

29.3 Quadrillion BTUs

Chinese Primary Energy Supply, 2002

Hydro

7.24%

Petroleum

24.53%

Natural gas

3.10%

Nuclear

0.55%

Coal

64.58%

Total Primary Energy Supply

43.2 Quadrillion BTUs

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RICE

UNIVERSITY

China: Environment Today

“Environment pollution from coal combustion is damaging human health, air and water quality, agriculture, and ultimately the economy.” – excerpt from “China:

Environmental Issues” in the EIA’s Country Analysis Briefs

A 1998 report by the World Health Organization placed 7 of the 10 most polluted cities in the world in China. As of 2003, this was still true.

Carbon emissions in China rank second in the World behind the US, accounting for about 14% of the world’s total.

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UNIVERSITY

China: In Context China is at the base of the energy-development

curve.

0

500

1000

1500

2000

2500

3000

3500

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000

Real GDP per capita 1985 PPP $

Final EnergyConsumption

per capita kg oil eq

Total

Transport

Industrialand

Other

Residentialand

Commercial

Next 20 years at 6% growth

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RICE

UNIVERSITY

A Challenge Ahead Current pollution problems must be addressed

Per capita energy use in China will increase as economic growth progresses… (“Per capita” is crucial as China is home to 1.3 billion people)

Much of the projected increase in energy demand will come from the transportation sector as private motor vehicle stocks increase

0

100

200

300

400

500

600

700

$0 $5,000 $10,000 $15,000 $20,000

Real GDP/cap (1985 PPP$)

Pri

va

te V

ehic

les/

thou

san

d p

eop

le

Source: 1997 World Motor Vehicle Data Book and Penn World Tables 5.6

USA

China

South Korea

Italy

Japan

Spain

Portugal

Malaysia

Development path

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UNIVERSITY

A Challenge Ahead

However, there is no reason that energy use patterns in China must follow those of the industrialized world, particularly in transportation and electricity generation Energy-capital relationship dictates that energy use

will rise as energy-using capital stocks grow, holding utilization rates and efficiency constant. Most projections allow very little change in this respect.

Efficiency gains can more than offset increases in stocks and utilization. (Case study: US motor vehicle stocks and fuel use from 1978 to 1991.)

Similar arguments hold for installed MW of generation capacity

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RICE

UNIVERSITY

A Challenge Ahead

The potential for emissions of SOx, NOx, particulates, and CO2 will rise

The realization of this potential is subject to many factors Coal consumption Technology Government policy International pressures/assistance

An important point: We consume energy for the service it provides.

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RICE

UNIVERSITY

Meeting the Challenge

Pollution imposes a cost to society, which, when large enough, can slow economic growth… Rising health care costs, rising water treatment costs,

rising land costs as scarcity rents for arable/habitable land increase

These external costs of industrial activities can become large enough to divert resources from other activities that promote economic growth

…the problem of pollution must be addressed if long term progress is to be sustainable.

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RICE

UNIVERSITY

Key Aspects of Meeting the Challenge

Coal Ample domestic supply… about 11.7% of the World’s

estimated recoverable coal reserves Its use provides energy security benefits It is the most polluting of the fossil fuels

Technology Electricity generation

clean coal technologies (IGCC, coal gasification, coal liquefaction)

alternatives (Hydro, nuclear, wind) natural gas

Transportation hybrid engine motor vehicles hydrogen powered vehicles mass transportation

Policy action tradable allowances with strictly enforced realistic limits installation of “scrubbing” equipment encouragement of shift to alternative fuel sources

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RICE

UNIVERSITY

Key Aspects of Meeting the Challenge

Policy

Improved pollution controls on power plants to reduce SOx and NOx

Encourage high efficiency standards in transportation Encourage growth in natural gas-fired generation

Domestic resources adequate for the near term Imports an eventual necessity (LNG versus pipe)

Encourage the development of hydroelectric capacity Three Gorges Dam planned for 18.2 GW of capacity Yellow River Hydroelectric Development plans an eventual 15.8

GW of capacity Encourage wind power development

Largest potential on east coast Second highest in Inner Mongolia and northern Gansu Province

Development of large-scale electricity transmission and natural gas distribution grids

Enable production of electricity near fuel sources Eliminate need for residential coal and/or waste combustion