Around this time last year, I blogged about some misconceptions on U.S. and China’s installed wind capacity and wind energy generation, highlighting that the U.S. was producing 64% more wind energy than China in 2011 with the same amount of turbines. I explained the reasons for this including China’s difficulties with their Renewable Energy Law, grid connection bottlenecks, and performance gaps due to technology and wind resource issues. In this blog, I’d like to provide a quick update on the U.S. and China wind energy development using newly released 2012 data, and then offer up a prediction for the rest of the decade.

Using data from China Electricity Council, Bloomberg New Energy Finance (BNEF), Global Wind Energy Council (GWEC), and the EIA, here are the key facts for wind development in 2012:

• According to GWEC, the U.S. and China installed nearly the same amount of wind capacity in 2012 with 13.1 gigawatts (GW) and 13.2 GW, respectively. This was a record year for the U.S. (previous record was 10 GW in 2009).
• Of that 13.1 GW installed in the U.S., 5.5 GW was installed in December alone, as project developers rushed to bring their assets online ahead of the expiration of the Production Tax Credit (PTC, which later ended up being extended).
• China now has more grid connected wind capacity than the U.S. with 62 GW compared to the U.S.’s 60 GW, but the U.S. produced 40% more wind energy than China in 2012.
• 83% of wind turbines (or 5 of 6) in China are grid connected now, compared with a low of 63% in 2009, providing evidence that China’s grid connection bottleneck is easing.
• Wind accounted for 3.5% of total electricity generation in the U.S. in 2012, compared to 2.0% in China.

It seems that China is poised to overtake the U.S. in wind energy generation as well. Their year on year growth in installed capacity growth and generation is simply much higher than that of the U.S. Certainly, China has a more predictable development environment with its fixed feed-in tariff for wind, determined wind targets, and consolidated wind manufacturing base. China is expected to continue installing more than 15 GW in the coming three years.

Meanwhile, in the U.S., developers, manufacturers, and financiers alike experience a maddeningly uncertain development environment. To start, the PTC is well-known for its boom and bust cycles, and some say this trend is set to continue. Add to that the threat of low natural gas prices and the layoffs that diminish the political promises of green jobs. Despite these deep uncertainties, there are things to be optimistic about, and there are a number of reasons why I believe the U.S. will continue to produce more wind energy than China through 2020.

First, let me set up the case I am trying to defeat, depicted below, where China overtakes the U.S. in total wind energy generation in 2017. I’ve set up an optimistic case for China and a pessimistic case for the U.S. For China, there will be 16-17 GW of installations a year, as average capacity factors and the proportion of grid connected wind farms both increase over time. For the U.S., there will be a very slow 2013 with only a few gigawatts installed followed by a stellar 2014 with 12 GW installed (the expiration and extension of the PTC will cause this unevenness), then installations will plateau to 8 GW per year (roughly the average seen from 2008-2012). Average capacity factors will stay steady as improved technology yields decent capacity factors for even lower class wind resources.

In reality, I should be more pessimistic for China and more optimistic for the U.S. Through 2020, China will definitely see large amounts of installations and increased grid connection rates. However, poor wind resources, grid integration issues, and contractual violations (see discussion on PPA’s in last year’s blog) will keep average capacity factors low.

And perhaps it’s a bit of American pride in me, but I see significant upside for U.S. wind from 2015-2020. Wind equipment costs continue to fall. Shale gas drilling costs will increase, and natural gas prices will follow. Increasingly, utilities will want to buy wind power, not for RPS obligations, but for reasons of profit (as they already are doing). Offshore wind development will finally start appearing as Cape Wind finally comes to fruition and a mid-Atlantic offshore transmission backbone gets financed and built. Heck, even politicians might get their act together on tax reform and extend the PTC for a few years instead of just one. This time, they would be wise to add a sunset clause, whereby the wind industry is slowly eased off of subsidies for good. Any clean energy standard passed in the coming eight years will provide additional upside. Admittedly, this is a lot of optimism, but even if a number of these developments come true, I believe the U.S. will see 10 GW or more of installations per year out to 2020. The result: China will remain in second place and the U.S. will remain the world’s top wind energy generating country.

Source: Fine Art America

The recent run of air pollution in China, we now know, has been worse than the air quality in airport smoking lounges.  At its worst, Beijing air quality has approached levels only seen in the US during wildfires.

All of the comparisons to London, Los Angeles, and New York in the last century are beside the point.  Air pollution at these concentrations constitutes a public health emergency.  Fine particulate (PM2.5) concentrations of 250 µg/m³ are considered emergency levels. This past month, air pollution in Chinese cities has regularly been two, three, even four times this emergency threshold (and up to 40 times levels the WHO considers healthy).  In the worst cases, people are literally dying from this pollution.  And PM2.5 is only the tip of the iceberg.  China’s air is brimming with a heady mix of sulfur dioxide, nitrogen oxides, ozone, lead, mercury, and other assorted pollutants.

The recent “airpocalypse” is just the latest in a long series of environmental disasters in China that have the world wondering whether a tipping point is imminent. Will it be China’s equivalent of Rachel Carson’s Silent Spring in the United States (or the Minamata mercury poisoning cases in Japan, or the Great Smog of 1952 in the United Kingdom)? That is, a catalyst for genuine environmental change?

My own view is that China’s tipping point, in a sense, already arrived a few years ago.  But the official response has been wholly inadequate to the task.  Fundamental weaknesses in the way that China has approached its environmental protection efforts mean that the environmental crisis has continued to run amok.

What do I mean exactly?  I set forth my theory in greater detail in a forthcoming article in the Harvard Environmental Law Review, but here are a few highlights:

• The Moment.  In 2006, the Chinese leadership established a number of key environmental performance targets for energy efficiency and pollution reduction.  While these targets are well-known, less recognized was the dramatic elevation of the priority of these targets, making them important criteria in the job evaluations of local government leaders across the country.  This had never before been the case.
• Why It Has Not Worked #1.  The fundamental problem was that the main targets were not linked to environmental quality outcomes.  Rather, credit for pollution reduction might be granted, for example, for the construction of a wastewater treatment plant or installation of pollution control technology in a power plant.  So local officials were incentivized to invest in environmental infrastructure, and they happily obliged – engaging in a binge of investment in pollution control technology.  But there was much less focus on whether these investments were operated properly such that they actually reduced pollution.
• Why It Has Not Worked #2.  Finally, China has faced the same problems with gaming of targets that arise anytime hard targets are coupled with insufficient monitoring.  Outside of China, we have seen this in the context of policing targets, school testing, and college rankings, just to name a few.  In China, we now know that factories adjusted pollution control equipment to report false data, treatment plants were left idle, local governments forced emergency shutdowns of electricity to local public services (like hospitals) to meet energy efficiency targets, and so on.

The risk of China already having initiated substantial top-down action on the environment is that some officials will focus on the actions taken, rather than China’s actual environmental performance.  Last year, a Chinese bureaucrat famously asked the US Embassy to stop public disclosure of air quality information because it “took credit” away from steps Chinese regulators had taken.  But, Chinese citizens don’t care that China has installed an unprecedented number of flue gas desulfurization units in power plants.  They care about clean air.

Fortunately, the initial response to the “airpocalypse” shows some promise.  China’s newfound transparency in air monitoring and media coverage has been breath of fresh air, so to speak. Beijing has also moved relatively quickly on short-term emergency measures, such as limits on coal burning and vehicle use.

Yet, China’s problems are so vast and its growth so explosive that its first environmental tipping point, in a sense, requires another tipping point of its own to force necessary implementation reforms.

So, what’s to be done?  Here are a few thoughts:

• Establish hard targets for environmental quality outcomes against which governors and mayors are held strictly accountable.
• Announce harsh penalties to deter the inevitable impulse toward falsification of data.  Offer substantial rewards for meeting performance targets.
• Expand environmental transparency to empower the public to better “supervise the government.”  Environmental regulators are simply not powerful enough to monitor and withstand pressure from growth-oriented governments and corporations without this public support.
• Accelerate nascent efforts to increase the use of cleaner energy (natural gas, renewables) and improve energy efficiency, which have benefits for the economy and the environment.
• Rinse and repeat.  Make this a long-term campaign of continuous environmental improvement that lasts beyond the current wave of media attention.

Alex Wang is a visiting professor at UC Berkeley School of Law, where he specializes in environmental law and Chinese law and legal institutions. He was previously the director of Natural Resources Defense Council’s China Environmental Law & Governance Project.

This post was originally featured in  ChinaFile.com blog, which also includes related commentary from Orville Schell, Elizabeth Economy, Sam Geall,  Michael Zhao, James Fallows, and Deborah Seligsohn.

Chery’s QQ electric vehicle – cute, but will it sell? (Source: EVWorld)

New energy vehicles are one of China’s seven strategic emerging industries.  Unlike its other “new energy” counterpart industries, NEVs, and electric vehicles in particular, are still waiting for commercial breakthrough.

China’s clean energy targets are usually just temporary placeholders. Targets for wind and solar power installed have been met, surpassed, and updated numerous times. New research from Bloomberg New Energy Finance (BNEF), however, suggests that China’s 2015 and 2020 targets for electric vehicle (EV) rollout will not be met due to “weak capability throughout the supply chain.” China has become a dominant force globally in wind and solar manufacturing and deployment; their supply chains are capable albeit recently consolidated with wavering demand in an oversupplied market. So why is that EV’s may not find similar success?

China’s medium to long-term development plan for renewable energy had a 2010 wind target of 5 gigawatts (GW) installed and a 2020 target of 30 GW. China had already surpassed this 2020 target by 2010, with 31 GW of grid connected wind. Knowing the target would be surpassed early, China updated its target to 100 GW by 2020…or rather by 2015. Well now, BNEF forecasts that China will hit 100 GW slightly before 2015, while Greentech Media predicts that China will have more than 150 GW of wind capacity by 2015. In solar, an original 2020 target of 1.8 GW was updated to 20 GW, but that also was temporary. Facing weakened demand abroad for solar modules, China has increased the near-term 2015 target to 35 GW. Although China continues to face problems with grid connection and grid purchase of energy produced from all of these wind and solar farms being constructed, the fact remains that China is hitting its targets about 10 years early and increasing its targets by at least fivefold based on revised expectations of industries that have grown mature supply chains and reduced costs precipitously.

In the field of EV’s, China apparently skipped the setting of meaninglessly small targets that would need to be later upgraded. They have set a target for production and sales of EV’s to reach 500,000 by 2015 and 5 million by 2020. Actually, China may find that this target will need a downgrade not an upgrade, if the industry does not make some serious changes. BNEF predicts sales of only 1 million by 2020.

Even with generous consumer rebates offered for EV’s, sales numbers are dwindling. In the second quarter of 2012, apparently only 235 EV’s were sold in China. BNEF estimates “just 13,000 EV’s were sold between 2009 and 2011, including buses and public utility vehicles.” BNEF cites lack of consumer interest, lack of charging infrastructure, and lack of technological expertise as the three main factors plaguing the Chinese EV industry.

Lack of consumer interest is easy to understand. Just take a look at Exhibit A above, the “QQ EV” from Chery. Would you want to drive this toy? Kandi’s 28E looks equally as bad.  China’s new car consumers want status in their vehicle purchase. They are not going to find that from these second-tier manufacturer EV offerings.

Kandi’s buggy-lookin 28E (Source: Kandi)

BYD’s main EV offering, the E6, is more attractive, perhaps one reason why BYD recently got pimped out with a Zayed Energy Future Prize nomination in Abu Dhabi. Even if the car is attractive and affordable, a number of fires and accidents with electric vehicles in Shenzhen and Hangzhou have been well-reported in the media, decreasing consumer interest in EV’s further.

Forbes reports that a research institute under China’s State Council has published a white paper addressing how Chinese consumers might more quickly adopt EV’s. Given that battery costs are not coming down very quickly (a point echoed in last week’s interview with Richard Muller), the white paper suggests a business model of cheaper, swappable batteries. It also suggests fleet purchases, rental services, and local government promotion as the main near-term avenues for EV adoption.

Indeed, business models will likely play a critical role in the fate of the Chinese EV industry. While BNEF suggests that China needs to import foreign technology expertise to improve the industry’s prospects, I’m not sure that expertise exists yet. EV sales in the U.S. are nothing to write home, not even reaching 0.5% of total vehicle sales in 2012, and again, that’s with the generous rebates. Charging infrastructure, high battery costs, consumer interest, and business models remain wild cards in all EV markets globally. They just happen to be more pronounced in the immature Chinese market.

Calvin Quek of  Greenpeace East Asia

GLF:  First of all congratulations, I saw that photo spread [link here] of you and your Greenpeace colleagues and, I must say, you are looking pretty hip and fashionable these days!

CQ: Thanks, thanks, what can I say, I’m just trying to keep up with you, and green is the new black.

GLF: Well I was just kidding really. But let’s get serious. Last week, the China’s State Council unveiled its overall 12th Five-Year Energy Development Plan. First of all, why is this five year plan that supposedly covers the five year period from 2011 to 2015 released in 2013? Isn’t that kind of late?

CQ:  It does seem odd. The public release of this 12 FY Energy Plan took significantly longer, coming out 24 months into the 12th five-year period (2011 -2015), compared to the 11th Five Year Energy Plan, which was released 16 months into the 11th five-year period (2006 – 2010).To me, this suggests that the new Plan required greater and deeper rounds of consultations among various stakeholders.

It is also worth to point out that this overarching Plan is designed to encompass previously released sub-sector industry energy plans such as Solar Power (Feb 2012) (), Coal Power (Mar 2012),Wind Power (Sept 2012) and Emission Reduction & Energy Savings (Aug 2012), which themselves, given the increasingly complexity and size of China’s energy sub-sectors required stronger coordination across various government departments. Thus, the overall energy plan, which encompasses the sub-sector plans may have been delayed as a consequence.

GLF: To your point, the plan does indeed seem all-encompassing and employs an “all of the above” strategy. Anything about the plan that is particularly notable?

CQ: Yes, in fact the new plan significantly introduces 2 new indicators both never before mentioned in previous five-year plans. The first is a cap on primary energy consumption at 4 billion metric tons of standard coal by 2015. The second is a total electricity consumption cap of 6.15 trillion kilowatt-hours in 2015.

GLF: What is the reasoning for setting these caps?

CQ:  There are several reasons for this. First, clearly, China needs to improve its energy efficiency in order to reduce a growing dependence on gas and oil imports. At the same time, China wants to reduce greenhouse gas emissions and negative environmental problems such as air pollution, water scarcity associated with the overuse of coal, its primary energy source. Although China has committed to lower its carbon and energy intensity, without a indicative cap setting some bounds on the topline, gross energy consumption would rise as the economy continues to grow. China recognizes that it needs to do both – grow its economy and improve energy efficiency, and the caps are part of that equation. I would also point out that the analysis of the numbers indicates that the government’s new energy and electricity
consumption caps are in line with previously announced carbon intensity reduction target of 16% and energy intensity reduction targets of 17% by from 2010 to 2015.

GLF: Are these targets aspirational or legally binding? Or is there perhaps little difference as a practical matter? I am thinking of rolling blackouts that were forced by local governments towards the end of 2010 because local officials wanted to ensure that they met their local energy intensity targets set by Beijing.

CQ:  The new energy and electricity caps are indicative (预期性), whereas the carbon and energy intensity reduction targets are binding (约束性). But since the energy and electricity caps are consistent and serve to achieve the binding carbon and energy intensity reduction goals, perhaps this distinction starts to blur. Also notable is that China has made indicative targets that over time, after being stress tested with reality, eventually became binding targets. For example, carbon intensity targets in the 11 FYP was indicative, but became binding in the 12FYP. Another example is China’s new water consumption caps; it’s 2015 and 2020 targets are indicative, while its 2030 target is binding.

GLF: How meaningful are these targets?

CQ: Well that’s a good question.  It is important to put these targets in perspective.   The primary energy cap implies compound annual growth rate (CAGR) of 4.3% over the 12th five-year period, compared to 6.6% CAGR over the 11th five-year period. In the context of coal power, the production capacity is projected to increase to 4.1 billion tons in 2015 from 3.2 billion in 2010 assuming such a cap is in place.   So there continues to be a substantial growth in the use of coal, albeit at a slower pace. Coal-based energy consumption will be reduced to 65% from 2012′s 66.4%, but of course the total energy consumption in 2015 will be larger than in 2012.

Source: EIA

GLF: That is kind of sobering considering that the U.S. Energy Information Administration just came out saying that in 2011, China consumed almost as much coal as the rest of the world combined [see chart above].  So are we to expect continued bad news for air quality in China? And not to mention an exacerbation of its already dire water situation considering how water intensive the coal value chain—from extraction to processing to combustion and cooling—that coal power plants are?

CQ:  Well actually the plan is also noteworthy in that it introduced two significant and unprecedented environmental policies.  First, PM2.5 [small particulate air pollutants] made its debut in the plan, marking increased environmental and health concerns about air pollution linked to coal consumption. Only a week earlier, Vice Premier Li Keqiang, made strong public statements regarding the need to address air pollution. According to the Plan, the emission intensity of small particles generated from energy use should be cut by at least 30% [Section III, Point V. In Chinese: "能源开发利用产生的细颗粒物（PM2.5）排放强度下降30%以上。"]. Greenpeace believes that this requires emission reduction measures from coal-fired power plants over and above previous mandated SOX and NOX emission control requirements.

Second, water resource constraints related to coal power were mentioned the first time in a five year plan. In the introductory portion of the Plan, large amount of water overuse and pollution is specifically mentioned as major challenges [Section II. In Chinese: 大量水资源被消耗或污染，煤矸石堆积大量占用和污染土地，酸雨影响面积达120万平方公里，主要污染物和温室气体排放总量居世界前列。国内生态环境难以继续承载粗放式发展，国际上应对气候变化的压力日益增大，迫切需要绿色转型发展。].

Following this, the first sentence of the coal portion compels officials to take into account water resource and ecological capacity into consideration in the development of large scale coal bases. [Chapter III, Section II, Point I. In Chinese: 稳步推进大型煤电基地建设，统筹水资源和生态环境承载能力，按照集约化开发模式，采用超超临界、循环流化床、高效节水等先进适用技术，在中西部煤炭资源富集地区，鼓励煤电一体化开发，建设若干大型坑口电站，优先发展煤矸石、煤泥、洗中煤等低热值煤炭资源综合利用发电].

This acknowledgement of water resource constraints comes on the heels of 2 recently announced water policy measures. The first was unprecedented binding cap on water consumption of 700 billion m3 by 2030 by the State Council on Jan 2nd 2013. The second was a joint announcement on Jan 7th 2013 by the National Development & Reform Commission, the Ministry of Finance, and the Ministry of Water Resources, regarding water price reforms  aimed to encourage the efficient use of water and to discourage water wastage.

It is important to neither of these concepts, water constraints and PM 2.5, appeared in draft versions of 12 FY energy plan, and in the 12 FY sub-sector plan for coal, water was mentioned, but not PM 2.5 This indicates significant new thinking by policy makers regarding the environmental costs of coal power base development, and signals greater regulatory constraints on both planned and existing coal-fired power plants in China.

I should mention that on both air pollution and water resources, my organization Greenpeace working together with other partners such as the Chinese Academy of Sciences and Peking University, have provided research into these environmental issues. And I would also add that the excellent work by Green Leap Forward. I believe that your blog was one of the first to really come out to highlight the interrelationship between energy and water back in 2008 [here, here and here].

GLF: Thank you for the kind words. But this history of PM2.5 and water resource constraints are fascinating stuff indeed.

CQ: Yes, but recognizing the problem is just the start. There’s a lot of work to be done to truly address these issues. China’s continued commitment to deploy renewable energy will help – whether its wind, solar or biomass – these are generally carbon and emissions free and use far less water than their fossil fuel counterparts. The renewable targets such as 21 GW of solar and 100 GW of wind capacity by 2015 in the Plan are quite impressive, assuming, of course they figure a way to ensure that such projects are properly connected to the grid, which they have not always been in the past. But that being said, I think the Chinese government is more committed now to ensuring that renewable energy capacity expansion really translates into increased renewable energy consumption. In the 12 FYP, China has a binding target to increase its proportion of non-fossil fuel consumption from 8.6% in 2010 to 11.4% by 2015.

GLF: Well this is all good stuff. I don’t want to monopolize your time and I know you have important photo-shoots, I mean research, to attend to. Thank you so much for sharing your thoughts with GLF Nation.

CQ: My pleasure! By the way, you have any hair gel?

If Dr. Richard Muller, author of “Energy for Future Presidents” were President of China, he’d get the country to switch from coal to natural gas in a hurry.

Dr. Richard Muller is well-known for his popular science book and UC Berkeley course “Physics for Future Presidents”. While that volume explores a number of science and technology topics that a president might face including bio-terrorism, nuclear war, and space exploration, his latest volume “Energy for Future Presidents” focuses solely on energy through the lenses of energy security and climate change. Muller, a professor of physics at UC Berkeley and Faculty Senior Scientist at Lawrence Berkeley National Laboratory, has devoted much of the past five years to understanding our climate problem and our global energy system.

Last week, I had the opportunity to sit down with Dr. Muller and ask him a set of questions related to China’s energy situation. While his book is entitled “Energy for Future Presidents”, I also asked him to ponder “energy for current presidents” as well. That is, if he were Xi Jinping (and leaving aside the technicalities and intricacies of of how national policy, laws and regulations are made in China) what would be his energy policy priorities coming into office in March? In his response (beginning at 2:45 in the video), Muller reflects that a switch to natural gas is urgently needed and he expresses his support for the U.S.-China Shale Gas Initiative, which the Obama administration spearheaded in November 2009.  In future blog posts, Green Leap Forward will investigate the promise and perils that natural gas poses to China’s energy future.

Throughout Muller’s book, he keeps the reader aware of public perception of politically risky energy policies, say for instance the support of nuclear power in the wake of Fukushima or support of energy technology cooperation with a rising China. Yet, he remains a science adviser in this volume, and nothing more. Science has many answers, but it is the job of the president to communicate these answers — often a delivery of tough medicine amidst a range of misconceptions or mixed priorities. On solar, he says in his book:

Already US solar companies are being driven out of business by the cheaper Chinese cells. What’s the solution? How do you balance the value of a vigorous Chinese industry with the value of a vigorous US industry? Whatever the answer is, it’s beyond the ability of a science advisor to advise. Good luck with this one.

Even if Muller doesn’t have all the answers, you won’t regret reading this book. And all in good preparation because, hey, you might be president one day.

While Washington debates about whether to get serious on our climate and energy policies, Beijing this week released China’s five-year energy development plan, laying out an ambitious “all of the above” strategy that where lacking in specifics more than makes up for in vision (the plan, in Chinese; and Google translated). The wide-ranging proposal builds on a number of previous plans and targets designed to ramp up renewable energy and transition fuels, aggressively consolidate the coal industry, scale up large hydropower, and build a coastal nuclear development zone. I was struck by this map of projected energy bases and import lines:

China comprehensive energy bases

Starting with reducing demand, China’s optimistic energy consumption target for 2015 is 4.0 billion tce (tons of coal-equivalent), 0.1 billion tce lower than the target made back in 2011. For comparison, IEA’s New Policies scenario puts China at 4.3 billion tce in 2015. This is familiar territory for China, where the world’s largest suite of energy efficiency policies is already up and running (read here for more details). It is also familiar territory to overshoot these absolute targets while still meeting energy intensity targets (energy use per unit GDP), which do not indirectly restrict local economic growth.

Expanding supply occupies the majority of press attention, and in the plan China does not disappoint: major expansions in coal extraction, unconventional natural gas (shale and coal-bed methane), large hydro, nuclear and renewables are already underway in an “all of the above” energy strategy. Shale gas exploration is booming (with significant foreign interest) with ambitious production targets of 6.5 billion cubic meters in 2015, then increasing ten-fold by 2020. After 8 years of delay due to environmental protests, China also just announced its intention to continue hydro projects on China’s last free-flowing river, the Nu, in biodiverse Yunnan province. Renewables growth is set to continue unabated as Beijing has indicated its commitment to save floundering solar companies while maintaining feed-in-tariff support (here are the 2015 and 2020 renewable energy targets); though, ensuring adequate grid connection will be a perennial challenge as wind penetration increases.

Transmission/distribution networks and distributed energy build-out is picking up the pace in the 12^th Five-Year Plan, with concerted efforts on: ultra-high voltage electricity transmission lines from west to east, an ambitious oil and gas infrastructure (as the graphic above shows), and distributed solar and natural gas projects. Distributed solar now has a separate target (10GW) and distributed natural gas projects (which according to the plan are suitable for industrial parks, tourist areas and the like) should reach 1000 by 2015. Since most of the shale gas in the foreseeable decade is coming from Sichuan, expect that a majority of these demo projects happen (or don’t happen) there.

Finally, the usual calls for market and pricing reform adorn the plan, which are absolutely necessary to scale up clean energy and rationalize energy consumption. It calls for expanding peak and seasonal electricity pricing, as well as tiered pricing schemes and load penalties on industry. Given the $40 billion State Grid is spending on smart grid technologies and the planned 36 million new smart meter-equipped homes, some sort of pricing reform must be in the cards to capture the returns.

While China’s experience is far from perfect, it does demonstrate a basic fact: national energy strategies can guide markets to see the long-term potentials in new technologies, especially if those strategies move us out of a boom-bust cycle of uneven federal support for clean energy. For China to succeed in its 2015 and 2020 goals, it must move beyond vision and focus on concrete implementation challenges. For the U.S., we must first start with a vision — of the preferable, acceptable and unacceptable sources of energy given our long-term economic and climate challenges. Then, let us take seriously our polished policy papers.

This blog post was originally published on East-Winds on Jan 25.

Hundreds of workers were mobilized to clean up an aniline-affected site in Shanxi province on Jan. 8.
Source: China.org.cn

In this edition:
1. WATER: Aniline leak in Shanxi on Dec. 31 affects neighboring province.
2. ENERGY POLICY:    National Energy Conference targets almost 50GW of renewables to be added in 2013
3. AIR: National policy to scale up coal-fired plant denitrification tariff
4. COAL:  Eradication of coal-electricity dual-pricing system affects market
5. NUCLEAR: China resumes nuclear ambitions with “fourth generation” technology
6. SOLAR: Chinese Gov Vows $2B in subsidies as Overcapacity Plagues Industry
7. NATURAL GAS: Conoco Hunts for Shale Gas in China
8. NATURAL GAS:  More reserves found as successful exploration tenders announced
9. INVESTMENT: Brazil Taps China’s State Grid for Energy Project
10. GRID: China’s Electrical Grid Freeze UP
11. WATER: Danjiakou City economy suffering due to water pollution control
12. WATER: Beijing Tap Water getting worse, Expert says
13. WATER: Nestle Taps China Water Thirst as West Spurns Plastic
14. GOVERNANCE:  88 Environmental impact assessment agencies penalized by MEP
15. RAIL:  NDRC approves 840 bln yuan in metro lines
16. CARBON EMISSIONS:  Carbon intensity drops 3.5% in 2012; but 2011 witnessed record level emissions in first ever GHG bulletin

1. WATER: Aniline leak in Shanxi on Dec. 31 affects neighboring province.
The other big pollution story in the past month aside from “airpocalypse” concerned a chemical plant in Changzhi Cit, Shanxi Province that was reported to have leaked 38.7 tons of aniline into Zhanghe River (漳河) from a broken industrial pipeline on January 5th.  The leak was believed to have begun no later than Dec. 31 when workers discovered the situation.  Leaked aniline traveled along the Zhanghe River and reached reservoirs in neighboring cities including Handan, a city in Hebei Province with over 1 million residents.  Handan shut down part of its municipal water supply system on Jan. 5th and at least 15% of city population was still under impact on Jan. 6th.  Areas in Henan Province were also affected, as Zhanghe River is a tri-provincial major stream that flows through Shanxi, Hebei, and Henan.  30 tons of aniline were contained at nearby reservoirs after the leak was reported. [People's Daily] [Xinhua] [China.org.cn] [Sina English]

2. ENERGY POLICY:    National Energy Conference targets almost 50GW of renewables to be added in 2013
On January 7 and 8, a National Energy Conference hosted by the National Energy Administration (NEA) was held at Beijing setting national energy policy and development targets for the year of 2013.  Directors of the National Reform & Development Committee (NRDC) and NEA spoke at the conference and set policy directions in eight aspects: (1)    To increase domestic energy supply and to ensure overall stable energy supply throughout the year by promoting coal, shale gas, coal bed methane, and/or other unconventional oil and gas resources; (2) to develop new and renewable energy, and to install additional 21GW of hydropower, 18GW of wind and 10GW of solar photovoltaics, all this year; (3) to control total energy consumption by establishing long-term mechanism to adjust consumption structure; (4) to strengthen energy technological innovation, and to promote localization of key equipment manufacturing through major national scientific and technology projects; (5) to deepen reforms of national energy institutions, and to materialize the top-down, overarching planning of reforms with a clear roadmap, timetable, and overall reform scheme; (6) to promote international energy cooperation and actively participate in global energy governance; (7) to accelerate implementation of energy projects concerning public well-being, particularly people with little access to electricity; and (8)  to improve management of the energy sector in implementing energy planning, formulating industry policies, laws, and standards. [Gov.cn] [Xinhua] [China5e]

3. AIR: National policy to scale up coal-fired plant denitrification tariff
NRDC recently announced policy to scale-up its coal-fired denitration subsidy pilot program.   All coal-fired generating units nation-wide will receive a 8 yuan subsidy  for every 1000 Kwh of generation capacity in which they implement denitrification treatment processes.  The  pilot policy was originally implemented in fourteen provinces including Beijing, Shanghai, Gansu and Ningxia since November 2011 and eligible coal-fire units were subsidized at the same rate.  Statistics show that national nitrogen oxides emission decreased 0.24% in the first six months of 2012 (on year-on-year basis); average denitrification efficiency reached 40.3% and increased 16.1% comparing to 2010.
[Ditan360.com]

4. COAL:  Eradication of coal-electricity dual-pricing system affects market
State Council announced in the last week of 2012 that coal-electricity “dual-pricing system” would be phased out starting Jan. 1, 2013.  Coal-fired plants may not purchase coal at a favorable price pre-negotiated at beginning of each year through government mediated fixed price contracts, but will instead have to turn to the open market to purchase coal.  The discontinuation of the decade-old macro-control policy is consistent with the governments general push towards the “marketization” of the energy economy and is expected to have a significant impact in a market that previously saw up to 60% of coal-fired power run on coal procured through negotiated fixed contracts.  [State Council] [Reuters CN] [Time-Weekly] [China5e]

Schematic of planed HTGR nuclear units. Source: HazardEx)

5. NUCLEAR: China resumes nuclear ambitions with “fourth generation” technology
After a 20-month “freeze” period of nuclear construction in China, multiple nuclear power projects resumed along the east coast.  The State Council in November 2012 officially cleared the pause of nuclear, which is partially in response to the 2011 triple meltdown tragedy of Fukushima.  Shortly after the green light, a $475 million nuclear project by Huaneng that will be the world’s first commercial nuclear power plant with fourth generation features was announced. Located in Shidao Bay in the city of Rongcheng, Shandong province, the builder Shandong Shidao Bay Nuclear Power designed the 200 MW high temperature gas cooled reactor (HTGR) demonstration plant with the ability to automatically shut down in dangerous situations without danger to the core (also known as “passive nuclear safety”).   Some of its other benefits include lower outlet temperature, and higher generation efficiency compared to other reactors. The launching of this plant was originally scheduled for 2011, however public panic from the Fukushima plant that March delayed the procedures.   Nuclear projects in Jiangsu, Guangdong and Fujian have also resumed while the State Nuclear Power Technology Company (SNPTC) anticipates additional 5 GW of additional AP1000 third-generation pressurized water reactor nuclear power units to be installed.[People's Daily] [Xinhua English] [Xinhua Chinese]

6. SOLAR: Chinese Gov Vows $2B in subsidies as Overcapacity Plagues Industry
In December 2012, China’s Ministry of Finance has allocated an additional 7 billion RMB ($1.1 billion) to subsidize solar projects. This sum likely includes 1.82 million RMB of subsidies for 126 rooftop solar projects announced separately.  Combined with the 6 billion RMB given during the first half of 2012, a total of $2 billion has been given to generate 5.2 GW of solar energy. [Forbes] [China Daily]  The subsidy announcements coincide with the rampant overcapacity throughout the PV supply chain that has forced over 350 companies in China to completely stop operating last year.  While in 2011 there is a significant new influx of companies caused the number of Solar PV related companies to increase from 807 to 907, in 2012 nearly 300 of those companies declared bankruptcy, reducing the number to 704. In addition, 180 manufacturers organization are going dormant until supply and demand dynamics are rebalanced, leaving there to be only 524 manufacturers that are currently operating.  [PV Tech]

7. NATURAL GAS: Conoco Hunts for Shale Gas in China
In December ConocoPhillips signed an agreement with China Petrochemical Corp (Sinopec) to study shale gas exploration in the Sichuan Basin. This is the third official international oil company into China’s Shale-gas industry, following Royal Dutch Shell signing with PetroChina in 2009 and Chevron with Sinopec in 2011. With the Chinese government hoping to rapidly increase its shale-gas output, ConocoPhillips will drill two wells in a 3,900 square-kilometer area in the Qijiang Block in southwestern Sichuan province. No financial details were disclosed. [Wall Street Journal]

8. NATURAL GAS:  More reserves found as successful exploration tenders announced
Results of the second round of bidding on coal bed methane exploration rights are also published and successful tenders will soon be finalized in deals with Ministry of Land and Resources [China5e].  Just as well, because another 25 trillion cubic meters of exploitable shale gas has been located at Sichuan, Xinjiang, Chongqing, Guizhou, Hubei, Hunan, and Shaanxi [China5e].

9. INVESTMENT: Brazil Taps China’s State Grid for Energy Project
State Grid Corp. of China was chosen by the Brazilian government to build a 91- million reais ($438 million) power transmission project that calls for roughly a total of 9,931 kilometers, or 6,170 miles, of transmission lines. The longest single transmission line is planned to span 967 kilometers, or 600 miles. State Grid has been eyeing Brazil as a market because of its higher returns compared to similar projects done in China, which is highly regulated. The company hopes to at least quadruple its overseas assets from $8 billion to $30 billion by 2020. The chief executive, Cai Hongxian, plan to invest $5 billion in Brazil over the next five years with a main focus on transmission and generation.  [Wall Street Journal]

10. GRID: China’s electrical grid freeze up
The coldest winter in 28 years froze up some parts of the power grid in Southern China, but the overall electricity supply remains unaffected, says State Electricity Regulatory Commission.  The frozen grid occurred mostly in Hunan and Jiangxi provinces, Chongqing Municipality, Guanxi Zhuang Autonomous Region, Yunnan and Guizhou Province. In January 5th,  155 transmission lines operated by State Grid Corporation has been frozen and by January 6th, 199 power lines have been covered in ice.  [Powergrid International]

11. WATER: Danjiakou City economy suffering due to water pollution control
The Danjiankou Reservoir and its headwaters are affected by the world’s largest water diversion project that is designed to transfer relatively clean water from the Han River—a tributary of the Yantze River—downstream to the northern regions. This headwater region spans some of the poorest counties and cities in China and influences a population of about 10 million. Pollution control has shut down about 1,000 polluting firms, which results in tens of thousands of people losing their jobs due to environmental protection. Danjiankou city, for example, had its economic ranking drop from being one of the top 20 to 41st after factories were shut down and citizens were forced to emigrate.  [Xinhua]

12. WATER: Beijing tap water getting worse, watchgroup says
While Beijing Waterworks Group, the organization that is responsible for the water supply  insists that that tap water is safe and meets the national water quality standard, although it acknowledges and agrees with the Beijing Healthcare Association agree on is that “the city’s water has gotten more polluted in recent years.” Recently, the amount of nitrate has risen from 2mg/L to 5mg/L in over a period of six years.  In addition, reservoirs that used to be a drinking water source such as the Granting Reservoir are now becoming backup sources due to pollution. [China Daily] [Beijing Waterworks Group]

13. WATER: Nestle taps China water thirst as West spurns plastic
China is a rapidly growing bottled water market, as Nestle’s water business in China grew 27% in 2012. Sale of bottled water in China is projected to climb to $16 billion in 2017 from the $9 billion in 2012. Twelve years ago in 2000, sales totaled t only $1 billion. Currently China is Nestle’s eighth-biggest water market, and head of China’s Nestle Waters Gilles Duc projected that the country is “probably moving up one or two places each year”. About half the water Nestle sells in China are five-gallon (18.9 liter) jugs that are mostly delivered to homes via electric tricycles. Demand will continue to increase as as 7-% of China’s lakes and rivers have been polluted and people no longer rely on boiling as a preferred sanitation method. [Bloomberg]

Protestors hold a flyer that says, “Oppose forgery of environmental impact assessments.” Source: China5e

14. GOVERNANCE:  88 Environmental impact assessment agencies penalized by MEP
On Jan. 5th, Ministry of Environmental Protection (MEP) released a list of 88 environmental impact assessment (EIA) agencies that would be penalized for audit quality, management, staffing, and forgery problems.  Two agencies for forging EIA reports or providing false data were disqualified, another two were ordered to rectify within six months.  Eight agencies including the renowned Chinese Academy of Meteorological Sciences were degraded or mandated to reduce services range for inadequate staffing of EIA professionals.  26 agencies including three universities received warnings for violation of regulations or producing reports of poor quality. [China5e] The penalty from MEP is believed to have reflected the general lack of credibility and public trust of EIA agencies in China [China5e].

15. RAIL:  NDRC approves 840 bln yuan in metro lines
The National Development and Reform Commission has curiously approved 840 billion yuan worth of construction of subway and light rail lines in 23 cities over the last four months, reports Caixin, despite a parallel story from the same publication that the economics of metro lines are not quite panning out.  [Caixin 1] [Caixin 2]

16. CARBON EMISSIONS:  Carbon intensity drops 3.5% in 2012; but 2011 witnessed record level emissions in first every GHG bulletinSu Wei, China’s chief climate negotiator, announced that China’s carbon intensity declined by 3.5% in 2012.  But not so fast – days after Su Wei’s announcement, the China Meteorological Administration (CMA) released the first ever greenhouse gas bulletin that showed 2011 saw a record level of greenhouse gas emissions.  CMA said that 2012 data was not yet available under its bulletin.  [RTCC] [Xinhua]

It all started on or around January 10th, with report that a number of cities in the north were afflicted with almost historic levels of air pollution.  A sampling of Air Pollution Index (API) readings (on a scale of 0-500) on that day: 
•    Shijiazhuang (Hebei province): 437, severely polluted
•    Beijing: 419, severely polluted
•    Handan (Hebei): 310, severely polluted
•    Baoding (Hebei): 268, heavily polluted
•    Hefei (Anhui):  270, heavily polluted

Then by the weekend, the air pollution, particularly (pardon the pun) shot off the charts, literally.  Reports AP:

The Beijing Municipal Environmental Monitoring Center said on its website that the density of PM2.5 particulates [i.e. fine particulate matter] had surpassed 700 micrograms per cubic meter in many parts of the city. The World Health Organization considers a safe daily level to be 25 micrograms per cubic meter…

 

The U.S. Embassy also publishes data for PM2.5 on Twitter and interprets the data according to more stringent standards [AQI or Air Quailty Index, but also on scale of 0-500].

 

In the 24-hour period up to 10 a.m. Sunday, it said 18 of the hourly readings were “beyond index.” The highest number was 755, which corresponded to a PM2.5 density of 886 micrograms per cubic meter. The U.S. Environmental Protection Agency’s air quality index goes up to only 500, and the agency advises that anything greater than 300 would trigger a health warning of “emergency conditions,” with the entire population likely affected.

In case you are still a doubter, a number of news outlets featured dystopic pictorials of the heavy smog: Xinhua, People’s Daily and NPR

Broader Political Significance?

Perhaps just as remarkable as the off-the-chart air pollution readings was the reaction of the state-controlled media – completely frank and unabashed.  Ed Wong’s NY Time’s article provides an excellent summary of the reactions of some party-controlled propaganda papers, citing hypercrtical editorials by People’s Daily, Global Times (English; Chinese) and China Youth Daily.  This has prompted the seasoned China watcher and prolific editor of the Sinocism newsletter, Bill Bishop, to observe:

Media coverage of the crisis is remarkable. Clearly it is impossible to pretend that the air is not polluted or that the health risks are not significant, so are the propaganda authorities just recognizing reality in allowing coverage? Or is there something more going on here, as perhaps the new government wants to both demonstrate a commitment to transparency and accountability as well as use this crisis to further the difficult reforms towards a more sustainable development model?

A screenshot of air quality readings captured by a blogger on Jan 12

Could this be China’s version of Silent Spring?  Indeed, Premier-elect Li Keqiang promised decisive central government action.  Another emerging theme from the fall out of Airpocalypse also appears to be the concept of “resposible media” and the obligations of news outlets to pursue the truth, as this editorial in China Youth Daily urges.

A Worrying Health Trend

A Peking University/Greenpeace study released late last year reports that air pollution was linked to at least 8,572 premature deaths across four major Chinese cities (Beijing, Shanghai, Guangzhou and Xi’an) in 2012 alone. (Yet, one expatriate doctor living in Beijing provocatively contends that even at an API of 500, the PM2.5 particulates that one would inhale would be roughly equivalent to smoking just three-quarters of a cigarette.)

The harm is not contained to these four major cities.  A joint Asia Development Bank and Tsinghua University report released just yesterday claims that just 1% of 500 or so cities in China meet World Health Organization standards.  That report goes on to observe that air pollution levels in larger cities are significantly higher than medium and small cities.   Such findings seem to be common sense and throw into question the proposals of some (like McKinsey) who support the idea of China developing fewer mega-cities with populations of over 20 million inhabitants over more cities with fewer inhabitants, partly in the name of purported energy efficiency gains that come with economies of scale in infrastructure.  Apparently, nature has its breaking point.  (Speaking of nature, this article in Nature makes the same point.)

Who Did It?

Vance Wagner’s Live from Beijing blog takes a stab at summarizing the main culprits of the Airpocalypse:

 1) Direct pollutant emissions from factories, vehicles, power plants, etc. across all of Northern China. Beijing has made a lot of progress in recent years in controlling emissions within the city’s municipal boundaries, but the truth is pollution is regional. Whatever happens in all the major provinces around Beijing – Tianjin, Hebei, Inner Mongolia, Shanxi, etc., will effect Beijing. These provinces are developing rapidly – more factories, more power plants, more cars, more coal burning – and it’s making Beijing’s efforts to clean up all that much more difficult…

 

2) Secondary pollution. The atmosphere is quite the chemical soup. While direct emissions matter, a lot of air pollution is secondary, meaning that it is caused by directly emitted pollutants interacting with each other in the atmosphere, giving rise to new forms of “secondary” pollution. Much PM2.5 is this secondary pollution. Of course, the longer pollutants are allowed to interact with each other, the crazier and more extreme the secondary pollution will become…

 

3) Weather. Anyone who has lived in Beijing knows that the primary factor influencing a blue sky day vs. a pea soup sky day is the wind. If there are a few consecutive days where the winds are stagnant – or blowing lightly from the south and trapping pollution against the mountains in northern and northwestern Beijing – the pollution is going to accumulate rapidly. Throw in some increases in direct pollutant emissions from the cold weather, and the chemical soup starts really brewing. The result? Spikes in temporary pollution, in this case all the way above 800 [in PM2.5 readings]…

This piece in ChinaDialogue identifies similar sources of air pollution.

What Needs to Be Done?

A qualitative understanding of the sources of air pollution only goes so far in, prominent environmental crusader Ma Jun would argue. In his view, hard numbers are better.  In a recent article, he prescribes a three-step approach in tackling China’s air quality challenges:

[Th]he first step is to expand access to air-quality data – making pollution statistics more comprehensive, faster and more consumer-friendly. The second is to give the public appropriate health warnings, both to reduce the impact on health and to motivate people to get involved in cutting pollution. And the third is to identify sources of pollution and come up with targeted and timetabled plans to cut that pollution.

On the first step, he cites progress like the announcement earlier this month that 74 cities are now required to release real-time data of PM2.5 levels.

Now, we are reading that the Ministry of Environmental Protection has just released a circular 《关于进一步做好重污染天气条件下空气质量监测警工作的通知》that urges local authorities to timely publicize air pollution trends in the mass media.  The circular also directs its gaze at the local governments of three mega-city regions – Beijing-Tianjin-Hebei region, the Yangtze River Delta region and the Pearl River Delta region, recognizing, as discussed above, that the air quality in these regions are especially vulnerable.

On the second step, Ma Jun identifies several mechanisms, including a Shanghai Air Quality mobile app (probably not unlike the app portrayed by the screenshot above), which allows citizens to access air quality data at the tip of their fingers.  Of course, it was Ma Jun himself (and his oganization the Institute for Public & Environmental Affairs) who started it all with the China Air Pollution Map. I would add that the Beijing American Embassy air quality twitter feed (@beijingair) and Michael Zhao’s elegant but powerful air pollution visualization website China Air Daily as valuable contributors to the information and warning ecosystem.

Needless to say, on the third step, the challenge of addressing these causes are complex and enormous.  For a thorough discussion of how to address mobile sources of air pollution, Mr. Wagner, also a senior researcher at the International Council on Clean Transportation, has this to offer.

You Win Some You Lose Some

Boom time for mask makers (source: Shanghai Daily)

But not everyone is a loser in Airpocalypse – if you manufacture air purifiers or face masks, you are probably doing nicely for now.  The stock prices of public listed environmental companies also benefited from the otherwise bad news.  Some also think that this episode might serve to reignite, at least in China, early stage private equity investment interest in what has otherwise been moribund clean energy and environmental sectors.

Anora Wang contributed research to this post.

The roots are willing, but the water table is weak. [Source: FT]

The current trajectory for global greenhouse gas emissions is rising faster than the most pessimistic emission scenarios envisioned in the 4th Assessment Report of the United Nations Intergovernmental Panel on Climate Change in 2007. Despite large uncertainties, a recent World Bank report  warns that it increasingly plausible that this has put the world on a 4° C average warming path within the 21st century.

Such climate developments, their implications, and the resulting potential impacts – some very likely, others masked by great uncertainty – are, of course, relevant for the large populace of China.

Climate-Induced Impacts on Agriculture

Assessments of China’s vulnerability to climate-induced impacts suggest that due to extremes in temperature and precipitation, the nation’s agricultural sector faces large impacts from climate shifts.  This prognosis, coupled with a very low level of preparedness, is a combination that spells trouble for China’s 240 million farming household and the nation’s food security future.

How will this happen?  Climate change threatens to cause more water stress and increase frequencies of severe droughts and floods. Although increased rainfall is typically good for crop growth, extreme flooding can damage crops and livestock caught in the flood path.  Due to China’s expansive and varied topography, it is feared that this will translate into significant socio-economic losses in the 21st century. In the past 20 years, for example, droughts in China resulted in average annual grain production loss of more than 16 million metric tons (MMT) with a record level of 60 MMT loss in 2000. According to the Ministry of Water Resources Annual Bulletin, over the same period, droughts also diminished drinking water supplies for nearly 28 million people and 22 million livestock annually. One strategy to help the nation avoid risks of grain shortages is China’s foreign farming policy, which is essentially a strategy of land purchases or leases abroad to guarantee its food security. This policy, known as outward investment, is part of a larger set of policy initiatives set out clearly in the Outward Investment Sector Direction Policy of 2006.

China is a global player in terms of overall food production so, as they say, “a sneeze in China can give the whole world a cold.”  In a globalized world with complex interconnections from trade, grain production decreases and resulting reliance on imports have the potential to extend far beyond national boundaries and discussions about China’s domestic food self-sufficiency.  The following graph (see Figure 1) depicts China’s dominance in global wheat production; trends are similar for maize and rice. Such production quantities indicate the magnitude of China’s crop production, yet China’s demand for basic grains is still increasing.

Figure 1: Country-level wheat production in 2009-10. Source: Agriculture Corner

Government Action

As a result of increasing concern over how best to mitigate climate change impacts, China’s central government has escalated climate change adaptation into the nation’s top policy agenda. To push the adaptation agenda, it released the China National Plan for Coping with Climate Change in 2008 and the action plan China’s Policies and Actions for Addressing Climate Change action plan in 2012. Since 2010, the Ministry of Water Resources in China has also taken a number of measures to introduce strict water resources control through improving policies related to the development, utilization, conservation, and protection of water resources.

China has formulated several programs that focus on the water and agricultural sectors, including in particular:
•    the National Integrated Water Resources Plan 2010-2030,
•    2011’s Policy Document Number 1
•    the Seven Major River Basins’ Flood Control Plan, and
•    the National Plan to Guarantee the Safe Supply of Drinking Water.

These planning documents aim to enhance the adaptive capacity of the sector and its associated domains. Most notably, on January 12, 2012, China’s State Council published a guideline to implement water resources management in China under the strictest water resource management criteria. The guideline sets management criteria based on three red lines outlined in the approved National Integrated Water Resources Plan 2010 – 2030 from the MWR. The three red lines define the upper limits in terms of total amount, water-use efficiency, and water quality to guarantee the nation’s sustainable development. The red lines have not yet been publicly released.  To note, China’s water management strategy remains hindered by two fundamental policy constraints: lack of water rights and below market pricing of water for agriculture. Without addressing these core issues, meeting conservation goals will remain difficult.

In future weeks on GLF, I will unpack the complex relationship among water, energy and food (a ‘trilemma’ that GLF was the first to explore here and here) by assembling a portfolio of viewpoints and expert opinions on crafting a cost –effective and sustainable path forward.  It is my firm belief that China has the capacity and resources not only to meet its water resource and climate change challenges, but to master them.

Meet Mr. Adaptability and Mr. Resistance

In my attempts to catch up on lots of literature published over the past year that I missed, I finally read the 2012 paper China’s Long Road to a Low-Carbon Economy: An Institutional Analysis by Philip Andrews-Speed, one of the first and foremost international commentators on China’s energy economy.  Naturally, its stuff worth reading (otherwise I wouldn’t be blogging about it) because it addresses the core factors of whether China will ever succeed in its quest for sustainability – its governance institutions, and more specifically, the tension between the tendency of such institutions to maintain the status quo and their capacity to adapt to change.  Andrews-Speed is ultimately pessimistic, but more interesting, I think, is his thought processes in reaching such a conclusion.

Andrews-Speed’s paper begins with a simple and powerful premise:  governance must be “at the heart of the low-carbon transition” because energy is an inherently political issue as it is embedded in practically all facets of society and any change to how much or how it is utilized requires a complex alignment of incentives with the norms, values and priorities of a multitude of stakeholders in society.

Implicit in this premise is that other factors such as technology or financing, while important, are factors of a lower order.  Its hard to disagree with such reasoning. Ultimately, technology innovation and capital mobilization exist within the context of institutions, i.e organizing rules, formal or informal, that govern how society functions.  Indeed, when one reads the recent 2012 energy white paper released by the State Council, one is struck by how much of it reads like a wish list of targets and goals, without any discussion of the timetable, resources or stakeholders that would be involved in achieving them.  Institutions, such as the government, laws and regulations, policy development and experimentation,  business customs, entrepreneurship and civil society, but to name a few, that underpin every aspect of political, economic and social life in society are what will shape such timetable, resources and stakeholder involvement.

Mr. Resistance and Mr. Adaptability

Andrews-Speed then observes that there are characteristics of institutions that make them resilient to change and lock in either the status quo or a kind of path dependency that constrains change.  In China, he notes, certain institutions such as centralization of power, the role of ideology and slogans, respect of hierarchy and preference for conformity and consensus, date back to hundreds or thousands of years.  Then there are other institution that date back more recently to the founding of the People’s Republic, most notably the fragmented Leninist state bureaucracies with a super ministry in charge of economic planning (the National Development and Reform Commission or 发改委 in current form) and national and industry-specific five year development plans, all which that fit awkwardly on top of additional layers of analogous provincial, municipal and county administrative entities, and ultimately, the people.  Powerful large state-owned enterprises, especially those in the energy sector, where a central Ministry-level agency does not exist, also exert substantial influence over government policy (or outrightly ignore it without fear of retribution).

On the other hand, there are other features that make institutions adaptive, flexible and responsive to change.  As Ed Steinfeld describes so eloquently in his book Playing Our Game, the Chinese leadership has proven itself since the reforms and opening up that its government is capable of the necessary political evolution to adjust to international norms and embed itself in international institutions such as the UN, WHO and WTO.  In the energy sphere, it has demonstrated the ability to import, assimilate, digest and re-innovate both foreign technologies and public policies to promote clean energy development domestically.  Furthermore, the citizens of China have found new voices in the internet and through public protests in expressing a desire for a cleaner environment, upsetting social stability much to the consternation of the leaders who feel pressured to react.  The fragmented nature of government institutions, particular as between central and local, also present an opportunity for local experimentation of innovative new policies.

Andrews-Speed rightly points out that there is a tension between the resilient and adaptive elements of China’s institutions that lead to “policy discontinuities,” as manifested by an incomplete transition from socialist to market-based economy.  For instance, coal that is produced at the mines are essentially subject to market pricing but retail electricity rates are capped at artificially low levels (this is gradually being liberalized) for social equity reasons, resulting in power utility companies that constantly run in the red financially. These policy discontinuities are either exacerbated or perhaps also caused by the large scale of rents available in the energy sector (such that large powerful incumbents such as the state-owned oil and coal companies are content with the status quo) and the lack of practical experience with policy tools beyond command-and-control, such as tax incentives and voluntary agreements between government and industry.  Such policy discontinuities, Andrews-Speed reasons, stand in the way of China realizing the full transformation to a low-carbon economy.  The sheer diversity of stakeholders make any sort of effective policy coordination and implementation extremely challenging.  Government, he observes, is good at promoting construction of infrastructure projects, but not very good at managing the negative effects such as individual rent-seeking (economic-speak for corruption) and environmental impacts.

Putting it All Together

The upshot is that initiatives have a higher likelihood of success if they are “driven through with abundant funding and the direct involvement of a small number of large state-owned enterprises.”  Andrews-Speed astutely observes that China’s natural gas, nuclear, hydropower and wind sectors are characteristic of this type of initiatives.  In contrast, policies and programs that involve behavior change among large numbers of citizens, local governments, enterprises are less likely to be successful.  Areas that fall in this category include energy efficiency efforts of all types, including the much publicized efforts to build “eco-cities,” which till today remain very much the stuff of lore rather than reality.

In the end, Andrews-Speed constructs a two-pronged prognosis for China’s sustainable energy efforts.  With the supply and demand side in mind, he observes that China’s efforts to create a sustainable energy future will consist of the following two main features:

1. Construction of infrastructure to produce and deliver (relatively) low-carbon energy will continue on a large scale, but this will be matched by ongoing growth of high-carbon energy sources such as coal and oil.  The decline in proportion of coal in the energy mix will on be gradual.

2. Efforts to constrain the total consumption of primary energy will encounter ever-increasing difficulties as the central government seeks to change the behaviors of local governments, industries, and households across the country.

In short, if China were to ever succeed, it would need “radical institutional change,” says Andrews-Speed.  By all indications, such radical change does not seem in the offing with the new Xi-Li leadership taking over.  While this is a grim indictment of China’s likelihood of success in transitioning towards a low-carbon economy, Andrews-Speed does acknowledge flashes of hope in various policy experimentation across the country. On my own part, I reserve final judgment until I’ve read Andrews-Speed’s full book The Governance of Energy in China: Transition to a Low-Carbon Economy from which the paper discussed here was excerpted from.

But one thing I am sure of – unlike the decision-making of Two Face, the villain in the Batman comics, it will take more than just a coin toss to decide the fate of China’s quest for sustainability.

Picture credit: Doug Sirois