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19. Economic development, energy, and the environment in the people's Republic of China

Fengqi Zhou

1. Economic development and the increase in energy consumption

China's internal reforms and its opening up to the outside world during the 1980s pushed the Chinese economy to new heights, resulting in an average annual GNP growth rate of 9 per cent between 1981 and 1990. Thus China has one of the most rapidly developing economies in the world today. If the GNP rate continues to increase at 6 per cent until 2000, the national economy is expected to quadruple by the end of the century.

At the beginning of 1992, the Chinese government decided to make the transition from a low-efficiency and highly centralized planned economy to a high-efficiency market economy, and to establish a socialistic market system with Chinese characteristics. Since then, the annual increase in GNP has been 13 per cent. Judging from these developments, the average annual increase in GNP in the 1990s will probably reach 8-9 per cent.

In 1990, total primary commercial energy consumption in China was 987 million tons of coal equivalent (Mtce), consisting of coal (76.2 per cent), petroleum (16.6 per cent), natural gas (2.1 per cent), and hydroelectricity (5.1 per cent). Final energy consumption by sector was: industry 68.5 per cent, residential 16.0 per cent, and others 15.5 per cent.

During the 1980s, primary commercial energy consumption grew at an annual rate of 5.1 per cent. Energy consumption per capita increased from 0.614 lee in 1980 to 0.869 lee in 1990 - an average annual growth rate of 3.5 per cent.

Total electricity generation in 1990 was 621.1 terawatt hours (TWh), of which thermal power provided 494.4 TWh (79.6 per cent). The annual growth rate of electricity generation was 7.5 per cent during the 1980s. In 1990, the total energy used for electricity generation was 212 Mtce, in which coal, fuel oil, and diesel accounted for 89, 7, and 3 per cent, respectively. Final electricity consumption by sector was: industry 78.2 per cent, residential 7.7 per cent, agriculture 6.9 per cent, and others 7.2 per cent. Electricity consumption per capita increased from 306 kilowatt hours (kWh) in 1980 to 549 kWh in 1990, with an average annual growth rate of 6.5 per cent.

Depending on the rate of growth of the economy, the Energy Research Institute has made a forecast of energy demand for the year 2000. If the coefficient of elasticity of primary energy consumption is 0.45 (it was 0.56 in the 1980s), and the annual average rate of energy conservation is 4 per cent, the aggregate of primary energy consumption will be 1,450 Mtce, including 1,500 Mt of raw coal, 165 Mt of crude oil, 25 billion m of natural gas, and electricity generation of 1,350 TWh, including 240 TWh of hydropower and 10 TWh of nuclear power.

2. The environmental challenge of energy development

The main energy-related environmental problem in China is urban air pollution caused by the burning of large amounts of coal. In 1990, coal consumption in China was 1,055 Mt. 80 per cent of which was burnt directly, which caused serious air pollution.

In 1990, total emissions of particulates were 13.24 Mt in China, 70 per cent of which were from coal combustion. The daily average concentration of total suspended particulates in China's cities is 387 m g/m, and it is higher in the northern cities than in the southern cities.

In 1990, total SO2 emissions were 14.95 Mt in China, 90 per cent of which were from coal combustion. The daily average concentration of SO2 in cities was 93m g/m3. These massive emissions of SO2 are leading to serious SO2 pollution in urban areas. In a quarter of cities in northern China, the SO2 concentration has exceeded level 3 of the national standard (which is 100m g/m3). In southern China, especially in the south-western area, there is acid rain in some regions. In the worst places, the pH value of precipitation is below 4.

It is estimated that CO2 emissions from fossil fuel combustion were 564 MtC in 1990, 85 per cent of which were from coal combustion. In addition, overconsumption of biomass energy, vegetation loss, and the failure to return large amounts of straw to the land resulted in soil erosion and a reduction in organic content. The national area of soil erosion has reached 150 million hectares, and the national average organic content in farmland is below 1.5 per cent.

Given that coal consumption is predicted to reach 1,500 Mt in 2000, air pollution will continue to get worse. The right strategy and effective measures are needed to control serious air pollution.

3. An energy efficiency strategy

Energy conservation and improvements in energy efficiency are the best means of harmonizing the development of energy and protection of the environment.

China has made considerable progress in energy conservation. From 1980 to 1990, the average annual increase in commercial energy consumption was 5.1 per cent, whereas the average annual growth rate of GNP was 9.0 per cent, giving an elasticity of energy consumption of 0.56. Energy consumption per 10,000 yuan GNP decreased from 13.36 lee in 1980 to 9.3 lee in 1990, a drop of 30 per cent. This represents an average annual energy conservation rate of 3.7 per cent, and a cumulative saving of over 280 Mtce. Nearly two-thirds of this was saved indirectly through changing macroeconomic structures; the rest was saved directly by industrial enterprises.

Goldemberg suggested in chapter 17 that energy intensity in developing countries is increasing, with the notable exception of China, whose energy intensity is clearly declining. This indicates a de-coupling of energy consumption and economic growth (see fig. 19.1).

Improvements in energy efficiency are at the core of efforts to reduce air pollution and greenhouse gas emissions. During the 19801990 period, it is estimated that, as a result of energy conservation, there was a reduction in particulate emissions of 0.5 Mt and in SO2 emissions of 0.55 Mt every year.

China's development target calls for further reductions in commercial energy intensity of at least 35-40 per cent per unit of GDP from 1990 to 2000. This further energy saving can be achieved, but there are major obstacles to be overcome. Success will require both further substantial structural savings and an acceleration in technical reform to increase energy efficiency.

Fig. 19.1 De-coupling energy consumption and economic growth in China, 1978-1992

4. A strategy of clean coal technologies

China is one of the few countries that uses coal as its major energy source. In 1990, coal accounted for 76.2 per cent of primary energy consumption, supplying 70 per cent of fuel for electricity generation, 60 per cent of raw materials for the chemical industry, and 80 per cent of residential fuel utilization. It is estimated that, by the year 2010, coal will still account for 66.7 per cent of consumption, and even in 2050 the share of coal will be above 50 per cent. This coal-dominated energy structure is unlikely to change in the near future unless there is a breakthrough in new energy technologies.

The important role of coal is determined by the state of its reserves. Because proven reserves of coal comprise 90 per cent of the total proven reserves of primary energy in China, it would be impossible not to use it. The best strategy would therefore be to spread "clean coal technologies" (CCT), which is the general name for technologies that increase energy efficiency and reduce pollution. In the United States and Japan, CCT has played a leading role. China has also paid great attention to it in recent years and made some progress. Ten kinds of CCT have been studied and ranked according to assessments of technological and economic characteristics: coal selection, briquette coal, coal water mixture (CWM), advanced combustor, fluidized bed combustion (FBC), integrated gasification combined cycle (IGCC), flue gas treatment, coal gasification, coal liquefication, and fuel cells.

China is a developing country and it would be impossible to halt or delay economic development. However, we should show responsibility towards the world and posterity, by making every effort to reduce the effects of energy development on the environment. We should admit that clean coal is the "future energy" and that developing clean coal technologies is an important strategy.

Comments on part 6

Hoesung Lee

The papers in part 6 all emphasize the importance and desirability of pursuing an energy-efficient development path. Professors Goldemberg and Reddy both argue for the de-linking of energy and GDP growth in developing countries through the adoption of energy-efficient technologies early in the development process. They provide examples from Brazil and India that demonstrate the possibility of moving toward energy-efficient growth, although the Brazilian example is of future plans for such growth and the Indian example is a small village development experience. They conclude that developing countries should be able to leapfrog old technologies to achieve an energy-efficient growth path.

I agree with their conclusions for energy-efficient growth strategies for developing countries. It is difficult to take issue with a growth proposal that has energy efficiency at its core, especially when energy efficiency improvements are one of the most cost-effective ways to reduce carbon dioxide emissions. But how do we achieve the goal of an energy-efficient growth path? One can observe many practical barriers standing between reality and the goal. These are what I shall comment on.

The energy/GDP ratio is lower in industrialized countries because, as the authors indicate, (a) energy efficiency in each individual sector is better than in developing countries, and (b) the economy is dominated by energy-efficient industries. This implies that the first task for the developing countries is to improve end-use energy efficiency. More specifically, they need to find out why energy-efficient technologies are not used as much in developing countries as in the industrialized countries. Developing countries may enjoy latecomers' advantages, as suggested by Professor Goldemberg, but the prospects for improving energy/GDP ratios are not bright.

In most developing countries, energy prices are subsidized to keep them considerably below costs. In these circumstances, it is likely that an energy-intensive industrial structure will be sought. As a result, the physical energy input per unit of output the energy/GDP ratio in aggregate - will be higher than otherwise.

However, this does not necessarily imply that energy expenditures per unit of output will also be higher. What matters in the investment decision is energy expenditures, not the quantity of energy use. A high energy/GDP ratio reflects an energy-inefficient outcome, but, given low energy prices, it makes good business sense to have high energy intensity. This is why the inefficient outcome is sustainable.

In order to achieve a lower ratio for energy/GDP in developing countries, energy prices should be rationalized. But this is easier said than done. Energy prices in developing countries reflect a complex mixture of economic, social, and political interdependencies. The task then is how to induce the adoption of energy-efficient technologies in a situation of low energy prices. Market competition and energy efficiency regulations play a critical role.

Experience in Korean manufacturing industries indicates that the more the industries are subject to competition, especially export competition, the higher the energy efficiency in those industries. Energy efficiency standards are also effective and complement market competition. Industries are, however, generally reluctant to see the tightening of efficiency standards.

In conclusion, in order to realize an energy-efficient growth strategy, the following conditions must be satisfied:

• no energy price subsidies
• market competition
• energy efficiency regulations.

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