China can change from black to green within the next 30 years. But it requires strong and persistent policies
China in the past: Economic growth and severe pollution
In the past 40 years, China has had a tremendous economic growth, creating a better life for the Chinese people by moving more than 750 million people from extreme poverty. The economic growth was made possible by a similar growth in the energy consumption, mainly based on fossil fuel consumption.
However, the economic growth came with a price: severe pollution of air, water and soil, low energy efficiency and low cost-efficiency and increasingly reliance on imported oil. Renewable energy has been promoted, but only as an add-on to the existing system.
New targets for the energy transition
In 2015 the Chinese leadership decided to change this development path. The 13th five-year plan set the target “to build a clean, low-carbon, safe and efficient energy system”.
In autumn 2017, President Xi Jinping reconfirmed the long-term targets for the energy system at the 19th Communist Party Congress and the commitment to the development of “ecological civilisation” as the main priority for China and as a precondition for a continuation of the economic development in China.
But with the current strong dependency on fossil fuels and the strong correlation between economic growth and energy consumption growth until now, is it reasonable to believe such high ambitions for the future energy system?
In fact, it is. Several structural mechanisms are currently changing the whole framework for the energy system development, allowing for a much more radical transformation, actually a full energy revolution.
The first mechanism is the changes in the Chinese economic structure. The economic reform, the “new normal”, is transforming the industry sector from heavy industry with high energy consumption to lighter industry and service with less dependency on energy as input.
The second mechanism is the digitalisation, development of Internet of Things, electrification of the transport sector, and use of big data as an integrated part of the industry and service sectors. This development requires electricity, not fossil fuels as input.
The two mechanisms together drive the energy consumption to be more efficient, more relying on electricity and less reliant on fossil fuels in the end-use sectors.
The third mechanism is the rapid improvement of the new technologies for power supply. Wind and solar power have the recent five years developed into technologically stable and economically viable power production units, and today they are in many cases able to compete with new coal power plants and clearly more cost efficient than new gas fired power plants. The technologies for integrating renewable energy has also been through a rapid development.
Combining these three mechanisms gives a positive feed-back loop where the mechanisms mutually reinforce each other. The economic development and the digitalisation drive energy efficiency and electrification in the end-use sector, increasing the demand for electricity. The increased demand for electricity drives the need for clean power supply, which again reinforce the improvement of the technology and cost-efficiency of these technologies. And the investments in clean and efficient power production contribute to and allow for a continuation of the economic growth without growth in energy consumption.
A scenario for a green China
To illustrate how this could work in practice, China National Renewable Energy Centre, CNREC, has analysed two scenarios for the energy transition in its latest China Renewable Energy Outlook, CREO 2018.
In the most ambitious energy scenario, a scenario which aims for a Below 2 °C climate impact, primary energy demand peaks before 2025 and wind and solar become the main energy sources. Coal consumption is reduced with an accelerated phase-out from the late 2020s. Renewable energy, especially wind and solar, is deployed throughout the period, most rapidly in the late 2020s.
Figure 12: Total Primary Energy Demand (Mtce) from 2017 to 2050 in the Below 2 °C scenario
As a result, the energy system fulfils the overall targets to build a clean, low-carbon, safe and efficient energy system. Air pollution from the energy system falls substantially by 2050, the water consumption for energy falls despite a doubling of power production due to improvements in technology, and the CO2 emission from the energy sector is greatly reduced.
Figure 15: Energy related CO2 emissions in the Below 2 °C scenario 2017 – 2050 on sectors
By 2050, China’s primary energy consumption is only 80% of the 2017 consumption while the economic gross domestic product (GDP) quadruples and energy intensity improves greatly.
Due to continued cost reductions in renewable energy technologies and the gradual retirement of uneconomical assets, the cost of electricity supply is lower in 2050 and in today. The focus on CO2 emissions reductions promotes a rapid transition to an energy system based on renewable energy. As a result, society spends less on fuel and relatively more on infrastructure and system-related costs.
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Swift and vigorous implementation strategy needed
While the long-term benefits of the energy transition are clear, the short-term implementation is more challenging. In order to harvest all benefits, the implementation of the different policy measures must be swift and vigorous.
China already today have most of the needed policy measures on the agenda: Reduction in the favourable conditions for coal power plants, better integration of renewable energy, focus on development and deployment of electric cars, restarting the power sector reform and setting up an ETS system for CO2 are all measures, which takes the energy transition in the right direction.
For the successful implementation of the energy transition, the Chinese power sector reform is one of the most important policy measures. An efficient power market set-up will introduce economic efficiency in the power sector, give economic incentives for flexible dispatch of the coal power plants, ensure efficient integration of variable energy production, and give incentives for flexible demand and storage options. A power sector reform could also ensure a flexible development and use of the transmission system between provinces, allowing for dynamic integration of renewables instead of a fixed transport profile.
Institutional reforms and coordinated procedures for deployment of wind and solar in the provinces with high energy demand would also be necessary to boost the deployment rate.
The implementation of an efficient carbon pricing system would add to the incentives for a shift from fossil fuels to renewable energy.
Finally, it will be necessary to remove the barriers and challenges for the transformation of the coal industry in provinces, where the economy is heavily dependent of income from mining or use of coal for industry or power. The social cost of the coal reduction might not be a big problem on a national scale but could have severe impact in some provinces and compensation mechanisms should be developed and implemented.
The Chinese government has now started the planning for the next five-year plan for 2021-2025. This plan will be crucial for the direction and speed of the Chinese energy transition. The scenarios from CNREC shows feasible pathways and the many benefits from a green energy revolution in China, and it will hopefully be inspiration for the preparation of the five-year plan. Read more about the scenarios on CNRECs website and download the scenario report and summary.