China's Energy Policy Focuses on Controlling Demand

When I recently testified at the House Energy and Power Subcommittee, a phrase that came up in regard to China’s energy policy was that China is pursuing “an all-of-the-above strategy,” in other words generating supply from as many sources as possible. (full hearing details) There is nothing terribly remarkable about the idea that China is pursuing diversified supply. However, the implication of the discussion was that China’s approach is focused on the supply side, and that seems backwards.

As Mark Levine of Lawrence Berkeley National Laboratory discussed in his congressional briefing last week, Chinese energy policy has focused on controlling demand growth since 1980. Energy intensity (the amount of energy used per unit GDP) declined steadily from 1980 to 2002. It then briefly, but famously turned around, and for the next three years China became more energy intensive. Mark’s additional insight was that this loss of ground on energy efficiency in the early 2000s was due to the underfunding of the energy efficiency bureaucracy after the central government reforms of the late 1990s. This was part of a more general set of staff reductions in central government offices, many of which were previously overstaffed. But in energy efficiency and in a number of other particularly technical areas, the central government has since recognized that more staff was needed than were left after the late 1990s reforms. Many Chinese ministries were left after the late 90s reforms with mere hundreds of staff, compared to thousands if not tens of thousands in many US federal departments. Since 2006 energy efficiency work has involved not just setting targets, but as we outline in many of our fact sheets, establishing specific programs that help with implementation. These required expert staff to implement.

In its 2007 energy White paper the Chinese government stated that its energy strategy “emphasizes thrift, cleanness and safety.” This emphasis on thrift is a clear demand-side focus. The white paper discusses the many challenges China faces in developing energy resources, even while noting the potential in many new and renewable resources, and it concludes that ensuring that demand is effectively managed and resources used wisely are essential. This is why any examination of carbon reduction potential shows that energy efficiency is likely to yield the largest reductions for China. Fuel switching is also important, but the biggest impact comes from getting more economic growth from each unit of energy.

In sum describing China’s strategy as “all of the above” gets the cart before the horse. The effort focuses not on maximizing supply, but on controlling demand. As I discussed in my testimony, there is no doubt that coal will be an important part of China’s energy mix for many years to come. But as the percentage that comes from nonfossil sources increases and as energy efficiency improves as well, there will be significant restraints on the growth of coal use over the coming decades.

image courtesy of Sprengben via a Creative Commons license