Understanding EnergyinChina Understanding Energy in China Asia Pacific Energy Research Centre (APERC) Institute of Energy Economics, Japan Tokyo, Japan www.ieej.or.jp/aperc [email protected] APERC 2008 Asia Pacific Energy Research Centre APERC 2008 APEC # 208-RE-01.1 ISBN 978-4-931482-36-4 Understanding EnergyinChina Understanding Energy in China Asia Pacific Energy Research Centre (APERC) Institute of Energy Economics, Japan Tokyo, Japan www.ieej.or.jp/aperc [email protected] APERC 2008 Asia Pacific Energy Research Centre APERC 2008 APEC # 208-RE-01.1 ISBN 978-4-931482-36-4 Published by Asia Pacific Energy Research Centre (APERC) Inui Building Kachidoki 16F, 1-13-1 Kachidoki Chuo-ku, Tokyo 104-0054 Japan Tel: (813) 5144-8551 Fax: (813) 5144-8555 Email: [email protected] (administration) 2008 Asia Pacific Energy Research Centre APEC#208-RE-01.1 ISBN 978-4-931482-36-4 Printed in Japan on FSC-certified stock FOREWORD We are honoured to present here Understanding energy in China. Our objective in this study has been to convey both the complexity and great progress made in Chinese energy development to a broad audience. This work is published by the Asia Pacific Energy Research Centre as an independent study and does not necessarily reflect the views or policies of the APEC Energy Working Group, individual member economies, or other contributors. But we hope that it will serve as a useful basis for discussion and analysis both within and among APEC member economies for the enhancement of energy security, the promotion of regional cooperation, and in furthering sustainable development. Kenji Kobayashi President Asia Pacific Energy Research Centre ACKNOWLEDGEMENTS We appreciate those who have made inputs to this study, which could not have been accomplished without the contribution of professionals both inside and outside of APERC. In particular we would like to acknowledge the work of former APERC researchers Li Ji (China) and Lin Shu-Chuan (Chinese Taipei). We also express our appreciation to the APERC advisory board members, expert speakers at APERC conferences, APEC delegates for APERC research activities, as well as to hosting organisations and experts in China for their warm hospitality and advice, including: Energy Research Institute (ERI) and Energy Bureau of the National Development and Reform Commission (NDRC), National Bureau of Statistics (NBS), China Electricity Council, State Power Economic Research Institute of SGCC (SPERI), China Coal Industry Development Research Center of the National Research Center of State Administration of Work Safety, SINOPEC Economic and Development Research Institute (EDRI), Tsinghua-BP Clean Energy and Education Center (THCEC), Development and Reform Commission of Guangdong Province Division of Energy and General Office for the Leading Group of Energy Affairs of Guangdong Province, Guangdong Techno-economy Research and Development Center, Hunan Development and Reform Commission, Hunan Provincial Electric Grid Company, Hunan Coal Bureau Planning Division, Shaanxi Development and Reform Commission, Xi'an Municipal Construction Commission, Chang’an University, Meiya Power Company Limited, Sichuan and Mianyang Sanjiang Meiya Hydropower Company Limited Sino-Foreign Cooperative Joint Venture, and the gracious Liu Xiaoli, Yang Yufeng, Wu Zongxin, and Wang Yanjia. STUDY LEADER Yonghun Jung (Korea) STUDY PARTICIPANTS Xu Qinhua (China) Kenny Sau Yi Wan (Hong Kong, China) Naoko Doi (Japan) Sergey Popov (Russia) Lily Yeqing Cheng (United States) David Fedor (United States) EDITING and PUBLICATION David Fedor and Lily Yeqing Cheng ADMINISTRATIVE SUPPORT Sutemi Arikawa, Shohei Okano, and Mizuho Fueta CONTENTS SUMMARY ... 1 内容提要 CHINESE ENERGY ISSUES ... 7 章节 Energy policy through the reform period ... 9 能源政策 Energy pricing ... 35 能源价格 China's story of coal ... 45 中国煤炭的故事 Overseas upstream investment and petroleum supply security ... 67 上游海外投资和石油供应安全 Ongoing issues in power and refining ... 85 电力和炼油行业 Energy efficiency ... 101 能源效率 Urbanisation and energy use ... 115 城市化和能源使用 China's air ... 129 中国的空气 REFERENCES ... 143 书目参考 MAP INDEX ... 153 地图表 SUMMARY Understanding energy in China explores eight current topics in Chinese energy development in the context of reforms ongoing since about 1979. ENERGY POLICY THROUGH THE REFORM PERIOD China is a large and diverse economy and energy authority is diffuse. Rapid energy development through the reform period has therefore been somewhat ad hoc as central policy has had to compete with other forces to influence energy development. More generally, the limited reach of central governmental on overall energy development– not only in China but all throughout the APEC region– becomes more obvious as the pursuit of energy security underscores the global nature of the energy system. This section, focusing on central government energy policy, offers a timeline which includes organisational changes, energy supply‐oriented policies, energy‐conservation‐oriented policies, as well as energy pricing regimes, taxation, and government investment policies during the 1980s, 1990s, and 1990s. This is complimented by a detailed catalogue of energy development focus areas highlighted in the Sixth through Eleventh 5‐year plans. ▪ Energy development policy outlined in 5-year plans has become increasingly comprehensive, detailed, and nuanced, but coordination among diffuse regulators and implementation on diverse actors hinders full realisation. ▪ Though prioritised alongside energy supply development through the reform period, energy efficiency policies have struggled to limit demand growth as intended given rapid economic development. ▪ Decentralisation of energy supply was necessary to sustain economic growth through the reform period but is now targeted for enhanced central oversight before further market-oriented reforms are implemented. 1.1 Key points in "Energy policy through the reform period" ENERGY PRICING Through the reform period, energy pricing has generally become more market‐based. Measures taken to enable this shift have included reform of government price setting institutions, the introduction of a diverse set of investors into the energy market, and taxation reform. Importantly, the central government has expressed its intent to use energy pricing as the primary tool in achieving a market‐based energy system. And though there have been great changes in the pricing of coal, electricity, oil and oil product, and natural gas, full pricing liberalisation will require policies and measures to address Chinaʹs imbalance in energy resource type, affordability to end users, regional diversity, and Summary|APERC 2008 1 coordination between central and local governments as well as enterprises and other energy consumers. This section offers an overview of recent reforms, the current situation, and future trends of Chinese energy pricing, including coal, electricity, oil and oil products, and natural gas. ▪ Through the reform period, stronger price-adjustments have been implemented in periods when energy supply has lagged demand; price reforms in the coal sector have progressed more quickly than those for electricity, oil, and natural gas. ▪ Central government energy pricing policy seeks to reflect a wide range of economic, social, and political goals; local governments generally seek to boost local economic development as much as possible while implementing central government policies. ▪ Pricing reforms have dramatically affected real-world energy prices in China, gradually closing the international and domestic gap, but current energy price distortions reflect the incomplete nature of the pricing system. 2.1 Key points in "Energy pricing" CHINA'S STORY OF COAL Coal is both China’s most abundant and most used energy resource, and it is therefore the most important fuel for Chinaʹs energy security, economic prosperity, and future development. What happens in the story of coal affects all of China, and in an increasingly global economy, the world too. This section examines coal demand and supply trends, current challenges facing the coal production industry including coal transport, and future options for continued coal development in China. ▪ Coal use has grown rapidly in recent years, driven by strong growth in electricity production and energy- intensive industries for which coal is a do minant fuel source and important feedstock. ▪ Coal production is increasingly concentrated in a few resource-rich provinces while consumption remains dispersed; to meet demand, some resource-poor but economically-developed areas are increasing coal imports from outside the province and even internationally. ▪ Rapid growth in coal use has stressed China’s coal transportation infrastructure, creating supply bottlenecks, and domestic supplies remain tight as the coal sector faces central policy-driven resource consolidation, restructuring of small mines, and other new regulations. 2.2 Key points in "China's story of coal" 2 APERC 2008|Understanding Energy in China OVERSEAS UPSTREAM INVESTMENT AND PETROLEUM SUPPLY SECURITY To fill the gap between a growing appetite for oil that exceeds production from domestic oil fields, Chinese state‐oriented oil enterprises have increased efforts to acquire overseas upstream stakes of oil and natural gas. Supported by the central government through tax breaks and lower interest payments on overseas projects, China’s three major state‐oriented oil enterprises (CNPC, Sinopec, and CNOOC) are often considered to be global leaders in such investment