China's Energy Crossroads
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the national bureau of asian research nbr special report #47 | november 2014 china’s energy crossroads Forging a New Energy and Environmental Balance By Philip Andrews-Speed, Mikkal E. Herberg, Li Zhidong, and Benjamin A. Shobert ++ cover 2 The NBR Special Report provides access to current research on special topics conducted by the world’s leading experts in Asian affairs. The views expressed in these reports are those of the authors and do not necessarily reflect the views of other NBR research associates or institutions that support NBR. The National Bureau of Asian Research is a nonprofit, nonpartisan research institution dedicated to informing and strengthening policy. NBR conducts advanced independent research on strategic, political, economic, globalization, health, and energy issues affecting U.S. relations with Asia. Drawing upon an extensive network of the world’s leading specialists and leveraging the latest technology, NBR bridges the academic, business, and policy arenas. The institution disseminates its research through briefings, publications, conferences, Congressional testimony, and email forums, and by collaborating with leading institutions worldwide. NBR also provides exceptional internship opportunities to graduate and undergraduate students for the purpose of attracting and training the next generation of Asia specialists. NBR was started in 1989 with a major grant from the Henry M. Jackson Foundation. Funding for NBR’s research and publications comes from foundations, corporations, individuals, the U.S. government, and from NBR itself. NBR does not conduct proprietary or classified research. The organization undertakes contract work for government and private-sector organizations only when NBR can maintain the right to publish findings from such work. To download issues of the NBR Special Report, please visit the NBR website http://www.nbr.org. This report may be reproduced for personal use. Otherwise, the NBR Special Report may not be reproduced in full without the written permission of NBR. When information from NBR publications is cited or quoted, please cite the author and The National Bureau of Asian Research. This is the forty-seventh NBR Special Report. NBR is a tax-exempt, nonprofit corporation under I.R.C. Sec. 501(c)(3), qualified to receive tax-exempt contributions. © 2014 by The National Bureau of Asian Research. Printed in the United States of America. For further information about NBR, contact: The National Bureau of Asian Research 1414 NE 42nd Street, Suite 300 Seattle, Washington 98105 206-632-7370 Phone 206-632-7487 Fax [email protected] E-mail http://www.nbr.org nbr special report #47 | november 2014 china’s energy crossroads Forging a New Energy and Environmental Balance TABLE OF CONTENTS Foreword iii Clara Gillispie and Meredith Miller China’s Energy Policymaking Processes and Their Consequences 1 Philip Andrews-Speed China’s Search for Oil and Gas Security: Prospects and Implications 19 Mikkal E. Herberg Peak Coal in China: Rethinking the Unimaginable 29 Li Zhidong The Key Drivers of China’s Environmental Policies 47 Benjamin A. Shobert Forging a New Energy and Environmental Balance: 61 Conclusions and Implications for the Asia-Pacific Mikkal E. Herberg 67 Appendix: Overview of NBR’s Trade, Economic, and Energy Affairs Group FOREWORD hina has emerged as the world’s single largest energy consumer, and the country’s phenomenal economic growth has increased global demand across the spectrum of fuel choices, particularly coal, oil, gas, and nuclear power. Surging demand has not only dramatically reshaped world energy markets but also raised new and more complex Cquestions for stakeholders concerned with developments in China’s domestic energy infrastructure, environmental policy, and global energy diplomacy. China is struggling to reshape its domestic economy to address energy and environmental concerns. Two critical parts of this effort are decreasing the economic role of heavy, energy-intensive industries and reducing the enormous fossil-fuel requirements currently necessary for sustaining economic growth. With these issues in mind, the National Bureau of Asian Research (NBR) held its tenth annual Energy Security Workshop—“China’s Energy Crossroads”— in Washington, D.C., on June 5, 2014. Building on NBR’s long-standing program to bring together policymakers, industry leaders, and specialists on energy security, the annual workshop convenes senior stakeholders for high-level discussions on developments in Asian energy markets and the implications for geopolitics. Over the course of the year, the arguments presented are then tested and explored through further dialogue with leading experts in both the United States and Asia. As a culmination of these efforts, this final report presents the program’s findings and highlights how stakeholders on both sides of the Pacific can strengthen their cooperation on a common goal of promoting energy security in the Asia-Pacific. In this NBR Special Report, four senior energy and geopolitical specialists examine major shifts underway in China’s energy security strategies and assess how the country is affecting market, geopolitical, and environmental outlooks for the Asia-Pacific more broadly. The first two essays explore a range of issues that are more traditionally associated with energy security in China: Philip Andrews-Speed examines the dynamics of China’s energy policymaking, while Mikkal E. Herberg details the country’s expanding impact on global oil and gas markets. The second half of the report then explores the increasingly important question of how environmental security factors into energy security discussions. In the third essay, Li Zhidong discusses the prospects for peak coal demand in China, the policies and strategies in place for making peak demand a reality, and continuing uncertainties in the country’s energy and environmental outlook. Next, Benjamin A. Shobert explains why China’s environmental concerns are growing in importance as a driver of the country’s public policy and considers the impact of Beijing’s approaches to environmental challenges on governments and citizens across the Asia-Pacific. Finally, a conclusion by Mikkal E. Herberg offers overarching insights into China’s efforts to achieve a balance between energy and environmental security. Overall, the four essays in this report paint a picture of an increasingly complex energy landscape within China. As several authors so aptly highlight, while only a few years ago China was focused on the challenge of securing energy supplies to promote economic growth, today it also faces the much more nuanced challenge of sustaining growth while addressing the country’s very real—and very pressing—environmental concerns. At the same time, China’s growing energy diplomacy and presence in markets ranging from Central Asia to the Middle East and Africa to North America confirm its emergence as an energy superpower, and Beijing now faces questions iii about its potential for leadership in the global arena. As a result, how China pursues its energy security goals has significant implications not only for Chinese citizens but for the environmental, economic, and geostrategic outlooks of Asia and the rest of the world. There are a number of individuals and groups deserving of both our recognition of their invaluable contributions and our deep thanks for making this program possible. First and foremost, we are grateful for the generous support of our sponsors—the Asian Development Bank, Chevron, ConocoPhillips, ExxonMobil, and the Henry M. Jackson Foundation—whose contributions enable us to examine the central energy-security challenges facing the United States and the Asia-Pacific today. We are also appreciative of the Woodrow Wilson International Center for Scholars for cohosting this program’s June workshop and to the Ronald Reagan Building and International Trade Center for cosponsoring that event. Finally, we are grateful to the dozens of leading scholars and practitioners who informed and sharpened this year’s research by sharing their time and insights. We look forward to continuing to work with these wonderful partners and collaborators over the next ten years. Clara Gillispie Assistant Director for Trade, Economic, and Energy Affairs The National Bureau of Asian Research Meredith Miller Senior Vice President for Trade, Economic, and Energy Affairs & Outreach Director of the Washington, D.C., Office The National Bureau of Asian Research iv NBR SPECIAL REPORT u NOVEMBER 2014 the national bureau of asian research nbr special report #47 | november 2014 China’s Energy Policymaking Processes and Their Consequences Philip Andrews-Speed PHILIP ANDREWS-SPEED is a Principal Fellow at the Energy Studies Institute of the National University of Singapore. He can be reached at <[email protected]>. 1 EXECUTIVE SUMMARY This essay examines the dynamics of China’s energy policymaking and how differences in the context and processes for various initiatives ultimately shape their implementation and potential for success. MAIN ARGUMENT China faces a number of severe energy challenges, relating notably to energy supply security and environmental cost, as well as to investment efficiency and social equity. With this in mind, the Xi Jinping government has inherited or launched several important policy initiatives that aim to reshape the country’s energy portfolio and that directly affect the energy sector. These initiatives include efforts to advance the continued reduction of energy intensity and carbon