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The Developing World—The Case of China

Much of the increase in carbon dioxide emissions over the next few decades will come from the developing world. As James Schlesinger pointed out at the summit, the amount of coal burned in China is projected to increase from 2.3 billion metric tons to 4.5 billion metric tons annually by 2030. Similarly, India is planning to build a substantial number of new coal-fired power plants. Indonesia is shifting to coal as it seeks to increase its exports of oil. And in Russia, the energy company Gazprom recently bought the country’s largest coal company so that it can increase the use of coal internally while exporting more natural gas.

All of these countries have immediate environmental problems linked to energy use that are currently more pressing than the eventual prospect of substantial climate change. “[China’s] rivers are poisoned, and its poisoned rivers flow into Russia, which does not make the Russians happy,” said Schlesinger. “China’s air pollution is abysmal. It hasn’t cut sulfur oxides. It hasn’t cut nitrogen oxides as much as it should. A country that has those kinds of pollution problems is not going to have concern about the release of greenhouse gases very high on its priority list.”

This chapter focuses on China as emblematic of the issues surrounding energy and the environment in the developing world. China was the developing nation discussed most extensively at the summit, and the magnitude of the problems it faces is greater for China than elsewhere. But observations made regarding China apply in many other developing countries as well, even if at a smaller scale and with somewhat different circumstances.



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3 The Developing World— The Case of China M uch of the increase in carbon dioxide emissions over the next few decades will come from the developing world. As James Schlesinger pointed out at the summit, the amount of coal burned in China is projected to increase from 2.3 billion metric tons to 4.5 billion metric tons annually by 2030. Similarly, India is planning to build a substantial number of new coal-fired power plants. Indonesia is shifting to coal as it seeks to increase its exports of oil. And in Russia, the energy company Gazprom recently bought the country’s largest coal company so that it can increase the use of coal inter- nally while exporting more natural gas. All of these countries have immediate environmental problems linked to energy use that are currently more pressing than the eventual prospect of sub- stantial climate change. “[China’s] rivers are poisoned, and its poisoned rivers flow into Russia, which does not make the Russians happy,” said Schlesinger. “China’s air pollution is abysmal. It hasn’t cut sulfur oxides. It hasn’t cut nitro- gen oxides as much as it should. A country that has those kinds of pollution problems is not going to have concern about the release of greenhouse gases very high on its priority list.” This chapter focuses on China as emblematic of the issues surrounding energy and the environment in the developing world. China was the develop- ing nation discussed most extensively at the summit, and the magnitude of the problems it faces is greater for China than elsewhere. But observations made regarding China apply in many other developing countries as well, even if at a smaller scale and with somewhat different circumstances. 20

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2 THE DEVELOPING WORLD—THE CASE OF CHINA CHINA’S ENERGY USE IN A GLOBAL CONTExT Kelly Sims Gallagher began her talk at the summit by comparing China’s energy use with that of the United States (Table 3.1). In 2006, China consumed 72 percent as much energy as did the United States. However, China is quickly catching up. Total energy consumption in China increased 70 percent between 2000 and 2005. And total coal consumption increased by 75 percent during the same time period. However, because China’s population is more than four times that of the United States, the country’s per capita use of energy is much lower. China’s oil imports also have grown rapidly, but they are still less than one-third U.S. levels. China’s coal consumption, however, is already twice that of the United States. Coal is China’s most abundant energy resource, even though the United States has much greater reserves. Coal accounts for 93 percent of China’s remaining fossil fuel resources. Three-quarters of China’s electricity comes from coal—526 gigawatts, as of 2007. Hydropower accounts TABLE 3.1 Energy Comparisons Between the United States and China China/ USA China USA Total energy consumption, 2,326 1,697 72% 2006 (million tons of oil equivalent) Net oil imports, 2006 12.3 3.4 28% (million barrels per day) Total oil consumption, 2006 20.6 7.4 36% (million barrels per day) Electricity capacity, 2007 992 713 63% (gigawatts) Coal consumption, 2006 567 1,193 210% (million tons of oil equivalent) Reserves (percent of world) Coal 27% 13% Oil 2% 1% Gas 3% 1% Passenger cars (cars, pickups, ~230 ~30 13% SUVs), 2007 (millions) Total carbon dioxide ~6 ~6 100% emissions, 2007 (billion metric tons) Population 300 million 1.3 billion 433% SOURCE: Kelly Sims Gallagher, “The Rise of China,” presentation at the Summit on America’s Energy Future on March 13, 2008.

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22 THE NATIONAL ACADEMIES SUMMIT ON AMERICA’S ENERGY FUTURE for 20 percent of its electrical capacity, with nuclear, wind power, and other sources playing much smaller roles. In 2006, China installed 101 gigawatts of new power. Ninety of those giga- watts came from coal-fired power plants. In 2007, China installed an additional 91 gigawatts of new power. “To put these astonishing numbers into perspective, Germany’s entire electricity generation system as of 2005 was 125 gigawatts,” said Gallagher. “India’s was somewhat more, but close to Germany’s level. So in 2 years China has built the equivalent of India and Germany’s electricity capacities combined.” Coal is such a dominant source of energy in China that the country’s cur- rent mix of electrical energy sources probably cannot be altered anytime soon, Gallagher said. Natural gas is not commonly used for power in China because of its high price and lack of availability. China is aggressively pursuing alterna- tive sources of energy, such as solar hot water and small hydropower, and is also building nuclear power plants. But the fraction of energy from alternative sources is still dwarfed by the energy coming from coal. The United States has approximately 230 million cars, light trucks, sport utility vehicles, and vans, whereas China has approximately 30 million. How- ever, the number of vehicles in China is rising dramatically. Partly as a result, China’s consumption of oil products has gone up substantially in recent years. Increased use has contributed to the recent increase in global crude oil prices. “Of course, the rise in world crude oil prices cannot be attributed only to demand growth in China,” Gallagher emphasized, “but I do believe it’s been a significant factor.” The same thing is happening with coal, Gallagher pointed out. In the first 6 months of 2007, China imported more coal than it exported for the first time in history. China’s consumption of coal grew by 9 percent in 2007, which means that China’s coal consumption could double from 2007 to 2015 if growth continues at that pace. In recent years, China has been accounting for most of the growth in the world’s coal consumption. And as with oil, China’s increased demand for coal has been correlated with rising prices. Also, the Chinese government’s leading energy group projected that the country will need 384 gigawatts of new coal-fired power by the year 2020. CHINA’S CONTRIBUTION TO CLIMATE CHANGE Today, total carbon dioxide emissions from the United States and from China are approximately equal. However, as with energy use in general, per capita emissions are much lower in China than in the United States. Also, to some extent, energy consumption is increasing in China as it manufactures more products for export to other countries, which can have the effect of transferring emissions from those countries to China. Turning around the current increase in global greenhouse gas emissions

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2 THE DEVELOPING WORLD—THE CASE OF CHINA over the next two decades is a tremendous challenge, Gallagher pointed out. According to the IEA, carbon dioxide emissions from fossil fuels are projected to grow by approximately 50 percent by 2030 without active policy intervention (Figure 3.1). At that point, China and the United States will together account for about 45 percent of greenhouse gas emissions. For those two countries to be on a declining path (indicated by the arrow on Figure 3.1), substantial changes in each nation will be necessary. “I don’t think it is possible [in China] without aggressive, sustained, and determined action,” said Gallagher. “I’m optimistic it could be done, but early action and considerable financial resources will be needed. Time is not our friend here.” Electricity generation accounts for more than half of China’s greenhouse gas emissions, and three-quarters of that electricity goes to industry rather than households. Iron, steel, and cement production together leads to more than a third of China’s greenhouse gas emissions. Reducing greenhouse gas emissions in China therefore has a direct impact on its economy. Today, coal accounts for 80 percent of China’s greenhouse gas emissions, and that percentage is projected to remain unchanged through 2030 in a business-as-usual scenario. In the United States, coal accounts for 35 percent of emissions and is projected to account for 39 percent by 2030. 45000 United States 40000 China 35000 Rest of World Million metric tons carbon dioxide 30000 25000 20000 15000 10000 5000 0 1990 2005 2015 2030 FIGURE 3.1 Projections of carbon dioxide emissions through 2030. Indicated by the Figure 3-1.eps arrow is the turn toward emissions reductions needed to help stem climate change. broadside SOURCE: Kelly Sims Gallagher, “The Rise of China,” presentation at the Summit on America’s Energy Future on March 13, 2008; based on data from IEA (2007).

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2 THE NATIONAL ACADEMIES SUMMIT ON AMERICA’S ENERGY FUTURE 6.0 5.4 5.0 metric tons of carbon 4.0 3.0 2.6 2.6 2.0 0.9 1.0 0.3 0.0 USA China Japan UK India Figure 3-2.eps FIGURE 3.2 Per capita carbon emissions from fossil fuel burning in 2003 were much higher in the United States than in other countries. SOURCE: Kelly Sims Gallagher, “The Rise of China,” presentation at the Summit on America’s Energy Future on March 13, 2008; based on data from Oak Ridge National Laboratory, Carbon Dioxide Informa- tion Analysis Center. In China emissions from oil for transportation account for only 6 percent of emissions, whereas in the United States, transportation is responsible for 43 percent of emissionsseven times China’s transport emissions. Emissions from vehicles will grow in China by 2030, but the increased emissions from coal will dwarf those from vehicles. In fact, if every vehicle in the United States instantly ceased operation, the growth in emissions from China’s coal would fill the gap in a few months, said Gallagher. Issues of fairness and equity loom large in any discussions of greenhouse gas emissions in the United States and China. People in the United States still emit much more carbon dioxide per capita than do people in China (Figure 3.2). And millions of Chinese continue to live in poverty. According to the World Bank, 135 million Chinese live on less than $1.00 per day, and millions more live just above that arbitrary poverty line. “This makes the equity issue quite complicated,” said Gallagher. POLICY INITIATIVES IN CHINA China’s energy-related challenges are “numerous, intractable, and very complicated,” Gallagher said. The country needs energy to sustain economic growth. It is becoming increasingly reliant on foreign sources of oil and natural gas. It needs to provide modern forms of energy to China’s poor. Its urban air

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2 THE DEVELOPING WORLD—THE CASE OF CHINA pollution is increasingly severe. It is facing growing concerns domestically and internationally about global climate change. And it needs access to affordable advanced energy technologies to address all of these challenges. China has already done a lot to address its energy challenges, Gallagher said. First, it has launched very aggressive programs to improve the efficiency of energy use. For example, China’s fuel efficiency standards for automobiles are much stricter than are U.S. standards. Fuel efficiency standards that go into effect in 2008 call for automobiles to get approximately 35 miles per gallon, a goal that U.S. standards will not reach until 2020 (although methods of enforc- ing such standards are considerably less developed in China than in the United States). Automakers are not allowed to produce a vehicle until the model has been certified to meet the efficiency standard. In addition, in its eleventh 5-year plan the Chinese government has set a very ambitious target of a 20 percent reduction in the use of energy per capita by 2010. This goal is proving difficult to achieve, Gallagher said, but the goal nevertheless exists. The incremental costs of new energy technologies are a big hurdle in China, according to Gallagher. She recently did a study with colleagues at the Chinese Academy of Sciences on the capital costs of advanced coal plants in China. Several different kinds of plants are very efficient and fairly clean in terms of conventional pollution control, and China has three such integrated gasification combined-cycle (IGCC) coal-fired plants under construction for demonstration purposes. IGCC plants also provide the option of capturing carbon dioxide at a reasonable cost. However, the capital costs of IGCC and other advanced coal-fired plants are considerably greater than the costs of conventional coal- fired plants. Given the projections of new coal-fired capacity needed in China between now and 2020, the additional cost of building IGCC plants instead of more conventional plants, so that the option would be available of later captur- ing and storing carbon dioxide, would be approximately $190 billion—or about $16 billion per year. “That sounds like a big number in some respects, and in some respects it doesn’t,” said Gallagher. Gallagher pointed out that the Chinese government could take a number of steps to address the challenges it faces. First, it could slow down economic growth or population growth. Both options are difficult, but Gallagher noted that the government has recently sought to manage its economic growth better, and it has recently retained its one-child policy. The government also could promote an economic shift to lighter industry. For example, a fair amount of carbon is emitted in producing items for exports, including items sent to the United States. Such a shift is already a stated goal of the Chinese government, Gallagher said. China could move more aggressively toward lower-carbon fuels, Galla- gher said. Russia has considerable natural gas, but China has been reluctant to rely heavily on that source. This could change in the future, according to Gallagher.

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2 THE NATIONAL ACADEMIES SUMMIT ON AMERICA’S ENERGY FUTURE The government could allow energy prices to rise. Although useful, this approach would risk inflation and would be very regressive in terms of its effects on poor people in China, which is a point often emphasized by Premier Wen Jiabao. China also could more aggressively pursue efficiency through environ- mental pollution standards. But current standards are already fairly aggressive, Gallagher said, and a more important issue is to better enforce the standards that are already in place. China could strengthen the legal system to foster a culture of compliance and enforcement of laws and regulations. The nation also could make greater investments in technological innovation for low-carbon technologies. Finally, China could allow environmental activism to flourish and respond to it. In 2006, Gallagher noted, the minister of the State Environmental Protec- tion Administration announced that 51,000 environmental protests occurred in 2005 in China. Not all of those were really environmental protests, Gallagher said. Many were protests about issues that more directly affect the Chinese people, such as land being taken away from poor farmers and converted to other uses. “Still, it shows that there is a rising sense of urgency in China about environmental issues.” And the same kinds of activism have been responsible for greater environmental consciousness and increased environmental legisla- tion in the United States. U.S.-CHINA COOPERATION “The United States and China are clearly the two countries with the unique ability to make or break the climate change threat,” Gallagher said. “If either one fails to effectively manage its greenhouse gas emissions during this century, it’s really almost impossible to substantially reduce the threat of climate change. If both fail, the game is really over.” Because of China’s heavy reliance on coal and its current state of economic development, it will be much harder for China to reduce its greenhouse emis- sions than it will be for the United States, according to Gallagher. China still lacks many of the necessary institutions, policies, and enforcement mechanisms needed to foster vibrant markets, technology transfer, and environmental pro- tection, especially at the provincial and county levels. At this point, the Chinese government is still most concerned about energy security and economic growth. Although many in the government are aware of the environmental dimensions of energy use and are beginning to take steps to protect the environment, maintaining stable economic growth, which creates support for the current leadership, is the top priority. The United States needs to accept the fact that it will have to help China reduce its emissions, Gallagher said. She proposed several options for how the two countries might work together to confront the climate change challenge.

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2 THE DEVELOPING WORLD—THE CASE OF CHINA First, once the United States has established a domestic mandatory pro- gram to reduce greenhouse gas emissions, it should ask China to adopt a pro- gram that is suited to its circumstances, Gallagher suggested. The United States should consider forming a bilateral or multilateral investment fund to accelerate the deployment of low-carbon technologies in China, she continued. Such a fund could provide low- or no-interest loans, or even direct grants, for major new industrial facilities or power plants that use low-carbon technologies. The Chinese government also should pay into that fund. Such a fund would create a market for low-carbon technologies in China. It also would be advantageous for U.S. firms that have technologies to sell in China. This is not a politically popular idea, Gallagher admitted, “but I believe it is necessary.” Energy technology collaborations between the two countries could be greatly increased, Gallagher stated. Joint research, development, and demon- stration projects would be valuable for both countries and could bring the U.S. private sector into better contact with Chinese partners. For example, demon- strations of carbon capture and storage, renewable energy, energy storage, and energy efficiency technologies can be greatly expanded. Finally, Gallagher pointed out, the United States could significantly bolster cooperative activities that are aimed at the collection and reporting of data in China and at policymaking, institution building, and enforcement of environ- mental policies. Government officials in China are very interested in cooperating with other nations on energy issues, Gallagher observed. But political issues erect high barriers to such cooperation. As Schlesinger pointed out, U.S. politicians have many differences with government leaders in China. There are concerns about China’s military activities, its continual attempts to hack into U.S. defense computers, its record on stealing technology, Tibet, human rights, and women’s rights. As Schlesinger said, “I would hesitate—and I’m not the most timid per- son in the world—to go to the United States Congress and ask them to finance a reduction in the release of greenhouse gases from the People’s Republic of China.”

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