Section II Resource, Environmental and Security Challenges Facing China’s Energy Development

China has put in place the world’s largest energy supply and consumption system over the past decades that basically satisfies current energy demands for socio-economic development. However, the previous energy development model struggled to overcome a run of major problems arising from severe challenges in resources and environment.

I. A Crying Need to Change the Coal-Based Energy Structure

China’s coal resources are relatively abundant and widely distributed, mainly concentrating in northern provinces. With a long mining history, coal has been the main energy source in China. In the twenty-first century, China’s energy consumption has experienced a decade of breakneck growth. During the decade from 2002 to 2012, energy consumption increased at an average annual rate of 8% or over 200 million tons of coal equivalent per year, while coal production assumed a net increase of 2.6 billion tons from less than 1.4 billion tons in 2000 to nearly 4 billion tons in 2013. China’s coal output has accounted for half of the total global coal production, and coal has played a pivotal role in ensuring the energy supply in China. Coal once contributed to over 70% of China’s primary energy supply, the number still remaining at 62% in 2016.

Such mass production and consumption of coal has caused severe environmental damages and pollution and become the main culprit for China’s low energy efficiency. In Shanxi province which used to be China’s largest coal producer and is now the second largest one, the annual coal output once surpassed one billion tons. By the end of the twentieth century, the annual coal output of 600 million tons in the province had caused substantial damages to soil, water and ecology conditions. There’s water shortage in many places of Shanxi province, which was made worse by massive coal exploitation that caused a significant drop in the groundwater level, withered trees and grasses on the dry land, dried-up riverway, and a sharp decline in the water runoff. The land subsidence caused by coal mining also posed great challenges, leaving a chunk of land difficult to cultivate and many villages relocated for multiple times. All these have placed Shanxi province under mounting challenges for environmental protection and proved that an annual coal output of 600 million tons was too much for the province. Instead of reducing coal production, however, the province increased the production from 600 million tons to one billion tons a year, driven by soaring demand and price. The problem has been pervasive in many coal mining areas. As a result, the coal exhaustion in the old mining areas is accompanied by substantial ecological damages that are difficult to address. Regardless of these problems, new mining areas have chosen to follow the same old disastrous path and made further damages to ecology and water resources.

Workplace safety has long been a pain point for China’s coal industry. In China, only a small proportion of coal resources are suitable for open-pit mining and more than 90% of coal production comes from underground mining. Excessive demand for coal has driven some places to exploit coal resources with high gas content under complicated geological conditions, creating great safety hazards and coal mining accidents. Prior to the 1990s, China had a high rate of mining accidents caused by backward technology, poor mechanization, inadequate safety facilities, and bad mining conditions. Thanks to years of painful efforts, the coal production conditions continued to improve and a large number of unqualified coal mines were closed. Currently, the death rate of coal mining accidents has dropped to 0.2 person per million tons of coal. Though the number of coal mines has fallen from the highest 60,000 to over 6,000 today, coal mining accidents still happen from time to time due to large-scale coal production and complicated geological conditions in some coal mining areas. Mining safety is still a major problem facing the coal production industry, in addition to the incidence of pneumoconiosis among miners.

II. Low Energy Efficiency Caused by Coal-Based Energy Structure

Since coal is the principal industrial energy in China, there are countless coal-fired industrial boilers and kilns, in addition to coal-fired thermal power plants. The number of coal-fired industrial boilers surpassed 600,000 at its peak. Despite China’s tremendous efforts in energy conservation of boilers for years, the difficulty in sustaining optimal operation of small and medium-sized coal-fired boilers hasn’t been surmounted. The average thermal efficiency of these boilers has been below 70% for a long time, much lower than that of the natural gas boilers. Even for the non-fossil uses of the coal, such as chemical raw material, the overall thermal efficiency paled in comparison with that of oil and natural gas. Most electricity in China comes from coal, despite a drop from 80% of the electricity generation mix to 75%. The energy efficiency of coal power plants is about 10% lower than that of the natural gas power plants. The high proportion of coal in the energy consumption mix is the chief culprit for low energy efficiency in China’s industrialization.

III. Air Pollution Caused by Coal-Based Energy Structure

Having relied on coal-based energy consumption for long, the urban areas in China have been suffering from severe environmental pollution. Some cities with more energy-intensive industries, in particular, face more serious air pollution caused by coal combustion. As the continuous expansion of urban areas has made traditional means of coal combustion outdated, China has long since started to control the emission of smoke dust from coal-fired facilities. Most cities have to gradually put a brake on burning coal for decentralized home heating and cooking. In places without natural gas or LPG supply, town gas is developed to replace coal and small coal-fired boilers are phased out, in a bid to reduce air pollution caused by large particles like soot. Due to the geological features of China, its population of 1.3 billion is mostly concentrated in eastern and central regions. The development of industrialization and urbanization has given rise to a growing number of cities and factories, increasingly concentrated city clusters and industrial areas that keep expanding in areas, as well as higher energy intensity. Starting in the early 2000s, China has strengthened efforts to reduce air pollution. In addition to further reduce the soot emission, China has begun to control the sulfur dioxide emissions to minimize acid rain pollution by restricting the use of high-sulfur coal, installing desulfurization devices in power plants, introducing natural gas to large cities, and reducing the use of loose coal. However, due to the dramatic increase of coal consumption to the scale of over four billion tons, most cities in China have been shrouded in heavy smog. The largest area affected by severe haze once extended to more than 1.5 million square kilometers. Except for a few plateaus and islands, almost all places have been plagued by smog. In the winter especially, many cities have been choked by heavy smog for days in a row. In Beijing, for example, the annual average air quality index reached 89 in 2003, far higher than the national standard 35 for clean air. In China, the severe air pollution hit the same regions with intensive coal consumption. China has in recent years given top priority to reducing air pollution, especially smog. The coal consumption has been strictly restricted or significantly reduced in severely polluted areas. However, there’s a still long way to go. For example, despite a host of countermeasures, the annual average air quality index for Beijing still stood at 73, a far cry from the clean air standard.

With the rapid rise of car ownership in some big cities, the automobile exhaust emissions have become a major source of air pollution. With a car ownership of roughly six million in Beijing, traffic congestion has become a commonplace, which has further exacerbated the pollution from car exhaust emissions. Under such circumstances, China had to take immediate measures to substantially improve the quality of oil products, reduce the contents of sulfur and other possible pollutants in gasoline and diesel, and significantly raise the exhaust emissions standard for cars. Many cities have adopted measures to suppress the excessive growth of car ownership. Some large cities are encouraging the use of new energy vehicles, especially electric vehicles, to reduce the vehicle exhaust emissions.

To combat air pollution, it’s necessary to raise the emissions standards relevant to coal combustion to an almost impossible level, weed out the coal users who are scattered and have difficulties in adopting large-scale centralized pollution control facilities, and replace coal with clean energy. In many places, the use of metallurgical, chemical and raw material production facilities have been restricted or prohibited to reduce the overall pollutants emissions. At the same time, electric vehicles are promoted to reduce car exhausts emissions. In the fight against environmental pollution, China has to curb the increase of its energy consumption, minimize the coal combustion, extend the use of clean energy, and change the previous coal-based energy structure.

IV. High Carbon Emissions Add to the Difficulties Facing the Promotion of Low-Carbon Power

China is a large energy consumer, accounting for nearly 23% of global energy consumption in 2015. The coal consumption makes up a high percentage in the energy mix and contributes to high carbon emissions. In 2006 China overtook the US in the CO₂ emissions from fossil fuel burning and became the world’s biggest producer of greenhouse gas (GHG). In 2015, China’s CO₂ emissions from energy sector accounted for over 27% of the global total. How to effectively fight against climate change and reduce the GHG emissions has become the biggest challenge to China’s energy development.

The Paris Agreement reached at the United Nations Framework Convention on Climate Change in 2015 set a common goal of keeping the increase in global average temperature by the end of the twenty-first century to well below 2℃ above pre-industrial levels. China has actively helped promote international cooperation on climate change and conclusion of the Paris Agreement. Moreover, China has put forward a national action plan on climate change to set a specific goal for GHG reduction. Currently, China intends to cut the carbon intensity by 40%-45% by 2020 compared with 2005 levels, while raising the proportion of non-fossil energy consumption to over 15% of the total primary energy consumption in China. Furthermore, China vows to put a peak on its growing carbon dioxide emissions by the year 2030 and will work hard to achieve the target at an even earlier date, while boosting the non-fossil energy use to 20% by 2030.

Based on analysis of the nationally determined contributions (NDCs) put forward by parties to the Paris Agreement, many international research institutions concluded that the actions and goals through the NDCs were not enough to realize the goal of keeping the increase in global average temperature to well below 2℃. The countries need to reinforce actions toward a higher goal. According to the assessment report of the Intergovernmental Panel on Climate Change (IPCC), limiting global warming to less than 2℃ relative to pre-industrial levels would require a rapid brake on the increase of global GHG emissions and substantial cuts following the carbon emission peak so as to cut the anthropogenic GHG emissions by 40%-70% by 2050 and realize the goal of zero emission by the end of the twenty-first century. This poses a daunting challenge to the global energy system. It means a reduction of global fossil energy consumption by half within some three decades and 100% non-fossil energy consumption in the second half of the twenty-first century, or zero carbon emission of fossil energy via carbon capture and storage (CCS).

Given that China is the world’s largest GHG producer, whether China could put a peak on carbon emissions at an early date followed by rapid emissions reduction is a key factor for the goal of limiting global warming to less than 2℃ relative to pre-industrial levels. Thanks to the painful efforts in energy conservation, China has substantially improved energy efficiency and significantly reduced energy intensity. China has kept up such efforts, evidenced by the development of non-fossil energy and a world-leading position in hydropower, wind power, photovoltaic power generation, and direct utilization of solar thermal energy. China also boasts the world’s largest and fastest-growing nuclear power capacity under construction. Even so, China is still inadequately prepared to adapt to and meet the global demand for accelerated GHG reduction.

It took more than thirty years for China to achieve the fast-growing energy supply capacity and put in place the world’s largest energy system to secure energy supplies. However, the system is based on fossil energy which, more specifically and even worse, mainly refers to coal-based high-carbon energy. China is still pressing ahead with industrialization and urbanization. In particular, China will continue to pursue urbanization within the next twenty to thirty years. Various forecasts and analysis results indicate that the energy demand in China will continue to grow for a long time. Quite a few people believe that at its present pace, China’s per capita GDP is projected to rise to USD 25,000 by 2050 from the current USD 8,000. Even if at a growth rate notably lower than that of economy, which is made possible by the utmost efforts in energy conservation, the overall energy consumption is very likely to reach six billion, or even seven billion tons of coal equivalent. Under such circumstance, non-fossil energy alone won’t suffice to meet the energy demand and the fossil energy consumption will continue to rise.

V. Rising Energy Imports Increase the Risk in Energy Security

China used to be an important oil exporter in Asia. To increase foreign exchange reserves, China once restricted domestic oil consumption for export. However, oil consumption still increased slowly and catalyzed China’s shift toward an importer of crude oil in 1993 and a net importer of oil (including crude oil and petroleum products) in 1997. The twenty-first century has seen rapid growth of oil imports. Nowadays, the total net import of crude oil and petroleum products in China has exceeded 400 million tons. In contrast, the oil imports in the US have dropped substantially owing to the shale revolution. China is now the world’s largest oil importer and forecasts by many measures suggest sustained increase in oil import to a likely volume of 500 million tons. The natural gas import is growing rapidly and is estimated to reach an annual volume of 150 billion to 200 billion cubic meters in the future.

China has long adhered to the strategy of relying mainly on domestic resources out of a conviction that large energy imports pose severe risks to energy security. For the sake of energy security, it’s proposed to keep the annual oil imports below 60% of national oil consumption, a number that has risen to 66% and is expected to grow further. The rise and fall of oil prices in recent years has made a profound impression on the public mind, especially the oil price of over USD 140 per barrel in 2013, which connected energy security with economic security closely.

China has taken a variety of measures to improve energy security, including consumption tax on petroleum products, stimulation of development and application of oil-saving technologies, support to the exploitation of domestic oil and natural gas, establishment of the strategic petroleum reserve by following the lead of IEA member countries, as well as expansion of oil and gas import sources by advancing oil and gas cooperation with Russia and Central Asian countries and construction of oil and gas import pipeline by land. In addition, China has invested in oil and natural gas around the world to increase the global supply, and participated in the security management of oil transportation pipelines, including escort services on international waterways. All these measures are necessary, since the high risks from the fluctuating international energy prices, instability and perpetual wars in the Middle East, and occasional intensification of geological conflicts related to oil and natural gas all contribute to China’s growing concerns over energy security.

Under the influence of the traditional strategy for energy security, many Chinese still regard it as a key option for energy security to continue with the reliance on coal and the coal-based energy structure to develop coal-to-liquids and coal-based substitute natural gas. China has invested hundreds of billions of yuan in many coal-to-liquids, coal-to-gas and coal-to-olefins development projects for either demonstration or operating purpose. Energy security used to be a reason for continuous expansion of coal production capacity and building large coal production bases as a strategic choice. Such technological choices, heavy investment and newly-built facilities for coal processing and conversion have impeded and posed considerable challenges to the development of low-carbon economy in China.