Instead of using my first official visit as Executive Director to travel to an IEA member country, I decided to make China my first official destination. This is no coincidence.
By almost any measure, China is the most important player in the global energy market. China enjoys that position thanks to an impressive set of achievements. And yet China also faces significant energy challenges in the coming years. China already lies very much at the centre of nearly every work stream in the IEA, and cooperation between China and the IEA stretches back nearly 20 years.
But I believe we must and can deepen this partnership. Why? It’s very simple: if China and the IEA work closely together, everybody benefits. The IEA can serve as an invaluable resource to China as it pursues the goals of greater energy security, economic prosperity and environmental sustainability. In return, the IEA and its members can learn much from China’s rich experiences.
And so my mission in China is twofold. First, to listen and learn what China’s principal energy-related challenges are; what tools China has available to meet them; and what areas the country sees as of greatest potential co-operation with the IEA.
Secondly, my visit is intended to signal both politically and tangibly the importance to both China and the IEA of forging closer and more concrete ties in the coming years. This visit to Beijing is a clear demonstration of my personal vision to modernise the IEA.
A key part of that vision is to develop a truly International Energy Agency during my tenure. For China’s sake, and also for the sake of the rest of the world, it is vitally important that China be a full participant in the international energy debate.
During my visit I have tried to persuade Chinese colleagues that China, along with other major developing nations, should become not just a partner but a full participant in the work of the IEA. That may take time, but now is the moment to start working on the process.
For instance, I have no doubt that in China, natural gas will play an increasing role in a cleaner energy system. But there is work to be done. This includes upstream policies that enable the utilisation of China’s massive shale resources, as well as infrastructure and market regulation that creates an efficient and resilient gas market.
As the reforms continue, we are pleased to work together to provide specific policy recommendations. The global transition to cleaner energy is going to require a kind of teamwork the world has never seen, and this argues for greater IEA-China partnership. For instance, no country – not even China – has yet solved the problem of how electricity markets and infrastructure should operate in a seamless way as renewables capacity expands.
This is a new problem for the world, and I believe China and the IEA together can and must work towards solutions. In some fields, such as ultra-high-voltage electricity transmission, China is leading and IEA members can benefit. In others, the experience of IEA members could provide insights for China.
We also have a strong convergence of interest in the core area of energy security. China is in the process of overtaking the United States as the world’s largest importer of crude oil. According to IEA projections, China becomes the world’s largest oil consumer in the not-too-distant future. This shift in global trade brings with it new vulnerabilities and risks, pointing to the need to reappraise oil security and how best to achieve it.
At the IEA, we have long-established tools that we can use to mitigate the harmful effects of disruptions in the supply of oil. The most well-known of these tools is our oil stocks. In the event of a severe supply disruption, as I touched on earlier when I mentioned the invasion of Kuwait or the devastation caused by Hurricane Katrina, the IEA can recommend and co-ordinate the release of these emergency reserves.
The goal is to keep markets supplied, thereby mitigating the economic damage of price spikes. As China’s appetite for oil has increased, it has made the wise decision to build its own strategic oil reserves in preparation for the inevitable rainy day. The IEA and our members strongly support this initiative, because it enhances energy security here in China and around the world. But simply having oil reserves is not enough; if they are to be effective in dealing with a global supply disruption, there needs to be some mechanism for their co-ordinated release.
I believe that the IEA oil supply security system must be not only vigorously maintained but also gradually broadened to reflect the shifting centre of gravity of global oil demand. In short, we must make room for China under the IEA umbrella in order to safeguard and extend the benefits of collective energy security.
We are also prepared to work to support China’s constructive perspective in leading global energy discussions. During its G20 presidency next year, China will be in a position to propose an ambitious energy agenda. Improving energy efficiency, renewable energy, global energy governance and energy access – in addition to other energy topics to be agreed by the G20 – are among the issues that the world will benefit from during China’s G20 presidency.
For ultimately all of this benefits the world. If China and the IEA can work together, the world benefits. This is central to my vision for modernising the IEA. As part of this vision, China can count on my determination to explore every opportunity to build closer and stronger institutional ties between the IEA and China. This will require flexibility and careful discussion, but – with goodwill on all sides – we can definitely find a way.
This opinion piece is a version of an Sept 9 speech by Fatih Birol to the Chinese Academy of Social Sciences, which can be accessed here