The way in which energy is produced and consumed will have to change fundamentally in response to growing impacts and concerns over climate change and security of supply. This must be achieved at a time when the rate at which energy is being consumed has never been greater and projections suggest that energy demand will be at least 40% higher by 2030.
In July 2007, the US National Petroleum Council Report concluded: “It is a hard truth that the global supply of oil and natural gas from the conventional sources relied upon historically is unlikely to meet projected 50% to 60% growth in demand over the next 25 years.” This is a remarkable statement from a body whose function it is to represent the views of the oil and gas industries to the US Secretary of Energy. The Financial Times described it as a “defining moment in the history of the global energy industry”.
This expected increase in energy consumption is in part due to the growth of China, India and other rapidly developing countries, and in part due to continual high levels of energy consumption in western Europe and North America.
Outlooks on efficiency
China’s energy consumption has increased considerably over the last five years, well above the forecast rate. In 2002, the International Energy Agency (IEA) predicted a 3% to 4% growth in demand, while 2005 saw an increase of 15%. Such strong growth rates are unsustainable in the short- and long-term. The impacts of such increases in power demand are seen nationally and internationally. Since 2003, 30% of the global increase in oil consumption was accounted for by China (and in 2006 it accounted for 80%). A number of factors are thought to have led to the rapid increase in energy demand, including more energy intensive industry, the rapid construction of domestic infrastructure, greater transport and individual energy use and a scaling back of energy-efficiency initiatives.
“China's energy efficiency remains low,” Liu Jiang, vice chairman of China’s top economic planning body the National Development and Reform Commission, said in 2005. “We have an onerous task to improve energy efficiency.” China’s eleventh Five Year Energy Plan put a strong emphasis on energy efficiency, proposing that between 2006 and 2010 there should be a 20% increase in the energy efficiency of the economy (which will require a decrease from 1.22 to 0.98 tonne of coal equivalent per unit of GDP). And it is hoped that there will be an additional 20% increase in energy efficiency by 2020. Such efforts not only bring huge improvements in energy and environmental security, but also significant economic benefits. The energy efficiency plans in the eleventh Five Year Plan address both the supply-side issues (such as improved coal mining technology, greater use of combined heat and power and higher efficiency levels in electricity generation) and demand-side questions (such as standards for buildings and equipment).
The EU has long recognised the importance of energy efficiency. Its 2000 Green Paper on Energy supply noted: “If the EU cannot reverse current energy consumption trends – energy and transport, especially in urban areas – it will have to resign itself to massive dependence on imports for energy supplies and will have trouble meeting its commitments under the Kyoto Protocol.” Since then, it has adopted a raft of legislation to improve Europe’s energy efficiency. In 2006, the EU adopted a target to increase its energy efficiency by 20% by 2020. With the expected increase in economic activity over the period, this could lead to an overall 13% reduction in energy consumption. The European Commission estimates that if this programme were fully adopted it could cut energy bills by around 100 billion euros by 2020, as well as a reducing carbon dioxide output by 780 million tonnes. This equates to 60% of the EU target to reduce carbon dioxide 20% by 2020, a target the EU would exceed were it to meet its goals on energy efficiency and renewable energy.
However, despite the role of energy efficiency being recognised in both China and Europe, there are many barriers to its rapid and effective introduction. In both cases, the necessary policies and regulation are already in place. What is essential as a first step is that existing legislation is fully transposed, enforced and evaluated. This could result in significant decreases in energy use. Compared to a business-as-usual scenario, China could save 570 million tonnes of oil equivalent and 503 million tonnes of carbon by 2020, and the EU could save 37 million tonnes of oil equivalent and 456 million tonnes of carbon in the same period.
Implementing and enforcing regulations is a very complex process. Energy efficiency may be given prominence in national and regional policies, but it affects all aspects of society – and requires action across all government departments and levels. In the case of China, this would be enhanced by the establishment of an autonomous Ministry of Energy with a clear mandate and an office of energy resource savings. This would need adequate staff, budget and investment. Analysis undertaken by the Lawrence Berkeley National laboratories in the US suggested that the percentage of energy investment for conservation purposes in China in 2003 is a third of what it was in 1983.
The power sector offers an important insight into the opportunities and threats facing both parties in the coming decades. China’s expected demand increase in the power sector has garnered considerable press attention. However, there is little awareness of the forecast construction programme in Europe and the US, where the anticipated closure of existing power stations, coupled with modest demand increases, means the EU and the US require new generating capacities of similar orders of magnitude. This offers important opportunities for collaboration in order to avoid locking investment into carbon- and energy-intensive projects and to develop more flexible and forward-thinking strategies. Attempts must be made to move energy policy away from the “predict and provide” approach, to one that takes into account security of supply and environmental concerns.
China manufactures many goods that are used in Europe, electronic products in particular. It should be of mutual benefit for China and the EU to work together on introducing higher energy efficiency standards for such goods. But in some instances the EU has imposed anti-dumping tariffs where it believes products are being sold below their real value to create market distortions. The most prominent case is that of the compact fluorescent light bulb. In August 2007, the European Commission proposed that the EU should retain an import tariff on Chinese bulbs for an additional year.
China and the EU have established a number of joint initiatives to help capture the potential of energy efficiency. China and the EU established a five year programme in 2003 to strengthen co-operation in four main areas: energy policy development; energy efficiency; renewable energy; and natural gas. The energy efficiency programme includes initiatives on standards and labelling, energy intensive industries, small- and medium-size boilers and incentives to promote energy savings in China. In July 2007, the EU established the China Climate Change Framework Loan through the European Investment Bank. This loan facility for the energy sector is intended to help reduce greenhouse-gas emissions through renewable energy sources, energy efficiency enhancement and the capture and storage of greenhouse gases.
The IEA’s stark warning, that this energy future is not only unsustainable but also is doomed to fail, should be a reminder that urgent action is needed to change current energy supply and demand policies – a warning that was later echoed by the International Panel on Climate Change (IPCC) and the US Petroleum Council.
In China, the EU – and the rest of the world – more efficient use of energy must be at the heart of future policy and action. Scenarios on the global and regional level show that existing policies and technology, if widely implemented, will lead to significant reductions in energy use, improve security of supply and reduce environmental impacts.
Global markets in energy resources and energy-consuming goods mean that globalised solutions to energy security problems must be put forward. Existing co-operation between the EU and China reflects this, but this co-operation must be accelerated – especially in the removal of tariff barriers for energy efficient goods, joint research and development projects, joint manufacturing standards, initiatives to improve capacity and the introduction of international agreements.
Antony Froggatt is a researcher for the Royal Institute of International Affairs (Chatham House)
Homepage photo by David G. Romero