In my attempts to catch up on lots of literature published over the past year that I missed, I finally read the 2012 paper China’s Long Road to a Low-Carbon Economy: An Institutional Analysis by Philip Andrews-Speed, one of the first and foremost international commentators on China’s energy economy. Naturally, its stuff worth reading (otherwise I wouldn’t be blogging about it) because it addresses the core factors of whether China will ever succeed in its quest for sustainability – its governance institutions, and more specifically, the tension between the tendency of such institutions to maintain the status quo and their capacity to adapt to change. Andrews-Speed is ultimately pessimistic, but more interesting, I think, is his thought processes in reaching such a conclusion.
Andrews-Speed’s paper begins with a simple and powerful premise: governance must be “at the heart of the low-carbon transition” because energy is an inherently political issue as it is embedded in practically all facets of society and any change to how much or how it is utilized requires a complex alignment of incentives with the norms, values and priorities of a multitude of stakeholders in society.
Implicit in this premise is that other factors such as technology or financing, while important, are factors of a lower order. Its hard to disagree with such reasoning. Ultimately, technology innovation and capital mobilization exist within Read the full story
Updated Feb 9
The “new energy super ministry” announced last week is neither new, nor a super ministry. Let’s discuss.
First, the raw facts.
On January 22, the State Council announced the formation of the National Energy Commission, whose purpose would be to:
To study and formulate national energy development strategy, to consider the major issues of energy security and energy development, to coordinate domestic energy development and important matters of international cooperation. (“负责研究拟订国家能源发展战略，审议能源安全和能源发展中的重大问题，统筹协调国内能源开发和能源国际合作的重大事项。”)
The NEC consists of 23 members made up of:
Director: Premier Wen Jiabao
Vice-Director: Li Keqiang, Vice Premier of the State Council
You Quan, Deputy Secretary-General of the State Council
Zhu Zhixin, Director of the Central Finance Office
Yang Jiechi, Minister of Foreign Affairs
Zhang Ping, Director of National Development and Reform Commission
Wan Gang, Minister of Science and Technology
Li Yizhong, Minister of Industrial and Information Technology
Geng Huichang, Minister of Security
Xie Xuren, Minister of FinanceXu Shaoshi , Minister of Land and Resources
Zhou Shengxian, Minister of Environmental Protection
Li Shenglin, Minister of Transport Minister
Chen Lei, Minister of Water Resources Minister
Chen Deming, Minister of Commerce
Zhou Xiaochuan, Governor of the People’s Bank of China
Li Rongrong, Director of SASAC
Xiao Jie, Secretary of the State Administration of Taxation
Luo Lin, Secretary of the Safety Supervision Bureau
Liu Mingkang, Chairman of China Banking Regulatory Commission
Wang Xudong, Chairman of State Electricity Regulatory Commission
Zhang Qinsheng, Deputy Chief of General Staff
Zhang Guobao, Deputy Director of the National Development and Reform Commission, and Director of the National Energy Administration (NEA).
While Premier Wen Jiabao and Vice Premier Li Keqiang are titular leaders of the NEC, Zhang Ping, Director of the NDRC, will be in charge of the day-to-day management of the NEC, with Zhang Guobao, Zhang Ping’s deputy at the NDRC and director of the NEA, second-in-charge.
Now, let’s really discuss.
Is the NEC new? When I fist saw the announcement, I had to Read the full story
Last Thursday (June 4), the U.S. Senate Committee on Foreign Relations conducted a hearing with the self-explanatory title of “Challenges and Opportunities for U.S.-China Cooperation in Climate Change.” An all-star trio of China hands provided testimony: Kenneth Lieberthal of University of Michigan and visiting fellow at Brookings Institution, Elizabeth Economy of Council on Foreign Relations and Bill Chandler of the Carnegie Endowment of International Peace. Although actual testimony (except perhaps Lieberthal’s) did not track the prepared testimonies that are accessible in the preceding links, they are all well researched and reasoned and worth the read. [Update: Video of actual testimony available here]
Senator John Kerry, the chair of the Committee, set the context for the session in his opening statement:
Last week, I visited China to assess where the country currently stands on climate and energy issues, and to explore opportunities for cooperation going forward. I met with top Chinese political leaders, energy executives, scientists, students, and environmentalists. What I heard and saw was enormously encouraging. Chinese decision-makers insisted to me repeatedly that China now grasps the urgency of this problem. People who, a few short years ago, weren’t even willing to entertain this discussion, are now unequivocal: China is eager to embrace low-carbon development pathways and is ready to be a positive, constructive player in negotiations going forward.
The question is how.
How can we believe you?
Rather than provide a thorough summary of the proceedings, I will focus on what I thought was the key message that lays at the core of Economy’s testimony, but was also touched upon by Lieberthal and Chandler-the need for measurable, reportable and verifiable (MRV) actions (<–very helpful WRI report, btw), as called for in the Bali Action Plan. In Economy’s words, MRV is “the very building blocks of an effective domestic climate program for China as well as China’s commitment to a robust international [climate] regime.”
But Lieberthal was realistic about what China could commit to in Copenhagen, saying: Read the full story
Originally posted in The Wonk Room.
In an exclusive interview with Todd Stern, the U.S. special envoy for climate change, I discussed the challenge of ensuring a successful climate partnership with China, now the world’s greatest annual emitter of global warming pollution. Ahead of his visit to Beijing next week to meet with his Chinese counterpart, Stern was asked if he will discuss the problem of accurately accounting for carbon emissions — known among climate negotiators as “measuring, reporting, and verifying” (MRV). Stern replied that the way China’s actions “might be quantified” will “absolutely be part of the discussion,” but explained that he considered specific accountability mechanisms a lower-level concern:
I don’t think we’re going to be having a kind of textual discussion at this point with the senior people that I’m going to be dealing to actually try to be drafting what the text of an MRV provision would look like in an overall agreement. But implicitly that will be an important part of the discussion, because transparency and what the numbers add up to, whether it’s China, the US, Europe, Japan, or Brazil, it’s highly important, because it’s the thing that tells us if we’re going to be on track to do what we need to do over the next several decades.
Watch it [you'll need to crank up the volume to hear my questions]:
In fact, MRV has to be the foundation of a new global accord to solve the climate change problem — if you can’t measure it, you can’t manage it. But one has to really wonder if China is up to the task. Much has been written about the lack of accountability, transparency and enforceability in China’s governance system. Moving towards a Read the full story
Top Stories: Cash for renewables; China may raise fuel economy standards; Pledges smart grid by 2020; Beijing water price hike
I’m not one for sensationalism, but my gosh, when multiple news sources are reporting that the much anticipated renewable energy stimulus package will is going to be for the massive amount of 3 trillion yuan ($440 billion), its hard to resist. The amount is startling, considering that is is three quarters the size the economy-wide stimulus plan announced last November. No details have been given about the allocation of these funds; the news reports are saying a focus on wind, given the recent tripling of wind energy targets in 2020 to 20 GW installed capacity.
But given the size of the funds, one must really wonder if this is going to be a big handout to the nuclear industry, which itself benefited from a national target boost to 70 GW installed capacity by 2020, or big hydro for that matter. Unlike the November stimulus package, which was meant to be a short term boost for industry, this renewable energy package seems to be more far-sighted money, meant to be deployed over time from now till 2020. $440 billion is still quite a large sum considering that National Energy Bureau division chief Liang Zhiping was recently quoted as saying that a sum of $190 billion was needed to realize China’s 2020 renewable energy targets, but more consistent than the forecast by New Energy Finance last year that $398 billion (or $268 billion excluding big hydro) is needed. Then again, we also don’t to what extent nuclear, big hydro and grid infrastructure figure into the $440 billion on $190 billion numbers (they do not in NEF’s $268 billion forecast), so its all very hard to say.
Last month, Caijing ran a story on the difficulty of the government in achieving various environmental targets (h/t Cleaner Greener China), specifically with regards to the reduction of energy intensity and increasing forest coverage. Indeed, China Environmental Law blog (CELB) has highlighted the unease that the Ministry of Environmental Protection (MEP) feels with respect to economic policies promoted by other branches of government that work at cross-purposes with the nation’s environmental goals.
The globalization has left China in an awkward situation, which enjoys a trade surplus, but meanwhile an ecological deficit.
In light of the “slippage,” the MEP has adopted eight New Year’s resolutions Read the full story
You didn’t think The Green Leap Forward would go on to celebrate its first birthday (next week, folks! December 2nd!) without commenting on the recently announced RMB 4 trillion (US$586 billion) pump-priming package did you?
Of course not.
The basics of the package is that a total of RMB 4 trillion will be spent by the central government, local governments and state-owned enterprises in ten major areas, mostly infrastructure related. It is not clear to what extent part of the package is simply a repackaging of already existing budgets or expenditure plans in order to provide a psychological lift to the sagging stock markets. The more important question to readers of this blog, however, is to what extent the package addresses China’s environmental and energy (E&E) needs? Read the full story
The following is the complete transcript, modified and supplemented for completeness and readability, of the closing speech that the author of this blog (pictured below) delivered on November 11 at the JUCCCE Clean Energy Forum in Beijing.
We are at war. A world war. But unlike World War I or II, this is not a war about military tanks, but it’s a war about gas tanks. This is not a war about military strength, it’s a war about political strength, and innovation. This is not a war about conquering territories, its about conquering our addiction to fossil fuels. And unlike the first two wars, we are all fighting from the same side. We are engaged in a global energy and climate war. We have essentially, through our reckless consumption of the earth’s natural resources, provoked an unanticipated response in the world’s climatic system. We have essentially pitted Mother Nature against Mother Nature, and we are all caught in the middle.
So what now?
We need a serious restructuring of the way we organize our energy system, implement new rules and policies, and adopt new ways of using energy. We need to, as Rob Watson says, change transform “ego-nomics” into “eco-nomics,” and we do this by appropriate adapting human laws to the immutable laws of nature.
So how do we get there? How do we achieve the innovation to meet the energy-climate challenge? We need an smart and well informed mix of regulatory and market mechanisms. There is no single silver bullet, but I believe that over the past two days of discourse, we have collectively started forming a framework for the array of solutions, a full complement of many green bullets to get the green revolution under way. I see three themes emerging from our discussions: Read the full story
Nuclear is Hot. Big 5 power company China Huaneng Group has signed contracts with suppliers to equip its first nuclear power plant in Shandong province. The plant, planned for 200 MW in its first phase with a 2013 start date, will boast “high temperature, gas-cooled technology” (HTR-PM), which is supposed to be safer and simpler in design compared to conventional nuclear plants. It is the smallest of 21 plants in China’s nuclear pipeline. For the tech geeks our there, Tsinghua University, one of the purported suppliers of nuclear equipment for the project, has put out a paper describing HTR-PM. A review of China’s nuclear sector is really overdue here at The Green Leap Forward. Watch for it.
Solar-Powered Water. The Xinjiang government has invested RMB 160 million ($23.5 million USD) in a drip irrigation system powered by solar panels. [Pictured: a picture of a generic drip irrigator stolen from the interweb]. Elsewhere, China Solar & Clean Energy Solutions has been awarded a US$3.5 million solar water heating project in Shenzhen. Separately, the Beijing government announced it will invest RMB 13 billion (US$1.9 billion) over the next three years in Read the full story
Modern Japan is touted the most energy efficient economy in the world as well as a pioneer of electronic innovation, and increasingly, cleantech innovation as evidenced by the likes of its world leading solar companies like Sharp and Kyocera and the likes of Toyota for fuel efficient cars. Recently, Japan announced that it would revive incentives for solar power adoption, and also enact a national carbon-labeling scheme for consumer goods. Are there lessons from the Japanese experience for China to emulate?
Bill Emmott, a former editor of The Economist and author of the recently published book Rivals: How the Power Struggle Between China, India and Japan Will Shape Our Next Decade, explores in a new article in McKinsey Quarterly (subscription required, but free!) how, in this inflationary age, China can learn from Japanese socio-economic development history to steer its economy towards a more environmentally-friendly one.
Emmott reminds us that Japan’s environmental situation in the 1970s was not unlike China’s today. He then explains that there were two key factors that pushed Japan to clean up its act (bold mine):
One was popular protest, which even in a democracy dominated by a single party, the Liberal Democrats, forced government policy to change. The country’s first proper environmental laws were passed in the early 1970s, when its first environment agency was created. The second was macroeconomic: the revaluation of the yen, combined with the oil shock and the ensuing inflation. This sudden change in Japan’s circumstances brought about an abrupt switch in its industrial structure. The low-cost model was dead. Capital investment in heavy, polluting industry began to drop. Energy had become more expensive, and new taxes made it more expensive still. Companies adopted energy-saving and more efficient technologies and started to make products, especially cars, suited to the new, cleaner times. Also at this point, electronics companies, encouraged by the government, made big investments in new high-tech gadgetry, which led the economy in a new direction.
As a result, Japan’s industry underwent a transformation to the upmarket. Emmott keenly observes that the twin pressures of environmental degradation and inflation (similarly caused by currency revaluation and energy shocks today) are precisely what China is currently experiencing.
Comparing Apples to Oranges?
Can these drivers be similarly channeled towards a greening of China’s economy?
Everything there [in China] is on a larger scale than elsewhere: only India comes close in population, and only Russia, Canada, and the United States are comparable in geographic size. This can make China’s problems look more daunting than those of other countries. But that is misleading, for alongside the scale of the country’s pollution problems must be placed the scale of its resources to deal with them—if it chooses to do so. China has plenty of officials to enforce laws, the world’s largest security forces, and a central-government budget that is now happily in surplus.
However, Emmott acknowledges that, other than scale, certain other key differences that exist between China and Japan situation, and hence possible limitations to using Japan as a roadmap:
[China’s] inflationary pressures so far are milder than Japan’s in the ’70s (an annual rate of 8 percent, versus 25 percent in Japan in 1974–75). Its currency policy is in its own hands rather than Richard Nixon’s, and the pressure from environmental protests, while real and growing, is muted. The biggest problem is decentralization: China has excellent environmental laws, but local governments have so far tended to ignore them.
Another observer suggests that there are other significant unique obstacles that China faces, including “corruption, political reform, lack of water and energy, over-dependence on trade.”
The problem of decentralization is one of the principal-agent variety, whereby the agents, in this case the local government officials, do not fully execute the policy prescriptions of the principal, in this case the central government, due to a variety of reasons, such as a lack of resources, competing priorities, indifference, or even corruption. Anyone following China issues for even a short time will appreciate that China possesses some of the most progressive laws and policies, especially in the energy and environmental sphere. It is these “agency costs” that prevents the full implementation of the edicts of Beijing.
As in the corporate world, where the principal-agent problem exists between shareholders as principals and corporate managers as agents, where the tools of the law (legal duties of loyalty and good faith) and financial instruments (stock options) are used to align the interests between principals and agents, the Chinese central government is experimenting with something similar, by making energy efficiency performance as a significant promotion criteria for local government officials. And just as the government authorities may from time to time decide to spring spot-checks or investigations on certain companies, Beijing has authorized energy audits on certain major enterprises in Guizhou after the failure of the southern province to meet certain energy efficiency targets.
A Better Way?
Is emulating Japan’s path even the right course to take?
What might be good for China may not be good for the rest of the world. Japan’s greening came about by a radical transformation of its industry to more high tech, cutting edge manufacturing. But what would the impact on the rest of the world be if China were to abandon its heavy industries and mass manufacturing of consumer goods. Yes, it is certainly a boon if China ramps up its cleantech manufacturing sector, as suggested in our last post. But If China were to pursue the route of high-tech manufacturing and innovation at the expense of heavy industry and low-end mass manufacturing, wouldn’t such a transformation merely shift the associated environmental problems of low-end manufacturing to other low-cost countries such as Vietnam, Indonesia, and eventually even Africa? Labor shortages may already be pushing many factory jobs abroad, it seems. Is the net global result any better?
A better way forward is not to abandon its highly pollutive industries such as steel, cement and refining in favor of the high-tech, but accelerate energy efficiency gains in these very sectors through adoption of better management practices and technology. The use of voluntary agreements between major enterprises and local governments that set energy efficiency and pollution reduction targets and also provide for avenues of government assistance in achieving those goals are a useful tool, one that the likes of the Energy Foundation (China) is helping promote through its Low Carbon Development Path program.
The proper approach then is not to walk away from the problem (by offshoring), but to fix it at home.