How China Plans to Win the Future of Energy

China is not energy secure

China's appetite for energy is enormous. The country consumes about a quarter of the world's energy supply, 35% more than the U.S. annually. Its energy needs have more than tripled since the year 2000. That consumption has helped to fuel astonishing growth, but it's come at a cost. China is the world's largest greenhouse gas emitter. There is no way to tackle climate change unless China reduces its emissions to net zero. The country's reliance on fossil fuels is also a hindrance to its own growth and the wellbeing of its citizens. China is not energy secure. It has a massive import bill for things like oil and gas. It has a longstanding pollution problem, and it is also prone to outages that severely hamper industry. All this has led the world's biggest polluter to take steps towards a radical transformation. President Xi Jinping outlined his plans to make China carbon neutral by 2060. COVID 19 reminds us that humankind should launch green revolution and move faster to create a green way of development. China's high level goals are that within this decade it's going to peak its carbon emissions. And then it's going to go to net zero by 2060. So that gives it approximately 40 years to do something that no country has achieved, let alone something like the size of China. As the world starts to turn away from fossil fuels, China is positioning itself as the king of clean energy, not only transforming its own energy system but also building a supply chain that could leave the world uncomfortably dependent on China for its energy needs. China has really expanded its grip. So it's the processing, it's the manufacturing, it's all the way down to your EVs and your battery packs. How the West deals with that, they're going to have to be a bit creative. What China plans to accomplish by 2030 could determine the shape of the global energy system of the future. At the end of the last century, China was on the cusp of an economic revolution. In 1990, its GDP was only 6% that of the US, and its energy use was only 34%. But the economic reforms of the '80s and '90s started the process of privatizing industry, and opening up to trade with the rest of the world. By the time it joined the World Trade Organization in 2001 China was well on its way to becoming the world's factory with booming energy needs to match. The history of it is really dramatic. I think just the condensation, really China is doing industrial revolution a hundred years after that, all of that in a very concentrated period of time. So what we saw is obviously dramatic change in terms of energy consumption, and there were power crunches in the early years, really the system was still trying to cope. Dramatic addition of coal fired plants in particular to deal with that. From a climate perspective, the position was, well, you had your turn, now it's our turn. When you were growing, you as the West, there was no question of what carbon was doing. You did whatever you wanted, now it's our turn. That really changed in 2008, 2009. And that coincides with an awareness of air pollution. In Beijing, which is facing another smoggy day. Some environmentalists say it is the worst air on record. Beijing was famously the most polluted city in the world for almost a decade. It also became very clear to its leadership that that kind of growth will be unsustainable, not just from a fact of putting out lot of emissions, but from a fact that much of the fossil fuel consumption, for example oil and natural gas will have to be imported. And that's something China wanted to walk away from. So starting about 2010, China committed to increase its deployment of renewables. China, like many other places in the world, was faced with initially very non-competitive on a cost basis economics for solar projects, for wind projects and being able to subsidize the manufacture of the key components, ensuring the power that they sell has an attractive rate. All of these things, China has done very, very well. You push the market into existence and then you're able to pull back with some of the policy mandates because now it just makes good economic sense. China's investments in renewables helped drive astonishing price drops across the industry leading to record levels of new wind and solar installations all over the world in recent years. Last year, wind and solar generated more than 10% of the world's electricity. Still renewables only make up a tiny fraction of China's energy mix today.

China is overwhelmingly dependent on fossil fuels at the moment.

And within that if you look at power generation, it's overwhelmingly coal, roughly 60%. Wind, biomass, solar remain a much, much smaller fraction. There was pressure building up on China for quite a few years that China needs to do more to cut emissions. And that finally sort of came together in 2015 at the Paris Agreement when China agreed to sign it alongside the US and pretty much every country on the planet. That bit of diplomacy was crucial to take China to the next stage, which is when in 2020, it declared that it will set a net zero goal. And in a way it was a coup for China because it set that goal even before the US could have done so. China's decarbonization plan ramps up gradually with fossil fuel emissions increasing for a few years before peaking in 2030. From there they've given themselves another three decades to get to net zero, with 80% of energy coming from carbon free sources by 2060. Getting there will be a massive undertaking, and it starts with renewable megaprojects on a scale seen nowhere else on Earth. So late in 2021, we took a reporting trip to Qinghai in western China. It's quite wind swept. It's a very sunny part of the world. Very low population density. We went to a facility that was spread out over 600 square kilometers, about the size of Singapore. In that facility, they have a hydro dam, they've got a massive solar buildup, and they're adding wind installations as well. When all of that is up and running, it's going to be producing nearly 20 gigawatts of energy. It's enough to cover the power needs at any given time for Israel, for example. By 2030 China plans to up to 1.2 terawatts of wind and solar capacity, enough to meet all of the US' electricity needs today. But it's not enough just to generate that power. Getting the power where it needs to go is a mega project in itself. In order to ship all that electricity, China has basically built this huge network of ultra high voltage power lines. And they're designed to get all of this energy from the west to where it's needed in the population and industrial centers of the east. Power lines might seem like a mundane piece of infrastructure, but they're actually a crucial piece of the decarbonization puzzle. A conventional AC power cable loses a lot of electricity over the course of hundreds of miles. Hence the need for these specialized direct current lines. What they do is they reduce the wastage that may happen on the way to transport this electricity. There are only two countries in the world where these cables are operating, China and Brazil. Brazil has two of those cables, China has 25. By far and away, China is absolutely the leader on this. And the amount of money that you're talking about, I mean, it's hundreds of billions of dollars that they're going to be spending on this in coming decades. As China goes towards a net zero goal, its leadership has recognized that there is no way China can meet those goals without having what's called firm clean power. The idea of firm clean power is that you're able to generate carbon free electricity when you want it, rather than relying on when the sun shines or the wind blows. Nuclear power satisfies those conditions quite well. In most countries, the nuclear industry is struggling, facing huge upfront costs, regulatory hurdles and negative public opinion. Still it is a carbon free source of reliable power, and many environmental advocates see it as a key to the green transition - as does China's leadership. China plans to build 150 new reactors in the next 15 years which is more than what the entire world has built in the last 35 years. Nuclear isn't seen as controversial in China, or at least we don't know if it is. It's not clear whether China's own population supports it or opposes it because they're not allowed to protest and show their opposition to a certain technology. That still leaves the difficult economics of nuclear, the high upfront cost of building new reactors. Here too, China may have unique advantages. One thing that we all know China really excels at doing is building huge infrastructure quickly. After decades of building bridges and skyscrapers, and high speed rail, and ultra high voltage lines, like every super massive industrial project that China has built, that know-how goes into also building nuclear power plants. When you build projects consistently on schedule and on budget, you actually get to realize the benefits that were imagined back when the project was being planned like stable, low cost electricity at a certain rate, at a certain production cost. China's efforts to decarbonize are likely to have many positive effects on its domestic energy supply. But that's not the only reason China has gone all-in on clean energy.

China certainly wants to meet a net zero goal

but it also wants to be a country that is making a lot of money exporting the technologies that will clean up the energy system globally. China is incredibly important when we think about the supply chain for green technology in general, the green economy, whether that's solar panels, or turbines, or the elements that you need to process along the way, incredibly significant. China basically accounts for something like 75% of the world's supply chain for solar. Anything that you're going to do in the States or in Europe, I mean, at some point Chinese companies will have been involved in this. That dependence on China has lately been a source of strain. Last year, COVID related production issues in China caused the price of of solar panels to rise for the first time in decades. And some companies have pledged to take their business elsewhere due to reports of human rights abuses in the majority Uyghur province of Xinjiang which produces most of the world's polysilicon, a key material in the manufacturing of solar panels. Obviously there have been accusations in the west that the Uyghurs are subject to forced labor. The industry and the Chinese government have denied this. Some in the west are also concerned about China's dominance over the materials needed to make lithium iron batteries. Cobalt, for example, is a scarce mineral produced mainly in the Democratic Republic of Congo where China has bought up most of the supply. The Congolese government has recently pushed back against those efforts, alleging poor working conditions and unpaid debts by a Chinese mining company. But the majority of cobalt-producing mines there are still at least part Chinese-owned. Crucially what China's done is it's also made the processing of these metals into the chemicals that eventually go into batteries an almost monopoly. The processing capabilities of China outstrip those of all the rest of the world combined.

Speaker's view

I think any kind of excessive dependency is problematic, and energy dependency is no different. Think about Europe, Europe's dependency on Russia for gas, how problematic that has been. So if we're going to have that the West as dependent on China for renewable energy, for green economy ingredients it is not going to be a healthy situation. My instinct is that these things are not done for a nefarious purpose, right? To dominate the supply chain in a way that is disadvantageous to another country. But, you know, that the primary consideration is what is good for China. I mean, remember we're coming from a period of not so long ago, late '90s, early 2000s when China had rolling blackouts all the time, and we've got all this investment into making sure it can't happen again. From the way people talk about it here, they believe in the mission and the mission is stable, secure energy for the Chinese people. Electricity rationing is being imposed in more than half of China's provinces. Power shortages are still ongoing. I think we've got a count of 20 provinces, where there are electricity curbs. Recently, China has been having flashbacks to the bad old days of blackouts and power rationing. A sudden spike in the price of coal led to widespread power shortages, leaving the government little choice, but to rational electricity and ramp up coal production. It's indicative of a major flaw in China's decarbonization plan: even as they add world historic levels of renewables they largely cancel out those gains with new fossil fuel additions. And so this is the central challenge because as your economy grows, and even as you add all of this renewable capacity, you still need to make sure that the coal supply is flowing in order to keep the lights on. That's going to be the big challenge for policy makers. Even China's world leading investments in carbon-free energy may not get them to their targets on time. But Beijing has recognized that the economic, political and environmental rationales for clean energy now vastly outweigh the costs. When it comes to the 2060 neutrality target, obviously China's a long way off, and it's a huge, huge, audacious target. The people that are the top leaders that are planning it out right now, they probably won't even be around to see it, right. Will they make it? I don't know. It's a huge, huge goal, but they believe they're going to make it. What I can tell you is they're certainly going to try, and they're certainly going to spend a lot of money trying to get there.