China needs to make more scientific plans for its low carbon, clean energy transition and choose optimal approaches in terms of balancing the costs and benefits

 

China's environmental problems such as high energy consumption, pollution and carbon emission are prominent. Carbon emissions generated by the use of fossil fuels are considered the main cause of global climate change. To cope with environmental pollution and carbon emissions, the Chinese government has promoted a low carbon and clean energy transition in recent years through subsidies and supporting policies to promote new technologies and products such as photovoltaics, wind power, nuclear power and electric vehicles.

 

From 2013 to 2017, China's photovoltaic power generation rose from 8.37 billion kilowatts per hour to 96.7 billion kWh. In the same period, its wind power generation increased by 109 percent and its nuclear power generation by 122 percent. The government has also imposed restrictions on industries that are highly energy consuming and polluting and cut 800 million tons of coal capacity as well as 170 million tons of steel capacity. For industries that consume large amounts of energy such as cement and sheet glass, customized plans for phasing out the outdated capacity have been developed. Meanwhile, environmental inspections have forced local governments to squeeze outdated capacity out of the market. Also by September last year, nearly 2.5 million electric vehicles had been sold in the Chinese market.

 

But the low carbon and clean energy transition has to conform to the country's economic development. China is still a developing country with relatively low per capita capital accumulation and insufficient productivity development. Since the growth of capital accumulation is closely linked with energy consumption, energy demands will continue to increase by a large margin. The experience of Western countries shows that rapid capital accumulation is often accompanied by rapidly rising energy demands, especially for large countries with fast economic growth. Since unpractical goals and approaches may enhance energy costs and hinder a smooth low carbon transition, relevant strategies need scientific evaluations.

 

While China's low carbon energy transition has made achievements, many problems still loom large. The government has shouldered an increasingly heavy subsidies burden to promote clean energy. The country's current subsidy policies are also unsustainable as the subsidies are mainly derived from cross subsidization of electricity and fiscal transfer payments. Cross subsidization can increase the overall price of electricity and undermine the competitiveness of manufacturing industries. Fiscal transfer payments come ultimately from consumers and the government could also suffer "dead weight losses" when providing subsidies through fiscal revenue. The burden caused by fiscal subsidies could reduce expenditure on improving people's well-being and also increase the burden on enterprises.

 

Moreover, environmental pollution is a regional issue but climate change is a global one. As technological progress often carries spillover effects, China's low-cost clean energy technologies can benefit the world. Therefore, restrictive measures such as imposing anti-dumping tariffs on China's wind power and photovoltaic products are unfavorable for global environmental governance system.

 

To facilitate the low carbon and clean energy transition, China will need to change some development policies. China needs to balance the relations between economic growth, the demand for energy and the transition to clean energy. Because of the current economic structure, China's economic growth depends largely on energy consumption, and the transition policy needs to be adjusted according to its economic performance.

 

The costly transition also calls for a balance between costs and benefits. The costs of transition to clean energy are often covered by consumers instead of fiscal expenditure, leading policymakers to be unaware of the changes. As a result, the costs may weigh on the whole society and drag on economic development. In addition, the transition requires favorable external conditions. China has seen its manufacturing industry develop rapidly for a long time by participating in the global industrial division of labor. Globalization has begun to recede in recent years, in which the most notably influences are from the trade war initiated by the United States. Therefore, a proactive fiscal policy is needed to reduce the short-term external pressure, in which one of the main approaches is to expand government spending on infrastructure construction and that could lead to an increase in the demand for energy.

 

The current energy transition policy focuses on reducing coal consumption, for it emits far more pollutants and carbon than other energy sources. However, China has a sufficient supply of coal while lacking oil and gas. At present, 70 percent of its crude oil and more than 43 percent of its natural gas are imported. Considering its low-cost advantages and advantages for China's energy security, coal will continue to play a major role for a long time to come. Therefore, it is necessary to fully understand the difficulty of reducing coal use.

 

The government's strategy should therefore address the following points:

 

First, it is not necessary for China to consider pollutants and carbon emissions separately. Since China's clean energy transition is mainly about reducing coal consumption, reducing pollutants is equivalent to cutting carbon emissions. The environment can be improved through developing clean energy, electric vehicles and rail transit.

 

Second, a good transition to clean energy requires international cooperation. The advances in clean energy technologies can benefit the world, while no country can really monopolize a clean energy technology. Therefore, domestic industries and the government need to promote global cooperation in the development and application of clean energy technologies with inclusiveness.

 

Third, China needs to make more scientific plans for its low-carbon, clean energy transition and choose optimal approaches in terms of balancing the costs and benefits. The policy design in the future should pay more attention to the innovation and coordination of the industrial chain and should seek to balance the development of renewables, national security and economic development.

 

The author is dean of China Institute for Studies in Energy Policy at Xiamen University. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

 

(China Daily Global 06/05/2019 page13)