UC Berkeley

Global energy markets and climate change in the twenty first century depend, to an extraordinary extent, on China. China is now, or will soon be, the world's largest energy consumer. Since 2007, China has been the world's largest emitter of greenhouse gases (GHGs). Despite its large and rapidly expanding influence on global energy markets and the global atmosphere, on a per capita basis energy consumption and GHG emissions in China are low relative to developed countries. The Chinese economy, and with it energy use and GHG emissions, are expected to grow vigorously for at least the next two decades, raising a question of critical historical significance: How can China's economic growth imperative be meaningfully reconciled with its goals of greater energy security and a lower carbon economy?

Most scholars, governments, and practitioners have looked to technology -- energy efficiency, nuclear power, carbon capture and storage -- for answers to this question. Alternatively, this study seeks to root China's future energy and emissions trajectory in the political economy of its multiple transitions, from a centrally planned to a market economy and from an agrarian to a post-industrial society. The study draws on five case studies, each a dedicated chapter, which are organized around three perspectives on energy and GHG emissions: the macroeconomy; electricity supply and demand; and nitrogen fertilizer production and use.

Chapters 2 and 3 examine how growth and structural change in China's macroeconomy have shaped energy demand, finding that most of the dramatic growth in the country's energy use over the 2000s was driven by an acceleration of its investment-dominated, energy-intensive growth model, rather than from structural change. Chapters 4 and 5 examine efforts to improve energy efficiency and increase the share of renewable generation in the electric power sector, concluding that China's power system lacks the flexibility in generation, pricing, and demand to support further improvements in efficiency and scale up renewable generation at an acceptable level of cost and reliability. Chapter 6 examines energy use and GHG emissions from nitrogen fertilizer use, arguing that energy use and GHG emissions from nitrogen fertilizer use in China are high relative to other countries because of China's historical support for small and medium-sized enterprises using domestic technology; its continued provision of energy subsidies to fertilizer producers; and its lack of a well-functioning agricultural extension system.

The case studies illustrate the limits of energy and climate policy in China without institutional reform. China's leaders have historically relied on economic growth to defer the difficult changes in political economy that accompany economic and social transition. However, many of the challenges of energy and climate policy require political decisions that reallocate resources among stakeholders. For instance, restructuring the Chinese economy away from heavy industrial investment and toward a higher GDP share of consumption will require financial sector reforms, such as interest rate liberalization or higher dividend payments for state-owned enterprises, that reallocate income from the industrial sector to households. Increasing power system flexibility will require price reforms that reallocate revenues and costs among generators, between generators and the grid companies, between producers and ratepayers, among ratepayer classes, and between and among provinces. Strong public interest institutions are needed to make these changes, which suggests that China's energy and GHG emissions trajectories will be determined, to a large extent, by the politics of institutional reform.