China and Global Energy Security: Inevitable Conflict? (1)

(This is the first of a series of articles on China’s impact on global energy security.)

According to many Chinese officials and academics I have interviewed when I was working for the FT, the current energy demand and supply trends are immutable, and that patterns of economic development and energy use are inevitable. From this, there emerges a belief that China is inevitably on an “energy security” collision course with established powers such as the US.

Such thoughts, however, can’t be further from the truth. China has a multiple choices – the country is making and re-making its energy industries now, and has choices about fuel mix, supply and demand infrastructure, technologies, fiscal and tax policies, R&D… China does not have to repeat the western economic development and energy pattern. This is a complex topic that goes to the heart of China’s current chosen economic and social development model – beyond the scope of my comments here. But I want to emphasize a single point: China is not on an inevitable collision course with the west over oil. China can still choose to avoid the western pattern of oil dependence.

Energy security begins at home, by using less energy. China’s most effective moves for energy security are domestic – raising energy efficiency, reducing losses from pollution, diversifying the energy mix, upgrading clean energy technologies, and allowing energy prices to send proper signals to suppliers and consumers. One example: fuel efficiency standards are improving – but fleet efficiency is declining as the fleet changes. So far in 2007, mini-car sales have declined 28% from 2006, while SUV sales have increased about 40% compared to last year, in response to price signals – cheap gasoline, low taxes. Policies that help encourage wise use of energy on the demand side are among the most effective and under-utilized measures in China. To meet its own stated development goals, China would require an elasticity of energy to GDP of about 0.3 for the next decade. Instead, elasticity of energy to GDP has risen to 1.1, and even energy intensity is again rising, rather than falling as it has for the last two decades, according to National Development and Research Commission, China’s top economic planning body.

China’s officials know this, and there has been a shift in thinking in recent years. But there has been little concentration of political direction and effort to make breakthrough for solutions – as yet there is no domestic energy efficiency / sustainability “movement” with high profile and high political support akin to “走出去” (go global) strategy for overseas resource investment.