Energy Security in China’s 12th Five-Year Plan

Publication: China Brief Volume: 11 Issue: 11

While the developed world, including the United States and other Western European countries, has been sluggish in both economic recovery and energy demand, China has experienced major power shortages in recent months, seriously threatening the efforts to sustain the still fragile recover process. The world’s second largest economy went through a sharp V-shape recovery from the 2008 – 2009 global economic crises, and its demand for energy and all major resources have gone up substantially in the past two years. Yet, the challenges of energy supply have forced the Chinese leadership to think seriously about the country’s long-term energy and resource security in the Twelfth Five-Year Economic and Social Development Program for 2011 – 2015 (12th five-year plan). The key elements of China energy development strategy in the new five-year plan, passed in March by the National People’s Congress (NPC), have some ambitious goals for the coming years and decades.

Mixed Record in the Past Five Years

If the history of China’s quest for energy security, supply and efficiency during the 11th five-year plan (2006 – 2010) is any indication of what is to come in the next five years, the record will be a mixed one at best. China managed to reach the significant goal of reducing its energy intensity per GDP output by 20 percent. It also eliminated over 100 million tons of iron and steel production, 140 million tons of cement production and 60 million kilowatts of small firepower plants, all of which were inefficient and heavily polluting (Outlook [Liaowang] Magazine, May 4, 2010).

Yet, the Chinese economy grew over nine percent annually in the same period, with accelerated urbanization. This led to a 39 percent increase in total energy consumption, with some local polluting industries making a comeback. Although China’s overall carbon emission per unit GDP decreased by 52 percent from 1990-2008, the country’s total emission of CO2 grew by 2.8 times as a result of a 5.8 times jump in the GDP in this period (Outlook [Liaowang] Magazine, May 4, 2010). In fact, the percentage of coal usage in China’s energy mix went up by two percentage points during the 11th five-year plan, from 68 percent to 70 percent [1].

The year 2010 witnessed a number of important milestones for China’s energy development: China overtook Japan as the second largest economy in the world; the IMF predicted that the Chinese economy will surpass that of the United States by 2016 measured by Purchasing Power Parity (PPP) standards; China became the largest overall energy consumer in the world; and the central kingdom’s installation capacities in both wind turbines and solar panels moved ahead of the United States to the number one position globally (although grid connection is still lagging behind) [2].

Key Drivers of a New Energy Development Plan

What worries the Chinese leadership is whether such large-scale requirements of energy can be met in the long run, which is vital to the future sustainability of the Chinese economy. In the very first meeting of the newly established, high profile National Energy Commission in April 2010, Premier Wen Jiabao laid out the guideline for what was termed as the “energy strategy of the new era.” Wen’s 16-Chinese-word doctrine called for priority given to energy conservation, making domestic energy exploration the foundation while pursuing multiple sources of energy development, and paying attention to protection of the environment (China5e.com, April 23, 2010).

While still at the final drafting stage, the new 12th five-year energy program includes the acceleration of the transformation of energy development patterns, the promotion of energy production in key sectors and the efficiency of energy utilization. The new plan will further adjust China’s energy structure, control the total volume of energy consumption, and aim at constructing a safe, stable, economical, clean and modern energy industrial system.

Major Initiatives

The new plan has the following major initiatives:

First, the energy industry will go through a change of development paradigms. Instead of mainly depending on upstream extractions, the energy sector will be required to focus on technological innovations. Rather than single-mindedly seeking supply, China will emphasize macro-level adjustments of both supply and demand. While the previous practice was “exploration first, cleanup second,” the new approach stresses the coordination between energy extraction and environment protection. Reorganizing the energy structure will be the main objective for China’s energy development in the next five years. Moreover, market mechanisms will be introduced to strengthen government policy promotions (Xinhua News Agency, March 9).

Second, domestic energy exploration and development will be re-oriented by consolidating on “five regions plus one belt,” namely Shanxi province, Ordos basin, Southwest, Eastern Inner Mongolia and Xinjiang, plus the nuclear power plant belt—dozens of nuclear power plants under construction, located throughout the central and eastern parts of the country. During the 12th five-year plan, the “five regions plus one belt” is positioned to supply 80 percent of China’s total energy and implement 90 percent of China new energy production (Chinapower.com.cn, May 24). As coal, oil and other fossil fuels will remain core energy sources in the next five years, electric power with optimized structure will be the main power supply system. Four large-scale coal-powered electricity bases will be built in an orderly fashion on the principle of controlling the development of the coal in the east region, stabilizing the middle part of the country and developing the western region. The goal is to consolidate 90 percent of the country’s total coal consumption in the next five years (China Energy News, January 10).

Third, energy transportation infrastructure will continue to be expanded. Most of the energy resources in China are located in the west while the major energy consumption areas are in the east. Therefore, during the 12th five-year plan, China will not only build passageways for the transportation of the coal from the North to the South, but also will speed up the building of oil and gas pipelines nationwide. The Strategic Petroleum Reserve, with its first phase completed and second phase under construction, will also be further built into the third phrase (21cbh.com, March 24).

Fourth, China will additionally adjust its energy mix by developing all sources of non-fossil fuel energy. A major target for the new plan is that non-fossil fuel energy will reach 11.6 percent in 2015, and 15 percent of the total energy consumption in 2020 (currently at about eight percent). In the next five years, hydro-electricity will contribute half of this non-fossil fuel energy. Nuclear power plants will be initially built along the coastal region and then be steadily advanced inland. Solar energy is expected to be the cornerstone industry of the newly developed energy industry. By the end of 2015, solar energy usage area will reach four billion square kilometers. As for wind power bases, the government will devote major efforts to develop wind power in Inner Mongolia, Gansu, Xinjiang, Hebei, Jiangsu and the Northwestern provinces, while speeding up the exploration and development of wind power plants out at the sea (Caijing, October 22, 2010) [3].

New Challenges in the New Program

It is quite fashionable to talk about energy conservation, a low carbon economy, a low carbon society and low carbon technology in China today. The much-publicized Shanghai Expo promoted the theme of “better city, better life,” with the popular Chinese Pavilion featuring many impressive energy conservation and green life style exhibitions. This is in part due to the realization that China’s traditional development paradigm based on high capital input, cheap labor, resource and energy intensive manufacturing, and damage to the environment can no longer be sustained. With continued urbanization and rising consumption levels, it is also clear that the world cannot supply enough energy to China if its 1.3 billion people use the same levels of energy on a per capita basis as the people in the West.

Yet, China continues to move forward along the path of traditional industrialization. There will be tension between the pursuit of further industrialization and energy conservation efforts. There will be conflict between limiting the emission of more CO2 and the need to maintain a high GDP growth rate. In addition, China’s future overseas investment in energy and resources will be scrutinized more and more as China is perceived and portrayed as an extractive giant that sucks in all the available resources. Finally, as the Chinese military grows stronger and begins to pursue a global presence in protecting its vital interests, China may come into confrontation with the U.S.-dominated world order. How to manage China’s energy security while trying to rise peacefully remains a formidable task for the next generation of Chinese leadership.

Notes:

1. Acknowledged by an official from the National Energy Administration during a presentation given on the 6th Annual Canada-China Energy and Environment Forum in Beijing on October 27, 2010.
2. “Number 1 in Thermal, Solar, Nuclear, Wind and Hydro Power,” The China Business Network, http://www.thechinabusinessnetwork.com/Channel-Index/Green-Development/General/General-2011/Number-1-in-Thermal,-Solar,-Nuclear,-Wind-and-Hydr.aspx.
3. All the above key guidelines are outlined in Chapter 11 of the  official text of China’s 12th five-year development program, http://news.sina.com.cn/c/2011-03-17/055622129864.shtml.