Impact of Economic Growth on Energy Demands
China has seen unprecedented growth in the last three decades, with growth rates averaging 10% over 30 years. With a developing economy, China has a large public sector and a growing private sector, with a substantial portion of growth from manufacturing and trade. As such, there has been a rising concern about the effects of demand for energy to facilitate industrial processes. Unlike its Western trading counterparts like the United States, China has not yet completed industrialization and urbanization, and thus many areas of local infrastructure are still running on traditional forms of energy such as fossil fuels, coal, and natural gas.
According to a study by the Global Markets Institute of Goldman Sachs, “energy use increased by more than 150% during the past ten years and China became the world’s largest consumer of energy by 2010, surpassing the United States. The country’s energy demand is expected to continue on an upward trajectory.” The relation between economic growth and energy demand in China has been particularly interesting in the past decade. According to a Forbes study, China’s total energy consumption increased from 934.7 million tons oil equivalent (Mtoe) in 1999 to 2852.4 Mtoe in 2014. Total installed energy capacity also saw an exponential increase in the last few years, from 66 GW in 1980 to 1800 GW in 2016.
While China has seen fairly consistent economic growth since Deng Xiaoping’s Four Modernizations, there have been concerns regarding China’s ability to continue to perform at the growth rate it has been known for. Economic recessions throughout the years, most notably the Great Recession of 2008, have hindered the steadiness of China’s economic development, and other factors like the shifting of growth sources have added to the slightly grim outlook for the future of China’s once exploding economy. BP’s Statistical Review of World Energy stated that China’s energy consumption grew at 1.5 percent in 2015, the lowest growth rate since 1998, with the decrease in growth attributed most significantly to coal usage, which seemingly peaked in 2011 (a decade earlier than previously expected by energy specialists around the world). It is worth elaborating upon the shift in coal-fired growth in China, as it paints an interesting picture about the trends in energy demand as a result of changes in the industrial sector.
Jiaqi Lu of the Brookings Tsinghua Center for Public Policy published a study called “The End of Coal-Fired Growth in China”, which illustrates a gradual shift in coal consumption going into the thirteenth five-year plan. From 1991 to 2010, construction and manufacturing industries experienced growths of 13% annually, which was largely fueled by coal. This is demonstrated with the overwhelmingly large coal consumption in China, which grew 6.5 times from 1980 to 2015. In 2013 alone China consumed 4.24 billion tons of coal, or half of global demand. Coal still accounts for the majority of primary energy consumption, 64.4% in 2015 to be exact. However, these trends that have lasted for decades are starting to fade as China approaches a turning point, with declines in construction and manufacturing and annual economic growth flattening out. Air pollution and climate concerns are also major factors in the change in how energy usage is perceived, and China has begun to modernize the social/political factors of energy with air pollution control policies, regional caps on coal, and its adaptation of the Paris Climate Agreement.
Changes in the economic and energy structure in China have highlighted the shift from coal usage to alternative energy sources. The share of coal in overall energy usage has decreased from 73% in the 1980s to 64% in 2015, and coal consumption is seeing yearly decreases in the second decade of the millennium. Developed countries like the United States and United Kingdom have also made similar transitions, but China is unique in its suddenness and proactivity in emphasizing renewable energy, seemingly skipping a step that is the oil-and-gas replacement of coal and going directly to newer forms of alternative energy.
While coal consumption has been decreasing, renewable energy consumption has been following a sharply opposite trend. Coal consumption dropped by 3.7% in 2015, when China’s solar and wind energy capacity increased by 74% and 34%, respectively. “The latest figures confirm China’s record-breaking shift toward renewable power and away from coal,” said Tim Buckley, Director of Energy Finance Studies at the Institute for Energy Economics and Financial Analysis (IEEFA). “Solar and wind continue to be the big winners, as illustrated by a 73.7% increase in grid-connected solar generation capacity. Declining consumption coupled with an over-abundance of domestic supply, meaning coal imports into China were particularly badly hit, dropping 30.4% yoy.” This once again demonstrates the transitioning of energy sources amidst economic transformation.
China is now the world’s leading country in sustainable energy production, having a capacity of 378 GW of renewable power in 2013, mainly from hydroelectric and wind power. With coal power on the decline, the renewable energy sector is growing faster than the fossil fuels and nuclear power sectors. According to Nature Journal, the costs of renewable energy technologies have dropped dramatically, the main driver of reduced costs being market expansion. In 2015 China became the world's largest producer of photovoltaic power, with 43 GW of total installed capacity. From 2005 to 2014, production of solar cells in China has expanded 100-fold.
As these new trends appear and gradually replace old ones, China’s economy is also adapting to take advantage of the new opportunities that arise. While the traditional manufacturing industry is declining, Chinese manufacturers have taken an aggressive approach to the solar cell market, adding 35 GW of new solar generation in 2016 alone. Going into 2017, solar cell production is still increasing, and according to Greenpeace estimates, every hour, China erects another wind turbine and installs enough solar panels to cover a soccer field. Chinese leaders recognize the potential for job creation as well; “It’s about setting up for manufacturing dominance,” Antung Liu of Indiana University Bloomington says. “China sees green energy as an opportunity where it can become a manufacturing monster the way it has in clothes and toys.”
Besides the market incentives, social implications are also affecting the demand for sustainable energy. Air pollution resulting from decades of industrial growth has made headlines consistently since the air quality crisis, and Chinese leaders are finding ways like sustainable energy to alleviate the pressure on people’s health. Coal is the source of 40% of the most dangerous pollution particles in the air, and thus finding cleaner ways to generate energy has become a paramount goal of the Chinese government.
China is now spearheading the global effort to modernize energy generation, with more than 2.5 million people work in the solar power sector in China, compared with 260,000 people in the U.S., according to the International Renewable Energy Agency. At the start of 2017, China announced that it would invest $360 billion in renewable energy by 2020 and scrap plans to build 85 coal-fired power plants. In March, Chinese authorities reported that the country was already exceeding official targets for energy efficiency, carbon intensity and the share of clean energy sources. Just last month, China’s energy regulator, the National Energy Administration, rolled out new measures to reduce the country’s dependence on coal.