Briefing: energy and development

As China grows, it needs to invest in lower-cost energy efficiency, writes Maryann Bird, in the third of a series of guides to hot topics in a warming world.

If a nation is to develop, particularly in this increasingly globalised world, it needs energy – energy to power its factories, supply its construction industries, light its buildings, heat and air-condition its homes and workplaces, run its transportation systems, and produce its food and clothing.

China, with its booming economy and increasing national wealth, is (like its neighbour India) not immune to the environmental consequences of its development, however. The doubling of its gross domestic product (GDP) since 1995 (from about US $500 billion in 1995 to $1.1 trillion in 2005) has produced a concomitant increase in carbon emissions, from roughly 800 million metric tons in 1995 to more than 1.2 billion metric tons in 2005. China has a great deal of growing to do yet, however, and 150 million Chinese people are still living in poverty – and using very little energy.

Assuming that present trends in China (along with its fellow developing giants, India and Brazil) continue, these nations will more than double their use of energy and greenhouse gas emissions in the next two decades, according to a recent report by the 3 Country Energy Efficiency Project, a four-year international partnership involving the World Bank, the United Nations Environment Programme (UNEP) and institutions in China, India and Brazil. By one estimate, say officials of the project (known as 3CEE), “the China power market will require an average 48 gigawatts of new capacity every year”, equal to two-thirds of the United Kingdom’s total installed capacity.

In China, much of that energy will come from coal, given that the country is both the world’s largest consumer and supplier of coal. “While coal in China’s overall energy mix is projected to decline from 66% in 2002 to 41% in 2030, its total CO² emissions are still projected to increase from 3,307 to 7,144 megatonnes.” That is within a single human generation, and will affect global energy markets as well as the environment.

However, say the experts, China and other countries can reach similar development levels with “substantially lower economic, social and environmental costs” by pursuing cost-effective investments in energy efficiency. Along with actively pursuing various new, non-fossil-fuel technologies (be they solar, wind, wave, nuclear, ethanol and more — all of which have their own drawbacks), says 3CEE, cost-effective retrofits can significantly reduce energy use today. Advanced technologies, meanwhile, can help cut the projected growth in energy use, along with related increases in CO² emissions. Given the potential impacts on both climate and global energy markets, both China and the rest of the world have a major stake in seeing that happen.

“Unlocking today’s potential savings requires simple, highly cost-effective renovation projects to identify and eliminate energy waste,” says 3CEE. “The keys are fostering corporate awareness, supporting catalyst energy efficiency practitioners and enlightening commercial banks to ease access to local financing for such projects.”

Despite the huge potential, however, on-the-ground investments in energy-reduction have been difficult to achieve. Although many such projects quickly pay for themselves, with typical returns of 20 to 40%, says Chandra Govindarajalu, a senior environment specialist with the World Bank, “companies often cite other, more immediate investment and borrowing priorities.” Other roadblocks, according to 3CEE, include: the general unfamiliarity of commercial banks in developing countries, such as China, with financing cost-saving projects (rather than producing new product lines or other tangible assets); lack of awareness or experience with newer, efficient technologies; high transaction costs for smaller-sized projects; high perceived risk by decision makers, and a lack of combined technical and financial skills at finance institutions.

According to Robert Taylor, an energy specialist at the World Bank and leader of the 3CEE project: “Cutting energy waste is the cheapest, easiest, fastest way to solve many energy problems, improve the environment and enhance both energy security and economic development. What we must develop further are systems to tap huge potential energy savings through thousands of projects” scattered across China and other developing countries, large and small. The reluctance of companies to undertake energy retrofits, Taylor adds, is akin to the countless millions of people worldwide who fail to buy energy-efficient light bulbs for their homes, despite proof that they save enough in utility bills to more than pay for themselves. “It seems like a small thing; why take the trouble?” he says. “But from a national or global point of view, the potential savings add up to the electricity and pollution produced by many large power plants.”

Rapidly developing counties such as China, Taylor argues, need to identify energy efficiencies – be they in industrial facilities or in apartment buildings – and “exploit large-scale energy-use reduction opportunities.” And they need “enlightened banks to finance them.” Such retrofits, he says, involve the installation of “high-efficiency lighting, air conditioners, boilers and waste-heat recovery systems for commercial and public buildings, industrial plants and other facilities.”

While China has been making some headway, and has had a long-standing policy on energy that gives an equal role to development of energy supply and to energy efficiency, investment in the supply side wins out in reality. According to a recent US publication, Sustainable Growth Through Energy Efficiency, produced by the China Energy Group at the Lawrence Berkeley National Laboratory (LBNL) in California: “We calculate that about $25 billion a year invested in energy efficiency would turn the current trend around, assuming a long-term energy demand growth rate of 7% and a target of shaving annual energy demand growth to 3.5%. Of course, these are just rough calculations, but the key comparison to make is with current spending, which is only about $3 billion per year.”

While China’s energy needs are daunting, says LBNL, the challenge of meeting them presents “a wealth of opportunities, particularly in meeting demand through improved energy efficiency and other clean energy technologies.”

The Chinese government has acted to allow energy from renewable sources to be sold into the national grid at a higher tariff, and encouraged construction of more energy-efficient homes and workplaces. One project drawing considerable attention is Dongtan, which is being called the world’s first eco-city. To be set on Chongming Island, in the mouth of the Yangtze River just north of Shanghai, Dongtan is planned to house 500,000 people. Oil and diesel vehicles will be banned, organic waste will be recycled to generate electricity, rainwater will be captured and used. The vision for the development, the first phase of which is due to be completed in 2010, is to create a carbon-free community with low energy consumption.