That China’s energy needs will continue to grow to fuel its economic development is scarcely in doubt.
However, the rate of increase and how those needs are met are far from certain, as they depend on just how quickly the economy expands and on the economic and energy-policy landscape worldwide. In the Reference Scenario, China’s primary energy demand is projected to more than double from 1 742 million toe in 2005 to 3 819 Mtoe in 2030 – an average annual rate of growth of 3.2%. China, with four times as many people, overtakes the United States to become the world’s largest energy consumer soon after 2010. In 2005, US demand was more than one- third larger. In the period to 2015, China’s demand grows by 5.1% per year, driven mainly by a continuing boom in heavy industry. In the longer term, demand slows, as the economy matures, the structure of output shifts towards less energy-intensive activities and more energy-efficient technologies are introduced. Oil demand for transport almost quadruples between 2005 and 2030, contributing more than two-thirds of the overall increase in Chinese oil demand. The vehicle fleet expands seven-fold, reaching almost 270 million. New vehicle sales in China exceed those of the United States by around 2015. Fuel economy regulations, adopted in 2006, nonetheless temper oil-demand growth. Rising incomes underpin strong growth in housing, the use of electric appliances and space heating and cooling. Increased fossil-fuel use pushes up emissions of CO2 and local air pollutants, especially in the early years of the projection period: SO2 emissions, for example, rise from 26 million tonnes in 2005 to 30 Mt by 2030. China’s energy resources – especially coal – are extensive, but will not meet all the growth in its energy needs. More than 90% of Chinese coal resources are located in inland provinces, but the biggest increase in demand is expected to occur in the coastal region. This adds to the pressure on internal coal transport and makes imports into coastal provinces more competitive. China became a net coal importer in the first half of 2007. In the Reference Scenario, net imports reach 3% of its demand and 7% of global coal trade in 2030. Conventional oil production in China is set to peak at 3.9 mb/d early in the next decade and then start to decline. Consequently, China’s oil imports jump from 3.5 mb/d in 2006 to 13.1 mb/d in 2030, while the share of imports in demand rises from 50% to 80%. Natural gas imports also increase quickly, as production growth lags demand over the projection period. China needs to add more than 1 300 GW to its electricity-generating capacity, more than the total current installed capacity in the United States. Coal remains the dominant fuel in power generation. Projected cumulative investment in China’s energy-supply infrastructure amounts to $3.7 trillion (in year-2006 dollars) over the period 2006-2030, three-quarters of which goes to the power sector. China is already making major efforts to address the causes and consequences of burgeoning energy use, but even stronger measures will be needed. China is seeking ways to enhance its energy-policy, regulatory and institutional framework to meet current and future challenges. In the Alternative Policy Scenario, a set of policies the government is currently considering would cut China’s primary energy use in 2030 by about 15% relative to the Reference Scenario. Energy- related emissions of CO2 and local pollutants fall even more. Energy demand, nonetheless, increases by almost 90% between 2005 and 2030 in the Alternative Policy Scenario. Energy-efficiency improvements along the entire energy chain and fuel switching account for 60% of the energy saved. For example, policies that lead to more fuel-efficient vehicles produce big savings in consumption of oil-based fuels. Structural change in the economy accounts for all the other energy savings. Demand for coal and oil is reduced substantially. In contrast, demand for other fuels – natural gas, nuclear and renewables – increases. In this scenario, the government’s goal of lowering energy intensity – the amount of energy consumed per unit of GDP – by 20% between 2005 and 2010 is achieved soon after. The majority of the measures analysed have very short payback periods. In addition, each dollar invested in more efficient electrical appliances saves $3.50 of investment on the supply side. And China’s efforts to improve the efficiency of vehicles and electrical appliances contribute to improved efficiency in the rest of the world, as the country is a net exporter of these products. Such policies would be all the more critical were China’s economy to grow more quickly than assumed in the Reference and Alternative Policy Scenarios. China’s primary energy demand is 23% higher in 2030, and coal use alone 21% higher, in the High Growth Scenario than in the Reference Scenario.