[ET Net News Agency, 22 September 2020] China's energy policy is drifting. To dig the
economy out of its COVID lows, planners are approving more infrastructure and using more
energy to drive the economy, according to a report published today by S&P Global Ratings
titled, "China's Energy Transition Stalls Post-COVID".
China is also relying more on high-carbon fuel. Beijing's success in returning to a less
energy-intensive growth model has implications for its economy, financial resilience, and
environment, the reported adds.
"The importance of energy policy for climate change, pollution, and economy is well
known in China," said S&P's Asia-Pacific Chief Economist Shaun Roache.
China is considering a mid-century timeline to address climate change, at which time it
hopes its carbon emissions will have peaked, and it will have achieved carbon neutrality.
Still, China's energy transition has stalled as its economy re-opens post-COVID.
Policymakers are stimulating heavy industry, leading to greater energy intensity (units
of energy used for each renminbi of real GDP). This will abruptly halt a 15-year trend,
during which China's energy intensity dropped 42%, and could make it harder for China to
achieve its long-run goals.
"While the effects of COVID-related stimulus will dissipate as the economy gets back on
track, two pandemic legacies may endure," said Roache. "First, China may be left with
increased coal-fired power generation and industrial capacity. Second, less predictable
geopolitics with higher risks of supply-chain disruptions will prompt China to focus on
energy security."
Given China's abundant coal reserves and the role coal plays in providing consistent
power, this could mean a turn back toward fossil fuel.
S&P thinks the energy intensity of China's economy in 2020 will be little changed
compared with 2019. Based on what S&P knows for the first eight months of the year, the
total consumption of energy has risen by about 4% compared with the same period in 2019.
The agency's estimates are based mainly on the production and net imports of primary
energy sources, and are close to, but not exactly the same as, the official data.
This compares with S&P's estimate of real GDP, which is little changed from the same
period a year ago, causing the ratio of energy-to-GDP to edge slightly higher. Official
estimates also suggest a slight uptick in energy intensity.
China's progress toward an energy mix less reliant on fossil fuels has also stalled
since COVID struck. Renewables are contributing more to power generation, aided by robust
investment in wind, solar power, and the effect of recent heavy rainfall on hydropower.
China is on course to meet its Paris Agreement commitments to reduce carbon intensity by
60%-65% from 2005 levels and increase the non-fossil fuel share of energy to one-fifth by
2030. However, the world needs China to be much more ambitious.
A 2017 study jointly authored by the NDRC and the China National Renewable Energy Center
estimated that keeping global warming within the critical 2 degrees Celsius threshold
would involve China cutting its carbon emissions by 70% by 2050. In the decade through
2019, China's carbon-dioxide output rose by about one-third. Recent signals suggest China
is moving even further away from its carbon targets.
Somewhat ironically, given that the recent push for more energy intensity is meant to
boost GDP, a slowing energy transition would eventually hurt China's economy. Too much
emphasis on debt-driven investment in fossil fuels would prolong an exhausted model of
growth driven by capital accumulation. S&P believes that this would also leave the economy
and financial system exposed to amplified boom-bust cycles in which good times are
followed by painful periods of deflation and credit stress.
"Warnings signs abound that the energy transition has stalled," said Roache. "We will
learn more when the 14th five-year plan is released in March 2021." (KL)