Energy, pollution, and the Growth of China

Zhigang Li

Outline

• The energy issue of China

• The environmental costs of the growth of China

• Environmental costs, energy policy, and economic growth

How to think about the energy issue of China?

• How long can China rely on coal?• Substitutability of coal by other energy

sources that are renewable.• The impact of rising energy costs on the

Chinese economy.• Predictions

Energy features of China

• Resource-scarce– Coal: 11% of world– Petroleum: 2.3%– Natural gas: 0.8%

• Coal is the major energy consumed in China– 70 percent of total energy consumed.– Two-third of electricity is generated by coal (hydro power the second).– Second largest exporter of coal (less than 5% of the coal output of

China), probably due to the under-pricing.

• The current coal consumption is not sustainable.• China’s domestic uranium resource will be exhausted in about

70 years if the current nuclear power plan is implemented.

Reserves-to-production ratio (years)(BP Statistical Review of World Energy)

2001 2005 2006 2007China 105 59 52 45USA 246 245 240 234OECD 215 190 178 168Soviet 500+ 500+ 487 463India 246 229 217 118

Share of the world (2006): China(13%), USA(27%), OECD(41%), Soviet (25%), India (10%).

The physical efficiency of China’s energy system is about 36 percent

Price comparison

国内执行的上网价格

国际的平均发电成本

煤电 0.35

水电 0.25 0.278

风电 0.51-0.61 0.625-0.833

太阳能发电 1.09 1.667-2.917

生物质发电 0.58 0.347-0.833

核电 0.414 2.083-3.472

表 5-17 中国和国际清洁能源发电的成本比 单位：元 / 千瓦时

Prospects for renewable energy

• Hydro electricity now accounts for about 15 percent of China’s total electricity generation. The current hydro electricity generating capacity of China is 100 giga-watts. China’s long-term technical potential of hydro electricity is estimated to be 500 giga-watts.

• By 2020, the Chinese government plans to expand China’s wind electricity generating capacity to 100 giga-watts. China’s long-term onshore and offshore wind electricity potential is estimated to be 1,000 giga-watts.

• Given the severe constraints imposed by China’s limited biological capacity and water shortage, biomass is unlikely to make a major contribution to China’s future energy supply.

Model prediction (Mingqi Li, 2008)• China’s total energy supply peaks around 2030 and declines

at an accelerating pace from 2030 to 2050. By 2050, the Chinese economy sinks into negative growth and permanent decline.

• The above assumptions are between optimistic and wildly optimistic. The coal projection is based on the highest estimate of China’s remaining recoverable coal. The oil and natural gas projections are fairly uncontroversial. The hydro electricity is expanded to the limit. Barring unexpected technological miracles, there is little scope for further expansion of nuclear electricity. Both the renewable and energy efficiency projections are on the optimistic side. Energy imports are allowed to grow to the point beyond which the rest of the world would be forced into energy starvation.

(Costless) renewable resources and economic growth

• Land– T indicates the (costless) renewable resources, the supply

of which are constant.– In a Solow model, rewrite Y=AKαTβL1-α-β, then the growth

rate with land is g-βn/(1-α).– The higher the population growth rate, the lower the

economic growth rate when natural resources are restrictive.

Some predictions• Economic growth stagnate. Negative long-term growth rate is

possible. – Social instability (in two decades)?– The growth of China will lag behind the rest of the world (again) until

the next generation of production technology or energy resources are discovered (if they exist).

• One-child policy will continue– A long transition periods with an severely ageing economy (retirement

age raised; crime rate decline; health sector expands)• Spatial distribution of economy may change

– Trade sector declines due to the shortage of labor. Inland economy grow. Coastal economy (land prices) declines.

• Dramatic change of economic structure– Energy-intensive industries exit (unemployment spike; another painful

transition).

Pollution

Pollution by 1997 (Edmonds, 1999)

• Water pollution– The seven major river systems have been badly polluted.– Ground water and coastal regions are polluted to various

degrees.

• Air pollution– The SO2 emission levels in all major Chinese city centres

exceed legal limits.– NOx emission (mainly due to automobile traffic) also

exceed safety levels in city centres.

Pollution by 1997 (continued)

• Intensification of agriculture and the growing TVEs has increased pollution outside cities.– China’s fertilizer usage per hectare is twice the world

average.– Rural industrial wastes accounts for 38% of total sold

wastes, 7% of industrial waste water, and 56% of industrial dust.

National average of air visibility11

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visi

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1982 1986 1990 1994 1998 2002 2006year

E-Waste of China (Tong and Wang, 2004)

How costly is pollution?

Population and Environment of China (Banister, 1998)

Death causes of China

1973-75 1995Urban Rural Urban Rural

Com. 49 116 9 15Card. 208 189 187 186Inj. 48 80 32 63Dig. 32 71 14 23

Cancer 87 78 107 84Resp. 60 126 66 109

Air Pollution and Mortality (Brajer and Mead, 2004)

• Data– Pollution and population figures for 38 Chinese

cities.– Pollution data are mostly from annual

environmental report posted on the Internet by municipal environmental protection bureaus.

Environmental cost of water pollution in Chongqing (Vennemo et al., 2001)

• The waters of Chongqing are widely polluted– Almost half of the rivers are heavily or severely polluted by

1996.– Major pollutants: coliform bacteria, ammonia, oil, and

other organic pollutants, and heavy metals.– Causes of pollution: industrial waste water, urban sewage,

waste, soil erosion, and atmospheric deposition.

Environmental Kuznets Curve

• Environmental Kuznets Curve– A hump-shaped relationship between per capita

income and pollution.

Anti-Pollution Institution and Policies (Vermeer, 1998)

• State Environmental Protection Agency (SEPA)– A nation-wide control network built in the 1980s– Partly supported by foreign project funding– Employees doubled between 1985 and 1995 to 88,000

people.– Very limited power: TVEs hardly monitored; inspection is

uneven and infrequent.

Pollution Enforcement in China (Wang and Wheeler, 2003)

• Data– Around 3,000 heavily polluting firms in China in

1993.– Self-reported pollution– Actual pollution levy

China’s Pollution Levy System• The idea of a pollution charge system was adopted in 1978.• By 1982, 27 of 29 provinces in China established some

pollution levy system.• Process

– Self-reporting– Verification and collection of levies by local environmental authorities.

• Effective levy rates vary significantly across Chinese provinces.

Water Pollution Levy Rate in 1993

Wastewater Charge(Can you see the problems?)

Air pollution charge (Can you see the problems?)

Total Charge (Can you see the problems?)