-- Clyde Russell is a Reuters columnist. The views expressed
are his own. --
By Clyde Russell
LAUNCESTON, Australia, June 17 Are there echoes
of former U.S. President Jimmy Carter in the call by Chinese
President Xi Jinping for a revolution in the way China produces
and consumes energy?
Carter was widely ridiculed for his 1977 speech calling for
energy independence and another in 1979 in which he pledged that
U.S. dependence on oil imports would "never" rise.
For almost three decades after he lost to Ronald Reagan, the
United States found itself consuming more imported oil, coupled
with a declining trend in domestic crude and natural gas output.
Some of Carter's ideas were impractical, such as oil import
quotas, and some were not exactly environmentally friendly, such
as promoting the use of coal for power generation.
But even back in 1979 he identified shale oil and
unconventional gas as resources that needed to be developed,
calling for massive investment.
It took the jump in prices in the early part of the 2000s,
partly sparked by China's surging economy, to make Carter's
vision a reality, and the current debate in the United States is
whether to allow oil exports and also how much liquefied natural
gas (LNG) should be sent to energy-hungry Asia.
Xi's address to a meeting of officials of his ruling
Communist Party on June 13 hasn't quite gathered the attention
that Carter's televised speeches did in the late 1970s, but it
may turn out to be a reference point for the future.
"Although our country's energy development has achieved
great successes, we are facing challenges including huge demand
pressures, supply restraints, serious environmental losses
caused by the production and consumption of energy and
technological backwardness," the official Xinhua new agency
quoted Xi as saying.
Xi said China, already the world's largest energy consumer,
needed to "restrain irrational energy consumption" and impose
controls on overall energy use, Xinhua reported.
The Chinese president also called for a diversification away
from coal, which currently meets about two-thirds of primary
energy demand, increased cooperation with oil and gas producing
regions and increased nuclear power development along the
heavily populated eastern seaboard.
The key question is what shape and form will actual policies
take, how long will they take to be implemented and how
effectively will they be enforced and regulated.
China's record on energy policies is patchy at best, with
provincial and local authorities often acting against directives
from Beijing, preferring to prioritise jobs over energy
efficiency and limiting pollution.
The announced goals are also modest, with the 2011-2015
economic plan calling for total energy consumption to be limited
to 4 billion tonnes of coal equivalent, but the target isn't
mandatory and is still 23 percent above 2010 demand.
Energy from coal is also expected to drop to 65 percent of
the total from 66 percent by the end of this year, again, a
modest decline but one that does show some commitment to
reducing the burning of the fuel that is blamed for much of
China's pollution issues.
How can China give practical impetus to Xi's call for an
There are things that can be done fairly quickly, such as
enforcing the use of scrubbers that remove pollutants on
coal-fired power plants.
Another is to accelerate the closure of older and
inefficient power plants, steel mills, aluminium smelters and
other heavy coal users.
Boosting the use of natural gas through the more rapid
development of unconventional sources such as shale gas, and
increasing LNG imports is another.
Using central government powers and subsidies to increase
renewable energy such as solar panels, smart grids and more
modern factory equipment is another.
MONEY THE LIKELY STICKING POINT
However, the point is all of these things cost money, and if
implemented will raise the cost of manufacturing, thereby
cutting China's competitiveness on global markets.
For example, raising natural gas prices to encourage
development of local supplies and LNG imports will most likely
have to be accompanied by enforceable government targets for use
of the fuel, otherwise consumers will simply stick with cheaper
Cutting the use of coal will require that it becomes
relatively more expensive compared to other fuels, and this
could be accomplished by imposing additional taxes or by
mandating quality levels.
The cost of doing this will be to raise power prices, force
the closure or small mines and cut imports of cheap, low-rank
For industries such as steel, copper and aluminium, the
focus will have to be on improving efficiency and perhaps
importing more refined materials, rather than raw ores that
require substantial energy to process into finished products.
This requires a change in the existing operating mindset of
many Chinese state-owned companies, and again, will require the
closure of older plants, and the consequent loss of jobs.
For Xi's energy revolution to be successful, the Chinese
government has to be prepared to inflict pain on some sectors,
and deal with any political and social disquiet that may result.
There is also a lesson to be learned from Carter's plans for
the United States.
It wasn't government action and regulations that ultimately
achieved the goal of energy independence, it was rising prices
for fossil fuels that eventually led to something that I would
call innovation through desperation.
Fracking for shale oil and gas wasn't new technology, but in
the mid-2000s it became economically viable because oil prices
surged to a record $147 a barrel.
However, it's possible China won't face a price motivator
for its energy revolution, it's rather more likely that it's a
social motivator as the populace becomes increasingly unsettled
by rising pollution and environmental degradation.
But the common factor between the United States and China on
energy policy could be that rapid changes became possible when
the cost of not doing anything became too high.
(Editing by Himani Sarkar)