HSBC submission for China Development Forum

Executive Summary

Energy evolutions

Energy transformations depend on major advances in both technology and infrastructure.  The possibility of ‘steam power’ was recognised in Roman Egypt but the steam engine only came into its own with the Industrial Revolution.  Battery-powered cars were developed at the end of the 19th Century but the electric motor is only now becoming a viable alternative to the internal combustion engine.

The fossil fuel transformation

While energy evolutions can be slow-moving, they can nevertheless trigger revolutions in human organisation: without fossil fuels, cities would be much smaller, international trade much lower and people much poorer.  Fossil fuels – effectively the energy stored from the sun’s rays since the Carboniferous period – have transformed living standards over the past 200 years.

From the natural battery to the man-made alternative

Fossil fuels, however, are dirty.  Further technological advance and political pressure in response to climate change are triggering another energy evolution.  We won’t wean ourselves off fossil fuels entirely but there are likely to be big changes in electricity production and transportation.  In effect, the Earth’s fossil fuel ‘battery’ is being replaced by man-made batteries fuelled by renewables.

The infrastructure revolution

To succeed, however, there needs to be a major shift in energy infrastructure.  The current electricity grid is simply not designed to cope with, for example, a world of driverless electric vehicles.  Providing the economic incentive to add to capacity – or even to go ‘off grid’ – is, however, likely to prove a major challenge given financial losses associated with previous ‘capacity’ investments outside the energy realm.

The 21st Century invisible commodity

The accumulation of greenhouse gases (GHGs) in the atmosphere is trapping heat at a rate that will take the planet sailing through the 2°C temperature goal aimed for in the Paris Agreement of 2015. CO2, the most easily addressable culprit, is a by-product of burning fossil fuels. Energy policy aimed at low-carbon transition will help address the problem, but creating carbon markets will speed up the economic incentive to change behaviour.

Towards a low carbon future: China’s role

Emissions from China account for around a quarter of global greenhouse gases. In response, China has made considerable strides in recent years towards shaping regulation to encourage a greener future.

The 13th Five-Year Plan (FYP), approved in March 2016, set the first cap on total energy consumption (at 5bn tonnes of standard coal equivalent in 2020). It also set emissions and energy intensity targets for 2020 which were in line with broader 2030 targets but set stricter reductions for the industrial sector.

The recently concluded 19th Party Congress firmly put sustainable development – of which greener development forms a key part – on top of the agenda. Apart from regulations, the government has also strengthened the institutional framework. ‘Green’ is now a key aspect of most policies, from industrial policies to urbanisation and even as far as performance management systems when it comes to local government promotion.

China’s evolution towards a sustainable future

Energy is just one of the resources that is undergoing evolution in the new low-carbon new world. In order to build a greener future, China will have to use its resources wisely and sustainably across a number of areas.

Resources include:

•      Energy – which is, in theory, infinite, if we were able to harness it from the sun

•      Physical materials – which are finite, as limited by the earth’s supply

•      Water – which is also finite in that we cannot fully control where it is sourced nor its quality

Conclusions

China has been introducing greater efficiency and controls in terms of energy use, materials use and water use. By taking a proactive role in the global energy evolutions and providing tremendous policy support in pushing a more sustainable usage of resources, China is emerging as a global leader in building a greener future for the planet.