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CHEN Weidong:The Needs and Responsibilities for Energy Transformation

 

The energy structure in the world is undergoing significant changes.
 
First, consumers are switching from OECD countries to developing ones.
 
Second, wind, solar, and other renewable energy resources are increasing rapidly, leading to the diversification of energy.
 
Third, the production of tight oil, oil sand, and oil and gas under deep salt has increased dramatically, with South America emerging as the “new middle-east”, while even the “old middle-east” countries, including Iraq and Saudi Arabia, see a significant production hike. The growth in oil supply has outpaced the increase in demand, so the time of the “oil peak theory” is over.
 
Fourth, with the liquid natural gas (LNG) revolution, the investment on LNG infrastructure and natural gas pipelines has grown fast, implying that the moment for natural gas has come.
 
The shift in consumer countries has caused increases in needs, supply pressure, and investment. It has strengthened changes in the global energy management structure. Although developing countries like China and India have played more and more important roles in the consumer market, in spite of that, international energy management is still decided by IEA and OPEC. Developing countries are left out of the main ruling body and do not have any voice in the matter.
 
China should lead the change
 
Adjustment in the global energy management structure must follow the changes in consumer structure. Since IEA is an organization of OECD countries and OPEC is for oil exporters, neither has any motivation to change. Historically, all big changes in the energy management structure are outcomes of major energy crises and collective actions by stakeholders. Such changes include the formation of a cartel by seven-sister oil countries, OPEC’s drive to break the seven-sisters’ cartel, IEA’s strike against OPEC’s monopoly, and compromise and coordination between IEA and OPEC on oil supply to avoid unreasonable variations in oil prices.
 
Breaking up the old balance and gaining a new balance is the way to build a new oil management system. The world has realized that the old global energy management system does not suit the new supply-need structure of energy. Moreover, big energy crises are not expected to happen in the foreseeable future. Major consumers – developing countries like China and India – have not yet come up with coordinated collective action plans. Furthermore, there is no country taking the lead.
 
At the beginning of this year, Chinese Premier Wen Jiabao came up with a new energy management plan under the G20. Until now there is only mild response from academia and the media. Internationally, and even internally in China, there has been no major action. If there is no action from the side that wants to make changes, how can one expect the dominant side with vested interests to do anything? If we want changes, China must take the lead, but it seems that China is not yet prepared and only complains about having no discourse power. Without a definite blueprint, how can China get discourse power?
 
The “moralization of low carbon” and technology advance have together speeded up the coming of an age of diverse energies. Burning oil and coal emits a large amount of greenhouse gas. In contrast, “low carbon” has been hailed as the “world-savior” or moral new highland. Natural gas, though classified as fossil fuel, has a “low carbon” feature, so it is classified as “low carbon” energy. Sometimes, it is even called new energy, although it has a longer history than oil.
 
Each social and historical moment comes with a distinctive energy structure. The industrial revolution came during the age of coal, and industrialization came during the age of oil. Today, the age of information, is the ideal time for natural gas. Natural gas is the backbone of the age of diverse energy. Without the support of natural gas, scattered new energy resources like solar and wind cannot be used on a large scale.
 
With coal amounting to 70% of energy use, China’s energy structure today is still mired in the age of the industrial revolution. Many social contradictions, especially environmental pollution, result from this backward energy structure.
 
China’s energy structure has come to a stage where changes must be made. When the economy of China nearly collapsed, reform and opening up were implemented to solve the people’s subsistence problem. Leaving the argument over capitalism or socialism aside, the country developed its economy and created the 30-year economic miracle that followed. Now China has become the second largest economy in the world, and people enjoy good quality of life. But, on the other hand, while the economy has developed quickly, the environment has been seriously polluted.
 
The golden age of natural gas
 
In 2009 NASA released an unprecedented global air quality map based on satellite observation. In Northern China, especially in the areas around Beijing, the suspending particle index (PM2.5) exceeded the standard severely, placing Beijing among the most air-polluted places on earth. Recently, the result from 35 PM2.5 monitor stations was even more appalling. The highest number recorded was 384 microgram/cubic meter, 20 times the international standard, clearly harming people’s health.
 
Changes in the energy structure in China are needed as soon as possible. This is no longer only an economic problem. To solve the problem of environmental pollution, politicians and government need courage to reform, open up, and be encouraged by the same spirit used in solving the people’s subsistence problem. Just as “reform and opening up” cured the subsistence problem, increasing the use of natural gas and renewable energy will solve the environmental problems we are facing today.
 
Some US scholars call the energy transformation today “magnificent.” The transformation has happened, it has a clear direction, it cannot be altered by anyone, and it is irreversible. Irregular oil, gas, and renewable energy will occupy bigger and bigger shares. In the global wave of low carbon adjustment in the energy structure, China is facing its toughest and most urgent challenge. Its high reliance on coal harms the country’s environment and air quality, not to mention its people. Besides, it is also our international responsibility. But if a government cannot be accountable to its own people, how can you expect it to be responsible for the world? An enterprise that does not bear low carbon in mind is not a responsible enterprise.
 
Energy transformation is not a concept; it is a practice. It is not a sudden leap; it is a process. In recent world energy transformation history, China is a laggard and retains a passive voice. This time we must be a major player. The depth and breadth of China’s participation will immediately affect the process of world energy transformation. We must shoulder our own responsibility.
 
 

 
CHEN Weidong (陳衛東) is a Guest writer from China Energy Fund Committee and Chief analyst from China Offshore Oil Energy and Economic Research Institute
 
CEFC Members : CEFC China Energy Co., Ltd. China Institute Of Culture Limited CEFC Shanghai Charity Fund
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