Chronic Air Pollution Drives China toward Synthetic Gas and Solar

4th November 2013

Whenever I pass through HK airport, it strikes me that those grim glass boxes in the terminal crammed with smokers getting a pre-flight fix would be a good spot to acclimatize for a trip to Beijing; PM2.5 readings of 400-500, as seen in the Chinese city of Harbin recently (and Beijing in January), are roughly equivalent to those smoking boxes and levels at which schools have to be shut and strenuous outdoor activity is dangerous. Heavy smog afflicted Beijing once again during the recent Golden Week holiday, causing emergency airport and highway shutdowns, and this winter is likely to see the worst urban pollution yet and more importantly from a political perspective, far greater public awareness of the health risks. Policymakers are grappling for a solution, but the only real ones are to replace coal with cleaner energy sources like gas, nuclear and alternatives as well as suppressing energy demand growth via market pricing/’polluter pays’ green taxes.

This summer, the Brazilian government announced that it was launching an energy plan that looks to increase the role of renewable energy sources significantly over the next seven years. Development of the bioenergy, wind, and solar sectors were key points in the plan, with the goal to generate nearly 70% of its electricity from renewable energy sources by the year 2020, up from 55% today and ultimately China will have to make a similarly radical shift, in particular away from burning some of the world’s dirtiest coal. Renewables, natural gas and nuclear are likely to double as a share of total energy output from last year’s 13% to at least 26% by 2020, with wind and solar rising to 3-4% and gas (synthetic and shale) more than doubling its share to 12%.

In September, we reached a seminal moment in energy markets as China surpassed the US as the world’s largest consumer of foreign oil, importing 6.3m barrels per day. China’s growth in import demand can largely be attributed to its domestic oil demand growth, driven by gasoline demand due to the near-exponential increase in personal auto vehicles and diesel demand related to commercial trucking as China’s economy grows. By 2020 China will be second only to the US for the number of vehicles in circulation and oil imports will by then likely exceed 9m bpd. The per capita consumption differential remains vast, with an average Chinese citizen consuming a mere 2.9 barrels of oil per year or 14% or US per capita levels, and so far very low annual mileage Chinese drivers just beginning to explore the vast network of highways built in the recent infrastructure boom, albeit many of them expensive toll roads.

The core issues with pollution in China are a very wasteful energy model (e.g. fleets of trucks carry coal to power stations, sprawling cities with poor mass transit networks) and the pricing model for both energy and the pollution externalities from its use. In the near term, interim technologies like coal blending (to optimise burn efficiency by mixing different grades) and flue gas capture are gaining traction, but a wholesale move to cleaner energy is the only long-interim solution. As far back as 2007, the World Bank concluded that air and water pollution costs amounted to almost 6% of Chinese GDP; energy use per unit of GDP is vastly higher than other Asian countries like S. Korea and more than twice US levels.