Assessing China’s Energy and
Environmental Outlook :
Can Hong Kong Play a Key Role?
In-house Discussion with
Vision 2047 Foundation Members
By Patrick Cheung
July 9, 2007
Issues to be Discussed
• Will China continue to rely on fossil fuels for its energy
consumption, only more of them?
• Will the air get even dirtier?
• Can China transform itself to be much more energy efficient and
cleaner? What are the challenges and opportunities?
• Can Hong Kong play a meaningful role in this transformation?
2
Characteristics of China’s Energy Consumption
Demand
• Continuing urbanization
(40 to 70% ?) and
industrialization
• Growing service
economy
• Personal wealth
increase, e.g. car
ownership
Supply
• Limited domestic
production of oil and
natural gas
• Nuclear/Alternative
energy development
helpful only at the
margin
• Abundant coal resource
Impact on Energy Use
• Light products
demand growth, e.g.
gasoline, jet fuel,
diesel, etc.
• Imports of liquid fuels
to increase
• Strong electricity
demand growth
• Unprecedented power
generation capacity
additions
• China will continue to
rely on fossil fuels to
drive its economy
• Total potential
emissions to increase
substantially
• Coal use dominant
and swing fuel
3
Primary Energy Consumption to 2030
EIA Reference Case
2004
2010
2020
2030
CAGR %
2004-2030
Total Consumption (Quads)
USA
China
World
100.7
59.6
446.7
106.5
82.6
511.1
118.2
112.8
607.0
131.2
145.4
701.6
1.0%
3.5%
1.8%
Liquids (mm barrels a day)
USA
China
World
20.7
6.4
82.5
21.4
9.4
90.7
23.8
11.9
103.7
26.6
15.7
117.6
1.0%
3.5%
1.4%
22.6
41.1
114.5
24.2
55.3
136.4
27.3
75.5
167.2
34.1
95.2
199.1
1.6%
3.3%
2.2%
22.4
69.0
25.6
22.7
66.9
26.7
23.1
66.9
27.5
26.0
65.5
28.4
N/A
N/A
N/A
Coal (Quads)
USA
China
World
Coal as % of Energy
Consumption
USA
China
World
4
Primary Energy Consumption to 2030
EIA Reference Case (cont’d)
2004
2010
2020
2030
CAGR %
2004-2030
Population (millions)
USA
China
World
294
1,307
6,388
310
1,355
6,841
337
1,424
7,577
365
1,446
8,203
0.8%
0.4%
1.0%
GDP (2000$ trillions)
USA
China
World
10.7
1.7
34.9
12.8
2.9
42.9
17.1
5.3
57.8
22.5
8.8
76.9
2.9%
6.5%
3.1%
34,250
4,560
6,993
34,355
6,096
7,473
35,074
8,301
8,011
35,945
10,055
8,533
0.2%
3.1%
1.8%
Per Capita Energy Use
(mm BTUs / person)
USA
China
World
5
Primary Energy Consumption to 2030
EIA Reference Case (cont’d)
2004
2010
2020
2030
CAGR %
2004-2030
Energy Intensity
(BTUs / $GDP)
USA
China
World
9,411
35,059
12,799
8,320
28,483
11,914
6,912
21,283
10,502
5,831
16,523
9,124
-1.8%
-2.9%
-1.3%
CO2 Emissions
(million tons)
USA
China
World
5,923
4,707
26,922
6,214
6,497
30,860
6,944
8,795
36,854
7,950
11,239
42,880
1.1%
3.4%
1.8%
6
Energy Intensity Pattern (2004 Data)
(‘000)
40
x Russia
x China
x South Africa
30
Energy Use
x India
Intensity
(BTU/$GDP (2000))
20
Norway x
Canada x
x South Korea
x Ethiopia
x Bangladesh
10
0
x USA
x Germany
x Hong Kong
Denmark x x Japan
x Nigeria
100
200
Per Capita Energy Consumption
mm BTU / person
300
400
7
China’s Energy and Environmental Quandary
Ever greater
Dependence on
fossil fuels
Insatiable energy
demand to sustain
economic growth
CHINA
Worrying impact on
- air quality
- CO2 emissions
- resource cost
which could stifle growth
Transformational Challenge
- How to increase economy wide energy use efficiency
- How to create and implement comprehensive solutions to clean up
air quality and reduce CO2 emissions
8
China’s Transformational Obstacles
Fuel input
Combustion Process /
Equipment and Delivery
Output
- Energy
- Emission
Standards /
Regulations
-
Lax standards
Tightening standards increase cost
Lack comprehensive policy/regulatory framework
Technology
-
Stock turnover
Adoption of best practices
Technology transfer
Cost
Enforcement
-
Difficult to monitor diffused sources of emissions, e.g.
electricity shortage induced micro-generation
Economic competition
Corruption
Competence
-
9
Transformation of a Complex System
Wealth Creation
- Affordability
- Financibility
Knowledge base
- Policies and regulations
- System management
Technology
Transfer
Blue Sky
China
Economic
Re-structuring
Shared Values
- Will to implement
10
The opportunity set is huge.
China’s Objective
High
Now
X
Value
added
Future
X
Low
Quality
(value added)
Raw
Energy
Cost
High
Now
Future
And improving quality is inherently high - value added
•
•
•
•
•
Technology driven
Information based
Service economy
Managing complexity
Cross-border facilitation
11
Hong Kong’s advantages are visible.
•
Adapt in traditional cross-border facilitation role.
•
Preferred base for foreign companies in energy and environmental sectors.
•
Financing will be a key part, at which Hong Kong excels :
– Equipment/Project financing
– Capital raising
– Emissions or carbon trading
•
Opportunity set is largely a sophisticated service sector which can leverage Hong
Kong’s soft and hard infrastructure and professional services culture.
12
But, it’s not an automatic slam dunk either.
Hong Kong not necessarily
centre of gravity for this
opportunity set
•
•
•
•
•
Limited energy economy
Its internal problems less complex
Energy not a dominant sector
No technology base
Little thought leadership on policies,
regulation, research, knowledge
base, etc.
China itself likely to become
More pro-active and organized
• “Its their own problem”
• International pressures directly felt
• Top government initiatives likely to
create large support infrastructure
• R&D and subsidies available
Initial thoughts on what Hong Kong
can do
• Build critical mass of thought leadership
– Quality think tanks
– University funded research
– Strengthen/ Create related university
departments
– Centre for seminars and conferences
– Widespread education to create
shared values
• Identify potential niches of opportunities, e.g.
– Urban planning
– Environmental consulting
– Air quality monitoring
– Regulatory policies
– PRD environmental systems
management
– Energy projects and equipment
financing
– Carbon and emissions trading?
13
Conclusions
•
China’s energy demand will continue to increase substantially and will
continue to rely on coal and oil for its needs.
•
China faces an uphill battle to become more energy efficient and clean up
its environment, while sustaining economic growth.
•
Wealth creation and creating the capability and will to manage complex
solutions are pivotal.
•
Huge commercial opportunities exist in this transformational challenge.
•
Hong Kong will need to work hard to play a meaningful role.
14