RICE
UNIVERSITY
Energy and Environment in China
Kenneth B Medlock III
Senior Research Fellow in Energy Studies, James A Baker III
Institute for Public Policy
Visiting Professor, Economics Department
Rice University
1
Framing the discussion
RICE
UNIVERSITY
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The following appeared in a recent article in the Washington
Post,
“…the water in five of China’s largest rivers is so polluted it is
dangerous to touch because it causes skin diseases; the Huai River,
in the fertile province of Anhui, is filled with garbage, yellow foam
and piles of dead fish. Several of the country’s main waterways,
including the Yellow River, a vital artery, run dry before reaching
the sea. More than 600 million Chinese, roughly half the country’s
population, now drink water contaminated with animal and human
waste…”

While these statements may contain an element of shock
value, they should nonetheless raise awareness that China
has challenges to face if it is to continue its torrid pace of
economic development.
2
Framing the discussion
RICE
UNIVERSITY
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The attainment of higher standards of living for all citizens is
a prime factor in motivating economic progress.
Energy is crucial to economic progress.
Most energy services are facilitated by the combustion of
fossil fuels (petroleum, natural gas, and coal)… about 86%
globally in 2002.
The combustion of fossil fuels releases sulfur and nitrogen
compounds, and soot and particulate matter, and carbon
monoxide. These present immediate health risks.
The combustion of fossil fuels also releases carbon dioxide.
(However, it is unlikely this ranks high on the list of
priorities.)
3
Energy, Environment, and Economic
Development
RICE
UNIVERSITY
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Energy use per person increases with GDP per person
3500
Total
3000
2500
Final Energy
Consumption
per capita
kg oil eq
Residential
and
Commercial
2000
Transport
1500
1000
500
Industrial
and
Other
0
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
Real GDP per capita
1985 PPP $
4
Energy, Environment, and Economic
Development
RICE
UNIVERSITY
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Emissions are a function of total energy consumption
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Emissions rise with energy use, absent the introduction of
technologies aimed at reducing emissions per unit energy
consumed
Emissions are a function of primary fuel composition

Coal combustion results in greater emissions of SOx, NOx,
particulate matter, and CO2 per BTU of energy output than
either petroleum or natural gas

Natural gas is the cleanest of the fossil fuels

Hydro and Nuclear are “zero” emissions energy sources, but
each comes with its own costs
Emissions are a function of the technology employed
in energy-using capital equipment
5
China: Energy Today
RICE
UNIVERSITY

Per capita energy use in China is only one-tenth of
that in the US…
million BTU
400
300
200
339.1
A result of economic
development…
USEnergy =
10.2 *ChinaEnergy
100
33.3
0
China
US
6
China: Energy Today
RICE
UNIVERSITY
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…but an enormous population means that total
energy use is just under one-half of that in the US.
quad BTU
150
100
An offsetting result
of population…
USEnergy =
97.7
2.2 *ChinaEnergy
50
43.1
0
China
US
7
China: Energy Today
RICE
UNIVERSITY
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Coal dominates China’s energy mix

Coal use in China is about 65% of total primary energy
requirement.

While coal’s share is down from 10 years ago, total coal use
is still on the rise.
Chinese Primary Energy Supply, 1992
Natural gas
2.08%
Nuclear
0.02%
Nuclear
0.55%
Hydro
4.79%
Natural gas
3.10%
Petroleum
19.01%
Coal
74.09%
Total Primary Energy Supply
29.3 Quadrillion BTUs
Chinese Primary Energy Supply, 2002
Hydro
7.24%
Petroleum
24.53%
Coal
64.58%
Total Primary Energy Supply
43.2 Quadrillion BTUs
8
China: Environment Today
RICE
UNIVERSITY
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“Environment pollution from coal combustion is
damaging human health, air and water quality,
agriculture, and ultimately the economy.”
– excerpt from “China: Environmental Issues” in the EIA’s Country
Analysis Briefs
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A 1998 report by the World Health Organization
placed 7 of the 10 most polluted cities in the world
in China. As of 2003, this was still true.
Carbon emissions in China rank second in the
World behind the US, accounting for about 14% of
the world’s total.
9
RICE
UNIVERSITY 
China: In Context
China is at the base of the energy-development curve.
3500
Total
3000
Next 20 years at 6%
growth
2500
Final Energy
Consumption
per capita
kg oil eq
Residential
and
Commercial
2000
Transport
1500
1000
500
Industrial
and
Other
0
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
Real GDP per capita
1985 PPP $
10
A Challenge Ahead
RICE
UNIVERSITY 
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Current pollution problems must be addressed
Per capita energy use in China will increase as economic growth progresses…
(“Per capita” is crucial as China is home to 1.3 billion people)
Much of the projected increase in energy demand will come from the
transportation sector as private motor vehicle stocks increase
Development path
11
A Challenge Ahead
RICE
UNIVERSITY
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However, there is no reason that energy use patterns
in China must follow those of the industrialized
world, particularly in transportation and electricity
generation
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Energy-capital relationship dictates that energy use will rise
as energy-using capital stocks grow, holding utilization rates
and efficiency constant. Most projections allow very little
change in this respect.

Efficiency gains can more than offset increases in stocks and
utilization. (Case study: US motor vehicle stocks and fuel use
from 1978 to 1991.)
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Similar arguments hold for installed MW of generation
capacity
12
A Challenge Ahead
RICE
UNIVERSITY
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The potential for emissions of SOx, NOx, particulates,
and CO2 will rise
The realization of this potential is subject to many
factors
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Coal consumption

Technology

Government policy
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International pressures/assistance
An important point: We consume energy for the
service it provides.
13
Meeting the Challenge
RICE
UNIVERSITY
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Pollution imposes a cost to society, which, when large
enough, can slow economic growth…
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Rising health care costs, rising water treatment costs, rising
land costs as scarcity rents for arable/habitable land increase
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These external costs of industrial activities can become large
enough to divert resources from other activities that promote
economic growth
…the problem of pollution must be addressed if long
term progress is to be sustainable.
14
Key Aspects of Meeting the Challenge
RICE
UNIVERSITY
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Coal
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Ample domestic supply… about 11.7% of the World’s estimated
recoverable coal reserves
Its use provides energy security benefits
It is the most polluting of the fossil fuels
Technology
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Electricity generation
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Transportation
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clean coal technologies (IGCC, coal gasification, coal liquefaction)
alternatives (Hydro, nuclear, wind)
natural gas
hybrid engine motor vehicles
hydrogen powered vehicles
mass transportation
Policy action
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tradable allowances with strictly enforced realistic limits
installation of “scrubbing” equipment
encouragement of shift to alternative fuel sources
15
Key Aspects of Meeting the Challenge
RICE
UNIVERSITY 
Policy
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Improved pollution controls on power plants to reduce SOx and NOx
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Encourage high efficiency standards in transportation
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Encourage growth in natural gas-fired generation
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Encourage the development of hydroelectric capacity
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Three Gorges Dam planned for 18.2 GW of capacity
Yellow River Hydroelectric Development plans an eventual 15.8 GW of
capacity
Encourage wind power development
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Domestic resources adequate for the near term
Imports an eventual necessity (LNG versus pipe)
Largest potential on east coast
Second highest in Inner Mongolia and northern Gansu Province
Development of large-scale electricity transmission and natural gas
distribution grids
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Enable production of electricity near fuel sources
Eliminate need for residential coal and/or waste combustion
16