China has been the proverbial gorilla in global energy for much of the past two decades. And it will remain so for another three decades at least, according to the International Energy Agency’s latest long-term outlook, released Tuesday.
What isn’t known is exactly what this gorilla will do — not just in how it consumes its energy but, importantly, how it invests in energy.
What China did over the past 16 years, primarily, was grow. It has accounted for more than half the world’s increase in energy consumption since 2000, and even higher percentages for some individual sources:
You can see that China dominated growth in coal and oil demand, though it also led the way on hydro-power, too. However, when you look at the various sources on an energy-equivalent basis, it’s clear how much oil and coal have fueled China’s economic miracle:
Looking ahead, the IEA’s central scenario — which takes account of existing and currently proposed energy policies, among other things — has China responsible for just over a fifth of the growth in global energy demand through 2040. That actually trails India, at 26 percent. Even so, China’s energy demand overall will still be almost double the size of India’s in 2040 under these projections, and bigger than the U.S. and the EU combined. That’s still a gorilla in my book.
The mix of that extra energy demand looks quite different from what’s come before, though:
The shift away from coal toward natural gas, renewable energy and nuclear power reflects myriad factors, but two broad ones dominate. First, having undergone massive industrialization, China’s economic growth is set to move away from just building stuff toward providing services off the back of that stuff.
Second, China has paid a heavy price for its reliance on coal (and diesel). The IEA estimates only 2 percent of China’s population breathes air that meets the World Health Organization’s air-quality guideline on particulates.
And China is set to repeat the American experience of the late 20th century in terms of relying on energy imports — only more so. By 2040, more than 80 percent of China’s oil demand will be imported from elsewhere, up from 68 percent last year (the U.S. topped out at 60 percent in 2005, and that has come down sharply). And more imports mean more risks to supply. True, by 2040, we might all be vacationing in NEOM at the heart of a prosperous and peaceful Middle East. But maybe we won’t.
These economic externalities of pollution (including climate change) and insecurity are powerful incentives for China to try to both diversify its energy mix and favor cleaner sources. On diversification, Beijing has shown itself a canny user of its power as the biggest customer on the planet, playing the likes of Russia, Saudi Arabia and the U.S. against each other to get the best terms. Equally, though, the benefits of its forays into places like Venezuela are more ambiguous.
The more intriguing aspect concerns Chinese investment. Here is the IEA’s breakdown of China’s average annual investment in energy supply by source in the current decade and projected through 2040:
China is projected to invest $2.3 trillion in low-carbon power generation (including nuclear plants) through 2040, out of $6.4 trillion on energy supply overall. Beyond supply, though, China is projected to also spend $1.3 trillion on other low-carbon technologies (such as electric vehicles) and $2.1 trillion on energy efficiency. Another $1.9 trillion is projected to be spent on the power grid, although while that facilitates more electrification and connection of renewable sources, it is fuel-agnostic.
Leaving the grid aside, China is projected to invest more than $220 billion a year, in real terms, on centralized and distributed renewable power, electric vehicles and energy efficiency through 2040. To put that in context, the IEA estimates global investment in renewable energy transportation and efficiency last year was just under $550 billion.
To put that in even more context, while global spending on renewable power last year was 3 percent lower than in 2012, additions to capacity and supply were 50 percent and 35 percent higher, respectively, according to the IEA.
That rapid drop in unit costs for renewable-energy technology is why the U.S. is considering imposing sanctions on foreign (read: Chinese) solar panels.
The point here isn’t that any of these projections will prove to be exactly right — such long-term numbers rarely are, and the IEA is careful to call them “scenarios” rather than forecasts.
The point is this: Having spent two decades sucking in every extracted mineral it could find to build its industrial base, China increasingly is also deploying that base to, as far as possible, “manufacture” energy — and gaining in experience as it does it. The gorilla is as disruptive as ever; the nature of that disruption is changing in a profound way.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.