China’s increasing energy needs have created two effects which have spread beyond its borders – demand for resources and environmental impact. The first has contributed to rising international energy prices, something for which China’s voracious appetite is partially but not wholly responsible. The second has resulted most obviously in pollution within China – but this is of increasing international concern, as the effects spill across borders and are increasingly global. Concern has also been raised in the West, especially in the US, over the political and strategic impact of China’s efforts to secure energy supplies.
Viewed in this context, China could be seen as a competitor, or even a threat. Europe, however, has taken steps to seek partnership with China to solve energy and related environmental problems. In March, the EU and China signed a memorandum of understanding on near-zero emissions power generation technology. One of the aims of this memorandum will be to promote underground storage of carbon dioxide emissions from coal-fired power stations. Although China’s need for oil has been the focus of much attention, coal accounts for 70% of its energy consumption and this is increasing, along with carbon dioxide emissions.
Many memoranda
This memorandum is only the latest of many initiatives that have been launched to make changes since the EU-funded energy and environment program got things started in 2004. In February, the EU Energy Commissioner Andris Piebalgs was in Shanghai for the 6th EU-China Energy Conference and took the opportunity to promote closer cooperation in the gas and electricity sectors. Piebalgs was keen to offer the ongoing EU reform of both the gas and electricity markets, which is intended to open them to greater competition, as a potential model for China to learn from.
In many ways, China’s problems are not that different from those of Europe. The fact is that Europe is facing many of the same challenges as China concerning energy security and pollution. Even if they may not appear quite so severe on the surface, they are nevertheless pressing. As Piebalgs noted in a speech in Shanghai, "A secure and reliable supply of energy is fundamental to our modern economy." This is not just an abstraction, or a question to be answered sometime in the future, as was shown earlier this year when Russia cut supplies of gas to the Ukraine, which led to supply interruptions to several countries in the EU.
The market share of gas in the EU is forecast to increase from 24% in 2004 to 27% in 2030, creating an increase in absolute demand of 23%. This is in a period when domestic production is predicted to decline from 238 billion cubic meters in 2000 to 98 billion cubic meters in 2030. Effective energy policy is not just about securing supplies, it is also about effective markets and distribution. British consumers can attest to the cost of this since they are currently facing massive rises in their gas bills, in part as a result of failures in the EU gas market.
In effect there is no single market for energy in the EU. Energy divides Europe, as recent efforts by governments to block cross-border mergers in the energy sector have shown. It does not even have an effective EU electricity grid that could allow energy to be traded across Europe. The problems are familiar to China, where market competition in the energy sector is limited, and locally driven policies and investments often supersede economic efficiency.
Topical issue
Energy has risen to the top of the agenda in Brussels following the Russian gas scare. In March, the European Commission issued a paper calling for an EU-wide energy policy, the argument being that coordination is better than relying on the efforts of individual governments. The Commission has even gone so far as to argue that the EU should negotiate collectively with energy suppliers, in the same way as it does on trade issues, thereby increasing its bargaining power.
China and Europe face similar basic problems relating to energy, even if the context is different. The fact that both are increasingly dependant on imports for their energy means they are seeking supplies in world markets. For the moment, China’s need for energy has not rung the same alarm bells in Europe as it has in Washington. But if there was to be the equivalent in the EU of the CNOOC bid for Unocal, attitudes might change, given the new vogue in some parts of Europe for "economic patriotism" and the negative reaction even to intra-European takeovers in this sector.
Even if China and Europe do face similar questions over energy policy, China’s problems are certainly more pressing, as the recent discussions of the National People’s Congress have recognized. Europe clearly has an interest in helping China solve its problems, and not only because there is money to be made from selling power stations, as well as energy saving and environmental technology, to China. By helping China resolve some of its problems, Europe is also helping itself, and probably everybody else as well.