The Dynamics of China’s Energy Economy

Summary

The growth of its economy means that the People's Republic of China ranks at the top of many energy related league tables. It produces and consumes roughly 50% of the world's annual coal demand, while also being the largest importer of coal (accounting for 16% of total coal imports). China is the world's largest oil importer, yet is still the world's fifth largest oil producer. Also, it has the world's most ambitious nuclear program, the world's largest renewable energy industry and one of the fastest growing demands for natural gas. China's appetite for energy is huge and is set to grow substantially over at least the next decade.

There appear to be two main challenges facing research into China's energy economy:

- Necessary specialism can narrow scope and undermine opportunities for cross disciplinary synergy; and

- While data are the foundation stones of any approach, understanding the limitations of Chinese data is one thing, overcoming these limitations another.

Three non-traditional approaches that may deliver greater insight comprise:

- Mixed Complementarity Problem (MCP) formulations. MCPs can provide a bottom-up modeling approach that complements alternative traditional, top-down Computable General Equilibrium (CGE) models, deepening understanding of what is happening in China's complex energy economy and how it could respond to future policies;

- Bargaining models, which can allow practitioners to set out competing policy priorities and draw conclusions on plausible policy outcomes that can help bound the research space; and

- Theories of institutions that allow more critical examination of the policy making environment in China, thus improving our understanding of plausible future responses.

However one looks at China’s energy and environmental policies, decisions made in Beijing will have ramifications for both its domestic energy economy and for global markets. Understanding the potential for such decisions, whether they appear rational to an external observer or not, is critical for policy makers globally in preparing their own energy economies for the consequences of China’s continued economic growth and burgeoning energy demand.