China’s Energy Security Realities and COP27 Ambitions | Techno Glob


China's Energy Security Realities and COP27 Ambitions

China straddles both sides of the energy transition inexorably. On the one hand, China is the undisputed world leader in numerous clean energy technologies, including electric vehicles, renewable generation and supply chains. On the other hand, it is also the world’s largest carbon emitter and coal producer, and is building more than half of the world’s new coal-fired power plants. As West-China tensions rise and Beijing increasingly focuses on energy security, there is less scope for climate cooperation. Perversely, however, US-China political competition could yield climate benefits, as both sides face pressure to provide clean energy leadership at COP27 and beyond.

A Brief History of Chinese Energy Security

China faces significant energy security challenges. The world’s largest or second largest country by population has massive energy needs, while domestic energy supplies are limited by geology, energy density, and often bad policy. China’s water scarcity not only limits its ability to use shale techniques to extract oil and natural gas, but also poses growing threats to hydroelectric power generation, which will account for 16 percent of the energy mix in 2021. Over time, water levels in Chinese rivers may decrease. A serious problem with other hydro-intensive power generators such as nuclear, natural gas and coal. These problems are somewhat remote for now, however, as China turns to coal for its immediate energy security needs.

China’s energy security concerns are rooted in its recent experiences. In the winter of 2017-18, problems with upstream natural gas production in Turkmenistan caused a minor crisis in Chinese electricity markets. Russia’s eagerly scheduled maintenance of a China-directed natural gas pipeline in October 2022 raised eyebrows in Beijing. US liquefied natural gas (LNG) is subject to enormous political risk from Beijing’s perspective, with recent offtake activity including a 40 mtpa long-term LNG contract now destined for China. China experienced severe power shortages in the second half of 2021 due to strong demand and power sector mismanagement. Finally, China’s own politically motivated ban on Australian coal imports in 2020 has led to local power shortages in some import markets, a more permissive approach to local production and, ultimately, quiet imports of Australian supplies.

US-China and West-China tensions at COP

The Australia-China spat illustrates Beijing’s often conflicted climate relationship with the West. The two sides are linked by supply chains and commodity trade: China is firmly established in wind and solar supply chains and processes most of the active materials needed in grid storage and lithium-ion batteries for electric vehicles. In addition, China imports large quantities of crude oil, liquefied petroleum products such as ethane and propane, and LNG from the United States and other Western countries. On the other hand, political tensions between the two sides over Taiwan, semiconductors and more are bleeding into climate cooperation.

China suspended climate talks with the US in August, including on methane reductions, after US House of Representatives Speaker Nancy Pelosi visited Taiwan. Meanwhile, a bill introduced before the US Senate would remove China from the list of developing countries, preventing it from receiving favorable treatment in hydrofluorocarbon (HFC) markets.

These political and climate disputes over the Carbon Border Adjustment Mechanism (CBAM) may come to a head at COP27. Europe’s adoption of CBAM seeks to reduce carbon emissions by charging a tariff proportional to the carbon intensity of the imported product. The measure would significantly increase the cost of exporting Chinese goods to Europe and provide a template for other industrialized countries such as the United States, Japan and Canada. China strongly opposes the measure, calling it a “green barrier”.

Climate Clubs or Climate Camps?

At COP27, Western leaders will have to contend with the emerging reality that two competing climate camps are forming, one led by the West and the other by China.

This dynamic is not only a competition between China and Western economies, but also an example of global engagement and investment in climate mitigation and adaptation, especially in relation to engagement with the developing world. For example, in Africa, China’s trade volume exceeded that of the United States by a factor of four. Furthermore, China has not shied away from financing fossil fuel projects, which are high on the priority list of LDCs with limited energy access. Many African nations have welcomed this, as 43 percent of all people on the continent do not have access to modern energy services.

As the developing and developed world try to address key issues on the agenda at COP27 such as loss and damage, closing the climate finance gap and financing natural gas projects in Africa, Western leaders need to remember that there is competition with China. Climate is likely to become a more prominent feature of the negotiations.

After all, despite its current dependence on coal and other fossil fuels, China has historically seen the energy transition as a strategic advantage. Its strength in industrial policy and manufacturing benefits from an opportunity to double down on a globalized supply chain for fossil fuels, on which it is almost entirely dependent on imports, and transition to an infrastructure- and materials-intensive clean energy economy.

Policymakers in Washington, Brussels and beyond should use a more flexible and pragmatic approach in their engagement with the developing world, and consider using trade bodies to finance short-term natural gas projects and fast-track clean energy project financing to the best of both camps. ‘ International Climate Engagement Model.

Above all, the West must act together on climate. Securing a clean energy supply chain, improving energy efficiency and increasing domestic hydrocarbon production as needed should all be key components of Western climate policy. By asserting climate leadership on the strength of its own actions and meeting the real needs of developing countries, the West can reduce emissions while marking a place in the climate race with Beijing.

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center.

William Tobin is a Program Assistant at the Atlantic Council Global Energy Center.

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Learn more about the Global Energy Center

The Global Energy Center Promotes energy security by working with governments, industry, civil society and public stakeholders to devise practical solutions to the geopolitical, sustainability and economic challenges of the changing global energy landscape.

Image: Jiamusi Zhongheng Thermoelectric Ltd. Manager at (Asian Development Bank, Flickr, CC BY-NC-ND 2.0) https://creativecommons.org/licenses/by-nc-nd/2.0/



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