Chinese energy demand exceeds expectations

WASHINGTON, Nov. 7 (UPI) -- China's energy demand, already growing fast, may surpass expectations, increasing coal consumption and pollution as the country's national income grows.

The International Energy Agency and the U.S. Department of Energy have “not caught up with the reality of what is happening in China,” according to a report by the Center for Strategic & International Studies in Washington.

It predicts that through 2025, China “will experience much higher coal demand and emit much greater volumes of carbon emissions than forecast by IEA and DOE.”

Higher-than-expected energy demand may limit future economic growth as well, says the report, due to scarce supply and transportation bottlenecks.

According to the report's authors, discrepancies between their projections and those of the energy agencies are due to different calculations of China's income elasticity of electricity demand -- the ratio of change in China’s electricity demand to change in national income. This ratio is crucial for predicting not just electricity demand, but also coal consumption -- 50 percent of coal demand in 2004 came from the electricity sector -- and carbon emissions, of which coal is a principal culprit.

Observed income elasticity in China for the period 1980-2000 was 0.8. However, the report states that consumption during this period was peculiarly low due to efficiency gains resulting from a decrease in state-owned enterprises and the modernization of production methods. Between 2003 and 2006 electricity consumption grew faster than gross domestic product, with an average elasticity of 1.3.

The Chinese government, the IEA and the Energy Department “have been so captivated by the original, optimistic storyline” in which GDP quadrupled from 1980 to 2000 while energy consumption merely doubled, that they have neglected to take the more recent trends into account, the report says.

According to the report, developing economies normally exhibit income elasticity of electricity demand above 1.0. Thus, the authors use a “conservative” elasticity of 1.1 to project Chinese demand through 2025.

Using this figure and assuming a GDP growth rate of 7.2 percent, the authors conclude that China’s consumption of coal could triple by 2025 to hit 6 billion tons that year. Likewise, they predict that Chinese carbon emissions could double those of the United States by 2025.

The authors caution that while future efficiency gains are possible, “high costs and lack of financial incentive have prevented significant gains to date.”

They conclude, therefore, that “slower economic growth is probably the only viable solution to the current skyrocketing growth in Chinese energy demand” and that “if the Chinese government does not rein in economic growth in a controlled manner, then various bottlenecks in the energy supply system or environmental problems will probably force them to slow their growth in a less controlled manner.”