China's energy use : the changing relationship between economic growth and energy

Abstract

The transformation of China's economy since 1978 is one of the most profound economic transformations in history. Among the most important dimensions of China's transformation is the way rapid economic growth drove energy consumption. All economic activity depends in one way or another upon energy but there is now overwhelming evidence that much of the way we use energy has undesirable externalities, including potentially destabilising effects on the earth's climate system. China is already the world's largest energy user and prospects for future economic growth and therefore energy consumption remain strong. China's energy use is therefore a critical area of analysis. The thesis addresses three core questions. Why has China's energy consumption grown so rapidly since 2002? Is China's economy peculiar in its huge and rapidly growing energy consumption or does it conform to the experience of other countries when they were at similar stages of development? What are the implications for China's energy future? Input-Output Analysis (lOA) and Structural Decomposition Analysis (SDA) are employed to isolate energy relationships with rural and urban household consumption, government expenditure, investment, trade and production. Data from the 2002 IO table (122 sectors) and the 2007 IO table (135 sectors), China's energy statistical yearbooks and a variety of supplementary sources are used. One key contribution of the thesis is to place analysis of energy use in the context of China's broad economic development, drawing on economic growth literature to do so. The second central contribution in contrast to existing literature is extensive interpretation of results. The results indicate China's very rapid energy use growth between 2002 and 2005 may have been a temporary effect linked to China's WTO membership. China's manufacturing export boom beginning in 2002 drove a large portion of the energy use growth, while energy-saving technological improvements declined between 2002-2005. Longer-term drivers are urbanisation, increasing household consumption, and resumption of policy- as well as market-driven energy saving technological progress. Technological progress has been most evident in traded goods sectors, especially importing sectors. A shift to petroleum rather than coal-based energy was observed. The 12th Five Year Plan calls for significantly slower energy use growth. The analysis suggests implementing changes required to meet energy-use targets will be challenging. In particular, the plan calls for a substantial reduction in investment growth and a shift in production toward services that has so far been elusive. China's energy future carries very important strategic implications. Hundreds of millions of Chinese are now aspiring to higher standards of living, inevitably requiring ever more supplies of energy. Understanding the drivers of China's energy-use growth is crucial if it is to be managed so as to ameliorate the problems associated with energy use while still ensuring the Chinese people can realize their aspirations toward a healthier, more comfortable and more fulfilling life. Show more