World Energy Outlook 2007

Background and Assumptions
China’s energy development, like that of most of the rest of the world, is on an
unsustainable path. The Reference Scenario projections demonstrate very
clearly that, without new government policies and measures or technological
breakthroughs, the country’s energy needs will continue to grow very fast. This
trajectory of rising demand would drive up its dependence on imports of oil,
natural gas and coal, add to upward pressure on international energy prices and
worsen already dire problems of local pollution. Continuing heavy reliance on
fossil fuels would also push up emissions of greenhouse gases and the adverse
effects of climate change in China and elsewhere. In short, unchecked growth
in energy use poses a serious threat to China’s future prosperity and the wellbeing
of the Chinese people. It also carries serious implications for the rest of
the world.
Chinese policy makers take these challenges very seriously and have
formulated a range of policies to respond to them. Chief among these are
interventions aimed at diversifying the country’s energy sources, improving
energy efficiency and restructuring the economy away from highly energyintensive
activities. Some have already been implemented and are taken into
consideration in the Reference Scenario. Other more ambitious actions are still
under discussion. The Alternative Policy Scenario takes these into account,
presenting a picture of the extent to which they can address China’s energysecurity
and environmental challenges. The benefits of stronger policy action
are potentially very large, provided there is effective implementation and strict
enforcement on the ground.
Most of the initiatives that China has already adopted are set out in the
11 th Five-Year Plan. More than in any other country, energy policy and
economic policy in China are inextricably linked. One of the main planks of
Chinese economic policy is to effect a fundamental change in the structure of
the economy towards less energy-intensive industries and services, with the aim
of reducing energy needs per unit of value added produced. 1 Accordingly, the
11 th Five-Year Plan contains a target to reduce the country’s energy intensity by
20% between 2005 and 2010. It also sets out targets for the share of each
energy source in the overall primary energy mix.
Most of the specific policies set out in the plan are included in the Reference
Scenario. However, it is not yet clear how some of those are to be implemented
or enforced. In these cases, we have assumed that they are not fully
implemented in the Reference Scenario. The cloud of uncertainty over
implementation is dense in some areas. For example, the plan contains a strong
commitment to favour natural gas over other fossil fuels, yet few concrete
measures or incentives have so far been announced. In many cases, the
1. We call this aim “structural adjustment” in the rest of this chapter.
362 World Energy Outlook 2007 - CHINA’S ENERGY PROSPECTS