Energy Use in China: Interpreting Changing Trends and Future\ud Directions

Energy use grew at only half the rate of GDP growth in China over 1980-2001, but has grown faster than GDP over 2001-06. This paper explores the reasons for that\ud change, and its implications for China’s future energy use and energy policy. Based on the existing literature and a new decomposition analysis, we find that structural change\ud increased energy use over the whole period. But sectoral energy intensities fell sharply over 1980-2000, mainly due to strong incentives for technical change and increased\ud energy efficiency in a command economy with energy rationing, supplemented by rising relative energy prices in the 1990s. With the command economy mechanisms supplanted\ud by the reforms of the late 1990s and rapid growth in energy intensive industries after entry to the WTO in 2001, China has reverted to the normal developing economy case of\ud an elasticity of over one. Based on a simple projection model, we find that, on the policies in force in 2005, China’s energy use and CO2 emissions from fuel combustion\ud are likely to grow by more than 6% per annum over 2005-30. But the Government is now actively implementing a wide range of policies to reduce the growth in energy use. Our\ud simulations indicate that achieving major reductions will be difficult, but that a sustained policy process involving use of the full range of instruments could reduce China’s energy use and CO2 emissions by 35-40% by 2030