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LONGREAD: China’s green shift and how Australia should respond

There is an astonishing energy transformation taking place to Australia’s north which has yet to be grasped even by experts on Asia

" China’s industrialisation is a process taking place at a scale without historical precedent." - John A Mathews

China is betting big on renewables - and on a circular economy - because the success of China’s industrialisation efforts depends on this bet.

It’s all about scale. China’s industrialisation is a process taking place at a scale without historical precedent. If China were to proceed with the typical industrialisation strategy all previous industrial countries pursued – based on fossil fuels – then it would face insuperable problems.

These are not just problems of shortages of resources and immediate environmental problems but most centrally problems to do with the geopolitical limits to a fossil-fuelled strategy.

To put it bluntly, China would face entanglements in oil wars, coal wars and gas wars if it were to pursue a typical fossil-fuel strategy – not to mention the burden on its balance of payments as it sought to raise its imports of these fossil fuels. It would mean a horrendous 21st century – for China and for everyone else.

No alternative

Looking at the scale involved, it’s clear China really has no alternative to a green shift strategy. And in the typical no-nonsense approach of the Chinese, their leadership has adopted this strategy with determination and ambition.

As China adopts this green shift strategy it drives down costs for itself and for all – and makes such a strategy more accessible to other industrialising countries like India, Brazil or African countries.

The green shift initiated by China becomes a global green shift. Then China’s green shift opens up opportunities for companies and countries nimble enough to take advantage of these opportunities – and those countries would include Australia.

I have been interested now for several years in the greening of capitalism and the drivers of the process. I was giving talks on the emergence of renewable energies as a prime source of power – and just five or six years ago it was still a heretical view renewables could play a major role in an industrial society’s power supplies.

Everyone knows the standard objections –renewables are unreliable and intermittent sources, they have no economies of scale, they suffer from excessive costs – all blown out of the water in just the last five years.

It was the role of China in this process which really became significant for me when I confronted the question: what kind of energy system should China be building? Wouldn’t it be reasonable it burn the same coal every other industrial country burned?

Yet people framing this argument knew if China were to do so, then it would be curtains for our industrial civilisation. So - how to get around this dilemma?

The breakthrough for me came when giving a talk and I was asked the question directly: what should China do?

At that point I realised you had to look at the problem from China’s perspective. I realised the harder you look at China’s energy problems (and its wider resource problems) the more you realise a green solution is the only one on offer.

This led me to gather as much data as possible on China’s energy (and resource) choices – working on my own and in collaboration with Dr Hao Tan. This is of course how social science is supposed to proceed – you formulate a problem, or issue, you examine the evidence and then frame hypotheses or theories which help to explain the problem.

In this case I reasoned China is moving so relentlessly towards renewables and a circular economy because otherwise it would run into disastrous geopolitical limits – it had no alternative.

Astounding

Three charts tell the story of this astonishing change succinctly. The first reveals the amazing shift in manufacturing value-added towards the east – to China.

It is produced by the OECD Development Centre, and reveals how manufacturing value-added has moved steadily from the rich world – OECD members – to non-OECD members (for which, read China). This is the driver of the energy transformation.

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The second chart reveals how China has powered this vast shift in manufacturing – initially with a gigantic shift to coal power, just like every other industrialising power preceding China’s rise.

The chart shows how China became the world’s largest generator of electric power, utilising largely coal – with an inflection point clearly visible in 2001, when China joined the WTO, and declared effectively that it was ‘open for business’.

The chart also reveals how unprecedented levels of pollution have led to serious efforts being made to cut back on coal burning in the last three years. But it is not enough to simply cut back on burning fossil fuels.

It’s also necessary to build new energy systems based on renewables – led by energy systems drawing on water (hydro), wind and sun.The second chart reveals how China has powered this vast shift in manufacturing – initially with a gigantic shift to coal power, just like every other industrialising power preceding China’s rise.

The chart shows how China became the world’s largest generator of electric power, utilising largely coal – with an inflection point clearly visible in 2001, when China joined the WTO, and declared effectively that it was ‘open for business’.

The chart also reveals how unprecedented levels of pollution have led to serious efforts being made to cut back on coal burning in the last three years. But it is not enough to simply cut back on burning fossil fuels.

It’s also necessary to build new energy systems based on renewables – led by energy systems drawing on water (hydro), wind and sun.

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The third chart reveals how rapidly China’s electric power system (as proxy for the whole economy) has been greening.

 This chart follows the proportion of electric power generated using renewable sources – water, wind and sun – from before the year 2001 to the present. It reveals how China’s government made a clear choice in the years leading up to its joining the WTO in 2001 to swing towards coal (reducing the proportion of power generated from thermal sources to a low of 20 per cent by 2007) but then the proportion started to climb and it has continued to climb over the course of the past decade.

In this period China’s reliance on renewable WWS sources of power has increased from 20 per cent to 35 cent - an astonishing 15 per cent swing in a decade. This is a scale and speed of change unprecedented in the history of capitalism. 

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China’s enormous inroads into transforming from a black coal-fired economy into one powered by renewables is a strategic decision aimed to position the country as the leading global energy power – and it’s working.

China has already moved into a world-leading position in the manufacture of solar panels and overtaken the EU in investment in clean energy systems. Investment in clean energy as a proportion of GDP is already more than 1 per cent, compared with less than 0.3 per cent for the EU.

This shift enhances China’s energy security because all renewables devices are products of manufacturing – and manufacturing can be done anywhere (not just near oil or gas fields) and this plays to China’s strengths.

Speed & scale

The speed and scale of greening in China has never been witnessed before. While in the West we hear lots of rhetoric about renewable energy, China has simply got on with the job. At this rate, by the 2030s China will be more green than black.

Abundant evidence reviewed in Global Green Shift shows the global green transition is already underway. China knows too well the pitfalls of being dependent on fossil fuels imports – for example being drawn into disputes over claims to oil in West Africa – and this is driving the push into manufacturing its own energy.

When we probe the reasons it becomes clear China is not doing this for reasons of ideology, and certainly not as a gift to the world on account of fears of global warming.

China has discovered the inconvenient truth continuing with the fossil fuelled 'business as usual' approach would lead to insoluble crises involving oil wars, terror and geopolitical entanglements as well as a growing burden of polluted urban environments – all of which are avoided by going for the renewables option (to enhance energy security) and a circular economy (to enhance resource security).

What we see is a consistent, rational energy and resources strategy being implemented. You can already see how China is benefiting by becoming progressively less dependent on fossil fuel imports, as well as moving to world leadership in renewable-energy businesses, from solar to wind to energy storage.

Rising industrial powers like India, Brazil and South Africa are already looking to follow China’s lead, in this new ‘green growth’ model of development. These countries want to remove constraints to their economic growth.

They have seen how China is starting to reap the core benefits of energy security and resource security which come from letting renewable energy replace polluting energy from a finite source.

Taking note

Not all countries are taking note. Moves by US President Donald Trump to withdraw from investment in renewables will doubtless be music to China’s ears.

 Trump’s pledge to bring back coal mining jobs and rejection of renewables is handing China clear leadership in this area. What’s more, given China’s expanded R&D spending, you can expect China to dominate next generation product development, patenting, and standards setting.

Undoubtedly, these developments will further unsettle Silicon Valley in the US, which sees its future in electric vehicles, renewable energy, and batteries. Some sections of corporate America and members of the Republican Party have already expressed concern that backing away from investment in renewables could come at enormous economic cost to the United States.

While the US – and Australia – continue a debate about the best energy mix it’s evident China has already made a commitment to seeking a green alternative on a global industrial scale.

China sees its industrialisation process is being stalled by local pollution and geopolitical complications, and a green alternative is the only available option to guarantee energy and resource security. In my view this will become the new global norm in the twenty first century.

What then should be the response to these amazing developments in Australia? Obviously in the first place it means our famed fossil fuel exports to China have a short life in front of them.

As countries like India swing behind the China model, so they will become diminishing export markets for Australia’s coal exports as well. Our long resources-led boom is evidently coming to an end – and we have to make the effort to find an alternative business model for the country.

Emulating China’s swing towards a green economy would be a smart way forward. It would build on Australia’s abundant renewable-energy resources – sunshine and wind in the first instance, plus hydro power – and on long traditions of being a world leader in renewable-energy research.

If we are even smarter we would emulate China’s pattern of formulating clear medium-term industrial goals and then directing investment towards fulfilment of these goals.

China does it through its five-year plans. India likewise does it with its own five-year plans. Even liberal democracies like Brazil and Chile do it in the energy sphere with medium-term energy projections which then guide investment.

Australia should likewise meet the challenges posed by China’s rapid industrialisation and the opportunities it generates. This can be achieved forging new energy technologies and refining existing ones, as well as building companies which can work with Chinese renewable-energy giants to export them to China and to the world.

John Mathews is professor of strategy at MGSM, Macquarie University. His most recent book is Global Green Shift: When Ceres Meets Gaia.

This essay is a part of the Disruptive Asia project by Asia Society Australia. Disruptive Asia examines how Asia’s rise is changing Australia, and how Australia is responding.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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