As China’s reported number of coronavirus cases hovers close to zero and the country begins charting an ambitious economic recovery, one question emerging is how the pandemic affects China’s outlook for energy and climate change. The National People’s Congress, which took place last week following a two-month delay, broke with tradition in not announcing a 2020 growth target for the economy, and likewise, China’s top planning agency, the National Development and Reform Commission, has declined to set an energy intensity reduction target for the year due to ongoing global economic uncertainty.
The three biggest producers of greenhouse gases - the European Union, the United States, and China - are signaling quite diverging paths about how green a stimulus and clean energy investment plan might be. How is China considering carbon-intensive industry to restore economic growth? How is it thinking about the role of oil and gas, its relationship with the U.S. and its trade deal, and its leadership in the global climate arena?
In this edition of Columbia Energy Exchange, host Jason Bordoff is joined by two Center on Global Energy Policy experts, David Sandalow and Erica Downs, to discuss these questions.
David Sandalow is the Inaugural Fellow at the Center on Global Energy Policy and co-Director of the Energy and Environment Concentration at the School of International and Public Affairs at Columbia University. He directs the Center’s U.S.-China Program and is the author of the Guide to Chinese Climate Policy. Last fall, he was a Distinguished Visiting Professor in the Schwarzman Scholars Program at Tsinghua University in China. David came to Columbia from the U.S. Department of Energy, where he served as Under Secretary of Energy (acting) and Assistant Secretary for Policy & International Affairs. Prior to serving at the Department of Energy, David was a Senior Fellow at the Brookings Institution. He also served in the White House and as an Assistant Secretary at the U.S. Department of State.
Dr. Erica Downs is a Senior Research Scholar at the Center on Global Energy Policy focusing on Chinese energy markets and geopolitics. Erica previously worked as a senior research scientist in the China Studies division of the CNA Corporation, a senior analyst in the Asia practice at Eurasia Group, a fellow in the John L. Thornton China Center at the Brookings Institution, and an energy analyst at the Central Intelligence Agency. Erica holds a Ph.D and M.A. from Princeton University.
For more on Covid-19 and China's energy outlook, check out a new commentary from CGEP's Kevin Tu, COVID-19 Pandemic’s Impacts on China’s Energy Sector: A Preliminary Analysis.
Jason Bordoff: Hello and welcome to Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University. I’m Jason Bordoff. As China’s reported number of Coronavirus cases hovers close to zero and the country begins charting an ambitious economic recovery, one question emerging is how the pandemic affects the outlook for energy and climate change in China. The National People’s Congress, which took place last week following a two-month delay, broke with tradition in not announcing a 2020 growth target for the economy. Likewise, China's top planning agency, the NDRC has declined to set an energy intensity reduction target for the year due to the ongoing global economic uncertainty.
With the three biggest producers of greenhouse gases, the EU, the U.S. and China, signaling quite diverging paths about how green a stimulus and clean energy investment plan might be, I wanted to learn more about how China is considering carbon intensive industry to restore economic growth, how it’s thinking about the role of oil and gas and it’s supply and security outlook for oil and gas, its relationship with the U.S. and its trade deal, and its leadership in the global climate arena. Well, thankfully, I'm lucky to call two of the top experts in this field close friends and colleagues at the Center on Global Energy Policy, David Sandalow and Erica Downs.
David Sandalow, is the Inaugural Fellow at the Center on Global Energy Policy, he is Co-Director of the Energy and Environment Concentration at the School of International and Public Affairs at Columbia University. He directs the Center’s U.S. China Program and he is the author of the Guide to Chinese Climate Policy, a fantastic resource you can find on our website. Last fall, he was Distinguished Visiting Professor in the Schwarzman Scholars Program at Tsinghua University in China. David came to Columbia from the Department of Energy, where he served in several very senior level roles prior to that, he was a Senior Fellow at Brookings. He also served in the White House and as an Assistant Secretary at the U.S. Department of State.
Dr. Erica Downs, is a Senior Research Scholar at the Center on Global Energy Policy focusing on Chinese energy markets and geopolitics. Erica, previously worked as a Senior Research Scientist in the China Studies division of the CNA Corporation, a Senior Analyst in the Asia practice at Eurasia Group, a Fellow at the Brookings Institution, and an Energy Analyst at the CIA. Erica holds a PhD and an M.A. from Princeton University. David and Erica, thank you for joining us today on Columbia Energy Exchange.
David Sandalow: Great to be here Jason.
Erica Downs: It’s great to be here.
Jason Bordoff: Well, this is fun, because again we have lots of people on this podcast all the time, but when there are important things to understand and talk about in the energy and climate world, one of the privileges in working at a place like the Center on Global Energy Policy is getting to learn about it from our own colleagues, as we do on pretty regular basis, and then to share that expertise and insights with a much larger group of people.
So, I think, many people, including myself have been very interested in understanding how what’s happening in the world, including not limited to, but including, obviously the COVID-19 pandemic, how that’s changing and impacting the way people think about the energy and climate outlook, what that might mean for recovery policy, stimulus spending, the sense that things could be different in the future with that kind of clean skies we saw over cities, including Beijing. Few, if any, countries are more important to the outlook for emissions, to the outlook for energy demand than China, largest emitter, largest consumer of energy, so I really was excited to have you both on the podcast to talk about that today.
So, a lot of ground I want to cover, probably won’t have enough time, hopefully we can continue this conversation, but let me start on this topic of the impact of COVID-19 on China’s energy and climate outlook. The China program at the Center on Global Energy Policy, which you direct David just released a paper in the last day or two by our colleague Kevin Tu based in Beijing, looking at that question. Can you just, first our listeners hopefully should go to the website and please read the paper, it’s really well done. But, help people understand what the key takeaways from it are and where China stands kind of in the reopening, after its own experience with the pandemic.
David Sandalow: Right, it’s a great paper Jason, I recommend everyone that’s interested in these topics goes and looks at it and, you know, it starts with some of the basics on China and just for those who aren’t familiar with this, because you said China is the largest energy producer in the world, largest energy consumer in the world, largest greenhouse gas emitter, it imports more oil than any other nation, has twice as much wind power and three times as much solar power deployed as any other nation and uses more coal than the rest of the world combined. And so, it’s obviously a central country when it comes to global energy markets and climate change.
COVID-19 had a very substantial impact on Chinese economy and Chinese energy sector. For the first time in more than four decades of the Chinese economy suffered a loss in GDP, a quarterly loss in GDP in the first quarter of 2020 with about a 6.8% loss according to official statistics. And that was reflected in what we saw in the energy sector, power demand dropped about the same amount, and emissions dropped about 8%, CO2 emissions during that period and Erica has really been looking at the oil and gas statistics, I'll let her talk about that.
But we’re starting to see a comeback right now in China. In April power demand was actually up 1% as compared to the same period a year before and then interestingly, in May, we've seen big changes in transport data, mass transit, subways and then traffic in between cities and China’s extensive train network, is down by 50%, very striking, but traffic congestion -- traffic congestion is up by about 10% to 50% in a lot of cities, so we’re starting to see shift, big shift from mass transit to personal vehicles.
Jason Bordoff: Traffic -- sorry, traffic congestion is up relative to pre-COVID or relative to the same time like even where it should be at this time of year, it’s higher than?
David Sandalow: That’s correct, yeah, year-over-year, that’s right, yeah.
Jason Bordoff: Which I presume is connected meaning we may see actually as much of a hit to oil demand as the pandemic caused, in the rebound you may actually see some things that cause oil demand to get a boost, including the fact that people in urban cities may wish to be in their own vehicles, rather than crowded mass transit. Is that, Erica on the oil and gas, kind of -- impacts of all of this, what you think we're seeing?
Erica Downs: Yeah, so, with oil and gas there is a demand story and there’s also a domestic production story. When we look at domestic demand, I agree that a personal preference to travel in a private vehicle versus on mass transit is supportive of oil demand along with an easing of travel restrictions in China. As of April of this year, China’s oil demand had recovered to, you know, about 90% of pre-COVID levels and by that, I mean, 90% of where it was at in April 2019. That said, because China’s oil demand took such a big hit earlier this year, especially in February, most of the projections I'm seeing for where China’s oil demand will be for the full year of 2020, as compared to the full year of 2019, is that we are likely to see a decline.
Turning to oil production, there it’s actually been a growth story but if you look at China’s oil output for the first four months of this year, it’s actually up 2% compared to where it was over the same period in 2019. And a lot of that, I would chock up to the big effort put in last year to grow domestic output in response from instructions from President Xi Jinping.
Jason Bordoff: And sorry, just I mean, I want to make sure I understood, when you said on the demand side, we’re seeing a recovery but not all the way to where we were before the pandemic.
Erica Downs: Yeah, we’re seeing a recovery, we're not quite, you know, the April, the number for April 2020 is about 90% of the number for April 2019. I expect we’ll continue to see oil demand recover throughout the year, but because of the really big hit it took earlier this year with a 40% drop in February, data -- the demand number for the full year 2020 is going to be below what it was for full year 2019.
Jason Bordoff: And David, I mean, I thought Kevin’s paper was very useful in providing some of the most up-to-date data, helping people understand how quickly energy demand was recovering but what's I think even more interesting is thinking about which of those trends might persist and how might the longer term outlook look different if at all, even once we’re beyond this pandemic whenever that might be, until at some point hopefully, we’ll have the public health issue under control where people can begin to take mass transit again and that may start to go back to some of the trends we saw before. I think one of the points he makes in that paper talk -- but tell me if I understood it right, was that -- concerns the significant hit to the economy from the public health response which was to put people on lockdown, that could have pretty significant impacts for how China start -- how China restarts the industries and parts of the economy it focuses on for GDP growth and possibly the ambition of its own climate and environmental policy, is that – what’s your read on that?
David Sandalow: I think, that’s right and I think these are trends that actually predated COVID-19. I think, even in 2019 we were seeing significant concerns about the economy from Chinese leaders and that led to a focus on energy security and a different tone on coal in particular than we had seen before. Back on the 2015, 2016 period we saw real focus on the air pollution impacts of coal and last fall much more focus on how do we develop coal, often the discussion of how you do it cleanly, but still a focus on coal development and I think, COVID-19, Kevin is exactly right has accelerated those trends and we saw for example in the speech that was, the Premier -- Premier Li Keqiang gave at the opening of the National People’s Congress in May, which is somewhat similar to the State of Union Address, it’s an annual speech that’s given every year in China by a top leader.
There was discussion of coal development, there was no mention of climate change which is different than in prior years when climate change had been mentioned.
Jason Bordoff: And you would attribute that to concerns about this perception that there’s a tradeoff between dealing with the environment and growing the economy that motivates that?
David Sandalow: At least, I think, for China’s leaders, I mean, just one point, it’s clear, I mean, they aren't climate deniers in the Chinese government, at least none that have any influence on policy. The Chinese government is very clear that it accepts the global consensus on the science of climate change, it’s committed to green development, but particularly in the past year or two it seems like there was a trend towards other issues having higher priority.
Now, there was some discussion of green stimulus measures in a number of different speeches from top leadership. The leadership is talking about a significant stimulus package, not as big as in 2009, but still significant package and talking about "new infrastructure" and new infrastructure I think is intended to be something different than the heavy concrete manufacturing type stimulus that was done back in the last -- in the 2009 recession, but instead more high-tech investments in those specifically or include electric vehicle charging infrastructure, high voltage transmission lines, mass transit and other things that are potentially pretty green developments.
Jason Bordoff: I have seen some reporting that suggest China may be looking to carbon intensive heavy industry which had been a pretty substantial driver of its growth in the last decade to drive GDP growth moving forward. Is that what you see David and that could that come at the expense of climate goals?
David Sandalow: I think it's possible it could come with the expense of climate goals, and I think there was a trend, a secular trend in the economy towards the service sector and away from heavy manufacturing in China now and I think that would probably continue, but to the extent that economic recovery is a priority there may be a reversion to reliance on heavy manufacturing.
Erica Downs: I was just going to jump in on the traditional versus new infrastructure issue and I just wanted to add that it’s likely to vary by province and region. I think the different local governments in China are certainly all aware that new infrastructure is a priority for the government and so to the extent they have things that they can do in this space, they will look to do that, but then there might be other parts of the country that feel that the best way for them to grow GDP and to maintain employment is through some of these more traditional infrastructure measures and here, some of the coal rich provinces that have recently had new coal power plants approved come to mind. So, I think it’s going to be a mix and it’s going to vary province by province.
David Sandalow: There’s one positive, I think it’s worth mentioning on the clean energy front that you’re exploring here Jason. In the first quarter of this year as total power demand dropped by about 7%, solar power generation actually increased by 12% in China. It's pretty striking contrast and I think that’s the result of 30 gigawatts of new solar panels that were deployed in China, leading the world last year and also power sector reforms so that -- there are now rules in place in China, really different than a few years ago, that are dramatically reducing the amount of curtailment of solar power and bringing solar power into the grid before coal power. So, that even as these trends we’re talking about are happening, I think there is a real commitment to deploying clean energy in China today.
Erica Downs: And just on that point, if you look at the government work report presented at the National People’s Congress meeting, there is a section on energy security and the top two items in that section are one, support for the use of clean coal technologies and then the number two item mentioned is support for the deployment of renewable energy. And so, I think this nicely captures what David was speaking about, which is that the government is sort of on the one hand balancing support for the coal industry which employs a lot of people on the one hand with underscoring its continued commitment to greening the power mix.
Jason Bordoff: Yeah, so what should we make of that? I mean, I think, you can talk about how they’re trying to balance those competing concerns, at the same time climate math is kind of unforgiving. We have a carbon budget and it is what it is, so if China is investing heavily in clean energy, renewables, electric vehicles and as you said, I think at the National People’s Congress, there was a push for that. But at the same time continuing to develop new coal plants both at home and abroad and we’ll come to the Belt and Road Initiative in a minute, that seems like it should be a source of concern for how we think about long term climate goals, is that fair David?
David Sandalow: It sure is. It’s a source of huge concern and no major emitter is doing enough in the world today and China is the world’s largest emitter of greenhouse gases unless we see significantly different trends in the decades ahead, we are going to be in trouble. That’s true for China, that’s true for the United States, it’s true for other major emitters so the world needs to change course and China of course is a central part of that.
Jason Bordoff: I mean, just, when they say clean coal, are they talking about local air pollution or are they talking about carbon capture projects with their coal plants?
David Sandalow: There's only a beginning of work on carbon capture right now in China, so what we’re talking about is very efficient coal plants and to be clear, the new power plant construction that’s going on in China is extremely efficient production of coal, I mean, far more efficient than the coal plants we have in the United States, I mean, dramatically so. But still, it’s emitting carbon dioxide as you suggested a moment ago if we’re building new power plants today, they're going to last for 40 years, even if they’re super efficient, it’s causing a huge problem for the global climate.
Jason Bordoff: So, what do you think, I guess at the end of this -- so talk about, you mentioned kind of the efforts to rejuvenate economy what’s broadly called -- you know the economic recovery efforts going on in the U.S., Europe and China and elsewhere. There was an active discussion probably more in Europe than anywhere else about what would be called a green recovery. How active is that conversation in China and what do you think of that and then pivot to, what I think, early next year we'll see in the next five year plan come out which is very important for the trajectory China would presumably be on, what you expect we’ll see there including with coal-fired generation capacity. David, let me turn to you first.
David Sandalow: Well, so first on green stimulus, I would say that there is more discussion of green stimulus today in Beijing than in DC but less than in Brussels. It’s -- it is on the agenda mentioned a few minutes ago, some of the items that they’re talking about, which include investment in electric vehicle charging infrastructure and mass transit. President Xi Jinping actually visited a nature reserve and sent signals about the priority that this is going to receive.
But time will tell, how much investment and attention it actually gets. You mentioned the 14th five-year plan, that’s an extremely important policy process that’s underway right now. In fact, I might go so far as to say there is no policy process on the planet today more important for climate change than the 14th five-year plan. These five-year plans are very influential in Chinese policy making and the process of devising the one that’s going to go from 2021 to 2025 is underway right now.
And we don’t have any announcements out from government agencies or the state council about what the energy targets are going to be, but that process is under consideration. There is lobbying right now by some industry groups to increase the target for coal-fired power plant capacity. Right now, the limit is 1100 gigawatts which is about the capacity of the entire U.S. electric system and that’s for coal-fired power plants. There is an argument from industry groups in China that that should be increased to 1300 gigawatts. We don’t know whether or not the – China’s government will accept that. If they do, that would not be a positive signal for global climate change trends.
Jason Bordoff: And Erica, what are the key energy issues you are looking for in the five-year plan that you think will be most important in terms -- for the reasons David talked about?
Erica Downs: So, the top issue, I will be looking for is the one that David just spoke about which is what does the Chinese Government do about the cap for coal-fired power generation. I would not be surprised to see an increase in that cap if the Chinese Government assesses that they can allow that increase and still meet their commitments to the Paris Agreement. Beijing takes that very seriously so, I do not expect them to set a coal path that would jeopardize their ability to meet that commitment, so, that’s one issue I’m looking for.
The second issue that David also mentioned is this idea of new infrastructure that the Chinese government had been pushing prior to the National People’s Congress and I think this could play an important role in determining how green China's economic recovery is in part, because does it stimulate a lot of new investments in EV charging, does it stimulate a lot of new investment in ultra-high voltage power lines especially if they are going to carry power generated from cleaner sources of energy.
And then another issue I’m looking at, a third issue that, some actors in China, I think will be pushing to put under the new infrastructure umbrella is the construction of natural gas storage. One of the reasons we’ve been seeing the Chinese government express greater support for the use of clean coal over the past year is because they are aware that China does not have the midstream infrastructure especially the natural gas storage capacity to support a wholesale switch from coal to natural gas for winter heating in North China. So, filling that infrastructure gap is something that they are working on and I expect that to also feature in the 14th five-year plan.
Jason Bordoff: And is that -- if I remember correctly, they created a new national pipeline company in December, was that connected to what you just talked about which is the effort to figure out how to expand the infrastructure?
Erica Downs: It is connected to it, the main reason Beijing is setting up this company is because they see it as a linchpin in their efforts to develop more competitive upstream and downstream markets. One of the things that this company is going to do is not just operate China’s major -- midstream infrastructure, but also to help finance the construction of new infrastructure and so, natural gas storage is going to be one of the types of infrastructure that I expect to see them support.
Jason Bordoff: David the role of natural gas in the energy transition, of course is one that is --looks different in different parts of the world, is controversial to different degrees in different parts of the world. Natural gas relative to coal delivers a lot of local pollution benefits and on a climate standpoint, you’ve got to control methane emissions and then it’s still not obviously zero carbon. Can you talk in -- from the standpoint of China meeting climate and environmental challenges, how they think about and how they should think about the role of natural gas and I presume that’s also different for different sectors?
David Sandalow: Yeah. The dialogue on this topic is just strikingly different in Asia, than it is in Europe and North America. In Asia and in China in particular natural gas is backing out coal and so, to a first order of approximation there is about a 50% benefit from carbon dioxide emissions and huge benefits on local air pollution, as you just said the important qualifier is that depends upon leakage rates and to the extent that, when this natural gas leaks that short-term climate change benefits are significantly reduced.
And there is some data, not very good data about what’s happening in China, with leakage on this and so, I think as China transitions from coal to natural gas particularly for heating in Northern China and that’s an important trend, as Erica is saying that is underway with the enormous local air benefits, it’s really important for the leakage issue to be addressed.
Jason Bordoff: And, tell me if this is right, I guess, when we in the U.S. think about coal to gas switching, we are talking about the power sector and then of course you can look at renewable energy and how much the cost of renewables has come down, but what Erica just said a minute ago is there as much probably even more, you’re talking about heating, going from coal to gas and it is harder to go from coal to renewables without electrifying all of heating which is not an easy thing to do.
David Sandalow: That’s exactly right. And then, a related point Jason, is that in China about, somewhere between 40 and 50% of greenhouse gas emissions are actually from industry. It’s very different, in the United States, probably 20% and so, it’s the industrial sector where a lot of this coal is being consumed and some of that usage can be replaced with natural gas, because some of it is for generating heat, but then there’s other industries including iron and steel where it’s just much more challenging to backup coal.
Jason Bordoff: David you mention -- I'm sorry, Erica mentioned the Paris Agreement a moment ago and we have an important next step in that process happening roughly, little over a year from now, I guess it’s been delayed to November of 2021, the meeting in Scotland to take stock of where people are in their commitments, this obviously connects to everything we’ve been talking about, the green recovery, the five-year plan. Talk about what you think China’s posture will be and how different will that look depending on what happens in the U.S. presidential election in November?
David Sandalow: Well, the Chinese government is deeply committed to the Paris process. When President Trump withdrew from the Paris Agreement, President Xi Jinping gave a couple of speeches actually including a high-profile speech in Davos that -- in which he celebrated multilateralism and made clear that China was committed to this process. Exactly how they play I think will be in part a function of how the United States plays in this process and I think that will obviously be completely different depending on who is president in 2021.
I think if there is a Biden administration that their -- U.S.-China relations overall will still be very challenging in Biden administration. I think the --
Jason Bordoff: There seems to be bipartisan agreement on, not many things, but one is, we need to take a tougher line towards China, is that fair?
David Sandalow: Well said and Vice President Biden has made clear that that’s his view. There's a number of issues including intellectual property and technology transfer issues and the new security law in Hong Kong on which there are very strong views on the part of Democrats, as well as Republicans. I think the approach should be different, I think Vice President Biden will seek to restore alliances with our allies that have withered a bit in this administration and the approach would be different, but I think still there will be a lot of challenges with the China relationship.
But I think the -- one huge difference will be on climate change. I think -- my guess is that a Biden administration would want to reach agreement with China on issues of global threats like climate change and pandemics, that won’t be easy. I think it will be very challenging to get to an agreement, there’s huge friction between the two countries, nationalism in both countries that will make it very challenging to reach agreements. But I think at least there will be desire to get to yes. -- Sorry, just to your question about the Paris process that in turn would be very influential in terms of the negotiations leading up to COP26.
Jason Bordoff: Yeah, I was going to say, because I think few people have the perspective you do having been at bilateral relations, U.S.-China, and international climate negotiations at such a high level. The question, it sounds like you’re saying, will be whether the U.S.-China climate bilateral relationship can be segmented from the rest of the U.S.-China bilateral relationship which is going to be in a pretty bad place, is that fair? It sounds like you’re saying, maybe, but it won’t be easy?
David Sandalow: That’s exactly right. I think in the beginning, and during Obama administration there were a number of extremely difficult issues that the U.S. and China were sorting out, some very, very strong disagreements, but I think the two countries saw climate change and some other global issues as places where they could reach common agreement that would help to stabilize the relationship overall and so, I think there’s a priority attached to those issues both for the sake of the U.S.-China relationship and for the sake of the global issues that were being addressed.
I think that dynamic would reappear, but I think it would be hard. I mean on the U.S. side, I think there would be a lot of suspicion of any agreement that was reached with China. And on the Chinese side, I think there is an increasing view among Chinese thought leaders that the United States is not reliable, and broadly and then specifically on climate change. I think questions would be asked about whether the United States could follow through on any commitment that it makes as part of such a deal.
Jason Bordoff: And I get -- Erica, let me turn to you. One of the areas obviously, where there’s particular tension and a challenge in the relationship is on trade. We also saw this trade deal between the U.S. and China in early January, energy is a pretty important component of that, but it seems like that’s not -- the ability to meet that -- those targets are not looking great right now either, is that right?
Erica Downs: Yeah, that’s correct. That due to the hit that China’s demand took earlier this year as a result of COVID-19 and as a result of the collapse in crude oil prices, these targets, which looked very ambitious at the time, the deal was signed back in January, do look like they’re going to be impossible to meet today. I suspect that there is a recognition in both Beijing and Washington of this fact and, in terms of what’s going on in China, I suspect there is an interest in seeing the phase one trade agreement stay in place and a hope that if China continues to increase purchases of U.S. crude oil and LNG, and we have seen some cargo being sent to China this spring, that that will be enough to convince the Trump administration that they are doing their part to live up to this agreement. And on that point, I do want to note that U.S. Trade Representative Robert Lighthizer did make a comment to that effect earlier this week, when he said that things were moving along and that China was honoring its commitments, part of that may have been a response to the fact that China did agree to increase agricultural purchases from the U.S. earlier this week.
And my sense of having listening to President Trump talk about this agreement, over the past month and years is that for him the agricultural purchases are arguably the most important purchases that the Chinese can make.
Jason Bordoff: It does seem David, tell me if you have this perception too, that while trying to meet those trade obligations may be important, energy security and diversification is also very important in China, perhaps even more so in the wake of all of this. Do you want to heavily rely on a partner with whom you have such tensions? And so, increasing energy ties between say China and Saudi Arabia, China and Russia, we’re seeing some trends in that direction too.
David Sandalow: Yeah, that’s exactly right. And I think the only point I would add Jason, is that you wrote an excellent article about this in Foreign Policy and I recommend that everybody go track that down and read it.
Jason Bordoff: Thank you for the publicist shout out, I appreciate it--
Erica Downs: I also second David’s recommendation, and I just wanted to jump in on the diversification issue and make two points. One is that I would say that a number of events that have occurred over the past year, to include U.S.-China tension over trade, U.S. sanctions on countries such as Iran and Venezuela, which have been important crude oil suppliers to China, and in the past, the attack on Saudi oil infrastructure, all of these things have really underscored for China, the importance of having a diversified portfolio and not relying too much on any one energy – any one partner.
I do think U.S. crude and LNG does have a role to play in diversifying that portfolio. Certainly, before the trade war began, Chinese purchasers of U.S. crude and LNG were talking about the important role that these energy imports could play in diversifying China’s energy mix away, in particular, from the Persian Gulf. That being said, I want do -- would underscore that China does not want to be too dependent on any one country and then in the case of the United States with uncertainty about whether the trade war -- that sort of runs counter to the need to ramp up purchases to fulfill this agreement.
Jason Bordoff: Just quickly on LNG, in order for some of these new projects to move forward, whether it’s in the U.S. or elsewhere in the world, the question is whether there will be demand for contracts that will help provide the financing for this. Do you see China, with such low natural gas prices right now in Asia, are they -- do you see signs they might use that to sort of lock in some long-term supply commitments? Erica, have you -- I know our colleague Erin Blanton has looked at that, do you have a sense of that or not?
Erica Downs: I think one of the key issues here and certainly for the big three national oil companies in China is, do they feel that the political environment is the right one for signing long term contracts. My sense is that for the companies, a lot of this has to do with the uncertainty again as I mentioned, over the trade war and with their tariffs, are things are going to fall apart and is Beijing going to feel compelled to slap a 25% tariff back on LNG?
And then, I would think for the Chinese government, there is also a concern about this is one of the more sort of important tools that they have and that they know that the U.S. LNG industry had been looking to China to sign these contracts to support new projects and once they sign one of those contracts, does it sort of diminish the ability to sort of wield that tool in the future?
Jason Bordoff: We've talked so far really about the outlook for emissions, for energy use, for coal within China, David, and you both explained why that’s so important for the outlook for climate change. Perhaps as important is now, I mean what’s going on inside the China, but what China is doing with the energy infrastructure and energy sector globally through its Belt and Road Initiative, which still has a huge number of fossil fuel projects planned around the world despite growing calls and pressure to move those investments in a greener direction.
David, you’ve looked at this carefully, well you both looked at this carefully, but let me start with David, do you have a sense that pressure is having an impact and what do you see in terms of the plans that China has with Belt and Road, when it comes to energy infrastructure?
David Sandalow: I don’t think we know yet Jason and I would just second your statement on the importance of this. The Belt and Road Initiative is the largest infrastructure initiative in history, it’s by various estimates roughly ten times bigger than what the Marshall Plan was right after World War 2. It’s really the framework for a lot of China's foreign policy right now, originally was across Asia and parts of the Middle East, but now you even -- you’ll hear Chinese projects in South America discussed as Belt and Road Projects.
And more than 80% of the energy projects under the Belt and Road have been fossil-fuel projects and there are literally dozens of coal-fired power plants under construction around the world with some amount of Chinese support. There’s only three countries in the world today that provide public funding for coal-fired power plants, China, Japan and South Korea, and the overwhelming majority of that is Chinese funding.
And so, what China does on this is hugely important, because these coal-fired power plants are going to be around for decades once they’re built. There is growing international dialogue and pressure on this as you said, interestingly also in the context of the global recession right now and COVID-19, I think there’s an expectation that there may be difficulties for some of the recipient countries in repaying debt related to some of these projects.
And I think we don’t know what direction China is going to go on this, but I’m hopeful that there is going to be a change of direction, because it matters hugely for the climate.
Jason Bordoff: Erica, you -- a comment on that and then also, I’d love your perspective on the view of Belt and Road from some of the countries that are being invested in, the targets of investment. And you’ve done great work for us on the China-Pakistan economic corridor, but talk about the pull factors as well as the push factors largely in coal projects. Is that what these countries want or is there a desire to move in a different direction?
Erica Downs: So, I think you’re absolutely correct in that when it comes to explaining why a Chinese developed coal-fired power plant is being built outside of China. There is both a push factor from China in that the coal and the coal power sectors employ a lot of people and one overseas coal power plant can actually generate a lot of business for a lot of Chinese companies. But there’s also a pull factor from the host countries especially if they have a power shortages and are sitting on domestic coal resources that they view as a source of energy security.
And certainly, as you mentioned when I was looking at the China-Pakistan relationship, Pakistan had long sought to develop its domestic coal reserves for power generation and these efforts really predate the Belt and Road Initiative. So, in this case, there really was a meeting of the minds. This was not China having to twist Pakistan’s arm, that Pakistan who had been suffering from a lot of widespread blackouts at the time Belt and Road Initiative was launched and Pakistan’s Premier at the time was more than happy to sort of accept Chinese financing for coal projects in Pakistan. That being said, I do think that host country preferences can change and even in the case of Pakistan it looks like there, they have enough generation capacity now, they might even have a surplus of generation capacity.
We have also seen domestically in Pakistan it looks like more interest in bringing renewable projects online. And this is really positive for Pakistan because they have tremendous wind and solar resources. So, I guess my bottom line here has been looking at Chinese support for coal power projects overseas, obviously important to look at what China is doing and what can been done to change incentives there. But it’s also important to look at why some host countries want these projects and again what can be done to change incentives there and are there things they can do to push their energy mixes in a greener direction and I see David wants to say something here.
David Sandalow: I just would agree with everything Erica just said, and there’s one other point on the Belt and Road Initiative. There had been some very good initiatives announced in terms of energy efficiency and green development under the Belt and Road Initiative. There was an announcement of a green lighting initiative last year, hugely important development, also green cooling initiative, and so there is potential for the infrastructure and connectivity that’s built up under the Belt and Road Initiative to really advance green and clean development and that’s the stated goal of the Chinese Government. They have some policy documents that clearly say that this is the goal, but those are documents that just call for voluntary action, there’s nothing obligatory in them. But the infrastructure that’s being built up in the Belt and Road could be used for some very good purposes on this agenda.
Erica Downs: And so also just on this point of greening the Belt and Road, I did want to pick up on something David said, which has to do with the role of international pressure and dialogue. I am hopeful that this can play a positive role. China does not want to be blamed for warming the planet or melting the polar ice caps, for building all sorts of infrastructure that’s going to contribute to these problems, and so I think if there is -- so I think that that international pressure might be useful. And certainly if it comes with sort of suggestions like the one David just made to sort point out ways that things can be done under the Belt and Road umbrella by China are likely to have a sort of big positive impact on the global environment.
Jason Bordoff: So David, let me ask you about that, putting kind of your hat back on as a very senior government official, in addition to public criticism or to move in a greener direction, if countries, whether it’s in the U.S. or Europe or multilateral organizations are going to criticize the carbon intensive direction in which Belt and Road is headed, presumably there are -- one might want to put alternatives on the table as well, which countries that need investment to expand access to energy and grow their economies in South Asia and elsewhere. What would you be advising governments and multilateral organizations to be doing in that regard?
David Sandalow: Yes, it’s such an important point. At the top on my list would be working on the grid integration of renewable energy. And that kind of sounds like a wonky topic, but what that means is figuring out how to integrate solar and wind into electric grids because solar and wind have gotten so cheap, it is just extraordinary. The electrons that you get from those technologies are often cheaper than you get from coal depending on the location.
But obviously those are variable resources and you need special -- you need skills and know-how in order integrate them into electric grids and there is tremendous capacity for doing that, but I think that can be built up.
And then I think beyond that also, I’d focus on local air pollution issues and awareness of the health costs of local air pollution. I mean, it’s just astonishing the mortality that's associated with particulate matter in different places around the world and governments that build coal plants are committing their populations to illness from that over the course of decades and so, I think greater awareness of that really could make a big difference.
Erica Downs: I'm sorry, on that point, when I was looking into China's involvement in Pakistan's power sector and trying to answer the question of you know, why are so many coal projects being developed under the China-Pakistan Economic Corridor when Pakistan has tremendous wind and solar potential, one of the answers I came up with besides the strong push-pull dynamic with respect to coal is that Pakistan's grid is overtaxed and there were sort of some real concerns within the government there about the ability to integrate variable sources of power like wind and solar into the grid. So, this is just an example of where the first initiative that David was talking about would pay off.
Jason Bordoff: We're just about out of time, actually there's no set time to this podcast, so it's just something you say when you're getting ready to wrap up. But I appreciate how generous you’ve both been with your time and our listeners that are still with us too, but I did want to ask quickly not only coming back to the domestic outlook David, you were I think quoted in the Financial Times today talking about what we're going to see in China in terms of its implementation of an emissions trading scheme which has been pared back and delayed somewhat and that’s pretty important I think for pointing investments in a different direction, just can you elaborate a little bit on a short quote in the FT and tell people where that stands?
David Sandalow: Yeah. So, China has had emissions trading programs for carbon dioxide for eight years now actually. The first pilot projects were launched in provinces around 2013 and in 2015 President Xi Jinping committed to a National Program. It's been slow in launching and this year there's a plan to launch the emissions trading program in the power sector. When fully launched that would -- it would be the biggest emissions trading in the world. I think there are open questions about how important this is going to be in limiting emissions. We just don’t know yet. That depends upon the stringency of the cap and there's no announcement about what that’s going to be. It depends upon enforcement mechanisms. It depends upon power sector reform and how this relates to what's happening in that sector. So, it has the potential to be an important tool for limiting emissions, but at this point it's not clear it's going to be.
Jason Bordoff: And David, I think I also saw China put out a draft of a plan to halt investment in clean coal projects to green bonds to try to attract more foreign investment. Can you just say a closing word about that and how important that is?
David Sandalow: Yeah, I'm glad you asked about that Jason. It's an interesting announcement. So, this is from the People's Bank of China which is the Central Bank in China and it was actually the first Central Bank in the world issue green finance guidelines, but those guidelines included clean coal plants within a category of projects that are green, which is different than international standards and the announcement last week is a draft, but it proposes to change that and so clean coal would no longer be eligible. And that could be an important signal for the direction of the Chinese government and this -- it would be particularly important if this were applied internationally as well.
Jason Bordoff: Great, thank you. So, we are officially out of time now on the podcast that has no set duration, but I'm bringing to a close. That was a great conversation, thank you. Everyone listening now, I think can tell why it’s so much fun and such a privilege to work at the Center on Global Energy Policy, lunch conversations like this all the time, when we're able to have lunch in person which hasn’t been for a while. But we do have Zoom which is now so we have lunch virtually.
David Sandalow and Erica Downs, thank you for making time to be with us and for explaining what is happening in China and what that means for the rest of the world. Thanks to all of you for listening. Please join us again next week, follow us online at energypolicy.columbia.edu and on social media @ColumbiaUEnergy. Thanks again for listening. I'm Jason Bordoff. We'll see you next week.