Center for American Progress

China’s Energy Strategy: A Lesson for the United States?




The debate over Chinese oil company CNOOC’s bid for American oil company Unocal has brought the national security implications of energy consumption into sharp focus. In order to satisfy rising demand at home, CNOOC is looking for energy assets abroad, including an American company and its global reserves. Lost in the heated discussion of the bid is an examination of how the purchase of Unocal fits into China’s overall energy policy.

Even as China tries to advance its energy interests abroad, it is taking steps at home to manage its demand. The efficient use of oil and the use of oil alternatives where possible are two key planks of the Chinese government’s oil strategy outlined in November 2002. To that end, they have initiated new fuel economy standards for cars and trucks sold in China. The first phase of the standards went into effect this year and range from 38 miles per gallon for the lightest cars to 19 miles per gallon for heavier trucks. In 2008, the standards will increase to 43 miles per gallon and 21 miles per gallon, respectively. Because the Chinese standards apply to each individual vehicle, rather than a vehicle class average as in the United States, American automakers may struggle to sell their vehicles, especially oil thirsty trucks, in the Chinese market. China is not stopping with efficiency requirements. They are also purchasing hybrids from abroad for immediate use and developing their own hybrid and fuel cell designs and manufacturing capabilities for the future. Already one of the largest markets for alternative fuel vehicles, they are the third largest ethanol producer in the world and are committed to expanding their fleet of natural gas- and biofuel-powered vehicles.

In the electricity sector, the Chinese government has pursued energy efficiency standards since 1989 and late last year announced ten programs to improve energy efficiency in buildings and industries. They have identified three major ways to reduce the burning of coal for electricity – improve the efficiency of coal plants, put otherwise wasted heat to work in combined heat and power systems and construct new buildings that cut energy consumption in half. Concerned about global warming and recognizing the potential of the clean energy market, the Chinese government has recently committed to increasing its renewable energy use from the current level (less than one percent) to 10 percent by 2020 and has signed an agreement with the World Bank to reduce its greenhouse gas emissions over the next 20 years.

Whether or not you like the implications for the United States, China has developed a comprehensive energy strategy that addresses both supply and demand – unlike the president’s energy plan and the one before the congressional energy conference committee this week. House and Senate energy conferees are more likely to block CNOOC’s acquisition of Unocal than they are to support increasing the fuel economy of cars and trucks sold in the United States. Tax incentives for more efficient vehicles and support for renewable fuels are included in both versions of the energy bill, but even with these provisions neither bill would do much to decrease oil demand or significantly shift the United States to alternative fuels. The Senate bill contains tax incentives that would encourage significant increases in the energy efficiency of buildings across the country and a renewable portfolio standard that would require 10 percent of our electricity to come from renewable sources by 2020 – the same requirement the Chinese have adopted. For the first time, a majority of senators endorsed language regarding the threat of global warming and the need for mandatory greenhouse gas emission limits. Although the renewable portfolio standard and global warming language are first steps in a cleaner and safer American energy system, neither provision is guaranteed to become law.

CNOOC’s bid for Unocal may create national and energy security problems for the United States, but so does the unwillingness of the Bush administration and congressional leadership to take actions that would curb our oil consumption and reduce our greenhouse gas emissions. Their inaction is especially reckless in light of the Department of Energy’s 2004 analysis that global oil reserves are being depleted three times faster than they are being discovered and more recent warnings from the Organization of the Petroleum Exporting Countries (OPEC) that within a decade they will be unable to meet projected global oil demand. Historically optimistic about their ability to provide oil for the world, the change in OPEC’s tone should underscore the serious nature of declining oil reserves.

As the world’s two biggest energy consumers and greenhouse gas polluters, there are opportunities for the United States and China to work together rather than at odds on energy issues. As a Chinese official said recently, "Anyone who helps China with energy is a friend." Collaboration – not confrontation – on energy efficiency, renewable energy, and reduction of greenhouse gas emissions would not only benefit both countries, but also the rest of the world.

Ana Unruh Cohen is the associate director for environmental policy at the Center for American Progress. Katie Towt is a student at Cornell University.




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