Wasteful China?
Americans get a lot of grief for being inefficient with energy. We use a disproportionate quantity on a per capita basis, though when gauged as energy-per-dollar of GDP, the comparison looks much better and has improved by 20% since 1990. While there's clearly more that can be done in this area, recent reports suggest that improvements in China's energy efficiency might have a bigger impact, globally. As reported in a recent issue of Business Week, China uses vastly more energy per unit of output than Japan or the US. This wasn't a problem when China was an underdeveloped country, but in light of projections that it could pass the size of the US economy (on a purchasing-power-parity basis) in several decades, the long-term consequences of this trend would be disastrous for the whole world. China's continued energy demand growth at current rates could hasten a true global energy crisis.

The scale of the problem is significant. The World Bank has estimated that China's excess energy consumption costs it over $100 billion per year, and to the degree that it has helped push up global crude oil prices, it could easily be costing the rest of us another $100 billion annually. These kind of costs would justify some pretty substantial investments in efficiency.

Now, while I'm not suggesting we shouldn't worry about this, it does remind me of an analogous situation a few years ago. In the early 1990s, the combination of economic growth and an obsolete power grid made electric power supply in the Philippines seriously unreliable, particularly in the Manila area. In response, anyone who could afford them brought in diesel generators for backup--and sometimes primary--power at factories and office buildings, on a scale that distorted the demand for diesel fuel in the whole western Pacific. This went on for several years, and then just as companies were investing in refinery expansions to produce more diesel fuel, the market started to return to normal. Large investments had brought new gas-fired power plants and distribution capacity on line, and the diesel generators were shut down and sent elsewhere.

It's important to note that, although the diesel generators were much less efficient than the new power plants that replaced them, they made economic sense at the time, compared to lost factory production or office productivity. That fits the pattern of energy inefficiency we see in China today: making more widgets is more important than saving a few barrels of oil or tons of coal. But that won't always be the case. When the capacity to make widgets outstrips demand, efficiency will move up the priority ladder. And on a national level, China's leaders seem to understand this, as they busily line up supplies of LNG to fuel efficient, gas-fired power plants.

Since this transition will take time, if driven only by local economics, it's worth asking what the rest of the world can do to help it along. The connection between energy consumption and greenhouse gas emissions is an obvious place to start. Getting China to sign on for the next phase of Kyoto might thus benefit anyone that will be competing with China for oil and gas imports in the years ahead, even if others had to sign on to similar emissions reductions as a quid pro quo. Viewed in that light, the Kyoto process starts to look like a positive for US energy security, and China's relative inefficiency could be as much of an opportunity as a problem.

FYI, I'll be traveling for the next several weeks, and new postings will be somewhat less frequent.