Balancing energy security and climate change

Rapid economic growth in countries like China and India requires sufficient and cheap energy to ensure energy security. However, large incremental energy demand in these countries makes emissions reduction more difficult and costly. In fact, the economic structure of developing countries – with low energy efficiency, high energy consumption and high emissions – is one of the problems of their stage of development that is unlikely to change, even with “good” government policies in place.

Developing countries often struggle to find a balance between economic growth and efficiency. In China, for example, despite efforts to reduce energy consumption to a lower energy intensity in almost all government planning (central or local levels), we observed little or no impact on the economic and energy consumption structure. This is not to say that developing countries do not make an effort to reduce carbon emissions. Once the linkage between energy security and climate change is understood, however, we can more clearly see the difficulties and possibilities of reducing carbon emissions in developing countries.

Both climate change mitigation and energy security share the need for policy to encourage “all of the above” choices of technology, and there are no silver bullets in either domain. From the perspective of developing countries, their economic growth needs to be sustained by sufficient energy supply and simultaneously meet environmental constraints. With concerns over their growing addiction to foreign oil and increasing coal consumption, developing countries should have ample motivation to exploit new and clean energy in an effort to assure energy security and address environmental problems.

As such, developing new energy technologies and clean energy sources are a necessity for developing countries. The question is: what policies are needed to encourage “all of the above” choices of technology? Given developing countries’ emphasis on social stability and energy costs, energy prices are a very sensitive issue, often leading to contradictions in making policy choices between energy security and climate change.

China’s clean energy industry has experienced a stage of surging investment in the past few years. As of 2012, however, the industry has been affected by excess capacity, the European debt crisis and investigations launched by the United States and Eurozone. Development of clean energies such as solar and wind shows signs of an extended downturn, and their future prospects have become an important concern. To mitigate this downturn, the government and clean energy enterprises need to re-evaluate their development strategy and control their market risks.

“Smart globalization” that encourages the transfer of clean energy technologies between countries is essential for clean energy development. Ideally and with the right globalization processes and related policies in place, developing countries’ huge clean energy market could provide clean energy industries with sufficient space for development and offer adequate profit margins for clean energy technologies.

Author: Lin Boqiang Associate Dean, New Huadu Business School, Chang Jiang Scholar Professor and Director of the China Centre for Energy Economics Research, Xiamen University. He is also a Chair of the World Economic Forum’s Global Agenda Council on Energy Security.

Image: A man walks through solar panels at a solar power plant in China. REUTERS/Stringer China