consumers to pay for higher-quality carriers that
are cleaner and more flexible than existing fuels
such as coal.
Consumer demand for energy tends to shift
from quantity to quality as incomes increase, and
China is likely to cross this inflection point in the
near future. The shift from quantity to quality
involves a plateauing of service demands and
increasing use of higher-quality fuel carriers.
Rapid changes are possible should the drivers of
service demand undergo a large shift, or if
technology developments facilitate universal
shifts to higher-quality energy carriers within a
sector.
Hence, future energy demand cannot be projected on the basis of one country’s historical
patterns of consumption, but should be based on
international experience, taking into account
local characteristics. Historical experience is
useful for identifying a baseline trend and a set of
possible outcomes, but it should not be taken as
an accurate predictor of the future. How local
characteristics naturally develop or react to new
policies will largely determine future consumer
demand. China’s shift towards the new normal of
slower economic growth will, for example,
reduce the share of energy-intensive heavy
industry and increase the rate of urbanisation in
rural areas.
However, these demands can also be shaped
by policy to ensure resources and energy are used
efficiently or to limit externalities. Many factors
can play a role in changing consumer demand
and preferences. They include economic structure and investment, population density, equality
of access, support networks for clean and flexible
fuels, and support technology that enables universal improvements in energy quality. Nudging
energy service demand can help mitigate
long-term negative externalities such as climate
change and enable a more desirable use of
resources to improve efficiency without jeopardising benefits.
An efficient system can be adopted by taking
into account changing service demand trends and
the shift towards higher-quality fuels, and by
using policy to shape demand. Policymakers
should aim to design an energy system that will
meet future consumer demand. However, they
should also take advantage of the ways they can
shape it to avoid irrational energy consumption,
achieve climate targets and other long-term
goals, and improve resource-use efficiency.
2 Model Building
2.1 Model Description
3E models provide an integrated view on energy,
the economy and the environment. They combine an optimal growth model based on neoclassical economic theory and an infinitely lived
agent (ILA) model that follows the Ramsey Rule.
3E models describe economic operations through
investment, consumption and the accumulation
of capital. They use the traditional top-down
approach, while providing richer technical
content.
Our 3E model examines how fossil and new
energy fuels evolve into dominant fuels in a
sequential manner, using a built-in logistic
sub-model of policy. In addition to fossil energy,
the technical objects studied include seven
low-carbon or zero-carbon energy sources:
nuclear, biomass, hydropower, solar photovoltaic, wind, geothermal and marine energy.
This enables our model to cover more bottom-up
modelling characteristics and explore the role of
zero-carbon energy technologies in reducing
carbon emissions.
Another advantage of this richer technical
approach is that it helps endogenise energy
technologies and describe dynamic technological
progress with an empirical curve based on
learning by doing. This will significantly reduce
the uncertainty in model results caused by
exogenous technological progress, thus improving the robustness of the model’s calculations. It
must be noted that the model built for this section
Special Report 2: Research on China’s Energy Demand Revolution
229
are cleaner and more flexible than existing fuels
such as coal.
Consumer demand for energy tends to shift
from quantity to quality as incomes increase, and
China is likely to cross this inflection point in the
near future. The shift from quantity to quality
involves a plateauing of service demands and
increasing use of higher-quality fuel carriers.
Rapid changes are possible should the drivers of
service demand undergo a large shift, or if
technology developments facilitate universal
shifts to higher-quality energy carriers within a
sector.
Hence, future energy demand cannot be projected on the basis of one country’s historical
patterns of consumption, but should be based on
international experience, taking into account
local characteristics. Historical experience is
useful for identifying a baseline trend and a set of
possible outcomes, but it should not be taken as
an accurate predictor of the future. How local
characteristics naturally develop or react to new
policies will largely determine future consumer
demand. China’s shift towards the new normal of
slower economic growth will, for example,
reduce the share of energy-intensive heavy
industry and increase the rate of urbanisation in
rural areas.
However, these demands can also be shaped
by policy to ensure resources and energy are used
efficiently or to limit externalities. Many factors
can play a role in changing consumer demand
and preferences. They include economic structure and investment, population density, equality
of access, support networks for clean and flexible
fuels, and support technology that enables universal improvements in energy quality. Nudging
energy service demand can help mitigate
long-term negative externalities such as climate
change and enable a more desirable use of
resources to improve efficiency without jeopardising benefits.
An efficient system can be adopted by taking
into account changing service demand trends and
the shift towards higher-quality fuels, and by
using policy to shape demand. Policymakers
should aim to design an energy system that will
meet future consumer demand. However, they
should also take advantage of the ways they can
shape it to avoid irrational energy consumption,
achieve climate targets and other long-term
goals, and improve resource-use efficiency.
2 Model Building
2.1 Model Description
3E models provide an integrated view on energy,
the economy and the environment. They combine an optimal growth model based on neoclassical economic theory and an infinitely lived
agent (ILA) model that follows the Ramsey Rule.
3E models describe economic operations through
investment, consumption and the accumulation
of capital. They use the traditional top-down
approach, while providing richer technical
content.
Our 3E model examines how fossil and new
energy fuels evolve into dominant fuels in a
sequential manner, using a built-in logistic
sub-model of policy. In addition to fossil energy,
the technical objects studied include seven
low-carbon or zero-carbon energy sources:
nuclear, biomass, hydropower, solar photovoltaic, wind, geothermal and marine energy.
This enables our model to cover more bottom-up
modelling characteristics and explore the role of
zero-carbon energy technologies in reducing
carbon emissions.
Another advantage of this richer technical
approach is that it helps endogenise energy
technologies and describe dynamic technological
progress with an empirical curve based on
learning by doing. This will significantly reduce
the uncertainty in model results caused by
exogenous technological progress, thus improving the robustness of the model’s calculations. It
must be noted that the model built for this section
Special Report 2: Research on China’s Energy Demand Revolution
229