(4) Inadequate and unprofessional government supervision
The NEA has built a dedicated supervisory
department that aims to extend the successful
experience gained in electricity supervision to
other energy sectors, especially fossil fuels. The
oil, gas and power sectors are strikingly different
in terms of technical and economic characteristics and supervisory demands. China’s oil and
gas supervision is still in its infancy and the gap
between it and the advanced supervision found
elsewhere in the world is wider than in electricity
supervision. Coal supervision, however, has
Chinese characteristics, which make it hard to
apply the experience and practices of electricity
supervision to fossil energy.
In addition to the two dedicated supervisory
departments of the NEA, the agency under the
former SERC—that was merged into the NEA
and positioned as a dedicated supervisory
department—has found it difficult to address the
supervisory requirements of multiple energy
sources. Furthermore, China’s energy regulation
organisations suffer from inadequate funding and
low-level equipment, technology and IT
capability.
Finally, given non-existent social supervision,
non-governmental organisations that try to fill
the breach have no legal status within energy
regulation, and it is difficult for them to obtain
useful information and access the necessary
communication channels.
4 China’s Energy System
Transformation: Progress,
Conflict and System Design
4.1 The Urgent Need for Energy
System Transformation
Energy supply pressure is mounting. Energy
consumption in China has been increasing steadily. As a result of its continued economic
momentum and the declining energy consumption of the major mature economies, China has
overtaken the USA to become the largest energy
consumer in the world. Energy supply in China,
rich in coal but short of oil and gas, is limited,
unable to meet growing demand. This has led to
an expanding gap between supply and demand,
which shows no sign of improvement. While
striving to address its energy security, China is
becoming more and more dependent on oil and
gas imports. Meanwhile, the sources of these
imports are relatively concentrated geographically and susceptible to global turbulence,
increasing the risk to energy security. In the
future, unsustainable energy supply will give rise
to uncertainty in energy development, bringing
about an energy security challenge that cannot be
ignored.
China’s energy product pricing mechanism is
ineffective. Market signals do not accurately
reflect the supply-demand relationship and
resource scarcity, as well as externality costs
such as environmental pollution. Energy pricing
that is not market-led, including lower energy
prices imposed by regulation, leads to excessive
energy consumption and impedes the effective
allocation of scarce resources. For a long time,
China’s economy has been dominated by
energy-intensive secondary industries, which
account for a large amount of the total energy
consumed by industry. China’s energy intensity
is 1.55 times the global average (2016), significantly impairing the efficiency of the country’s
economic growth.
Massive energy consumption brings severe
environmental pollution and environmental
damage. The direct effects can be seen in the
greenhouse gas emissions from unnecessary
energy use that pollute the environment, damage
biodiversity and impact the climate, as evidenced
by the frequent occurrence of extreme weather,
such as acid rain and haze. In a time of global
decarbonisation, high pollutant emissions seriously impair China’s image in the world and
restrict its potential for exports, employment,
revenues, investment and economic growth.
China’s energy system needs to adapt to a new
productivity trend. China has become the world’s
largest energy producer and consumer, with an
energy system comprising coal, electricity, oil,
gas, new energy and renewables, as well as
446
S. Yaodong and A. Gillespie
The NEA has built a dedicated supervisory
department that aims to extend the successful
experience gained in electricity supervision to
other energy sectors, especially fossil fuels. The
oil, gas and power sectors are strikingly different
in terms of technical and economic characteristics and supervisory demands. China’s oil and
gas supervision is still in its infancy and the gap
between it and the advanced supervision found
elsewhere in the world is wider than in electricity
supervision. Coal supervision, however, has
Chinese characteristics, which make it hard to
apply the experience and practices of electricity
supervision to fossil energy.
In addition to the two dedicated supervisory
departments of the NEA, the agency under the
former SERC—that was merged into the NEA
and positioned as a dedicated supervisory
department—has found it difficult to address the
supervisory requirements of multiple energy
sources. Furthermore, China’s energy regulation
organisations suffer from inadequate funding and
low-level equipment, technology and IT
capability.
Finally, given non-existent social supervision,
non-governmental organisations that try to fill
the breach have no legal status within energy
regulation, and it is difficult for them to obtain
useful information and access the necessary
communication channels.
4 China’s Energy System
Transformation: Progress,
Conflict and System Design
4.1 The Urgent Need for Energy
System Transformation
Energy supply pressure is mounting. Energy
consumption in China has been increasing steadily. As a result of its continued economic
momentum and the declining energy consumption of the major mature economies, China has
overtaken the USA to become the largest energy
consumer in the world. Energy supply in China,
rich in coal but short of oil and gas, is limited,
unable to meet growing demand. This has led to
an expanding gap between supply and demand,
which shows no sign of improvement. While
striving to address its energy security, China is
becoming more and more dependent on oil and
gas imports. Meanwhile, the sources of these
imports are relatively concentrated geographically and susceptible to global turbulence,
increasing the risk to energy security. In the
future, unsustainable energy supply will give rise
to uncertainty in energy development, bringing
about an energy security challenge that cannot be
ignored.
China’s energy product pricing mechanism is
ineffective. Market signals do not accurately
reflect the supply-demand relationship and
resource scarcity, as well as externality costs
such as environmental pollution. Energy pricing
that is not market-led, including lower energy
prices imposed by regulation, leads to excessive
energy consumption and impedes the effective
allocation of scarce resources. For a long time,
China’s economy has been dominated by
energy-intensive secondary industries, which
account for a large amount of the total energy
consumed by industry. China’s energy intensity
is 1.55 times the global average (2016), significantly impairing the efficiency of the country’s
economic growth.
Massive energy consumption brings severe
environmental pollution and environmental
damage. The direct effects can be seen in the
greenhouse gas emissions from unnecessary
energy use that pollute the environment, damage
biodiversity and impact the climate, as evidenced
by the frequent occurrence of extreme weather,
such as acid rain and haze. In a time of global
decarbonisation, high pollutant emissions seriously impair China’s image in the world and
restrict its potential for exports, employment,
revenues, investment and economic growth.
China’s energy system needs to adapt to a new
productivity trend. China has become the world’s
largest energy producer and consumer, with an
energy system comprising coal, electricity, oil,
gas, new energy and renewables, as well as
446
S. Yaodong and A. Gillespie