Electricity With Chinese Characteristics: The Complexities of Decarbonizing China's Power Sector

Over the past year there has been a series of new initiatives on U.S.-China energy cooperation focused on low-carbon development, covering renewables, energy efficiency, clean vehicles, and carbon capture and storage. Central to the long-term success of these initiatives will be strengthening the currently low understanding of China's electricity grid, as all of the above issues are directly dependent on the power grid itself. Both the U.S. and China are currently trying to figure out how to decarbonize their power sectors with a mixture of policy reform and infrastructure development. China's reforms of their power sector could pose valuable lessons for the United States and at this June 24th CHINA ENVIRONMENT FORUM meeting, Federal Energy Regulatory Commission (FERC) Chairman Jon Wellinghoff joined power sector experts Jim Williams, Fritz Kahrl and Ding Jianhua from Energy and Environmental Economics (E3) to discuss gaps related to electricity sector analysis and research to decarbonize China's electricity sector.

Chairman Wellinghoff kicked off the presentation with an overview of the compliments and differences in the U.S. and Chinese power sectors. In terms of difficulties in decarbonizing the power sector, he stressed that the power grids in China and the United States have similar challenges in expanding renewables, namely that plentiful wind and solar sources are inland far away from booming coastal cities and market and regulatory incentives to integrate renewables into grids are insufficient. However he also made the point that each side held comparative advantages. For instance, while China has superior high voltage grid transmission technologies, the United States has been developing advanced demand-side management practices and markets to spur energy efficiency and renewable integration in the power sector. Chairman Wellinghoff argued that mutual understanding of each others' power sectors is important for trust building and effective cooperation and can result in net climate and economic benefits for both sides.

Achieving these benefits will not be easy. As Jim Williams of E3 put it, the Chinese power sector is currently in transition and this transition is producing some increasingly complicated policy questions. How these questions are answered has the potential to drastically shift the outlook for carbon emissions of China. If the United States can help shift China's power sector to less carbon intensive there could be massive benefits for lowering global greenhouse gas emissions. One of the major issues currently is assessing the cost/benefit analysis of renewable and low carbon integration, basically asking: what is the actual cost of decarbonizing the power sector? Due to a lack of "soft technology"—analytical methods, software models, institutional processes, and the like—policymakers in China still do not have a good sense of what level of GHG reductions could be achieved in the power sector for a given cost.

Fritz Kahrl and Ding Jianhua, also from E3, went on to explain that, as with the United States, the underlying issues on how to decarbonize the Chinese power sector will demand considerable quantitative analysis. The U.S. has had more than three decades of experience with quantitative policy analysis in the power sector, driven in large part by regulatory processes that require cost-benefit analysis. In China, policy analysis in the power sector is still at an early stage, but there is an increasing demand among policymakers for this kind of analysis. For instance, over the past five years China's central government has invested a significant amount of both money and attention in energy efficiency. However, more standardized tools to assess the benefits and costs of energy efficiency projects are not widely used in China, which leads to a lack of transparency and accountability in how energy efficiency funds are spent. This problem is increasingly recognized by senior level decision-makers. To quip a Chinese electricity grid official: "energy efficiency funds are often inefficiently spent." Drawing from its own experience, the United States could play an important role in helping Chinese analysts develop quantitative approaches for power sector policy analysis in China.

To conclude, and drawing on Chairman Wellinghoff's talk, the E3 team emphasized that the United States cannot only be a great asset to China in terms of soft-technology assistance, but can also take a great deal of the information learned during the process and apply it to the United States, which is also going through analogous institutional changes.