china’s growing energy demand implications for the united

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WorkingPaperSeriesCongressionalBudgetOfficeWashington,DCChina’sGrowingEnergyDemand:ImplicationsfortheUnitedStatesAndrewStockingFormerlyanemployeeoftheCongressionalBudgetOffice(astocking@gmail.com)TerryDinanCongressionalBudgetOffice(terry.dinan@cbo.gov)June2015WorkingPaper2015-05ToenhancethetransparencyoftheworkoftheCongressionalBudgetOffice(CBO)andtoencourageexternalreviewofthatwork,CBO’sworkingpaperseriesincludespapersthatprovidetechnicaldescriptionsofofficialCBOanalysesaswellaspapersthatrepresentindependentresearchbyCBOanalysts.WorkingpapersarenotsubjecttoCBO’sregularreviewandeditingprocess.Papersinthisseriesareavailableathttp://go.usa.gov/ULE.TheauthorsthankTristanHanon,KeithHall,JosephKile,JeffreyKling,andChadShirley,allofCBO,forusefulcommentsandsuggestions.Inaddition,theauthorsthankUshaHaley(WestVirginiaUniversity),JamesHamilton(UniversityofCalifornia,SanDiego),SimonJohnson(MassachusettsInstituteofTechnology),MyrtoKalouptsidi(PrincetonUniversity),ValerieKarplus(MassachusettsInstituteofTechnology),DickMorgenstern(ResourcesfortheFuture),RyanRutkowski(PetersonInstituteforInternationalEconomics),andRobertStavins(HarvardUniversity)forhelpfulcommentsandsuggestions. AbstractGrowingrapidlyinrecentdecades,China’sdemandforenergyhasnearlydoubledsince2005—makingChinatheworld’slargestconsumerofenergy.ThatgrowthandtheenergypoliciesthatChinapursuesincreasethelevelandpossiblythevolatilityofsomeenergyprices,reducethecompetitivenessofU.S.manufacturingfirmsinrelationtoChinesefirmsbutprovidebenefitsforU.S.consumers,andincreasegreenhousegasemissions.ThispaperexaminestrendsinChina’senergyconsumption,theimplicationsofthosetrendsforU.S.householdsandbusinesses,andpolicyoptionsthatmighthelpminimizeadverseeffects. NoteNumbersinthetext,tables,andfiguresmaynotadduptototalsbecauseofrounding.ContentsI.IntroductionandSummary.....................................................................................................................1II.GrowthinChina’sEnergyConsumptionandImports............................................................................2EnergyUseinChinaandPoliciestoIncreaseEnergySupply..........................................................3OtherEnergyPoliciesinChina.......................................................................................................12III.ImplicationsofChina’sEnergyGrowthandPoliciesforU.S.HouseholdsandBusinesses................17EnergyMarketPriceandVolatility.................................................................................................18CompetitivenessinManufacturing..................................................................................................20ClimateChange...............................................................................................................................24IV.PolicyOptionstoLimitEffectsonU.S.HouseholdsandBusinesses..................................................26PoliciestoReduceExposuretoHigherOilPriceLevelsorVolatility............................................27PoliciestoIncreaseU.S.CompetitivenessinManufacturing..........................................................31PoliciestoReduceGreenhouseGasEmissions...............................................................................35FiguresFigure1.PerCapitaTotalEnergyUseandGrossNationalIncomeinChina,1982–2013..........................4Figure2.EnergyFlowsinChinaandtheUnitedStates,bySourceofEnergyandEnergy-ConsumingSector,2013..................................................................................................5Figure3.SourcesofDomesticFuelConsumptioninChinaandtheUnitedStates,2013............................6Figure4.ComparisonofChangesinPricesforCrudeOil,NaturalGas,andCoalintheUnitedStatesandOtherCountries...............................................................................................7Figure5.ActualandProjectedOilConsumptionandDomesticProductioninChina,2005–2040.............8Figure6.PriceofGasolineinNewYorkCityandShanghai,March2013–November2014....................15Figure7.FinancialNewInvestmentinCleanEnergyandTechnologies,2004–2010...............................21Figure8.ElectricityIntensityofU.S.ExportsbyExportValueandIndustry,2011.................................23 I.IntroductionandSummaryIn2010,ChinasurpassedtheUnitedStatestobecometheworld’slargestenergyuser.Chinaconsumedmorecoalandrenewableenergybutlessoil,naturalgas,andnuclearpower.By2013,Chinaconsumed25percentmoreenergythantheUnitedStates,includingburningmorethanthreetimesasmuchcoal,andtheU.S.EnergyInformationAdministration(EIA)projectsthatby2040ChinawillconsumemorethantwiceasmuchenergyastheUnitedStates.ThatgrowthandChina’senergypoliciesaffectU.S.householdsandbusinessesinatleastthreeways:•Increasingthelevelandpossiblythevolatilityofsomeenergyprices,•ReducingthecompetitivenessofU.S.manufacturingfirmsinrelationtoChinesefirmswhilebenefitingU.S.consumerswhopaylowerpricesbecauseofChinesesubsidiesformanufacturing,and•Increasinggreenhousegasemissions.Thispaperexaminesthoseeffectsandassessespolicyoptionstoaddresstheadverseeffects.China’sgrowingdemandforenergyaffectssomeU.S.energymarkets;inparticular,China’soilimportsputupwardpressureonoilpricesandmayincreasetheirvolatility.Becausethemarketforoilanditsrefinedproductsisglobal,increaseddemandinonepartoftheworldwithoutacommensurateincreaseinsupplywilltendtoraiseglobalmarketprices.(Bycontrast,marketsforcoalandnaturalgastendtoberegional,whichlargelyinsulatesU.S.consumersfromtheeffectsofChina’sincreaseddemandforthosecommodities,althoughthenaturalgasmarketmaybecomemoreinterconnected.)Thatupwardpressureonoilpricescreatesanincentiveforsomefirmstoproduceoilthatwaspreviouslyuneconomicaltoproduce.Overthepastdecade,muchoftheincreaseinglobaloilproductionoccurredintheUnitedStatesandCanada,whichtendtobemorestablesuppliersofoilthanotheroil-producingcountries.Someoil-producingpartsoftheworldexperiencemoreperiodicandunexpectedinterruptionsduetowar,inadequateinfrastructure,orthecomplexityofproduction.Totheextentthatadditionalincreasesinglobalproductioncomefromareasthataremorelikelytobedisrupted,theworldpriceofoilwouldprobablybemorevolatile.PoliciestoaddresshigherormorevolatileoilpricescouldgiveU.S.consumersmoreflexibilityinusingoil-basedtransportationorcouldreducedemandorincreasesupplyofoilanditsrefinedproducts.TheChinesegovernmentusestwotypesofenergysubsidiesthataffectthecompetitivenessofU.S.businesses(andbusinessesofothercountries)insimilarmarkets.Somesubsidiespromoterenewableenergytoreducepollutionfromburningfossilfuels,whereasothersprotectChinesebusinessesfromhighfuelprices.ThefirstsubsidytypesupportsdevelopingrenewableenergytechnologiesbyloweringthecosttomanufacturetheminChina.SuchsubsidiesputU.S.businessesthatalsoproducerenewabletechnologiesatacompetitivedisadvantage,eventhoughtheUnitedStatesalsoofferssubsidiesforrenewableformsofenergy,becausetheUnitedStatesprovidesfewersubsidies.Moreover,suchsubsidies—whetherbytheChinesegovernmentortheU.S.government—fosterloweremissionsofgreenhousegases.Thesecondsubsidytypefixesthepriceofelectricity,naturalgas,andrefinedpetroleumproductsbelowthecompetitivemarketprice—thelargestamountinpercentagetermsisforelectricity.Thatreductionsubsidizeselectricity-intensivemanufacturingof,forexample,chemicals,aluminum,andsteel.Althoughitseffectoncompetitivenessisprobablysmall(anditseffectonthe1 competitivenessofbusinessesinothercountriescouldbelargerthantheeffectonU.S.businesses),someresearchersfoundthatthesubsidyreducedcompetitivenessforelectricity-intensiveU.S.firmscompetinginsimilarexportmarkets.Insomecases,antidumpingandcountervailingdutiesalreadyaddresstheeffectsofthosesubsidiesintheU.S.domesticmarket.U.S.policiesthatencourageChinatoreducebothtypesofsubsidieswouldalsoprobablybenefitU.S.exports(orotherexportersinothercountries)thatinvolverenewabletechnologiesandenergy-intensivegoodswhileatthesametimepossiblyraisingpricesforU.S.consumersofthosetechnologiesandgoods.PoliciesthatencourageChinatoreducesubsidiesforrenewabletechnologiesandothersourcesofenergythatproducelowemissionswouldleadtohighergreenhousegasemissions,whilepoliciesthatencourageChinatoreducesubsidiesforothersourcesofenergythathavehigheremissionswouldreducegreenhousegasemissions.OtherChinesepolicies,includingcurrencydevaluation,low-interestloanstoChinesefirms,andreducedpricesformanufacturinginputs,mayhavealargereffectonthecompetitivenessofsomeU.S.firms.Thosepoliciesarenotspecifictoenergy,however,andthusfalloutsidethescopeofthispaper.MuchofChina’sgrowthinenergyconsumptionwilloccurthroughincreasedburningoffossilfuels,whichgeneratesgreenhousegasemissionsthataccumulateintheairandoceans.Expertsagreethatifthisprocesscontinuesunabated—coupledwithwidespreadchangesinpatternsoflanduse—climateandoceanconditionsthroughouttheworldwillexperienceextensive,unpredictablechanges,resultinginpotentiallyseriousandcostlyeffectsonpeopleandecosystemsaroundtheworld.EffortstoreducetheemissionofgreenhousegaseswouldbemoreeffectiveiftheyincludedChinaandthusencapsulatealargeshareofallemissions.AlthoughChinahasbeguntoenactpoliciestoreduceemissions,theUnitedStatescouldpursuepolicyoptionstoencourageChinatofurtherthoseefforts.SuchpoliciesincludeofferingChinesefirmstechnicalassistancetodevelopnewtechnologiesordisseminateexistinglow-emissiontechnologies.IftheUnitedStatesimplementedapolicythatsetapriceoncarbonemissions,itcouldalsoconsiderincorporatingaprovisionthatwouldallowU.S.firmstocomplybyusingcreditsthatcorrespondtoreductionsinemissionsthatwerenotsubjecttotheprice,includingreductionsmadeoutsidetheUnitedStates.ThosecreditswouldserveasafinancialincentivetoreduceemissionsinChina.Also,aspartofapolicythatwouldsetapriceoncarbonemissions,theUnitedStatescouldconsiderimplementinganequivalenttariffoncarbon-intensivegoodsandservicesimportedfromChinaandothercountries.Therestofthispaperproceedsasfollows.SectionIIfurtherdescribesChina’sgrowinguseofenergyandtheaccompanyingpolicies.SectionIIIdescribeshowthatgrowingenergyuseaffectsU.S.householdsandbusinesses.SectionIVdiscussespolicyoptionstoreducetheimpactonU.S.householdsandbusinesses.II.GrowthinChina’sEnergyConsumptionandImportsChinabecametheworld’slargestuserofenergyin2010andisexpectedtoremaininthatpositionforthe1foreseeablefuture.EnergyuseinChinahasgrownalongwithrisingincomesandincreasingindustrial1EnergyInformationAdministration,InternationalEnergyOutlook2013(July2013),www.eia.gov/forecasts/archive/ieo13/.2 2outputinChina(seeFigure1).AsaresultofrisingChineseincomes,Chinesepeoplegenerallyconsumemoreenergy.Similarly,increasesinthevalueadded—thedifferencebetweenthevalueofinputsandthevalueofoutputs—byChinesefirmsalsocontributedtoincreasesinenergyusageinChina.SomeofthatincreaseinvalueaddedwouldbeforconsumptioninChinaandsomeforexport.Anongoingrural-to-urbanpopulationshiftdrivesthegrowthinincomesandtheaccompanyingchanges3inenergydemand.Thegrowingurbanpopulationdemandsnewvehiclesandnewroads,raisingthedemandforenergyinthetransportationsector.Evenso,theuseofenergyperpersoninChinawasonlyaboutaquarteroftheenergyperpersonusedintheUnitedStates,suggestingthatChinacouldconsumesignificantlymoreenergyinthefutureasChineselivingstandardscontinuetorise.Accordingly,theU.S.EnergyInformationAdministration(EIA)projectsthatby2040Chineseuseonapercapitabasiswillbeabout60percentoftheestimatedU.S.rate.Separately,theindustrialsector’sincreasedoutputdrivesthehighdemandforelectricity,refinedpetroleumproducts,andmaterialsthatareenergyintensivetoproduce,suchaschemicals,steel,andaluminum.SomeofthatincreaseinindustrialoutputisfordomesticconsumptionandreflectsgrowingincomesinChina.However,someofthatrisingindustrialoutputisforproductionexportedfromChina,reflectingdemandfromthosecountriesratherthanChina.TotheextentthatrisingenergyconsumptioninChinaisduetogrowingexports,theeffectsofChina’sconsumptiononenergymarketsandgreenhousegasemissionsarealsolinkedtocountriesthatareimportingenergy-intensivegoodsfromChina.Asaresultofbothrisingincomesandincreasingindustrialoutput,totalenergyconsumptioninChinanearlydoubledbetween2005and2013.BecauseenergyproductioninChinahasnotkeptpacewiththegrowthinitsuse,Chinahasbecomeoneoftheworld’slargestimportersofenergy.Inresponse,theChinesegovernmenthastakenstepstoincreasetheavailabilityofenergy.Thegovernmenthasalsoadvancedpoliciestomeetotherenergy-relatedobjectives,suchasreducingemissionsandlimitinganymarket-drivenincreasesinenergyprices.TheextenttowhichChina’sgrowthinenergydemandorassociatedpoliciesaffectU.S.energyusersvarieswiththetypesofenergyused.EnergyUseinChinaandPoliciestoIncreaseEnergySupplyIn2013,Chinaconsumedroughly118quads(1quadis1quadrillionBtu,orBritishthermalunits)ofenergyprimarilyfromcoal(68percent)andoil(18percent),withtheremaining14percentfromrenewablesources,naturalgas,andnuclearenergy.Thatsameyear,theUnitedStatesconsumedroughly96quadsofenergy,consistingofoil(37percent),naturalgas(27percent),andcoal(19percent),withtheremaining17percentdividedequallybetweennuclearandrenewablesources(seeFigure2).WiththerelativedomesticavailabilityofeachenergysourceinChinaandtheUnitedStates,bothcountrieshaveasimilarmixofenergyimports,withoilastheprimaryenergyimport(seeFigure3).2Between2003and2013,China’spopulationalsogrew,butonlyhalfasfastastheU.S.orworldpopulation.3CongressionalBudgetOffice,China’sGrowingDemandforOilandItsImpactonU.S.PetroleumMarkets(April2006),www.cbo.gov/publication/17702.3 Figure1.PerCapitaTotalEnergyUseandGrossNationalIncomeinChina,1982–2013TotalEnergyUseperPerson(1,000Btuperperson)Constant2005DollarsperPerson1005,000804,000TotalEnergyUse603,000GrossNationalIncome402,00020Industry1,000ValueAdded0019801985199019952000200520102015Source:CongressionalBudgetOffice,basedondatafromtheDepartmentofEnergy,EnergyInformationAdministration(www.eia.gov),andtheWorldBank.China’sincreasingvolumeofenergyimportsaffectsU.S.energyuserstotheextentthatfirmsinbothcountriespurchaseenergyinthesamemarket.Ingeneral,asingleworldmarketforoilexists,resultingfromtheextensivenetworkofpipelines,shipping,andotheroptionsfortransportingoilaroundtheworld.Thus,oilhasasingleworldprice,afteraccountingforthequalityofthatoilandthecostoftransportingittothemarketplace.China’sincreaseddemandforimportedoilraisesthepriceofoilandrefinedoilproductsforU.S.energyusers.Bycontrast,thehighcostoftransportingcoal,naturalgas(otherthanthroughpipelines),orthepowergeneratedfromnuclearenergyorrenewablesourceslimitstheirmarketstogeographicallyboundedregions,suchasNorthAmericaorSoutheastAsia.(Figure4showstheinterconnectednessofoilpricesaroundtheworldandtheregionalnatureofcoalandnaturalgasprices.)Consequently,China’sincreaseddemandforthoseotherenergysourcesaffectsU.S.energyuserslessthanChina’sdemandforoil.4 Figure2.EnergyFlowsinChinaandtheUnitedStates,bySourceofEnergyandEnergy-ConsumingSector,2013PercentChina(118Quads)UnitedStates(96Quads)TransportationOil4897(11quads)(22quads)Oil7397Transportation52(27quads)(36quads)27Coal915178Electricity(18quads)(53quads)943CoalElectricity(80quads)22(38quads)173221NaturalGas4913(26quads)6521NaturalGasNuclear(5quads)77Residential,100(8quads)Commercial,andNuclear7131Residential,(2quads)100Industrial5Commercial,and(55quads)54IndustrialRenewable94Renewable64(31quads)(10quads)7(8quads)369Source:CongressionalBudgetOffice,basedondatafromtheDepartmentofEnergy,EnergyInformationAdministration(www.eia.gov).Note:Onequadrepresents1quadrillionBritishthermalunits(Btu).Unlabeledflowsrepresentamountsoflessthan10percent.OilUseinChina.In2014,Chinawastheworld’ssecond-largestconsumerofoil,aftertheUnitedStates,butthelargestimporterofoil.EIApredictsthatChina’soilconsumptionwillincreasebyalmost274percentoverthenextdecade,faroutpacingincreasesinproductioninChina(seeFigure5).UnderlyingtherapidgrowthinoilconsumptionistheincreasingdemandinChinaforvehiclesfueledbyrefinedoilproductssuchasgasolineordiesel.PercapitauseofoilinChinaisstillmuchlowerthanthatintheUnitedStates.Chinahasonly69motorizedvehiclesper1,000people,comparedwith786per1,0004EnergyInformationAdministration,InternationalEnergyOutlook2014:WorldPetroleumandOtherLiquidFuels(September2014),TableBrowser,www.eia.gov/oiaf/aeo/tablebrowser/.5 Figure3.SourcesofDomesticFuelConsumptioninChinaandtheUnitedStates,2013Source:CongressionalBudgetOffice,basedondatafromtheDepartmentofEnergy,EnergyInformationAdministration(www.eia.gov).Note:Numbersmaynotadduptototalsbecauseofrounding.Onequadrepresents1quadrillionBritishthermalunits(Btu).Unlabeledflowsincludethefollowing:forChina,importedcoal(2quads),importednaturalgas(1quad);fortheUnitedStates,importednaturalgas(2quads),exportedcoal(3quads).6 Figure4.ComparisonofChangesinPricesforCrudeOil,NaturalGas,andCoalintheUnitedStatesandOtherCountriesSource:CongressionalBudgetOffice,basedondatafromtheDepartmentofEnergy,EnergyInformationAdministration,“WorldCrudeOilPrices,”July13,2011(foroilprices);andBloomberg(formonthlydataonpricesforcoalandnaturalgas).Notes:Thediagonallinesthrougheachgraphat45degreesindicatewhenchangesinpricesinthemarketsbeingcomparedcorrespondexactly.Fornaturalgas,U.S.dataareforHenryHubnaturalgas,RussiangasisforthepriceofnaturalgasdeliveredtotheborderofGermany,andIndonesiannaturalgasisforliquefiednaturalgasdeliveredtoJapan.U.S.coalisarepresentativecoalproducedintheUnitedStates,SouthAfricancoalisthatproducedinRichardsBay,andAustraliancoalisanindexofallthermalcoalinAustralia.OPEC=OrganizationofPetroleumExportingCountries;WTI=WestTexasIntermediate.5peopleintheUnitedStates.Chinathereforehasroughly10percentoftheU.S.percapitanumberofmotorizedvehicles.By2040,Chinaisexpectedtoincreasethenumberofmotorizedvehiclespercapitatoabout40percentofthatoftheUnitedStates.ChinawouldthenhavemoretotalvehiclesthantheUnited6States(althoughfewerperperson).BecauseChina’sgrowingconsumptionofoilisnotprojectedtobeoffsetbygrowingproductionelsewhereintheworld,China’sdemandforoilputsupwardpressureonworldoilprices,otherthingsbeingequal.Thatpressurehasalsobeenobservedinthepast.Forexample,in2013,demandforoilfromboththeUnitedStatesandChinagrewbyabout500,000barrelsperday,accountingfor54percentof5Reporteddatathrough2011areavailablefromtheWorldBank,“WorldDevelopmentIndicators”(December2014),Table3.13,http://wdi.worldbank.org/table/3.13.6ExxonMobil,TheOutlookforEnergy:AViewto2040(ExxonMobilCorporation,2015),p.19,http://tinyurl.com/mytzvnq.7 Figure5.ActualandProjectedOilConsumptionandDomesticProductioninChina,2005–2040MillionsofBarrelsofOilperDaySource:CongressionalBudgetOffice,basedondatafromtheDepartmentofEnergy,EnergyInformationAdministration(www.eia.gov).Note:Solidlinesrepresentactualdata;dashedlinesindicateprojecteddata.newdemandintheworld.InthatyearnearlyallnewworldproductionoccurredintheUnitedStates,Canada,andRussia;however,thatnewproductionwaslessthanthenewdemand,raisingtheworldoilpricefromwhatitotherwisewouldhavebeen.TheChinesegovernmenthastakenactionsthataffectthelevelandvolatilityofthepriceofoil.First,Chinahasinvestedheavilyindevelopingnewsourcesofoil,mostnotablyinAfrica.By2012,Chinahad7becomethelargestforeigninvestorinAfricaandthatcontinent’slargesttradingpartner.In2013,ChinaimportedaboutathirdofitsoilfromAfrica,primarilyfromAngola,Sudan,SouthSudan,theRepublicof7FormoreonChina’sinvestmentsinAfrica,seeMatthiasBusse,CerenErdogan,andHenningMühlen,China’sImpactonAfrica—TheRoleofTrade,FDI,andAid(InstituteofDevelopmentResearchandDevelopmentPolicy,2014),http://tinyurl.com/lkqcvo8(PDF,2.41MB);andChristopherAlessiandStephanieHanson,ExpandingChina-AfricaOilTies(CouncilonForeignRelations,February2012),www.cfr.org/china/expanding-china-africa-oil-ties/p9557.8 Congo,EquatorialGuinea,andNigeria,butalsofromcountriessuchasGabon,Algeria,Libya,Liberia,8Chad,andKenya.Thatadditionalsupply,resultingfromChina’sinvestment,loweredtheworldpriceofoilfromwhatitotherwisewouldhavebeen.Second,in2004Chinabeganbuildingastrategicpetroleum9reservetooffsetpriceincreasescausedbyshort-termoilsupplyoutages.Chinahassetatargetdateof2020toexpandtotalstoragecapacityto500millionbarrels;theU.S.strategicpetroleumreserveholds10727millionbarrels.FillingtheChinesereservecausesthepriceofoiltoincreasefortheperiodinwhichsupplyisdivertedtostorage.Usingthereservetooffsetsupplydisruptions,however,couldreduceglobaloilpricevolatilitytobenefitallconsumersofoil.Third,ChinaimportssomeoilfromcountriesonwhichtheUnitedStateshasimposedeconomicsanctions,suchasIranandRussia.Althoughsuchtradingunderminesthedesiredeffectofthesanctions,China’spurchasesfromRussiaandIranalsotendtooffsetsomeoftheincreaseinworldoilpricesthatincreasedChinesedemandforoilwouldotherwisecause.In2014,IranwasChina’ssixth-largestoiltradingpartner.AndalthoughChinahaspledgednottoincrease11tradewithIran,neitherhasChinaagreedtoeliminatesuchtrade.CoalUseinChina.In2013,Chinawastheworld’slargestconsumerofcoal,burningmorecoalthanall12othercountriescombined.Coalmeetstwo-thirdsofChina’senergyneedsbecauseitisdomesticallyabundantandcanbeminedinexpensivelyandusedeasilyinplaceofotherfuels.EIAexpectsChina’scoalconsumptiontoincreaseatacompoundannualgrowthrateof1.9percentbetween2013and2040,13drivenprimarilybyincreaseddemandforelectricity.(Chinausesabouthalfitscoaltogenerateelectricity,withtheotherhalfusedprimarilyinmanufacturing,suchastoproducesteel,aluminum,and14cement.)ThatforecastassumesthateconomicgrowthinChinaremainsstrongoverthenextseveral8LaurenGamache,AlexanderHammer,andLinJones,“China’sTradeandInvestmentRelationshipWithAfrica,”USITCExecutiveBriefingsonTrade(UnitedStatesInternationalTradeCommission,April2013),http://go.usa.gov/3DYnh(PDF,136KB);andChristopherAlessiandStephanieHanson,ExpandingChina-AfricaOilTies(CouncilonForeignRelations,February2012),www.cfr.org/china/expanding-china-africa-oil-ties/p9557.9ZhangJian,China’sEnergySecurity:Prospects,Challenges,andOpportunities(BrookingsInstitution,July2011);andEnergyInformationAdministration,China(February4,2014),www.eia.gov/countries/cab.cfm?fips=CH.10EnergyInformationAdministration,China(February4,2014),www.eia.gov/countries/cab.cfm?fips=CH;U.S.DepartmentofEnergy,OfficeofFossilEnergy,“StrategicPetroleumReserve”(accessedFebruary3,2015),http://go.usa.gov/3DYyk.11EnergyInformationAdministration,China(February4,2014),www.eia.gov/countries/cab.cfm?fips=CH.12EnergyInformationAdministration,InternationalEnergyOutlook2013(July2013),www.eia.gov/forecasts/archive/ieo13/.13EIAprojectsacompoundannualgrowthrateof2.9percentbetween2014and2020withanannualgrowthratedecliningfromthatof2015.Thatforecastthrough2020islowerthanthatprojectedbytheInternationalEnergyAgencyforcurrentlawinChina(3.6percent)buthigherthanthatprojectedifChinafollowsthroughonallitsrenewableandnonfossilenergycommitments(1.3percent).Someanalystsbelievethatgrowthintheuseofcoalcouldfallevenlower;althoughsignificantuncertaintyexistsaboutfuturegrowth.Forexample,coaldemandinChinacouldincreaseifChinaincreasedconversionofcoaltoliquidfuelsortogas.FormoreonprojectedcoaluseinChina,seeEnergyInformationAdministration,InternationalEnergyOutlook2013(July2013),www.eia.gov/forecasts/archive/ieo13/;InternationalEnergyAgency,Medium-TermCoalMarketReport2013(November2013),http://tinyurl.com/pmfhjcx;andCitibank,TheUnimaginable:PeakCoalinChina(September2013),http://tinyurl.com/qxffvcl(PDF,837KB).14AnotherwaytocharacterizeChina’suseofcoal:About85percentofallcoalburnedinChinaisusedtogenerateheat,calledsteamcoalorthermalcoal;theheatisconvertedtoelectricityorusedinmanufacturing.Theremaining9 decades.Ifgrowthwerelessthanexpected,orifChinafullyimplementedpoliciestoreduceatmosphericpollutionandgreenhousegases,coalconsumptioncouldgrowmuchless.Chinaimportslessthan10percentofitscoal,mostlyfromRussia,Australia,andIndonesia.Unlikeoil,coaltendstobetradedregionallybecauseitisexpensivetotransport;85percentoftheworld’scoalis15consumedinthecountrywhereitwasmined.Becausecoalmarketsareregional,pricedifferencescanariseandpersistbetweencoalsoldin,forexample,ChinaandtheUnitedStates.Overthepastseveralyears,coalpriceshavefallenintheUnitedStates,primarilyduetoincreasedproductionofnaturalgas,whichcansubstituteforcoalingeneratingelectricity.LowercoalpricesintheUnitedStatesthaninChinahaveenabledsomeexportsofU.S.coaltoChina.U.S.coalexportstoChinapeakedin2012at10milliontons(representing8percentoftotalU.S.exportsand1percentoftotalU.S.consumption),but16theyfellto8milliontonsin2013.Despitethepredictedincreaseincoalconsumption,EIAestimatesthattheshareoftotalenergyinChinaproducedfromcoalwilldropfrom67percentin2014to63percentby2020and55percentby2040.ThatdecreasereflectstheChinesegovernment’sgoalstoreducecoalconsumptionto62percentoftotal17energyuseby2020andproduce25percentfromnuclearenergy,naturalgas,andrenewablesources.Thosegoalsarespurredbytherecognitionthatburningcoalreleaseslargequantitiesofgreenhousegasesandotherairpollutants,suchassulfurdioxide,mercury,andprecursorsofsmog.NaturalGasUseinChina.In2013,naturalgassatisfiedonlyabout4percentofChina’senergydemand.Improvedtechniquesandtechnologytorecovernaturalgas,manyofwhichweredevelopedintheUnitedStates,andtheimprovedairqualitybenefitsofnaturalgasovercoalhavepromptedChinatoinvestheavilyinnaturalgasproductionoverthepastdecade.Becauseofthoseefforts,EIAprojectsthattheuseofnaturalgastoproduceelectricitywillincreasefromlessthan2percentin2013toabout4percentby2040.EIAalsoprojectsthatthedemandfornaturalgasasasourceofheatingwillincreaseoverthenextfewdecadesashouseholdsbecomewealthierandshiftfromtraditional,dirtierheatingsourcessuchaswoodandcoaltomodern,cleansourcessuchasnaturalgas.EIAprojectsthatbetween2013and2040,naturalgasasashareofresidentialenergyuse(whichaccountsforabout6percentofChina’stotalenergyuse)willincreasefrom17percentto34percent.ChinahasoneofthelargesttechnicallyrecoverablenaturalgassuppliesintheAsiaPacificregion.YetChineseuseofnaturalgasislowbecausedevelopingmuchofthosereservesisnotcurrentlyeconomicallyfeasible.Also,thepipelineandotherinfrastructurenecessarytobringnaturalgastomarkets15percentofcoal—thatwiththehighestenergycontentandfewestimpurities,calledmetallurgicalcoal—isburnedwithoutoxygenandthenmixedwithirontoproducesteelalloy.15InternationalEnergyAgency,Medium-TermCoalMarketReport2013(IEA,November2013),http://tinyurl.com/pmfhjcx.16EnergyInformationAdministration,“CoalDataBrowser”(accessedFebruary24,2015),www.eia.gov/beta/coal/data/browser/.17DamienMa,RebalancingChina’sEnergyStrategy(ThePaulsonInstitute,January2015),p.13,http://tinyurl.com/psbrdw6.10 18inlargecitiesisstillinanascentphase.EIAexpectsthatalthoughChina’sinfrastructureandcapacitytobringnaturalgastomarketwillgrow,thecountrywillprobablycontinuetoimportnaturalgasfortheforeseeablefuture.Likecoal,naturalgasisexpensivetotransportacrosswaterandthustendstobetradedwithinregionalmarketsthatcanbeconnectedviapipeline.Tohelpsatisfyfuturedemandfornaturalgas,Chinarecentlybuiltnaturalgaspipelinesandenteredintolong-termimportcontractswithRussia,Central19Asiancountries,andMyanmar.Naturalgascanalsobeshippedinapressurizedform,calledliquefiednaturalgas(LNG).LNGmustbedepressurized,orgasified,beforeitcanbeused.Bothliquefactionandgasificationareexpensiveprocessesthatrepresentsizableinvestmentsbytheimportingandexportingcountries.Chinahasdevelopedtheinfrastructuretobecomethethird-largestLNG-importingcountryandcontinuestobuildfacilitiestoreceiveLNGfrommajortradingpartnerssuchasAustralia,Indonesia,Malaysia,andPapuaNewGuinea.TheUnitedStateshasalmostnotradeofnaturalgaswithcountriesinSoutheastAsia;however,thatmaychangeoverthenextfewyearswiththepotentialdevelopmentofnewLNG-exportinginfrastructureintheUnitedStates.Non-Fossil-FuelEnergyinChina.Chinausestwotypesofnon-fossil-fuelenergysources:nuclearenergyandrenewablesources,thelatterincludinghydropower,wind,solar,geothermal,andbiomass.Althoughnuclearenergyandrenewablesourcesaccountedforabout10percentofChina’s2013energyconsumption,Chinainvestsheavilyinbothsources.Forexample,by2020,Chinaplanstoquadrupleitscapacitytogeneratenuclearpower.Asaresult,abouthalftheworld’snewcapacitygloballyisunderconstructioninChina.Chinahastargetedtoproduce15percentofitsenergyusefromnonfossilenergy20sourcesby2020.Chinawillaccomplishitsrenewableobjectivesthroughamechanismdescribedbelowunder“OtherEnergyPoliciesinChina.”BecauseChinausesallitsnuclearpowerandalmostallitsrenewableenergytogenerateelectricity,thoseenergysourcesarenotoftentradedoutsideChina.ButasChinafurtherdevelopsitsnuclearandrenewableenergy,thoseenergysourceswillreduceChina’sgrowingdemandforfossilfuelsfromregionalorworldmarkets.Chinaisusingmorefossilfuelalternativesinthetransportationsectorbyexpandingcapacitytoproducebioethanolandbiodiesel;in2013Chinabecamethethird-largestproducer21offuelethanol,thoughitproducessignificantlylessthantheUnitedStatesandBrazil.AlthoughdomesticallyconsumedChinesebiofuelhaslittleeffectontheU.S.biofuelmarket,anybiofuelthatreducesdemandforoilwillputdownwardpressureontheworldoilprice.Also,China’suseofnuclear18MostofChina’snaturalgasreservesareconventional,butChinaisexpandingexplorationandproductionofunconventionalgasresources,includingcoal-bedmethane,tightgas,andshalegas.Geologicandlogisticaldifficultiesassociatedwithnaturalgasextractionreducedcurrentextractionquantitiesofunconventionalresources,causingChinatofallbelowtargetforunconventionalgasproductionin2013;seeInternationalEnergyAgency,Medium-TermGasMarketReport2014,http://tinyurl.com/mcqsw8e.SeealsoEnergyInformationAdministration,China(February4,2014),p.21,www.eia.gov/countries/cab.cfm?fips=CH;and“NaturalGasinChina:ShaleGame,”Economist(August30,2014),http://tinyurl.com/osxb7t7.19EnergyInformationAdministration,China(February4,2014),p.24,www.eia.gov/countries/cab.cfm?fips=CH.20Ibid.,p.34.21RenewableFuelsAssociation,“WorldFuelEthanolProduction”(2014),http://ethanolrfa.org/pages/world-fuel-ethanol-production.11 andrenewableenergyreducesemissionsfromburningfossilfuelsthatcontributetoglobalclimatechange.OtherEnergyPoliciesinChinaInadditiontopoliciesthatmakevariousenergycommoditiesmoreavailabletoChinesehouseholdsandbusinesses,theChinesegovernmentpursuestwotypesofenergypoliciestomeetotherobjectives.First,theChinesegovernmenthasimplementedpoliciestoproducemorerenewableenergyandtoboostincentivestoadoptenergyefficiencypractices.Ingeneral,relyingmoreonrenewableenergyorpromotingenergyefficiencyreducesgreenhousegasemissionsinChina.Thatpolicyalsoreducesdemandforenergytradedglobally,whichcould,forexample,lowerglobaloilprices.Second,theChinesegovernmentsetsenergypricesbelowmarketprices.Thesizeofthediscountfrommarketpricesisdifficulttodeterminebecausesomeenergymarketprices,suchasforelectricityandnaturalgas,arelargelyunknownandbecausetheChinesegovernmentdoesnotdisclosewhatparticularindustriespayorhowitestablishesthoseprices.Thosesubsidies,alongwithothersubsidiessuchasthoseprovideddirectlytotherenewableenergymanufacturingsector,benefitenergy-intensivemanufacturinginChina.Atthesametime,thosesubsidiesputU.S.manufacturersatadisadvantageininternationaltrade.Inresponse,severalrenewableenergytechnologyandenergy-intensiveindustriesintheUnitedStates—suchaswindturbinemanufacturers,solarpanelmanufacturers,andsteelmanufacturers—havefiledandwonantidumpingandcountervailing-dutyproceedingswiththeU.S.DepartmentofCommerce.CountervailingdutiesaretariffsthattheU.S.governmentimposestooffsetforeignsubsidiestoproducersorexporters.(Similarly,thegovernmentcanimposedutiestooffsetdumpingasawaytooffsettheeffectofforeignfirmssellinggoodsforlessthanfairvalue.)SuchsubsidiesserveasaremedyfortheU.S.domesticmarket,althoughtheydonotaddressthecompetitiveadvantageaffordedtoChineseproducers22intradewithothercountriesthathavenotinstitutedsuchmeasures.(TheEuropeanCommissionhasestablishedcountervailingdutiesforsomegoodsintherenewableenergysectoraswell.)Subsidizedenergypricesalsoincreaseenergyuseandtheassociatedgreenhousegasemissions.TheChinesegovernmentcanpursuethosetwotypesofpoliciesbecauseitcontrolsbothproducerandconsumerenergyprices.Thus,itcanincreasethepricespaidtoproducersofrenewableelectricitybutlimitwhatconsumerspayforthatelectricity.PoliciesThatPromoteRenewableEnergyandEnergyEfficiency.TheChinesegovernmenthasformulatedseveralgoalstoincreaseuseofrenewableenergyandenergyefficiency.Chinahasstatedthatby2020itwouldliketoproduce15percentofitsenergyfromnonfossilenergysourcestoreduce23greenhousegasemissions.AndinarecentagreementwiththeUnitedStates,Chinaannounceditsgoal22Formoreinformation,seevariousDepartmentofCommercerulingsavailableathttp://enforcement.trade.gov/frn/,includingthefollowing:UtilityScaleWindTowersFromthePeople’sRepublicofChina:InitiationofCountervailingDutyInvestigation,77Fed.Reg.3447(January24,2012);CrystallineSiliconPhotovoltaicCells,WhetherorNotAssembledIntoModules,FromthePeople’sRepublicofChina:CountervailingDutyOrder,77Fed.Reg.73017(December7,2012);andCertainOilCountryTubularGoodsFromthePeople’sRepublicofChina:FinalResultsofCountervailingDutyAdministrativeReview,79Fed.Reg.52301(September3,2014).23WorldBank,WorldDevelopmentReport2010:DevelopmentandClimateChange(WorldBank,2010),http://tinyurl.com/kpsl6zx.12 24toproduce20percentofitsenergyconsumptionfromnonfossilenergysourcesby2030.China’sgovernmenthasalsostatedamoregeneraldesiretosupportmoreenergyefficiencyandconservation.ThosepoliciesbenefitChinesehouseholdsandbusinessesbyreducingconsumptionofenergycommodities,suchascoalandoil,thatcontributetolocalairpollutionandclimatechange.ThosepoliciesmayalsobenefitU.S.consumersbyreducingdemandforgloballytradedenergycommodities,suchasoil,whichmayreduceupwardpressureonprices.Toreachthosegoals,theChinesegovernmenthasusedacombinationoflong-termplanning,legislation,andfinancialincentives.ThelastthreeplanningdocumentsthattheChinesegovernmentusedtoguideeconomicgrowth,calledFive-YearPlans,haveincorporatedlargenon-fossil-fuelenergytargets.TheprimarypolicysupportingincreaseduseofnonfossilfuelsinChinawastheRenewableEnergyLawof2005,whichleviedafeeonallelectricityuseandallocatedthosefundstodevelopnewrenewableenergyprojects.Chinaamendedthelawin2009torequiregridoperatorstopurchasealltheelectricityproducedfromrenewablesources.Thatsameyear,Chinaalsodoubledthefeeonelectricityusagechargedtotheindustrialsector.Therevenuefromthelawwasdistributedthroughadditionalprogramsthatusedfeed-intariffsandsubsidies.(Feed-intariffsarepaidasasubsidytorenewableenergygeneratorsinanamountthatrepresentstheincrementalcostofproductionabovethemarketpriceforelectricity.)Forexample,afeed-intariffof$0.16perkilowatt-hourwaspaidtogeneratorsofsolar25electricityin2009.Thatwasinadditiontoasubsidyof$3,000perkilowattforlargesolarinstallations,anamountthatcouldcovermorethanhalfthesystem’stotalcost.Othersubsidiesandsupportincludelow-interestfinancingoptionsforrenewableprojects,subsidiestofarmersforeachacreusedtoproducebiofuels,andaproductionsubsidyforeachtonofbiomasspelletsused.Becauseofthoseactions,energygeneratedfromrenewablesourcesgrewdramaticallybetween2005and2013andisexpectedtogrowfurtherby2020.In2013,Chinabecametheworld’slargestproducerofhydroelectricenergywithmorethan229gigawatts(GW)ofinstalledcapacity,nearlydoublethe2005capacity.(China’slargesthydroelectricfacility,calledThreeGorgesDam,wascompletedin2012andrepresents22.5GWofinstalledcapacity.)Chinawasalsothelargestgeneratorofwindpowerin2013,26with91GWofinstalledcapacity—a72-foldincreasefrom2005.ChinawassecondtoGermanyinsolarpowerin2013,with19GWofinstalledsolarcapacity.Between2013and2020,Chinaplanstoincrease27hydroelectriccapacitybytwo-thirdsandtomorethandoublewindandsolarcapacity.Tomeetenergyneedsinruralareas,theuseofbiomasshasgrownfrom2GWin2005to13GWin2013,withplansto24TheWhiteHouse,“U.S.-ChinaJointAnnouncementonClimateChange”(pressrelease,November12,2014),http://go.usa.gov/3DYsP.25RichardJ.Campbell,ChinaandtheUnitedStates—AComparisonofGreenEnergyProgramsandPolicies,ReportforCongressR41748(CongressionalResearchService,April30,2014).26Incontrast,windpowerintheUnitedStatesincreasedfrom9GWofinstalledcapacityin2005to61GWin2013.AmericanWindEnergyAssociation,U.S.WindIndustryFourthQuarter2013MarketReport(January30,2014),www.awea.org/4Q2013.27RichardJ.Campbell,ChinaandtheUnitedStates—AComparisonofGreenEnergyProgramsandPolicies,ReportforCongressR41748(CongressionalResearchService,April30,2014).13 28increaseto30GWby2020.Insubstitutesfortransportationfuel,Chinaisalsoincreasingitscapacitytoproducebioethanolandbiodiesel,asstatedearlier.IntheEnergyConservationLawof1997,theChinesegovernmentestablishedenergyefficiencyasanationalpriority:The“stateshallencourageandsupportresearchandpopularizationinthescienceandtechnologyofenergyconservation.”Energyefficiencyprogramsaredesignedtoreducedemandforothertradedenergycommodities,suchascoal,naturalgas,andoil,andreducetheenergyrequiredtomaintainmanufacturingoutputatgivenlevels.TheenergyconsumptionperunitofChinesegrossdomesticproduct(GDP),orenergyintensity,fellbyabout10percentbetween2006and2008.Thatdecreasesavedtheequivalentof290milliontonsofcoal.Energyintensityisexpectedtofallanother16percentbetween292010and2015.EnergyPricingPolicy.Toreduceconsumerpriceinflationwhileincreasingincentivestodevelopdomesticenergysources,theChinesegovernmentcontrolsenergypricesacrosstheeconomy.ForbusinessesinChina,thepricecontrolssubsidizetheuseofelectricity,naturalgas,ortransportationfuels,30ultimatelyloweringproductioncosts.Becausetheymustbuyenergyatmarketpricesbutthensellitatthecontrolled,lowerprice,electricitygenerators,naturalgasimporters,andrefinerieshaveoftenincurredlargelosses.Asaresult,theyoftenreduceproductionoridletheircapacitywhenmarketpricesforinputsarehigh.Recently,theChinesegovernmenthastakenstepstoreducetheeffectofsomepricecontrols,althoughChinawillprobablynoteliminatethesubsidiesinthenearfuture.Gasolineanddieselmarketshaveexperiencedthemostsignificantreformsforpricecontrols.ThePricingBureauoftheNationalDevelopmentandReformCommission(NDRC)historicallysetpricecontrolstosubsidizegasolineanddieselforconsumers.Atthesametime,nationallyownedrefinersinChinawereforcedtobuyoilattheglobalpriceandsellatthelower,controlledprice.Consequently,theyhadanincentivetoeitherreducetheiroutputorexporttheirfinishedproductabroad,creatingshortageswithin31China;thelargestnationalrefinerspostedlossesformostofthe2007–2012period.Toharmonizedomesticrefinedproductpriceswithglobalmarketpricesin2009,theNDRCadoptedapolicytoadjusttheretailpriceofdieselandgasolinewhenthemoving-averagepriceofimportedcrudeoilfluctuatedfromthegovernment-imposedpricebymorethan4percent.Butthecommissionabandonedthepolicyafterreportsthatpeoplehoardeddieselandgasolinefuelsinthedaysbeforethefirstadjustment.Starting28JonathanMoch,RenewableEnergyinChina:AnOverview(WorldResourcesInstitute,July2013),http://tinyurl.com/q3ky8nt.29Suchareductioninenergyintensitywouldbeasignificantaccomplishment.Formoreinformationonenergyintensityreductionsbetween2005and2010,seeLisaMastny,ed.,RenewableEnergyandEnergyEfficiencyinChina:CurrentStatusandProspectsfor2020(WorldwatchInstitute,October2010),http://tinyurl.com/pmzotq6.Formoreonreductionsbetween2010and2015,seeStianReklevandKathyChen,“ChinaCutsEnergyIntensityby4.8Pctin2014,”Reuters(January19,2015),http://tinyurl.com/mmm48tr.30RyanRutkowski,“RebalancingandRisingElectricityPricesinChina,”ChinaEconomicWatch,PetersonInstituteforInternationalEconomics(blogentry,February18,2014),http://blogs.piie.com/china/?p=3760;and“ChinaPriceReformUpdate—1H2014,”ChinaEconomicWatch,PetersonInstituteforInternationalEconomics(blogentry,August6,2014),http://blogs.piie.com/china/?p=4003.31RyanRutkowski,“ChinaPriceReformUpdate—1H2014,”ChinaEconomicWatch,PetersonInstituteforInternationalEconomics(blogentry,August6,2014),http://blogs.piie.com/china/?p=4003.14 Figure6.PriceofGasolineinNewYorkCityandShanghai,March2013–November2014UnitedStatesDollarsperBarrelofGasoline180160NewYorkCity,UnitedStates140120100Shanghai,China806003/1305/1307/1309/1311/1301/1403/1405/1407/1409/1411/14Source:CongressionalBudgetOffice,basedondatafromthePetersonInstituteforInternationalEconomics.Note:SomevolatilityintheShanghaipriceisduetofluctuationsinthevalueoftheyuaninrelationtothatoftheU.S.dollar.Overtheperiodanalyzed,theChinesegovernmentissued29changestothepostedpriceofgasolineinShanghai(andelsewhereinChina).inMarch2013,theNDRCsimplifiedtheapproachtoadjustretailgasolinepriceswhenadiscrepancyofmorethanathresholdamountoccurredbetweenthegovernment-imposedpriceandrunning-average32marketprice(seeFigure6).However,theNDRCstilllimitsthepriceofabarrelofoilto$130.ThepriceofoilfluctuatedwithinafairlynarrowrangebetweenMarch2013andJune2014buthasfallensincethen.BetweenMarch2013andDecember2014,theNDRCapproved29pricechanges,which33suggeststhattheChinesepriceissimilartotheworldpricebutrarelythesame.Thecurrentpolicyhasnotyetbeentestedinanenvironmentwithrisingoilprices.32EnergyInformationAdministration,China(February4,2014),www.eia.gov/countries/cab.cfm?fips=CH.33FormoreonpricecontrolsinChina,seeDamienMa,“China’sSearchforaNewEnergyStrategy,”ForeignAffairs(June4,2013),http://tinyurl.com/n4g5cwz;EnergyInformationAdministration,China(February4,2014),www.eia.gov/countries/cab.cfm?fips=CH;andRyanRutkowski,“ThePriceofPower:TheNewChineseLeadershipBeginsRebalancingWithResourcePrices,”ChinaEconomicWatch,PetersonInstituteforInternationalEconomics(blogentry,July16,2014),http://blogs.piie.com/china/?p=2913.15 Inthemarketforcoalandelectricity,reformstoeliminateenergysubsidiestoindustryhavebeenmuchlesseffective.Before2012,theNDRCsetalowcontractedcoalpriceforelectricitygeneratorsandalowretailelectricitypriceforhouseholdsandbusinesses.Whencoalpricesonthespotmarket(wheretransactionsaresettledatcurrentmarketpricesratherthanatcontractedrates)roseabovethelowcontractedprice,coalmineswouldchoosetosellintothespotmarketandnotdelivercoalunderthetermsoftheirlow-pricedcontractwithelectricitygenerators.Duringthoseperiods,electricitygeneratorswereforcedtopurchasehigher-pricedcoalfromthespotmarket,whichsometimesincludedU.S.producers,34despitehavingalowfixedpricetheyearnedfordeliveringelectricitytohouseholdsandbusinesses.In2011,spotpricesforcoalwerehigherthanthecontractedratebetweenminesandelectricitygenerators,raisingthecostofcoalforgenerators.Insteadofincurringlargelosses,manygeneratorsidledunitsor35reducedoutput,creatingwidespreadblackouts.Still,thefivelargestcoal-basedelectricityproducerslost36morethan$2billioninthatyear.Recognizingthedifficultiesofsuchasystem,theNDRCin2012beganallowingutilitiestonegotiatepricesdirectlywithcoalminesandallowingutilitiestopasssomecostincreasesontosomeretailelectricityrates.Industrialusesofelectricity,however,remainlargely37subsidizedthroughbelow-marketrates.TheNDRCusespricecontrolstoencouragedomesticproductionandconsumptionofnaturalgas.In2010,theNDRCincreasedthepricepaidtoproducersofnaturalgasby25percentand,attimes,linkednaturalgaspricestothehigherpriceofimportedoil.Toencourageconsumption,theNDRCthen38discountedthosehigherpricesforconsumersofnaturalgas.Below-marketnaturalgaspricesservedasasubsidyforindustrialendusersofnaturalgas.Thecombinationofhigherrawmaterialpricesandlowerend-userprices,however,causednaturalgasprocessersandimporterstoincurlosses.InJune2013,thepriceofnaturalgaswasraisedforindustrialusersby15.4percent,andinMarch2014,theNDRCallowedpricestoriseforresidentialendusers.Thosehigherpricesarestillbelievedtobebelowthe39marketpricefornaturalgas.34InternationalEnergyAgency,TheImpactofGlobalCoalSupplyonWorldwideElectricityPrices:OverviewandComparisonBetweenEurope,theUnitedStates,Australia,Japan,China,andSouthAfrica(IEA,2014),p.48,http://tinyurl.com/o9ug9zc.35ChrisLeung,“China:ACaseStudyofPriceControlonElectricity”(DBSGroupResearch,May20,2011),http://tinyurl.com/p8zl8ge.36RyanRutkowski,“ChinaPriceReformUpdate—1H2014,”ChinaEconomicWatch,PetersonInstituteforInternationalEconomics(blogentry,August6,2014),http://blogs.piie.com/china/?p=4003.37RyanRutkowski,“ThePriceofPower:TheNewChineseLeadershipBeginsRebalancingWithResourcePrices,”ChinaEconomicWatch,PetersonInstituteforInternationalEconomics(blogentry,July16,2014),http://blogs.piie.com/china/?p=2913.In2013,theNDRCdidrelaxpricecontrolsforaluminummanufacturing,thethird-largestconsumerofelectricityaftersteelandchemicalproduction.Formore,seeRyanRutkowski,“RebalancingandRisingElectricityPricesinChina,”ChinaEconomicWatch,PetersonInstituteforInternationalEconomics(blogentry,February18,2014),http://blogs.piie.com/china/?p=3760.38RyanRutkowski,“ThePriceofPower:TheNewChineseLeadershipBeginsRebalancingWithResourcePrices,”ChinaEconomicWatch,PetersonInstituteforInternationalEconomics(blogentry,July16,2014),http://blogs.piie.com/china/?p=2913.39RyanRutkowski,“ChinaPriceReformUpdate—1H2014,”ChinaEconomicWatch,PetersonInstituteforInternationalEconomics(blogentry,August6,2014),http://blogs.piie.com/china/?p=4003;andTingWangandBoqiangLin,“China’sNaturalGasConsumptionandSubsidies—FromaSectorPerspective,”EnergyPolicy,vol.16 Suchpricecontrolsalsohaveotherunintendedconsequences.Energypricesbelowtheprevailingmarketpricecreateanincentiveforhouseholdsandbusinessestoconsumemoreenergyintheshortterm.Andtheexpectationthatenergypriceswillbehelddownoverthelongtermencouragesthoseconsumerstoinvestinenergy-intensivecapitalortechnologiesthatarenotenergyefficientandincreaseemissionsoflocalpollutantsandgreenhousegases.ThelargestconsumersofenergyinChinaareheavyindustriessuchassteelandaluminum,whichcollectivelyconsumethree-quartersofChina’senergy.Forthosefirms,below-marketpricesforelectricity,naturalgas,andfuelreduceproductioncostandmaketheirexportsmorecompetitiveontheworldmarket.III.ImplicationsofChina’sEnergyGrowthandPoliciesforU.S.HouseholdsandBusinessesChina’senergyuseandpoliciesaffectU.S.householdsandbusinessesthroughseveralchannels.First,whenChinaandtheUnitedStatespurchaseenergyfromthesamemarket,aswithoil,increasedChinesedemandwillincreasepricesandpossiblypricevolatilityforU.S.energyusers.Second,directrenewableenergysubsidiesandenergypricecontrolsforChinesefirms,combinedwithothersubsidiesunrelatedtoenergy,lowermanufacturingcosts.Asaresult,China’sexportsbecomemoreattractiveininternationalmarkets,whereasU.S.exportsbecomelessattractive.Conversely,subsidiesthatleadtotechnologicalinnovationsorthedeploymentanddiffusionofrenewabletechnologiescouldspillovertobenefitequivalentindustriesintheUnitedStatesandloweremissionsofgreenhousegasesfromwhattheywouldhavebeenwithoutsuchinnovations.Third,increaseddemandforenergy,particularlyfossilfuels,willincreaseemissionsthatcontributetoglobalclimatechange.EnergypolicyinChinaalsoaffectsU.S.foreignpolicy,althoughafullanalysisisbeyondthescopeofthispaper.Forexample,ChinahasnotfullysupportedU.S.sanctionsagainstIranandimportedsubstantialamountsofIran’soil.In1996theU.S.governmentenactedsanctionsagainstanycompanythatinvestedmorethan$20millioninpetroleumresourcesinIran.TheU.S.governmentstrengthenedandextendedsanctionsagainstIranin2010.Suchembargoesworkbestinachievingforeignpolicyobjectiveswhenallcountriesadheretothesanctions.Withoutsuchadherence,oilormoneyfromtheembargoedcountriessimplyflowsthroughcountriesthatdonotadhereandlittleoverallchangeoccurs(beyondsometransactioncostsfortheembargoedcountriestodevelopnewtradingpartners).Butworldadherenceto,forexample,anoilembargoofIranwouldprobablyraisetheworldpriceofoilsubstantiallybecauseIranianoilcouldnolongerreachtheworldmarket.Suchembargoeshavenotaffectedpricemuchbecausenotallcountriesparticipate.In2014,Iranwasthesixth-largestexporterofoiltoChina.ChinarecentlyagreedtonotincreaseimportsfromIranbutwouldnoteliminatethem:Iran’soilcanstillreachthemarket,leavingworldoilpricesmostlyunaffected,thoughtheembargothenhaslesseffectonthe40Iraniangovernment.65(February2014),pp.541–551,http://dx.doi.org/doi:10.1016/j.enpol.2013.10.065.Thesecondarticlesuggeststhatnaturalgaspricesin2004weremorethan50percentbelowcomparablemarketprices.40Similarly,inresponsetoRussia’sactionsinUkrainein2014,theU.S.governmentrestrictedtechnologytransferandtradewithRussianoilfirms.AlthoughChina’sfullresponsetothosesanctionshasyettobeobserved,Russiahassoughtwaystodiversifyitstradingpartners,increasinglyturningtoChina.Forexample,inMay2014,Russia17 EnergyMarketPriceandVolatilityChinaimportsthreeprimaryenergycommodities:oil,coal,andnaturalgas.Becausetheoilmarketisgloballyintegrated,increaseddemandforimportedoilfromChinaaffectsU.S.consumersthroughhigheroilpricesandpossiblyincreasedvolatility.Themarketsforcoalandnaturalgasaremuchlessgloballyintegrated,withchangesinChina’sdemandaffectingU.S.consumersverylittle.Specifically,increaseddemandforoilfromChinathatincreasedproductionelsewheredoesnotoffsetwouldraisetheworldoilpriceandpricesofrefinedoilproducts.Moreover,additionalinstabilityintheworldoilmarketmayincreaseoilpricevolatility—causingunexpectedandtemporarychangesinenergyprices.Becausepricevolatilitymakesfuturepricesuncertain,ittendstobecostlyforU.S.householdsandbusinesses,complicatinginvestmentdecisions.Alarge,suddenspikeinenergypricescouldhaveashort-terminfluenceonconsumerspendingbyaffectingconsumerconfidence.Peoplemightpostponesomepurchasesoutofconcernabouthowthedisruptionwouldaffecttheeconomy.Thosereductionsindemandwouldtendtoleadbusinessestotemporarilyreduceinvestmentandemployment,therebydiminishinghouseholdincomeandfurtherloweringconsumerspending.OilPriceLevels.Between2008and2013theworldpriceofoilrosebecausedemandexceededsupplyandwasexpectedtogrowfasterthansupplyinthefuture.GrowingdemandfromChinacontributedtorisingoilprices.IntheUnitedStates,higheroilpricesaffectU.S.householdsandbusinessesbothdirectlyandindirectly.Fordirectcosts,consumerswouldhavetopaymorefortherefinedoilproductsusedintransportationandforothergoodsandservicesproducedwithoil.SomeofthatincreasedspendingispaidtoforeignproducersorownersofoilassetsanddoesnotimmediatelytranslateintoincreaseddemandforU.S.exports,depressingU.S.economicgrowth.Forindirectcosts,thosehigherpriceswouldreduceconsumptionofothergoodsandservices.Takentogether,thedirectandindirecteffectsofhigheroilpricesdampenGDPfromwhatGDPwouldotherwisehavebeen.OtherpoliciesinChina,suchassubsidiesthatholddownthepriceofoilorincreaseuseofoilsubstitutes,haveprobablyhadsmalleffects.China’spricecontrolsforgasolineanddieselprobablyhelpedtoincreaseconsumptionofthosefuelsandraiseoilprices,althoughtheeffectsofsuchpricecontrolsappeartohavediminishedgreatly.Conversely,subsidiesforalternativepetroleum-basedtransportation,includingthoseforbioethanol,biodiesel,andhigh-speedrail,probablyreducedChina’sdemandfromtheworldoilmarketandreducedtheupwardpressureonthepriceofoilforU.S.consumers.OilPriceVolatility.Volatilityofoilpricesintheworldmarketisdeterminedbythestabilityofoil-producingcountriesandthosecountries’abilitytoincreaseordecreaseproductioninresponsetochangingprices.Consumers’abilitytoreduceconsumptionwhenpricesrisecanalsoaffectvolatility.Oil-producingcountrieshavelittlesparecapacitytoproducemoreoilquicklywhenpricesrise.And,atleastintheshortterm,consumershavefewsubstitutesforoilanditsrefinedproducts,whichmeansthatvolatilityisdeterminedprimarilybythestabilityofsupply.Theincreasedworlddemandforoil,includingthatfromChina,putsupwardpressureonthepriceofoil,whichencouragescountriesandfirmstobringnewsourcesofsupplytothemarket.Overthepastdecade,muchofthenewsupplycamefromcountriesconsideredmorestable—theUnitedStatesandCanada—reducingvolatilityintheoilmarket.Whenmadealong-termagreementtosellgastoChina.SuchpartnershipswouldmakeU.S.andEuropeansanctionslesseffective.18 additionalsupplycomesfromcountriesthatarelessstablebecauseofdomesticorregionalunrest,insufficientinfrastructure,ortechnicallycomplicatedoilfields,volatilityintheoilmarketwouldbe41expectedtorise.Since2000,ChinahasinvestedheavilyindevelopingoilfieldsthroughoutAfrica,includingNigeria,42Angola,Chad,Niger,andSouthSudan.NewsupplyfromthosecountriesandothersinAfricaenteredthemarketandsatisfiedaboutathirdofChina’soildemand.Thosecountriesandtheirsupply,however,tendtobelessstablethanU.S.orCanadianoilsupplies.Forexample,in2013,Nigerianoilproductionfellbyalmost450,000barrelsofoilperdaytoafour-yearlowasaresultofvandalism,kidnappings,and43militanttakeovers.Similarly,in2012,SudanandSouthSudancouldnotagreeonhowtoshareoil44revenues;bothcountriesreducedproductionbyabout300,000barrelsofoilperday.Thosetwoevents,amongotherunplanneddisruptions,raisedtheworldoilprice.ItremainedelevateduntilthesupplyfromNigeriaandSouthSudanreturnedtothemarketandwasbelievedtobestable.LackoftransparencywithintheChineseeconomyaboutoilconsumption,asecondsourceofprice45volatility,reducesoilanalysts’abilitytopredictdemandtrends.Toaddressthatconcern,theU.S.DepartmentofEnergyrecentlyagreedtohelpChinadevelopanenergydataagencysimilartotheU.S.46EnergyInformationAdministration.Consideroneexampleofthechallengeassociatedwithlackoftransparency:In2004,electricitygeneratorsrefusedtosellelectricityatthegovernment-imposedpricebecausethecosttogeneratethepowerwashigher.Thegeneratorschosetoshutdown,causingblackoutsthroughoutChinaandaspikeinthedieselandfueloilthatChinesecompaniespurchasedtopowerbackupelectricitygenerators.Datadescribingthedomesticinventoriesofrefinedproductswerenotreadilyavailableforanalyststounderstandwhetherbusinesseswerepurchasingmoreoilthanneededforcurrentconsumption.Withoutinventorydata,oilconsumptioninChinaappearedtoincreaseby16percentbetween2003and2004,comparedwith11percentinthepreviousyear.Themarket,assumingthatincreaseindemandwaspermanent,respondedbydramaticallyincreasingthepriceofoil.Inresponsetohigherprices,refiningcapacityincreased.Butbecauseofdraw-downofoilinventories,newcoal-firedpowercapacityinChina,andfewerblackoutsin2005,theexpectedincreaseddemanddidnotoccur.Oilpricesthenfell.41Toexplorehowpoliticalinstabilitycontributestomarketvolatility,seeJamesHamilton,“HistoricalOilShocks,”inRandallE.ParkerandRobertWhaples,eds.,RoutledgeHandbookofMajorEventsinEconomicHistory(Routledge,TaylorandFrancisGroup,2013),pp.239–265,www.routledge.com/books/details/9780415677035/.42LaurenGamache,AlexanderHammer,andLinJones,“China’sTradeandInvestmentRelationshipWithAfrica,”USITCExecutiveBriefingsonTrade(UnitedStatesInternationalTradeCommission,April2013),http://go.usa.gov/3DYnh(PDF,136KB).43SeeEnergyInformationAdministration,Nigeria(December30,2013),www.eia.gov/countries/cab.cfm?fips=NI;andEnergyInformationAdministration,“GlobalCrudeOilSupplyDisruptionsandStrongDemandSupportHighOilPrices,”TodayinEnergy(September10,2013),www.eia.gov/todayinenergy/detail.cfm?id=12891.44EnergyInformationAdministration,SudanandSouthSudan(September3,2014),www.eia.gov/countries/cab.cfm?fips=SU.45DanielH.RosenandTrevorHouser,ChinaEnergy:AGuideforthePerplexed(PetersonInstituteforInternationalEconomics,May2007),pp.28–29,www.piie.com/publications/papers/rosen0507.pdf(2.5MB).46MichaelBarris,“U.S.EnergyChiefWelcomesChina’sTransparencyonData,”ChinaDailyUSA(December13,2013),http://tinyurl.com/n4ktknn.19 CoalPriceLevelsandVolatility.Thoughrelativelylow,ChinesedemandforU.S.-producedcoalhasputupwardpressureonU.S.coalprices,butthateffecthasprobablybeensmall.Similarly,increasesinChina’sdemandforcoalwouldprobablynotmakecoalpricesmorevolatileforU.S.consumers.China’sincreaseddemandforcoalprobablyrepresentsanetbenefitforU.S.coalproducers.TheUnitedStatesisanetexporterofcoal,withabout8millionshorttonsexportedtoChinain2013.SomeChinesegeneratorsbuyU.S.coalbecausethespotpriceofcoalinChinahassometimesbeenhigherthanthecostofimportingcoalfromtheUnitedStates.AlthoughexportsofcoaltoChinahaveputsomeupwardpressureonU.S.coalprices,U.S.producersofcoalexportedonly0.8percentoftotalproductiontoChinain2013.(TheUnitedStatesexportedabout10percentofthecoalitproduced,mostlytotheUnitedKingdomandtheNetherlands.)47Becauseavarietyoffuelsareusedtogenerateelectricity,coalexportstoChinaprobablydonotappreciablyaffectU.S.electricityprices.Moreover,betweenEnvironmentalProtectionAgencyregulationsannouncedin2013andagingcoal-firedpowerplants,theamountofcoal-generatedelectricityintheUnitedStateswillprobablyfallfurtheroverthenextdecade.UpwardpressureoncoalpricesbenefitstheownersandemployeesofcoalassetsandprobablykeepssomecoalminesoperatinglongerthantheywouldwithouttradewithChina.NaturalGasPriceLevelsandVolatility.ChangesinChina’sconsumptionofnaturalgaswillprobablynotincreasepricesoraffectpricevolatilityforU.S.consumers.TheUnitedStatesisexpectedtobeanetexporterofnaturalgasinthenearterm,althoughitwillprobablystillimportsomenaturalgasfromMexicoandCanadathroughexistingpipelines.TheUnitedStateshastheworld’slowestnaturalgasprices:InJanuary2015naturalgastradedforabout$3perthousandcubicfeetintheUnitedStates,about$9inEurope,and$14inJapanandChina.ThecosttoliquefyandshipLNGoverseasislessthanthatpricedifference,andthusU.S.firmsarebuildingLNGfacilitiestoshipnaturalgasabroad.EIAexpectsthateventhemostoptimisticprojectionsofLNGexportswillhavelittleornoeffectonU.S.naturalgas48pricesbecausetheyrepresentsuchasmallpercentageofU.S.supply.However,ownersandemployeesofbusinessesthatproduceandliquefynaturalgaswouldbeexpectedtoearnincreasedprofitsfromsellingLNGabroad,regardlessofwhopurchasesit.CompetitivenessinManufacturingChina’spoliciestosubsidizerenewabletechnologiesandcontrolenergypricesforChinesebusinessesprobablymakeU.S.firmsthatmanufacturerenewabletechnologiesorenergy-intensiveproductslesscompetitive.HowmuchthosetwosubsidiesaffecttheUnitedStatesisdifficulttodetermine.AndpricecontrolswillprobablyaffectenergypriceslessthanotherChinesepoliciesthatmayaffectU.S.firmssuchascurrencydevaluation,indigenouscontentrequirements,preferentialtaxandexportpromotionpolicies,49andlow-interestloansorreducedpricesforlandortechnology).Yetthoseenergysubsidiesmakegoods47EnergyInformationAdministration,“CoalDataBrowser,”(accessedFebruary24,2015),www.eia.gov/beta/coal/data/browser/.48EnergyInformationAdministration,AnnualEnergyOutlook2014(April2014),www.eia.gov/forecasts/aeo/.49IndigenouscontentrequirementsmandatethataparticularshareoftechnologiessoldinChinabeproducedinChina,whichmayrequireforeignfirmswantingtosellinsideChinatolocateR&Dfacilitiesthere.SuchpolicyletsChinesefirmsmoreeasilycaptureintellectualproperty.Formore,seeMatthewSteppandRobertD.Atkinson,GreenMercantilism:ThreattotheCleanEnergyEconomy(InformationTechnologyandInnovationFoundation,20 Figure7.FinancialNewInvestmentinCleanEnergyandTechnologies,2004–2010BillionsofNominalUnitedStatesDollars60China5040EuropeanUnion30UnitedStatesRestoftheWorld2010BrazilAsia-80Japan2004200520062007200820092010Source:CongressionalBudgetOffice,basedoninvestmentdatafromtheNationalScienceBoard,ScienceandEngineeringIndicators2012.Notes:Asia-8includesIndia,Indonesia,Malaysia,Philippines,Singapore,SouthKorea,Taiwan,andThailand.Cleanenergyandtechnologiesincludebiomass,geothermal,wind,solar,biofuels,smartgrid,andenergyefficiency.andservicesimportedfromChinacheaperforU.S.consumers.Also,ChinesesubsidiesthatpromoteinnovationinthedeploymentanddiffusionofrenewabletechnologieshelpreducegreenhousegasemissionsinChinaandothercountriesandcouldalsoincreasetheuseofthosetechnologiesintheUnitedStates.ReducedU.S.Competitiveness.TheChinesegovernmentsubsidizesthedevelopmentofrenewabletechnologies,mostnotablysolar,wind,andbiofuelcapacity.Forthefirsttimein2010,Chinainvestedmoreinrenewableenergyandenergyefficiencythananyothercountry(seeFigure7).Subsidiestorenewabletechnologiesoccurdirectlythroughfeed-intariffsanddirectpaymentsandoccurindirectlythroughbelow-marketratesforelectricity—asignificantinputforsolarpanelandwindturbinemanufacturing.BothtypesofsubsidieshaveenabledChineserenewablemanufacturingcompaniestorapidlybuildeconomiesofscaleandbringtheircostsbelowthoseofmanyU.S.renewablemanufacturingcompanies.UnabletocompetewithlowChineseprices,severallargeU.S.solarmanufacturersdeclaredJune2012),http://tinyurl.com/74mgq5e.ForamorecompletediscussionofsubsidiesinChina,includingenergysubsidies,seeUshaC.V.HaleyandGeorgeT.Haley,SubsidiestoChineseIndustry:StateCapitalism,BusinessStrategy,andTradePolicy(OxfordUniversityPress,2013),http://tinyurl.com/lrjm669;andUshaC.V.HaleyandDouglasA.Schuler,“GovernmentPolicyandFirmStrategyintheSolarPhotovoltaicIndustry,”CaliforniaManagementReview,vol.54,no.1(Fall2011),pp.17–38,http://dx.doi.org/10.1525/cmr.2011.54.1.17.21 bankruptcy.TheU.S.DepartmentofCommercehearsclaimsfromU.S.businessesaboutunfairtradepracticesinothercountries.ItrecentlyruledthatseveralChinesesubsidiesofrenewabletechnologiesare50unfairandjustifyestablishingcountervailingduties.SuchdutiescouldmakeU.S.productsmorecompetitiveindomesticmarketsbutwouldnothelpU.S.manufacturersselltheirproductstocountriesotherthantheUnitedStatesorChinabecausesuchdutieswouldnotapplytoChineseproductssoldinthosecountries.TheChinesegovernmentalsoindirectlysubsidizesenergy-intensivemanufacturingbycontrollingenergyprices,mostnotablyforelectricityandnaturalgas.Thosepricecontrols,amongothersubsidiesunrelatedtoenergy,lowerthecostformanufacturerstobringtomarketproductsandservicesthatrelyonelectricityornaturalgas.ThatarrangementbenefitsmainlymanufacturingsectorsinChinathatusesubstantialelectricityandhavelargeexports;intheUnitedStates,thosesectorsarechemicals;primarymetals,suchasaluminumandsteel;automobilesandtrucks;andconsumerandelectronicproducts,includingsolartechnologies(seeFigure8).BecauseenergypriceswerenotcontrolledtothesameextentintheUnitedStates,China’senergysubsidyreducedtherelativecompetitivenessofU.S.goodsandservicesinthosesectorsontheinternationalanddomesticmarkets.Estimatingthesizeofsubsidiesresultingfrompricecontrolsisdifficult.Pricecontrolsubsidiesprobablyrepresentasmallshareofallthesubsidiesthemanufacturingsectorreceives,makingpricecontrolsless51important.Inoneestimateofthemagnitudeofthesubsidies,theChinesegovernmentreportsthatreturnonassetsintheelectricitysectorin2014was3.9percent,comparedwithacompetitivelow-riskprimelendingrateof5.8percent.Thatcomparisonsuggeststhatevenwithrecentreforms,electricitypricesforendusersarestillbelowwhatelectricutilitieswouldchargetobeearningthecompetitivelow-riskrateon52theirassets.Inasecondestimateofthesizeofenergysubsidies,theindustrialpricefornaturalgasin2013increasedby15.4percent,whichstillleftthecontrolledpricebelowthemarketprice.Althoughthe50Formoreinformation,seevariousDepartmentofCommercerulingsavailableathttp://enforcement.trade.gov/frn/,includingthefollowing:UtilityScaleWindTowersFromthePeople’sRepublicofChina:InitiationofCountervailingDutyInvestigation,77Fed.Reg.3447(January24,2012);CrystallineSiliconPhotovoltaicCells,WhetherorNotAssembledIntoModules,FromthePeople’sRepublicofChina:CountervailingDutyOrder,77Fed.Reg.73017(December7,2012);andCertainOilCountryTubularGoodsFromthePeople’sRepublicofChina:FinalResultsofCountervailingDutyAdministrativeReview,79Fed.Reg.52301(September3,2014).51Someanalystssuggestthatothersubsidiesforheavyindustry,suchasthoseforlandorfinancing,representalargersetofsubsidies.SeeDanielH.RosenandTrevorHouser,ChinaEnergy:AGuideforthePerplexed(PetersonInstituteforInternationalEconomics,May2007),www.piie.com/publications/papers/rosen0507.pdf(2.5MB).Multipleindustrycomplaintsandgovernmentanalyses,however,suggestthatenergypricecontrolscreateacompetitiveadvantageforChinesemanufacturing.Forexample,seeUshaC.V.Haley,PuttingthePedaltotheMetal:SubsidiestoChina’sAuto-PartsIndustryfrom2001to2011(EconomicPolicyInstitute,January31,2012),www.epi.org/publication/bp316-china-auto-parts-industry/;KevinM.Dempsey,AmericanIronandSteelInstitute,lettertoDouglasM.Bell,Chair,TradePolicyStaffCommittee,OfficeoftheU.S.TradeRepresentative(September17,2014),http://tinyurl.com/o7z63sw;andChristianMarsh,DeputyAssistantSecretaryforAntidumpingandCountervailingDutyOperations,memotoPaulPiquado,AssistantSecretaryforImportAdministration,U.S.DepartmentofCommerce(February1,2013),http://go.usa.gov/3DgqA(PDF,401KB).52RyanRutkowski,“ChinaPriceReformUpdate—1H2014,”ChinaEconomicWatch,PetersonInstituteforInternationalEconomics(blogentry,August6,2014),http://blogs.piie.com/china/?p=4003.22 Figure8.ElectricityIntensityofU.S.ExportsbyExportValueandIndustry,2011ElectricityIntensityShare(Dollarsofpurchasedelectricity/finishedvalue×100percent)Source:CongressionalBudgetOffice,basedondatafromtheU.S.CensusandU.S.DepartmentofCommerceInternationalTradeAdministration.Chinesegovernmentrecentlytriedtoreducesomeofitspricecontrols,itprobablydidnotintendthosechangestoeliminateenergysubsidiesforindustrialendusers.BenefitsforU.S.Consumers.AlthoughsomeChinesesubsidiesmayhurtsomeU.S.householdsandbusinessesthroughlostjobsorlowersales,thosesamesubsidiesmayenableotherU.S.householdsandbusinessestopaylessforgoodsandservices.Forexample,thecostofsolarinstallationshasfallen53significantlyoverthepastdecade,drivenlargelybylow-costChinesesolarimports.Bysomeestimates,U.S.consumershavesavedmorethan$500billionbetween2001and2010becauseoflower-priced53EricRoston,“SolarSiliconPriceDropBringsRenewablePowerCloser”(BloombergNews,March13,2012),http://tinyurl.com/lcge9fn.23 54Chineseimportsofsuchitemsassolarpanelsandchildren’stoys.AlthoughthefullpricedifferencebetweenU.S.-madeandChinese-madegoodsandservicesdependsonmanyfactors,energysubsidiesinChinacontributetothedifference,particularlyforgoodsandservicesthatareenergyintensivetoproduce.Ingeneral,thebenefitstoU.S.consumersfromforeignsubsidiesoutweightheharmtoU.S.55manufacturersfromlostcompetitivenessunlessthesubsidiesreducecompetition.Inthisinstance,Chinesesubsidiesmayhavereducedcompetition;someU.S.producerscitedChinesesubsidiesashavingcontributedtotheirbankruptcy.Thereducedcompetitionwouldtendtoresultinhigherpricesthatwouldoffsetthebenefitofthesubsidytoconsumerssothattheneteffectisunknown.BysupportinginnovationthatcanbetransferredoutsideChina,ChineseenergysubsidiescanalsohelpU.S.consumers.Evenso,theanticompetitiveeffectsofChineseenergysubsidiesmayoutweighsuchbenefit.ChinesefirmsareprobablynotengagedinbasicresearchthatwillbenefitU.S.firms,butChineseinnovationsindeployinganddiffusingrenewableenergytechnologiescouldbenefitsomeU.S.56companies.Forexample,someChinesecompaniesareexperimentingwithusingultra-high-voltagetransmissionandsmart-gridtechnologytobettermanagethestorageandtransmissionofelectricitygeneratedthroughrenewabletechnologies.Innovationsinthosetechnologieswouldbenefitmany57countries.Theliteratureincludessomedebateabouttheextenttowhichinnovationsexistthatcanbetransferredtoothercountries,asevidencedbyChinesecompaniestendingtohavefewerpatentsthan58counterpartselsewhereintheworld.Butforinnovationindeploymentanddiffusionthatistransferrable,multinationalmanufacturerswithfacilitiesinChinaorothertypesofknowledge-sharingpartnershipsmayserveasamechanismtodisseminateChinese-subsidizedinnovationtobenefitallbuyersofrenewabletechnology.ClimateChangeStabilizingtheconcentrationofgreenhousegasesintheatmospherewillbevirtuallyimpossibleifChina—andothercountrieswithrapidlygrowingeconomies,suchasIndia,Brazil,andSouthKorea—do59notsubstantiallycuttheiremissions.Untilabouteightyearsago,theUnitedStateshadmoreglobal54BoththeChinesegovernmentandindependenteconomicanalysesstatethemagnitudeofsavingstoU.S.consumers.See“Hu’sCounting:HasChinaSavedU.S.Consumers$600Billion,asHuJintaoClaims?”Economist(blogentry,January28,2011),http://tinyurl.com/4uey3f5;thisblogcitesRaphaelAuerandAndreasM.Fischer,“TheEffectofLow-WageImportCompetitiononU.S.InflationaryPressure,”JournalofMonetaryEconomics,vol.57,no.4(May2010),pp.491–503,http://dx.doi.org/10.1016/j.jmoneco.2010.02.007.55See,forexample,StevenM.Suranovic,“WelfareEffectsofanExportSubsidy:LargeCountry”(lastupdatedAugust20,2004),http://internationalecon.com/Trade/Tch90/T90-27.php.56UshaC.V.HaleyandGeorgeT.Haley,SubsidiestoChineseIndustry:StateCapitalism,BusinessStrategy,andTradePolicy(OxfordUniversityPress,2013),http://tinyurl.com/lrjm669.57LiuZhenya,“Ultra-High-VoltageTransmissionCanBreakChina’sCycleofEnergyDependence,”Forbes(September18,2014),http://tinyurl.com/ns8d59x.58SeeLongLam,LeeBranstetter,andInêsL.Azevedo,TooFast,TooSoon?TheRiseoftheChineseWindTurbineManufacturingIndustry,CenterforClimateandEnergyDecisionMakingWorkingPaper(CenterforClimateandEnergyDecisionMaking,June20,2014),http://tinyurl.com/lvlq5x6(PDF,1.2MB).59SheilaM.OlmsteadandRobertN.Stavins,“ThreeKeyElementsofaPost-2012InternationalClimatePolicyArchitecture,”ReviewofEnvironmentalEconomicsandPolicy,vol.6,no.1(Winter2012),pp.65–85,http://dx.doi.org/10.1093/reep/rer018.24 emissionsthananyothersinglecountry,butChinaisnowthesinglelargestemitter.Chinaaccountsforroughly25percentofglobalemissions(withtheUnitedStatesaccountingfor15percent),andChina’s60shareisprojectedtogrowtomorethan30percentby2035.China’sdominanceinglobalemissionsisattributabletoitsrapidlygrowingeconomy(itsGDPincreasednearly30-foldbetween1971and2011),coupledwithitsrelianceoncoalfortwo-thirdsofitstotalenergyuse,givingitarelativelyhigh“emissionintensity”(emissionsperunitofGDP).AlthoughChina’semissionintensityhasfallen,itseconomyis61aboutfourtimesasemissionintensiveasthatoftheUnitedStates.AchievinganygivenreductioninglobalemissionswouldbesubstantiallycostlierwithoutChina’sparticipation.Chinaandotherdevelopingcountriestendtohaverelativelyinefficientenergy-producinginfrastructure,offeringrelativelylow-costopportunitiestoimproveefficiency.Moreover,becauseChina’senergy-producinginfrastructureisgrowingrapidly,delayingreductionscouldlockinemission-62intensivecapitalequipmentfordecades.Between2004and2010,Chinamorethandoubleditscapacityofcoal-firedelectricitygenerators,andalthoughtheefficiencyoftheChinesecoalfleetimproved63significantlyoverthatperiod,thosegeneratorsareexpectedtolast50years.AndEIAforecaststhat64Chinawillroughlydoubleagainitsproductionofcoal-firedelectricitybetweennowand2040.Finally,withoutsimilareffortsinChinaandotherdevelopingcountries,policiestoreduceU.S.emissionscouldtriggeroffsettingincreasesinoverseasemissions—aphenomenonknownas“leakage.”Leakagecanoccurintwoways:•U.S.emission-reducingpoliciesraisethecost,andreducedomesticconsumption,ofoilanditsrefinedproducts.Thatdropinconsumptionlowerstheworldpriceofoil,leadingtooffsettingincreasesintheconsumptionofoilanditsrefinedproducts—andcorrespondingincreasesinemissions—incountrieswithoutsimilarrestrictions.60EnergyInformationAdministration,China(EIA,February4,2014),www.eia.gov/countries/country-data.cfm?fips=CH;andEnergyInformationAdministration,InternationalEnergyOutlook2013(July2013),Table21,www.eia.gov/forecasts/archive/ieo13/;InternationalEnergyAgency,WorldEnergyOutlookSpecialReport2013:RedrawingtheEnergyClimateMap(IEA,June10,2013),Figure1.11,p.30,http://tinyurl.com/nu9e3he.61InternationalEnergyAgency,CO2EmissionsFromFuelCombustion,Highlights2013(IEA,2013),http://tinyurl.com/ogt35u3(basedonexchangerate–adjustedGDP).62Forexample,seeValentinaBosetti,CarloCarraro,andMassimoTavoni,“ClimateChangeMitigationStrategiesinFast-GrowingCountries:TheBenefitsofEarlyAction,”EnergyEconomics,vol.31,suppl.2(December2009),pp.S144–S151,http://dx.doi.org/10.1016/j.eneco.2009.06.011.63Citibank,TheUnimaginable:PeakCoalinChina(September4,2013),http://tinyurl.com/qxffvcl(PDF,837KB).64AlthoughtheEIAbasecasescenarioprojectsChinadoublingcoalconsumptionby2040,someanalysesprojectslowereconomicgrowthinChinaandsuggestthatcoalconsumptioninChinacouldpeakby2016andfallshortlythereafter.See,forexample,InternationalEnergyAgency,WorldEnergyOutlook2013(IEA,November12,2013),pp.4–5,www.worldenergyoutlook.org/publications/weo-2013/.FortheEIAanalysis,seeEnergyInformationAdministration,China(February4,2014),www.eia.gov/countries/cab.cfm?fips=CH.25 •U.S.emission-reducingpoliciesalsoraisethecostofproducingemission-intensivegoodsandservices,suchaschemicalsandaluminum.Manufacturerscouldseektoavoidthosehighercosts65byrelocatingtheirproduction—andtheiremissions—tocountrieswithlessstringentpolicies.LeakagetoChinathroughthefirstmechanismmightbelimitedtotheextentthatChina’spricecontrolspreventconsumers’pricesfromfallinginresponsetodecreasesintheworldpriceofoil.LeakagethroughthesecondmechanismisofconcernbecauseChinatendstobearelativelylow-costlocationfor66manufacturing.IV.PolicyOptionstoLimitEffectsonU.S.HouseholdsandBusinessesChina’sgrowingenergyusecouldraiseoilprices,increaseoilpricevolatility,andincreaseemissionsofgreenhousegases.U.S.policymakersmightconsiderseveraloptionstominimizesucheffects.SomesuchoptionsmightbenefitU.S.householdsandbusinessesregardlessofChina’senergyconsumption.Forexample,mostoilintheUnitedStatesisrefinedtomakegasolineordiesel,andfewsubstitutesforfuelingtransportationexist.PolicymakerscouldreducetheeffectonU.S.consumersofhigherandmorevolatileoilpricesbyincreasingconsumers’alternativesfortransportation.Otherpoliciescoulddecreasedemandforoilorincreasethesupplyofoilonthemarket.ThebenefitsofthosepolicieswouldaccruetoU.S.consumersregardlessofwhichcountriescontributedtohigheroilpricesortoincreasedoilpricevolatility,butthepolicieswouldhavecostsaswell.CurrentdomesticenergypolicyinChinaincludesdirectandindirectsubsidiesforrenewabletechnologiesaswellasenergypricecontrolsthatsubsidizethemanufacturingofenergy-intensivegoodsandservices.ThosepoliciesmakesomeU.S.businesseslesscompetitivebutalsobenefitU.S.consumersandinsomeinstancesmaylowergreenhousegasemissions.ThemostdirectcounterbalancetoChinesesubsidiescouldbecountervailingdutiesonChineseimportsorsubsidiesfordomesticmanufacturing.However,countervailingdutiesarealreadyinplaceforsomeimports,andsubsidizingU.S.manufacturingmightviolateagreementstheUnitedStateshasmadethroughtheWorldTradeOrganization(WTO)orcouldintroducecompetitivedisparitieswithothercountries.SubsidieswouldalsobeexpensivefortheU.S.government.Alternatively,engagingChinathroughWTOcouldencourageChinatoreduceitssubsidiesortransitionmorequicklytomarketpricesforenergytoreduceanycompetitivedisadvantageforU.S.firms.Also,policiesthatencouragedexpandedpartnershipwithChinesefirmscouldbetterleverageanyinnovationobtainedasaresultofthelargeChinesegovernmentsubsidiesforthoseindustries.Separately,tocapitalizeongrowingChinesedemandforcoalandnaturalgas,policymakersmightconsideroptionstoenableexportingcoalandnaturalgastoChina.Suchexportcapacitywouldbenefittheownersandemployeesofcoalandnaturalgasresourcesregardlessofthedestinationcountry,althoughenteringintolong-termcontractswithChinesebuyersmayalsoconferbenefits.65Foramoreextensivediscussion,seeCongressionalBudgetOffice,BorderAdjustmentsforEconomywidePoliciesThatImposeaPriceonGreenhouseGasEmissions(December2013),www.cbo.gov/publication/44971.66SeeEnergyInformationAdministration,China(February4,2014),www.eia.gov/countries/cab.cfm?fips=CH.26 AfinalsetofpotentialoptionswouldencourageChinatoreduceemissionsofgreenhousegases.SuchstrategiescouldincludesubsidizingemissionreductionsbyofferingtechnicalassistancetoChinesecompanies.Alternatively,U.S.policycouldallowChinatosell“credits”foremissionreductionsthatitmakes.U.S.businessesseekingvoluntaryemissionreductionsorrequiredtocomplywithacarbontaxoracap-and-tradeprogramthatrequiresfirmstoholdtradablerights(calledallowances)fortheiremissionswouldpurchasesuchcredits.Finally,theUnitedStatescouldimplementborderadjustmentsthatwouldpenalizeChinaandothercountriesthatfailtoenactemission-reducingpoliciescomparabletothoseintheUnitedStates.PoliciestoReduceExposuretoHigherOilPriceLevelsorVolatilityChina’sgrowingconsumptionofoilputsupwardpressureonthepriceofoil.China’sfinancialsupportforincreasedoilproductionfromAfricaalsoincreasesoilpricevolatility,incontrasttoaworldinwhichallincreasedproductioncomesfromstablecountriessuchastheUnitedStatesorCanada.Thoseeffects,inturn,areseeninthemarketsforproductsmadefromoil—namely,gasolineanddiesel.Toreduceexposuretounexpectedchangesinthoseprices,policymakerscouldgiveU.S.consumersofoilmorealternativesifthepriceofoilincreased.Suchpoliciesmightencouragealternativestopersonalvehicleuseorvehiclesthatcouldrunonalternativefuels.Tolowertheworldoilprice,policymakersmightalsoconsiderwaystoreducethedemandforrefinedoilproductsorincreasethesupplyofoil.Policiestoreducedemandmightincludeincreasedfuelefficiencyorincentivestodriveless;policiestoincreasesupplymightincludeexpandeddrillingforoilintheUnitedStatesorthedevelopmentoffuelsthat67substitutedforoil.IncreaseConsumers’FlexibilityWhenOilPricesRise.Policiesthatpromotealternativestopetroleum-fueledvehicleswouldreduceU.S.consumers’vulnerabilitytoincreasesinoilprices.Suchpoliciesmightincludeincreasingtheavailabilityofpublictransportationorreducingtheneedtousepersonalvehicles.Importantdeterminantsofwhetherpeopleusepublictransportationarethepriceofthetrip,door-to-door68traveltime,andreliabilityofservice.Toaddressthosefactors,policiescouldoffersubsidiestoreducefaresortopromotemorefrequentoperation(beyondpeaktravelhours,perhapswithfirmsofferingmoreflexibleworkinghours)ofexistingrail,subway,bus,andtramservice.Suchchangescouldmotivateconsumerstousepublictransportationmorewhenoilpricesincreased.Andwithsufficientstaffingandfinances,thosechangescouldbeimplementedquickly.Increasingcapacityforpublictransportationcouldbecostly.Constructingnewfixed-trackpublictransportationalternatives(suchasrailandsubwaylines)wouldrequiresignificanttimeandmoney.Acheaperalternativewouldbetoexpandexistingtransitsystems,suchasbyaddingnewbusserviceorincreasingthenumberandlocationsofbusstops.Notallcommunitieswouldbeappropriatelocationsfor67Foradditionalpolicyoptionstoaddressvolatilityinoilmarkets,seeCongressionalBudgetOffice,EnergySecurityintheUnitedStates(May2012),www.cbo.gov/publication/43012.68SeeDanielMcFadden,“TheMeasurementofUrbanTravelDemand,”JournalofPublicEconomics,vol.3,no.4(November1974),pp.303–328,http://dx.doi.org/10.1016/0047-2727(74)90003-6;andBrianD.Taylorandothers,“Natureand/orNurture?AnalyzingtheDeterminantsofTransitRidershipAcrossU.S.UrbanizedAreas,”TransportationResearchPartA:PolicyandPractice,vol.43,no.1(January2009),pp.60–77,http://dx.doi.org/10.1016/j.tra.2008.06.007.27 publictransportationofferings,however,particularlythoseinareaswithageographicallydispersedpopulation.Thoseareasmightbebettersuitedtopoliciesthatencouragedtelecommutingorsharingridestowork,bothofwhichwouldreduceconsumptionofoil.Suchpolicieswoulddecreasefuelusebypromptingsomeconsumerstonotdrive.Inaddition,thepoliciescouldbeimplementedquickly(althoughnotallatthefederallevel).Althoughsuchpolicieswouldallowsomehouseholdsandbusinessestospendlesswhenoilpricesrose,thepoliciesmightcauseinconvenienceorlongercommutes.AsecondtypeofpolicytoincreasetheflexibilityofU.S.consumerswouldpromotealternative-fueledvehicles(naturalgasorelectric),federalsupportforhigh-speedelectricrail,ornewalternative-poweredpublictransportation.Bydiversifyingthetransportationsector’senergysources,thosepolicieswouldreducevulnerabilitytochangingworldoilpricesforconsumersshiftingfromoil-basedtransportation—aswellasforconsumerswhowouldstillordinarilyuseoil—byofferingalternativesthatdonotdependonoil.Somelimitedstepshavealreadybeentakentodiversifyfuelusefortransportation;forexample,municipalvehiclesrelyincreasinglyonnaturalgas.Somepoliciestodevelopalternative-fueledvehiclescouldrequiresignificantinvestmentsininfrastructureandtechnologydevelopmentandthusmightnotproduceapositivereturnformanyyears,ifatall.Bothdevelopingadistributionnetworktodelivernaturalgastovehiclesandbuildinghigh-speedrailwouldhavehighcapitalcosts,atleastsomeofwhichtaxpayerswouldprobablyhavetobear.Inaddition,asthetransportationsectorcametorelymoreheavilyonothercommodities,suchasnaturalgas,thosecommoditiescouldincreaseincost,whichmightraisecostsforconsumersinotherenergy-consumingsectorsoftheeconomy.ReduceDemandfororIncreaseSupplyofOil.Policiestoreducedemandforoil—suchasraisingfuel-efficiencyrequirementsforpassengervehiclesandtrucks,increasingthetaxongasolineanddiesel,andloweringthespeedlimit(slowerdrivingreducesfuelconsumptionpermile)—couldreducethe69vulnerabilityofU.S.householdsandbusinessestohigheroilprices.Alternatively,policiestoincreasedomesticproductionofoilcouldoffsetsomeofChina’sgrowingdemandandlowerworldoilpricesfromwhattheywouldhavebeenwithouttheadditionalproduction.SuchpoliciescouldincludeopeningmoreoftheOuterContinentalShelfortheArctictodrilling,expeditingregulatoryapprovalofapplicationstodrill,orreducingthefeeschargedtoprivatefirms(forexample,theroyaltiespaidtothegovernmentforeachbarrelofoilproduced)whenthegovernmentmakesoilunderlyingfederallandsavailablefor70extraction.69TheGovernmentAccountabilityOfficereportsthattheestablishmentin1974ofanationalspeedlimitof55milesperhourdecreasedU.S.fuelconsumptionby0.2percentto3percent,whichtheDepartmentofEnergyestimatessaved175,000–275,000barrelsofoilperday;areductionof5milesperhourinspeedincreasesfueleconomyby5percentto10percent.SeeGovernmentAccountabilityOffice,EnergyEfficiency:PotentialFuelSavingsGeneratedbyaNationalSpeedLimitWouldBeInfluencedbyManyOtherFactors,GAO-09-153R(November7,2008),www.gao.gov/products/GAO-09-153R.70TheOuterContinentalShelfisthesubmergedland,subsoil,andseabedofftheU.S.coastatadistancebetweenstatejurisdiction(typically3–5nauticalmilesoffshore,dependingonthestate)and200milesoffshore.28 Onthedemandside,higherfuel-efficiencystandardswouldrequirenewvehiclesthatuselessfuelper71mile,reducingtheexposureofU.S.consumerstoincreasesinoilprices.Anincreaseinthetaxongasolineanddieselwouldraisethecostofconsumingoil-basedfuels,offeringhouseholdsandbusinessesafinancialincentivetofindlong-runalternativestoconsumingsuchfuels.Policiestoincreasetaxescouldbeimplementedmorequicklythanpoliciestoincreasefuel-efficiencystandards.Near-termresponsestoahigherfueltax(ortohighergasolineanddieselpricesthatoccurforotherreasons)couldincludeshiftingtomorefuel-efficientvehicleswhentheyareavailable,carpooling,drivingmoreslowly,orvacationingclosertohome.Long-runresponsescouldincludebuyingsmaller,morefuel-efficientvehicles;livingclosertoworkorpublictransit;orselectingjobsonthebasisoftheirtelecommutingoptions.Onthesupplyside,somepoliciescouldprobablyincreasetheamountofoilproducedandbroughttotheworldmarket,loweringworldoilpricesfromwhattheywouldhavebeenwithouttheincreaseinproduction.Themagnitudeofthepricereductionwoulddependontheadditionalvolumeofoilproduced,changesinoildemandaroundtheworld,andchangesinsupplybyothercountries.Insomeinstances,pricesmaychangelittledespiteincreasedproduction.Toillustrate:BetweenJanuary2011andJuly2014,U.S.domesticproductionofcrudeoilincreasedby4millionbarrelsperday,morethana70percent72increase.Oilprices,however,remainedrelativelyflatthroughJuly2014forthreereasons.First,demandforoilfromChina,India,Brazil,andRussiagrewbyabout2millionbarrelsperday,andthus,evenlargechangesintheU.S.supplyweremetinpartbygrowingglobaldemand.Second,unrestinLibya,Nigeria,Iraq,andelsewherereducedthesupplyofoilbymorethan2millionbarrelsperday.Third,inresponsetohigherU.S.oilproductionandprojectionsforweakerdemand,somemembersoftheOrganizationofPetroleumExportingCountriesreducedproductiontomaintainstableworldoilprices.Mostnotably,SaudiArabiareducedproductiontowardtheendof2012andearly2013byabout700,00073barrelsperday.BetweenJuly2014andJanuary2015,U.S.oilproductiongrewbyanadditional700,000barrelsperdayandworldoilpricesfellbymorethan$50perbarrel.Severalfactorscontributedtothatdecline,includinglowerthanexpecteddemandfromEuropeandAsia,increasedproductionfromLibya,andsteadyproductionfromIraqandotherareasintheMiddleEastthatanalystshadthoughtwouldbedisruptedbyunrestintheregion.Inaddition,inNovember2014,SaudiArabiadecidedagainstreducingoilproduction71InApril2010,theNationalHighwayTrafficSafetyAdministrationandtheEnvironmentalProtectionAgencyfinalizedaruletoincreasecorporateaveragefueleconomystandardsforlight-dutyvehicles(includingcars,sportutilityvehicles,pickuptrucks,minivans,andcrossovervehicles)from29.7milespergallon(mpg)in2012to34.1mpgby2016.Thenin2011,theyissuedajointproposedrulethatwouldfurthertightencorporateaveragefueleconomystandardsforthosevehicles—to49.6mpg—from2017through2025.Afirstsetoffuelefficiencystandardsformedium-andheavy-dutyvehicleswasfinalizedinSeptember2011andsetstandardsfor2014–2018.ThePresidenthasdirectedEPAandtheDepartmentofTransportationtodevelopthenextphaseofthosestandards.Aproposedruleisexpectedin2015.72EnergyInformationAdministration,“U.S.LiquidFuelsProductionGrowthMoreThanOffsetsUnplannedSupplyDisruptions,”TodayinEnergy(August27,2014),www.eia.gov/todayinenergy/detail.cfm?id=17731.73AmenaBakr,“Update4—SaudiArabiaCutsOilOutputasDemandEases,”Reuters(January10,2013),http://tinyurl.com/muq52g9.TheCEOofSaudiArabia’snationaloilfirmstatedthattheywouldreduceplannedoutputcapacityexpansiongiven“massivecapacityexpansionscomingoutofcountrieslikeBrazil[and]Iraq.”SeeSummerSaid,“SaudisSeeNoReasontoRaiseOilOutputCapacity,”WallStreetJournal(October10,2011),http://tinyurl.com/nge3gas.29 tobolsteroilprices.SomeobserversdescribedthatasastrategicdecisionthatsatisfiedavarietyofSaudi74Arabianobjectives,evenifnotachievingstableoilprices.Regardlessoftheeffectonworldoilprices,greaterdomesticproductioncouldreducetheexposureofsomeconsumerstohigherpricelevelsinoilmarkets.Firmsthatproduceoilearnprofitsonthatproduction,andthusgreaterU.S.productionofoilwouldincreasethoseprofits.Tosomeextent,thoseprofitswouldreturntoU.S.consumersasdividends,highersalariesandwagesforworkersinoil-producingfirms,andincreaseddomesticinvestmentinoilproductionandprocessing.ThoseprofitsalsowouldbedistributedtostockholdersandusedforinvestmentsoutsidetheUnitedStates.Forpeoplewhobuyfuelfortransportationbutdonotreceivefinancialbenefitsfromthefirmsproducingoil,policiestopromoteincreasedproductionwouldtendtoredistributemorewealthfromconsumersoftransportationfueltoshareholdersandemployeesoffirmsthatproduceoil.Oneargumentagainstincreasingdomesticproductionisthatdoingsointheneartermdecreasescapacitytoproduceoilfartherinthefuture,whenpricesmightbeevenhigherandwhenhouseholdsandbusinessesmightvalueevenmorehighlytheabilitytoreducethoseprices.ConsumptionofoilbyIndia75andBrazilisalsoexpectedtorisebyapercentagecomparabletothatofChinabetween2014and2040.Suchgrowthinworldconsumptionwillcontinuetoputupwardpressureonoilprices(unlesssufficientnewsourcesofoilareidentifiedanddeveloped),increasingthevalueofoilinventoriesregardlessofwhetherthatoilisheldabovegroundorleftundergroundinitsoriginalreservoirs.Thus,bynotdevelopingallitsoilresourcesnow,theUnitedStatesretainsmoreflexibilityshouldoilpricesrisedramatically.Anothertypeofpolicyonthesupplysideistodevelopalternativefuels—onesthatcanbemixedwithorcanreplacegasolineanddiesel—whichcouldalsoreduceU.S.consumers’vulnerabilitytochangesinoilprices.Examplesofsuchpoliciesincludesubsidiestodevelopnaturalgasresources,biofuels,orcoalgasification,aswellasregulationsthatrequiretheuseofalternativefuels,suchastheRenewableFuelStandard,whichrequiresincreasingamountsofrenewablefuelstobeincludedinthenation’s76transportationfuelsupply.(Somealternativefuels,suchasethanol,areblendedwithgasolineordiesel.Others,suchascoalornaturalgas,canbechemicallyconvertedtogasolineordiesel.)Persistentdisruptionsinoilmarketscouldbepartiallyorfullyoffsetifdomesticfirmsdecidedtoexpandtheircapacitytoproducealternativetransportationfuels,particularlythosethathavethechemicalpropertiesoftheirpetroleum-basedcounterpartsandcanreadilyreplaceoil-basedtransportationfuels.Nevertheless,theeconomicfeasibilityandtheconsequencesofenactingpoliciestopromotealternativefuelsare74See“TheEconomistExplains:WhytheOilPriceisFalling,”Economist(blogentry,December8,2014),http://tinyurl.com/kfk9y4y;and“TheNewEconomicsofOil:SheikhsvShale,”Economist(December6,2014),http://tinyurl.com/klhxbej.75SeeEnergyInformationAdministration,InternationalEnergyOutlook2011(September19,2011),www.eia.gov/forecasts/archive/ieo11/.76Coalgasificationisaprocessthatconvertssolidcoal—throughseveralenergy-intensivesteps—intogasolineanddieselfuel.Naturalgasisalsoconvertibletogasolinethroughasimilar,energy-intensiveprocess.30 uncertain.Convertingcoal,naturalgas,andorganicmattertogasolineiscurrentlyexpensive,inefficient,77andunprovenonalargescale.PoliciestoIncreaseU.S.CompetitivenessinManufacturingToaddressChinesesubsidiesthatlowerthecostofproducinginternationallytradedgoodsandservices,policiescouldincreasethecompetitivenessofU.S.firmstradinginthosemarkets.AlthoughtheUnitedStatesalreadyimposescountervailingdutiesonsomegoods,onepolicyoptionmightprovidesubsidiestoenhanceU.S.competitivenessorimposeadditionaltariffsonChineseimports.However,subsidieswouldbeexpensiveandmaybesubjecttochallengesattheWorldTradeOrganization,andtariffsraisepricesforU.S.consumers.Moreover,thetraderemediesalreadyinplaceforsomegoodsmaybeabletoaddresscompetitivenessissuesintherelateddomesticmarket.PoliciestoencourageChinatoreduceoreliminateitssubsidiesofChinesegoodsandserviceswouldimproveefficiency,althoughpoliciesthatreducedtheuseofrenewabletechnologieswouldresultinhighergreenhousegasemissions.Insomemarkets,particularlythoseforrenewableenergytechnologies,theUnitedStatescouldadvocatepoliciesthatincreasedcooperationwithChinasuchthatU.S.businesscouldbenefitfromChinesesubsidiestoresearchanddevelopment.Finally,policiesthatincreasedcoalandnaturalgasexportscouldmaketheproducersofthoseenergycommoditiesintheUnitedStatesmorecompetitive.OfferSubsidiesforU.S.ManufacturingorLevyTariffsonChineseImports.OneapproachtocounterChineseenergysubsidiesistooffsetthemeitherwithequalenergysubsidiesforU.S.manufacturingfirmsorwithadditionalcountervailingdutiesonChineseimports.AsubsidystrategyappliedbroadlytoU.S.goodsthatcompetewithChineseimportscouldbeexpensiveforU.S.taxpayers.In2013,estimatedChineseenergysubsidieswere$11.8billionforoil,$2billionfornaturalgas,and$7.278billionforelectricity.EqualsubsidiesforelectricityandcoalwouldbeexpensivefortaxpayersandcouldbreakWTOguidelinesforfairtrade.Suchsubsidieswouldalsoprobablyresultincountervailing-dutyactionsagainstU.S.exports.AndalthoughsubsidiesforU.S.firmsmightcreateamorecompetitivebalancewithChina,theywouldintroducedisparitieswithothercountriesthatexportgoodsandservicesintothesamemarkets.77Formoredetailsonthecostsandfeasibilityofbiofuels,seeCongressionalBudgetOffice,TheRenewableFuelStandard:Issuesfor2014andBeyond(June2014),www.cbo.gov/publication/45477,andUsingBiofuelTaxCreditstoAchieveEnergyandEnvironmentalPolicyGoals(July2010),www.cbo.gov/publication/21444.Producingbiofuelsalsoraisesthecostoffood;seeCongressionalBudgetOffice,TheImpactofEthanolUseonFoodPricesandGreenhouseGasEmissions(April2009),www.cbo.gov/publication/41173.Andincreasedrelianceonbiofuelsintroducesweatheruncertaintyintoconsiderationsofcropyieldsfromoneyeartothenext;seeDarrelGoodandScottIrwin,2007U.S.CornProductionRisks:WhatDoesHistoryTeachUs?MarketingandOutlookBrief07-01(DepartmentofAgriculturalandConsumerEconomics,UniversityofIllinoisatUrbana-Champaign,May2007),http://tinyurl.com/m6pqpu8.78TheChinesegovernmenthasrelaxedsomeofitsenergypricecontrolssince2012,whichmaymeanthatthosesubsidylevelswouldbelowerinthefuture.FormoreinformationonenergysubsidiesinChina,seeInternationalEnergyAgency,“Fossil-FuelConsumptionSubsidyRatesasaProportionoftheFullCostofSupply,2013”(2014),www.iea.org/subsidy/.Consistentwiththemagnitudeofthosenumbers,energysubsidiesforsteelhavebeenestimatedat$27billionbetween2000and2007;seeUshaC.V.HaleyandGeorgeT.Haley,SubsidiestoChineseIndustry:StateCapitalism,BusinessStrategy,andTradePolicy(OxfordUniversityPress,2013),http://tinyurl.com/lrjm669.31 TheU.S.DepartmentofCommercehasinvestigatedChinesegovernmentenergysubsidiesincountervailing-dutyproceedingsthatU.S.workersandindustrieshavefiledunderprovisionsofU.S.law.ThoseproceedingsresultedintariffsimposedonChineseimportsinselectedsectorstooffsetthelossfromChineseenergysubsidies.Antidumpingandcountervailingduties,ortariffs,havebeenleviedonChinesesolarpanelsandwindtowers;theEuropeanCommissionhasalsolevieditsownantidumpingand79countervailingtariffsonChinesesolarpanels.CountervailingdutiesimposedonChinesesolarpanelsaddbetween15percentand50percenttotheirprice,andtariffsof22percentto35percenthavebeen80addedtoChinesewindtowers.Chinahaschallengedthelegalityofthosecountervailingdutiesunder81WTOrules.CountervailingdutiesortariffswouldnotaffectU.S.competitivenessincountriesthathadnotalsoappliedtheirowntraderemediestoaddressChinesesubsidies,inwhichcaseU.S.exportswouldstillbelesscompetitivethanChineseexports.SomearguethatsuchU.S.subsidiesorcountervailingdutiesareimportanttosupportacontinuationofU.S.solarandwindindustriesandtoensurecompetitioninthoseindustriestokeeppricesfromincreasinginthefuture.ThoseargumentssuggestthatmoreinnovationoccursintheUnitedStates,whichmakesU.S.participationinthoseindustriesgoodforworldconsumers.Conversely,anargumentagainstthisoptionisthatthecurrentprocessforimposingcountervailingdutiesissufficienttooffsetthelossincompetitivenessthatresultsfromsubsidiesgivenbyforeigngovernments.EngageChinaThroughtheWorldTradeOrganization.Byreducingoreliminatingsubsidiesforrenewabletechnologiesorsubsidiesbasedonpricecontrols,Chinawouldloseanyassociatedcostadvantages.U.S.manufacturingfirmscouldthenmoreeasilytradeinternationally,makingthemarketfortradedgoodsmoreefficient.PoliciesmightincludemakingtheremovalofsuchsubsidiesapriorityforU.S.tradenegotiatorsorpursuinglawsuitsregardingunfairtradepracticesthroughtheWorldTrade82Organization.ThecostofsuchactionsisthelostopportunitytopursueotherobjectivesinnegotiationswithChina,aswellastheincreasesingreenhousegasemissionsthatwouldresult.OverthepastfewyearsChinahasreducedoreliminatedpricecontrolsonsomeenergycommodities,mostnotablyoilandnaturalgas.RecentattemptstoharmonizeChineseoilpriceswithinternationalpricesseemtohavesucceeded,andnaturalgaspricesinChinahaveincreasedtowardthemarketprice.ButChinahasdonelesstoremovepricecontrolsinelectricitymarkets,insteaddevelopingmoreincentivestoencouragefirmstoadoptenergy-efficiencymeasures.China’sdelayinreformingelectricitypricesmightbeduetouncertaintyabouthowtotransitiontomarket-basedelectricitypricingthatensures79TimothyMeyer,“EnergySubsidiesandtheWorldTradeOrganization,”Insights,AmericanSocietyofInternationalLaw,vol.17,no.22(September2013),http://tinyurl.com/nxkdf7x.80Therangeisbasedontwocountervailing-dutydeterminationsbytheU.S.DepartmentofCommerceonDecember16,2014,andOctober10,2012.Seehttp://enforcement.trade.gov/frn/.81SeeWorldTradeOrganization,“UnitedStates—CountervailingDutyMeasuresonCertainProductsFromChina,”DisputeDS437(January16,2015),www.wto.org/english/tratop_e/dispu_e/cases_e/ds437_e.htm.82Between2010and2013,fourWTOdisputeschallengedsubsidiesforrenewableenergyfirms.Todate,noonehaschallengedfossilfuelenergysubsidiesdirectlyattheWTO,buttheyareunderconsiderationasasubsidywith“harmfulenvironmentalconsequences.”Formoreinformation,seeTimothyMeyer,“EnergySubsidiesandtheWorldTradeOrganization,”Insights,AmericanSocietyofInternationalLaw,vol.17,no.22(September2013),http://tinyurl.com/nxkdf7x.32 stablegrowthinelectricityproduction.Ifso,theUnitedStatescouldofferChinatechnicalassistancebasedondomesticexperience.Withamarketpriceforelectricity,domesticmanufacturerswouldhaveanincentivetopursueenergy-efficiencymeasuresontheirown.Thepricesfortheirgoodsandserviceswouldthenreflecttheenergyintensityoftheirmanufacturingprocesscomparedwiththatofcompetingfirms,regardlessofcountryoforigin.SupporttheDevelopmentofExpandedPartnershipsWithChineseCompanies.Chineseinvestmentindevelopingrenewabletechnologiescreatesinnovationandeconomiesofscaleinrenewableenergytechnologies.Inanopeneconomy,thatinnovationwouldfirstbenefitthecompanyresponsibleforitbutwouldeventuallydisperseacrossallcompaniesintheindustry.Thatmighthappenwhenemployeeschangejobs,firmsmergeorareacquired,orpatentsexpire.TheChineseeconomyislessopentotradeinintellectualpropertythantheU.S.economy,whichmightreducethespeedorextenttowhichsomeofthosebenefitsaccruetoU.S.firms.Therefore,policiesthatencouragedU.S.andChinesefirmstocollaboratecouldimprovetheabilityofU.S.firmstobenefitfromChinesesubsidiesofrenewabletechnologyfirms.OnesuchcollaborationistheU.S.-ChinaCleanEnergyResearchCenter,establishedin2009tospur83innovationinrenewableenergyandenergyefficiency.Itwasfundedwith$150millionfrombothChinaandtheUnitedStatesdividedacrossfiveyears.ByAugust2013,theendeavorinvolved86Chineseorganizationsand41U.S.organizations.Althoughtheprogramappearstomakedemonstrationprojectsmorelikely,ithasbeenlesssuccessfulincreatingamodeltodevelopsharedintellectualproperty.Analystssuggestthatmoreexperienceandadditionalpartnershipswillreducesuchchallenges.ThepropensityofU.S.firmstoengageinsuchpartnershipswoulddependonthebenefitU.S.firmsreceive.Toparticipate,U.S.firmsmustbelievethatanybenefitwouldmorethanoffsetconcernsabout84thesecurityofintellectualpropertyrightsinChina.SincemultinationalfirmsarepresentinChina,U.S.firmswouldalsoprobablyexpectsometransferrableinnovationstospreadontheirowntoothercountriesandtheUnitedStates.SupporttheDevelopmentofFacilitiestoExportNaturalGasandCoal.DespitethecostofshippingU.S.naturalgasandcoaltoChina,thepricedifferencesforthosecommoditiesbetweenthecountriessuggestthatsometradecouldbeprofitableforU.S.naturalgasorcoalfacilities.Somecountrieswithlargeenergyreserves,suchasQatarandAustralia,havedevelopedsignificantcapacitytoshiptheirenergycommoditiesabroad.IntheUnitedStates,exportingnaturalgasandcoalrequiresfederal85constructionpermitsandexportpermits.Policiesthateasedpermittingrequirementsorreducedthetime83Formore,seeJoannaI.Lewis,“ManagingIntellectualPropertyRightsinCross-BorderCleanEnergyCollaboration:TheCaseoftheU.S.–ChinaCleanEnergyResearchCenter,”EnergyPolicy,vol.69(June2014),pp.546–554,http://dx.doi.org/10.1016/j.enpol.2013.12.053.84FormoreonconcernsbyU.S.firmsaboutintellectualpropertyrightsinChina,seeTitusO.AwokuseandHongYin,“IntellectualPropertyRightsProtectionandtheSurgeinFDIinChina,”JournalofComparativeEconomics,vol.38,no.2(June2010),pp.217–224,http://dx.doi.org/10.1016/j.jce.2009.10.001;and“DoesStrongerIntellectualPropertyRightsProtectionInduceMoreBilateralTrade?EvidenceFromChina’sImports,”WorldDevelopment,vol.38,no.8(August2010),pp.1094–1104,http://dx.doi.org/10.1016/j.worlddev.2009.12.016.85AsofMarch2015,roughly30applicationsthathavesoughtfullapprovaltoexportliquefiednaturalgasarestillawaitingapproval.SeveralnewcoalexportfacilitiesontheWestCoastarealsoseekingpermitapproval.Fornatural33 toreceivepermitswouldprobablyimprovetheglobalcompetitivenessofU.S.firmsthatownnaturalgasandcoalresources,independentofthetradingpartner.Thepotentialtodevelopanduseadditionalexportcapacitydiffersfornaturalgasandcoal.Growingdemandfornaturalgas,asChinashiftsfromcoal,combinedwithgrowingU.S.productionofnaturalgassuggeststhatpricedifferencesfornaturalgasbetweenthecountriesmaypersistfortheforeseeablefuture.Thatwouldmakeexpandingexportcapacityvaluableforfirmsthatownnaturalgasresources.Asof2014,onlyafewU.S.facilitiescanliquefynaturalgasandexportit.However,theDepartmentofEnergyandtheU.S.MaritimeAdministrationhaveapprovedexportsfromeightLNGfacilities,enablingthemtoexportabout10billioncubicfeetofnaturalgasperday(about0.03percentof2013production).Butonlyfourofthosefacilitieshavereceivedapprovalforconstruction,andofthose,onlyoneisunder86construction.Conversely,coalpricesinChinahavefallen,partlybecauseminescontinuetoproducecoalatincreasingratesowingtogovernmentsubsidiesandpartlybecauseofslowergrowthofcoalconsumption.Forimportedcoal,Chinaalsorecentlyimposedtariffsthatwillprobablymakeimported87U.S.coallessattractive.TheUnitedStateshascapacitytoexport279milliontonsofcoalperyear;over88thepastfiveyearstotalactualexportshaveaveragedaround100milliontons.AlthoughtheWestCoastisclosertoChina,ithascapacitytoexportonly9milliontonsofcoalperyear—somostcoalexportedtoChinain2012camefromnon–WestCoastports.Inlate2014,theStateofOregondeniedapermitforanewexportfacilitythatwouldhavehadacapacityof8milliontonsperyear;however,stateagenciesinWashingtonarestillconsideringtwopermitsforacombinedcapacityincreaseof91milliontonsper89year.BuildingalargeexportcapacityhastwopotentialdownsidesforU.S.householdsandbusinesses.First,thosefacilitiestendtobeexpensivetobuildandtypicallyrequirelong-termcontractstojustifytheiroperation.Bydevelopingnaturalgasdomesticallyorreducingtheirimportsofcoal,ChinaandothercountrieswouldbelesswillingtobuymoreexpensiveLNGorcoalfromtheUnitedStates.ThatscenariocouldbecostlyforfirmsthatinvestintheLNGorcoalexportfacilities.Second,astheUnitedStatesbuildsmoreexportcapacity,theU.S.priceofnaturalgasandcoalbecomesincreasinglyconnectedtotheAsianpriceforthosecommodities.(SuchinterconnectionwouldrequiresignificantlymoreU.S.exportcapacitythaniscurrentlyapprovedforbothnaturalgasandcoal.)Ifthatweretohappen,profitsofU.S.producersofnaturalgasandcoalwouldprobablyincrease,butU.S.consumerswouldprobablypaymoregas,seeDepartmentofEnergy,“SummaryofLNGExportApplicationsoftheLower48States”(March26,2015),http://go.usa.gov/3DgMe.86CongressionalBudgetOffice,TheEconomicandBudgetaryEffectsofProducingOilandNaturalGasFromShale(December2014),www.cbo.gov/publication/49815.87FayenWong,“Update2—ChinatoAgainLevyCoalImportTariffsAfterNearlyaDecade,”Reuters(October9,2014),http://tinyurl.com/k5y3sg5.88NationalMiningAssociation,“ExistingandPotentialCoalExportInfrastructure”(accessedFebruary24,2015),http://tinyurl.com/o8lspzz(PDF,106KB);EnergyInformationAdministration,“CoalDataBrowser,”(accessedFebruary24,2015),www.eia.gov/beta/coal/data/browser/.89ForinformationonthedecisiontorejectthepermitinOregonforCoyoteIslandTerminal,seetheStateofOregonwebsite(www.oregon.gov).FormoreinformationonWashingtonState’spendingpermitsforMillenniumBulkTerminalorGatewayPacificTerminal,seeWashingtonDepartmentofEcology(www.ecy.wa.gov).34 fornaturalgasandelectricity.U.S.consumerswouldalsobecomeincreasinglyexposedtotheeffectsofsupplydisruptionsoccurringoutsidetheUnitedStates,similartowhatoccurswithsupplydisruptionsinoilmarkets.PoliciestoReduceGreenhouseGasEmissionsTheUnitedStatesandChinarecentlyagreedtolimitgreenhousegasemissions.TheUnitedStatessetaneconomywidetargettoreduceitsemissionsby26percentto28percentbelowits2005levelin2025.90China,inturn,setthegoalofhavingitscarbondioxideemissionspeakaround2030.Chinahasenactedpoliciestoreduceitsgreenhousegasemissions—mostnotably,sevenpilotprogramsforanationalcap-and-tradeprogram.Thosepilotprogramscoveractivitiesthataccountforabout791percentofChina’stotalemissions.EvaluatingtheeffectivenessofChina’sprogramsischallengingformanyreasons,includingapaucityofemissionsreporting,lackoftransparencyabouttheemissionscaps,92anduncertaintyabouttheprograms’legalfoundationandenforcementpolicies.ResearchershaveexploredoptionsthatwouldinduceChinatoundertakegreateremissionreductionsthanitwouldunderexisting,orplanned,programs(referredtoas“additional”reductions).SuchstrategiescouldhelptoensurethatChinameets,orexceeds,itsgoalofhavingitsemissionsdeclineafter2030.Possibilitiesincludesubsidizingreductionsbyofferingtechnicalassistance,allowingChinatosell“credits”foremissionreductionsthatitmakes,andimplementingborderadjustmentsthatwouldpenalizeChinaandothercountriesthatfailtoenactemission-reducingpoliciescomparabletothoseintheUnitedStates.OfferTechnicalAssistancetoChina.Climatechangeisalong-termproblem;realizingthebenefitsofreducingemissionstakesdecades.China’sinterestinthoselong-termbenefitsmaybemitigatedbyitsprimarygoalofraisingitscitizens’standardofliving(despiteChina’srapidgrowth,itspercapitaincome93isroughlyone-eighththatoftheUnitedStates).Therefore,theUnitedStatescouldencourageChinatomakeadditionalreductionsbyofferingtechnicalassistancethatlowersthecostofachievingthem—althoughthatassistanceitselfwouldentailsomecoststoU.S.taxpayers.SuchassistancemayworkbestifitalsohelpsChinaachieveothernear-termgoals.Technicalassistancecouldbetargetedatmeasuresthatnotonlyreducecarbondioxide(CO2)emissionsbutalsoenhanceinnovation,createjobs,reducelocalairpollution,orimprovethereliabilityofelectricityprovision.Anexhaustivelistisbeyondthescopeofthispaper,butresearchershavesuggestedareasinwhichtechnicalassistancecouldbothreduceCO2emissionsandhelpChinaachievenear-termgoals:90TheWhiteHouse,“U.S.-ChinaJointAnnouncementonClimateChange”(pressrelease,November12,2014),http://go.usa.gov/3DYsP.91InternationalEnergyAgency,Medium-TermCoalMarketReport2013(IEA,November2013),p.82,http://tinyurl.com/pmfhjcx.92ClaytonMunningsandothers,AssessingtheDesignofThreePilotProgramsforCarbonTradinginChina,RFFDiscussionPaper14-36(ResourcesfortheFuture,October2014),http://tinyurl.com/legz8r6.93Basedon2012datafromtheWorldBank:TheWorldBank“GDPPerCapita(CurrentUS$)”(2014),http://data.worldbank.org/indicator/NY.GDP.PCAP.CD.35 •Technologydevelopmentanddiffusion.SomeresearchersadvisethattheUnitedStatesandChinacouldfinditadvantageoustoworktogethertodevelopemission-reducingtechnologiesbecausethetwocountrieshavecomplementarystrengthsintechnologydevelopment.Forexample,theUnitedStateshasanadvantageinmovingbreakthroughsfromresearchtocommercialization,whereasChinahasgreaterknowledgeaboutwhatwillworkindevelopingcountries.Buildingonthosestrengths,avarietyofpolicyproposalsaddresshowdevelopedcountriesmightworkwithdeveloping94countriestoimproveenergyefficiency.Moreover,becauseChina’senergyinfrastructureisrapidlyexpanding,itcanofferopportunitiestotestnewtechnologiesortodeployexistinglow-emissiontechnologies,suchascarboncaptureandstoragetechnology,nuclearpower,ornaturalgasobtained95byfracking.In2009theUnitedStatesandChinareachedseveraltechnologyagreements,yetthe96UnitedStateshasprovidedonlylimitedfundingtoimplementthem.•Thephaseoutofenergysubsidies.Manydevelopingcountriessubsidizeenergyconsumptiontoachievesocialstability,toenableaccesstocleanercookingfuels,toincreaseelectrification,oraspartofanindustrialpolicy.However,suchsubsidiesencourageoverconsumptionoffossilfuelsandincreaseCO2emissions.EliminatingsuchsubsidieswouldreduceemissionsofbothCO2andsulfurdioxide(SO2),apollutantcausingseverelocalhealthproblemsinChina.SomeresearcherssuggestthattheUnitedStatescouldencourageChinatoreduce,oreliminate,suchsubsidiesbyofferingfinancialortechnicalassistancetoimplementpolicies(suchaspercapitarebates)thatwouldcushion97theeffectsofthesubsidywithdrawalorotherwiseachievethesubsidies’goals.•Improvementsinenergyefficiency.EnergyuseperdollarofGDPisroughlyfourtimeshigherin98ChinathanintheUnitedStates.InadditiontoreducingCO2emissions,improvementsinenergyefficiencycouldhelpChinareduceSO2emissionsandmighthelpChinapreventpoweroutagesthatmightotherwiseoccurbecauseofamismatchbetweenChina’savailablesupplyof,andrapidlygrowingdemandfor,electricity.99TheUnitedStateshasexperienceinstandardsettingandemissionsmonitoringthathassubstantiallydecreasedU.S.emissionsofSO2aswellasimprovedefficiencyofelectricityproduction.94DanielS.Hallandothers,PoliciesforDevelopingCountryEngagement,HarvardProjectonInternationalClimateAgreementsDiscussionPaper08-15(BelferCenterforScienceandInternationalAffairs,October2008),http://tinyurl.com/ntnaxg9.95CongressionalBudgetOffice,FederalEffortstoReducetheCostofCapturingandStoringCarbonDioxide(June2012),www.cbo.gov/publication/43357.96JoshuaW.Busby,ChinaandClimateChange:AStrategyforU.S.Engagement(ResourcesfortheFuture,November2010),http://tinyurl.com/32kwncy.97DanielS.Hallandothers,PoliciesforDevelopingCountryEngagement,HarvardProjectonInternationalClimateAgreementsDiscussionPaper08-15(BelferCenterforScienceandInternationalAffairs,October2008),http://tinyurl.com/ntnaxg9.98InternationalEnergyAgency,CO2EmissionsFromFuelCombustion,Highlights2013(IEA,2013),http://tinyurl.com/ogt35u3(basedonexchangerate–adjustedGDP).99OliviaBoyd,China’sEnergyReformandClimatePolicy:TheIdeasMotivatingChange,CentreforClimateEconomicsandPolicyWorkingPaper1205(CrawfordSchoolofPublicPolicy,AustralianNationalUniversity,May2012),https://ideas.repec.org/p/een/ccepwp/1205.html.36 •Taxreform.SomeresearcherssuggestthatChinacouldimposeataxonCO2emissionsandusetherevenuetolowerexistingtaxesthatreducethelevelofinvestmentbybusinesses.Sucha“taxswap”wouldreduceCO2emissions—andsubstantiallyimprovelocalairquality—perhapswithoutreducingChina’seconomicgrowth.100TheUnitedStates,inturn,hasasophisticatedsystemoftaxcollectionandhasstudiedtheefficiencyanddistributionaleffectsofpoliciesthatwouldputapriceonCO2emissions.SuchexpertisecouldbeusefultoChineseresearchersandpolicyofficials.OfferCreditsforEmissionReductionsinChina.AU.S.policytopriceCO2emissions—byeithertaxingthemorestablishingacap-and-tradeprogram—couldcreateanincentiveforU.S.firmstofundemissionreductionsinChina.Inthatscenario,U.S.firmscouldpurchase“credits”foradditionalreductionsmadeinChinaandusethosecreditsasawaytocomply(inlieuofpayingthetaxorpurchasinganallowanceforeachtonofCO2thatU.S.firmsemit).Forexample,suchcreditscouldfundeffortstoimproveefficiencyinChinesemanufacturingfacilities.Orthecreditscouldfundtheincrementalcosttobuildandoperatepowerplantsfiredbynaturalgasratherthanbycoal,whichhasnearlytwicetheCO2emissionsofnaturalgasand101accountsforroughlytwo-thirdsofChina’senergyconsumption.Chinaandotherdevelopingcountrieshavegeneratedsuchcreditstoselltocountriesthathaveestablishedbindingemissioncapsunderinternationalclimatechangeagreements;however,someresearchershavequestionedhowmuchsuchcredits102havereducedemissions(beyondwhatwouldhaveoccurredwithoutthem).Researchershavesuggestedreformsthatmighthelpensurethatcreditsareprovidedonlyformeasurable,additionalemissionreductions.Forexample,grantingcreditsforemission-reducingmeasuresofanentireindustrialsector(ratherthanan103individualfirmorfacility)mightsimplifythetaskofassessingwhetheremissionreductionsareadditional.EstablishBorderAdjustments.AU.S.policythatplacesapriceongreenhousegasemissionscouldinclude“borderadjustments,”whichwouldimposeacomparablepriceonemissionsassociatedwithimports.Foracarbontax,theadjustmentsmighttaketheformofimporttariffsbasedonestimatesofthegreenhousegasesemittedinproducingtradedproducts.Foracap-and-tradeprogram,adjustmentsmightrequireimporterstoobtainallowancesforthoseemissions.Implementingborderadjustmentsischallengingandthelegalityofthemhasbeendebated,butwidespreaduseofthemcouldreduceleakageandoffercountriesanincentiveto104adoptsimilaremission-reducingpolicies.100ChrisP.NielsenandMunS.Ho,eds.,ClearerSkiesOverChina:ReconcilingAirQuality,Climate,andEconomicGoals(MITPress,2013),http://mitpress.mit.edu/books/clearer-skies-over-china.101EnergyInformationAdministration,China(February4,2014),www.eia.gov/countries/cab.cfm?fips=CH.102LambertSchneider,“AssessingtheAdditionalityofCDMProjects:PracticalExperiencesandLessonsLearned,”ClimatePolicy,vol.9,no.3(2009),pp.242–254,http://dx.doi.org/10.3763/cpol.2008.0533.103DallasBurtrawandothers,FeasibilityAssessmentofaCarbonCap-and-TradeSystemforMexico(ResourcesfortheFuture,July2010),http://tinyurl.com/kc2txzt.Also,suchcreditswouldnotfurtherreduceemissionsifthecreditswereforreductionsmadeasaresultofChina’songoingcap-and-tradeprograms.LinkingaU.S.cap-and-tradeprogramwithoneinChinamightreducethetotalcostofachievingthecombinedcaponemissions;however,laxmonitoringandenforcementineithercountryinsuchalinkedsystemwouldunderminethecredibilityofbothcaps.SeeCongressionalBudgetOffice,PolicyOptionsforReducingCO2Emissions(February2008),www.cbo.gov/publication/41663.104Forfurtherdiscussion,seeCongressionalBudgetOffice,BorderAdjustmentsforEconomywidePoliciesThatImposeaPriceonGreenhouseGasEmissions(December2013),www.cbo.gov/publication/44971.37 Belowisgivenannualworksummary,donotneedfriendscandownloadaftereditordeleted!!!!!!WelcometovisitagainXXXXannualworksummaryDeareveryleader,colleagues:LookbackendofXXXX,XXXXyearsofwork,havethejoyofsuccessinyourwork,haveacollaborationwithcolleagues,workinghard,alsohavedisappointedwhenencountereddifficultiesandsetbacks.Imperceptibleintenseandorderlytobeoverayear,ayear,underthelovingcareandguidanceoftheleadershipofthecompany,underthesupportandhelpofcolleagues,throughtheirownefforts,variousaspectshavemadecertainprogress,bettertocompletethejob.Forbetterwork,sumupexperienceandlessons,willnowworkabriefsummary.Tocontinuouslystrengthenlearning,improvetheircomprehensivequality.Withgoodcomprehensivequalityisthepreconditionofcompletesthelaborofdutyandconditions.Ayearalwaysputlearningintheimportantposition,tryingtoimprovetheircomprehensivequality.Continuouslearningprofessionalskills,learnfromsurroundingcolleagueswithrichworkexperience,equipthemselveswithknowledge,theexpandedaspectofknowledge,effortstoimprovetheircomprehensivequality.ThesecondDobest,strictlyperformtheirresponsibilities.Setupthecompany,tomaximizethecustomertothesatisfactionofthecompany'sproducts,doagoodjobintechnicalservicesandproductpromotiontothecompany.Andcollectedonthepropertiesoftheproductsofthecompany,inordertomakeimprovementintime,maketheproductsbettermeettheusingdemandofthescene.Threetolearntobegoodatcommunication,coordinatingassistance.On‐sitetechnicalservicepersonnelshouldnotonlyhavestrongprofessionaltechnology,shouldalsohavegoodcommunicationability,alotofaproductduetoimproperoperationtoappearproblem,butoftennotcustomersreflectthequalityofno,sothistimeweneedtofindoutthecrux,andcustomercommunication,standardizedoperation,toavoidcustomer'smistrustoftheproductsandeventhedamageofthecompany'simage.Someexperiencesinthepastwork,mentalityisveryimportantinthework,worktohavepassion,keepthesmileofsunshine,canclosethedistancebetweenpeople,easytocommunicatewiththecustomer.Dobetterinthedailyworktocommunicatewithcustomersandachievecustomersatisfaction,excellenttechnicalserviceeverytime,onbehalfofthecustomeronourproductsmuchaunderstandingandtrust.Fourth,weneedtocontinuetolearnprofessionalknowledge,dopracticalgraspskilledoperation.Overthepastyear,throughcontinuouslearningandfumble,studiedthegasgeneration,collectionandmethods,graduallyfamiliarwithandmasterthecompanyintroducedtheworkingprinciple,operationmethodofgasmachine.Withthehelpofthedepartmentleadersandcolleagues,familiarwithandmasterthelaunchofthedivisionprinciple,debuggingmethodofthecontrolsystem,andtowuhanChenGuchonggarbagepowerplantofgasmachinecontrolsystemtransformation,learntodebug,accumulatedsomeexperience.Allinall,overthepastyear,didsomework,havealsomadesomeachievements,buttheresultscanonlyrepresentthepast,therearesomeproblemstowork,can'tmeetthehigherrequirements.Inthefuturework,Imustdeveloptheoneselfadvantage,lackofcorrect,fosterstrengthsandcircumventweaknesses,forgreaterachievements.LookingforwardtoXXXXyearsofwork,I'llbemoreefforts,constantprogressintheirjobs,makegreaterachievements.EveryyearIhaveprogress,thegrowthofbelievewillgetgreaterreturns,Iwillmybiggestcontributiontothedevelopmentofthecompany,believein yourselfdobetternextyear!Iwishyouallworkstudyprogressintheyeartocome. Belowisgivenannualworksummary,donotneedfriendscandownloadaftereditordeleted!!!!!!WelcometovisitagainXXXXannualworksummaryDeareveryleader,colleagues:LookbackendofXXXX,XXXXyearsofwork,havethejoyofsuccessinyourwork,haveacollaborationwithcolleagues,workinghard,alsohavedisappointedwhenencountereddifficultiesandsetbacks.Imperceptibleintenseandorderlytobeoverayear,ayear,underthelovingcareandguidanceoftheleadershipofthecompany,underthesupportandhelpofcolleagues,throughtheirownefforts,variousaspectshavemadecertainprogress,bettertocompletethejob.Forbetterwork,sumupexperienceandlessons,willnowworkabriefsummary.Tocontinuouslystrengthenlearning,improvetheircomprehensivequality.Withgoodcomprehensivequalityisthepreconditionofcompletesthelaborofdutyandconditions.Ayearalwaysputlearningintheimportantposition,tryingtoimprovetheircomprehensivequality.Continuouslearningprofessionalskills,learnfromsurroundingcolleagueswithrichworkexperience,equipthemselveswithknowledge,theexpandedaspectofknowledge,effortstoimprovetheircomprehensivequality.ThesecondDobest,strictlyperformtheirresponsibilities.Setupthecompany,tomaximizethecustomertothesatisfactionofthecompany'sproducts,doagoodjobintechnicalservicesandproductpromotiontothecompany.Andcollectedonthepropertiesoftheproductsofthecompany,inordertomakeimprovementintime,maketheproductsbettermeettheusingdemandofthescene.Threetolearntobegoodatcommunication,coordinatingassistance.On‐sitetechnicalservicepersonnelshouldnotonlyhavestrongprofessionaltechnology,shouldalsohavegoodcommunicationability,alotofaproductduetoimproperoperationtoappearproblem,butoftennotcustomersreflectthequalityofno,sothistimeweneedtofindoutthecrux,andcustomercommunication,standardizedoperation,toavoidcustomer'smistrustoftheproductsandeventhedamageofthecompany'simage.Someexperiencesinthepastwork,mentalityisveryimportantinthework,worktohavepassion,keepthesmileofsunshine,canclosethedistancebetweenpeople,easytocommunicatewiththecustomer.Dobetterinthedailyworktocommunicatewithcustomersandachievecustomersatisfaction,excellenttechnicalserviceeverytime,onbehalfofthecustomeronourproductsmuchaunderstandingandtrust.Fourth,weneedtocontinuetolearnprofessionalknowledge,dopracticalgraspskilledoperation.Overthepastyear,throughcontinuouslearningandfumble,studiedthegasgeneration,collectionandmethods,graduallyfamiliarwithandmasterthecompanyintroducedtheworkingprinciple,operationmethodofgasmachine.Withthehelpofthedepartmentleadersandcolleagues,familiarwithandmasterthelaunchofthedivisionprinciple,debuggingmethodofthecontrolsystem,andtowuhanChenGuchonggarbagepowerplantofgasmachinecontrolsystemtransformation,learntodebug,accumulatedsomeexperience.Allinall,overthepastyear,didsomework,havealsomadesomeachievements,buttheresultscanonlyrepresentthepast,therearesomeproblemstowork,can'tmeetthehigherrequirements.Inthefuturework,Imustdeveloptheoneselfadvantage,lackofcorrect,fosterstrengthsandcircumventweaknesses,forgreaterachievements.LookingforwardtoXXXXyearsofwork,I'llbemoreefforts,constantprogressintheirjobs,makegreaterachievements.EveryyearIhaveprogress,thegrowthofbelievewillgetgreaterreturns,Iwillmybiggestcontributiontothedevelopmentofthecompany,believein yourselfdobetternextyear!Iwishyouallworkstudyprogressintheyeartocome.