Friday, 26 September 2014

China's Migration to a Green Economy and Shale Gas, Concurrently! The War on Coal

China has declared war on coal and coal consumption is down as a result. But this coal war offers good news, not so good news for Canada and bad news, concurrently.  

The good news pertains to 1) China having become an unparalleled leader and investor in the global migration to a the green economy and 2) China's ongoing adoption of ambitious new policies and targets to accelerate this migration at a spellbinding rate.   

Unfortunately, the aforementioned good news for China also has serious implications for Canada in that not only is Canada falling further and further behind China regarding the green economy at an incredible rate but also Trudeau and Harper via FIPA are set on selling Canada's resources to China while opening the doors for China to dump its clean technologies in Canada.

The bad news angle is that China's war on coal has also given rise to ambitious, but environmentally reckless, development of shale gas, wrongly perceived to be a cleaner, or less environmentally harmful, alternative to coal.

The Good News: The Spellbinding Migration to a Green Economy, and the War on Coal
In an my article published in The Common Sense Canadian on October 14, 2013, China's Chaotic Leap Forword to a Green Economy, the incredible pace of China's initiatives to go green was highlighted.  

In a nutshell, China 1) has become world's the largest investor in clean energy technologies, with $61.3B spent on renewable energy technologies in 2013 that in turn resulted in 28 GW of solar and wind capacity added in that year alone;  2) has awesome green job numbers such as 300,000 jobs in its solar PV sector and 800,000 jobs in the solar thermal sector; 3) has evolved from a domestic solar manufacturing sector that served 1% of global markets in 2004 to 50% by 2012; 4) has a plan for 7 pilots on cap and trade; and 3) has laid the policy ground work for world leadership in the manufacturing and deployment of electric vehicles. As result of these measures, the above-mentioned October 2013 Common Sense Canadian article projected that coal consumption in China would peak in 2015.

But China is going green so quickly that projections tend to be too conservative. As a case in point, for the first time in this century, coal consumption and coal imports in China are down. The prediction is that this trend will continue and translate into a 15% reduction or 300M metric tonnes less by the end of 2014 compared to 2013. Moreover, evidence that this trend is long term comes from the Beijing government's announcement that it will ban coal use in 6 city districts by 2020 and turn to clean energy for replacements.

Also worth noting, China's war on coal includes the banning of sales and imports of coal containing high quantities of ash and sulfur.  The new regulation bans 
from sales and imports, coal with ash content of more than 40% and more than 3% sulfur content.  This ban would effectively eliminate low heating value coal from Indonesia and coal with arsenic from Australia. 

Yet, notwithstanding the extraordinary progress China has made in such a short period -- and proving that the progress achieved are not just aberrations -- China is currently working on policies to accelerate its migration to a green economy.  

Regarding the acceleration of the pace of green initiatives, rumors are rife as to what to expect from China's five year plan for 2015-20.  This includes the possibility of China introducing a cap and trade system in 2016.  China already has a pilot cap and trade system in Shenzhen, the first of seven pilots in the country.

Other indicators on China's intention to move quickly, pertain to China being well-positioned to lead the world in electric vehicles (ev's), not only now, but more importantly, in the years to come. In particular, 1) China's BYD is already manufacturing electric buses; 2) China's central government has set an objective for 30% of its vehicle purchases to be electric vehicles beginning 2016, 3) a $16B program is under review to set up charging stations across the country and 4) electric and hybrid Made-in-China vehicles are now exempt from a 10% purchase tax.  As well, several regional governments are targeting for 30% of their vehicle purchases to be hybrid and electric vehicles by 2016.

The Potentially Not so Good News for Canada
What does China's exceptional progress and policy leadership for years to come mean for Canada, in particular, in the context of China having become the world's largest energy consumer and consequently a major influence in global energy paradigms and related economics?  In crude terms, Canada will have an enormous green economy gap to close beginning 2015, after the upcoming federal election.  

It also means that Canada will have to shed the mindset to the effect that Canada's future economic well-being lies with increasing its exports of fossil fuels, a mindset shared by both Harper and Trudeau

Further accentuating the challenges for Canada posed by China's leadership and the implications for redefining global energy/economic paradigms, are the ramifications of FIPA, the Canada-China trade agreement recently ratified by the Harper administration.   

That is, the US and the EU have responded to China's highly subsidized dumping of clean techs on global markets with the imposition of steep tariffs.  But FIPA stipulates that there will be no commercial barriers associated with environmental technologies. This stipulation could seriously handicap the development of Canada's clean tech sectors.

In short, a successful Canadian plan for a migration to a green economy must take into account China.  To do otherwise would be at Canada's peril.

The Bad News: China's Shale Gas Frenzy and the War on Coal
In collaboration with US partners, and in accord with a US-China agreement on developing China's resources, China is setting the stage to develop what may be the largest shale gas resources in the world, 1.7 times the potential of that of the US.  With fewer than 200 wells drilled to-date, China is projected to produce 1058 billion cubic feet of natural gas annually by 2020.  And the environmental implications identified to-date of China's pending shale gas boom are enormous.

First, fracking regulations in China are almost non-existent.  Second fracking in China requires twice as much water than in the US because China's shale gas lies deeper underground and in more complex geological formations.  

This, in a country with dangerously low water per capita and where land twice the size of New York City turns into desert every year.  

This, in a country where fracking waste water often goes untreated.

Nevertheless, all is in place to speed up the tempo of shale gas development.  Already foreign multinationals are investing heavily in China while companies like the state-owned China National Offshore Oil Corporation (CNOOC) - the same company that bought out Nexen in Alberta -- have spent $8.7B in buying shares in US shale gas operations. One can suspect that this will offer Chinese firms opportunities to obtain patents on technologies; ultimately manufacture these technologies in China; and then export these very same technologies to the US at a cheaper price.

All this is going on while the US experience has taught us that that methane leaks associated from shale gas development are grossly underestimated and the potential for regulations to control these emissions are overestimated.  Drilling creates fractures in surrounding rock that cement cannot completely fill, thus opening paths for the escaping of gases and liquids.  As well, as the cement ages, it pulls away from the surrounding rock reducing the tightness of the seals, thereby generating greater danger for methane leaks and water and air pollution.

Will History Repeat Itself with China Ultimately Focusing on the Right Thing To Do?
The good  and bad news have been presented in this article to demonstrate the incredible ability for China to head in opposite directions at a tremendous speed. 

On one hand, China's amazingly rapid migration to a green economy, accompanied by a reduction coal, suggests that China will be a major vector in the global replacement of fossil fuels with clean technologies alternatives.

On the other hand, the fracking activities, while nowhere near the scale of what is happening on China's clean technology side of the equation, raises the weakness for which China is so famous --- first go full speed ahead, wait for the problems to accumulate and then engage with incredible zeal in gestures to solve the problems created by their previous humongous mistakes.

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