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China\'s whopping clean energy plans

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21 October 2010 10:26

Some jaw-dropping figures in this FT story about China's clean energy plans. The highlights:

  •  '...officials have aired a goal of a 40-45 per cent cut in carbon intensity by 2020, and the new five-year plan will reinforce that with an interim target.'
  • 'The new energy investment plan, which has been reported by official media but not yet formally approved, could see as much as Rmb5,000bn ($753bn) poured into developing alternative energy sources in the next decade.'
  • 'China’s official target for all non-fossil fuel energy is that it will provide 15 per cent of the country’s energy by 2020.'

It's a good idea not to take such pronouncements at face value. Even if the central government is sincere, what starts as a command from Beijing might become an order at the provincial level and then a mere suggestion at local level. But as Richard McGregor notes in The Party:

...after decades of largely ignoring the issue, the central authorities have now attempted to take hold of national environmental policy. They have done this not by suppressing development but by turning the environment into an economic opportunity, by giving huge incentives to business to invest in alternative energies. In a few short years, as a result, China emerged as the largest producer of wind turbines and solar panels and the biggest investor in so-called clean coal technologies.

Any economists reading this will probably see the downside of Beijing's approach.

By directing government spending toward wind and solar, Beijing is picking winners, an approach that China has shown a weakness for in other sectors of industrial development, but which carries risks: it crowds out other potential clean energy solutions being developed in China, and leaves those sectors open to foreign innovators, who may develop solutions which completely supersede wind and solar energy. (Nb. The FT story says money will go into other clean tech sectors too.)

Free market economists would argue that government money should instead go into basic research which the private sector would not support. The private sector should be left to decide which technology (or, more likely, mix of technologies) holds most promise. Still, given the relative maturity of both solar and wind technology, and their widespread adoption around the world, the risk in this case is probably low.

In fact, you might say Beijing is taking the Burger King approach to development. I read some analysis recently (sorry, I can't locate the article just now) which said that McDonald's spends millions researching the best locations for its new restaurants, while its main competitor, Burger King, does very little of that type of research. Instead, Burger King simply waits for McDonald's to open a new outlet, and then builds one of its own as close as possible.

The rewards of this kind of approach are probably lower, but so are the risks. You don't necessarily need to innovate to develop.

Photo by Flickr user Lance Cheung, used under a Creative Commons license.

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