Energy Policy: From "Dilemma" to "Three Difficulties"

Security supply and cost control make the government often face a dilemma in formulating energy policies. With environmental issues being highly concerned, the "difficulties" have become "three difficulties."

Energy policy is the core issue of the energy industry. In any country or region in the world, whether it is a developed country or a developing country, no matter what kind of political system it is, whether it is a free and open energy market or a plan-oriented energy market, the formulation of energy policies and strategies. The determination of energy prices and price systems is the highest priority for politicians.

The history of the development of the world economy attests to the point that sustained, stable and cost-effective energy supply plays an important role in all economic activities. Energy involves all aspects of economic development, from natural resources to the environment, from fiscal to monetary and banking systems, from transportation to industry and international trade, and from diplomatic to national defense, energy can be seen, with a wide range of impact and great impact. This is evident.

A comprehensive understanding of the energy industry needs to be understood in terms of “physics, politics and price”: the flow and form transformation of energy is a thermophysical process, mining, transportation and storage of energy products. The conversion and transmission to the client terminal is the physical operation of energy, the transfer of energy and the conversion process. Energy supply and demand are affected by the political environment and policies, which in turn affect the energy market's structure, operations, and market prices of energy products.

Energy demand "Orientalization"

From 1978 to 2011, China's 30-year fast-growing economy has been radiating with strange colors. The annual average economic growth rate exceeds 9%, which is the fastest growing country in the world. The rapid economic growth has narrowed the gap with the developed countries. Compared with developed countries in Europe and America, China’s current industrial structure is dominated by heavy industry. Energy and mineral products are the main raw materials for economic development. The process of industrialization, electrification and mechanization has been shortened. The industries represented by steel, construction, and energy have entered rapid growth. The channel further strengthened the demand for energy and resources.

With the rapid urbanization and the accumulation of wealth in modern cities and towns, the demand for energy dependence and energy quality in China's urbanization development is also increasing. All this has brought about a shift in the focus of global energy demand - the "Orientalization" of energy demand.

Against this background, the challenges faced by various countries, especially China's energy policy makers, are increasing day by day. On the one hand, safeguarding sustainable economic development requires a reliable and safe energy supply, and energy-producing countries increase the supply of energy products to meet the world’s growing energy needs at a reasonable price; at the same time, energy consumption exerts greater pressure on the environment. The energy demand industry needs to achieve rapid changes in the direction of efficient and environmentally friendly application technologies. In the rapidly emerging China, the complexity of energy policy is even more unimaginable. An in-depth understanding of the constraints in the formulation of energy policies under the new economic and political environment, and the optimization of domestic energy policies to the greatest extent are of great significance to governments, energy companies, and energy consumers.

"Dilemma" to "Three Difficulties"

Traditionally, the energy strategy planners and policy makers of various governments face a dilemma. On the one hand, we must ensure the safety of energy supply to the greatest extent, that is, ensure the economic development and reliable social energy supply of the country or region; On the one hand, we must do everything we can to reduce the cost of energy. The government knows that high oil prices, high gas prices, and high coal prices will cause the country’s industrial competitiveness to decline, and face the risk of economic recession. Therefore, the people and enterprises can obtain energy at affordable prices, so that energy prices will not become The bottleneck that restricts the development of the national economy.

Since the beginning of the new century, the dilemma of energy policy has become more complicated. The increased attention to environmental issues has made energy policy from a "dilemma" to a "three difficulties." In formulating energy policies, the government must not only protect energy security and reduce energy costs, but also consider reducing the impact of energy consumption on the environment—that is, air pollution and climate change caused by the consumption of “fossil energy” or “non-clean energy”. Impact of change. On a global scale, the emission reduction of carbon dioxide is mentioned on the agenda. For China, the concept of environmental issues is more general. In addition to carbon dioxide emissions, it is more urgent to solve the problems caused by emissions of chemicals, nitrides, and solid emissions. The air pollution, ground and groundwater and soil pollution and other thorny issues.

Judging from the experience of various governments, it is difficult to seek the same solution in the three difficult issues to be considered in the formulation of today's energy policy: "security, cost, and environment." What is more difficult and complicated is that there are often conflicting and shifting relationships among the three factors. In other words, even under the energy economic environment where economic and technological development is optimized and the market demand stabilizes, it is difficult to formulate three policy goals of “security, cost, and environment” at the same time.

Energy security is the most important issue for any government at the national level. At the beginning of the First World War, Churchill, the then British Minister of the Navy, made a historic decision: to change the power of the British Navy’s ships from coal to oil, so that British warships would be faster than German warships. However, this simple fuel change decision triggered energy security problems. Because of fuel conversion, the fleet’s fuel demand changed from coal in Wales to oil in Iran (the then Persian state) that was not guaranteed.

When asked how to solve the problem of safe supply, Churchill made a very famous answer: The supply of safe and reliable oil comes from sources, and it only comes from diversification. In other words, for energy importers, the diversification of import channels is an important means to ensure energy security.

In addition, there are many other means for countries to ensure energy security, such as actively developing domestic resources; strategic import of energy products to slow down the depletion of domestic resources; increase strategic reserves; carry out upstream industrial integration; and handle geopolitics well. And trade relations; guarantee the smooth flow of the entire supply channel (from shipping to pipelines) and the search for technical alternatives for traditional energy products.

Regarding the coordination of the “three-difficult” policy goal, the choices of countries vary from case to case, but they all confirm that it is difficult to reach consensus on the three policy objectives.

Taking Europe as an example, due to the rising costs of carbon dioxide emissions, European power companies have been gradually tilting toward natural gas. Compared with coal, natural gas is certainly cleaner and more environmentally friendly. However, as emerging economies increase their demand for natural gas, generating electricity from natural gas as a fuel in the long run is likely to increase the cost of electricity generation, and at the same time increase Europe’s supply to major gas suppliers in Russia. Dependence reduces the protection of national energy security.

After experiencing Russia and Ukraine's “fighting for gas” in early 2006 and early 2009, leading to two natural gas winter supply terminal crises, the EU has also deeply realized the importance of diversification of natural gas supply and security assurance for its economy. Also due to environmental reasons, Europe plans to increase the proportion of renewable energy that supplies electricity intermittently in the energy structure. However, renewable energy power generation not only has high costs and weak competitiveness, but also brings great technical challenges to the stability of the power grid.

Japan relies almost entirely on imports for its energy supply. Therefore, from the middle of the 20th century, the country’s energy policy was formulated around the diversification of energy structures and the optimization of costs. After the Kyoto Protocol, reducing carbon emissions has also become an important aspect of its energy policy. Prior to the Fukushima incident, Japan had proposed that the proportion of nuclear power should be 50% by 2030, and stated to the international community that by 2050, Japan's carbon dioxide emissions would be reduced by 80% compared with 1990.

Nuclear power, as the main source of energy, is cheap and pollution-free and to a large extent ensures Japan’s energy security. After the Fukushima accident, Japan’s energy plan had to be adjusted. The Japanese government shut down a number of nuclear reactors due to public trust issues, and Japan’s power generation capacity was reduced by a quarter. The nuclear energy that was originally considered as the dual insurance that guarantees energy supply and energy saving and emission reduction has made the energy development trend extremely uncertain.

From an environmental perspective, Japan’s post-disaster carbon emissions will increase by 8% over 1990, accompanied by the suspension of operation of the Fukushima nuclear power plant and the reduction of new units.

However, there are always special cases. Although "security, cost, and environment" are contradictory in most cases, under the impact of certain specific external conditions, there are special exceptions to the three policy goals.

The typical case was during the oil crisis of the 1970s, when the Organization of Petroleum Exporting Countries announced the oil embargo and suspended exports, resulting in soaring oil prices and causing economic recession in Western developed countries.

The occurrence of this crisis forced oil to gradually withdraw from the power generation industry. Countries gradually adopted cheaper coal as fuel for power generation, and began to develop nuclear power technology, thereby reducing the dependence of the power generation industry on oil and ensuring the security of power supply. At the same time, the use of coal and other local energy products, reducing dependence on imported petroleum products, thereby reducing the cost of electricity generation.

Another special case is shale gas in the United States. In the context of technological advancement and economic development, the United States successfully exploited shale gas on a large-scale commercial basis, thereby changing the situation of its energy supply and demand. The U.S. Energy Information Administration predicts that U.S. shale gas will account for one-third of its natural gas production in 2015 and begin to study natural gas export issues. From the earlier forecast of large quantities of LNG imports to the possibility of export, shale gas development in the United States has greatly increased the self-sufficiency rate of domestic energy sources and reduced the dependence on energy resources.

At the same time, in North America, Europe, and Asia, natural gas prices in the United States have reached a minimum and have achieved a decoupling from oil prices. Compared with coal, natural gas with the same calorific value is only half the CO2 emitted by natural gas, so shale gas also achieves the goal of reducing environmental impact to some extent.

The development of China’s nuclear power also provides a good example of the unification of the “three-difficult” problem of energy policy. Actively developing nuclear power is an important component of China's national energy strategy. By increasing the proportion of nuclear power equipment in China, continuously improving economic efficiency and reducing cost, the cost of generating electricity for nuclear power in China's coastal areas has already been lower than coal, ensuring the security of local energy supply. At the same time achieved zero emissions.

The occurrence of the Fukushima incident in Japan poses even greater challenges to the further development of nuclear power. After the Fukushima incident, the Chinese government carefully examined the national nuclear power development plan and actively carried out safety regulations and strengthened industry approvals and supervision.

China's balanced high-speed economic development in China has brought great challenges to the formulation of China's energy strategy and energy policy. When formulating various energy policies, the government is constantly balancing the three policy goals of “security, cost, and environment”.

China's huge demand for energy has brought great pressure on local energy supply capacity, supply quality, transportation, and infrastructure. Orderly and diversified energy imports, especially the purchase of high-quality energy products from reliable international supply channels, will help reduce and balance domestic energy supply pressures, slow domestic resource depletion, optimize energy costs, and secure long-term energy supply. In order to ensure the competitiveness of China's economy and sustainable development.

China’s peaceful rise, in terms of energy, China will benefit from establishing a strategic partnership with foreign energy suppliers to ensure long-term stable economic energy supply.

In addition, strengthening and in-depth international cooperation can help China introduce advanced technologies to reduce the environmental impact of energy consumption. For China, on the basis of the introduction of foreign technology, it will continue to transform and upgrade, so that the localization of technology can truly adapt to the situation in China and satisfying the ever-changing needs of China will become an increasingly important issue.