A Green China or a Gray China?

Even as oil prices fall, China cannot go back to business as usual. It is sitting on an energy-consumption time bomb as its middle-class population grows—600 million by 2015 and 900 million by 2025—and begins to enjoy Western-style luxuries, from cars and appliances to lawn-mowers. If middle-income households maintain their current level of energy use, or worse, follow the patterns of their counterparts in the United States, China's national energy consumption will be more than four times the current level and more than twice that of the United States by 2020.

Even as we manage to ignore the IEA's forecast that oil prices could reach $150 a barrel in 2010, the mere existence of fossil fuel somewhere does not necessarily mean it will be available to China. It will depend on the geopolitical conditions of the day. Compared to the fundamental constraints on oil supply, the main reasons for the recent price drop—including diminished demand, the cautious response of OPEC to reduced production and the disappearance of speculators—are expected to vanish soon. The situation will inevitably get tougher as the 60-plus percent of oil consumed in China will have to be imported in 2010. Coal might be seen as an expedient alternative (China became a net importer of coal in 2007), but perhaps not in China's or the world's best interest.

To gain access to oil, China continues to build economic partnerships with resource-rich developing countries. However, geopolitics might disrupt this strategy. Specifically, the United States' green energy policy could be a double-edged sword on the global energy sector: It will reduce pressure on the war for oil; but could cause a price hike and affect the growth of oil-dependent manufacturing-based economies.

Despite these challenges, China has several intrinsic advantages. It does not have the debt burden of countries such as the United States and, similar to the United States, it maintains rich reserves of various alternative energy sources, including wind, solar, geothermal, biomass and hydro. China can use this low-oil-price era to boost investments in renewables and become "green," perhaps recreating its entire energy sector by 2013. In a best-case, albeit highly optimistic, scenario:

•  Dependence on energy imports falls to 4 percent, driven mainly by increased efficiencies and a higher portion of renewable energy (15 percent). Energy consumption per GDP falls to 4 or 5 percent a year as the rising middle class accepts an energy-efficient lifestyle.
•  Green technologies are commercialized for households and businesses encouraged by the success of landmark projects, especially in solar and wind energy and in fuel cells.
•  Hazardous gas emissions are reduced by 15 percent compared to 2005, GDP losses due to pollution remain below 3 percent while the energy sector contributes 13 percent to GDP (compared to 11 percent in 2005).

Taking preemptive measures to build a green nation should no longer be an option but an imperative for China, especially given the serious challenges and significant potential to create a future economic growth engine. After all, the intrinsic—but relative—advantages on which China relies will not last forever. As soon as other nations start to recover from the economic turmoil, there will be little time for (procrastination).

Consulting Author

Bernhard Hartmann is a partner and managing director of Greater China. Based in the Shanghai office, he can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .