The main determinants of the nature and pace of China’s energy transition lie in the institutions of governance and in the adaptability of these institutions. Strong sources of institutional inertia lie within the government itself and the way it operates, and these are complemented by the behaviour of powerful actors, notably the state-owned energy companies. Although the government has shown the ability and the willingness to make marginal adjustments to institutions, more substantial institutional change across the polity, economy and society in China will be required in order to accelerate the transition. But it is difficult to identify such institutional changes taking place. Philip Andrews Speed will provide an assessment of these developments and will specifically address the following questions:1) what elements in the manner in which China’s energy sector is governed are likely to assist or constrain the nation’s transition to a low-carbon economy? 2) what are the implications for China's transition to a low-carbon economy?

2. Why institutions?
• Transition to a low-carbon economy
will be constrained by many factors:
– structure and rate of growth of the
economy
– resource endowment and existing
infrastructure
– and the governance of the energy sector
• >>>>>>>>>>INSTITUTIONS

3. Questions
• What elements in the manner in
which China’s energy sector is
governed are likely to assist or
constrain the nation’s transition to a
low-carbon economy?
• What are the implications for China's
transition to a low-carbon economy?

4. Aims
• To explore how the study of institutions may
help to elaborate on the challenges lying at
the heart of transition management
• To apply these ideas to the case of China
• See:
– Short report from Transatlantic Academy
http://www.transatlanticacademy.org/publications
– Book: Governance of Energy in China. Transition
to a Low-Carbon Economy (Palgrave Macmillan)
September 2012

5. Structure of talk
• Socio-technical transitions
• Institutions
• Selected Chinese institutions
• Implications for low-carbon transition

6. Socio-technical transitions
• Change in the system of social behaviours and rules
relating to technology and technological advance.
• Steam engine, electricity, internal combustion
engine, telecommunications
• Most such transitions:
– Driven mainly by perceived private benefits
– Take 50-100 years, maybe faster today
• In contrast the low-carbon transition:
– Is driven mainly by perceived public benefits
– Faces significant time pressure
– Requires direct government and societal support

7. Obstacles to transition
• Obstacles ‘lock-in’:
– structure and rate of growth of the economy
– resource endowment and existing infrastructure
– actors with vested interests
– institutions of governance; adaptive capacity
• Transition management is about involving the
whole of society in this change>>
• Institutions: the formal and informal rules of
society, and beliefs

8. Institutions
1. Embedded institutions:
norms, beliefs, ideas
2. Institutional environment: Behaviours: The actual
political system, bureaucratic transactions which determine
structures of government, prices, output quantities.
judiciary, legal system.
3. Institutions which govern
transactions:
Firms, bureaus, markets,
hybrids, networks. Policies,
laws, instruments
Adapted from Williamson (2000)

9. Institutions
• Self-reinforcing through positive feedback
• What do they do?
– create predictability
– resilient to change >>> path-dependency
– constrain the path of economic/political development
• How do they change?
– most change is incremental
– slow change leads to inconsistencies/frictions which
reduce stability of the system
– builds towards a threshold
– a combination of external shocks and actions of actors

10. Institutions and adaptability
• Adaptive efficiency (adaptive capacity):
– Dependent on culture & institutions
– Degree of preference for/imposition of conformity
– Openness to competition (political and economic)
• The analysis of institutions gives insights to:
– Economic and political development
– Energy transition
• Focus on levels 1 and 2, and the way in which
they constrain changes at level 3

11. Chinese embedded institutions:
• Many go back hundreds or thousands of years
• Centralisation of power; Hierarchy; Family
• Relationships/guanxi and social capital/shortage
impersonal trust
• Conformity and consensus vs individualism
• Appropriate behaviour vs search for truth:
– false reporting and feigned compliance
• Governance became synonymous with management of
resources 治國 (zhi guo)
• Self-reliance & state control of key industries/resources

12. China institutional environment (1)
• Institutional environment: can be directly linked to
post-1949, but many have roots in Imperial past:
• Combination of centralisation and fragmentation
– Centralisation of political power
– Role of political elite still important, but some
pluralisation of decision-making
– Hierarchy and personal relationships
– Progressive decentralisation of economic management
– Poor definition of roles and responsibilities
– Multiple centres of power and institution building
– Powerful SOEs

13. China institutional environment (2)
• Immature ‘modern’ legal system: long historical
roots
• Weak civil society
• Fragmentation of authority:
– Opportunities for rent seeking and abuse of
power
– BUT opportunities for policy innovation
• The importance of CCP
– Policy making and implementation
– Co-opting different sectors of society
– Some reform, professionalization of civil service

14. Implications for policy making and
implementation
• Policy making is no more rational than in a
democracy:
– Multiple actors with multiple interests
– Search for consensus can prevent decision making
– Strong actors can distort policy making
– Limited scope for new entrants (political and economic)
• Policy implementation constrained by:
– Local governments/SOES pursuing own agendas
– Corruption, rent seeking and clientilism
– Immature legal system

15. Adaptive capacity
• Strong sources of resilience to institutional
change:
– Institutional change in some sectors has slowed
(reversed?) over last 10 years
• Evidence of adaptive capacity:
– Openness to new ideas from overseas
– Willingness to experiment
– Multiple centres of institution building
– Social learning with government
– Highly entrepreneurial society

16. China institutions of energy
governance
• A high degree of institutional resilience and
moderate degree of adaptive capacity has led
to
– Significant changes at level 3
– Only minor changes at level 2
• Stranded between the plan and the market
– Limited effectiveness of administrative and
economic instruments

17. Institutions
1. Embedded institutions:
norms, beliefs, ideas
2. Institutional environment: Behaviours: The actual
political system, bureaucratic transactions which determine
structures of government, prices, output quantities.
judiciary, legal system.
3. Institutions which govern
transactions:
Firms, bureaus, markets,
hybrids, networks. Policies,
laws, instruments
Adapted from Williamson (2000)

18. Implications for low-carbon
transition (1)
• Policies can be agreed and implemented IF:
– Large funds, no powerful losers:
• state-backed construction of new energy capacity
• discounts on energy efficient appliances
– Administrative instruments targeting small
number of actors and/or campaign-like style:
• Top-1000 enterprise energy efficiency
• Vehicle efficiency
• Recent coal mine safety campaigns

19. Implications for low-carbon
transition (2)
• Policies are likely to be much less successful
if they involve:
– Redistribution of rents and powerful losers:
• Sector reform
• Energy taxes and higher energy prices
– Administrative instruments targeting large
number of actors:
• Wider industrial energy efficiency
• Building and household energy efficiency
• Environmental and safety regulation

20. Implications for low-carbon
transition (3)
• Institutional and policy innovation in the
energy sector:
– remains at the margins, mainly at level 3
– short-term unpredictability (level 3)
– longer term path dependency (level 2)

21. Conclusions (1)
• In the absence of a major slowdown in
economic growth and/or a political
transformation:
• Construction of new capacity to produce and
deliver low carbon energy of all types will
continue
• But will be almost matched by growth of fossil
fuel capacity
• Efforts to promote energy efficiency and
energy conservation will continue to face
major obstacles

22. Conclusions (2)
• In this, China is little different from many
other energy intensive economies, but:
– Sheer size
– Large population, growing middle class
– Rapid economic growth, albeit slowing
– Coal is dominant fuel
– Role of industry in the economy
• Implications for global climate change: Get
out the lifeboats