This document summarizes Manuel Pinho's presentation at the 6th Columbia China Prospects Conference on China's environment and energy challenges. Some key points: 1) China has become the world's largest economy since overtaking the US in 2015, and its GDP is projected to be 45% higher than the US by 2030. 2) Reducing pollution is a top priority for China's government in order to improve air quality. CO2 emissions are driven mostly by structural economic changes and are likely to peak well before 2030. 3) China faces an energy imbalance with decelerating energy demand but continued high investment in both renewable energy and coal, leading to overcapacity and low utilization rates for coal plants

1. The 6th Columbia China Prospects Conference China ·
Global Conversations in the New Era
Jeffrey Sachs
Manuel Pinho
David Sandalow:
Jenik Radon
April 2017
China´s environment and energy challenges
Manuel Pinho
4/14/17 Manuel Pinho

2. In 1980 China accounted for 3% of word GDP. In 2015, it overtook
the US as the largest economy. Assuming more conservative GDP
growth assumptions than the IMF/ WEO, in 2030 China´s GDP will be
45% higher than in the US
4/14/17 Manuel Pinho
The rise of China is part of a broader/ no ordinary
disruption
Technology+ demographics+ Flows+…Easternization

3. Disruption is taking place very fast
Several myths about China:
- GDP growth depends on exports
- The exchange rate is artificially low
No, China depends less on
exports than Germany and
Japan
No, the real exchange rate of
the Yuan appreciated
4/14/17 Manuel Pinho

4. Principle n.2:
Changes in energy demand (and in
its composition) in China will
impact the world energy balance
and create shock waves.
Largest energy consumer, CO2 emitter, coal consumer, power
generator, investor in renewable energies, 5 out of 10 largest solar
manufacturers, unparalleled pollution levels
Principle n.1:
Reducing pollution is a top
priority . The government
cannot afford to fail improving
air quality.
4/14/17 Manuel Pinho

5. In 2014 energy and coal consumption, CO2
emissions decelerated abruptly
The more you understand what is wrong with a
figure, the more valuable that figure becomes.”
Lord Kelvin4/14/17 Manuel Pinho

6. Carbon emissions in China
Kaya identity
factors
GDP growth/ Energy system/ Structural change
Energy system
•Renewable energies
•Coal generation
•Transport electrification
Goldilocks: Structural change
•New normal
•Energy intensive industries/ services
•Lower GDP growth
• CO2 emissions are mostly driven by structural
change
• In normal circumstances CO2 emissions will
peak well before 20304/14/17 Manuel Pinho

7. 4/14/17 Manuel Pinho
However, a “bear scenario” cannot be excluded
• The official objective is to create a “new normal” of lower, but
better quality GDP growth
• Many predict that China will fail
• However,
• China´s economic track record is very strong
• Political organization allows to set long term targets and
to correct mistakes easier than in liberal economies
• Opportunities to develop the services sector are abundant
(for example, China has 15 cities with a population > 8
million, against 2 in Europe (Paris and London) and 2 in
the US (NYC and LA)

8. Decelerating demand + high investment in VRE+ high
investment in coal= overcapacity= curtailment+ low
capacity factor of thermal generation
There is a strong energy (im) balance in China
Source: NEA
Coal overcapacity
• Cheap coal
• High wholesale prices
Source: Carbon Tracker
4/14/17 Manuel Pinho

9. • Red listing of the provinces of Xinjiang,
Gansu, Ningxia, Inner Mongolia, Jilin
and Heilongjiang.
• “Document 625”: minimum quantity
that must be accepted by the grid (rises
capacity factor). Curtailment costs paid
by conventional generators.
• 8% rate of return
Recent measures to reduce curtailment
Coal stranded assets potentially very large
• Success to halt the construction of new
coal power plants is mixed
4/14/17 Manuel Pinho
Source: SEEE

10. Conclusions
•Sustainability has many dimensions. I have mostly focused on energy
•Reducing pollution is a priority. The government cannot afford to fail (China
will stay the course if the US changes its climate targets and commitments)
•Structural change is driving down CO2 emissions
•CO2 emissions are likely to peak well before 2030
•China is making a tremendous effort to decarbonize the power sector
•Coal is the main source of air pollution and carbon emissions
•Power sector: Excess capacity
•Europe and the US are by no ways a blueprint for energy reform in China
4/14/17 Manuel Pinho