Why is there a need for closer co-operation between China and the IEA?

28 June 2011

On 25 June, Nobuo Tanaka, Executive Director of the International Energy Agency, spoke at the Second Global Think Tank Summit. Among those attending the summit in Beijing were the Deputy Premier of China, Li Keqiang, and former US Secretary of State Henry Kissinger, who played a key role in the founding of the IEA in 1974.

At the summit, Mr. Tanaka shared IEA analysis regarding China’s future importance to the global energy market over the next few decades.

The Executive Director went on to cite five reasons why closer co-operation with the IEA would be beneficial for China.

Below is a full transcript of Mr Tanaka’s speech:

Mr. Zeng, Dr. Kissinger, Lord Prescott, distinguished guests, ladies and gentlemen,

It is an honour to be in such distinguished company this evening for the opening of this Second Global Think Tank Summit. I am very pleased to be able to address you in China at such a critical time in energy markets. Especially I am very happy to talk in front of Dr. H. Kissinger, a founding father of our organization. I can’t thank him more for his wisdom and vision to have created us.

Just a couple of days ago, we made a decision to release our Strategic Petroleum Reserve (SPR) to the market, for the third time in history. This decision taken among IEA member countries to release oil stocks in the face of a continuing disruption from Libya, and as a bridging action to further production increases from Saudi Arabia, highlights the importance of unity among major market players during such crises.

The OECD countries, which at the founding of the IEA accounted for about 75% of oil demand, now account for less than half, given the rise of emerging economies. Both in recent years and looking forward, the increase in non-OECD emerging countries consumption is led by brisk growth in China. In our 2010 World Energy Outlook, we see Chinese primary demand surging by 75% in 2008-2035, a far bigger increase than in any other country or region.

The need for closer co-operation is clear. But I would like to go even further, and discuss why China’s closer alignment with the IEA should be such a priority for China, and for us.

China’s future importance to the energy market cuts across all fuels, so let me give you some figures.

In 2000, China’s energy demand was half that of the United States, but preliminary data indicate it is now the world’s biggest energy consumer. Looking forward, China’s primary energy climbs by 75% to 2035, reaching two-thirds of the level of consumption of the entire OECD. Although China’s per-capita energy consumption is currently below the world average, in 2035 it is 40% higher than today’s global average, thanks to strong economic growth and relatively slow population growth.

However, China is not just a major and growing consumer of interest to the IEA. It is also increasingly dependent on global markets which are well managed within an international framework, for its own energy security.

China’s electricity demand is projected to almost triple from 2008 to 2035, requiring capacity additions equivalent to 1.5 times the current installed capacity of the United States.

China’s net imports of coal increase to 2015, but depending on policy it could become either a net exporter by 2035 or require the equivalent of all of today’s internationally traded coal.

Oil imports jump from 4.3 mb/d in 2009 to 12.8 mb/d in 2035 – representing all of current Saudi and Mexican production combined – and imports rise from 53% to 84% of demand.

Natural gas imports also increase to reach a share of 53% of demand in 2035, requiring a major expansion of pipeline and LNG regasification infrastructure. In our recent “Golden Age of Gas” scenario, the expansion is even more dramatic.

So China’s rise is not only a case of up, but also in. Into international markets, into political frameworks which guide those markets, into joint mechanisms for managing crisis, and perhaps one day, into the IEA as a global energy governance forum.

Let me be clear – the IEA respects the sovereign decisions of all of its partners, and deepening institutional ties is a long, complex, and sometimes slow process. But the IEA also recognizes the imperative to bring major emerging economies into its fold if credibility to act in the name of the global market – such as this week’s stock release – is to be maintained. We are very grateful that China publicly supported our stock release. It is a good indication of the progress we have made in closer collaboration over the last couple of years.

Then, what is in it for China? Let me give you some good reasons why China should join the IEA, though there could be 100 reasons:

    • First, co-ordination during supply emergencies and support from IEA partners when necessary to enhance China’s energy security. Our action this week was taken on behalf of the entire global economic recovery, in order to mitigate the negative economic consequences of the Libyan supply disruption globally – including inflationary pressures in China. But the system was also originally designed to help individual countries who might suffer disproportionately from a local or targeted disruption such as after Hurricane Katrina, when we last released stocks in 2005. In a tighter oil market, even small disruption could in the future cause huge volatility in the market. This is a good reason for China to work closely with us.
    • Second, participation in a community which is influential in shaping future energy security and sustainability policy on a global level. Currently the IEA is focusing on oil security. But oil security is the 20th century security based on cheap oil and automobiles. In the 21st century, the electric vehicle, and sustainable generation and distribution of electricity is the new security concern. This comprehensive energy security and sustainability means much more complex security framework than consumer and producer dichotomy
    • Third, participation in open discussions relating to technology policy and better access to state-of-the-art technologies themselves. Our Technology Platform and worldwide Implementing Agreements promote the exchange of advance technologies and policy experience for their development. China is really working with us and we hosted recently in Shanghai the so-called Advanced Leaders Forum focusing on electric vehicle. China’s future rests here and it is really working on energy technology like this.
    • Fourth, it is an issue of sustainability. The opportunity to learn and benefit from best practices of other countries in areas such as statistics or energy efficiency – also important for energy security and sustainability – but also to share China’s own models of development to affect the global paradigm. Through discussions at the IEA, China can test its practices and then disseminate them to the world. At the same time, it can benefit from areas where IEA transparency yields concrete results – for example in the area of comprehensive statistics at which the IEA excels. China, after Fukushima, must rely more on electricity from renewables. And electricity crisis is getting higher and higher. Efficiency exercise is more important to China. The G20 is for the phasing-out of fossil energy subsidies. The Chinese electricity market should be reformed.
  • And finally, to demonstrate to the world that China is reaching the point of development where it can confidently engage alongside other developed economies in areas of global importance. Today, we have already talked about the UN, IMF, G20, financial issues and trade issues at the WTO, for which China plays a very important role. Why not talk about future energy crises at the IEA?

Let me conclude just by saying that China’s evolution represents nothing less than a transformation of the global energy economy. At the IEA we are proud to be able to embrace such change, but urge the new major emerging economies like China to assume their role as equal partners in global energy governance.

My major achievement as Executive Director over the last four years has been to establish very good collaboration with China. But, if I have any regrets, it is that I have never succeed in making China a member of the IEA. I even asked Dr. Kissinger to help me to convince China. I am leaving the organization in the end of August, but I am very much committed to work with you in a personal capacity to make this global energy governance happen. Together, we can ensure that the transition to a secure affordable and sustainable energy future is a harmonious one.

Thank you very much.