The old adage "to a hammer, every problem looks like a nail" sums up how most countries deal with energy shortages. Planners race to build electricity plants--driven by coal, natural gas, hydro- or nuclear power--whenever shortages appear. This knee-jerk supply bias has been the cause of serious economic, public health and pollution problems. It sounds counterintuitive, but
the best way to meet the rising demand for energy is not to supply more. It's to modernize the appliances and equipment that use energy. The cheapest, fastest and cleanest energy resource by far is energy efficiency. China is only the most striking example of a country that ignores this.
The growth of China's appetite for energy in the last four years has been staggering. As the world's fastest-growing and most coal-dependent economy, China's share of world coal consumption in 2005 was 40 percent--2 billion tons--more coal than the United States, India and Russia combined. With its blistering pace of economic growth--over 9 percent annually for the last 25 years--China can't mine coal fast enough, triggering electricity shortages. The response of local officials has been to build the equivalent of one huge 1,000-megawatt coal-fired power plant every week--which adds the equivalent of Spain's entire electricity capacity each year. These are typically inefficient, 1950s-era plants that waste two-thirds of their coal. For every dollar of economic output, China wastes three times more energy than the global average, and 11 times more than Japan. China's energy waste has only been exacerbated by adding all these coal plants--160,000 megawatts were added over the last three years, and another 250,000 megawatts are likely in the next two years.
This building spree is largely unnecessary. It would have been cheaper, cleaner and more productive for China to have invested instead in energy efficiency. Making factories efficient and other demand-side investments saves more energy while costing only a quarter to one third as much as building new power plants--with zero pollution. The building spree has largely derailed China's energy diversification into alternative energy sources. Most of the new coal plants aren't running at full capacity due to underdeveloped transmission networks, antiquated market rules and protectionism that conspire against dispatching power over wide areas.
Until recently, China was the developing world's leader in energy efficiency. From 1980 to 2000, the country quadrupled its economy while growing energy at only half the rate of economic growth. In 2001, China announced a similar goal, to quadruple GDP by 2020 and similarly targeted energy to grow at only half the rate of economic growth. But since 2001, China has flipped this trend: energy growth is now over one-and-a-half times the rate of economic growth. Investment in energy efficiency has fallen off to only one third of its 1983 peak-year levels.
There are signs that China's leaders are beginning to grasp the urgency of slowing energy growth, diversifying away from coal and investing in energy efficiency. The 11th Five-Year Plan (2006-2010) calls for improving national energy efficiency 20 percent. This ambitious target would be the world's largest, and fastest, global warming pollution-reduction initiative. China is already beginning to implement this plan: last year, it adopted vehicle fuel economy standards that are 20 percent more stringent than those in the United States, which could cut 60 million tons of global warming pollution and save over a half-billion barrels of oil by 2030. The 2005 Renewable Energy Law mandates that 15 percent of China's energy come from renewables by 2020--about 120,000 megawatts of new renewable energy, including a $40 billion wind-energy market. The development of more efficient consumer appliances such as refrigerators, lighting and TVs could save 10 percent of all residential electricity in 2010, obviating the need for 36 large coal-fired power plants. The 1,000 largest energy-consuming enterprises, which consume a third of all primary energy in China, are poised to implement the world's most advanced procedures for modernizing their energy performance. Twenty cities are developing bus rapid-transit systems that move people as efficiently as subways at only 10 percent of the cost.
China still has a long way to go in restoring the balance between energy demand and economic growth. It needs to invest about $37 billion a year in modernizing electricity-consuming equipment--a twelvefold increase from today's levels. Similar efficiency improvements in the United States, Europe and Japan could significantly cut energy demand while reducing greenhouse gases. Building power plants isn't the only tool we have.