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Abu Dhabi, UAEFriday 17 August 2018

China banks on renewable energy to serve its vast, emerging middle class

Beijing's embrace of renewable technology arrives at a crucial moment, writes Linda Yueh

Solar panels in Shanghai, China. Getty Images
Solar panels in Shanghai, China. Getty Images

There is a historic shift occurring in terms of where the new middle class consumers will be located in the coming decade. The emerging middle-income countries, notably in China and also elsewhere in Asia, will also have an opportunity to re-shape the energy mix that underpins these increasingly prosperous economies.

For the first time in 150 years, more of the global middle class will be in Asia rather than the West in the coming years. By 2030, there are projected to be 4.9 billion people in the middle class out of an estimated 8.6 billion in the world. Of this, three billion will be in Asia.

This is largely due to China leading the East Asian region in lifting billions of people out of extreme poverty – those living on less than $1.90 per day adjusted for purchasing power parity or what a dollar buys in their country. The World Bank estimates that East Asia is on the brink of eradicating abject poverty. As poverty falls, the middle class grows in the fastest growing region of the world.

As more people become middle class, they expect a better quality of economic growth. This is seen prominently in China. In 2014, President Xi Jinping pledged that greenhouse gas emissions would peak in 2030 and committed China to the Paris climate change accord. As China accounts for half of the world’s use of coal, this was an important step towards combating global climate change as well as signalling an even bigger push for China to reorient its energy mix towards renewables.

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China plans to rely on renewables for one-fifth of its energy use by 2030, up from around one-tenth at present. Relying on less polluting and more sustainable sources for energy caters better to the needs of its people who desire a better quality environment to match their middle-income lifestyle. Consumer preference matters a great deal since the pollution split between consumption and production is 80 per cent to 20 per cent for developed economies versus 20 per cent to 80 per cent in developing countries. So, as China and Asia grow richer, the energy choices of their consumers will increasingly matter.

And China has invested in a range of renewables. It has surpassed the United States, Europe, and other major economies in terms of investment over the past few years. This push began before the 2014 pledge by president Xi. China’s focus on green energy in particular was fuelled by its interest in technological upgrading - a key component of its economic plan to become a prosperous nation. Investing in technologies such as solar panels furthers China’s ambitions to have high-tech industries, which are part of the foundation of a stronger economy. As such, China has become the world’s largest user and producer of renewable energy technologies. It is also leading in smart-grid technologies, which can foster a new model for energy consumption.

As part of the Belt and Road Initiative, China is investing in high-speed rail and other infrastructure, both at home and overseas, as well as planning to create high-tech, AI-focussed manufacturing by 2025. With such focus on investment and production, fossil fuels are still an important part of China’s energy mix. Its Belt and Road Initiative sees China investing up to $800 billion in some 65 countries over the next five years with another $100-200 billion in its Silk Road Fund that could be deployed to support this outward investment push.

Part of its rationale for such massive overseas investments in rail, ports and roads, including in the Middle East, is to increase energy security. Although criticised by the European Union in terms of the environmental impact of its investments, China’s shift in terms of its energy focus will increasingly come into play.

For instance, with its focus on technology and growing emphasis on green energy, China’s investments will influence those countries in which it is present. China is aiming to invest in green jobs and environmental improvements along its New Silk Road and back solar and other renewable projects.

For countries such as the UAE, China’s shift in focus would offer opportunities to work with its second largest trading partner on a wider range of projects. The UAE and other OPEC nations supply around half of China’s imported oil needs, so the region is important as China will still rely on traditional sources of energy for some time to come. This partnership has and can evolve to benefit both countries and regions.

Specifically, with China and the UAE’s focus on sustainability around a range of issues related to energy, water and the transition to a more sustainable energy mix, this is a crucial moment. Not just for these nations but also for the rest of the world.

Dr Linda Yueh, author of The Great Economists: The Thinkers Who Changed the World and How Their Ideas Can Help Us Today, is a keynote speaker at the World Future Energy Summit during Abu Dhabi Sustainability Week (13-20 January)

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