Promoting clean energy is necessary to meet the growing demand from urbanization and to guarantee supply security

At the just concluded fifth annual World Future Energy Summit in Abu Dhabi, Premier Wen Jiabao made a speech outlining China's efforts to adopt clean technology and renewable energy. However, its coal dominated energy structure will remain difficult to change in the near future, as China is a big country with a low per capita income that requires a large amount of energy to support its ongoing industrialization and urbanization.

China's energy demand during its urbanization and industrialization will be huge and it will increase rapidly. China's urbanization rate will rise to about 62 percent by 2020, implying a net increase in the urban population of about 300 million. Our estimates indicate that the energy consumption of China's urban citizens is about 3.5-4 times that of rural citizens on average. Urbanization also requires huge quantities of cement and steel, which can only be produced in China, as no other country can produce the quantities needed. Therefore, before 2020, China's economic structure will have low energy efficiency, high energy consumption and high emissions.

However, with China's growing addiction to foreign oil, as well as its increasing coal consumption, China has ample motivation to exploit new energy, in an effort to guarantee its energy security and to address environmental problems. Developing new energy technologies and new energy sources is a necessary choice for China. The government should take urbanization as an opportunity to promote energy conservation and introduce effective policies to support clean energy development.

To do this requires a good understanding of China's development constraints, which include energy scarcity, environmental pollution and climate change, energy security, and energy costs.

Energy scarcity will be a hard constraint for future economic growth, and should be a fundamental force for energy conservation, while the country's large energy demand also makes reducing emissions difficult and costly, and the efforts of the government have failed to fundamentally reduce pollution and protect deteriorating ecosystems.

China's oil consumption has increased by about 7 percent every year in the past 10 years and China's oil dependence was 55 percent in 2010, increasing by about 3 percentage points annually. If nothing is done to alter this, China's oil dependence could possibly reach 65 percent by 2015, more than that of the United States.

The country's rapid economic growth requires sufficient and cheap energy. Given China's emphasis on social stability, energy prices are a sensitive issue and a key factor affecting clean energy development.

China obviously has great potential for energy conservation. Energy conservation is cheaper and cleaner, and more importantly, it addresses all four of the constraints.

Despite its impressive progress so far, further developing clean energy remains a big challenge for the country. The high cost is the first obstacle. Coal is much cheaper compared to clean energy sources such as wind, solar, and biomass. The second obstacle is the "quality" of clean energy. From the perspectives of supply stability, the large-scale transmission of renewable energy poses great challenges for the power grid. Finally, the recent nuclear crisis in Japan has cast a shadow on the development of nuclear power, a renewable energy with supply stability, although its large-scale exploitation and utilization are still feasible with the ongoing development of technologies, so the Japanese nuclear crisis is unlikely to change China's nuclear strategy.

China already has a sizable research and development capacity and because of its population size and growing energy demand there is ample incentive for the clean energy industry to develop, as there are large potential profits for enterprises that invest in clean energy research.

The government should actively promote research and development cooperation among related parties and should put forward supporting policies that provide an enabling environment for the development of clean energy. In addition, the government should further formulate policies that are conducive for financing clean energy technologies. Since one of bottlenecks of clean energy development is grid connection, the grid companies should also actively participate in the development of clean energy.

Government support for clean energy development is needed in the short run, but its long-term development will require reforming energy pricing to ensure clean energy is competitive with fossil fuels. If the government continues to control energy prices, a better design of subsidies for clean energy is required.

The higher the per capita income, the more affordable clean energy is and the greater the environmental awareness. Developed countries clearly have advantages in both as their much higher per capita incomes are much higher than China's, therefore as long as intellectual property rights are properly protected developed countries should also provide financial and technical support for the development of clean energy in developing countries.

The author is director of the Center for Energy Economic Research of China in Xiamen University.