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31/01/2007 | Germany and China: In Search of Energy Certainty

Bart Mongoven and Davis Cherry

Within 24 hours of each other during the past week, the governments of China, Germany and the United States all made public commitments to new directions in energy policy.

 

The U.S. policy is driven primarily by environmental issues and long-term geopolitical concerns, whereas Germany and China are facing existential crises related, in different degrees, to their continued ability to fuel their economies. The recent statements demonstrate that energy is a top-priority issue for decision-makers in three of the world's largest economies, and each is seeking a path toward stability and predictability of energy supplies.

The first announcement came from China, which outlined a plan to place a cap on its domestic coal production in 2010 -- a move that eventually will force utilities to consider new sources of power and move away from the older-technology coal-fired power plants that currently dominate the industry. Coal will still lead the way in China, but the measures recently announced are meant to encourage construction of newer coal plants and investigation of nuclear and other options.

The second announcement came from Germany, whose path on energy matters is likely to be much more difficult and circuitous than China's. Speaking at the World Economic Forum in Davos, Switzerland, Chancellor Angela Merkel called for greater investment in renewable energy sources, steep cuts in Germany's greenhouse gas emissions and a drive toward "energy security." At the same time, she maintains that she will keep a promise made to the Social Democratic Party (SPD) -- the key coalition partner in Merkel's government -- to phase out nuclear power in Germany over the next 14 years.

Finally, in the United States, President George W. Bush made a call for efficiency and new transportation fuels, especially ethanol. During his State of the Union speech, he said that nuclear power expansion should be considered as an option. However, in the United States, the expansion of nuclear power is not so much a political problem as a practical one: Neither industry nor politicians have much desire to push the issue until questions about disposal of nuclear waste are resolved.

These different visions of nuclear power are barometers of the situation in which each country finds itself and of public sentiments on energy issues. The most interesting comparison is that between China -- where government is taking pains to encourage investment in nuclear energy -- and Germany, where nuclear power could play an important role in reducing the country's dependence on Russian supplies, but where endorsing such a program would entail political liabilities. The two countries essentially are the polar opposites on the realist-idealist spectrum.

While China's energy plan will not be without problems, Germany currently is caught between conflicting ideals and its path, therefore, is seemingly more fraught with peril. Its options are limited to continued
reliance on Russian supplies, seeking futuristic alternatives or else revisiting some of the political goals to which Merkel has pledged her government. Therefore, nuclear energy well could become a model that the Germans eventually view with interest.

The Chinese Plan

China's planning agency, the National Development and Reform Commission (NDRC), on Jan. 23 announced plans to consolidate ownership of coal mines, to boost production of higher-quality lower-sulfur coal and to cap in 2010 the amount of coal used by the power-generation industry. The move is a signal that Beijing plans to modernize is electricity-generating system and to encourage investment in both new coal technologies and nuclear power.

Coal has been, and remains, a mixed blessing for China. The country is endowed with more than 10 percent of the world's coal reserves -- second only to the United States. This abundance has served to power China's incredible industrial rise and has kept it from becoming completely dependent on foreign sources of energy. China's coal-mining industry is enormous -- comprising thousands of operators of various sizes -- and these companies are expanding capacity as quickly as possible. Sustaining the current rate of economic growth -- which, by the way, is not something China necessarily wants to do -- would require an additional power plant to be built each week.

The downside to this system is obvious to anyone who has been to China. The air is clogged with particulates, mostly from coal. According to some estimates, more than 1 million Chinese die each year from pollution-related respiratory problems. Further, the mining sector in China is unsafe, since rapid expansion has factored into dangerous working conditions and thousands of deaths.

The recent NDRC announcement is not the first attempt by Beijing to cap coal production and to encourage new coal technologies. In 1997, Beijing announced plans to cap coal production and called for strict pollution controls. That maneuver failed to produce significant changes, however, because the government provided no incentives for individual power plants to switch from inexpensive, older coal technologies to more efficient ones (let alone to expensive nuclear power). Without a built-in financial incentive, utility companies had no reason to turn away from the easy, immediate profits that the system offered at the time.

What makes the recent edict by Beijing different is that the calls for modernization and caps on coal production have been combined with a promise of consolidation for the coal-mining sector. By reducing the number of mining companies in play, Beijing might be able to monitor and, to some extent, control national coal production. Given the pace of demand increases, an official cap on coal production -- even if flagrantly violated -- will effectively increase the price of coal, making efficiency and new technologies more attractive to commercial consumers.

Nuclear power is one of the obvious alternatives on the table. China already has embarked on a long-term plan to increase its nuclear energy capacity, and as the forced shortage of coal (which will bring with it higher costs) begins to kick in, more utilities will begin to consider this option.

The German Path

Germany, meanwhile, will be moving in the opposite direction. Merkel has set an ambitious goal of reducing Germany's greenhouse gas emissions and dependence on Russian fossil fuels, while still maintaining energy prices at a reasonable level for German consumers. However, Merkel -- the leader of the Christian Democratic Union, who personally supports nuclear energy -- has pledged to support a phase-out of nuclear energy and shut down of all of the country's reactors within 14 years, in order to maintain her party's governing alliance with the anti-nuclear Social Democrats.

Speaking at the opening day of the World Economic Forum, on Jan. 24, Merkel called for all countries to join a binding post-Kyoto settlement on cutting greenhouse gas emissions. She called on developing countries with the "highest growth rates" -- such as India, Brazil, and China -- to join G-8 members in climate change negotiations.

Merkel's promise to the SPD notwithstanding, there are calls even within Germany for more, rather than less, nuclear power. German Economy Minister Michael Glos warned Jan. 10 that the European Union will not be able to fulfill its targets on emissions reductions unless more member countries encourage domestic use of nuclear energy. The same day, the European Commission released a report stating that Europe must pursue nuclear energy in order to combat climate change and foster greater energy security for the continent. Further, Deutsche Bank recently released a study warning that Germans will experience significantly higher electricity prices, find themselves increasingly dependent on gas imports from Russia, and will fail as a country to meet greenhouse gas emissions targets if the anti-nuclear policy is maintained.

Germany's nuclear policy increasingly is alienating other European states. The United Kingdom embarked upon a new civil nuclear energy phase in 2006; Central European states would increase nuclear energy were it not for EU restrictions; and Enel, Italy's largest electricity company, is cooperating with Electricite de France on nuclear technology projects in anticipation of a possible reversal of Italy's ban on nuclear reactors. Sweden, Finland and France all are adding to the number of nuclear facilities in-country as well. However, SDP opposition in Germany remains strong: Some SPD leaders have indicated they would rather increase energy imports from Russia -- which has shown itself willing to cut off supplies with little warning for political reasons -- than invest in nuclear technology.

Conclusion

Certainly, nuclear power is less than ideal as an energy source: The waste products generated remain highly dangerous for long periods, and must be stored for safety -- an expensive undertaking. Worst-case scenario accidents at nuclear facilities can be deadly and leave neighboring towns uninhabitable. However, many have found that nuclear power mitigates the dangers from a number of environmental problems, such as air pollution and climate change, and a large economy can be powered by a relatively small number of nuclear plants.

Chinese energy policy stands in noticeable contradiction to Germany's. China is not particularly concerned about potential nuclear reactor accidents -- the new-generation pebble-bed reactors it seeks to build are far less likely than traditional reactor systems to be an issue in major accidents -- and climate change certainly ranks below other issues on Beijing's priority list. China is much more concerned with energy security. It is strengthening its ties with energy-exporting countries in Africa, South America and the Middle East; however, the likelihood of Chinese hegemony in any of these regions remains uncertain at best. Thus, China, for at least the next two decades, must continue to utilize its domestic energy sources as best it can in order to promote energy security. That means continuing to use coal, while looking for other sources as well. Nuclear power seems destined to become an increasingly prominent part of that mix. If it balances coal and nuclear power wisely, China just might be able to manage its energy needs over the coming decades.

Germany's current energy situation is at least as difficult as China's, if not more so, but the government in Berlin has given itself far fewer policy options. If Germany truly intends to reduce greenhouse gas emissions while simultaneously reducing its use of nuclear power, it will be committing itself to vastly stepping up energy conservation while also switching to new -- and perhaps as-yet-uninvented -- technologies.

In short, the government would be committing itself to a process over which it has little control. Meanwhile, Russia will continue to find ways of reminding Europeans that it retains significant leverage over their fuel sources -- and therefore, over their economic well-being.

The alternative, of course, would be for Berlin to break with its greenhouse gas commitments and reverse its commitments on nuclear power.

The Russian issue in particular will drive Germany to revisit its energy policies. In addition to growing calls for global greenhouse gas regimes that will dramatically increase investments in alternative fuels and new technologies, Berlin also will be forced to confront the political forces that are pressing for an end to its use of nuclear power.

As Germany considers its future and limited options, the leadership and citizens are likely to look outward for precedents and models to follow. At one extreme, there is Austria -- landlocked and even more vulnerable on energy issues than Germany -- which has banned nuclear power and the use of any energy derived from it. At the other end, there are examples like France, which has lived comfortably for some time with more than 70 percent of its power coming from nuclear plants. China -- should it follow through with the plan laid out by the NDRC -- could become a much more prominent example in the coming years.

Stratfor (Estados Unidos)

 


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