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China's energy regulators overwhelmed

Poorly staffed and with little expertise, China's energy regulators are struggling to find the clout to resolve the country's worst power crunch in 20 years, cut surging oil imports and clean up a deteriorating environment.
/ Source: Reuters

Poorly staffed and with little expertise, energy regulators are struggling to find the clout to resolve China’s worst power crunch in 20 years, cut surging oil imports and clean up a deteriorating environment.

Just 19 months old and with a workforce of 30, the Beijing-based Energy Bureau faces a looming energy crisis that experts say could have a long-term backlash on the world’s fastest-growing major economy.

Under the government of Premier Wen Jiabao, which is tasked with improving the living standards of 800 million farmers and creating jobs for millions of laid-off state workers, energy is now higher on the political agenda than before.

But experts say that without a firm hand to govern and coordinate the sector, many well-intentioned policies will likely fall by the wayside.

“China is good in setting up energy policies at the very top level, but there are no institutions to implement and coordinate them,” said Dai Yande, deputy head of the government think-tank, Energy Research Institute. “Without an administrative structure in place, many policies have no effect.”

China’s voracious appetite for oil this year, a key driver of record global crude prices, has been fueled by heavy investment in raw materials, manufacturing, real estate and huge infrastructure projects.

These sectors are big energy users that have drained the stocks of coal in the world’s No. 1 producer to historic lows, led to nationwide power blackouts and rationing, and sent oil imports leaping more than 30 percent from last year.

One of 20 subdepartments
To cope with the nation’s energy demands, Beijing wants to boost the use of natural gas and renewable energy resources, balance the use of coal with steps to clean up the environment and prioritize conservation measures.

It also wants to create strategic oil reserves as its dependence on imported oil grows.

“China’s policies and regulations are not strong enough to control and influence how the investment happens. The market is not yet guided or cannot do what other countries can do,” said Jeffrey Logan, China program manager at the International Energy Agency.

The Energy Bureau is only one of over 20 subdepartments under the State Development and Reform Commission. The National Statistical Bureau has only three people to handle energy data in the world’s second-biggest consumer.

In comparison, the world's top energy guzzler, the United States, has a 14,000-strong Department of Energy, of which about 2,000 staff map out policy and 600 collect and analyze data. Its vice president is tasked with drafting energy policy.

Analysts said Beijing should consider beefing up the manpower and political clout of the bureau, possibly by putting it under control of a government task force headed by a vice premier.

Conservation, environment, efficiency
Logan said energy conservation and environmental protection should be key to new policy in China to improve efficiency and promote sustainable demand growth.

“Energy conservation is very, very important because investment that is made today in refineries and factories will be using energy for the next 40 years,” he said.

The sharp growth in car sales may lead to a bigger oil shortage in the longer run and worsening environmental conditions unless stringent efficiency and clear fuel standards are implemented.

The power sector has been hamstrung by lagging reform on pricing that should encourage new generation capacity to be fired by coal and natural gas. The government has allowed the price of coal, which fuels nearly three-quarters of power generation, to rise but has kept a tight lid on electricity prices.

Although Beijing wants to boost the use of cleaner natural gas in power generation to 6 percent in 2030 from a little over 1 percent, it has not introduced any incentives for power plants to use gas.

Neither has there been any coordinated policy between state oil companies, which have been urged to go overseas to hunt oil and gas assets as resources at home dwindle.

State-run firms have found themselves bidding against each other for assets, while there is no mechanism to deal on a government level with major producing nations such as Russia or in the Middle East.

“China has lost lots of opportunities in the overseas expansion,” said a former China expert with the International Energy Agency. “There are no qualified government officials to participate in global energy talks with producers or consumers.”