A Cool Reflection on the New Energy Boom

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As the global consensus that the new energy industry should be regarded as a strategic emerging industry takes hold, coupled with a series of policies aimed at promoting the development of new energy, investment and development in this field in China have seen an unprecedented boom. Amid the current enthusiasm for new energy, there have also been some voices of skepticism; recently, the new energy industry has been frequently accused of having overcapacity. As the development of new energy in our country accelerates, we must remain calm and conduct in-depth analyses from various perspectives of the problems existing in its development. 　　I. Is basic energy truly facing depletion? Basic energy sources include coal, oil, natural gas, nuclear power, and hydroelectric power; the first three are also known as fossil fuels. Fossil fuels are non-renewable, and even hydropower seems to have little room for further development in some highly developed areas—this correct perspective is distorted in many discussions into the claim that fossil fuels are running out and cannot support sustainable development. Its high price will hinder the normal growth of consumption and impede economic development, which is one of the primary reasons for the urgent need to develop new energy sources. 　　The most representative and influential view among such perspectives at present is the peak oil theory or depletion theory. Indeed, the production cycle of an individual oil well, oil field, or even an oil region exhibits a life-like pattern of growth and decline. However, as understanding deepens and technological capabilities improve, new oil fields (reservoirs) continue to be discovered in existing old oil fields; at the same time, the technical and economic thresholds for extraction keep dropping, which also leads to an increase in recovery rates. This tactical succession in oil production allows the operational life cycle of oil fields and oil regions to be significantly extended; old oil fields such as those in China’s Songliao Basin and Bohai Bay Basin, which have been in operation for nearly 50 years, are still in their productive prime. At the same time, oil and gas geologists, through strategic succession in oil production and based on practical experience, continuously pursue theoretical innovation to guide exploration toward new areas (such as from the old oil fields in eastern China to the northwest and offshore regions, from shallow seas to deep seas), new sectors (such as from continental formations of the Mesozoic and Cenozoic to marine formations represented by the Paleozoic), and new types of reservoirs (such as from traditional anticline or structural reservoirs to lithological reservoirs that are more difficult to identify but are abundant in number); they are also expanding exploration from conventional oil and gas to unconventional oil and gas. Although, under unchanged conditions in a specific oil field (area), various mathematical models and formulas can be used to estimate changes in reserves and production over an upcoming period, including the timing and magnitude of the peak production levels, the results obtained have some reference value. In reality, however, oil production takes place within a framework of ongoing tactical and strategic adjustments. Especially when such calculations go beyond short-term forecasts for a particular oil field or area and involve medium- to long-term projections for major oil-producing countries or on a global scale, these changes in circumstances become quite significant. At this point, no matter which formula is used for calculation, there will be significant errors in predicting the output, especially the peak value, which can even lead to incorrect judgments regarding the trend. Therefore, viewing the dynamic development capacity of the oil industry in an isolated and static manner is a mistaken way of thinking. 　　Regarding unconventional oil sources such as asphaltic sandstones and heavy (viscous) oil, their potential recoverable resources exceed the currently proven reserves of conventional oil. China and the United States have made significant progress in the extraction of oil and gas from tight (reservoir) formations, which are part of this unconventional oil category, in recent years. It is through the continuous implementation of these two types of successors—tactics and strategies—that the oil industry has overcome various difficulties and continued to grow, reaching its peak of development. 　　In the history of human energy development, there have been successive eras: the wood age, the coal age, and the oil age. The emergence of each new era does not mean the depletion of the key resources of the previous era; rather, it is because that subsequent era gives rise to one or several new forms of energy that are more efficient, more convenient, and better suited to promoting the healthy development of society. The \"post-oil era\" that follows the oil age does not arise from the depletion of oil; rather, it is an era in which various clean and efficient energy sources, including traditional energy sources and new energies, coexist, as development progresses over time and in different regions. 　　II. Two doubts regarding the relationship between energy and the environment: The pressure to massively adopt new energy sources stems largely from the growing calls for environmental protection. Oil, coal, and natural gas, which are among the primary energy sources, produce CO2 when used. With the rapid development of the global economy, many people believe that this contributes to global warming, posing a threat to the environment and human survival. Environmental problems that once troubled people, such as vegetation destruction, ozone layer depletion, dust, and sulfur and nitrogen oxides, seem to have lost their significance; overnight, carbon-based energy sources have become the main culprits for environmental damage. The call for achieving low-carbon energy in the near future (within 30 to 40 years) has become an important topic in discussions among environmentalists and others; using new energy sources to create a \"carbon-free era\" is considered the most forward-thinking call from those who are ahead of their time. But upon careful consideration, there are still many doubts regarding the current development direction of new energy. 1. Is carbon emissions the only factor causing rising temperatures? Geological studies of the Quaternary period (especially the Holocene) tell us that since the emergence of humans, the Earth’s climate has experienced several major ice-age-interglacial cycles, upon which there have been additional secondary climate fluctuations (such as several glacial stages and interglacial stages within an ice age or sub-ice age). On a smaller time scale (hundreds, thousands of years), over the nearly 3,000 years for which there is abundant data, China has experienced several periods of warming and cooling, with temperatures being about 2°C higher or lower than those in modern times. Over the past three to four hundred years, following an overall period of cold weather, the temperature has risen by roughly 2°C. The Earth is a complex giant system, and throughout the evolutionary history of its various outer layers, even without the impact of widespread use of carbon-based energy sources, temperature differences of around 4°C between warm and cold periods are considered within the \"normal\" range; the temperature differences during ice ages and interglacial periods can be even greater. From any perspective, the argument that climate warming and temperature increases on a centennial scale are solely attributable to increased CO2 emissions from the use of fossil fuels is insufficient and lacks logical coherence. 2. Do new energy sources have no negative impact on the environment? While traditional energy sources are labeled as the cause of environmental harm, new energy sources are broadly crowned with the label of being green. Do new energy sources have no negative impact on the environment? In-depth analysis is also needed for this. When it comes to the \"greenest\" biomass energy sources, producing ethanol from food crops has proven to be economically unviable. Moreover, the social negative consequences of this alternative to oil, in a time when many people are still suffering from hunger, are severe. The production of biofuel from cellulose sources such as orange stalks – setting aside technical and economic feasibility – how much energy is consumed in its collection, preliminary processing, transportation, and storage? How much energy, fertilizers, and pesticides are required in the process from planting to harvesting and transportation to produce diesel from seeds such as jatropha? The harms caused by soil erosion, biodiversity loss, and the invasion of alien species in this process are all issues that must be taken into consideration. In recent years, China’s energy profile, characterized by abundant coal, scarce oil, and limited gas, has sparked interest in coal-to-oil and coal chemical technologies. Even without considering their technical and economic feasibility, the energy benefits and environmental impacts alone are cause for great concern. How much energy is consumed in coal-to-oil and coal chemical processes, and is it an optimal choice based on the comparative efficiency of different energy sources? How much water was consumed? How much pollution is generated during its production and from its waste? What kind of impact will this have, especially in the north where there is an abundance of coal but a shortage of water and where the ecological environment is extremely fragile? These issues have all attracted widespread attention. It should be noted that numerous examples throughout human history serve as a constant reminder that every time humans attempt to alter or conquer nature, they will inevitably face nature’s retribution. Therefore, in the development of new energy sources, it is also necessary to consider the multiple aspects of things, which requires us to conduct in-depth analysis and thorough experimental testing, and to proceed with caution. 　　III. The key to the large-scale development of new energy lies in market competitiveness. 1. **The role of subsidies is limited. As new energy sources that play a guiding role in development, it is appropriate and necessary for public institutions to provide support and financial subsidies for them.** For multinational companies whose goal is to seize a competitive advantage in future technologies and market shares, it is reasonable to invest moderately in this area; it is common and understandable for profits to be minimal, or even non-existent, at the beginning. However, such subsidized support should be limited to two categories of entities: one is scientific research (including basic and applied research) ； Second is to gradually increase the scale of factory-based experiments. The latter can only be representative cases and do not have the ability to influence the energy mix. This kind of “pilot” approach essentially involves using **financial subsidies to cover the costs needed for new energy technologies to reach maturity**. Obviously, there will be strict controls on the number of such “pilots” and the duration of the subsidies. Subsidies should not be “permanent”; they should be stopped when it is clearly proven that this technological approach or such a level of technology does not meet the requirements. Otherwise, subsidized new energy projects that remain in a protected environment for too long will lose their vitality. To promote fuel ethanol, China approved four state-owned enterprises to conduct pilot projects; since 2002, these four enterprises have received tax exemptions totaling 190 million yuan, as well as loss subsidies of 2 billion yuan. It has turned out that ethanol production at this level of technology has no value for further expansion. The United States has 4 large-scale plants that produce ethanol from corn; one of them has gone bankrupt, and the remaining 3 are also facing closure despite having no hope of receiving **new subsidies. Take solar and wind energy, which are highly regarded for their relatively low environmental impact, as examples: small-scale use poses no major problems, but large-scale application faces significant challenges in terms of energy storage and grid connection – the key issue being that the acceptable grid feed-in price is far lower than their actual costs. Without exception, all countries use subsidies to provide support; in some cases these are covered by power grid companies, in others by direct subsidies, but ultimately it is still the consumers who have to bear the cost of these subsidies. In Germany, which is said to have made revolutionary progress in the new energy sector, energy companies have to purchase solar power at a price four times higher than what consumers pay. This situation makes it difficult for new energy to achieve sustainable development. For this reason, the head of our country’s energy management agency expressed his views on the current practice of purchasing wind and solar power at high prices despite heavy losses, arguing that wind and solar power cannot yet be used on a large scale. Even if a few **regions** can survive through subsidies, for most developing **countries** and poor areas, it remains out of reach. The key issue is that new energy sectors that have grown up with such subsidies lack the ability to compete and survive in the market, as well as the appeal needed to attract funding. Under market economy conditions, for new energy sources to reach a scale sufficient to change the energy mix and to attain a position on par with traditional energy sources, or even to gradually replace them, financial support is necessary as a driving force. By improving technological levels, costs can be reduced, thereby enabling these new energy sources to have a market competitiveness comparable to, or even greater than, that of traditional energy sources. Developing such capabilities requires the guidance and support of technology, as well as a long period of time. 2. The development of energy cannot rely on the high oil prices of recent times; such high prices are seen not only as a sign of an impending oil shortage but also as an opportunity for the rapid development of new energy sources. However, practice has shown that both of these views are not realistic. As oil prices rose, the prices of various commodities (especially raw materials) also increased significantly, leading to severe inflation in many places. The impact was particularly pronounced on companies involved in unconventional oil and gas exploration and new energy sources, which require substantial infrastructure development first. When oil prices were low, the economic evaluations of many such projects assumed what level of oil prices would be necessary to achieve break-even, and above what level considerable profits could be expected. However, this static assessment lacks a prediction of the dynamic changes in production costs (raw materials, energy, labor, etc.), which results in it having a negative impact when the expected high oil prices actually arrive. 　　Oil prices always fluctuate up and down on some irregular cycle. Since traditional energy sources are far from facing scarcity due to depletion, high oil prices can only be a temporary phenomenon that will not last long; moreover, once such extremely high oil prices create a bubble, there will be an extraordinary drop following its collapse. Clearly, the development of new energy cannot rely too much on high oil prices; instead, it is necessary to focus on technological advancement as a driving force, work diligently to reduce costs, and enhance market competitiveness. IV. Analysis of New Energy Development Strategies Both the increasing environmental requirements and the promising prospects offered by new energy sources have spurred research on energy development strategies. The development of new energy sources requires attention to the following issues: 1. The foundation for the development of new energy is the cultivation of market competitiveness. Undoubtedly, various measures should be taken to support the growth of this industry; such support should manifest itself in the development of efficient production processes and industrial chains through advances in technology, thereby reducing costs. It should also involve facilitating the transition from laboratory results to large-scale industrial production, as well as fostering market competitiveness. Therefore, support for new energy sources must be provided in a targeted manner, on a type-by-type and step-by-step basis; it will not be a one-size-fits-all approach applied to all types of technologies. It is necessary to first conduct pilot projects, and from these draw lessons learned or test the feasibility of certain approaches through practice. From this perspective, the policies adopted by our country in recent years have been correct. Nevertheless, it is still necessary to curb the impulse in certain regions and certain interest groups to deviate from **development policies and pursue reckless large-scale development in the absence of sufficient justification. 　　2. Do not impose excessive target pressures on new energy sources. Out of concerns regarding the availability of traditional energy sources (especially oil) or due to strong environmental pressures, some people hope to achieve a low-carbon or even carbon-free energy system as quickly as possible, which results in setting overly high targets for the development of new energy sources. Such high targets create the illusion for outsiders that the development of new energy is already an inevitable outcome, while also placing excessive pressure on planners and implementers. Unrealistically high targets often lead to policies going off track, thereby delaying their proper development. 　　In September 2009, the Energy Research Institute of the National Development and Reform Commission officially released predictions for China’s future energy landscape under four scenarios (baseline, energy-saving, low-carbon, and enhanced low-carbon). Even under the baseline scenario, it is required that by 2050 our country’s energy efficiency be 10% higher than that of Japan, which currently holds the highest level in the world. The energy-saving scenario requires the full implementation of all the energy-saving measures that have already been considered, while the low-carbon scenario depends mainly on domestic efforts to achieve low CO2 emissions ； The enhanced low-carbon scenario refers to the energy demand and its composition under full international cooperation, with greater efforts made to significantly reduce CO2 emissions. Clearly, it is extremely difficult to strengthen the implementation of low-carbon scenarios. According to the projections for the latter three scenarios, the share of renewable energy sources (including wind power, solar energy, biomass power generation, alcohol-based fuels, biodiesel, etc.) in the total energy supply will be 1.9%, 4.5%, and 5.2% respectively in 2020; whereas it will be 8.2%, 13.8%, and 16.4% respectively by 2050. Clearly, given the actual conditions in our country, until the early 21st century, primary energy sources are likely to remain in a position of absolute dominance (that is, accounting for more than 80%, or even 90%). This should be one of the important starting points for formulating our country’s energy development strategy. 　　3. In energy development, both conventional energy sources and new energy sources should be taken into account, but emphasis should be placed on conventional energy sources. There are distinct priorities in the development of each type of energy source. Among primary energy sources, nuclear power and hydroelectric power are expected to experience faster growth between 2010 and 2050 (for example, under a low-carbon scenario, the average annual growth rates for nuclear power and hydroelectric power from 2010 to 2050 are 8.58% and 1.85% respectively, which are higher than the average annual growth rate of 1.58% for all energy sources combined); however, this is far from enough to change the traditional pattern in which fossil fuels remain the dominant source of energy. The combined share of coal, oil, and gas in total energy consumption under the three future energy scenarios is 87.6%, 81.3%, and 79.6% respectively as of 2020, and 77.7%, 67.4%, and 61.0% respectively as of 2050. With future technological advancements, fossil-based energy sources can be made cleaner and relatively low-carbon (through carbon sequestration). Clearly, in the future we will still need to focus our main efforts on the sustainable development of fossil fuels to ensure their supply. 　　4. The top priority is energy conservation and emission reduction. In recent years, there has been growing advocacy for new energy sources, while the call for energy conservation and emission reduction seems to have less impact. In the development of energy in our country, both \"conservation\" and \"new source development\" are given equal importance, but energy conservation should always take precedence. Both conventional energy sources and new energy sources are hard to come by, so it is necessary to maximize their economic and social benefits. Regarding emission reductions (primarily of CO2), many developed countries, which have entered the post-industrial era and rely on oil and gas as their main energy sources, have put forward demanding requirements for such reductions. Our country still has a long way to go in terms of industrialization, and it will be difficult to change the pattern dominated by coal for a considerable period of time. Therefore, China faces even greater pressure to reduce emissions. In the three scenarios for China’s future energy supply outlined above, coal still accounts for a substantial proportion of the total energy use; in 2020 these proportions were 58.1%, 53.8%, and 52.2% respectively, and by 2050 they remain at 41.1%, 33.6%, and 28.6% respectively. Clearly, coal cleaning should play an important role in our country’s emission reduction efforts.