Energy Security in Times of Economic Transition

Lessons from China

Yao Lixia

• Publisher: Emerald Publishing Limited
• Year: 2021
• ISBN:
  9781839824661
• Topic: Politics & International Relations
• Subtopic: Public Policy
• Index: Politics & International Relations

As China has shifted from a planned to a market-oriented economy, it has adjusted its energy policies accordingly. As a result, the Chinese energy industry has now gone through more than seventy years of transformation. Yet to date no single work has sought to assess the key factors driving these changes and their effects on China's energy security, even though such questions have implications for assessments of the world's energy security.
Energy Security in Times of Economic Transition addresses this gap. Juxtaposing a domestic perspective with a wider, pan-energy-industry view, Yao Lixia explores trends in the evolution of China's energy policy since its inception in 1949 and discusses the relations between policy changes and macroeconomic reforms. Then, by employing a new, ground-breaking quantitative framework for evaluating energy security, Yao crucially shows that macroeconomic reform did not improve China's energy security over the first three decades of the reform period but in fact restricted China from developing more effective energy policies. This insight ultimately suggests lines of inquiry that can be extended to research in other countries, especially those in the midst of economic transition.
For its detailed history of China's energy policy and its novel, widely applicable methodology for evaluating energy security, this book is a must-read for researchers and postgraduate students in economics, security studies, political economy, and international political economy.

Chapter 1

Into the Landscape

A country’s energy policy and energy security status are closely related and influence each other. Having sound energy policies will improve energy security, whereas less prudent energy policies may worsen its energy security situation. Thus, ensuring energy security is fundamental for domestic prosperity and national security because ‘the advent of globalization, the growing gap between rich and poor, the war on terrorism, and the need to safeguard the earth’s environment are all intertwined with energy concerns’ (Wirth, Gray, & Podesta, 2003, pp. 132–133). China’s huge appetite for energy consumption and its massive degradation of the environment have increasingly fostered international concerns. Therefore, analysing the interaction between energy policy and energy security in China is an urgent task and will help address these concerns. This chapter gives a general background, introduces research questions, and explains the research framework and methodology of the book.

1.1. Background

1.1.1. Energy Security and Energy Policy

What makes energy policy and energy security so critical an issue is that the energy sector has specific features. For example, a reliable energy supply is crucial to economies, energy projects involve high capital investment and large risks, and energy production and consumption may result in environmental degradation. These distinctive characteristics of the energy sector require every government to have its own energy policy (Andrews-Speed, 2001). This policy, in turn, has a significant impact on both energy production and consumption. Hence, the security of energy supply has even been deemed as the ‘key element for the functionality of the modern societies’ (Purhonen, 2005, p. 1).

Energy is an economic commodity, but it has also become a political commodity whereby economics and politics influence the energy sector. Since energy is essential for fuelling the economy, energy resources – especially fossil fuels – have often been a fuse for conflicts and wars. Fossil fuels are the most important source of energy. Therefore, competition for seeking fossil fuels is fierce and prone to tension and conflicts. The historical record shows examples of oil-importing countries that sought to eliminate their oil dependence through military expansion. A case in point is the Japanese invasion and expansion in East Asia during World War II (Yergin, 1991). There is a close relationship between a country’s national interests and energy supply security. Energy per se is not a security issue, but any shortage of energy will become a security issue as states get involved in conflicts and resort to military action.

The underlying implication of the close relationship between energy security and energy policy is also reflected in geopolitical thinking. Geopolitics is an instrument of political warfare and helps explain the structure of security problems (Sloan & Gray, 1999, p. 10). In particular, geopolitics is a useful tool to analyse energy politics. Although there is no common definition of geopolitics, it is widely viewed as a driving force for world politics/conflicts. Geopolitical ideology was used by Hitler, Mussolini, and Japanese militarists to justify their expansion into neighbouring countries. Their actions threatened the geopolitical interests of opposing powers, such as their sphere of influence on Eastern Europe and Southeast Asia, leading to World War II (Klare, 2003, p. 52). When Japan found that China and Southeast Asia had dependable sources of energy, it realised that it could rely on these resources to grow its economy. It was Japan’s decision to control these resources that further aggravated World War II.

Traditional geopolitics, as defined by Klare (2003), is:

the contention between great powers and aspiring great powers for control over territory, resources, and important geographical positions, such as ports and harbors, canals, river systems, oases, and other sources of wealth and influence. (p. 51)

Although traditional geopolitics offers convincing arguments and supporting evidence for the main drivers causing conflict and war, it has been criticised for being trapped in state-centrism and acting as a mere narrative about resource wars. In response to this criticism and along with the process of globalisation, a much broader notion of geopolitics, namely critical geopolitics, emerged in the late twentieth century, when the more integrated world dwarfed the role of nation-states and enhanced the roles of non-state actors, such as transnational corporations and environmental organisations. Critical geopolitics defines space in a more socio-economic way such that different regions can be connected to best serve national interests (Amineh, 2003). In sum, geopolitics, traditional or critical, justifies the importance of a country’s energy policy and its implications for security. In the energy sector in particular, big oil companies may play a key role in a state’s energy policy decision-making process. Globalisation makes a country’s energy policy not just a national issue but a transnational issue; and ‘spill over’ effects in other countries may cause an international security problem. This raises the issue of energy security as well.

1.1.2. Definitions of Energy Security and Energy Policy

Energy security is defined in the literature in both a broad sense and a narrow sense. In the broad sense, energy security is a condition in which a country has access to adequate and reliable energy supplies at reasonable prices (Chang & Lee, 2008; Clingendael International Energy Programme, 2004; IEA, 2007a; Lin, 2009a; Yergin, 1988). In the narrow sense, energy security refers mainly to concerns with the security of primary energy resources, particularly with oil; it also focuses on the economic or national welfare aspect (European Commission, 2001; Jansen & Seebregts, 2010; Loschel, Moslener, & Rubbelke, 2010; Nautilus Institute for Security and Sustainable Development, 1998).¹

The narrow definition of energy security implicitly assumes that oil supply serves as the focus of energy supply security. Some argue that clarifying the risks related to other types of fuels constitutes the concept of energy security equally or even more critically than oil supply does (Nautilus Institute for Security and Sustainable Development, 1998, p. 15), and energy security should not only focus on the economic/welfare aspect. With this said, several dimensions have been identified to make the concept of energy security more comprehensive. These dimensions include the economic dimension, environmental dimension, social dimension, foreign policy dimension, technical dimension, security dimension, strategic dimension, political dimension, and systemic dimension (Alhajji, 2007; Purhonen, 2005). These dimensions constitute a new, comprehensive energy security concept.

The definition of energy security employed in this study is a comprehensive one, covering the dimensions of economy, environment, technology, and society, so that energy security guarantees that a country, industries, and citizens have access to an adequate and reliable supply of energy resources (including primary and renewable resources) at reasonable prices.² What underlies this definition is that energy insecurity may arise when any of the above-mentioned dimensions are not met. Whether they are met or not is directly affected by the promulgation and implementation of energy policy. For example, severe fluctuation of energy prices affects the economic dimension of energy security, and a deteriorated environment in relation to fossil fuel utilisation affects the environmental dimension. Hence, this definition underlines the integrated character of energy policy and national security, which forms a bridge between international political economy and security studies.

Winston Churchill’s decision to switch ship fuelling from coal to oil is an early example of an energy policy derived from the concept of energy security. This policy was ‘bold, creative, and farsighted’ (Wirth et al., 2003). Churchill’s decision initiated the analysis of energy policy. Similarly, Deng Xiaoping’s decision that China’s oil companies should ‘go out’ to seek a diversified energy supply initiated the study of energy security and energy policy in China. Unlike the definition of energy security, there is a little variation in the literature on the definition of energy policy. Energy policy is a policy made by the government, industries, or non-governmental organisations to address issues in the energy sector, officially or unofficially (McGowan, 1996). These issues may cover the whole energy sector or deal with a specific subsector, such as coal, oil, renewable energy, energy research and development, and energy conservation.³ Historical analysis of trends in energy policy shows the change in government thinking about policies on energy, from concentration purely on security of energy supply to greater emphasis on efficient and sustainable energy utilisation (Finon, 1994). This change in policy priority exists in China as well.

1.1.3. The Importance of Analysing China’s Energy Policy

The energy industry in China has a number of characteristics that are distinct from other sectors of the economy. First, the ownership of energy resources in China is largely in the hands of the state/government. The government has the right and responsibility to manage these resources. Second, exploration and development of energy resources involve large capital investments, long payback periods, and high risks. It cannot be easily tackled by the private sector. Third, energy production and consumption normally have negative consequences, such as environmental damages at the local, regional, and global levels. These issues need to be addressed by the government, either individually or collectively (Andrews-Speed, 2004). Therefore, these characteristics make energy policy deserving of intensive research.

China’s energy industry has gone through 70 years of transformation from the founding of the People’s Republic of China (PRC), the Great Leap Forward period, the Cultural Revolution, till the reform era. The energy policy of China, an ultra-large economy and energy consumer, has critical implications not only for its own security situation, but also for the world’s. China’s energy security situation has increasingly drawn international concerns. One reason for this is the current huge gap between its stagnating domestic energy production and its fast-growing consumption. The combination of China’s rising energy demand and its limited indigenous energy resources has prompted its oil companies to acquire stakes in exploration and production projects abroad. Indeed, securing energy supply sources has become the key aim of China’s energy and foreign policies. China’s rising demand for energy has also raised serious concerns regarding global pollution and other environmental issues. Therefore, it is valuable to identify the way China’s energy policy has evolved and its relevant impact on the security situation. It is even more valuable to find the root reason behind the evolution of the energy security situation.

Energy policy stipulates objectives and the means to achieve these objectives, which may change to match a country’s economic, political, and social conditions. The means to achieve the objectives are categorised into three groups: command, market, and persuasion. In a planned economy, command dominates the energy sector. Command, in the form of plans, regulations, and laws, regulates the flow of energy and players’ actions. In a liberalised economy, a market mechanism dominates the energy sector. The market determines energy flow and prices. Persuasion, such as education and publicity for policy implementation, is required in both planned and liberalised economies (Andrews-Speed, 2001). As China’s economy shifts from planned to market mechanism, it must adjust its energy policy accordingly. Facing the challenges of energy security problems amid rapid economic and social development, China’s energy policy objectives have been amended to address emerging issues. The necessary means have been modified to realise these objectives and China’s energy policy has evolved correspondingly. Therefore, research on the energy policy of China has both academic and practical significance.

1.2. Research Questions and Key Findings

This book finds solutions for four policy-oriented questions. First, how has China’s energy security situation evolved? The answer to this question is a quantitative study based on a framework (the 4-As framework) using indicators to quantify the energy security situation in China, with the conclusion that China’s energy security has deteriorated over more than three decades of economic reform. Second, what impact do the energy policies have on China’s energy security status? The answer involves a whole chapter that analyses the direct impact of China’s energy policies on its security situation. Third, why has China’s energy security deteriorated? The answer explores the nature of the evolution of energy policies and their impact on the energy security situation in China. Fourth, whether does China’s Belt and Road Initiative (BRI) contribute to improving China’s energy security? The answer addresses the impact of BRI on China’s energy security.

To put it briefly, this book evaluates the impact made by past and current energy policies and activities on the energy security status of China. Upon evaluation, it is found that China’s energy security situation has not improved over three decades of economic reform. This book gives reasons for the evolution of China’s energy security status: China’s macroeconomic reform has restricted the formation of China’s energy policies. In essence, it is the macroeconomic reform that limits the improvement of China’s energy security situation. China’s energy policies are only responses to the evolution of macroeconomic measures. In other words, China’s energy policies were not originally intended to improve energy security, but only passive responses to macroeconomic reform. This book does not deny or disregard other factors that affect China’s energy security situation such as international relations, institutions, interest conflicts, etc., while it finds that the macroeconomic reform is the key driver of China’s energy security evolution.

1.3. Existing Discussions on China’s Energy Policy and Energy Security

The existing qualitative studies on China’s energy security are mostly from the perspective of international relations. They discuss international or geopolitical advantages and challenges for energy security in China and offer suggestions (Wang, 2001; Zhang, 1998 & 2003a; Zweig & Bi, 2005). In the context of international relations theory, the current literature addresses China’s energy security and its geopolitical implications through either a realist perspective or a neo-liberal perspective, thus taking an energy perspective of China’s foreign relations, which entails either competition or cooperation. Realists take the international system as an anarchical one. Competition and a zero-sum game lead to conflicts. Realists believe peace is achieved through the balance of po...

Table of contents

• Cover
• Title
• Chapter 1  Into the Landscape
• Chapter 2  Energy Security: Concepts, Frameworks and Indicators
• Chapter 3  Quantitative Analysis of Energy Security in China
• Chapter 4  Energy Policy in China Since its Reform and Opening Up
• Chapter 5  The Impact of Economic Reforms on the Energy Sector and Energy Security
• Chapter 6  Belt and Road Initiative and China’s Energy Security: Can China be More Energy Secured?
• Chapter 7  Conclusion
• Bibliography
• Index