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This Week In Energy: U.S.-China Deal And What’s Really Going On

This Week In Energy: U.S.-China Deal And What’s Really Going On

Most of the chatter about climate change ahead of the G20 Summit in Brisbane was how Prime Minister Tony Abbott was refusing to allow global warming to be on the summit’s agenda. Boy, did that change. 

The agreement between U.S. President Barack Obama and his Chinese counterpart, Xi Jinping, to work together on drastically reducing carbon emissions and increasing renewable energy capacity issued a rallying cry behind which many of the G20 will follow.

The New York Times reported that officials from the world’s largest two economies labored in secret for nine months to cobble the deal together. The fruit of their labors is impressive. Obama declared that the U.S. would cut its emissions by 26 to 28 percent by 2025 compared to 2005. The NYT correctly points out that, if successful, this would more than double the rate of reduction previously targeted for 2020. In return, China has made its greatest formal commitment to cut emissions, namely to see its peak carbon emissions level happen in 2030. Part of achieving this would see 20 percent of China’s energy come from renewables by the same year.

Reactions to the deal were as varied as they were numerous. Bloomberg sought to chart who the deal would be most beneficial to, plumping for nuclear and shale. While these might seem like unlikely winners when placed next to each other, if the deal stands, the U.S. will likely approve the construction of a raft of new nuclear power stations while dirty coal-powered plants will disappear, only to be replaced by gas-powered varieties. The latter option would also allow Obama and any future Democratic President a very powerful tool: the ability to fend off efforts by a hostile Congress to dismantle the climate change deal and by environmentalists to protest fracking. This particular balancing act could be done by pointing out that the shale gas boom is America’s most powerful engine of growth and that the targeted use of more natural gas will lead to an overall reduction in emissions.

Coming as it did on the heels of the Republican takeover of Congress, negative reactions to the deal with China soon piled up. National Review excoriated the agreement, calling it an essentially worthless PR stunt for China that Beijing would have little motivation to comply with in the long-term. “The legitimacy of the Chinese Communist party’s government rests squarely on economic development. Energy — often produced by dirty coal — allows that economic development to occur, lifting millions out of hand-to-mouth poverty…China’s ruling class cares far less about carbon emissions — or about the international community’s opinion, for that matter — than it does about maintaining its chokehold on power. So don’t expect it to gamble economic progress on lofty environmental goals.”

Logic would certainly seem to be on the side of the National Review’s eloquent argument. In the legal wrangling that surrounded the Kyoto Protocol, China was one of the most active voices to say that the onus on emissions reduction should lie with the West, despite being the world’s second worst polluter. However, while the Communist Party’s iron grip on power is absolute, it is not ruled by the emotionless automatons so often imagined in the Western press. Stories like kids of eight getting lung cancer is taking its toll.

Between January and June 2014, China installed 3.3GW of solar capacity. It also provided $23.5 billion in financing for solar ventures in 2013, more than all of Europe put together. Beijing has declared the use of coal will be banned in the city by 2020. These are hardly the actions of a country that sees the use of clean energy as a low priority. Many observers even say that protests emanating from air, soil and water pollution are one of the most direct threats to the supremacy of the CPC. Therefore, turning to renewable energy and cutting emissions might be a good way for the junta to stay in power.

But this landmark deal is not all that has been happening. OilPrice’s Premium newsletter covers the ins and outs of the week, as Dan Dicker wraps up his series on the winners and losers of the US shale gas boom, we take a long-term look at how natural gas futures will fare over the winter, and at who might become Africa’s next gas export giant. We also have a very interesting piece on natural gas vehicles which for those of you looking for the next big thing this is a must read. Click here to start a free 30 day trial to Oilprice Premium.

We’ll be back on Tuesday to bring you the lowdown on all the deal-making happening in Brisbane.

Until then, enjoy the below report and have a great weekend.

By. James Stafford of Oilprice.com

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