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China's Quest for Energy

Cooperation and coordination will help the United States avoid an energy-policy confrontation.

Fortnightly Magazine - February 2006

part of the geostrategic equation.”

Opportunities for cooperation abound, because China and the United States face very similar dilemmas over energy security, and solutions that help one will help both.

For example, coal-liquefaction technology offers both countries a promising alternative to imported petroleum. Toward that end, Chinese coal-mining giant Shenhua Group is building a large coal-liquefaction facility in Inner Mongolia, scheduled to begin startup in 2006. U.S. companies and government agencies—including the Department of Defense—are working on similar efforts in the United States.

“Unless we move—as we should—toward substituting other things for oil, there will be pressure in the world market over oil supplies,” Woolsey says. In addition to developing alternatives to petroleum—including coal and various biofuels—both the United States and China are expected to move toward electric vehicles, especially plug-in hybrids. Markets for such vehicles are small in both countries today, but in the coming years and decades sales are expected to rise along with increasing petroleum prices.

“We have proven the concept and we are looking at how to get it into the mainstream,” says Brian Wynne, president of the Electric Drive Technology Association (EDTA) in Washington, D.C. “The main challenge we are facing is the need to get to scale and compete with the installed base of internal-combustion engines. All the drivers are moving in that direction, and it’s safe to say that in the next 20 years we’ll see a material transformation of the vehicle fleet.”

The more readily that transformation occurs in both the United States and China, the more transportation-fuel loads will move from imported petroleum to electricity generated with domestic resources. To the degree electricity is generated with cleaner technologies, this movement also will serve environmental goals in addition to energy security goals.

“We should want to work with China on things like clean fuels and battery technologies for plug-in hybrids,” Woolsey says. “Moving decisively away from oil means we won’t have to scrap over Venezuelan oil and Indonesian oil, and it does a lot to reduce global-warming conditions. That is in everyone’s best interests.”

Applying Pressure

China’s energy-demand growth poses interesting challenges and opportunities for the United States in general, and American companies in particular. In the long term, market and policy pressures are driving both the United States and China toward the same set of solutions. Some of the greatest opportunities depend on policy shifts that might take years to occur. In the meantime European and Asian companies enjoy certain advantages over American companies in terms of new technology development and investment opportunities.

However, U.S. policy winds seem to be shifting. Security hawks are forming political coalitions with environmental advocates and religious groups concerned about stewardship issues. Moreover, corporate American leaders are pressing lawmakers for greater certainty about environmental and energy-policy issues, and increasingly are pursuing business strategies that recognize the challenges and opportunities of a carbon-constrained, petroleum-poor future.

In the midst of these trends, opportunities for greater cooperation between the United States and China promise to reduce risks and yield benefits for both countries. As a strategic framework for such cooperation, the