China’s Climate Report Spurs Nuclear Energy (FXI, CHIE, GEX, TAN, FAN, NLR)

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China’s climate change report likely to strengthen support for renewables and nuclear energy

By Ryan Landon Swanson

In late 2011, teams of Chinese (NYSEARCA:FXI) scientists from 12 ministries and bureaus released the “Second National Assessment Report on Climate Change” and presented a grim outlook for the future of China’s environment.  The 710-page report detailed the risks climate change poses to agriculture and coastal cities, forecasting rising sea levels and rising food costs.  Retreating glaciers on the Tibetan plateau, a region that has warmed three times faster than the global average, are threatening China’s fresh water supply.  Water scarcity coupled with predictions of shifting rainfall patterns led the authors to conclude that a business-as-usual path could cause a 5 to 20 percent fall in grain output by 2050.

So, for the short term, what does this mean for China’s energy sector (NYSEARCA:CHIE)?  For years, analysts and government officials have lived by the dichotomy that China must choose either economic growth or environmental protection.  While environmentalists argue that an economy based on green (NYSEARCA:GEX), sustainable industries can achieve both, another argument is now emerging that China’s current economic growth model is slowly self-eroding due to ecological constraints.  Indeed, the world’s second largest economy has created 16 of the 20 most polluted cities on the planet and studies suggest that damage from air pollution has amounted to 3.3 percent of its GDP.  Furthermore, the World Bank claims that China’s pollution will hinder it from fully developing into a first world economy.  Thus, in the interest of maintaining economic growth, not just environmental protection, China has begun to restructure its energy economy.

The mass manufacture of solar (NYSEARCA:TAN) panels and rapid installation of wind (NYSEARCA:FAN) turbines has been a trend over the last few years, and China’s latest climate change report will likely bolster support for more ambitious targets of installed renewable capacity.  But with all the talk of renewable energy (NYSEARCA:GEX) around the world, it is easy to forget that China’s renewable energy targets were recently revised to ‘non-fossil fuel’ targets—a small change with huge implications.  Nuclear energy has now become a viable option to help meet China’s energy goals and can help decoupling China’s economy from fossil fuels.

In early 2011, observers speculated that the disastrous meltdown of the Fukushima nuclear power plant in Japan would shift Chinese political support away from nuclear energy.  Indeed, the Chinese State Council temporarily halted the construction of 27 nuclear power plants (NYSEARCA:NLR), declaring the need for new safety regulations.  But as Yun Zhou, a nuclear engineer and industry expert, points out, the newly drafted safety assessments “have had no detrimental effect on any of the projects under construction.”  The National Development and Reform Commission, China’s chief economic planning agency, estimates that China can expand its current nuclear capacity of 10.8 gigawatts (comprising 14 reactors and generating 2 percent of China’s electricity output) to between 70 and 80 gigawatts by 2020.  By 2030, China plans to construct enough reactors to generate more electricity than the 104 reactors in the US.

To achieve these nuclear energy goals (NYSEARCA:NLR), China will have to train an army of nuclear engineers—a task with which France is already helping. The Franco-Chinese Institute for Nuclear Energy in Guangdong province is prepared to graduate 100 Chinese engineers over the next five years; the students will leave fluent in French and have masters degrees in nuclear engineering.  Many countries see investment in China’s nuclear industry as the wave of the future, especially as China is now building 28 of the 62 reactors under construction across the world.  China has even taken steps to invest in nuclear energy outside its borders, marked by its recent nuclear power agreement with Saudi Arabia.

Thus, China’s Second National Assessment Report on Climate Change appears likely to only further boost political support for China’s already growing non-fossil fuel energy sector.  As stable food production and human health become increasingly recognized as integral to China’s economic growth, the Chinese central government will continue to forge a cleaner energy economy.  Though the assessment report does not set policy, it provides evidence and predictions that will likely influence future policy and strengthen China’s commitment to renewable and nuclear energy (NYSEARCA:NLR).

Ryan Landon Swanson is an associate writer for Wall Street Sector Selector. His chief research focus is on the political economy of China’s energy sector, but he also enjoys writing on the political economy of Latin America. He fluently speaks, reads, and writes Spanish and Mandarin Chinese. Ryan has substantial experience living, studying, and working in both China and Argentina. He earned a B.A. from the University of California, Berkeley in Interdisciplinary Studies with a focus on international relations and energy.

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