Energy Leadership: An Unwanted Honor

China is responding in an unexpected manner to a milestone it has just reached on its path to economic dominance. Although it has gladly accepted such mantles of leadership as the world’s largest automobile market and the globe’s greatest export manufacturer, it doesn’t appear to be eager to accept the title that would logically accompany such accolades: the world’s energy leader.

There are, of course, two types of energy leaders: nations that produce energy and nations that consume energy. Regarding production, although China is no match for Saudi Arabia, it is justifiably proud of its investments in renewable energy projects. Many pundits have criticized the American Congress, in fact, for failing to pass energy legislation at the very time that China is becoming a global leader in alternative fuels.

However, China appears to be far less proud of its prodigious energy consumption. When the International Energy Agency (IEA) recently announced that China had finally surpassed the United States as the world’s greatest energy consumer, China refuted the designation and backed away from the leadership position.

A Dubious Honor

To be sure, the mantle of leadership for energy consumption is a far more dubious honor than the title for leadership in production. That’s because our desire for economic efficiency leads us to endeavor to minimize our energy use, not maximize it. Energy, after all, is a fiscally costly (and often environmentally dirty) resource; the less of it one must use for manufacturing products and heating living spaces, the better.

And yet any economic superpower will inevitably find itself consuming more energy than its weaker competitors. The United States, for instance, had been the world’s energy consumption leader since it earned that title approximately a century ago. That was approximately the time that America surpassed Britain as the world’s largest economy as well.

But when the IEA announced that its data analysis had placed China in the top consumption position, China forcefully disagreed. In fact, they reminded the IEA of an issue that the Agency and other data analysts have been struggling with for years: namely, that China’s self-compiled economic data reports may be less accurate than those submitted to the IEA by more developed nations.

Delicate Global Diplomacy

Why is China so reticent to accept the position of the world’s largest energy consumer, especially when most analysts expect the nation to surpass the United States more dramatically within the next few years any way? The answer to this question may seem more obvious to a practitioner of international diplomacy than to an analyst of macro-economic policy.

Apparently, the burden of the world’s largest energy consumer requires more of its recipient than a simple acknowledgment of its economic clout. Because most of the globe’s energy consumption still involves the burning of carbon based fuels like oil and coal, the largest energy consumer must inevitably accept the title of world’s largest contributor to global warming as well. Most of the customers of China’s export powerhouses happen to live in wealthy developed nations that are concerned about global warming issues; this places China in a delicate diplomatic position as the leading energy consumer.

There are other reasons why the Chinese may be reluctant to accept this distinction. Now that the International Monetary Fund has reaffirmed that the yuan remains undervalued, China may be concerned that it rivals may attempt to draw links of causality between its currency valuation levels, its manufacturing competitiveness, its energy consumption, and its contribution to global warming. Such concerns are particularly worrisome at at time when China’s economic growth is slowing and its once-soaring investment markets are declining in value.

Looking Ahead

Where will these trends lead us during the next three to five years? It appears inevitable that, barring any unforeseen economic catastrophes, China will take the undisputed lead in energy consumption and will then begin to pull away from the United States. Its overall economic growth rate is simply too much larger than America’s growth potential to anticipate any other outcome.

Nevertheless, because the Chinese population is so much larger than the American population, China’s energy consumption per capita (i.e. per person) will likely remain far below America’s for the next three to five years. And its Gross Domestic Product per capita will likely remain below America’s as well. When measured by the living standards of average citizens, China remains ensconced in the position of an emerging economy, still significantly different than the mature economies of America, Japan, and Western Europe.

With its economic growth slowing, though, it remains to be seen whether China’s economy will hit the same type of wall that ended the rapid economic growth of Japan two decades ago. Although it has astounded the world with its meteoric rise to economic superpower, there is no guarantee that continued growth will manage to carry China into the ranks of the wealthiest nations.