MIT China expert: Beijing does not drive energy policy

An MIT doctoral student in political science warns U.S. policy analysts that placing Beijing in the driver’s seat of China’s energy governance will lead at best to ineffective U.S. policies and, at worst, to perilously inaccurate forecasting.

The warning essay, titled “China’s Energy Governance: Perception and Reality,” is by Edward Cunningham, a research fellow at the MIT Industrial Performance Center and Harvard’s Asia Pacific Policy Program.

Fluent in Mandarin, Cunningham spent a year at Tsinghua University’s School of Public Policy and Management studying China’s energy challenge as a 2005 Fulbright Scholar.

In “China’s Energy Governance,” he writes, "As China’s economic growth begins to transform international markets as vital as energy, getting China policy ’right’ has never been more important.

"First, effective U.S. policy towards China requires identifying and interacting with powerful sub-national governments, not focusing exclusively on policy-makers in Beijing.

“Second, strategic policy thinking will require serious consideration of the interests of the quasi-public, quasi-private enterprises. Third, encouraging state capacity in China, rather than fearing and demonizing it, will prove paramount.”

Published by the MIT Center for International Studies in its series, “Audits of the Conventional Wisdom,” Cunningham’s essay describes the “battleground of negotiation among powerful actors with conflicting interests” that underlies and undermines China’s energy policies.

Most obvious among these are “conflicts of interest between central and local governments. National government leaders, eager to maintain or increase economic output and thus advance their political careers, often aid in the financing and underreporting of power production capacity expressly forbidden by the central government. Lastly, interests between local government actors diverge as well.”

Cunningham cites such examples as large-scale networked power producers that are often “stymied by dispatch discrimination by grid companies; local governments continue to build and protect smaller, highly polluting plants to support higher tax revenue; and many localities remain unwilling to depend on other localities for sources of energy.”

He describes “splintered institutions” and successive generations of energy ministries and commissions as taking a terrible toll on energy governance. “Energy institutions have followed a torturous path in China, characterized by overlapping jurisdictions and inconsistent waves of centralization and decentralization,” he writes.

The rise of the corporation has an ongoing effect as well.

"While several waves of separation and merger affected the energy sector throughout the 1970s, the 1980s ushered in the process of removing government from enterprise work and from the business of controlling energy production. Decentralization and partial deregulation led to the creation of a new class of legally independent corporate actors able to pursue a range of choices regarding energy provision--actors often unknown and unguided by central regulators.

“The energy corporation initially served as a vehicle to resolve increasingly blurred rights and claims between central and local government control over energy assets, and also to attract foreign technology and financing to develop domestic resources under tight credit market conditions. These firms are now rapidly proliferating, owned by a host of local public and private entities, and building capacity at a frenzied pace,” Cunningham writes.

In addition, “mobilization of corporate resources coincided with a massive reduction in the state’s capacity to monitor the activities of these new actors,” he cautions analysts who still look to Beijing for regulatory control.

Cunningham’s conclusion offers one comparatively bright light for U.S. energy governance: At least the federal government has personnel in place. More than 14,000 people work for the U.S. Department of Energy and the U.S. Energy Information Agency alone. In China, a “mere 750 individuals within the central government (have) responsibilities in some way related to energy policy.”

“The disparity in personnel is striking, particularly in the context of the processes of decentralization, ownership diversification, corporatization and rapid capacity expansion that characterize China’s current energy market,” he writes.