Market Insights: Aligning China’s Energy Goals With the ‘Public Good’

Xizhou Zhou M.E.M. ’06 believes that the energy sector can help lift more of the world’s people out of poverty by providing heating, electricity, and the mobility that will provide access to a more connected world. He also sees the need for a robust regulatory system to reduce the environmental impacts associated with the energy sector. These impacts are immediately apparent in the city where Zhou works, Beijing, which is confronting rampant air pollution.
 
Since graduating from F&ES, Zhou has worked on both the regulatory and industry sides of energy issues, including as director of the China-based research team for IHS Cambridge Energy Research Associates (CERA), an international consulting firm. In 2011, he was named one of Forbes’ “30 Under 30” up-and-comers in the energy sector.

The following is an edited version of an interview with Zhou.

What is your main focus at IHS CERA?

Xizhou Zhou

I’ve been with the firm for almost six years now, mostly focusing on strategies in the energy market. That encompasses traditional energy such as gas and coal and also the new technologies including renewables in the power sector, biofuel, electric cars, and energy storage. We provide market insights for energy companies and governments to help them make better-informed decisions.

What appealed to you about the energy sector when you were at F&ES?

I found the relationship between the government and a foundational industry in our economy like energy intriguing. In classes, I learned a lot about the industry as well as the role of the government, and indeed the importance of a functioning regulatory framework to ensure that we rid the sector of market failures, as private businesses’ interest is not always consistent with the public good. We need a robust regulatory system to ensure that the industry will abide by the rules and regulations set by the government that are meant to ensure smooth functioning of the market.

The energy sector also married two ideas that I’d always been very interested in: the relationship between development and the environment, especially when it comes to developing countries. The energy industry has an important role in lifting people out of poverty — or more specifically, energy poverty. In many parts of the world, people have no access to electricity, heating, or mobility, which impedes their ability to improve their lives. On the other hand, the energy sector is also an industry that’s responsible for a lot of the environmental problems that we have.

So, is the main way that the energy sector can lift people out of poverty by providing electricity to those that don’t yet have it?

Electricity is a basic one that would enable development, but we are also talking about providing heat in the winter, giving families cooking fuel, allowing people to move from one place to another as they get jobs, and so on. In many parts of the world, we still don’t have these basic energy services to households that are struggling to make ends meet or feed themselves. And before they have access to these services, it’d be difficult for them to rise from poverty.

Now, in deciding how to provide these services, we do have choices. For example, when people start getting regular jobs and need to travel five kilometers from their home to work, do we suggest that they get a bike? Or do we develop public transport infrastructure? Or do we build highways and make people drive a scooter or even a car? Different decisions would lead to different levels of energy demand, and therefore the energy industry will need to be prepared for that.
 
And there’s a question of how much demand is reasonable. How much energy do we really need to consume? That becomes a political question: whether or not we're willing to elect public officials who will increase taxes on fossil fuels.

Is the air quality in Beijing as bad as we hear about?

It’s probably as bad as you hear about, because a lot of the journalists who are writing those pieces actually live here in Beijing. We discussed how the energy sector is often responsible for many of our environmental issues. This is one of them. And the two key sources of emissions in Beijing are automobiles and coal burning.

With automobiles, there are two issues. One is: How do you control automobile growth? The municipal government has already started efforts on this. For instance, one day of the working week, your car cannot get on the road. Also, the government is limiting the number of new registrations handed out every month, and people have to enter a lottery system to obtain that. The second issue is auto emissions, and that has to do with how an automobile burns its fuel but also how clean the fuel is. The automobile companies already have the required emissions technologies, but the oil refiners are yet to upgrade their fuels in China, which the government has put on top of its agenda.

But overall, when you have a megacity like this — with 20 to 30 million people — there’s a lot of need for mobility. Beijing has relatively large subway and bus systems, and they are expanding, but during rush hours you still see clogged-up traffic everywhere: the roads, subway cars, buses, even the bike lanes are full of cyclists. So there’s a bigger issue about urban planning as well. This all relates to some of the issues that we discuss at F&ES: how to make urban planning more sustainable so that, for instance, you don’t have everyone coming in to one part of the city every day at 8 or 9 a.m.

The other source of pollution in a city like Beijing is heating and power generation. Coal is the most readily available resource in China. And even though most of the country’s power plants are quite new, with state of the art technologies and pollution control, they are still more emissions-intensive than, say, natural gas or renewables. So there’s a question of, can we move away from coal?

And this has to do with demand. Even in Beijing, the per capita electricity consumption is still less than half of that of Japan or France, so demand will continue to grow and we will need to generate more electricity. But China does not have enough natural gas today; and renewables — due to their intermittency — alone can’t meet the demand. And you can only build so many hydro dams and nuclear plants every year. So there’s a supply problem here — if the non-coal technologies aren’t sufficient to ensure supply reliability and sufficiency, then we just need to go back to the default fuel. The alternative would be blackouts or unheated homes.

Do you have any advice for current F&ES students?

Continue to pursue your passions, and build a foundation where those passions can be launched. Think about the kinds of career fields that you’re interested in, talk to alums, talk to people already in those professions, your professors, and then figure out what the desired skillsets are. Yale’s vast resources mean that there’s always somewhere you can find the things you need to improve yourself — feel free to step outside of F&ES to locate those resources.