A solar-powered house is on display at the 2011 Solar Decathlon competition, sponsored by the U.S. Department of Energy, in Washington, D.C. [Xinhua/Reuters]

In spite of the impact brought on by the global financial crisis of 2008, the clean energy industry has kept a fast pace of development, as international investment in clean energy shows rapid growth. In 2010, global financing and investment related to the clean energy industry was $243 billion, increasing 30 percent over 2009. In 2011, the volume grew 5 percent more than the previous year to reach $260 billion. This volume was four times more than that of 2004, which was only $53.6 billion. The total global investment in clean energy has hit $1 trillion since 2004.

The rapid development of clean energy resources has triggered the international community's interest in a new energy revolution and expectations for an international energy transformation. However, most kinds of clean energy resources generally are still at a starting phase. It will take time to complete the transformation of the global energy structure from fossil energy to clean energy.

Long-term transformation

Humans have experienced two energy transformations: The first was from the firewood era to the coal era, which was completed around the end of the 19th century; and the second was from the coal era to the petroleum era, which was finished in the 1960s. It was not until the 1990s that the world started to pay more attention to clean energy. Since the beginning of the 21st century, the clean energy industry has undergone rapid development throughout the world.

The ongoing transformation from fossil energy to new energy and renewable energy may be the hardest revolution of human beings' energy consumption model. Unlike the previous two, people are not quite certain what energy sources can serve as alternatives to conventional fossil fuels and have yet to master related technologies. Although the general direction of the ongoing energy transformation is targeted at clean, low-carbon energy, the world is not sure which kind of energy will be the major source in the future. Hydropower, wind power, new biomass energy and geothermal energy have relatively mature technologies. These energy resources, which have price advantages but limited resources, will play a supplementary and subsidiary role. In the meantime, the technologies of solar energy, fusion power and hydrogen fuel, which have unlimited resources, have yet to mature. Therefore, the revolutionary breakthrough of the current energy transformation hasn't happened yet.

Today, clean energy occupies a small proportion of the global energy structure. According to British multinational oil and gas company BP's statistics in 2011, clean energy, including hydrogen fuel, nuclear power and renewable energy, composed only 13.09 percent of the world's total energy in 2009, and 13 percent in 2011, while the ratios for renewable energy were respectively 1.2 percent and 1.3 percent.

Technological progress leads to a lowering cost of clean energy, which has boosted clean energy's popularity in recent years. But compared to fossil energy resources, clean energy resources—except hydropower and nuclear power—are more expensive. For example, the cost of wind power, a type of clean energy with mature technology, has decreased 80 percent during the past 20 years, and 20 percent in the last five years. However, only in very few places is the price of wind power at the same level as coal electricity. A research report released by Bloomberg New Energy Finance said it won't be until 2016 when the cost of a newly built wind power station will be able to compete with that of coal power.

In general, different clean energy resources have their own shortcomings, such as a high cost, immature technological support, limited reserves, low efficiency, instability and inconveniences of transportation and usage. These are the main reasons why they cannot compete with fossil energy.

Multiple uncertainties

The development of clean energy still relies heavily on government help. The clean energy industry and related technologies are rapidly developing in many countries, whose governments offer favorable policies including financial support. According to the American Recovery and Reinvestment Act, which the United States passed in 2009, the United States will invest $150.7 billion in the clean energy industry from 2009 to 2014, three times more than that from 2002 to 2008. In 2011, U.S. investment in clean energy skyrocketed to $55.9 billion, surpassing that of China. In both 2009 and 2010, China's investment in the clean energy industry and related technology research was the biggest in the world.

The development of clean energy also depends on factors such as the international community's growing focus on climate change. The EU, which has a highly developed economy and a keen sense of environmental protection, has set high targets for carbon dioxide emissions reduction and clean energy development. It plans to cut 20 percent of greenhouse gas emissions from 1990 levels and to make renewable energy 20 percent of its total energy consumption by 2020. Moreover, it has established the biggest international carbon emissions trading system in the world. Unfortunately, many EU members, such as Spain, Italy, Germany and the Netherlands, have to reduce government subsidies to renewable energy projects because of the ongoing debt crisis and economic recession. The EU also tried extending its emissions trading system to the aviation industry in early 2012, but the plan didn't go over well due to other countries' objections.

Some countries like Germany and Japan have decided to suspend or shrink nuclear power programs and refocus on other kinds of clean energy development after radiation leaks last March in Japan's Fukushima Daiichi Nuclear Power Plant. But it is impossible to realize clean energy development within such a short time. These countries' demand for fossil energy will inevitably rebound.

Competition in clean energy production and technology research is fierce. Therefore, some countries' growing trade protectionism has become an obstacle to the global clean energy industry's healthy development. Western countries' economic recovery pace is slow in the wake of the global financial crisis. Growing trade protectionism has caused some trade disputes in the clean energy sector. The EU decided to levy anti-dumping and anti-subsidy tariffs against biodiesel imports from the United States in July 2009. The United States has imposed punitive tariffs on Chinese clean energy products such as solar panels and wind towers.

China's strategy

China's green economy has developed very quickly, and clean energy, such as hydropower, wind power and solar energy, occupies a big part of China's energy consumption. The country's nuclear power plants under construction account for about 40 percent of the world's total.

However, there is still a wide gap between China and the developed world in terms of energy use efficiency, service, technology and infrastructure construction. According to The Washington Post, most of China's green energy investment is used to produce green energy for Western countries. For example, China produced 50 percent of the world's solar panels in 2010, but only 1 percent was used domestically. A Citibank study found that one third of China's wind power is not used, and many wind turbines are not linked with the power transmission network.

These facts highlight the need for China to follow a market-oriented approach when developing a green and low-carbon economy. The Chinese Government should also encourage the public as well as private enterprises to participate in efforts to increase energy efficiency and reduce carbon dioxide emissions. The government needs to cut subsidies to clean energy production, while providing more funding for clean energy research. Only by decreasing the cost of clean energy can China increase the competitiveness of its clean energy industry and promote its sustainable development.

The author is deputy director of the Institute of World Economic Studies at the China Institutes of Contemporary International Relations