China's Climate Change Strategy

China Brief

By Joanna I. Lewis

China released its much anticipated National Climate Change Program report on June 4, 2007 [1]. This plan comes at an important time, as nations are debating next steps in the international climate effort and China has likely just become the largest greenhouse gas emitter in the world [2]. The majority of the policies described in the plan were already in place, and they cannot achieve the emissions reductions that will eventually be needed from China to make a serious contribution to the global challenge. Nevertheless, China’s climate challenge is considerable, and its efforts to date should not go unrecognized. The plan is significant, furthermore, in that it indicates that climate change has now captured the attention of political leaders within the largest developing country emitter of greenhouse gases. China’s Climate Change Challenge The Coal Challenge – China’s greenhouse gas emissions are growing very rapidly (reportedly up by nine percent in 2006 from 2005 levels), and much of this growth is fueled by the country’s heavy reliance on coal. Coal has been China’s answer to domestic energy security; its substantial resource base and relatively low cost has made China the largest global coal consumer and producer in the world. As a carbon-intensive fuel, coal contains almost twice the amount of carbon per unit of energy compared to natural gas, and about 20 percent more than petroleum. China relies on coal for over two-thirds of its energy needs as well as approximately 80 percent of its electricity needs. In fact, there are more coal power plants installed in China than in the United States, the UK and India combined. China’s coal fleet is expected to more than double in size by 2030, representing an additional carbon commitment of about 86 billion tons [3]. Changing China’s emissions trajectory will require either a substantial shift away from coal or massive investments in capturing the CO2 emissions from coal-based energy sources. The Industry Challenge – The majority of China’s energy use, and consequently greenhouse gas emissions, stems from industry. Industrial energy demand consumes 70 percent of China’s energy, and China’s industrial base supplies much of the world. For example, China today produces 35 percent of the world’s steel and 28 percent of aluminum, up from 12 percent and eight percent, respectively, a decade ago [4]. It is increasingly difficult for China to rein in its greenhouse gas emissions growth as investment surges continue in heavy industry, a key component of China’s economic growth. The Energy Intensity Challenge – Between 1980 and 2000, China quadrupled its gross domestic product (GDP) while only doubling its energy demands—an unprecedented achievement for a developing country. Without this reduction in the energy intensity (energy use per unit GDP output) of the economy, China would have used over twice the energy it did during this period. Between 2002 and 2005, however, this trend reversed and energy growth surpassed economic growth for the first time in decades. Climate Action in China China has ratified the primary international accords on climate change—the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol—but as a developing county, China has no binding emission limits under either accord. China is, however, an active participant in the Clean Development Mechanism (CDM) established under the Protocol. The CDM grants emission credits for verified reductions in developing countries, which can be used toward meeting their Kyoto targets. This provides lower-cost reductions for developed countries and generates investment in clean development in developing countries. China is by far the largest source of CDM credits, accounting for over 40 percent of those generated to date [5]. The vast majority of the efforts that have served to moderate China’s greenhouse gas emissions growth have come in the form of domestic programs that are not climate policies per se, but policies implemented throughout the economy, and particularly in the energy sector, that have the effect of reducing greenhouse gas emissions. Many of these policies are enacted to help the country meet its broader economic development strategies, and if implemented effectively, will also serve as policies to mitigate China’s greenhouse gas emissions. Energy Efficiency With the hope of achieving a similar energy intensity improvement between 2000 and 2020 as it did during the previous two decades, China has a broad national goal of quadrupling economic growth while doubling energy consumption [6]. China’s 11th Five-Year Plan includes a near-term goal of reducing energy intensity 20 percent below 2005 levels by 2010. The government projects that meeting this target could reduce China’s greenhouse gas emissions by 10 percent below the status quo; researchers estimate that over 1.5 billion tons of CO2 reductions would be achieved [7]. Implementation of such central government targets has proven challenging, particularly at the local level. In an attempt to improve local accountability, the National Development and Reform Commission (NDRC) is allocating the target among provinces and industrial sectors, and energy efficiency improvement is now among the criteria used to evaluate the job performance of local officials. Following increases in energy intensity each year from 2003 to 2005, the trend was reversed in 2006, although the intensity decline achieved was short of the goal for that year [8]. Additional programs have been established to help meet this national intensity goal, including a program established in 2006 to improve energy efficiency in China’s 1,000 largest enterprises. The “1,000 Enterprise Program” includes the largest energy users in the energy supply sectors (coal, electricity and oil) and in the largest energy-using industrial sub-sectors (including iron and steel), which comprised 33 percent of national and 47 percent of industrial energy usage in 2004 [9]. Another government effort targets the elimination of 50 gigawatts (GW) of small, inefficient power plants, totaling around eight percent of China’s total generating capacity, by 2010—approximately 40 GW of coal-fired and 10 GW of fuel oil-fired capacity (PlanetArk.com, February 1). Similar plant closings are planned across the industrial sector, including inefficient cement, aluminum, ferro-alloy, coking, calcium carbide and steel plants (PlanetArk.com, March 2; PlanetArk.com, March 5). In addition, the 1997 Energy Conservation Law initiated a range of programs to increase energy efficiency in buildings, industry and consumer goods. China has efficiency standards and labeling programs in place for many key energy-consuming appliances and is adopting energy standards for buildings in regions with high heating and cooling demands. In the transport sector, China’s fuel economy standards for its rapidly growing passenger vehicle fleet are more stringent than those in Australia, Canada and the United States (though less stringent than those in the European Union and Japan) [10]. The average fuel economy of new vehicles is projected to reach 36.7 miles per gallon in 2008. Renewable Energy Under the National Renewable Energy Law adopted in 2005, China has set a target of producing 16 percent of its primary energy from renewable sources (including large hydropower) by 2020, up from about seven percent at present. For the electricity sector, the target is 20 percent of the capacity from renewables by 2020, including 30 GW of wind power, 20 GW of biomass power and 300 GW of hydropower capacity. The Law offers financial incentives, such as a national fund to foster renewable energy development and discounted lending and tax preferences for renewable energy projects. It also reduces risks for project developers by mandating grid interconnection and guaranteeing minimum prices for certain types of renewable energy. Large-scale hydropower capacity is projected to more than double by 2020, requiring the equivalent of a new dam the size of the Three Gorges Project every two years. Policies to promote renewable energy also include mandates and incentives to support the development of domestic technologies and industries, for instance, by requiring the use of domestically manufactured components. Spurred by a requirement that newly installed wind turbines contain 70 percent local content, Chinese manufacturers are now producing about 40 percent of the wind turbines being sold in China and three percent of the wind turbines being sold globally. Tax and other incentives have targeted the solar photovoltaic (PV) industry, stimulating a six-fold growth in PV production from 2004 to 2005. A recent market study estimates that the Chinese PV industry will dominate the global market within five years; China is currently the third largest producer of solar photovoltaics for the global market (Solarplaza.com, March 7, 2006). Industrial Policies – The recent surge in energy consumption for heavy industry in China has caused the government to implement measures to discourage growth in energy-intensive industries compared with less energy-consuming sectors. In November 2006, the Ministry of Finance increased export taxes on energy intensive industries. This includes a 15 percent export tax on copper, nickel, aluminum and other metals, a 10 percent tax on steel primary products and a five percent tax on petroleum, coal and coke. Simultaneously, import tariffs on 26 energy and resource products, including coal, petroleum, aluminum and other mineral resources, will be cut from their current levels of three to six percent to between zero and three percent (China Daily, October 31, 2006). Climate Change – With growing political attention addressing climate change, the Chinese government released its first National Assessment Report on Climate Change in late 2006. The assessment was conducted as a collaborative effort between nine government departments, which included the Ministry of Foreign Affairs, the National Development and Reform Commission, the State Environmental Protection Administration, the Ministry of Science and Technology, the China Meteorological Administration and the Chinese Academy of Sciences; it took four years to complete [11]. Structured similarly to the assessment reports of the Intergovernmental Panel on Climate Change (IPCC), the Chinese assessment consists of three parts: the past and future of climate change, the impact and adaptation of climate change and the socioeconomic impact from the slowdown of climate change. Following this National Assessment, the government released its National Climate Change Program in June 2007, delayed from a previously announced release date [12]. The National Climate Change Program report lays out an array of actions that China is taking to mitigate its greenhouse gas emissions, as well as its plans to support adaptation to the reported impacts it is likely to face from a changing climate. According to the report, regional administration systems are being established to better coordinate work dealing with climate change, energy efficiency and renewable energy across agencies. Also announced in the plan was the establishment of a high-level “National Leading Group on Climate Change,” headed by Premier Wen Jiabao. While the plan establishes several specific targets and timetables for policy action, almost all of these were in place before the release of the plan, including those previously mentioned. Engaging China on Climate Change As the aforementioned policies and targets illustrate, China is taking significant domestic action that serves to moderate its greenhouse gas emission growth. Certainly, much work remains to be done. Recognition of China’s achievements to date and a better understanding of the nature of its domestic policy agenda on climate change, however, can inform the upcoming international climate negotiations. In the view of developing countries, absolute greenhouse gas targets like those under the Kyoto Protocol amount to a cap on their economic growth. China’s intensity-based targets illustrate the importance of a metric that includes not just absolute energy use but the efficiency of economic growth, an indicator that is particularly important to developing economies as formerly discussed. China’s climate plan has also laid out an array of domestic policy activities. Such policies could form the basis of a policy-based commitment made under the UNFCCC [13]. Policy commitments as part of a multilateral climate agreement could allow developing country governments to identify ways that emissions mitigation fits or advances national priorities such as economic growth, energy security and public health, while such commitments would help to achieve broad participation in an international effort to reduce greenhouse gas emissions. It is important that the international community increase collaboration with China surrounding shared energy and environmental concerns. Recognizing the unique challenges that China faces in addressing climate change can help in designing a roadmap for international engagement. China’s own climate change plan has clearly identified its priority areas for international collaboration, including cooperation on advanced coal technologies, energy efficient building technologies, clean vehicle technology and advanced industrial technologies [14]. Experience developing and deploying these technologies is important not only for China but for the other major emitters as well. The United States and China in particular share a common interest in determining a way to continue their reliance on coal while moving toward more efficient coal combustion and gasification technologies, and by capturing and storing the emissions from coal power plants. China must be a part of any global solution to address climate change. Understanding the challenges China faces in addressing its own greenhouse gas emissions is the first step to engaging China on climate cooperation. Effective engagement with China, however, will only be possible if the major emitting developed countries lead by example. Most crucial to China’s engagement is likely to be serious U.S. engagement. It is incumbent upon the United States to lead both by strong action at home and by actively and constructively reengaging in the international climate effort. Only with strong U.S. participation and leadership can a fair and effective global response to the critical challenge of climate change be achieved.