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China’s decarbonization – Beijing is not going ‘all in’ (yet)

By Michael Settelen, Director China Macro Group
Michael Settelen is a China expert at the Zurich-based consulting firm China Macro Group.

No commitment to “net-zero” is as important as Beijing’s, writes the International Energy Agency (IEA) in a recent report on China’s goal to peak annual carbon emissions by 2030 at the latest and achieve carbon neutrality by 2060 – or as they say in China, “30/60”.

If the world is to achieve the goal of maximum global warming of two degrees, or at best no more than 1.5 degrees Celsius, there really is no way of getting past Beijing. After four decades of turbo growth, China is now the hub of global value chains and has been the world’s largest energy consumer since 2009 – with the trend continuing to rise. Last year, for example, consumption increased by a further 10.3 percent compared to the previous year.

The problem: China continues to primarily rely on fossil fuels. These “dirty” energy sources cover almost 85 percent of China’s primary energy consumption – coal still plays a dominant role, accounting for 67 percent of domestic power generation. Although China’s per capita carbon footprint is less than half that of US citizens, the Middle Kingdom is now the world’s largest emitter of greenhouse gases, responsible for no less than one-third of annual global carbon emissions.

China is rethinking – but not very ambitiously

This – as China’s head of state and party leader Xi Jinping told the UN General Assembly in September 2020 – is about to change. While Beijing was long reluctant to tackle climate issues more resolutely and to commit to ambitious international targets because it kept its own level of development in mind, a cautious change in thinking is now emerging.

Beijing wants to coordinate and drive decarbonization with two central plans: The Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality in Full and Faithful Implementation of the New Development Philosophy and the Action Plan for Reaching Carbon Dioxide Peak Before 2030. The Action Plan is the first of several concrete implementation plans that set specific targets in ten areas, such as the development of renewable energy sources, energy storage, sector-specific targets and the carbon peak. For six of these ten areas, additional specific 14th Five-Year or implementation plans have been adopted.

So Beijing is serious. But despite these positive signs, China’s ambition level remains modest. Although the 14th Five-Year Plan targets absolute greenhouse gas emissions for the first time, which is actually a stronger lever than the previous focus on relative emissions per unit of GDP, the most recent plans lack corresponding targets. For instance, the implementation plan for the manufacturing industry contains just one quantitative target for reducing energy intensity, but does not specify total carbon emissions for industrial plants.

So China currently does not want to cap absolute emissions for its domestic industry, nor does it want to set a target for energy intensity. Economic growth is not to be jeopardized. Accordingly, the targets for total energy consumption were also dropped recently.

Another relapse to coal?

And now there is a risk of a renewed relapse to coal. Last fall’s painful bottlenecks showed once again how fragile China’s energy supply still is, and what risks a too rapid shift away from coal could pose to the economy. In addition, China does not yet have an effective and widespread power grid where bottlenecks could be offset with surpluses elsewhere.

In order to guarantee the energy supply, Beijing has unceremoniously reversed the ecologically motivated restrictions on the production of domestic coal. This year’s 14th Five-Year energy plan has also lifted the limits on coal consumption again.

The turmoil and price hikes on international energy markets following Russia’s invasion of Ukraine have further added to the urgency for Beijing to rely on domestic energy. Coal production, for example, was up 11 percent in the first six months of 2022 compared to the same period last year. Imports of the energy carrier, on the other hand, slumped by 17.5 percent.

Most of the progress made in renewables

But Beijing continues to back renewable energy sources. No other country has recently expanded photovoltaic capacity as rapidly as China. Between January and June 2022, China also expanded wind and solar power capacity by a further 17.2 percent and 25.8 percent, respectively, compared to the same period last year.

The sectoral 14th Five-Year energy plan drafted in March by the NDRC and the National Energy Administration (NEA) – China’s energy agency – aims to increase the share of non-fossil energy sources to 39 percent of electricity generation and 20 percent of energy consumption by 2025. In addition to solar and wind power, this currently includes hydropower in particular. Apart from that, Beijing is also expanding its nuclear capacity at full speed.

Apart from fighting air pollution and energy security, renewable technologies are key to Beijing’s dominance in future technologies. Here, industrial and environmental policies often go hand in hand. For example, China wants to transform the economy away from dependence on infrastructure and exports toward “high-quality” growth with increased domestic consumption, with more consideration for the environment and health. Heavily polluting industries are to give way to far more energy-efficient and thus eco-friendly high-tech industries.

This means that if Beijing wants to achieve “socialist modernization” by 2035, put the domestic economy on a healthier footing and become one of the market leaders in future technologies, it will not (be able to) turn away from its medium- and long-term goals despite the current relapse to coal. With this, the government, which values its legitimacy, can also over-fulfill the less ambitious goals rather than miss overly ambitious targets.

Michael Settelen is the Director of Swiss consulting company China Macro Group and Project Manager China at the University of Applied Sciences Northwestern Switzerland.

This article is part of the Global China Conversations event series of the Kiel Institute for the World Economy (IfW). On Thursday, August 18, 2022 (11:00 AM, CEST), Sebastian Eckardt, Practice Manager for Macroeconomics, Trade and Investment at the World Bank, and Prof. Dr. Xiliang Zhang, Professor of Management Science and Engineering and Director of the Institute of Energy at Tsinghua University, will discuss the topic: “Green Growth: What can we Expect from China?“. China.Table is a media partner of this event series.


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