Joanna Lewis

Energy and Climate Goals of China's 12th Five-Year Plan

Energy and Climate Goals of China's 12th Five-Year Plan
March 2011

By Joanna Lewis

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The 12th Five-Year Plan (FYP) adopted by the Chinese government in March 2011 devotes considerable attention to energy and climate change and establishes a new set of targets and policies for 2011-2015.[1]  While some of the targets are largely in line with the status quo, other aspects of the plan represent more dramatic moves to reduce fossil energy consumption, promote low-carbon energy sources, and restructure China’s economy.  Among the goals is to "gradually establish a carbon trade market."  Key targets include:

  • A 16 percent reduction in energy intensity (energy consumption per unit of GDP);
  • Increasing non-fossil energy to 11.4 percent of total energy use; and
  • A 17 percent reduction in carbon intensity (carbon emissions per unit of GDP).

Energy

The relationship between energy and economic growth matters greatly in China; without a reduction in energy intensity since the late 1970s, the country would need to consume three times the energy it does today to sustain its economic growth.  At the center of China’s 11th Five-Year Plan (2006-2010) was a target to decrease the overall energy intensity of the economy by 20 percent. This target was implemented in response to increases in energy intensity experienced between 2002 and 2005, the first increase experienced after several decades of rapidly decreasing energy intensity.  To reverse the unexpected increases in energy intensity, the government mobilized a national campaign to promote energy efficiency, targeting in particular the largest and least efficient energy consuming enterprises. The Top 1,000 Program targeted approximately 1,000 companies (consuming about one-third of the country’s energy) for efficiency improvements.

The 12th FYP builds directly on the 11th FYP energy intensity target and its associated programs, setting a new target to reduce energy intensity by an additional 16 percent by 2015.[2] While this may seem less ambitious than the 20 percent reduction targeted in the 11th FYP, it likely represents a much more substantial challenge. It is likely the largest and least efficient enterprises have already undertaken efficiency improvements, leaving smaller, more efficient plants to be targeted in this second round. Under preparation is a new “Top 10,000” program, which is modeled after the Top 1,000 Program but adds an order of magnitude of companies to the mix.  But as the number of plants grows, so do the challenges of collecting accurate data and enforcing targets.

The closure of inefficient power and industrial facilities also helped contribute to the decline in energy intensity during the 11th FYP period, with a reported 72.1 GW of thermal capacity closed.[3] Total plant closures are equivalent to 16 percent of the size of the capacity added over the period. An additional 8 GW of coal plants are reportedly to be shut down in 2011 alone with further closures no doubt on tap over the next five years.

While final data are not yet available, the country likely fell short of meeting its 11th FYP energy intensity target of 20 percent, instead achieving in the range of 19.1 percent. There is no doubt, however, that much was learned though efforts to improve efficiency nationwide. Many changes were made to how such national targets are enforced at the local level, including the incorporation of compliance with energy intensity targets into the evaluation for local officials.  

The 12th FYP includes a target to increase non-fossil energy sources (including hydro, nuclear and renewable energy) to 11.4 percent of total energy use (up from 8.3 percent in 2010).[4] While not formally enshrined in the 12th FYP, another recent notable announcement is a cap on total energy consumption of 4 billion tons of coal equivalent (tce) in 2015.[5] To meet the cap on energy consumption, annual energy growth would need to slow to an average of 4.24 percent per year, from 5.9 percent between 2009 and 2010. The government is also trying to slow GDP growth rates, targeting 7 percent per year – far below recent growth rates. Lower GDP growth rates make it even more challenging for China to meet energy and carbon intensity targets, since energy and carbon need to grow more slowly than GDP for the country to achieve declining energy and carbon intensity.

Carbon

In the lead-up to the Copenhagen climate negotiations in the fall of 2009, the Chinese government pledged a 40-45 percent reduction in national carbon intensity from 2005 levels by 2020. To achieve this 2020 target, the 12th FYP sets an interim target of reducing carbon intensity 17 percent from 2010 levels by 2015. Whether this target will result in a deviation from China’s expected carbon emissions over this time period depends on the corresponding GDP growth, but many studies have found that this target will be challenging for China to achieve without additional, aggressive policies to promote low carbon energy development.[6]

Also promised in the 12th FYP is an improved system for monitoring greenhouse gas emissions, which will be needed to assess compliance with the carbon intensity target, and to prepare the national GHG inventories that, under the Cancún Agreements, are to be reported more frequently to the UNFCCC and undergo international assessment.

The 12th FYP establishes the goal of "gradually establish[ing] a carbon trade market," but does not elaborate. A handful of provinces have announced interest in piloting carbon trading schemes. The Tianjin Climate Exchange, partially owned by the founders of the Chicago Climate Exchange, is positioning itself to be the clearinghouse for any future carbon trading program.[7] While some have suggested that Guangdong province may be targeted for a pilot program at the provincial level, other reports speculate that the program would begin within a single sector, such as the power sector, or begin by including only state-owned enterprises, which are often the target of early government policy experiments (as was the case with mandatory market shares for renewable energy placed on the large state-owned power companies). Other likely locations for pilots might include China’s low-carbon cities and provinces.[8]

Implementing a carbon trading scheme in China, even on a small-scale or pilot basis, will not be without significant challenges. Concerns have already been raised from both domestic and foreign-owned enterprises operating in China about how the regulation could affect their bottom lines. But the key challenge is likely technical, resulting from the minimal capacity currently in place to measure and monitor carbon emissions in China.

Industrial Policy

The 12th FYP also includes many new industrial policies to support clean energy industries and related technologies. Industries targeted include the nuclear, solar, wind and biomass energy technology industries, as well as hybrid and electric vehicles, and energy savings and environmental protection technology industries.[9]  These “strategic and emerging” industries are being promoted to replace the “old” strategic industries such as coal and telecom, (often referred to as China’s pillar industries), which are heavily state-owned and have long benefited from government support.[10] This move to rebrand China’s strategic industries likely signals the start of a new wave of industrial policy support for the new strategic industries which may include access to dedicated state industrial funds, increased access to private capital, or industrial policy support through access to preferential loans or R&D funds.

Other targets encourage increased innovative activity, including a target for R&D expenditure to account for 2.2 percent of GDP, and for 3.3 patents per 10,000 people. During the 11th FYP period, an estimated 15.3 percent of government stimulus funding was directed towards innovation, energy conservation, ecological improvements and industrial restructuring.[11]

 

The old pillar industries

The new strategic and emerging industries

1

National defense

Energy saving and environmental protection

2

Telecom

Next generation information technology

3

Electricity

Biotechnology

4

Oil

High-end manufacturing (e.g. aeronautics, high speed rail)

5

Coal

New energy (nuclear, solar, wind, biomass)

6

Airlines

New materials (special and high performance composites)

7

Marine shipping

Clean energy vehicles (PHEVs and electric cars)

Sources: “Decision on speeding up the cultivation and development of emerging strategic industries,” www.gov.cn, September 8, 2010, http://www.gov.cn/ldhd/2010-09/08/content_1698604.htm; HSBC, China’s next 5-year plan: What it means for equity markets, October 2010. 

Other Targets

The 12th FYP also includes targets to increase the rate of forest coverage by just over 21 percent and the total forest stock by 12.5 million hectares by 2015. Also mentioned are targets for the construction of 35,000 km of high-speed rail and improvements in subway and light rail coverage, as well as a goal to connect every city with a population greater than 500,000.[12]

Outlook

The 12th FYP provides a glimpse into the minds of China’s leadership as it lays out a methodological plan for moving the country forward. It includes a strong emphasis on new energy and climate programs and clearly illustrates China’s commitment to increased environmental protection. The Plan itself provides a framework for progress, but leaves the details of implementation to policy makers, with many new policies and programs likely to follow in the coming weeks.

Some of the targets will no doubt prove challenging to implement. The national energy and carbon intensity targets will prove particularly difficult if economic growth rates slow in line with targets put forth in the plan. Implementation of energy conservation and efficiency programs at the facility level will prove increasingly demanding as more and more facilities are incorporated into current programs. The non-fossil energy target relies on extensive increases in nuclear energy capacity, but growth in nuclear plants may slow as efforts to improve safety and regulation will be implemented in the aftermath of the recent Japanese nuclear disaster.[13] If nuclear targets are reduced, the share of renewable energy will need to increase even more than current targets propose.

Overall, China’s Plan represents many ambitious climate and energy goals, and lays out a strategic roadmap for the county to endeavor to pursue over the next five years.

Notes and References



[2]“Key targets of China's 12th five-year plan,” Xinhua, March 5, 2011. http://www.chinadaily.com.cn/xinhua/2011-03-05/content_1938144.html


[3] Wen Jiabao.  Report on the work of the Government. Delivered at the Fourth Session of the Eleventh China National People’s Congress, March 5, 2011. http://blogs.wsj.com/chinarealtime/2011/03/05/china-npc-2011-reports-full-text/

[4]“China announces 16 pct cut in energy consumption per unit of GDP by 2015,” Gov.cn, March 5, 2011. http://www.gov.cn/english/2011-03/05/content_1816947.htm; “Zhang: ‘Twelfth Five’ push to non-fossil energy to account for 11.4 percent share of primary energy,” people.com.cn, January 6, 2011. http://energy.people.com.cn/GB/13670716.html

[5]Fellman, Joshua. “China to Hold Primary Energy Use to 4.2 Billion Tons in 2015, Xinhua Says.” Bloomberg, October, 20, 2010. http://www.bloomberg.com/news/2010-10-30/china-to-hold-primary-energy-use-to-4-2-billion-tons-in-2015-xinhua-says.html


[6] See, e.g. Cohen-Tanugi, David. “Putting it into Perspective: China’s Carbon Intensity Target.” NRDC White Paper, October 2010.

[7]The Tianjin Climate Exchange (TCX) is a joint venture of China National Petroleum Corporation Assets Management Co. Ltd. (CNPCAM), the Chicago Climate Exchange (CCX) and the City of Tianjin.

[8]In July 2010, NDRC announced the selection of official low carbon pilot provinces and cities, including the provinces of Guangdong, Liaoning, Hubei, Shaanxi and Yunnan, and the cities of Tianjin, Chongqing, Shenzhen, Xiamen, Hangzhou, Nanchang, Guiyang, and Baoding.
 

[9]“Decision on speeding up the cultivation and development of emerging strategic industries," www.gov.cn, September 8, 2010, http://www.gov.cn/ldhd/2010-09/08/content_1698604.htm

[10]Over 70 percent of SOE assets and profits are concentrated in the “old” magic 7 strategic industries. HSBC, China’s next 5-year plan: What it means for equity markets, October 2010.
 

[11]HSBC, China’s next 5-year plan: What it means for equity markets, October 2010.

[12]Seligsohn, Deborah and Angel Hsu. “How does China’s 12th Five-Year Plan address energy and the environment?” China FAQs, march 7, 2011. http://www.chinafaqs.org/blog-posts/how-does-chinas-12th-five-year-plan-address-energy-and-environment

[13]Yue, Yang. “China may revise nuclear power target.” Marketwatch.com from Caixin Online, March 29, 2011.
http://www.marketwatch.com/story/china-may-revise-nuclear-power-target-2011-03-29

 

Joanna Lewis
0

China's Strategic Priorities in International Climate Change Negotiations

Winter 2007-08

By Joanna Lewis, Senior International Fellow

Originally appeared in The Washington Quarterly, Winter 2007-08

 

China's role in an international climate change solution cannot be overstated. Now likely the world's largest emitter of greenhouse gases, China has become the focus of scrutiny as climate change has become ever more important as a global issue. Increased international attention to the issue is reflected in China's domestic policy circles as well, primarily through institutional restructuring aimed at better government coordination on climate-related policy activities. China released its first national climate change plan this year, composed of measures being taken across the economy that may help slow China's greenhouse gas emissions growth.

Yet, China faces substantial challenges in mitigating its increasing contribution to global greenhouse gas emissions, which will require a much higher level of effort than what may be achieved by measures already in place. Understanding the nature of these challenges in the Chinese context helps to clarify China's negotiating position in international forums and can provide insights into how the international community might best engage China to address global climate change.1

 

Competing Priorities

China's climate strategy remains centered on its energy development strategy as driven by its overall economic development goals. Although attention to climate change has recently increased among China's leadership, climate change has not surpassed economic development as a policy priority. The Chinese [End Page 155] leadership has shown the ability to adapt to or resist both internal and external changes and pressures over time.

Yet, the causes of climate change, namely greenhouse gas emissions from fossil fuels and land use, are inherently linked to economic development in the Chinese context. Continued growth in the prosperity of the population is viewed as fundamental to maintaining political stability, and progress to date in this regard has been impressive. China's economic growth over the past two decades, marked by a quadrupling in its gross domestic product (GDP) from 1980 to 2000, has been credited with pulling roughly 50 million people out of poverty.2

The relationship between economic growth and energy utilization matters greatly not only from an emissions perspective, but from an energy security perspective as well. Although China quadrupled its GDP between 1980 and 2000, it did so while merely doubling the amount of energy it consumed over that period, marking a dramatic achievement in energy-intensity gains not paralleled in any other country at a similar stage of industrialization. This allowed China's energy intensity (ratio of energy consumption to GDP) and consequently the emissions intensity (ratio of carbon dioxide [CO2]–equivalent emissions to GDP) of its economy to decline (see figure 1). Without this reduction in the energy intensity of the economy, China would have used more than three times the energy that 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. This reversal has had dramatic emissions implications, with China's greenhouse gas emissions growing very rapidly since 2002. Although official data for 2006 are not yet available, estimates show that emissions from energy use are up 9 percent from the previous year, which would make China the largest emitter on an annual basis, surpassing U.S. emissions that year by 8 percent.3 In 2006, global carbon emissions from fossil fuel use increased by about 2.6 percent, driven by a 4.5 percent increase in global coal consumption, of which China contributed more than 66 percent.4 Currently, China emits 35 percent more CO2 per dollar of output than the United States and 100 percent more than the European Union. China's increase in energy-related emissions in the past few years has been driven primarily by industrial energy use, fueled by an increased percentage of coal in the overall fuel mix. Industry consumes about 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 8 percent, respectively, a decade ago.5 [End Page 156]

China relies on coal for more than two-thirds of its energy needs, including approximately 80 percent of its electricity needs. Currently, more coal power plants are installed in China than in the United States and India combined. China's coal power use is expected to more than double by 2030, representing an additional carbon commitment of about 86 billion tons.6 Although China is also expanding its utilization of nuclear power and nonhydroelectric renewables, these sources comprise 2 percent and 0.7 percent of China's electricity generation, respectively, whereas hydroelectricity contributes about 16 percent.7

China's overall economic development statistics reveal that, despite the emergence of modern cities and a growing middle class, China is still largely a developing country. Although rapid economic growth has made China the fourth-largest economy in the world, its GDP per capita is still below the world average. More than one-half of China's population lives in rural areas where GDP per capita lags that of urban areas. The gap between the best available technologies worldwide and what exists in China is still large, although advanced energy technology is increasingly available and in many cases being developed indigenously. China's per capita greenhouse gas emissions are below the world average and almost one-fifth those of the United States. [End Page 157]

All of these factors shape the climate challenge faced by China's leadership. It is increasingly difficult for China to rein in its greenhouse gas emissions growth as investment surges continue in heavy industry. 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. Simultaneously, China must increase the efficiency with which it uses energy resources to minimize the environmental impacts of meeting the further economic development needs of its population.

 

Climate Action in China

Although the goal of "building a resource-efficient and environment-friendly society" is prominent in China's current five-year plan, many obstacles must be overcome before achieving it. These challenges shape the way China is approaching climate mitigation at the domestic level, as well as its position in international negotiations.

A look at the Chinese institutions that have been responsible for climate change policy is one way to understand how the government has approached this issue over time. Starting in the 1980s, China treated climate change as a scientific issue and gave the State Meteorological Administration the responsibility of advising the government on policy options in international negotiations surrounding the UN Framework Convention on Climate Change (UNFCCC).

As political awareness and sensitivity surrounding climate change increased in the late 1990s, this role shifted to the more powerful State Development and Planning Commission, which has since evolved into the National Development and Reform Commission (NDRC). The move indicated a shift in the relative value given to the issue, as well as perhaps a shift in perspective from a scientific issue to predominantly a development issue.8

The NDRC also serves as the primary energy policy decisionmaking authority in China, and this move may have reflected the clear need for climate priorities to be coordinated better with energy decisions. It is now home to the National Coordination Committee on Climate Change, which oversees climate activities within the NDRC, the Ministry of Foreign Affairs, the Ministry of Science and Technology, and the State Environmental Protection Administration (SEPA). Today, the NDRC and the Foreign Ministry are responsible for formulating China's international negotiation positions.

Further institutional change came recently with the release of China's national climate change plan in June 2007, announcing a high-level leading group on climate change chaired by Premier Wen Jiabao and reporting to the State Council. Subsequently, the Foreign Ministry announced that it had also established [End Page 158] a leading group in charge of international work on climate change, headed by Foreign Minister Yang Jiechi. Then in early September, Ambassador Yu Qingtai was appointed to be China's new special representative of the Foreign Ministry for climate change negotiations. The role of this new special representative is to help implement China's domestic action plan to respond to climate change and to demonstrate "the government's active participation in international cooperation on responding to climate change."9

The establishment of these two high-level leading groups and the appointment of a special representative on climate change in 2007 are positive signs that the Chinese leadership is focusing new attention on the issue. It is also apparent that leading Chinese research organizations that often provide analytical input to shape government policy decisions are scaling up their work in this area.10

The government released its first "National Assessment Report on Climate Change" in late 2006, conducted as a collaborative effort among more than 20 government departments and taking four years to complete.11 Structured similarly to the Intergovernmental Panel on Climate Change reports, the Chinese assessment consists of three parts: climate change history and trends, impacts and adaptation, and mitigation and socioeconomic evaluation.

Subsequently, China released its much anticipated National Climate Change Program report on June 4, 2007.12 Referred to as China's climate change plan, the report has provided a comprehensive synthesis of the policies that China currently has in place that are serving to moderate its greenhouse gas emissions growth and to help the country adapt to climate impacts. The majority of the policies and programs mentioned in the plan are not climate change policies per se, but policies implemented throughout the economy, particularly in the energy sector, that have the effect of reducing greenhouse gas emissions. Many of these policies have been 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. Three of these key policy areas are energy efficiency, renewable energy, and industrial policy.

 

Energy Efficiency

With the hope of achieving energy intensity improvements between 2000 and 2020 similar to what it had done the previous two decades, China has a broad [End Page 159] national goal of quadrupling economic growth while doubling energy consumption.13 Beijing's eleventh five-year plan includes a near-term goal of reducing national energy intensity 20 percent below 2005 levels by 2010. Implementation of such centrally administered government targets has proven challenging, particularly at the local level. In an attempt to improve local accountability, the 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. These elevated implementation efforts appear to be having some impact. 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.14

Supplementary programs have been established to encourage specific actors to help meet this national intensity goal, including a program established in 2006 to improve energy efficiency in China's largest enterprises.15 Another government effort targets the elimination of a number of small, inefficient power plants, totaling around 8 percent of China's generating capacity, by 2010. Similar plant closings are planned across the industrial sector, including inefficient cement, aluminum, ferroalloy, coking, calcium carbide, and steel plants.16

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, although less stringent than those in the EU and Japan, and the average fuel economy of new vehicles is projected to reach 36.7 miles per gallon in 2008.17

 

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 by 2020, up from about 7 percent at present. For the electricity sector, the target is 20 percent of the capacity from renewables by 2020, which will require substantial increases in the use of wind power, biomass power, solar power, and [End Page 160] hydropower. This law offers financial incentives, such as a national fund to foster renewable energy development and discounted lending and tax preferences for renewable energy projects. Although increases in wind power in particular have been impressive in recent years, this energy source is still dwarfed by large-scale hydropower. 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 3 percent of the wind turbines being sold globally. Tax and other incentives have targeted the solar photovoltaic (PV) industry, stimulating a sixfold 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 PVs for the global market.18

 

Industrial Policies

The recent surge in energy consumption by heavy industry in China has caused the government to implement measures to discourage growth in energy-intensive industries compared with sectors that are less energy intensive. 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 5 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 3–6 percent to 0–3 percent.19 Whereas the increased export tariffs are meant to discourage relocation of energy-intensive industries to China for export markets, the reduced import tariffs are meant to promote the utilization of energy-intensive products produced elsewhere.

 

Framing China's Negotiating Position

China's position in the international climate negotiations has rarely deviated from the rest of the developing world, as collectively articulated by the Group of 77 (G-77), a group of 130 (formerly 77) developing countries. Recently, the financial incentives for emissions reductions provided by the Kyoto Protocol's [End Page 161] Clean Development Mechanism (CDM) has also helped shape China's views on the international climate regime.

 

G-77 Solidarity

Developing-country solidarity has been used as a strategy since the early days to influence climate change negotiations, despite the growing economic differentiation and often disparate climate policy interests within the developing world. Aware of their limited weight of acting in isolation, developing countries attempt to build common positions in the framework of the G-77,20 the largest intergovernmental organization of developing states in the United Nations. The G-77 provides a means for these countries to articulate and promote their collective economic interests and enhance their joint negotiating capacity on all major issues within the UN system.

China has historically associated itself with the G-77 despite not having the problem of limited weight in acting alone. Rather than acting alone, it can use the G-77 block as protection against being singled out. As the largest developing-country emitter, this concern is certainly rational. Yet, its size allows it to take a leadership role in formulating the positions of the G-77. China has a hand in crafting its position while ensuring that a large contingent of countries will stand at its side when it is presented before the world. The consistent position of the G-77 has been to emphasize the historical responsibility that the industrialized world brings to the climate change problem and the disparity between per capita emissions that persists between the developed and developing world, resisting any commitments to reduce their own greenhouse gas emissions.

In recent years, China's alliance with the G-77 has not waned. In fact, its willingness to step out of the pack has declined even further as its fear of being singled out grows due to increasing economic growth and energy use. In June 2005, then–SEPA director Xie Zhenhua, now a vice minister of the NDRC, stated that he hoped "that some countries would, according to the obligations which are provided for in the Kyoto Protocol, implement in a substantive way their obligations and take up their commitments" and that, "on the Chinese side, the Chinese government would make its own decision after making some assessments of the implementation by other countries."21 In this statement, Xie was signaling that China was waiting to see whether the developed countries would follow through on their UNFCCC obligations to lead them in taking on mitigation commitments. This position was reinforced recently by Chinese foreign minister Yang Jiechi, who said in September that developed countries should "continue to take the lead in reducing emissions after 2012."22

Despite the EU's willingness to commit to post-2012 emissions reduction targets, the absence of international commitments by the United States, the [End Page 162] world's largest industrialized-country emitter, provides the best excuse for China not to have to adopt commitments. Even as China's emissions surpass those of the United States on an annual basis, it will be decades before Chinese emissions surpass U.S. emissions on a cumulative basis, measured as historic contribution of emissions to the atmosphere. Greenhouse gases stay in the atmosphere for a century or more, so it is really the buildup of gases over time that is important from a scientific perspective. As previously mentioned, China's per capita greenhouse gas emissions would have to quintuple to equal those of the United States.

Consequently, if the United States were to take on credible international climate change commitments, China would face renewed pressure to revisit its delay tactics. Another key dynamic that could shift in the near term is the G-77 negotiating block. Countries within the G-77 are beginning to diverge somewhat in their positions, which could leave China in a more isolated negotiating position. Some tropical forest countries, including Brazil and a coalition of 32 rain forest countries including Costa Rica and Papua New Guinea, have stated a willingness to take on voluntary avoided-deforestation targets in return for compensation.23 Historically, voluntary international targets of any form have not been part of the G-77 position.

 

Capitalizing on the Clean Development Mechanism

{C}{C}China has ratified the primary international accords on climate change—the UNFCCC and the Kyoto Protocol—but as a developing country, China has no binding emissions limits under either accord. It is, however, an active participant in the CDM established under the protocol, which grants emissions credits for verified reductions in developing countries, which can be used by developing countries toward meeting their Kyoto targets. The Kyoto Protocol requires developing countries to implement measures to mitigate climate change as is feasible for them, "in accordance with their common but differentiated responsibilities and respective capabilities."24

The Chinese government has historically approached the CDM somewhat more cautiously and has taken a more involved role in the project approval process than other developing countries, getting China off to a relatively late start in the carbon market. Although CDM projects became eligible for crediting in 2000 (five years before the Kyoto Protocol entered into force), China did not ratify the treaty until August 2002, its designated national authority [End Page 163] overseeing CDM projects was not established until June 2004, and the State Council did not adopt rules for the management of CDM projects until October 2005.25

China has been consistent in its position that, as a developing country, it will not take on any binding international commitments to reduce its greenhouse gas emissions. Some of China's hesitance to make international commitments stems from reasonable concerns about energy data quality and transparency. In developing countries, where resource constraints result in limited data quality, inventories of national greenhouse gas emissions are notoriously inexact.26 Having in place a national emissions inventory system will likely be a crucial step in enabling the adoption and enforcement of any binding emissions reduction policies, whether enacted nationally or internationally.

Another reason for China's hesitance stems from broader concerns about the role of international actors in China. China was initially skeptical about the introduction of the Kyoto mechanisms under the UNFCCC, not only viewing the CDM as a way for developed countries to avoid their own responsibilities to reduce emissions but also expressing concern about the potential for foreign exploitation of rights to ownership of emissions credits.27 China has long had protectionist tendencies and resisted foreign involvement in various sectors and activities, particularly industries deemed to have an impact on national economic security.28 Recent examples include reported preferences for locally manufactured products and differential treatment given to foreign competitors in industrial sectors throughout the economy.29

Such policies exist in many sectors, including several in low-carbon energy technology. For example, all wind turbines erected are subject to a 70 percent local content requirement, a policy which discourages the sale of foreign wind turbines not sourced in China.30 Many of these policies are in place to encourage technology transfer in the form of licensing intellectual property rights by foreign companies to Chinese companies. Expectations of such transfers, however, are rarely met without additional incentives. For example, GE transferred its 9FA gas turbine combined-cycle technology to a Chinese company via a majority-owned joint venture, in return for a $900 million contract to sell these turbines in China.31 Despite enduring restrictions on foreign investment and ownership, calls for international technology transfer from Chinese officials are consistent, in and out of the climate and energy context.

China's position toward the CDM has changed dramatically in recent years, however, as China has begun to realize the economic and political benefits [End Page 164] that the CDM could provide. The CDM has become a vehicle for China to help stimulate investment in projects that mitigate greenhouse gas emissions and to help cover the incremental cost of higher-efficiency or low-carbon technology. Another benefit of China's leadership in the CDM is that it provides a way in which China can be viewed internationally as being proactive on the climate issue. Now the world leader in terms of CDM-induced greenhouse gas reduction credits in the CDM pipeline, China has learned how to use the CDM to its advantage.

Concerns about foreign involvement in Chinese efforts have not waned. These rules governing the CDM in China are viewed as "carefully crafted … to heavily favor Chinese interests and control, and to ensure Chinese 'resources' are protected" and have become a cause for complaint by many potential foreign investors, particularly the stipulation that only majority-owned Chinese enterprises may serve as project owners.32

Despite these restrictions and complaints, China has emerged as the leading CDM host country, with about 1.2 billion tons of CO2-equivalent credits scheduled to be issued by the end of the Kyoto Protocol's first commitment period in 2012.33 This means that 52 percent of total emissions reductions under the CDM are taking place in China. At a price of $10 per ton, sales of the 1.2 billion tons of reductions currently in the pipeline would represent a total investment in China of about $12 billion.

 

Options to Advance International Negotiations

A central challenge in addressing global climate change will be arriving at multilateral arrangements that include adequate effort by all major economies to moderate and reduce their greenhouse gas emissions. The multilateral climate effort to date has relied on a particular form of emissions commitment: economy-wide emissions limits. Such limits for developed countries were voluntary within the UNFCCC and later binding under the Kyoto Protocol. Developing countries have historically resisted economy-wide emissions limits, however, and will likely continue to do so in any discussion or negotiation of the post-2012 climate effort. Consequently, there is a need to explore alternative approaches to engage large developing countries, such as China, in real mitigation activities in the forthcoming climate change negotiations.

For China to increase its international commitment to climate change action, its overarching concerns will need to be addressed. These include, because of its reliance on coal, the large incremental cost it faces in moving toward higher-efficiency coal technology and in capturing the emissions from these plants; concerns about energy data quality and transparency that are at the root of its hesitancy to commit to quantifiable targets; and current limitations [End Page 165] on the use of foreign investment and foreign technology to achieve its domestic development goals. Recognizing the unique challenges that China faces in addressing climate change can inform what it will be willing and able to undertake within a multilateral climate agreement. In the Chinese context, it may make sense to examine intensity targets, sectoral agreements, and policy commitments and crediting. Targeted international assistance will also be an important component of any international climate agreement.

 

Intensity versus Absolute Targets

Developing countries, including China, view absolute greenhouse gas targets, such as those under the Kyoto Protocol, as a cap on their economic growth. Intensity-based targets, whether measured as energy intensity or greenhouse gas intensity, are based on a ratio of the amount of energy or greenhouse gas emissions per unit of economic output. Because such a target is inherently indexed to the economic growth of a country, meeting this target does not directly require a decrease in economic production to meet it. This type of target is therefore more palatable to developing countries that oppose caps on their economic growth on equity principles. Meeting this target requires countries to understand the core drivers of their emissions within their economy, while incentivizing more efficient energy consumption and eventually decoupling energy use from economic growth.

The main limitation of an intensity-based target is that, although it can lower an emissions growth trajectory below the projected business-as-usual level, it is unlikely to result in an absolute decrease in emissions. Given a constant structural mix, energy intensity declines naturally with economic growth even while absolute energy consumption continues to increase.34 While the intensity of China's carbon emissions (ratio of energy-related CO2 emissions to GDP) declined 67 percent between 1980 and 2000, its absolute emissions increased by 126 percent over this period.35 Yet, if China's emissions intensity had remained fixed where it was in 1980, its emissions would be more than double what they are today.

 

Sectoral versus National Focus

Uncertainty is associated with all estimates of emissions reduction, particularly in many developing countries in which the accuracy of national greenhouse gas emissions inventories are often constrained by limited capacity for data collection and estimation. The uncertainty associated with national inventories makes it very difficult to implement greenhouse gas reduction commitments that rely on baseline inventories and aggregated annual improvements [End Page 166] at the national level. More exact estimates can be achieved, however, when estimating emissions from a smaller number of sources, such as within a sector where the sources of emissions are known and well documented. Consequently, understanding emissions sources within a particular sector could form the basis for targeted mitigation efforts within that sector, even in the absence of a broader understanding of emissions sources and trends.

Sectoral agreements have been proposed as a way of structuring multilateral commitments to adopt targets or standards around one or more sectors, possibly including developed and developing countries, potentially in concert with other commitment types, such as economy-wide targets. International sectoral agreements could provide a means of coordinating key industrial producers to develop climate change goals and a forum for sharing best practices and technological innovations. Reduction targets or efficiency standards agreed among countries at the sectoral level could target mitigation efforts toward key greenhouse gas–generating activities and help to prevent competitive imbalances, particularly in energy-intensive industries that trade globally.36 China plays an important role in many such industries. Globally, China now accounts for 48 percent of cement production, 49 percent of flat glass production, 35 percent of steel production, and 28 percent of aluminum production.37

A major challenge to implementing sectoral agreements is integrating developing countries, which typically use less efficient technology and thus will bear a higher cost in meeting any sector-wide standards. In addition, if some sectors are targeted for mitigation while others are left unregulated, there may be an incentive for emissions to "leak" from one sector to another to the extent cross-sectoral substitutions are feasible.

 

Policy Commitments versus Project Activities

Currently, 820 discrete CDM projects have been proposed in China that, if approved and implemented, could amount to 1.2 billion tons of CO2-equivalent emissions reductions by 2012.38 Yet, China's single national target to achieve a 20 percent reduction in energy intensity by 2010 could reduce its emissions by about 1.5 billion tons. Consequently, this policy and others in China, such as those articulated in China's national climate change plan, could form the basis of policy-based commitments made under the UNFCCC. Such commitments could achieve more emissions reductions in the developing world than project-based [End Page 167] crediting mechanisms, such as the CDM, and potentially reduce the transactions costs associated with project-by-project verification. Policy commitments as part of a multilateral climate agreement could allow developing countries to identify ways that emissions mitigation fits or advances national priorities, such as economic growth, energy security, and public health, and would help to achieve broad participation in an international effort to reduce greenhouse gas emissions.39 The stringency of policy-based commitments could evolve over time, perhaps beginning as voluntary actions reported internationally in fulfillment of existing UNFCCC commitments and then be taken as new commitments negotiated as part of a broader post-2012 agreement.40

The World Bank, in developing its Investment Framework for Clean Energy and Development, concluded that an expanded carbon market backed by a global climate policy framework would be a principal source of finance for substantially decarbonizing electricity generation in the developing world.41 In a post-2012 framework that includes new emissions targets for developed countries, the strongest incentive for developing countries to take on policy commitments may then be the prospect of generating marketable emissions credits. Crediting as now structured under the CDM is on a project-by-project basis. If a future framework were to incorporate policy commitments, allowing crediting on the basis of those commitments could channel investment to industry- or sector-wide strategies that could deliver reductions on a far broader scale.42 Yet, policy-based crediting would face the same fundamental issues that arise in project-based crediting: how to establish that actions to be credited are additional, not business as usual, and how to verify actual emissions reductions.43

 

International Assistance

An important part of any multilateral climate deal will likely include a commitment from developed countries to increase developing country access to advanced technologies and to provide incentives and financial assistance for their mitigation and adaptation activities. China's own climate change plan has clearly identified its priority areas for international collaboration to include cooperation on advanced coal technologies, energy-efficient building technologies, clean vehicle technology, and advanced industrial technologies. China has placed a particularly heavy emphasis on technology transfer in international climate negotiations, most recently proposing the establishment [End Page 168] of a Technology Development and Transfer Board to oversee and implement technology transfer–related activities, as well as a Multilateral Technology Acquisition Fund to support the "development, deployment, diffusion and transfer of technologies to developing countries, through, inter alia, the buying out of intellectual property rights."44

Increased attention to developing these technologies and increased experience deploying them is important not only for China but also for the rest of the world. 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 capturing and storing the emissions from coal power plants. Increased bilateral assistance in this area can complement and even facilitate multilateral climate negotiations.

 

Engaging China on Climate

China will face increasing international pressure in the coming months to devote more attention to climate change, both due to its emergence as the largest global emitter and as international attention to climate change is elevated by government leaders and heads of state in high-profile forums around the world. A series of such discussions on climate change have already been held in 2007, including the June Group of Eight summit in Heiligendamm; the August UN intersessional in Vienna; the September Gleneagles Dialogue in Berlin; the September Asia-Pacific Economic Cooperation summit in Sydney; and the UN secretary-general's high-level climate summit in New York, preceding the General Assembly in late September, followed later that week by the major economies summit hosted by the U.S. government. This year's meetings culminate in December when ministers and delegates will be joined by stakeholders from around the world for the thirteenth Conference of the Parties to the UNFCCC (COP 13) and the third Meeting of the Parties to the Kyoto Protocol in Bali, Indonesia.

The primary objective of most countries attending the Bali meeting, as has been discussed at these preceding sessions, is to establish a road map for the forthcoming negotiations of the agreement that will follow the Kyoto Protocol, whose current commitment period ends in 2012. Several governments have articulated that, to maintain progress toward meeting needed global emissions reductions and to maintain a steady global carbon market, a decision on a future framework will need to be reached by COP 15, set for 2009 in Copenhagen.45 At the moment, such an agreement hinges on increased engagement from the United States; increased action from the major developing economies, particularly China; and a new climate framework that allows for [End Page 169] different forms of commitments to be taken by different countries. Although it is impossible to predict what a dynamic country such as China will eventually deem to be an acceptable form of international climate action, many of the options discussed above are very likely being explored and evaluated by all of the major economies.

China must play a central role in any global solution to address climate change. Yet, it is also home to 1.3 billion inhabitants that desire the modern energy services and consumption habits enjoyed by much of the developed world. Recent institutional changes and renewed attention to implementing aggressive energy efficiency policies demonstrate the Chinese government's increasing awareness of the problems posed by climate change and its interest in altering China's current energy development trajectory.

Many actors throughout China, in and out of government, have a strong desire to achieve international standards, be they for free trade or intellectual property rights protection, which lend legitimacy to often-strained central government implementation of mandates at the local level. In addition, China's economic development is increasingly dependent on the global integration of its energy system, such that it cannot allow itself to become technologically or institutionally isolated on the climate issue.46 Yet, the government will not likely be able to significantly alter its current energy development trajectory without meaningful international engagement during the next one to two decades, a period during which China's energy infrastructure investment decisions will have direct implications for the future stability of the global climate system.

There is new urgency, as well as opportunity, for each of the major economies to jointly examine and address linkages among their own economic development, their energy security, and their role in global climate change. Effective engagement with Beijing will only be possible if the major emitting developed countries lead by example, and serious U.S. engagement will likely be a precondition to China's engagement in any international climate effort. Meanwhile, understanding the challenges that China faces in reducing its own greenhouse gas emissions in the years ahead, particularly in decarbonizing its energy sector, is the first step to engaging China on climate cooperation.

Notes

1. See Joanna I. Lewis, Michael B. Cummings, and Jeffrey Logan, "Understanding the Climate Challenge in China," in Climate Change Science and Policy, eds. Steven H. Schneider, Armin Rosencranz, and Michael Mastrandrea (Washington, D.C.: Island Press, forthcoming); Joanna Lewis, "China's Climate Change Strategy," China Brief 7, no. 13 (June 2007): 9–13; Joanna Lewis, "Climate Change Mitigation Measures in the People's Republic of China," International Brief, no. 1 (April 2007). [End Page 170]

2. "World Bank Says China Is Poverty Reduction Model," Xinhua, February 25, 2003, http://www.china.org.cn/english/2003/Feb/56694.htm.

3. Netherlands Environmental Assessment Agency (MNP), "China Now No. 1 in CO2 Emissions; USA in Second Position," June 2007, http://www.mnp.nl/en/dossiers/Climatechange/moreinfo/Chinanowno1inCO2emissionsUSAinsecondposition.html.

4. Ibid.

5. Trevor Houser, "China's Energy Consumption and Opportunities for U.S.-China Cooperation to Address the Effects of China's Energy Use," statement before the U.S.-China Economic and Security Review Commission, June 14, 2007, http://www.uscc.gov/hearings/2007hearings/written_testimonies/07_06_14_15wrts/07_06_14_houser_statement.php.

6. Energy Information Administration (EIA), U.S. Department of Energy, "International Energy Outlook 2007," May 2007, chap. 5, http://www.eia.doe.gov/oiaf/ieo/index.html.

7. China Energy Statistical Yearbook 2006 (Beijing: China Statistics Press, 2007); REN21, "Renewables Global Status Report 2006 Update," 2006, http://ren21.org/pdf/RE_GSR_2006_Update.pdf.

8. Guri Bang, Gorild Heggelund, and Jonas Vevatne, "Shifting Strategies in the Global Climate Negotiations," CICERO Report, no. 2005:08 (November 2005), http://www.cicero.uio.no/media/3079.pdf.

9. "Chinese Foreign Ministry Sets Up Climate Change Int'l Working Group," Xinhua, September 5, 2007, http://news.xinhuanet.com/english/2007-09/05/content_6667432.htm.

10. "CAS Outlines Strategic Plan for China's Energy Development Over Next 40 Years," Xinhua, September 24, 2007, http://www.bjreview.com.cn/science/txt/2007-09/25/content_77642.htm.

11. Chinese Ministry of Science and Technology, "National Assessment Report on Climate Change Released," December 31, 2006, http://www.most.gov.cn/eng/pressroom/200612/t20061231_39425.htm.

12. Chinese National Development and Reform Commission, "China's National Climate Change Programme," June 2007, http://en.ndrc.gov.cn/newsrelease/P020070604561191006823.pdf; Chris Buckley, "Exclusive: China Preparing National Plan for Climate Change," Reuters, February 6, 2007, http://www.planetark.com/dailynewsstory.cfm/newsid/40197/story.htm; Richard McGregor, "China Delays Climate Change Plan Indefinitely," Financial Times, April 23, 2007, http://www.ft.com/cms/s/be763e8c-f1d6-11db-b5b6-000b5df10621.html.

13. Chinese Development Research Center of the State Council, "Overview of the National Energy Strategy," May 2005, p. 11, http://www.efchina.org/csepupfiles/report/2006102695218188.8060385177036.pdf/0_Main_Report.pdf.

14. "Nation Unlikely to Meet Energy Efficiency Goal," China Daily, December 18, 2006, http://www.chinadaily.com.cn/bizchina/2006-12/18/content_761668.htm; "Zhongguo jinnian mei you tichu nian du jieneng mubiao" [China fails to meet this year's energy saving targets], People.com.cn, March 5, 2007, http://finance.people.com.cn/GB/1037/5440859.html.

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15. Lynn Price and Xuejun Wang, "Constraining Energy Consumption of China's Largest Industrial Enterprises Through Top-1000 Energy-Consuming Enterprise Program," Lawrence Berkeley National Laboratory, June 2007, http://ies.lbl.gov/iespubs/LBNL-62874.pdf.

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16. "China to Require Swap of Old Coal Plants for New," Reuters, February 1, 2007, http://www.planetark.com/dailynewsstory.cfm/newsid/40107/newsDate/1-Feb-2007/story.htm; "China Orders Small Cement Plants to Be Closed." Reuters, March 2, 2007, [End Page 171] http://www.planetark.com/dailynewsstory.cfm/newsid/40623/story.htm; Benjamin Kang Lim and Lucy Hornby, "China to Shut Old Steel, Power Plants in 2007 – Wen," Reuters, March 5, 2007, http://www.planetark.com/dailynewsstory.cfm/newsid/40654/newsDate/5-Mar-2007/story.htm.

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17. An Feng and Amanda Sauer, "Comparison of Passenger Vehicle Fuel Economy and GHG Emission Standards Around the World," Pew Center on Global Climate Change, December 2004.

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18. "International Solar Energy Trade Mission to China Will Meet With Market Leaders of Chinese PV Industry," Solarplaza, March 7, 2006, http://www.solarplaza.com/news/solarenergy/2006/08030601.htm.

{C}{C}

19. Yu Wang, "Tariffs to Reduce Energy Consumption," China Daily, October 31, 2006, http://www.chinadaily.com.cn/china/2006-10/31/content_720485.htm.

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20. Sebastian Oberthur and Hermann E. Ott, The Kyoto Protocol: International Climate Policy for the 21st Century (Berlin: Springer, 1999), p. 24.

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21. "China to Watch Others on Climate Change Action," Reuters, June 15, 2005, http://www.enn.com/today.html?Id=7959.

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22. P. Parameswaran, "Rich Nations Must Honor Climate Change Pledge: Developing Countries," Agence France-Presse, September 25, 2007, http://sg.news.yahoo.com/afp/20070925/tts-un-climate-warming-developing-c1b2fc3.html.

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23. See Coalition of Rainforest Nations, http://www.rainforestcoalition.org/eng/; "Reducing Emissions From Deforestation in Developing Countries: Approaches to Stimulate Action," January 30, 2007, http://unfccc.int/files/methods_and_science/lulucf/application/pdf/bolivia.pdf (submission of views of 17 parties to the 11th Conference of the Parties to the United Nations Framework Convention on Climate Change [UNFCCC]); Department of Environment and Special Affairs, Brazilian Ministry of External Relations, "Brazilian Perspective on Reducing Emissions From Deforestation," February 26, 2007, http://unfccc.int/files/methods_and_science/lulucf/application/pdf/brazil.pdf.

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24. UNFCCC, art. 3, principle 1, http://unfccc.int/essential_background/convention/background/items/1349.php; see "Kyoto Protocol to the United Nations Framework Convention on Climate Change," art. 10, http://unfccc.int/essential_background/kyoto_protocol/items/1678.php.

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25. Chinese Office of the National Coordination Committee on Climate Change, "Measures for Operation and Management of Clean Development Mechanism Projects in China," November 21, 2005, http://cdm.ccchina.gov.cn/english/NewsInfo.asp?NewsId=905.

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26. U.S. General Accounting Office, "Selected Nations' Reports on Greenhouse Gas Emissions Varied in Their Adherence to Standards," GAO-04-98, December 2003, http://www.gao.gov/new.items/d0498.pdf; David G. Streets et al., "Recent Reductions in China's Greenhouse Gas Emissions," Science, November 30, 2001, pp. 1835–1837; Subodh Sharma, Sumana Bhattacharya, and Amit Garg, "Greenhouse Gas Emissions From India: A Perspective," Current Science, February 10, 2006, http://www.ias.ac.in/currsci/feb102006/326.pdf.

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27. Bang, Heggelund, and Vevatne, "Shifting Strategies in the Global Climate Negotiations."

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28. Chinese Ministry of Commerce, "Measures Governing the Foreign Acquisition of Domestic Enterprises," August 8, 2006, http://www.tdctrade.com/report/reg/reg_060902.htm.

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29. U.S.-China Business Council, "Foreign Investment in China," February 2007, http://www.uschina.org/info/forecast/2007/foreign-investment.html. [End Page 172]

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30. Joanna I. Lewis and Ryan H. Wiser, "Fostering a Renewable Energy Technology Industry: An International Comparison of Wind Industry Policy Support Mechanisms," Energy Policy 35, no. 3 (March 2007): 1844–1857.

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31. GE Energy, "GE Harbin Ship First 9FA Gas Turbine Assembled in China," July 30, 2004, http://www.gepower.com/about/press/en/2004_press/073004.htm (press release).

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32. Tauna Szymanski, "China's Take on Climate Change," Sustainable Development, Ecosystems and Climate Change Committee Newsletter of the American Bar Association 9, no. 1 (May 2006): 2.

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33. "UNEP Risoe CDM/JI Pipeline Analysis and Database," September 2007, http://cdmpipeline.org/index.htm.

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34. See Daniel H. Rosen and Trevor Houser, "China Energy: A Guide for the Perplexed," May 2007, http://www.petersoninstitute.org/publications/papers/rosen0507.pdf.

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35. EIA, "International Energy Annual 2004," http://www.eia.doe.gov/iea/; G. Marland, T. A. Boden, and R. J. Andres, "Global, Regional, and National Fossil Fuel CO2 Emissions," Carbon Dioxide Information Analysis Center, 2007, http://cdiac.ornl.gov/trends/emis/meth_reg.htm.

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36. Daniel Bodansky, "International Sectoral Agreements in a Post-2012 Climate Framework" (working paper, Pew Center on Global Climate Change, May 2007).

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37. Rosen and Houser, "China Energy."

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38. IEA, "International Energy Outlook 2006," June 2006, http://www.eia.doe.gov/oiaf/ieo/pdf/0484(2006).pdf; Office of Atmospheric Programs, U.S. Environmental Protection Agency, "Global Anthropogenic Non-CO2 Greenhouse Gas Emissions: 1990–2020," June 2006, http://www.epa.gov/nonco2/econ-inv/downloads/GlobalAnthroEmissionsReport.pdf.

{C}{C}

39. Harald Winkler et al., "Sustainable Development Policies and Measures: Starting From Development to Tackle Climate Change," in Building on the Kyoto Protocol: Options for Protecting the Climate, ed. Kevin A. Baumert (Washington, D.C.: World Resources Institute, 2002), pp. 61–87, http://pdf.wri.org/opc_chapter3.pdf.

{C}{C}40. Joanna Lewis and Elliot Diringer, "Policy-Based Commitments in a Post-2012 Climate Framework" (working paper, May 2007).

{C}{C}41. World Bank, "An Investment Framework for Clean Energy and Development: A Progress Report," September 1, 2006, http://siteresources.worldbank.org/DEVCOMMINT/Documentation/21046509/DC2006-0012(E)-CleanEnergy.pdf.

{C}{C}42. Joseluis Samaniego and Christiana Figueres, "Evolving to a Sector Based Clean Development Mechanism," in Building on the Kyoto Protocol: Options for Protecting the Climate, eds. Kevin A. Baumert et al. (Washington, D.C.: World Resources Institute, 2002), http://pdf.wri.org/opc_chapter4.pdf; Thomas C. Heller and P. R. Shukla, "Development and Climate: Engaging Developing Countries," in Beyond Kyoto, Advancing the International Effort Against Climate Change, eds. J. E. Aldy et al. (Arlington, Va.: Pew Center on Global Climate Change, 2003).

{C}{C}43. See Clean Development Mechanism Executive Board, UNFCCC, "Tool for the Demonstration and Assessment of Additionality," EB 29, February 2007, http://cdm.unfccc.int/methodologies/PAmethodologies/AdditionalityTools/Additionality_tool.pdf. [End Page 173] {C}{C}

44. Subsidiary Body for Scientific and Technological Advice, UNFCCC, "Development and Transfer of Technologies," FCCC/SBSTA/2006/L.27/Add.1, November 14, 2006, http://unfccc.int/resource/docs/2006/sbsta/eng/l27a01.pdf.

{C}{C}45. James Kanter, "Before Summit, a Yawning Gap on Climate Change," International Herald Tribune, September 24, 2007, http://www.iht.com/articles/2007/09/24/business/climateside.php.

{C}{C}46. Edward S. Steinfeld, testimony before the House Committee on Energy and Commerce hearing on "Climate Change—International Issues, Engaging Developing Countries," March 27, 2007, http://energycommerce.house.gov/cmte_mtgs/110-eaq-hrg.032707.Steinfeld-testimony.pdf.

by Joanna Lewis, Senior International Fellow— Appeared in The Washington Quarterly, Winter 2007-08
Joanna Lewis
0

China's Climate Change Strategy

June 27, 2007

By Joanna Lewis, Senior International Fellow

This article originally appeared in Chief Brief

 

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.

 

Notes

1. National Development and Reform Commission, People’s Republic of China, June 2007. “China’s National Climate Change Programme.” Available online at: www.c2es.org/docUploads/ChinaNationalClimateChangeProgramme%20June%2007.pdf.

2. Netherlands Environmental Assessment Agency, June 21 2007. “Global fossil CO2 emissions for 2006.” Available online at: www.mnp.nl/en/dossiers/Climatechange/moreinfo/Chinanowno1inCO2emissionsUSAinsecondposition.html.

3. U.S. EIA, 2006 International Energy Outlook. Available online at: www.eia.doe.gov/oiaf/ieo/coal.html.

4. Houser, Trevor. Testimony before the U.S.-China Economic and Security Review Commission. “China’s Energy Consumption and Opportunities for U.S.-China Cooperation to Address the Effects of China’s Energy Use.” June 14, 2007. Available online at: www.uscc.gov/hearings/2007hearings/written_testimonies/07_06_14_15wrts/07_06_14_houser_statement.pdf

5. UNEP Risoe, CDM Pipeline. Updated May 2007, Available online at: cdmpipeline.org/publications/CDMpipeline.xls.

6. State Council Development Research Center, 2003. China’s National Energy Strategy and Policy 2000-2020. Available online at: www.efchina.org/documents/Draft_Natl_E_Plan0311.pdf

7. Lin, Jiang; Nan Zhou, Mark Levine and David Fridley. “Achieving China’s Target for Energy Intensity Reduction in 2010: An exploration of recent trends and possible future scenarios.” Report #61800, December 2006, Lawrence Berkeley National Laboratory.

8. Intensity declined 1.23 percent in 2006, short of the goal for that year of 4 percent. “Nation unlikely to meet energy efficiency goal” (China Daily, December 18, 2006; People’s Daily, March 5).

9. China National Development and Reform Commission, 2006. Available online at: hzs.ndrc.gov.cn/newzwxx/t20060414_66220.htm.

10. Feng, A. & Sauer, A., 2004. Comparison of Passenger Vehicle Fuel Economy and GHG Emission Standards around the World. Prepared for the Pew Center on Global Climate Change. Available online at: www.c2es.org/global-warming-in-depth/all_reports/fuel_economy/index.cfm.

11. Zhongguo Qihou Bianhua Guojia Pinggu Baogao Bianxiezu, 2006. “Zhongguo Qihou Bianhua Guojia Pinggu Baogao.”

12. The press widely reported that China would release its National Climate Change Plan on April 24, 2007, however the release of this plan was delayed, likely due to political concerns surrounding wide media reports that China was about to become the world’s largest greenhouse gas emitter. (Financial Times, April 23).

13. Lewis, Joanna and Elliot Diringer. “Policy-Based Commitments in a Post-2012 Framework.” Pew Center on Global Climate Change, May 2007. Available online at www.c2es.org/docUploads/Policy-Based%20Commitments%20in%20a%20Post-2012%20Climate%20Framework.pdf.

14. National Development and Reform Commission, People’s Republic of China, June 2007. “China’s National Climate Change Programme.” Available online at: www.c2es.org/docUploads/ChinaNationalClimateChangeProgramme%20June%2007.pdf. See also Lewis, Joanna I., Michael B. Cummings and Jeffrey Logan. “Understanding the Climate Challenge in China,” in Steven H. Schneider, Armin Rosencranz, and Michael Mastrandrea, eds., Climate Change Science and Policy (forthcoming in 2007).

by Joanna Lewis, Senior International Fellow--Appeared in China Brief published by The Jamestown Foundation, June 27, 2007
Joanna Lewis
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Policy-Based Commitments in a Post-2012 Climate Framework

Policy-Based Commitments in a Post-2012 Climate Framework

Prepared for the Pew Center on Global Climate Change
May 2007

By:
Joanna Lewis and Elliot Diringer, Pew Center on Global Climate Change

This paper elaborates on the concept of policy-based commitments as one component of a post-2012 climate framework. As conceived here, the policy-based approach would be an avenue for developing countries in particular to put forward national policies of their choosing as contributions to the global climate effort. These policies could vary widely in scope and form, from economy-wide energy efficiency goals to sector-specific standards or reforms.

Press Release

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Elliot Diringer
Joanna Lewis
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