Climate emphasis in China’s 14th Five-Year-Plan unprecedented: analyst

The strong emphasis on the climate in China's 14th Five-Year-Plan (FYP) released in March is unprecedented, underscored by the country having met most of its binding targets and the new policy direction for the energy sector, according to an IHS Markit analyst.

The FYP is a comprehensive plan released by the Chinese government every five years to guide the country's overall economic and social development.

Innovation, the livelihood of its people, safety and security, as well as environmental protection with a specific focus on carbon neutrality and peaking carbon emissions are the four key pillars of the 14th FYP.

However, the importance of GDP growth was downplayed in the plan, Yating Xu, IHS Markit senior economist said during the Beijing Virtual Energy Briefing organized by IHS Markit on 14 April.

While a more detailed energy plan, one of the sectoral 14th FYPs, is expected to be released in a few months' time, the 14th FYP mapped out the overall energy and climate targets that will guide the country in the five years beginning 2021, in addition to setting longer-term targets for 2035.

The policy direction for the energy sector is already reflected in the Chinese government's policies, even without seeing more targets, said Lara Dong, research and analysis director, power at IHS Markit, another speaker at the event.

"It is clear that climate commitment has become the central policy theme in the 14th FYP. The energy-related goals in the FYP so far anchored the updated Nationally Determined Contributions (NDCs) [set in 2013] and carbon emissions peaking targets before 2030. This means that we don't expect China to set much more ambitious policy targets than the 2030 climate goals even though those goals are more modest than the 2060 carbon neutrality goals," she said.

The various targets met as of the end of 2020 demonstrate China is on track in its energy transition pathway, Dong said. This is evident in comparing 13th FYP targets with actual numbers achieved in the primary energy mix. The target set for coal was 58% versus 56.8% achieved; for non-fossil fuels the target was 15%, compared with 15.9% achieved; and for natural gas, 8.4% was achieved versus 8.3%, which was revised from an original target of 10%.

"Primary energy structure is an important indicator of China's energy transition away from fossil fuels," she added.

Targets

Illuminating its climate commitment, the 14th FYP made clear that China's energy-related goals will continue to leverage the updated NDCs, the carbon emissions peaking target by 2030, and carbon neutrality goal by 2060.

Energy intensity and carbon emission intensity reduction targets have been set at 13.5% and 18%, respectively, compared with the 2020 levels.

Support for non-fossil fuel energy development is also evident in the 14th FYP, with a goal of 70 GW of newly installed capacity by 2025, which is a 40% increase from 2020, said Dong. "[This] is a clear acceleration in development," she said.

The target for the primary use of non-fossil fuel energy has been set at 20%, representing a midpoint between the 15% target for 2020 and the 25% target for 2030.

Although specific wind and solar PV targets are not available yet, the latest plan set out a blueprint involving a variety of onshore clean energy technologies plus investment in the transmission grid and nuclear, as well as offshore wind in the coastal region.

Drivers

Accelerated development of renewables and nuclear power in the next five years will be one of the main drivers toward the 2060 net-zero target, supported by controls on energy consumption, Dong said.

However, China also recognized natural gas as a clean fuel in the 14th FYP. Ensuring a secure supply of natural gas will therefore be a key focus as China prioritizes domestic production, supply diversification, pipeline capacity expansion, and connectivity, as well as peak supply options, she added.

The 14th FYP also acknowledges that energy efficiency gains, electrification, and energy mix transformation will contribute to long-term carbon emissions reduction, Dong said.

Controls

Targets and drivers aside, China has long implemented energy consumption caps, beginning with the 12th FYP a decade ago. In the 14th FYP, the Chinese government said a carbon emissions cap will be a supplementary policy tool to the intensity targets, but no official carbon emissions cap has been set so far, according to Dong.

"It is likely that the upcoming energy sector FYP will include such a goal and indicate whether the control of carbon emission will materialize," she added.

Consumption control will also be extended to coal, the most abundant energy resource in China, but, even then, coal will continue to play a significant role in securing energy for China as part of the overall energy mix, according to Dong.

"That explains why the 14th FYP also stresses clean and efficient use of coal instead of a total phase-out," she said.

The FYP also included some binding targets that constitute some form of control, including reducing pollution in heavily polluted areas and cleaning up highly polluted water.

"China's new environmental policy will put pollution control and carbon emission reduction in parallel. This again demonstrates the strengthened climate theme in the 14th FYP," Dong said.

A proposal for a market mechanism has also been included in the 14th FYP, urging the establishment of a carbon trading market. But it remains to be seen whether energy market transactions will automatically lead to a reduction in manufacturing costs, Dong said.

These drivers alone will be insufficient in achieving carbon neutrality by 2060. Different emissions removal technologies such as carbon capture, utilization and storage (CCUS), low-carbon energy sources such as hydrogen, reduction in non-energy emissions, as well as trading options will play critical roles in China's bid to achieve its net-zero emissions target in the long term, Dong said.

Regional variations

Dong also said the pace of policy implementation will vary regionally. President Xi Jinping's September 2020 announcement on carbon emissions peaking by 2030 and carbon neutrality by 2060 has reached the municipal, regional, and provincial levels.

At the municipal level, the Ministry of Ecology and Environment (MEE) published draft national Emissions Trading System (ETS) legislation, the "Interim Regulations for the Management of Carbon Emissions Trading", on 30 March and included carbon emissions peaking action plans as some of the key tasks for 2021.

The legislation, now undergoing public consultation, seeks to link the national ETS more closely to the carbon emissions peaking and carbon neutrality targets. The legislative process could finalized by the end of 2021.

Other ministries including the Ministry of Industry and Information Technology and Ministry of Finance, as well as the central bank, have each issued policies that support carbon emissions peaking and the climate change commitment.

At the regional level, eight provinces, mostly on the coast, announced they would lead the decarbonization effort, with the aim of achieving the carbon emissions peak ahead of the deadline for the nation. Another 20 provinces have indicated a commitment to formulate and implement action plans for the carbon emissions peak throughout the 14th FYP period.

Industries' efforts

Energy-intensive sectors such as those in steelmaking and non-ferrous metals melting have begun drafting plans to achieve a carbon emissions peak by 2025 or earlier.

At the company level, State Power Investment Corporation and state-owned energy company Sinopec have pledged to achieve peak carbon emissions by 2023.

"Based on these signposts, as of today, and the expected development pathway in the next five to 10 years, we believe China will be able to meet the 2013 NDCs and carbon emissions peak before 2030," Dong said.