As China is the world’s most rapidly developing economy, its energy needs are also increasing. At this important juncture, it is imperative that China make swift changes to mitigate climate change, as they are now the world’s largest contributor of greenhouse gas emissions, responsible for 28% of the global total.
To tackle this climate reality, China revised their environmental policies in the 14th Five Year Plan, drafted in October 2020, laying the foundation for climate action over the period from 2021-2025. The latest installment of China’s Five Year Plan expects emissions to peak by 2030, and aims to reach carbon neutrality by 2060.
This iteration of the plan, a combination of environmental, economic, and social policy, aligns with previously enacted policies seeking to reduce national CO2 emissions. After successfully tackling the COVID pandemic and seeing the end of a four-decade streak of economic growth, China now has the opportunity to grow their economy sustainably while increasing renewable energy reliance over the next five years.
One of the most notable policies addressed in the latest plan is China’s cap-and-trade system. This policy creates a market for carbon emissions by forcing companies to cap their emissions and trade for permits to pollute in exchange for revenue. This system is highly criticized around the world due to its enabling of certain levels of emissions, especially in China, where corruption with regard to environmental policy is devastatingly common.
Cap and trade in China started in 2011, as a regional permit trading system. The policy was then reformed in 2018, but was soon deprioritized as the U.S. withdrew from the Paris Agreement under President Trump. Another push to accelerate adoption of cap and trade in China was set for early 2020, but those efforts were stifled by the COVID-19 pandemic. Ten years after the policy’s conception, it is finally coming to fruition.
As of February 1, 2021, the policy of cap and trade has been relaunched for China, covering 30% of China’s total emissions, such as those from cement, steel, aluminum, chemicals, and oil and gas sectors. However, the language of the current cap-and-trade policy is vague, which means that the government probably still thinks the environmental costs of industrial growth are outweighed by the economic benefits.
The market price of carbon emissions in China is astoundingly low compared to the prices introduced by renowned economists Joseph Stiglitz and Nicholas Stern in 2017. They recommended that carbon needed to be priced between $40-$80 per ton by 2020, and between $50-$100 per ton by 2030. In contrast, the starting price of carbon emissions in China is around 41 Yuan per ton, or $6, and will grow to 66 Yuan ($10) by 2025, and 77 Yuan (nearly $12) by 2030. In fairness, the EU, which has seen the most progress in advancing cap-and-trade policy, trades carbon around $39 per ton.
Aside from cap and trade, China’s plan also lays out goals for other areas of the energy sector. According to the IEA, between 2019 and 2040, China will account for almost half of new global renewable capacity. China is also set to have the most solar panels by 2021, outpacing the EU. China’s fleet of wind and solar PV is growing, which helps to foster electricity and gas security. As per the Plan, China intends for half of their on-road vehicles to be electric or fuel-cell powered by 2035, and the other half to be hybrid. China is also set to lead global growth in biofuel production.
Despite these prospects, China’s coal demand and production are very high, as coal is still the number one source of energy in the nation. In fact, one quarter of global coal is burned to produce electricity in China. Growth in the Chinese renewables and gas sectors should not go unnoticed, but China’s coal infrastructure is 10x larger and more developed than the gas fleet. Because of their large contribution to global greenhouse gas emissions, the EU threatened to levy carbon tariffs against China if they did not take action curb their emissions. In response, China put forward this new Five Year Plan.
The 14th Five Year Plan demonstrates that China is aware of its major impact climate change, as well as the steps needed to tackle the challenge. However, this Five Year Plan is not enough. In the 15th Five Year Plan, we should hope to see more clearly outlined policies towards carbon neutrality, because as it is, the current plan’s language on this topic lacks specificity.
Likewise, we hope to see provisions to wean the Chinese economy from coal, as the coal fleet today is expansive and growing, and coal went without mention in the 14th Five Year Plan. The strides China has made towards building and implementing renewable energy infrastructure are important and admirable, but there is undoubtedly much left to do. China’s dependency on coal must be curbed in order to show the world that China is ready to fully engage in the energy transition.