China’s New Energy Paradigm under the 13th Five Year Plan

Something fairly significant happened at this month’s annual meetings of China's top legislative and consultative bodies - the People’s Political Consultative Conference (CPPCC) and National People’s Congress (NPC). The announcements that China will cap annual energy consumption at 5 billion metric tons of coal equivalent by 2020 - a standardised measurement used to add all energy sources together - marked the first time a hard energy-consumption cap has been enshrined into a five-year plan.

In recent years, addressing environmental issues has become of great concern for the Beijing government, with protests increasing as pollution levels in China’s major cities continue to grow. It was important last week that Chinese Premier Li Keqiang reported that China had succeeded in meeting the previous Five-Year Plan’s environmental goals, with the 13th Five-Year Plan (FYP) looking to build on its perceived success, requiring greater reductions with specific goals and “hard” targets.

China is of course also bound internationally by targets. Limiting overall energy consumption is key to China meeting its pledge to stop increases in carbon-dioxide emissions by 2030 or earlier as part of the global climate-change pact signed at the 2015 Paris Climate Conference (COP21) last December. For China this emphasis on hard targets for “Green Development” – one of the five ‘development’ bedrocks of the 13th FYP – can be seen as a continuation on the work that resulted from the US-China Joint Statement on Climate Change in September 2015.

With PM2.5 remaining a major problem in China’s cities and a driving force behind public concern and the need for domestic energy restructuring, placing greater emphasis on reducing carbon levels works for China both internationally as well as at home. With China hoping to play a greater international diplomatic role, energy and climate change is an area which China, already the largest investor in renewable energy, is looking to lead on the world stage.

Under the 13th FYP, companies operating in China will face stricter environmental regulations, e.g. on carbon emissions. This is likely to increase compliance costs and necessitate investments in energy-efficient machineries, technologies and production processes. The Chinese government is hoping the further liberalisation of pricing over more natural resources will encourage widespread energy efficient consumption. A greater shift towards renewable energy as a result of the 13th FYP should also bring about huge business opportunities for those in green industries, including in renewable energy, fuel-efficient automobiles, environmentally friendly materials and recycling.

Last week, the International Energy Agency (IEA), the world’s most prominent energy forecaster, highlighted that emissions from China dropped 1.5% last year. With China trying to rebalance its slowing economy away from heavily polluting industries towards services and the energy-consumption cap imposed in the 13th FYP, overall reduction in Chinese energy consumption appears to be heading in the right direction.

Whilst a report this month by Fergus Green and Nicholas Stern of the London School of Economics highlighted that official projections from China should be taken with a pinch of salt, since the government prefers “to under-promise and over-deliver”, one thing that can’t be denied is that China is getting serious about energy reform and Climate Change. With the US perceivably on board, the big question is whether other major developing nations follow suit?

Peter Folland

Hill & Knowlton Strategies Search