By Deborah Seligsohn and Angel Hsu
2011 will be a big year for climate and energy policy development in China, so we thought we’d highlight some of the key China energy and climate-related stories to watch out for during the course of the year. We’ve known to expect major developments now for over a year, since China’s commitments made at the Copenhagen climate talks in late 2009 were scheduled to be implemented in the 2011 12th Five Year Plan. Below we outline some key issues and dates to watch over the course of the coming year:
- Clean energy high on the agenda for President Hu’s visit to the U.S in January. President Obama will host a visit by Chinese President Hu Jintao on January 19 in Washington, D.C. This bilateral meeting comes at an important time in U.S.-China relations, which were strained for most of 2010 but ended on a few sweet notes – improved military relations, a positive outcome at the Cancun climate talks, and a number of trade issues resolved during the December 2010 Joint Commission on Commerce and Trade meeting (JCCT). While the difficult political-military and economic issues will clearly be a major topic of the Presidents’ discussion, expect many of the images to highlight new energy collaboration. The focus will include the new Clean Energy Research Centers (CERC) agreed to during President Obama’s November 2009 visit to Beijing, which are now moving forward, as well as joint business ventures.
- Energy and environment targets to increase in ambition in the Twelfth Five-Year Plan to be released in March. Expect carbon to appear as a target, as well as some other key pollutants such as nitrogen and phosphorus, for the first time in this next plan. Covering the years 2011 through the end of 2015, the Twelfth Five-Year Plan will establish the overall direction for all aspects of government and economic planning in China. China is expected to implement its 40-45 percent carbon intensity reduction target first announced in Copenhagen and recently formalized in the Cancun Agreements.In addition to adding carbon intensity, the Plan will most likely continue to use energy intensity (energy use per unit GDP) as a metric. While the target was 20 percent in the 11th Five Year Plan, this time it is widely expected to be somewhat lower. Many of the low-hanging fruit — the easiest policies to implement — have already been taken. The National Development and Reform Commission (NDRC) has said the new target will be between 15 and 20 percent, and one energy official was reported in the press as saying it would be 17.3 percent. As best we can tell the actual number is still being discussed and has not yet been finalized. Expect most other aspects of energy policy to be fleshed out in provincial and sectoral plans developed in the course of 2011, rather than in the overall national plan, which only gives fairly broad-brush guidance.The other major environment component of the Five Year Plan will be targets for key pollutants. In the 11th Five Year Plan, targets were set for SO2 (an air pollutant) and Chemical Oxygen Demand (COD, a measure of water pollution) — both to reduce by 10 percent – and both targets were met even as the total size of the economy almost doubled. These targets by themselves could not solve China’s pollution problem, but focusing on two measures was a smart strategy by the Ministry of Environmental Protection (MEP). The Ministry has been able to establish a record of success – both targets have been surpassed, and there is now broad consensus to add additional targets. Expect new targets for air — at least for NOx (a critical pollutant in its own right as well as a contributor to terrestrial ozone, or smog), and possibly for some others. Expect water pollution to be an increasing focus under the 12th Five Year Plan. At least some organic water pollutants are likely to be named key targets.
- China will lead the world in high-speed rail, with the 4-hour Beijing-Shanghai link launching service in June, 2011. China is already well on the way to building the world’s largest high-speed rail network, with railways such as Beijing-Tianjin and Wuhan-Guangzhou in operation. It currently has over 7,000 km of high-speed rail, and expects to complete 13,000 km by 2012. 2011 looks to be a banner year with the much-anticipated $33.3 billion new line between Beijing and Shanghai opening date of June 2011 just announced. Rail travel time will be reduced from 12 hours to 4 and making rail genuinely competitive with air and far faster than roads. In addition to the long distance lines, in August 2010, the NDRC approved the construction of more than 2,000 km of regional rail transit networks to link cities in densely populated areas like the Pearl River Delta (the area near Hong Kong and Guanghzou).
- Much climate policy in 2011 will be about enacting climate commitments at home, but there is potential for more international debate as the November/December Climate Talks in Durban, South Africa approach. Expect China to focus first this year on domestic implementation of its carbon emissions pledges made in Copenhagen and reaffirmed in Cancun as it implements the 12th FYP. Cancun resolved some major issues on monitoring and reporting and financial and technology mechanisms that should lead to productive developments both domestically and internationally this year. The more amicable atmosphere in Cancun could carry forward to help make progress in still unresolved areas, including defining the ultimate legal form of the new climate agreements and how to handle the expiration of the Kyoto Protocol’s first commitment period. But these issues are of great concern to China and we can expect the rhetoric to heat up if progress appears slow as the South Africa meetings approach.
Over the course of the year, we can also expect:
- China will continue to promote clean energy industries. Expect China to continue to invest heavily in a number of non-carbon or reduced carbon sectors, including renewable energy, nuclear power, electric vehicles and energy efficiency technologies. It is now touted as themost attractive renewables market in the world. Expect the Chinese government to continue to promote the industry – its announced “pillar Industries” for the next five yearsinclude energy conservation, environmental protection, new energy technologies and new-energy vehicles – and international businesses to continue to be keen to participate, despite some ongoing trade disputes. We can expect to see another doubling of wind energy (see Steve Sawyer’s presentation attached to the ChinaFAQs blog on wind power for the growth of the Chinese wind sector). 2011 should also see the start of the first solar thermal power plant projects in China. By year’s end also expect to see one of the world’s most advanced power plants, China’s first commercial-scale Integrated Gasification Combined Cycle (IGCC) power plant GreenGen, come on line, and then look to its second phase, which will start to explore carbon capture and storage. 2011 should also see new developments in end-use energy efficiency, as China’s first Demand-side management regulations come into effect.
- Chinese cities will institute new policies to address traffic challenges and increase urban transport efficiency. Expect to see new and more diverse efforts to address the extreme traffic congestion gridlocking many city roadways. China already has urban mass transit system improvements, including metro and bus rapid transit systems underway in 31 cities, but 2011 looks to be the year when a more policy-based set of measures gets introduced, perhaps in multiple cities. Creative approaches at traffic control began with the 2008 Beijing Olympics and its odd/even driving days, but few administrative or market-based measures were tried in the following two years. Beijing city has already floated a broad set of proposals for controlling vehicle licenses, adding to the costs of driving in town, improving access to mass transit and restoring the city’s once-vaunted bikeability, and it is just one of many cities looking at using policy in addition to new infrastructure to improve urban transport.
- China will continue to face resource dilemmas where market motives and environmental concerns conflict. China’s export-oriented growth model over the last 20 years has been based on intensive export of both raw and manufactured goods, and there is a growing understanding within China of the toll on the environment. Increasingly the Chinese have wondered whether exporting raw materials is worth the environmental costs. The US and other major trading partners filed WTO cases in 2009 regarding 9 critical minerals and there has been increasing discussion of a similar case being filed on another set of minerals, called rare earths. These cases interweave competitiveness and environmental issues on both sides in complex ways that we are likely to see continue to play out as the results of China’s rapid growth and the interlinking of global supply chains continue to emerge.
- China will experiment with market-based mechanisms to promote energy and climate goals. Don’t expect a national carbon cap and trade system from China in the next year, but do expect China to continue to explore the use of market-based approaches to controlling carbon and other pollutant emissions. There has been growing enthusiasm for experimenting with both the cap and trade approach and a carbon tax in addition to the target-based approaches that have been central to China’s energy and climate policies to date. Knowledgeable policy advisors tell us that some kind of “environmental tax” is likely to emerge at some point during the 12th Five Year Plan period (2011-2015), and we also expect to see new experiments in trading schemes. The specifics are likely to start emerging after the actual Five Year Plan is announced in March, and our best guess is that we’ll see local or sectoral experiments, rather than any full-fledged national program, in the next year.
Overall, expect continuing robustness in China’s energy and climate policies in the next year. And expect that the major efforts will be focused on domestic implementation as China moves to fully implement its previous commitments.