China is a crucial part of the global climate change project because of its importance as a source of emissions and its economic and strategic weight. It matters also because it is likely to have comparative advantage in mass production of capital goods embodying low-emissions technologies over the coming decades. For example, large-scale production of photovoltaic units in China has lowered the cost of solar power generation all over the world, and similar developments are likely in other technologies.
At the Cancun Climate Change Summit in 2010, the Chinese pledged to reduce the emissions intensity of their economic output by between 40 and 45 per cent from 2005 levels by 2020. This was the largest departure from business as usual in terms of tonnes of emissions avoided by any country there.
China’s 12th Five Year Plan (for 2011–15) embodies far-reaching measures to constrain emissions within these intensity targets. In the first year of the new plan, emissions continued to grow strongly. This was deeply discouraging for the international mitigation effort. But policies to give effect to the new plan began to bite in 2012. Together with economically driven structural change, this changed the emissions trajectory in 2012 to the extent that over-performance against the pledge seems possible and strengthening of the pledges is feasible in the context of increased global effort.
Within the electricity sector, accounting for over 44 per cent of China’s emissions in 2010, demand growth slowed to 5.7 per cent in 2012. Overall demand had more than doubled in the previous decade. The slower growth in demand was in response to energy efficiency and structural policies as well as a moderate easing of output growth. These factors are likely to keep electricity demand growth much lower than in the first decade of the 21st century, and bring within reach the 3.5 per cent annual increase in primary energy consumption necessary to achieve the electricity targets of the 2011–15 Plan.
While 2012 data is not yet finalised, so far there seems to have been almost no growth in thermal power generation. Output of all low-emissions energy sources of electricity grew rapidly: hydro-electric by 19.7 per cent, nuclear by 17.2 per cent, and wind by 35.8 per cent. Solar increased much more rapidly still from a low base.
A number of policies will contribute to maintaining the new momentum in reducing emissions from thermal generation that became apparent in 2012. In particular, there is still some way to go in replacing high-emissions coal generation in small, inefficient generators with ultra-supercritical plants operating at the world’s efficiency frontiers.
China is investing more heavily than any other country in technological development for carbon capture and storage of carbon dioxide waste from fossil fuel combustion. Deregulation of electricity and coal prices in 2013 accompanied by the removal of coal transport subsidies are likely to contribute to easing in electricity demand and to increasing costs of supply from the coal sector. Major investment in high-voltage long-distance transmission and in pumped hydro storage is leading to more complete utilisation of intermittent renewable energy capacity and to expanding options for new investment in renewables. The 12th Five Year Plan greatly increases financial commitments to energy efficiency and for innovation in low-emissions technologies including in the electricity sector.
The electricity supply and demand developments together may have caused zero growth in emissions from combustion of coal in electricity generation in 2012. This is a dramatic break from established trends and takes us way outside the conventional wisdom on development of the Chinese energy market. The current energy market adjustment seems to be another case of underestimation of the Chinese economy’s capacity for rapid transformation in the reform era. Of course, the outcome will depend on the policy that emerges from continuing debates and political contests within China.
Industrial emissions, which are largest in steel production, are experiencing much slower growth as a result of policy-enhanced slowing in the rate of growth of heavy industry, and by innovation to reduce emissions intensity. Forced closure of inefficient plants (32 million tonnes of steel capacity alongside 8,000 GW of coal electricity generation in 2011 alone), higher costs of electricity and other inputs, export taxes and restriction of investment in new capacity have slowed expansion in energy- and emissions-intensive activities. The goal articulated in the 12th Five Year Plan to reduce the energy intensity of steel production by a percentage point per annum is a realistic extrapolation of recent trends.
In transport, the heavy investment over the past decade in inter-city and intra-city rail will ease somewhat the growth of automobile traffic. Within the automotive sector, ambitious official targets for electrification are being strongly supported by a range of policies. The combination of rapid expansion of public transport led by rail, automotive electrification and decarbonisation of the electricity sector are likely to add up to unexpectedly early peaking of emissions from the transport sector.
China’s extensive efforts at home make it well placed to contribute forcefully to the international climate change effort, where it can push for quality change in a variety of ways.
First, it can share views on all aspects of the climate change challenge. These include views on industrial transformation — including China’s experience in upgrading transmission grids to reduce energy losses, to connect energy resources to distant centres of demand, and to integrate intermittent electricity sources more efficiently into major grids. They include, as well, experience with mitigation policies.
Second, it can take the lead in initiating an independent global analysis of what constitutes a ‘fair share’ of the strong global mitigation effort that will be required to meet the two degrees objective.
Third, China can work to strengthen the pledges that the substantial economies have made to reduce emissions, and to ensure that international trade in entitlements remains a legitimate means of meeting emissions reduction pledges. This third area of cooperation is especially important, as the international community faces decisions over the next two years that will determine whether the two degrees objective remains within reach.
Ross Garnaut is Distinguished Professor of Economics at the Australian National University and Vice-Chancellor’s Fellow and Professorial Fellow of Economics at the University of Melbourne.
This is a condensed version of the keynote presentation at ‘The design and development of cost-effective market mechanisms for carbon emissions reductions in China: Economic modelling and international experience’, National Development and Reform Commission/State Information Centre Carbon Market Beijing International Workshop, Beijing, 31 January 2013.
This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘Coming to terms with Asia’.