Author：Huixin Liu，Vice Director of Climate Finance Center, International Institute of Green Finance of the Central University of Finance and Economics
Review：Ying Cui， Assistant Director of International Institute of Green Finance of the Central University of Finance and Economics
Translation：Yahan Chen, Communications Intern, MS in Integrated Marketing Communications, Northwestern University
Right before the opening of COP26, the United Nations Environment Programme released the latest “Emissions Gap Report 2021.” It pointed out that the current global emission reduction actions are insufficient, and the current climate commitments reported by countries are still far behind achieving the temperature control target of the Paris Agreement. The insufficient actions may put the world on track for “a global temperature rise of 2.7°C by the end of the century,” thus significantly deviating from the goal of keeping global warming below 1.5°C or 2°C stated by the Paris Agreement. The global climate crisis is becoming more severe, and effectively limiting greenhouse gas emissions requires the joint efforts of all countries urgently.
In recent years, China has manifested increasingly significant climate ambitions in its policymaking. With the approach of COP26, China has successively issued many critical policy documents, laying the foundation for the follow-up work on climate change and the development of climate negotiations. On October 24, the Central Committee of the Communist Party of China and the State Council issued the “Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality in Full and Faithful Implementation of the New Development Philosophy.” This Working Guidance forms the “1” in the carbon dioxide peaking and carbon neutrality “1+N” policy system, which represents the key top-level design that leads the subsequent overall policymaking. On October 26, the State Council issued the “Action Plan for Carbon Dioxide Peaking Before 2030,” which made a comprehensive plan for China’s carbon peaking actions in the next ten years. With the opening of COP26, this article will analyze the “Action Plan for Carbon Dioxide Peaking Before 2030,” investigate the key principles and main actions of China’s carbon peaking action and make recommendations for all parties in China to implement the carbon peaking action.
1. Key principles of the “Action Plan for Carbon Dioxide Peaking Before 2030
To fully understand the core ideas of the “Action Plan for Carbon Dioxide Peaking Before 2030” (hereinafter referred to as the “Plan”), we have combined the overall requirements of the “Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality in Full and Faithful Implementation of the New Development Philosophy” (hereinafter referred to as the “Guidance”) and summarized several keywords in the “Plan”:
“A whole-of-nation approach” + “on a categorized basis”
Responding to climate change is a significant challenge faced by all mankind. On the one hand, it requires funds, technology, talents, and other resources to generate enough support; on the other hand, countries need to coordinate the different circumstances and endowments faced by various regions, fields, and industries to achieve nationwide planning. Based on the Socialist system of China, the “whole-of-nation approach” aims to fully mobilize the enthusiasm of all parties, concentrate on making significant changes, and make every effort to achieve the goal of carbon dioxide peaking before 2030; “on a categorized basis” means to consider the economic foundations, resource endowment, social environment, etc. of all parties and gradually complete the goals and tasks according to their own conditions. In the early stage of the exploration and promotion of carbon peaking and carbon neutrality, some areas of China have seen signs of campaign-style “carbon reduction,” which deviates from the meaning of the policy. This issue gained specific attention in the meeting of the Central Political Bureau of the CPC that took place on July 30. At the meeting, the Bureau put forward the requirement to “adhere to the whole-of-nation approach and correct the campaign-style carbon reduction.” In the newly released “Guidance” and “Plan”, the expressions of “taking a whole-of-nation approach and strengthening the top-level design” appear in the first principle of both documents. Regarding the local actions on carbon peaking, the “Plan” puts forward in its main text the strategy of “formulating local peaking carbon dioxide emissions plans through coordination between central and local authorities.” It reflects that overall planning, consideration, and coordination are key principles in China’s carbon peaking actions.
“Key Breakthroughs”
Because the carbon dioxide peaking action will have a profound impact on China’s economic and social development, the “plan” proposes the “key breakthroughs” to promote the action. The “key breakthroughs” mean to “devote attention to the main problems and the main aspects of these problems and encourage key fields and key industries as well as regions with the favorable conditions to take the lead in reaching peak emissions.” These typical key fields include coal consumption as one of the first to reach the emission peak. China aims to strictly control the growth of coal consumption during the “14th Five-Year Plan” period and gradually reduce consumption during the “15th Five-Year Plan” period. The country strives to reach peaking carbon dioxide emissions in the industry sector first – a primary source of carbon dioxide emissions. The more economically developed areas, such as the Beijing-Tianjin-Hebei region, the Yangtze River Delta, and the Guangdong-Hong Kong-Macao Greater Bay Area, should lead the way in promoting an overall green transformation of economic and social development. China will also launch peaking carbon dioxide emissions trials in pilot cities and industrial parks so that they can lead the practice of carbon dioxide peaking.
“Leveraging the strengths of the government and the market”
“Leveraging the strengths of the government and the market” means to make full use of the joint role of the government and market mechanisms to establish “a new system to mobilize the nation.” It is necessary to implement China’s will and focus on its major strategic needs. At the same time, it is also essential to actively apply the role of the market in resource allocation and give full play to the innovative vitality of various market players. For the current major strategic areas and technical requirements in China’s carbon dioxide peaking action, the “Plan” sets clear policy requirements for the low-carbon transformation in energy, industry, urban and rural construction, and transportation, proposes key innovative technologies in the green and low-carbon field, and will provide guarantees with sound laws, regulations, standards, and economic policies in the future. Concurrently, the “plan” also proposes using the national carbon emissions trading market, energy rights trading market, electricity trading market, and other mechanisms to provide incentives and constraints to market entities and jointly promote the orderly implementation of the carbon dioxide peaking action.
“Guarding against risks”
The last and extremely important principle mentioned in the working guidelines of both the “Guidance” and the “Plan” is risk prevention. The peak carbon dioxide emissions and carbon neutrality actions correspond to fundamental transformations of the energy and industrial structures and economic and social changes. How to ensure a smooth transition during the policy changes without severely affecting national energy security, industrial supply chain security, food security, the life of the public, and economic and financial stability is also the focus of the carbon dioxide peaking campaign of China. For this reason, a major working guide mentioned by the government multiple times is “construction before destruction,” which means to ensure the dynamic and balanced development of energy stocks and increments. For example, the increment of new energy should be established first, and the coal power production capacity should be replaced in an orderly manner to avoid excessive power curtailment due to emission reductions that can affect the stable development of the economy. It is also crucial to prevent overreaction of financial institutions and avoid economic crisis resulting from short-term and large-scale “early repayment” and “cut off loans” of coal power stocks and other financial assets. Therefore, for carbon dioxide peaking, although the control of greenhouse gas emissions is essential, we should also pay attention to the bottom line to ensure national security and economic development and emphasize the importance of guarding against risks.
2. Ten major actions of the “Action Plan for Carbon Dioxide Peaking Before 2030”
The “Action Plan for Carbon Dioxide Peaking Before 2030,” as the master plan for carbon dioxide peaking in China, brings up the “ten major peaking carbon dioxide emissions actions” that include 43 specific work contents. The “Plan” constructs comprehensive, detailed, and quantitative action plans and work objectives for all areas of economic and social development. It has formed critical guidelines to introduce subdivided policies in key areas during the 14th and 15th Five-Year Plan. The main content of the action plan is in the table below, including the “ten major peaking carbon dioxide emissions actions” as well as three support measures: international cooperation, policy support, and implementation.
By analyzing the content of the “ten major peaking carbon dioxide emissions actions,” we can sort out how China arranges the work of carbon dioxide peaking based on their relative importance. In the action plan, energy is the most critical area. Both actions 1 and 2 of the “Plan” focus on the energy field, paying specific attention to the transformation of energy structure and the control of the intensity and total amount of energy consumption. Actions 3, 4, and 5 discuss specific industries. Action 3 looks at the peaking of carbon dioxide in the industry sector, action 4 focuses on the peaking of carbon dioxide in the construction field of urban and rural development, and action 5 is concerned with the peaking of carbon dioxide in the transportation sector. Actions 6, 7, 8, and 9 refer to other key aspects of the carbon dioxide peaking work – the development of a circular economy, innovation of green and low-carbon technology, the enhancement of carbon sinks, and the launch of a national low-carbon initiative – all of which are necessary to support the carbon dioxide peaking goal. Lastly, action 10 is the master plan for the local carbon dioxide peaking actions. It ensures that the regions reach the peak in an orderly manner according to local conditions and guide and arrange the goal setting, strategic layout, and plan design of the local carbon dioxide peaking work.
Since the ten actions in the “Plan” cover all aspects of how China plans to realize carbon dioxide peaking, this article briefly summarizes the binding targets mentioned in the “Plan.” Most of the targets have set quantitative indicators. It plays a significant guiding role in the development of essential areas in the next ten years. The specific content is shown in the table below.
General goal
China has clear carbon dioxide emissions per unit of GDP requirements to accompany the carbon dioxide peaking goal. As early as at the Climate Ambition Summit in December 2020, General Secretary Xi Jinping proposed reducing carbon dioxide emissions per unit of GDP by more than 65% by 2030 compared with 2005. Carbon dioxide emission intensity is an important indicator to measure the achievement of both the carbon dioxide peaking goal and the high-quality economic and social development goal before 2030. To ensure the gradual implementation of reducing carbon dioxide emission intensity, the deployment of various aspects in the “ten major peaking carbon dioxide emissions actions,” such as the proportion of non-fossil energy consumption, energy consumption per unit of GDP, and industrial structure transformation and upgrading, has made it possible to reduce carbon dioxide emission intensity. According to data recently disclosed by the Ministry of Ecology and Environment, as of the end of 2020, the carbon dioxide emissions per unit of GDP in China have reduced by 48.4% compared with 2005, exceeding its commitment of a 40%-45% decrease to the international community. The International Institute of Green Finance (IIGF) of the Central University of Finance and Economics calculated the realization path to the carbon dioxide emission intensity target of China based on existing historical data and future expectations. We found that the carbon dioxide emission intensity will need to reduce by at least 4% per year for the next ten years to ensure that the target is achieved on schedule. Besides, the decline rate during the 14th Five-Year Plan period should be slightly higher than that during the 15th Five-Year Plan period to reach the goal.
Energy field
The clean transformation of the energy structure – the replacement of fossil energy by renewable energy – is one of the focuses of the “Plan.” There are four key aspects. The first is to reduce the use of coal. The second is to develop non-fossil energy, including wind power, photovoltaic, hydro power, and nuclear energy. The third is to control the consumption of oil and gas, promote the substitution of traditional fuel oil with advanced bio-liquid fuels and sustainable aviation fuels, and encourage the consumption of natural gas. The fourth is to build a power system that supports the development of new energy sources.
The total amount of coal consumption in China is still gradually rising. Under the “Plan,” coal consumption is expected to peak during the 14th Five-Year Plan period and gradually decrease during the 15th Five-Year Plan period. This trend will drive the decline of the share of coal in energy consumption in China. According to the relevant description in the “Plan,” under the premise of ensuring energy security, coal reduction and optimization, heating transformation, coal restriction in key coal-using industries, and banning of scattered coal will be the main trends for the future development of coal power.
The development of new energy is a critical chapter in the “Plan.” For wind and solar power, the principle adopted is to develop “across the board;” for hydropower, the principle of development is “according to local conditions;” for nuclear power, “a safe and orderly approach” is necessary. In addition, the “Plan” also mentions the development and utilization of new energy sources such as biomass power generation, geothermal energy, wave, tidal, and ocean thermal energy. These new energy sources will also become important areas of exploration and development in China in the recent decade. According to the latest data from the National Energy Administration, as of the end of the third quarter of 2021, the total installed capacity of wind and solar power totaled 580 gigawatts in China, which still needs to increase to more than double the current level to meet the goal of reaching more than 1200 gigawatts by 2030 as required by the “Plan.” In the next ten years, to accomplish the requirements of the carbon dioxide peaking action plan, the installed capacity of wind and solar power generators needs to reach an annual growth rate of nearly 8.5%. Hydropower needs to add 40 gigawatts of installed capacity during the 14th and 15th Five-Year Plans, respectively, corresponding to a total increase of nearly 20% of the existing installed hydropower capacity.
The “Plan” clearly embodies the idea of climate transition in its energy-related action plan. It requires maintaining oil consumption in a reasonable range, supporting the orderly guidance of the use of natural gas, and continuing to support the large-scale exploitation of unconventional oil and gas resources, including shale gas, coalbed methane, and tight oil and gas. In addition, as alternatives to traditional fuels, bio-liquid fuels and sustainable aviation fuels (SAF) have also received strong support in the “Plan.”
To match the new power system that takes up a gradually increasing proportion of new energy, the “Plan” also puts forward specific suggestions for constructing energy storage systems that receive much attention from society. It clearly states that by 2025, the installed capacity of new types of energy storage will reach 30 gigawatts or more, and by 2030, installed pumped-storage hydropower capacity will reach approximately 120 gigawatts. Corresponding to the recently issued “Guiding Opinions on Accelerating the Promotion of the Development of New Energy Storage” and “Pumped-Storage Hydropower Mid- and Long-term Development Plan (2021-2035),” new energy storage will develop from the initial stage to reach large-scale commercialization in the 14th Five-Year Period. Pumped-storage hydropower will double production and total scale in the next two Five-Year Plans. The energy storage field has a huge potential for future market growth.
Industrial field
Regarding the carbon dioxide peaking action in the industrial sector, in addition to the promotion of energy-saving and carbon dioxide reduction in the steel, non-ferrous metals, building materials, and petrochemical industries, the “Plan” also provides detailed planning for carbon dioxide peaking actions in these key industries. The general idea is to optimize the industrial structure and accelerate the withdrawal of outdated production capacity. Specifically, the steel industry will “rigorously execute production capacity replacement, strictly prohibit additional production capacity, push for the optimization of existing capacity, and retire outdated capacity,” the non-ferrous metal industry will “rigorously execute capacity replacement and strictly control additional capacity,” the building materials industry will “strengthen oversight on production capacity replacement, move faster to eliminate low-efficiency production capacity, and strictly prohibit new cement clinker and flat glass production capacity,” and the petrochemical industry will “optimize the scale and layout of production capacity, step up efforts to retire outdated capacity, and set strict thresholds on projects.” These actions reflect that different sectors have different emphases, but all stress limited access and production capacity control. The capacity utilization rates of relevant industries mentioned in the “Plan” are all below 85% in 2020 and are basically at 70%-80% in the third quarter of 2021. It reflects a mild to moderate overcapacity. Since the industrial sector is one of the main areas that generate carbon dioxide emissions, retiring outdated and excess capacity and realizing the transformation and optimization of industrial capacity will be one of the critical tasks to help China reach the peak of carbon dioxide emissions.
The “Plan” only sets one quantitative indicator for the carbon dioxide peaking action in the industrial sector: by 2025, domestic capacity for primary refining of crude oil will be kept below 1 billion metric tons, and the utilization rate of production capacity for main products will rise to 80% or more. According to the “China Energy and Chemicals Industry Development Report 2021” issued by the Sinopec Economics & Development Research Institute, China’s refining capacity increased to 890 million tons per year in 2020, and the excess refining capacity exceeded 100 million tons. With the continuous increase of nationwide oil refining capacity brought about by the construction of refineries in the country, the problem of overcapacity will become more and more severe. According to the data from Sinopec, the capacity utilization rate of the refining industry in China was about 74% in 2019, which is significantly lower than the world average of 82%. Accelerating the resolution of excess refining capacity is not only the basic guarantee for carbon dioxide peaking but also an important foundation for the transforming and upgrading of the industry.
Urban and Rural Development
Urban and rural construction mainly focuses on the green development of buildings, including improving the energy efficiency of buildings, optimizing their energy structure, and transforming to low-carbon energy use in rural areas. According to data released by the China Association of Building Energy Efficiency, the total carbon dioxide emissions from the entire building construction process accounted for 51.3% of the total national carbon dioxide emissions in 2018, including 28.3% in the building materials production stage, 1% in the construction stage, and 21.9% in the building operation stage. Procurement, construction, and operation during the urban and rural development process all have a profound impact on national greenhouse gas emissions. The “Plan” proposes that by 2025, all newly constructed buildings in urban areas will meet green building standards. Compared with the 65% green buildings in newly constructed buildings in urban areas in 2019, this requirement proposes a bigger improvement. In addition, in terms of energy consumption, the “Plan” proposes that renewable resources will account for 8% as the alternative to conventional energy used in buildings by 2025. China will also strive to reach 50% photovoltaic coverage on the roofs of newly constructed public buildings and factories. However, the “Plan” only proposes recommendations for the low-carbon transformation of rural construction but does not set clear indicators. Besides, for urban and rural development related to adaptation to climate change, the “Plan” also brings up a proposition to enhance urban and rural climate resilience and build sponge cities, which reflects the macro considerations of carbon dioxide peaking actions that examine both mitigation and adaptation to climate change.
Transportation
It is necessary to move faster to develop green and low-carbon modes of transportation. The three main actions are on the low-carbon transformation of transportation vehicles and equipment, the development of green and high-efficiency transportation systems, and the construction of green transport infrastructure. Regarding the low-carbon transformation of transportation vehicles and equipment, the “Plan” clearly states to actively expand the application of new and clean energy in transportation, such as electricity, hydrogen power, natural gas, and advanced bio-liquid fuels. It requires that by 2030, the share of incremental vehicles fueled by new and clean energy will reach around 40%. According to statistics from the China Association of Automobile Manufacturers, in the first nine months of 2021, the proportion of new energy vehicle sales in total vehicle sales in each month has shown a significant growth trend. By August 2021, this proportion has increased to over 17%, which is close to the 20% target for 2025 set in the “Development Plan for the New Energy Vehicle Industry (2021-2035).” In the next ten years, according to the “Plan,” this proportion will double to about 40% by 2030. Additionally, according to current trends, the accelerated development of new energy vehicles may be faster than expected. Thanks to the vigorous development of new energy vehicles, accompanied by the improvement in the energy efficiency of other land vehicles, we can expect that land transportation and oil consumption will reach a peak before 2030.
Others
In addition to the actions in the above critical areas, the “Plan” also specifically mentions the important position of the development of circular economy in the carbon dioxide peaking work. It clearly deploys specific tasks such as pushing industrial parks to develop circularly and strengthening the comprehensive use of bulk solid waste. Since the achievement of carbon dioxide emissions peak and carbon neutrality in China will inevitably be accompanied by the green development of the economy and society, resource recycling, as well as the subsequent action for advancing green and low-carbon technological innovation, the development of carbon sinks, and the creation of a green and low-carbon society, all of which are essential strategies to build a green development model. The “Plan” has a detailed explanation for all these actions.
3. Recommendations on the implementation of the “Action Plan for Carbon Dioxide Peaking Before 2030”
Formulating carbon dioxide peaking goals and action plans scientifically based on local conditions
Currently, there are signs of campaign-style “carbon reduction” in some regions. They regard “carbon reduction” as a short-term political mission, so they are not moving forward gradually and carefully. Some places push too hard to formulate unrealistic action plans beyond the current development stage. Other regions are not putting in enough effort, showing only momentum without actual results. Due to the lack of scientific planning and operability, the campaign-style “emission reduction” deviates from the original intention of achieving carbon peaking and carbon neutrality goals and presents a crucial obstacle that restricts the achievement of the carbon dioxide peaking target. We recommend that local governments, enterprises, financial institutions, and other relevant entities conduct a systematic investigation of their own emission base and resource conditions, formulate a scientific timetable and roadmap for carbon peaking, and refer to the key areas mentioned in the “Plan.” They should go through the status of their industries, technology, or capital one by one and then formulate a carbon dioxide peaking action plan based on local conditions.
Every industry should firmly and orderly promote the green and low-carbon transformation of energy and industrial structures
Energy is the most important area that affects carbon emissions in China. It is also a key factor in economic development and national security. Therefore, it is necessary to accelerate the replacement of traditional fossil energy with clean resources on the premise of ensuring energy security to achieve a clean development of the energy system. Because China is “rich in coal, poor in oil, and less in gas,” the transformation of energy structure on the local level requires the reduction of coal use. The country needs to gradually limit and optimize coal consumption through areas such as orderly phasing-out outdated coal power capacity, gradually prohibiting the burning of bulk coal, and continuously improving coal power efficiency. On the other hand, China needs to vigorously develop new energy sources, accelerate the construction of wind and photovoltaic power generation bases, appropriately develop hydropower where conditions permit, and develop nuclear power under safe conditions. At the same time, it is essential to guarantee the stability of the power grid while increasing the proportion of new energy sources. On the local level, regions should speed up the construction of new power systems with new energy as the main body, do their work in the construction of energy storage systems, and improve the comprehensive regulation capacity of the power system. As for the low-carbon development of industry, construction, transportation, and other fields, the recommendation is that all parties should fully study the low-carbon development plans of competent departments, control the industry’s carbon dioxide emissions within a reasonable range, and carry out work in an orderly manner by optimizing capacity utilization, improving constructing energy efficiency, and promoting the development of transportation electrification.
A thorough implementation of green and low-carbon development
The realization of carbon dioxide peaking and carbon neutrality is accompanied by the profound changes in the production and lifestyles of the whole society. All entities must establish a green and low-carbon development concept to jointly promote the transformation and upgrade of the economy and society. Government agencies should fully implement the new development concept, abandon the old way of relying on “high pollution, high energy consumption” projects to drive economic growth, explore policies and measures to promote the development of a green and low-carbon economy, practice green and low-carbon administrative methods, and set a good example for society. Companies should adhere to sustainable development and make it a corporate governance principle. Key power companies should accelerate the implementation of energy-saving and carbon-reduction projects. Qualified companies should actively carry out green supply chain management to promote the green transformation of the entire industrial chain. Financial institutions should establish green investment concepts, gradually enrich green finance and climate investment and financing products and services, strengthen the climate risk management of institutional financial assets, and provide adequate financial support for the realization of carbon dioxide peaking and carbon neutrality. At the same time, citizens should also increase their awareness of energy conservation and environmental protection. They can reduce their individual carbon footprint through green traveling, avoiding food waste, and resisting excessive consumption. Every citizen can contribute to the achievement of carbon dioxide peaking and carbon neutrality of the country.
References:
1、United Nations Environment Programme (2021). Emissions Gap Report 2021: The Heat Is On – A World of Climate Promises Not Yet Delivered. Nairobi.
2、中共中央、国务院，《关于完整准确全面贯彻新发展理念做好碳达峰碳中和工作的意见》，中发〔2021〕36号，2021年10月.
3、国务院，《关于印发2030年前碳达峰行动方案的通知》，国发〔2021〕23号，2021年10月.
4、中国网，中国发布丨截至去年底我国单位GDP二氧化碳排放比2005年下降48.4%，http://news.china.com.cn/2021-10/27/content_77836400.html，2021年10月.
5、全国能源信息平台，炼油产能过剩是如何造成的，https://baijiahao.baidu.com/s?id=1694271501303272457&wfr=spider&for=pc.
6、中国建筑节能协会，《中国建筑能耗研究报告（2020）》，http://adminht.cabee.org/upload/file/20201231/1609385858606010.pdf.
7、中国汽车工业协会，2021年9月汽车工业经济运行情况，http://www.caam.org.cn/chn/4/cate_32/con_5234907.html