360° Analysis

China’s Low-Carbon Economy and its Target


July 18, 2011 18:46 EDT

The impact of climate change is global, and it demands urgent action. According to the Stern Review, “Business-As-Usual” (BAU) will cost five to ten percent of global GDP in 2050. However, if measures to reduce greenhouse gas emissions are taken now, the macroeconomic costs will bebetween a one percent gain to a 5.5 percent decrease of global GDP and less than an eighth of a percentage point in annual GDP, the Intergovernmental Panel on Climate Change (IPCC) predicts in its Fourth Assessment Report.

McKinsey Global Institute put these figures in perspective: if one were to view this spending as a form of insurance against potential damage due to climate change, it might be relevant to compare it to global spending on insurance, which was reached 3.3 percent of GDP in 2005. The treatment of crucial assumptions on global energy consumption scenarios and the use of top-down economic modeling (for example, estimating the effect that measures such as a carbon tax would have on a choice of energy sources) is still a controversial matter. However, the key message is clear: choices about the scale and timing of climate change mitigation must balance the economic costs of more rapid emission reductions against the medium and long term risks of delay.

Hence the term “low-carbon economy,” embraced by China’s top political think tank, National Development and Reforming Commission (NDRC). It is hard to find an NDRC equivalent outside China, since it plays the role of not only a policy advisor to the government, but also an executor of its policymaking. In the field of greenhouse emissions reductions in China, NDRC plays a pivotal role.

One of the most important measures the NDRC is using to steer the nation’s low-carbon development is the so-called Five-Year Plan, in which a compulsory, quantifiable and verifiable target of energy consumption is stipulated. In January 2011, NDRC director Zhang Ping announced that China has “basically fulfilled” its energy consumption reduction per GDP unit target as mandated in the 11th Five-Year Plan (2006-2010), a 20 percent reduction in 2010 from 2005 levels. The question of whether the 20 percent target is ambitious enough or not has two sides of a coin, and this coin embodies the Chinese characteristics of a low carbon economy.

On one hand, this target is pegged to GDP, which means a significant GDP growth would still permit a significant growth of energy consumption. Given that China’s real GDP growth, adjusted for inflation, during 2005-2010 is above 60 percent, one might wonder how much energy consumption is really reduced. On the other hand, this reduction target is not an easy task, especially since China is still predominately fuelled by coal, and the transition to a less energy-intensive one will take decades. What was probably unforeseen by NDRC was the outbreak of an economic crisis that pushed the central government to adopt a basket of stimulus programs aiming to boost the nation’s economy and global competiveness — with a large part of the benefit accruing to high-energy industries such as steel and cement.

In Chinese, “basically” is understood as “more or less,” without referring to an accurate figure. But this is the first time in Chinese history that such a clear target on energy consumption has ever been announced, considering the complexity of China energy supply as well as the country’s lack of data transparency.

Furthermore, the target was issued to provincial and city governors as a top-down target, a metric on which their political performances will be evaluated. So the motivation to achieve the 20 percent through real actions is strong, as much as the motivation to present a figure as close as possible or marginally higher.In February, voices of feedback were heard from all over China in the auspicious pre-Spring-Festival atmosphere, with regional media reporting that most provinces and cities have “basically met” the target, with the only exception of Xinjiang, which fulfilled a 10.2 percent reduction. 

To verify the target’s fulfillment, an Energy Saving Evaluation Group —consisting of experts from NDRC, the China Statistics Bureau and China Energy Bureau — was sent to various cities after the Spring Festival, in order to conclude with a performance score. To date, the final result is yet to be published.

But what about actions so far? The NDRC Director once criticized the simplistic action of cutting off or restricting electricity supply adopted in some Chinese regions as “improper.” Let’s switch to those proper actions, categorized by a) policy levers, b) public awareness and behavior changes and c) technological development and applications.

It is only fair to say that the NDRC target is more than a demonstrated commitment from the very top political level: it is a creative lever to augment the nation’s enthusiasm on energy saving. Campaigns and posters carrying the slogans of “low-carbon life” can be found everywhere in China, and the Shanghai Expo was also positioned as “low-carbon Expo.” Even the Beijing Olympic Games went “green.” Public awareness of the whole climate change issue is solidly established in China.   Significant improvement in behavior changes is observed, such as the electricity saving of individual households, or maybe this is more induced by the increase of the electricity price. It is hard to judge the technological side. However, the huge trading volume with steady increase of Chinese import and export of environmental technologies is already solid proof that at least things are going in the right direction.

So what comes next? NDRC unveiled the twelfth Five-Year Plan (2011-2015) during this year’s “Two-Conferences” (meetings of the National People's Congress and the Chinese People Political Consultative Congress), in which a 16 percent further reduction target of energy consumption per GDP unit was announced as a compulsory task. A novelty in this blueprint is that China also commits a 17 percent reduction target of greenhouse emissions per GDP unit. The baseline for comparison is 2010, a figure yet to be concluded.


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