China’s 12th Five Year Plan (FYP), due to be launched at the National People’s Congress this week, aims to transform the way the country develops by adjusting its economic structure. One way to achieve this aim is to set legally binding targets on energy-intensity and carbon-intensity reduction – which should be both ambitious and robust in their implementation. But how ambitious should they be?
In developed nations, the history of economic growth shows a common pattern with regard to energy consumption: energy intensity rises, peaks and then falls rapidly. During the period of rising energy intensity (early industrialisation), economic growth requires greater energy input and support. In the mid and late stages of industrialisation, less energy input is required.
But developing countries can grasp a “late-mover advantage”: they can benefit from more developed technologies, trade and the transfer of manufacturing. Hence, the same amount of GDP growth can be achieved with fewer resources. China currently has that late-mover advantage.
Energy intensity and the late-developer’s advantage, State Council Development Resource Centre. Vertical axis is energy intensity [energy expended per unit of GDP].
There is a large potential for structural energy savings in the 12th FYP. Research has found that up to 60% of energy savings to 2020 could come from upgrading China’s economic structure, and the other 40% from technological changes. After 2020, technology could account for 50% or more of energy savings.
During the 11th FYP, structural savings only accounted for less than 10% of total energy savings; the vast bulk of savings were achieved through technological improvements. Energy-saving targets in the 12th FYP need to be set higher if they are to lead to real structural shifts.
Only high targets will have a real impact on policy: the average energy-saving rate for each five-year plan period between 1980 and 2010 has been 18%. Energy-hungry sectors, such as the heavy chemical industry, steel and concrete, have been growing rapidly for the past decade. According to official figures, growth in these sectors is likely to slow. Add in government macro-control of real estate and other adjustments, and the rate of growth in energy consumption is bound to fall. In short, the economy is already on track to achieve an energy-intensity reduction of up to 18% in the 12th FYP period. Setting such a low target will not change policy or help China to meet the serious challenges it faces.
China also needs a new method for verifying its targets. For its 11th FYP targets, the government effectively looked at the final year alone to decide whether they had been achieved. This was inadequate. A new method for assessing overall performance over the five-year period should include full totals of energy saved and emissions reduced, not only reductions in intensity. After all, even if energy-intensity or carbon-intensity targets have been met, energy consumption or carbon-dioxide emissions may still have increased.
In the final quarter of 2010, many local governments adopted the disingenuous strategy of imposing power cuts, not only to increase that year’s energy-saving rates, but also to reduce overall power consumption for 2010 and thus achieve a greater energy-intensity drop in comparison with the first year baseline figure.
But over the past five years, more energy has been consumed in China – and more carbon dioxide emitted. China needs to more thoroughly assess overall energy-savings and emissions reductions and set annual targets, so that firms have a reference for determining their own annual goals and are able to achieve overall reductions. This is particularly important for carbon trading. If measurements aren’t made in terms of total energy saved, or carbon emissions avoided, there will be too much uncertainty to establish and run effective carbon markets.
The government should implement energy-saving and carbon-intensity targets in tandem. During the 11th FYP, there were doubts raised about the breakdown of the 20% energy-saving target. Using energy- and carbon-intensity targets can overcome this problem. For example, fuel substitution can help to increase energy efficiency, but has a greater impact on carbon-emissions reduction. Energy saving usually leads to carbon cuts, but the reverse is not necessarily true. Therefore, government incentives should differ: for example, there could be different rewards for completing both or only one target, and sanctions for failing to meet either. Different regions may also want to propose different targets: for example, there could be lower targets in the less developed west of China.
It is crucial to establish a win-win situation for central and local governments when setting binding energy and carbon targets. The struggle between different levels of government in the 12th FYP targets has drawn widespread attention. If targets are too low — say, as low as 16% — the authority of the central government will be weakened at the local level on issues of crucial importance to the economy and people’s livelihoods.
It is our opinion that targets should be highest in the east of China, lower in the centre and lower still in the west. The economy in western China lags behind the rest of the country, so it’s reasonable to allow higher rates of economic growth, but those provinces should still meet binding targets.
Sector-specific targets, which were missing in the 11th FYP, should also be included in the 12th FYP. Public participation should be built into the long-term mechanisms, so that central government demands gradually become aligned with those at a local level – and local targets are no less stringent than central guidance.
Yang Fuqiang is director of Global Climate Solutions at WWF. Hou Yanli is director of WWF’s Global Climate Initiative in China and Li Jingjing its project assistant.
Homepage image from nipic.com
Read Pan Jiahua’s call for moderate targets here