Transition to a Low Carbon Future in China Towards 2 C Global Target

Transition to a low carbon future in China towards 2°C Global Target

Jiang Kejun

Energy Research Institute

1. CO2 Emission trend in China

Recent rapid growth of energy use in China exerts great pressure on energy supply and environment. Total primary energy consumption increased from 400Mtoe in 1978 to nearly 1520Mtoe in 2005, and then 2531Mtoe in 2012, with an annual average rate of increase of 4.7% from 1978 to 2005, and 7% from 2005 to 2012.(China Energy Year Book 2013; China Year Book 2013). Coal is the major energy source, providing 70.7% in 1978 and 67% in 2012of total primary energy use. Recent years have witnessed a dramatic surge in the rate of increase of energy use in China.

Rapid increase of energy use in China brought large amounts of CO2 emission in China. Figure 1 presents a recent year’s CO2 emission in China and other regions. By 2012, CO2 emission from energy combustion and cement manufacture reached 9.9billion tons, which accounts for 28.8% of global emission.

Figure 1 CO2 emission from energy combustion and cement manufacture

Source: UNEP and Bloomberg, 2013

1. Policies on CO2 mitigation in China

China is one of the countriesmost vulnerable to the adverse impact of climate change. Starting in 2011, the country has been hit by a string of extreme weather and climate events, including the low-temperature freezing rain and snow in south China, spring and summer droughts in the middle and lower reaches of the Yangtze River, rainstorms and floods in the south, typhoons in coastal areas, autumn rains in western China and serious waterlogging in Beijing. These weather and climate disasters have significantly impacted China's economic and social development as well as people's lives and property. In 2011 alone, natural disasters affected 430 million people and caused direct economic losses of 309.6 billion Yuan.

The Chinese government attaches great importance to the issue of climate change. On June 4th 2007, the National Program on Climate Change (NPCC) was released. It is the first one ever elaborated in the developing world and therefore plays a milestone role. This document specified China’s objectives, basic principles, key activities and projects, as well as policies and measures to be undertaken by the country for 2010 in response to climate change. According to the National Programme, China has to commit to seriously complete all the tasks outlined, strive to construct a resource-conserving and environment-friendly society, build national capacity to mitigate and adapt to climate change, and make further contributions to the protection and understanding of the global climate system. By a preliminary review of the progress, the targets set up in the national program were reached in 2010.

In March 12 2011, China’s 12th Five-Year Plan was approved by congress. It is the first time for China to put a national target on CO2. There are separate targets for energy intensity (16 percent reduction by 2015) and CO2 emissions per unit GDP (17 percent reduction by 2015). These are in the range China committed to under the UNFCCC in 2009, which is a40 to 45% reduction in carbon intensity by 2020 compared with that in 2005. Clearly defined and distinct energy and CO2 emissions targets will help ensure provinces implement energy policies with carbon goals clearly in mind.

In January 2013, China also released the National Five Year Plan on Energy Development. The cap on energy consumption for 2015 was set to be 4billion Tce, which is the first attempt in China to put target on total amount on energy use, which is regarded to be significant progress for the policy making process on energy saving. In the plan, it also set up cap on electricity demand to be 6.15TWh by 2015, together with several technical indicators for energy production, such as unit coal use for coal fired power plants to be 323gce/kWh.

Increasing forest cover is also one of the key climate change policies in China.The 12th Five Year Planadopted a goal of increasing the area of forest cover by 12.5 million hectares by 2015. While the forest cover area goal seems more or less in line with the previously adopted 2020 goal to increase forest cover by 40 million hectares over 2005 levels, the volume stock target seems more ambitious because it seeks to achieve almost half of the 15-year target of 1.3 billion cubic meters by year 2020.

China has been successful in industrial energy efficiency in the previous five years(Jiang, 2009). In the new Plan, there are both new policies to promote greater industrial efficiency, and a major push to include all other sectors of the economy, including both new and existing buildings. For example, the Plan introduces a 10,000 Enterprises Program, which actually covers nearly 17,000 enterprises, and they consume more than 70% of energy in China.

The Plan set up the goal of 11.4 percent non-fossil fuels in primary energy consumption by 2015. China continues to exceed earlier targets in non-fossil development. For example, in the Renewable Energy Planning announced in 2006, wind power was set up to be 30GW,and Solar 2GW by 2020.In 2009 National Energy Administration(NEA) announced that Wind will be 80GW by 2020. In2010 Energy Planning said Wind to be 150 GW and Solar 20GW by 2020. By 2013, in the 12th Five Year Plan there are 20GW of solar PV by 2015 and 150GW for wind. However inFebruary 2013, it was announced by NEA to be 35GW for PV by 2015.InNovember 2013 a plan for 2014 with 14GW for solar PV was announced and is expected to rise to be 42GW for PV by 2015.

In order to promote low carbon development in China, China also launched pilot cities and provinces on low carbon development in 2010. The first 13 cities and provinces were selected in 2010. Another 29 cities and provinces were selected in 2012 as second phase. These pilot cities and provinces are implementing their low carbon development plans.

China’s 12th Five Year Plan (2011-2015) introduced emissions trading as a possible instrument to manage the country’s emissions. The National Development and Reform Commission launched seven carbon market pilots in 2011, currently in development in two provinces and five cities.A nation-wide system could follow, based on experience from these pilots. After two years of preparation, 6 cities and provinces launched ETS in 2013, and one in 2014.Up to Dec.312013, the total trading volume in the secondary markets in five pilots was 445,500 tons, and the turnover was 24.91 million Yuan. So far, most enterprises are taking a wait and see approach about the pilot ETS. So the trading amount of the secondary market is not big, which leads to significant price fluctuation. Among pilot regions, there is also big difference in the carbon price.

1. Transition to low carbon future

Globally the 2 degree target by 2100 was confirmed in the international negotiation process in recent years. There remains the question of whether this target is feasible given the slow progress in last decades even though Kyoto Protocol set up targets by 2010. The IPCC called research teams on modeling to analyze the possible pathway, policy options, and cost benefit analysis for GHG mitigation. China’s CO2 emissions from energy and cement processing already account for nearly 24% of global emission, and the trend is expected to keep increasing. The role of China in global GHG mitigation is crucial. This paper presents the scenario analysis for China’s Energy System for a global 2 degree target, and discusses the feasibility for the lower CO2 emission scenario in China. The findings say it is possible for China to limit CO2 emissions and reach emissions peak before 2025, which makes the global 2 degree target feasible, forwhich energy system development is a key. Recent progress made on key technologies andthe availability of further investment for low carbon policy implementation make it a much bigger possibility for China to achieve a low carbon emission development pathway.

Previous studies on emission scenarios show that it is possible for China to peak CO2 emission by 2030 if strong policies are adopted but with a relatively high cost. Peaking CO2 emission before 2025 is a very big challenge for China. A modeling study by IPAC on the 2 degree target indicates it is also still possible for China to peak CO2 emission before 2025(see figure 2), but several pre-conditions are needed, including optimizing economy development, further energy efficiency improvement, enhanced renewable energy and nuclear development, CCS etc.

Figure 2 CO2 emission scenario in China

Rapid increase of energy intensive products output in last several years is major driving force for fast energy demand growth. Energy intensive industry consumed more than 50% of the energy in China, and accounts for more than 70% of newly increased power output[3]. Further, the trend of growing energy intensive industries is a key factor for energy and CO2 emissions in China. Development of energy intensive industry should be limited. This quick change in the pattern of economic development means much higher social energy conservation rate. Scenario analysis shows many energy intensive products’ outputs will reach peak before 2020, with a much slower growth rate compared with that in the 11th Five Year Plan, and therefore will significantly change the pathway for energy demand and CO2 emission[4]. This would happen either through positive policy action to optimize economy structure change, or passively by market over supply.We saw that output of many raw materials and final consumption goods are around half of global output.The rate for infrastructure increase is large enough to support economy development and residential demand in China even witha high rate of GDP growth, income increase and urbanization. Export was one of the major driving forcesof the increase in energy use.However given the large share of Chinese products in the global output, space is limited for further increase of exports.

Energy efficiency should be further promoted. During the 11th Five Year plan, energy efficiency has been improved significantly. By reviewing what happened in energy efficiency in 11th Five Year Plan, comparing with energy conservation effort in last several decades and effort in other countries, China now is taking unprecedented action on energy conservation. Energy conservation has been set as one of thetop national policies. The energy intensity target is one of the key indicators for local government officials. Frequency of policy making on energy saving is extraordinarily high, which can be seen from policies announced by national government from the middle of 2006 to the middle of 2008, with a rate of one policy per week. A policy framework was well established in the 11th Five Year Plan on energy conservation and provides the basis for energy efficiency improvements in the 12th Five Year Plan and after. Much more specified policy and action on energy efficiency could be implemented such as a rapid move to higher energy efficiency standards, market based mechanisms, stronger building energy efficiency codes, etc. The target is to make China’s energy efficiency in major sectors to be one of the best by 2050 to 2030.

China is a now a leading country in new energy and renewable energy. In2013, installed wind power capacity was 92GW, with an increase of 16GW in 2013, which is around half of global newly installed capacity in 2013, and the annual growth rate from 2008 to 2013was higher than 50%. Solar PV is expended rapidly, which goes much beyond then the planned target. By 2013, installed capacity was 19GW, with newly increased capacity of 12.9GW in 2013. Based on the planning in China, by 2020 renewable energy will provide 15% of total primary energy, which includes renewable energy not included in national statistics of energy. The plan for newly installed capacity in 2014 is 18GW for wind, 14GW for solar, and 22GW for hydro. In the global 2 degree scenario, power generation from renewable energy could reach 48% of total power generation, leaving only 17% for coal fired power generation. In this scenario installed capacity for wind, solar, and hydro would be 930GW, 1040GW, 520GW respectively by 2050(Jiang et al, 2013).

And another key factor is increasing use of natural gas in China. In the enhanced low carbon scenario, natural gas use will be 350BCM by 2030, and 450BCM by 2050. In the 2 degree scenario, natural gas would be around 480BCM by 2030, and 590BCM by 2050. Together with renewable energy, this would leave coal use in China by 2050 at less than 1billion tons per annum.

Carbon capture and storage (CCS) could further contribute toCO2 emission reduction.China has to use CCS in the case of large amounts of coal use for next several decades. Even with the enhanced low carbon scenario, there will be around 1.8 billion tons of coal used per annum by 2050. CCS is essential for China to achieve deep reductions after 2030. CCS is not commercially available in China and is still expensive. However based on a study by the IPAC team, the Enhanced low carbon scenario(ELC), adopting CCS will be a key mitigation option (Jiang et al, 2010).

Technology progress is a key assumption for a low carbon future in China. The cost learning curve for wind and solar and many other technologies is much stronger than the models used. For example, the cost of wind power generation has decreased more than 40% in the last two years[2]. And now, in the coastal areas, power generation for some wind farms is already cost-competitive with coal fired power plants.

The progress with end use technologies is also moving faster than model assumptions. Electric appliances such as LED televisions, higher efficiency air conditioners, high efficiency cars, etc. already had higher penetration rates by 2011 than models assumed(Zhuang, et al, 2011). If the policy environment is right, lower energy demand in the 2 degree scenario is feasible by 2020 and after.

In the meantime, rapid GDP growth rate provides strong support for low carbon development in China. In the 11th Five Year Plan period(2006-2011), the annual GDP growth rate is 11.2%. But it is 16.7% annual growth rate if calculated based on current value(NSB, 2013). It is expected that by 2015 GDP in China could reach 75trillion Yuan(in current value)[2]. The investment needed in all modeling studies to shift to a low-carbon pathway is very small compared with GDP; normally it is smaller than 2 to 4%(Jiang et al, 2013). New and renewable energy is one of key sectors to be promoted for investments in China via government policies and planning. There could be much more investment on renewable energy in the future, even though China was the biggest country in the world for renewable energy investment in 2011.

It could be concluded that there is big potential for China to move to a low carbon future, and it is feasible for China to reach peak of CO2 emission before 2025. Technology progress, majorinvestments in renewable energy, and strong policies building on those in the 11th Five Year Plan, would provide key support factors.

And one more very important factor is the action in China to fight air pollution. National and provincial action plans were released in 2013 and 2014.One of the key policies is to replace coal with natural gas, which could see coal use peaking in the coming several years, which could contributesignificantly to peaking CO2 emission before 2025.

Some recent policies provided strong basis to move faster. On June 13, 2014, President Xi Jinping proposed an Energy Revolution, which coversEnergy Supply Revolution, Energy Consumption Revolution, Energy Technology Revolution, and Energy Organization System Revolution. In this revolution, what should be overturned? Based on our recent modeling study, coal could reach its peak between 2015 and 2020, and could have a very surprising future, with a reduced coal share in total energy mix down to less than 15% by 2050.

Box 1 Air pollution Actions

Box 2 Energy Revolution

Box 3 Perspective for 2020

1. Policy direction

In order to go on the pathway for low carbon development, the following policies should be implemented at an early time for China:

Carbon pricing could be introduced in the next few years, in the way of a carbon tax or emission trading. It is hard to reflect shorter-term change, but China needsmore policy support to make technology turn over.

Setting a cap for CO2 emission in China is an effective way to limit CO2 emission increase in recent years. China is now implementing a cap on energy demand in its 12th Five Year Plan.Together with a target for non-fossil fuel energy by 2020, there will be good practices in China to know how to set up cap on CO2 emission after 2015. In the meantime China is implementing domestic emission trading by pilot cities and provinces, which will have emission cap in near future.