[Analysis] China’s Energy Sustainability, the 2060 Vision, and the EU

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Giacomo Di Capua

Executive Director & Editor in Chief at The New Global Order

Giacomo is a postgraduate researcher in Climate Health Economics at Technological University Dublin (Ireland) and holds two degrees in International Affairs and Business Administration from John Cabot University (Italy). Passionate environmentalist, he is part of both national and international environmental associations.

Giacomo officially launched The New Global Order in January 2019.

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Maria Paola Violi

Columnist at Chinese Affairs

Maria Paola obtained her Master’s Degree in Language and Management to China with a thesis on Green Finance System developments in China. Passionate about the environment, she writes a column on sustainability in China for Chinese Affairs.

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• [Analysis] China’s Energy Sustainability, the 2060 Vision, and the EU - January 22, 2021

The People’s Republic of China has become one of the most prominent geopolitical leaders worldwide, with a booming economy, growing domestic consumption, and a skyrocketing rise of global financial influence through world-renowned investment projects such as the infamous Belt and Road initiative. Such a rise has deeply affected its energy consumption, requiring a prevalently coal-driven energetic production to keep up with its ramping economic growth.

At the same time, growing concerns for sustainability have strengthened foreign and internal pressures on Chinese policymakers to increase the country’s commitments to greener energy production and consumption vis-à-vis the PRC’s carbon abatement objectives announced in multilateral fora. In particular, the European Union has earmarked a substantial amount of resources to the Chinese energy transition as the latter has been perceived as one of the most arduous challenges of climate diplomacy of the XXI century due to a wealth of factors.

CHINESE ENERGY TODAY

As concerns over environmental-related issues have globally increased, the attention has shifted to the world’s second-largest economy, the People’s Republic of China (PRC), and the role played in responding to such problems over the last decades. This is because one of China’s most apparent paradoxes is to be both one of the world’s most polluted regions and the world’s largest investor in renewable energy.

On the one hand, as one of the world’s most polluted countries, China is responsible for almost 30% of global greenhouse gas emissions, which is mainly due to its heavy reliance on coal as a fuel. Coal consumption is currently accounting for nearly 58% of China’s energy mix. However, the need to boost the economy has led the government in the past to prefer this energy source over others to swiftly support the country’s economic growth momentum. The central government has engaged in preventing energy from becoming an obstacle undermining economic and social stability by making energy security the premise to achieve the country’s strategic goal of quadrupling its gross domestic product (GDP) from 2000 to 2020. 

On the other hand, China is also the world’s largest investor in renewable energy and a key exporter of clean energy technology in the world. Its boost in the use of renewable energy has started since the world’s financial crisis and from that moment on renewables were to be considered a strategically important industry for the country.

The share of renewable energy in China’s energy mix has gradually increased over the last decade: from 13% in 2010 to almost 16% in 2020. China currently has the world’s largest installed capacity of hydro, solar, and wind power: in 2019, renewable sources provided 26% of its electricity generation, with solar and wind combined having more capacity than hydropower, but with most of the remainder provided by coal power plants.

Chinese concerns over energy security have affected both the national economy and the environment due to the heavy reliance on coal and oil imports and, in the view of protecting national interests, they have inevitably influenced international relations and the creation of alliances. However, with the increasing use of renewables and the consequent diversification of domestic supply, countries like China have more opportunities of achieving energy independence thus having greater energy security and more power in energy-related decision-making.

It’s significant the role of the international community in China’s transition to a low-carbon economy: over the years, with pressuring demands, it has urged the country to engage in both domestic and international greener initiatives, as, since the early 2000s, the international community accused China of not taking more responsibility for climate change considering its fast-growing economy but also of impeding the achievement of an improved global agreement. The turning point was the Paris Agreement on Climate Change adopted in 2015 which is evidence of China’s evolving role in the global collaboration to find a common solution, in which it has become an active participant and contributor. 

During the COP21, China submitted its Intended Nationally Determined Contributions (INDC), in which promised to peak CO2 emissions by 2030, reduce the emissions of CO2 per unit of GDP by 60%-65% based on 2005 level by 2030 and increase the energy consumption of non-fossil fuels to approximately 20%. Addressing climate change internationally by reducing the reliance on fossil fuels and increasing the share of clean and renewable energy is in line with Chinese domestic concerns over environmental protection and public health.

The 13th Five Year Plan (FYP) sets the goal of reducing the CO2 emission per unit of GDP by 18% compared to the level of 2015 by 2020, thus committing to reducing CO2 intensity per unit of GDP by at least 40% from its 2005 level, as stated in China’s pledge at COP21 to lower carbon emissions by 60- 65% per unit of GDP compared to 2005 level and peak its carbon emissions by 2030. By 2020, China had cut carbon intensity by 18.4% compared with 2015 and by more than 45% compared with 2005, putting it on course to meet its target as well as its Paris pledge. 

However, the temporary stall in the country’s economy caused by the Covid-19 pandemic in the first quarter of the year led China to “dirty” industries and investments to revive its economy, whose outputs may have risen the amount of CO2 produced per unit of GDP growth over the rest of the year. During the Climate Ambition Summit, China announced its latest goal in climate action by pledging to reach carbon neutrality by 2060, which could be a tipping point in the global fight against climate change.

Nonetheless, with the current energy mix and development model, China may have no problem in capping its carbon emission by 2030 but its efforts may not be enough to reach carbon neutrality by 2060, as stated by Jiang Xuefeng, vice direct at China National Petroleum Corp’s (CNPC) research institute. 

The next Five-Year Plan will be critical for an accelerated energy transition in which renewables may be set to lead. China will have to change its economic and energy structure as soon and as intensely as possible.

EUROPEAN STRATEGIES FOR CHINESE ENERGY TRANSITION

In the meantime, in the global scene, the European Union has been spearheading the world race to sustainability in the three decades. Fully cognizant that – especially in the energy market – promoting sustainability through domestic policy acts is not per se sufficient, European policymakers have been strongly and consistently engaging their Chinese counterparts as one of the most arduous challenges to establish EU’s leadership in the global transition to green energy. Nonetheless, only modest and partial results have ensued from European efforts.

The noteworthy carbon footprint from a still largely carbon-fueled Chinese energy sector has unquestionably flagged the country’s unmatched burden on the global climate as a monumental challenge to be addressed multilaterally. It does not come as a surprise that the EU, which has been developing a leadership-by-example model of climate policy since the Kyoto Protocol, has consequently been intensifying its ties with Xi Jinping’s establishment, earmarking substantial diplomatic and financial resources to influence Chinese energy policies both domestically and extra-jurisdictionally. However, unlike other traditionally ‘climate reluctant’ countries such as the United States, China has arguably represented the single most challenging piece de resistance for EU’s environmental stewardship in the global panorama for three main reasons.

First, the European Union has never been a historical energy partner to China. Numerous among EU’s foreign climate policies historically used to shift extra-European policy preferences closer to the Union’s position are indeed reliant on strong economic ties between the parties. De facto, the lack of Sino-European energetic relations has preempted the Union from exerting any type of financial leverage on their Asiatic counterpart to pressure a move towards greener energy and away from fossil fuels.

Moreover, the Union has oftentimes relied on its own ambitious domestic policies to induce imitation within other jurisdictions through pioneering leadership. In multilateral fora like the Conferences of the Parties (COP), European credibility in the field of energy sustainability has been based on an enviable internal record of forward-looking policies of energy efficiency and renewable energy growth (see for instance the Energy Efficiency Directive and the Renewable Energy Directive). The vacuum of energetic trade relations between the two global superpowers has drastically hindered the efficacy of EU’s leadership-based persuasion of its Asian counterpart.

Second, the PRC has high ‘climate power.‘ In other words, the Chinese present and future carbon emissions deriving from the energetic sector are leading global greenhouse gas emissions and are expected to continue on this trend unless large-scale, rapidly-deployed, and targeted investments into Renewable Energy occur. Therefore, China’s energy policy preferences posses the power to make or break worldwide aspirations for climate mitigation for the century, factor that automatically renders the country a top-tiered target for European foreign environmental policies given its impact compared to other climate reluctant countries.

Last, China has low ‘climate interest.’ This value is usually defined in function of factors such as GDP per capita, vulnerability to the effects of global warming, and presence of a democratic system. Although booming, the Chinese economy is indeed still largely considered to be ‘developing,’ and sustainability concerns might not feature before economic or social amelioration in Xi’s agenda for the development of his country. Moreover, according to the Global Climate Risk indicator, China has not featured among the top 30 countries for exposition to the effects of global warming since 1990. Domestic incentives to tackle climate change by reducing energy-related carbon emissions in order to preserve national security are therefore minimal. Finally, The Economic Intelligence Unit’s 2020 Democracy Index indicates that Chinese authoritarianism has alarmingly strengthened in the past few years, scoring a record low of institutional democracy in 2019 (see figure below). This entails that, although the global public opinion has become more sensitive to topics such as climate change and energy sustainability, the likelihood that such change of preferences in Chinese constituents actually engenders policy changes remains low.

Some might then wonder which prospects of success to promote greener energy production and consumption in the Asian superpower can the European Union possibly have. The simplest answer is that such prospects are nothing short of significant, based on the fact that China has high ‘climate capabilities.’ That is, unlike other environmentally inefficient economies with a sizeable carbon footprint such as India, the PRC’s economy has been steadily growing skyrocketing in the past three decades, hundreds of millions Chinese citizens have escaped poverty, and the country has experienced unprecedented levels of economic and financial expansion. Energy policy scholars Demetriou and Hadjistassou indeed claim that China today possesses the financial resources and technological know-how to scale down its coal-reliant energy production and transition to a low-carbon economic model.

The question is: can the European Union spark Chinese policymakers’ interest in complying with international agreements and boost domestic political consensus behind a transition to low- or zero-carbon economy in the PRC?

The answer includes a record of mixed results.

The Union’s success in this endeavor through multilateral agreement has only been indirect. Leading agenda-setting activities in numerous multilateral fora from the Kyoto Protocol (KP) negotiations to the Paris Agreement, the EU has significantly contributed to shift initial position as a developing country with nonbinding Nationally Determined Contributions (NDC) to climate mitigation objectives in Kyoto to its first binding carbon abatement goals in Paris. Furthermore, in the Marrakesh Declaration, the Union brokered the inclusion to the KP of two paramount flexible mechanisms – namely International Emissions Trading and the Clean Development Mechanism (CDM) – that shaped China’s aspirations and realization of carbon emissions reduction. Institutional commitments to carbon abatement have moreover stabilized the market for decarbonized energy and power, decreasing the risk associated with these investments and increasing its large-scale accessibility. Increased accessibility also ensued from the EU-supported domestic carbon trading mechanism, which was developed thanks to a strong Sino-European bilateral dialogue born in 2016.

Sino-European bilateral cooperation has played a critical role in decarbonizing Chinese energy as well. On the one hand, the launch of bilateral dialogue platforms like the EU-China Energy Cooperation Platform (ECECP), know-how sharing partnership especially in the photovoltaic sector, and the integration of international carbon markets have contributed to the 11,000-fold increase of green, photovoltaic power to the Chinese electricity mix in the period 1990-2020. The ECECP objectives are ambitious, and aim to “reduc[e] costs [of green energy] by improving competition” (Clause 1.A) and creating a level playing field for clean power enterprises in both markets (Clause 16.4). In energy policy scholar Xiaohua’s analysis, it would seem that this cooperation has indeed paid off as Chinese energy decarbonization has been reportedly driven by foreign investments, and mainly by “the strong support policies of the EU member states” aimed at reducing energy accessibility barriers. By making clean energy more accessible and affordable, the European Union has undoubtedly contributed to the PRC’s climate neutrality aspirations.

On top of that, early data on the impact of European support to China’s domestic Emission Trading System (ETS) are promising. Thanks to the European capacity-building resources devoted to its energy partner, China’s ETS is expected “to expand to seven other sectors” in addition to coal-fueled power generation, hence becoming “the world’s largest [ETS] by far, covering one-seventh of global CO2 emissions from fossil-fuel combustion.” Paired with increasing inward Foreign Direct Investments in European clean energy enterprises from Chinese investors, the ETS has strongly affected the perceived importance of energy decarbonization in the PRC, and is on track to influence China’s long-term carbon footprint.

Finally, European policymakers also played a pivotal role in shaping the public debate on energy sustainability aspirations. In September 2020, European Commission President Ursula von der Leyen stressed how a commitment to carbon neutrality from the Chinese side would be essential to maintain a level-field reciprocity in trade and energy partnerships in light of EU’s 2030 projections. In addition, EU officials have disclosed that the European Union would have resorted to punitive carbon tariffs levied on Chinese imports, should China have not committed to discontinue financing to new coal-fueled power plants. Unexpected to many in Brussels, on September 22, 2020, Chinese President Xi Jinping in fact announced the county’s commitment to achieve carbon neutrality by 2060. Needless to say, the expected consequences of this 2060 vision are unprecedented, and bound to influence Chinese energy policy for years to come.

2060 CHINA – WHAT TO EXPECT?

For China, achieving carbon neutrality by 2060 reflects several ambitions. China’s greener initiatives provide opportunities to accelerate technology innovation and industrial upgrading, further strengthening its economy. With the aim of elevating people’s living standards, reducing emissions and pollution, avoiding natural disasters, and increasing energy independence are strongly related to secure health, quality of life, and well-being of its people. This might work towards solidifying its leadership position among major countries as China would seem to be pursuing a leadership-by-example model in parallel to the EU. Following the PRC’s lead, Japan and Korea committed to net zero greenhouse gas (GHG) goals, putting additional pressure on other large carbon emitters.

The 2060 goal is the last of a series of long-term commitments that China has intended to fulfil for the decarbonization of its economy. According to its pledge of capping its emissions by 2030, it is expected that China’s carbon emissions will reach a peak in 2025 and then enter a five-year plateau before starting to decline. 

By 2035, the PRC’s per-capita GDP is meant to reach “moderately developed nations” standards. Chinese experts have interpreted moderately developed nations as having a per-capita GDP of US$20,000 to $40,000. China’s per-capita GDP was US$10,000 in 2019, meaning that the country will need to maintain steady real growth over the coming 15 years. Although the CO2 reduction potential in industry is enormous in China, energy-related carbon emissions are expected to continue increasing due to the growing energy demand drive by urbanization and industrialization, research shows. Moreover, early analyses on the topic indicate that the perceived tradeoff between the achievement of environmental targets and domestic economic welfare critically reduces the willingness to buy decarbonized or low-carbon power in the country. Both national and international actors will be likely called to shape differently the public debate on energy sustainability in order to pursue the 2060 vision.

In this context, Sino-European relations can boost the domestic momentum towards energy sustainability by increasing bilateral cooperation in order to signal market confidence for private financing in the cleantech sector. In addition, the Union could invest in job creation within the clean energy industry with the goal of both debunking the aforementioned ‘welfare-sustainability tradeoff’ in the country and make clean energy and power more affordable for domestic consumers  – hence enticing a demand-driven energy decarbonization.

Provided acts will follow word, the announcement that China wants to be carbon neutral by 2060 could become a tipping point in the fight against climate change.

Josep Borrell, High Representative of the European Union

China’s 2060 pledge moves the international community closer to achieving the Paris Agreement goal of holding global warming to below 2°C. However, the country has not yet disclosed a detailed plan for reaching this incredible milestone by 2060. Clarifications are expected to be included in China’s updated NDC ahead of the COP26 in November 2021, in the 14^th FYP, and in the 2035 vision document that the government is also currently drafting.

China is more likely to be at the beginning of a policy process, as the lack of detail emerged from other significant political documents, in the communique following the fifth plenum of the Communist Party’s 19th Central Committee, issued in late October 2020. 

However, what emerges is that “greening” the economy may not be among China’s urgent priorities, but more “innovating” and “securing” the domestic welfare. In particular, the PRC’s sustainability drive of the past years responds also to non-sustainability strategic priorities, such as the need to overcome structural weaknesses of indigenous energy availability and energy reliance. 

Nonetheless, China has successfully proved in the past to be able to fulfil essential sustainable commitments though large-scale mobilization of financial resources, an example of which being the goal to resolve extreme poverty. This worldwide problem was addressed in the domestic boundaries through targeted poverty alleviation efforts. 

While being provided with adequate financial resources and geopolitical partnerships, the People’s Republic of China might encounter structural and domestic challenges to the transition of a low-carbon economy ranging from economic welfare concerns to technological know-how shortages. The next decade will therefore prove crucial in shaping China’s future of energy sustainability.