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On 5 March 2020, Chinese Premier Li Keqiang delivered his annual
"State of the Nation" address, formally known as the Government
Work Report ("the Report") to the National People's Congress, which
commenced its annual legislative sessions last week.
The Report released key policy targets for 2021 and disclosed
policy directions for the 14th Five-Year Plan (FYP) that spans the
2021-25 period. IHS Markit believes that the latest pronouncements
underlined policymakers' intention to balance the need of
supporting economic growth during a global pandemic and China's
recently announced climate ambitions.
Energy and carbon intensity
The Report announced that China's energy intensity (energy
consumption per unit of GDP) and carbon intensity (carbon emissions
per unit of GDP) will decline by 13.5% and 18%, respectively,
during 2021-25. These two targets were considered "binding targets"
during the last FYP and we expect them to remain so in the new
one.
The new energy intensity and carbon intensity targets are
generally aligned with those in the 13th FYP, which were 15% and
18% reductions, respectively. This reflected the government's
continued focus on delivering economic restructuring, energy
efficiency, and clean energy results.
Formulating work plans for reaching 2030 peak carbon
emissions
China has had a peak carbon target for 2030 since it is
officially included in its Nationally Determined Commitment in the
Paris climate agreement. This target was highlighted again in
President Xi Jiping's address to the United Nations last September,
during which he committed China to carbon neutrality by 2060.
Furthermore, President Xi strengthened the 2030 target by setting
the peak carbon emissions before 2030 instead of by 2030.
It is therefore not a surprise that this year's Work Report by
the premier called for the formulation of specific plans to achieve
peak carbon emissions before 2030. We expect this to become an
immediate key task for all levels of government agencies and
state-owned enterprises across the country, with major implications
for sector- and company-specific FYPs, which are to be released in
the months ahead.
Energy supply: Coal may still grow through 2025
The Report also stipulated plans for "clean and efficient use of
coal" during 2021-25, which indicates that the government is still
willing to see coal consumption increase in the next five
years—a potentially controversial point given that coal
accounts for nearly 80% of total energy-related carbon emissions in
China.
But it is unlikely that the government will put a binding target
on peak coal consumption by 2025, as coal remains a key contributor
for the supply security and reliability against a backdrop of
continued energy demand growth.
Aside from continued focus on clean energy development, what was
notable in the Report was its emphasis on steady growth of nuclear
power. In both areas, China is currently the largest market in the
world, with the government intending for it to be a technology
leader in low-carbon energy in the long term.
Further power price reductions ahead
China's power sector currently has two parallel pricing
mechanisms, i.e. traded price in a quasi-competitive wholesale
market as well as the regulated on-grid tariff and retail tariff
that control price levels. The Report demonstrates the
policymakers' intentions to push for lower energy costs as the
economy recovers from a global recession.
Specifically, the Premier emphasized the need to deliver further
power tariff reductions for commercial and industrial power users,
which is a continued trend from the previous three years. Those
efforts have overall led power prices to drop more than 20% by
end-2020, for example.
Meanwhile, the Report pushed for continued energy market
reforms, which the government believes would lead to lower energy
prices for the economy, although that may not be a guaranteed
outcome from deregulation.
Environmental pollution control
Going beyond the emphasis just on air pollution, The Work Report
also covered water and land pollutants.
According to MEE, traditional pollution and carbon emissions are
to be considered in parallel and should be the overarching strategy
in China's environmental policies. This indicates a reconfiguration
of China's environmental policy priorities where decarbonization
had so far taken a back seat. With the latest policy directions,
carbon will likely rise to the top of the environmental agenda.
The 14th FYP priority: Setting the stage for peak carbon
emissions before 2030
In our view, the Premier's Work Report largely reaffirmed
China's current policy directions, but with an added emphasis on
climate change. As is the case in recent FYPs, both economic growth
and green commitment will be key considerations for national plans.
To meet the peak carbon emissions and carbon neutrality targets,
China must accelerate its economic and energy transformation.
We believe that the priorities for the 14th FYP will be anchored
on the target of peak carbon emissions before 2030.
Lara Dong, senior director on the Climate and
Sustainability team at IHS Markit, leads Greater China power and
renewables research and is a member of Asia's research and
consulting team.
