At the 13th National People’s Congress in March, Chinese President Xi Jinping stressed that the country’s energy transition would be based on the principle of “establishing the new before destroying the old” (Yin, 2022). This paraphrases the famous slogan dating back to the Cultural Revolution, “destroy the old before establishing the new”.
The reversal of the quotation captures the strategic approach China intends to adopt for its energy transition: avoid concentrating decarbonisation efforts on reducing the supply of fossil fuels, so as not to undermine its energy security, and invest sufficiently in low-carbon energy sources, learning from the current European crisis.
As Michal Meidan (2022) has pointed out in Aspenia, China’s approach to the energy transition sits within its commitments to peak emissions by 2030 and then achieve carbon neutrality by 2060, as set out in the 14th Five-Year Plan and the “1+N” documents [1]. It should be mentioned, however, that these commitments were made in September 2020, in the midst of the economic recovery following the pandemic crisis.
The subsequent challenges have nevertheless been considerable: the fuel crisis in 2021 [2], which caused blackouts in several provinces; record oil, gas and coal prices; and the conflict in Ukraine, which is putting the global energy market under severe strain.
Even during the “Two Sessions” (Lianghui, 两会) in March, the transition to renewable energy was expected to be postponed in the short term in the interests of stability and energy security (Brunswick, 2022).
The energy dimension of the 14th Five-Year Plan
The 14th Five-Year Plan for a Modern Energy System sets the direction of industrial development from 2021 to 2025. The plan was published last March by the National Development and Reform Commission (NDRC), the national economic planning body, and the National Energy Administration (NEA), the regulator for the energy sector.
One of the biggest differences between the 14th Five-Year Plan and its predecessors is that, instead of being called a “plan for energy development”, it is entitled a “plan for a modern energy system”.
The paradigm shift signals a desire to accelerate the development of an energy system consistent with a modern economic system, naturally “with Chinese characteristics”. We should recall that the People’s Republic of China has a socialist market economy (社會主義市場經濟, 社会主义市场经济, Shèhuìzhǔyì Shìchǎng Jīngjì).
In particular, the 14th Five-Year Plan identifies several long-term objectives, extending to 2035, for achieving “all-round modernisation with socialist characteristics”, as described in the first part of the document.
These objectives principally take the form of a transition towards a “dual circulation economy”, meaning greater reliance on the domestic economy while maintaining links with the global economy; a renewed focus on technological development, scientific research and the energy transition; and a reduction in the development gap between urban and rural areas.
As Carbon Brief (2022) notes, the plan was published on the same day that Chinese Vice-Premier Han Zheng (韩正) stressed the importance of the “clean and efficient” use of coal [3]. This position is particularly important because it points to a reconsideration of coal’s role in China’s energy transition.
Shortly afterwards, the central government published two further national energy plans [4]: the first addresses energy storage over the next five years, while the second sets out a hydrogen strategy for 2035. The overall objective is to accelerate the development of a modern, low-carbon, secure and highly efficient energy system.
The document reiterates the government’s quantitative objectives for oil and gas production, while reaffirming coal’s central role.
Meidan (2022) recalls that energy security was given the highest priority at the annual Central Economic Work Conference in December 2021. In this respect, the 14th Five-Year Plan emphasises the fundamental role of coal, which is needed to ensure the security and flexibility of the national energy system. This responds to the growth in electricity demand expected in the coming years.
As the earlier Aspenia analysis highlighted, “China’s debate on energy security has long centred on access to fossil fuels and the associated geopolitical risk”.
Indeed, the 14th Five-Year Plan for a Modern Energy System is dated 29 January, before the crisis in Ukraine that triggered the current crisis in the global energy supply chain. Yet the crises of the previous autumn had already made energy security a priority for Chinese national security (Jiang and Gao, 2022).
The 14th Plan also emphasises the development of domestic upstream oil and gas projects (exploration, extraction and production), a global commercial presence and international cooperation. The plan also highlights the role of gas in China’s future energy system (Yin, 2022).
The absence of a formal “cap” on total energy, coal and electricity consumption is perhaps one of the most problematic aspects of the Five-Year Plan. Nevertheless, it explicitly sets the objective that renewable sources should account for 39% of total electricity generation by 2025, and that electricity should represent 30% of total energy consumption by the same year (Carbon Brief, 2022).
That said, although the use of renewable sources is encouraged, the Plan does not include specific targets for installed capacity (the maximum power that a generating plant can deliver) by 2025 to meet those objectives. Nor does it reiterate Xi Jinping’s announcement that China will install 1,200 GW of wind and solar capacity by 2030 (Oxford Institute for Energy Studies, 2021).
Renewables
To put China’s renewables sector in context, it is worth recalling that the country entered a period of rapid renewable-energy development following the implementation of its Renewable Energy Law in 2006. APEC Energy Overview (2021) reports that renewables accounted for 5.2% of total energy consumption in 2010 and 8.4% in 2018, an increase of 61%.
China would need to increase its share of renewable energy by 2% over the period 2018–2030 to achieve a doubling between 2010 and 2030. To meet similar objectives, China’s earlier policy documents placed emphasis on building new renewable-energy generating facilities.
In any event, in the race for renewables, China has taken a leading role in the production and deployment of these technologies, dominating several key links in the global supply chain. As the Harvard Belfer Center paper The Great Tech Rivalry: China vs the US (2021) shows, China has gone from producing less than 1% of solar panels in 2000 to supplying 70% of solar panels worldwide today.
Four of the world’s ten largest wind-turbine manufacturers are Chinese, and they control 40% of the global market. China also holds a near-monopoly over many of the key resources needed to produce batteries and other green technologies, including lithium (50% of global production), polysilicon (60%), rare earths (70%) and their refining (90%), natural graphite (70%) and cobalt refining (80%). Where the Dragon lacks domestic resources, it has secured them abroad.
The study notes that “Chinese companies control 8 of the 14 largest cobalt mines in the Democratic Republic of the Congo (accounting for 30% of global production) and a 51% stake in the world’s largest lithium reserve”.
Furthermore, in energy storage, Bloomberg’s New Energy Outlook estimates that China controls “80% of battery raw-material refining, 77% of cell-manufacturing capacity and 60% of battery-component manufacturing”.
Taken together, these advantages across every link of the renewable-energy supply chain give China a substantial competitive advantage, effectively making it a global leader in this sector for the foreseeable future. These resources position China not only as a leading producer of green technology in the global market, as in the case of electric vehicles, but also enable it to meet domestic consumption needs [5].
However, access to such a volume of resources, essential to the renewable-energy value chain, does not resolve all the challenges China faces in ensuring its energy security. Alongside retaining fossil fuels in the national energy mix, progress is needed in the energy distribution network and its governance.
A slow transition and the need for greater coordination in governance
China had already introduced the “dual control” policy (Shuāngchóng kòngzhì, 双控制度) in the 13th Five-Year Plan. This is a mechanism for reducing energy consumption under which each Chinese province is assigned a target for total energy consumption, with a requirement that energy consumption per unit of GDP, or energy intensity, be reduced by 15% by 2020 compared with 2015 [6].
The State Council then divided the national “dual control” objectives into targets for individual provinces. Many provinces, however, found the objectives unrealistic, leading to cases in which electricity consumption was forcibly reduced and even to power cuts.
The 14th Five-Year Plan retains the same “dual control” system in some provinces, and the current energy “dual control” systems are likely to remain the main method for controlling emissions (Jiang, 2022) [7].
While coal received considerable attention in the 14th Five-Year Plan, clear targets were not provided for renewables, beyond stating that these energy sources should account for 39% of total energy production by 2025.
The greatest contradiction today is between an old energy system and the need to develop new forms of energy. If this is not done properly, security and stability of supply can be compromised. Yet building new energy and power systems means changing those already in place, a complex and wide-ranging task.
Although the Five-Year Plan provides guidance in this direction, demonstrating a desire to accelerate the country’s energy transition, it lacks specific measures for resolving interregional problems effectively and sustainably across China’s provinces. The current complexity of the global energy market is also contributing to a further slowdown in the energy transition.
Moreover, energy governance in China lacks interregional coordination, meaning that resources are not allocated efficiently. For these reasons, the grid needs to be reconfigured. The new plan provides an initial response by focusing both on the integration of large-scale, centralised renewable generation and on the installation of numerous smaller, distributed facilities (Yin and Yep, 2022).
One of the priorities for renewable-energy growth over the next five years will therefore also be the development of a more efficient grid. This should facilitate the transmission of “green” electricity from the north-western and central provinces, which are naturally rich in hydroelectric, solar and wind generation, to the densely populated coastal regions, as well as improve interconnection with more remote areas such as Guizhou, Sichuan and Tibet (Yin and Yep, 2022).
The challenge is not only to meet domestic demand, but also to reform an old energy system in a way that makes renewables more competitive and facilitates green investment.
In summary, we can expect gradual progress by the People’s Republic towards the goals set for 2030 and 2060, but it will be very slow: the uncertain geopolitical landscape, which the energy market must take into account, shifts the priority towards security rather than sustainability.
Acknowledgements
The authors thank Dr Giulia Sciorati for her valuable feedback and exchange of views.
Bibliography
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Notes:
[1] “1” refers to the long-term approach to tackling climate change contained in the “Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality in Full and Faithful Implementation of the New Development Philosophy”, published on 24 October 2021. “N” refers to the solutions for peaking carbon emissions by 2030, starting with the Action Plan for Carbon Dioxide Peaking Before 2030, published on 26 October.
[2] At the end of 2021, China experienced a serious electricity-supply crisis affecting 20 provinces. Industrial activity was restricted, and in some areas households also suffered prolonged outages. The country is no stranger to periodic energy-supply shortages, and in many past outages the main causes have been poor policy coordination or a clash between market forces and government plans and administrative measures.
This time was no different. This issue of the Oxford Energy Forum analyses China’s 2021 energy crisis, its causes and its implications for domestic energy markets and the country’s low-carbon energy transition. See Oxford Energy Forum (2022), The 2021 energy crisis: Implications for China’s energy market and policies, Issue 131.
[3] https://xhpfmapi.xinhuaxmt.com/vh512/share/10677124?channel=weixinp
[4] “Notice of the National Energy Administration of the National Development and Reform Commission on Printing and Distributing the “14th Five-Year Plan” New Energy Storage Development Implementation Plan” (http://zfxxgk.nea.gov.cn/2022-01/29/c_1310523208.htm) and 2) “Medium and long-term plan for the development of hydrogen energy industry (2021-2035)” (https://zfxxgk.ndrc.gov.cn/web/iteminfo.jsp?id=18747).
[6] https://www.climatepolicydatabase.org/policies/13th-five-year-plan-2016-2020 13th Five-Year Plan (2016-2020).
[7] https://www.ndrc.gov.cn/xxgk/jd/jd/202109/t20210922_1297199.html?code=&state=123 “Improve the dual control system of energy consumption to ensure the completion of the “14th Five-Year Plan” goals and tasks – Interpretation of the “Program for Improving the Dual Control System of Energy Consumption Intensity and Total Volume”, NDRC.