“The foundation for China’s sustained economic recovery and growth is not solid enough,” stated Premier Li Qiang in the government’s work report published on 5 March.
The report is the central part of China’s “Two Sessions” meetings. Delivered by the premier, it outlines government achievements from the past year and sets goals and directions for the coming year. It is also usually when the country’s GDP growth target for the year is announced.
Over the last year, China’s GDP grew 5.2 per cent, achieving the target, with urban unemployment dropping from 5.6 per cent to 5.2 per cent. Although the data shows the economy recovering, China is still facing challenges including a sluggish real estate market and a lack of domestic consumer demand. Even the “new three” products of solar cells, lithium-ion batteries and electric vehicles, which were the highlight of 2023’s growth, may come under pressure from the EU’s carbon border tax.
With China now in the last two years of the current Five Year Plan period (2021-25), it faces increasing pressure to balance economic growth with emission-reduction targets. Against this backdrop, four key areas emerged from the government work report: improving carbon emissions accounting and trading; betting on cutting-edge tech to drive economic development; driving renewable energy growth; and consolidating achievements in combatting air pollution.
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By improving the carbon emission accounting and verification mechanism, we can accelerate the expansion of the carbon market and help China’s related industries better respond to changes in international trade rules.
Ma Jun, director, Institute of Public & Environmental Affairs
Green transition: Carbon disclosure is key
This year’s government work report heavily emphasised green transformation and low-carbon development, highlighting “improving carbon accounting and verification capacities” and “developing a carbon footprint management system” as top priorities.
Data is crucial. With the EU levelling the playing field on emissions-intensive products by and introducing measures like its carbon border tax and a directive on “empowering consumers for the green transition”, there’s a growing push for Chinese enterprises to adopt greener supply chains and enhance their emissions data disclosure.
Furthermore, countries are preparing to submit in 2025 their new climate action plans under the Paris Agreement.
The focus in the work report on emission data also reflects the need to expand the national carbon market to cover sectors beyond power. Operational since July 2021, China’s emissions trading scheme includes 2,257 enterprises in the power sector. Experts note the market’s low liquidity and trading volume.
Ma Jun, director of the Institute of Public & Environmental Affairs, told China Dialogue that one of the reasons China’s carbon market has not expanded beyond power as quickly as expected is that emission data accounting is more complex in steel and petrochemicals than in electricity.
“By improving the carbon emission accounting and verification mechanism, we can accelerate the expansion of the carbon market and help China’s related industries better respond to changes in international trade rules,” said Ma. “At the same time, to fully exploit the potential of the carbon market, we need to ensure that the carbon price reflects its true cost and encourage enterprises to slash their emissions. We still have a lot of work to do in these areas.”
Betting on new tech: ‘New productive forces’
The concept of “new productive forces” was a new entry in this year’s government work report. It reflects China’s attempt to transform economic stimulation, from relying on infrastructure, real estate and heavy industry, to encouraging enterprises to develop breakthrough technologies.
The scope of new productive forces was clarified at the Central Economic Work Conference last December. Some of the sectors mentioned included digital economy, artificial intelligence, bio-manufacturing, commercial aerospace, quantum computing and life sciences.
Although the Two Sessions proposed to “scale up the supply of government-subsidised housing”, it does not mean China will return to the old development path, according to Wang Yao, dean of the International Institute of Green Finance at the Central University of Finance and Economics in Beijing. “The Chinese government is regulating the overcapacity problem in industries such as steel and cement. Companies are becoming more rational and will not blindly launch new projects or expand capacity,” Wang Yao said.
“China has begun to downplay the goal of economic growth rate, shifting its focus towards the quality of growth and trying to balance both in the growth process,” Chen Ying, a researcher at the Institute of Ecological Civilization of the Chinese Academy of Social Sciences, tells China Dialogue.
“New productive forces” encompass more than just tech products or breakthroughs, it also implies worker upskilling and “complementary policy support”, Chen Ying said.
Low-carbon tech is the major focus. In February, the Ministry of Ecology and Environment (MEE) jointly issued the “National Key Low-Carbon Technology Collection and Promotion Implementation Plan,” aiming to promote low-carbon tech nationwide by 2025.
According to Wang Yao, “the introduction of ‘new productive forces’ will inspire all kinds of enterprises to enhance innovation-driven development, pursue low-carbon operations and transformation, to achieve high-quality sustainable development.”
Carbon peaking: Energy intensity in focus
The government work report emphasises the need to carry out the “Ten Actions to Peak Carbon”. These feature in the Peak Carbon by 2030 Action Plan issued by the State Council in 2021. That plan specifies three 2025 targets related to energy and emissions: the proportion of non-fossil energy consumption will reach about 20 per cent; energy intensity will decrease by 13.5 per cent compared to 2020; and carbon intensity will decrease by 18 per cent compared to 2020. The three targets can be seen as yardsticks of China’s progress toward carbon peaking.
This year’s target for energy intensity was included in the government work report – a reduction of about 2.5 per cent.
Lauri Myllyvirta, a senior fellow at the Asia Society Policy Institute, believes that 2.5 per cent decline is not enough to achieve the targeted 13.5 per cent drop in energy intensity by 2025.
“To achieve the 2025 energy-intensity-reduction target means that at least a 4.5 per cent decline is needed in each of this and next year,” Myllyvirta told China Dialogue. “And significantly more to hit the 18 per cent carbon-intensity target.”
Carbon intensity can be reduced either by reducing the amount of energy used per unit of economic output or by reducing CO2 emissions per unit of energy use.
China’s energy intensity and carbon intensity barely fell last year, according to the latest National Bureau of Statistics (NBS) data. This was due to a number of reasons. Last year was the first of China’s post-pandemic recovery and witnessed an explosion of production and travel demand. There were also frequent weather extremes, with high temperatures in the summer and cold snaps in the winter, leading to more energy consumption. China’s coal power and crude oil consumption grew by 5.6 per cent and 9.1 per cent, respectively, the data stated.
“Natural gas has lower carbon emissions than coal,” said Chen Ying of the Institute of Ecological Civilization. “Western countries are transitioning by first replacing coal with natural gas and then developing renewable energy. However, we have insufficient natural gas resources and cannot follow the Western path. Instead, we must vigorously develop renewable energy. At the same time, to ensure the safety and stability of the power system, many new coal power projects have started construction. This is a temporary transition pain and will not shake the general trend of green and low-carbon energy.”
Ma Jun believes the Chinese government has always been cautious about setting targets. Although the 2.5 per cent energy-intensity-reduction target is conservative, its appearance in the government work report will bring pressure and a sense of urgency. Even if reaching the 14th Five Year Plan energy-intensity target is very difficult, China is going to push hard to achieve it anyway.
With the increasing share of non-fossil energy in the energy mix, China has shifted its path on achieving peak carbon. Previously, it encouraged “dual controls” – on energy intensity and total energy consumption. Now, it promotes reductions in carbon intensity and emissions.
However, in this transformation process, there has been a tendency to ignore the need to reduce energy intensity and consumption, Ma Jun explains. The energy intensity of energy-hungry industries such as steel has increased instead of declining, resulting in a year-on-year increase in coal consumption. Some regions have launched energy-hungry projects such as petrochemicals and coal chemicals.
This, coupled with the decline in GDP growth, has resulted in a lax control of energy intensity and carbon emissions. At the end of 2023, provinces such as Hubei, Shaanxi, Gansu, Qinghai, Zhejiang, Anhui, Guangdong and Chongqing were criticised by the National Development and Reform Commission (NDRC) for failing to achieve energy intensity and total energy consumption targets.
In February of this year, the NDRC, the National Bureau of Statistics, and the National Energy Administration jointly issued a document clarifying that non-fossil energy will not be included in the regulation of total energy consumption and intensity.
Myllyvirta told China Dialogue: “If the energy-intensity reduction target only looks at the total consumption of fossil energy in the calculation, then a 9 per cent reduction in energy intensity by 2025 will be sufficient, rather than 13.5 per cent.”
The biggest highlight in terms of China’s decarbonisation progress in 2023 is reflected in the accelerated development of new energy and related industries. In June 2023, China’s total installed capacity of wind, solar and hydropower exceeded 1.3 billion kilowatts, historically exceeding the installed capacity of coal power. By the end of 2023, more than half of the world’s electric vehicles were being driven in China, with the total number reaching 20 million.
“This year’s government work report especially emphasises the energy revolution, aiming to achieve a green transformation of growth patterns through vigorous development of renewable energy and new-energy-related industries,” Ma Jun said. “While transforming the energy structure and making energy cleaner, we must also strengthen energy conservation in traditional industries. Only by addressing both can we accelerate the process of industrial decarbonisation and improve the efficiency of [emission peaking and reduction] actions.”
Air quality: Consolidating a decade of achievement
Attention on “air quality” has appeared again in the government work report, after last year’s only briefly mentioned it in terms of governance achievements.
The inclusion may be related to the rebound in air pollution in China last year. Average PM2.5 levels rose year-on-year for the first time after a decade of improvements. PM2.5 increased in 26 provincial capital cities, including Beijing, and 40 per cent of cities across the country had PM2.5 exceeding the national standard of 35 micrograms per cubic metre.
Ma Jun attributed this rebound to a combination of unfavourable factors. Last year, China experienced a shift from La Niña to El Niño natural climate phenomena, with pollution spreading unfavourably due to weather conditions, a once-in-a-decade sandstorm, and economic recovery after the pandemic leading to an increase in emissions from energy, industry and transportation.
Even so, China’s air quality trends show significant improvement compared to before the pandemic. China’s PM2.5 in 2023 was 6 micrograms per cubic metre lower than in 2019, an improvement of 16.7 per cent, said Huang Runqiu, minister of of ecology and environment, at a Two Sessions press conference.
“Under all the unfavourable conditions, China has stuck to its bottom line of [improving] environmental quality and consolidated the 10-year achievement in environment governance,” Ma Jun said.
Although there are no quantitative targets for air-quality improvement in the government work report, the policies and measures mentioned in it contain specific targets. For example, the Action Plan for Continuous Improvement of Air Quality sets 2025 targets for lowering PM2.5 concentration, number of polluted days, and total pollutant emissions.
This article was originally published on China Dialogue under a Creative Commons licence.
