China’s top-level guidance on climate ambitions: Charting the decarbonization path ahead

China issued top-level guidance on the country's work to achieve carbon peak and neutrality

On 24 October, the Central Committee of the Communist Party of China (CPC) and the State Council made public the Opinion on Completely, Accurately, and Comprehensively Implementing New Development Concept and Achieving Carbon Peak and Carbon Neutrality (the Opinion). Two days after the Opinion was made public, the State Council issued the Action Plan for Carbon Peaking Before 2030 (the Action Plan). The two documents officially kick-start the establishment of China's climate policy framework "1+N," with the former document representing the overarching "1", and the latter leading the "N" series of forthcoming sectoral policy documents. While the Opinion addresses both the 2030 carbon peak and the 2060 carbon neutrality goals, the Action Plan specifically focuses on plans to reach carbon peak before 2030.

Both documents stressed that decarbonization will be pursued with economic development and energy supply security taken into full consideration.

Energy system transformation remains the core of China's decarbonization strategy

Energy-related targets listed in these two policy documents primarily concern the carbon peak goal before 2030 and mostly reiterate previously announced ones, including the share of non-fossil fuels in the primary energy mix, reduction of energy consumption per unit of GDP, and reduction of carbon emissions per unit of GDP. Hitting these targets would not require much of a paradigm shift beyond the progressive acceleration of the same development trajectory that the country has already been on—thanks to its broader economic and energy transition strategy applied from a decade ago.

Controlling coal consumption and replacing coal-fired power capacity with renewables remains the key pathway

The Action Plan sets an overarching target to tightly and reasonably control coal consumption growth over the 14th Five-Year Plan (FYP) and gradually decrease it in the 15th FYP. This sets the policy tone for coal in the next decade to come and sends out an important message that China will not haste to reduce coal consumption in absolute terms until after 2025, in recognition that coal is still an important source of energy critical for energy supply security at the current stage.

China's primary focus in coal-fired power control in the next decade is to strictly control new capacity additions, accelerate the retrofit of existing coal-fired power generation fleet for energy efficiency improvement, combined heat and power supply, and flexibility service provision, as well as to gradually idle outdated and inefficient plants.

According to the Action Plan, China will continue to deploy both utility-scale and distributed solar and wind power at scale. It will selectively develop bi omass power in suitable areas and support research on the development of alternative renewables such as geothermal and tidal energy. It will continue relying on a renewable portfolio standard (RPS) scheme. It will bring the total installed capacity of wind and solar to at least 1,200 GW by 2030, reaffirming a target first announced by President Xi at the Climate Ambition Summit last December.

In addition to renewables, hydro and nuclear power will continue to be developed to further reduce coal reliance, while energy storage will grow to enhance the flexibility of the renewables-centered power system. Other key low-carbon technologies, including hydrogen and carbon capture and storage (CCS), will receive enhanced research and development support. The government on the other hand calls for an "orderly" growth of gas consumption.

Energy efficiency improvement is the most prioritized demand-side decarbonization strategy

Energy efficiency improvement will unleash significant emissions reduction potential, with the added benefit of energy cost savings for end users. The Action Plan makes it explicit that China's "dual-control" measures, which impose annual targets on energy intensity reduction and total energy consumption, will remain a primary policy tool to help meet the country's carbon pledges through the strong synergy between energy efficiency improvement and emission reduction.

Energy efficiency improvement will also be a critical lever to drive industrial upgrade and restructuring. China will increasingly use energy efficiency benchmarks and standards to back force industrial upgrade and restructuring to facilitate the low-carbon reconfiguration of the broader economy.

Conserving and enhancing nature-based carbon sinks is attached a high level of strategic importance

China will improve its nature-based carbon sink potential both through the conservation of existing carbon sinks as well as through the enhancement of carbon sinks through afforestation, reforestation, avoided deforestation, and damage restoration. This echoes on an even higher strategic level with China's macro development framework of what President Xi phrases as ecological civilization, a philosophy that roots the economic development upon environmental sustainability and nature preservation.

The Action Plan calls for the establishment of compensation mechanisms for nature-based carbon sink programs and touches upon their participation in the national emissions trading scheme (ETS). This implies that nature-based carbon sink programs will likely begin to have a much larger presence in the Chinese Certified Emissions Reduction (CCER) market once the government reopens the application.

Posted 25 November 2021 by Lara Dong, Senior Director, Greater China Power and Renewables, S&P Global Commodity Insights and

Xiaonan Feng, Senior Research Analyst, Climate and Sustainability Group, S&P Global Commodity Insights

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.