China: Economic growth over climate targets


According to those who are familiar with the matter, China’s top economic planners have put the brakes on attempts by environmental officials to reduce carbon emissions, which, as it is currently, has the effect of encouraging economic growth over climate targets.

The National Development and Reform Commission, the main economic planning agency in China, has restricted the initial scope of a national carbon-trading system, which is set to launch this month and cover the entire country at a later date. The economic planning office has further improved its bargaining position with regard to developing a comprehensive road map to meet pledges made by Xi Jinping to peak carbon dioxide emissions by 2030 and achieve zero emissions by 2060, according to the people.

Over the past decade, the environmental ministry has risen in prominence and seems to have recently gained greater influence, but the recent developments show that the agency that sets energy and emissions targets for China, the Ministry of Economy and Information, has greater power. In the past, environmental and economic priorities have frequently competed against each other, not just in China, but globally. Despite bipartisan concerns about the effect on businesses and the economy, legislators in the US have thus far blocked attempts to pass a national cap-and-trade market for carbon emissions due to worries about the potential effect on companies and the economy.

Because China is the world’s largest carbon emitter, China’s actions are being closely watched. Xi Jinping said that China will meet its goal of reducing carbon emissions by 2030, but he did not provide additional details about how China will meet that goal. John Kerry, the U.S. Special Envoy for Climate Change, has encouraged Xie Zhenhua, China’s Special Envoy for Climate Change, to focus on ambitious climate action in the near term, but hasn’t provided any more details. This weekend, when leaders of the Group of Seven (G7) nations meet in the United Kingdom, it is expected that they will discuss pressuring China to reduce its funding for coal-fired power plants in other countries.

Vice Premier Han Zheng issued a mandate in October calling for China’s environmental officials to implement a national carbon market as soon as possible and form a carbon road map to meet the goals. When China’s cabinet listed the bodies responsible for drafting the road map in March, the agency tasked with economic planning was listed first, rather than the agency that focuses on environmental protection. Just last month, Beijing established a high-level group of party members with the aim of bridging bureaucracy, giving guidance, and overseeing the road map. Three of the five leadership positions in the organisation were held by senior economic cadres.

However, in contrast to what was originally proposed, the emissions trading system regulations were initially released on a limited scale. The proposal, for instance, would involve only about 2,200 companies in the power sector, which accounts for around 30% of China’s total emissions.

Chinese businesses will start with relative caps instead of absolute caps on emissions, using performance benchmarks from previous years to give them more leeway. Behind the scenes, government economic planners weakened the plan’s provisions, fearing the impact on growth, these sources claim. People familiar with the matter expect China’s carbon emissions scheme to expand to more industries in the future, but it hasn’t been decided yet when or to what extent this will occur. Carbon emission market policies in China won’t be the first to take a phased approach.

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The EU’s carbon trading scheme, which was first launched in 2005, has for many years been plagued by the lack of participation from big polluters. A plentiful supply of carbon allowances on the market meant that carbon permit prices were low, causing businesses to have less of an incentive to lower their emissions. Until the last two years, the increased price levels were too small to have an impact on most investment decisions.

However, the planning agency, which is far from being a single entity, includes many officials who advocate for an accelerated effort to tackle climate change. Mr. Xie, who was a key player in helping the Chinese government negotiate their inclusion in the Paris climate agreement, was a vice-minister of the Economic Planning Office for many years before transferring to the Ministry of the Environment. Officials at the economic planning office want to get the country moving again following the global post-pandemic recovery, even if it means slightly higher emissions in the short term, the people said.

After environmental ministry inspectors found the companies in violation of environmental regulations, they issued a March directive instructing the companies to cut emissions by 30 percent to 50 percent. On 31 May, in response to China’s economic planners, Tangshan’s steel manufacturing centre ordered that emission restrictions be loosened—which, as a result, nullified a previous directive from the environmental ministry in March that was enacted after environmental ministry inspectors found the companies in violation of environmental regulations. Some provinces in China have challenged the emissions reductions mandated by Beijing, with the province of Jiangsu, located in the Yangtze River Delta, raising concerns about a possible energy supply shortage. Plants in coastal Guangdong were asked to use less power and shut down for a number of hours or sometimes even days, thus cutting into revenue and production.

According to Huw Slater, a Beijing-based senior consultant for advisory firm ICF, who has worked with Chinese organisations on climate policies, some Chinese government officials seek to guarantee that climate goals are met in a way that benefits local economies, a goal that contributes to the current debate within the government.

Source: WSJ