China set to cap energy use in national low-carbon plan

BEIJING Thu Aug 4, 2011 4:44am EDT

A resident walks in front of chimneys billowing smoke near a chemical plant in Yingtan, Jiangxi province December 9, 2010. REUTERS/Stringer

A resident walks in front of chimneys billowing smoke near a chemical plant in Yingtan, Jiangxi province December 9, 2010.

Credit: Reuters/Stringer

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BEIJING (Reuters) - A cap on Chinese energy consumption is expected to be the highlight of a comprehensive low-carbon plan to be issued later this year, but it might not be as tough as expected, experts say.

Capping energy use will form the cornerstone of China's efforts to curb surging greenhouse gas emissions, the world's highest and making up a quarter of the global total.

China is using the fight against climate change to make its economy more efficient and kick-start emissions trading schemes over the next five years.

"If you have a total energy cap you can translate that into an emissions number or trade energy credits -- it gives a lot of different options," said Deborah Seligsohn, a climate policy expert working for the World Resources Institute in Beijing.

"You can use a cap for lots of other purposes but you need a ceiling to create the incentive to trade," she said.

A five-year plan to improve energy efficiency, cut greenhouse gases and tackle pollution was approved "in principle" last month by a panel set up by China's cabinet, the State Council, and chaired by Premier Wen Jiabao.

Han Wenke, the head of the Energy Research Institute, a government think-tank, told a meeting this week it will be formally passed later this year once recommendations from other government departments have been collected.

Few surprises are expected, with many of China's five-year carbon dioxide (CO2), energy and pollution targets already confirmed. But formal recognition is likely to be given to six pilot low-carbon zones in the provinces of Guangdong and Hubei and the cities of Tianjin, Beijing, Chongqing and Shanghai.

Government officials seem to have settled on a total energy cap of 4.1 billion tonnes of coal equivalent by 2015, more than 25 percent higher than last year, following months of behind-the-scenes wrangling.

Zhang Guobao, formerly China's senior energy official, told state news agency Xinhua after his retirement in March that the cap would stand at 4 billion TCE, and some scholars involved in the discussions last year were proposing a figure as low as 3.6 billion TCE.

"The number is definitely at the higher end, there's no doubt about that, and this tells you how fierce the debate has been internally," said Wu Changhua, China representative with London-based NGO The Climate Group.

"But it is a good starting point. There were a lot of very aggressive scholars arguing forcefully for a much lower cap, saying there is no way we can carry on like this, but there were also moments of doubt whether the cap would be there or not."

CENTREPIECE

The cap will be a crucial component of China's efforts to meet energy and carbon intensity targets over the next five years, giving regions and industries something to trade on.

In its national five-year plan unveiled during the last session of parliament in March, China pledged to improve energy efficiency by 16 percent from 2011-2015 and cut the amount of CO2 produced per unit of GDP by 17 percent over the period.

It eventually plans to bring carbon intensity down by 40-45 percent by 2020 from 2005 levels, following a pledge it made before global climate talks in Copenhagen in 2009.

The key issue will be how the aggregate national targets are allocated to the provinces -- those numbers have already been calculated and issued to local governments, but they are expected to be published in this year's plan.

"Last time the allocation was based on negotiations with the provinces and not on independent calculations as to the province's capacity. This time they have spent a lot of time trying to develop some independent analysis," said Seligsohn.

Above all, China wants to avoid a repeat of the problems that beset the country in the second half of last year, when provinces shut down large swathes of industrial capacity in a desperate effort to creep below their 2006-2010 target.

That means the government will focus on market mechanisms, such as emissions trading, in the coming five years, but it is also setting up an early-warning system to notify provinces if they fall behind.

Last week, the National Development and Reform Commission for the first time published the names of regions that were struggling to meet targets, including undeveloped and resource-dependent Ningxia, Qinghai and Xinjiang in the northwest as well as the economic powerhouse of Jiangsu on the eastern coast.

"The NDRC are playing a watchdog role to see if they are going to make it or not. I interpret this very positively, and it is part of the lessons they learnt from previous years," said Wu of The Climate Group.

"THERE IS GOING TO BE PAIN"

While the targets are not as tough as some hoped, many of the regions are still likely to feel the squeeze as they try to balance out the need to grow with the need to be green.

"They are all using the right language, have a target and use low-carbon, green language in their plans, but there are also ambitious plans for investment in industrial parks and all that -- there is going to be pain," Wu said.

"It will take some time to break the momentum of the stimulus package in the last five years -- it will be really hard to slow down at the local level."

The plan is also likely to include absolute targets to restrict a series of major pollutants, targets already passed by the Ministry of Environmental Protection.

Reports suggest it will also propose tougher energy-saving building codes, more backing for hybrid cars and further instructions to eliminate aging industrial capacity.

A stronger "responsibility system" will also be put in place to make local officials directly liable for failing to meet their local energy and carbon targets.

Xinhua, citing a government official, said the plan would also encourage financial institutions to raise support for low-carbon projects, and banks will also set up green rating systems to help allocate funds to clean energy projects.

The official said the new plan was expected to introduce proposals for variable power pricing, with fixed tariffs identified as one of the major causes of waste.

(Editing by David Fogarty)

(The following story was corrected in paragraph 8 to change the name of pilot province to Hubei from Hebei)

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