Conclusion

Based on the review of Chinese climate policies in this Guide, we offer the following observations:

1. President Xi Jinping’s pledge that China will achieve carbon neutrality by 2060 elevates climate change as a priority within the Chinese system.

In China’s top-down governance system, leaders’ statements carry great weight. President Xi’s high-profile pledge that China will achieve carbon neutrality by 2060 gives low-carbon development an important place in the policy dialogue on a wide range of topics at all levels.

Chinese leaders have spoken about the need to address climate change for many years. Although policy goals in other areas have often taken priority, President Xi Jinping and other Chinese leaders have consistently sent the message that climate change is real, that they are serious about addressing it and that doing so is part of China’s development strategy. There are no known climate deniers in the Chinese leadership—and none with any observable influence on policy.

President Xi’s carbon neutrality pledge elevates low-carbon development – and therefore climate change — within the Chinese system. The pledge implies dramatic and far-reaching change in China’s economy, which has led institutions of all kinds to begin mobilizing to help achieve it. This includes the State Council, National Development and Reform Commission (NDRC) and many ministries, all of whom have highlighted the pledge in 14th Five-Year Plan documents. Indeed, President Xi announced a new series of government policy papers—known as “1+N” documents—that specifically focus on the 2060 carbon neutrality and 2030 carbon peaking goals.¹

Attention to the carbon neutrality goal reaches well beyond ministries and other government agencies. Leading Chinese banks, for example, made a range of commitments to increase green finance following President Xi’s carbon neutrality pledge. China Development Bank announced that green loans will account for more than 5% of its credit assets by 2025 and 30% of its credit assets by 2030. Bank of China announced it will provide at least RMB 1 trillion in green finance during the 14th Five-Year Plan period and its proportion of green credit will increase each year. Coal-fired power plants were removed from the list of projects that can be considered “green.”²

Central government enforcement related to climate change is being strengthened as well. In 2021, the Central Environmental Inspection Team, led by Vice Premier Han Zheng, conducted prominent inspections of the National Energy Administration and various local governments, subjecting them to criticism and calling for changes. Though these inspections mostly focused on local environmental issues, the signal was clear that the inspection team would hold officials to account on climate policies as well.

In many western countries, the long-term nature of the 2060 carbon neutrality pledge would lead many people to dismiss it. This is much less true in China, with its tradition of long-term planning and expectation of governance continuity for the decades ahead. In many Chinese institutions—from central government ministries to provincial and local governments to energy companies to manufacturers to financial institutions and more—work is underway to figure out how to help move the country toward carbon neutrality in the years ahead.

Indeed the response to President Xi’s carbon neutrality and carbon peaking goals by some officials was so strong that, in August 2021, China’s Politburo took the unusual step of warning against excessive actions in pursuing these goals. In a meeting chaired by President Xi, the Politburo called for “carrying out the carbon peaking and carbon neutrality work in a coordinated and orderly manner” and “rectifying campaign-style carbon reduction”. The latter phrase has been interpreted to mean that local officials should not become overly-zealous in seeking to achieve the carbon neutrality and carbon peaking goals.³

2. In the near-term, COVID control, economic growth and energy security are higher priorities for Chinese policymakers than low-carbon development

While President Xi’s carbon neutrality pledge has the potential to reshape industrial structures and development priorities over the long-term, other issues have higher priority for Chinese policy makers in the near-term. In the past several years, COVID control, economic growth and energy security have been the highest priorities.

The priority Chinese leaders attach to COVID control has been especially strong. Strict quarantine rules for entry into China have dramatically reduced people-to-people exchanges for almost three years. Strict lockdowns in Shanghai and other cities during 2022 have had huge impacts on the lives of hundreds of millions of people and gained enormous global attention. To an extent that has surprised some observers, Chinese leaders have been willing to sacrifice short-term economic growth to contain the spread of COVID. Chinese leaders have never given the carbon neutrality or carbon peaking goals anything approaching that level of priority.

At the same time, economic growth remains overwhelmingly important for Chinese leaders. In recent years, challenges in managing China’s economy have grown. First, the torrid pace of economic growth from the first decade of the 21st century inevitably slowed. Then property bubbles, municipal debt and trade disputes created pressures. Most recently, COVID lockdowns in China and its key export markets led to unprecedented contractions in economic activity.

In response to the nationwide COVID lockdown in winter 2020, the Chinese government launched economic recovery programs that focused heavily on energy- and carbon-intensive sectors. Structural economic shifts seen during the early years of the 13th Five-Year Plan period (2016–2020) slowed or reversed. The energy intensity reduction ultimately achieved during the 13th Five-Year Plan was 13.2%—less than the initial target of 15%.⁴ Economic growth took priority over low-carbon development.

Despite increasingly ambitious climate policies, the Chinese government’s macroeconomic priorities continue to shape its emissions trajectory. The longer-term economic rebalancing envisioned by policy makers includes a shift toward a more consumption- and service-led economy. But for now, China’s economy remains energy- and carbon-intensive. This is due to the high share of heavy manufacturing in China’s economy, the importance of coal in fueling these industrial processes, and the lack of market signals to motivate energy efficiency in some sectors.⁵ The long-term direction of travel toward carbon neutrality remains, but short-term economic stimulus measures run contrary to this goal.

Meanwhile energy security—long a priority of Chinese leaders—has grown in importance in recent years. Chinese policy makers’ renewed focus on energy security was evident in remarks by Premier Li Keqiang at a meeting of the National Energy Commission in October 2019 and has continued to dominate speeches and policy documents since then. US-China trade tensions, domestic power outages and the Russia-Ukraine conflict have all contributed to a continuing focus on energy security.⁶

In highlighting the importance of energy security, Chinese leaders have looked especially to coal—a domestic resource that China has in abundance. Although the 14th Five-Year Plan calls for “strict controls” on coal use, it contains no limits on domestic coal production, consumption or power generation capacity. Instead, the 14th Five-Year Plan calls for “strengthening coal’s role as an energy security guarantee…” and “the regulating role of coal power in the power system.” Although policy documents call for starting to phase down coal use during the 15th Five-Year Plan (2026–2030), new coal mines and coal-fired power plants continue to be built in China on a significant scale.⁷

This support for coal is about economic growth as well as energy security. The coal industry is at the heart of the economy in many provinces and supports more than 2.5 million jobs nationwide. Moreover, construction projects in the coal sector and coal-consuming industries can often boost GDP in the short-term—especially important to many provincial and local officials whose promotion may depend on hitting GDP targets.⁸

Significantly, the 14th Five-Year Plan says that coal-fired power plants will be built or retrofitted to operate as flexible resources (balancing zero-carbon solar and wind power), rather than as sources of baseload power. By 2025, around 300 GW (roughly a quarter of China’s coal-fired power plant capacity) will be “flexible power sources”.⁹ This will help achieve the Chinese government’s carbon peaking and carbon neutrality goals. Using coal-fired power plants as flexible resources, operating at low capacity factors to balance renewable power, could help reconcile the Chinese government’s economic growth, energy security and low-carbon development goals.

3. The Chinese government’s climate change goals often align with other policy priorities.

Several policy goals important to the Chinese government align closely with its climate change goals. This gives the climate change goals greater strength and durability.¹⁰
Among the objectives that often align closely with the Chinese government’s climate change goals are the following.

Developing “industries of the future.” The Chinese government gives high priority to supporting sectors it believes have high growth potential and will shape the global economy in the decades ahead. This includes artificial intelligence, robotics, 5G and supercomputing.

For many years, the Chinese government has supported several low-carbon technologies. Solar photovoltaic manufacturing and electric vehicles stand out as notable examples. High-voltage transmission and hydrogen fuels—both of which have the potential to contribute carbon neutrality—have also been promoted in part for their growth potential in the decades ahead. The Chinese government’s Made in China 2025 program—which became controversial internationally—includes new energy vehicles, power equipment and green manufacturing as priorities.¹¹

Improving urban air quality. Urban air pollution worsened significantly in many parts of China during the first decade of this century. Fighting urban air pollution has been a priority of China’s leaders ever since. In the past decade, the air quality in many Chinese cities has steadily improved, although significant air pollution problems remain.¹²

Many policies for improving urban air quality also help reduce emissions of heat-trapping gases. Measures to reduce coal burning, promote fuel-efficient and electric vehicles, and invest in mass transit are leading examples. A combined approach to urban air quality and carbon neutrality lowers overall costs and reduces the risk that some assets might be stranded or rendered obsolete by future carbon neutrality policies. There is strong alignment between the Chinese government’s goals for improving urban air quality and its carbon neutrality and carbon peaking goals.¹³

Enhancing energy security. The Chinese government’s energy security goals align with its climate change goals in several respects. Energy security is a factor in the Chinese government’s support for electric vehicles. (More than 70% of the oil consumed in China last year was imported, creating significant strategic vulnerabilities.¹⁴) Energy security is also a factor in the Chinese government’s support for renewable power. (Hydro, wind and solar power all use domestic resources and equipment with a strong domestic supply chain in China.) Electric vehicles and renewable power are both important for achieving the Chinese government’s climate change goals.

However, energy security goals are also an important factor in the recent resurgence of Chinese government support for the coal sector. In remarks on energy security, China’s leaders typically focus far more on coal than on electric vehicles or renewables power. Energy security goals are also important in the Chinese government’s push for greater domestic oil production. Coal and oil consumption are major contributors to climate change.¹⁵

Maintaining close relationships with the Global South. The Chinese government has long prioritized close relationships with other developing countries (often referred to as the “Global South”). In the 1950s and 1960s, Chairman Mao Zedong sought a “united front” of developing countries. In 2002, the 16th Party Congress declared that developing countries are “the foundation” of China’s diplomacy. The vast majority of Belt and Road Initiative projects are in the developing world.¹⁶

Developing countries are, in general, more vulnerable to the impacts of climate change than industrialized countries. Small island states and those with large populations near seacoasts are especially vulnerable. China’s status as the world’s largest emitter of heat-trapping gases creates tensions with many of those countries. This was especially acute at the Copenhagen climate conference in 2009, when the longstanding “G77/China” negotiating bloc split, with many small island states and African countries strongly criticizing China for its negotiating positions. The dynamic has persisted in multiple settings since. China’s policies to curb emissions and transition to carbon neutrality play an important role in its diplomacy with many developing countries most vulnerable to climate change.¹⁷

Demonstrating commitment to multilateralism: President Xi Jinping has emphasized China’s commitment to multilateralism on many occasions. At the World Economic Forum in Davos in January 2017, for example, he said “We should adhere to multilateralism to uphold the authority and efficacy of multilateral institutions.” At the Leader’s Summit on Climate in April 2021, President Xi said “We must be committed to multilateralism.”¹⁸

The Chinese government’s climate goals help to position it as an active and responsible participant in the Paris Agreement and other multilateral efforts to combat climate change. In October 2017, after US President Donald Trump withdrew the United States from the Paris Agreement, President Xi said that China would take a “driving seat in international cooperation to respond to climate change” and become a “torchbearer” in creating an ecological civilization. At the Climate Ambition Summit in December 2020, President Xi declared that “Only by upholding multilateralism, unity and cooperation can we deliver shared benefits and win-win for all nations.”¹⁹

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Precisely because climate change is such a challenging and far-reaching policy issue, climate policies will be more durable when aligned with other policy goals. In his remarks at the Paris climate conference, President Xi Jinping said that China has “integrated climate change efforts into [our] medium- and long-term program of economic and social development.”²⁰ Continuing to do so will contribute to the Chinese government’s success in addressing climate change.

4. The state’s central role in the Chinese energy sector both helps and hinders the low-carbon transition

The state has long played a central role in China’s energy sector. State-owned enterprises dominate production of coal, oil and gas, as well as power production and the electric grid. Government agencies set prices and issue administrative allocations on a range of topics including fuel distribution and power plant operating hours.

Starting with the period of Reform and Opening Up in the late 1970s, the state’s role in China’s energy sector has slowly but steadily diminished. The Ministry of Petroleum Industries was dismantled in the 1980s, with most of its functions transferred to two state-owned companies (Sinopec and CNPC).²¹ In 2002, the vertically integrated State Power Corporation was broken into two grid companies (China State Grid and China Southern Grid) and five power companies.²² In recent years, market mechanisms have begun to replace some administrative allocations in the power sector.²³

Nevertheless, the state remains a central player in most aspects of China’s energy industry. This both helps and hinders the low-carbon transition.

First, the state’s role facilitates long-term planning. For decades, the Chinese government has set and managed goals far beyond the time frames of many other governments. The Chinese government currently has a goal for 2049 (the 100-year anniversary of the People’s Republic of China)–to build a “prosperous, strong, democratic, culturally advanced and harmonious” country.²⁴ For more than 60 years, Five-Year Plans have guided Chinese policy making.

This capacity for long-term planning offers significant advantages to the low-carbon transition. Many energy assets have useful lives of several decades or more. Making decisions with long-term implications in mind can be key. The Chinese government’s demonstrated capacity to establish long-term goals and work successfully to meet them is a significant asset in planning, implementing and sustaining an energy transition.

Second, the state’s central role in the energy sector means more public funds are available for the low-carbon transition. For decades, the Chinese government has been willing to support its energy sector with public funding at a scale far beyond most other governments. Tools have included generous grants, loans and feed-in-tariffs, as well as free or deeply-discounted land allotments. This support has been especially pronounced in sectors with significant potential for competitive advantage or strategic benefit, such as solar manufacturing and electric vehicle deployment. Similarly generous support could extend to a range of sectors essential to meeting China’s carbon neutrality goal in the decades ahead.

This use of public funds has led to both complaints and praise from abroad. Complaints have often alleged unfair subsidization of Chinese exporters, putting competitors in other countries at a disadvantage. At the same time, some observers have praised China’s role in helping bring down the costs of solar panels and related equipment globally.

Third, the tight linkages between the leadership of government ministries and state-owned enterprises means that SOE executives generally adopt government mandates as a high priority. Today, many state-owned industries in China’s energy, industrial and financial sector are working diligently to figure out how best to implement President Xi’s carbon peaking and carbon neutrality goals.

At the same time, the state’s central role in the Chinese economy can hinder low-carbon development.

First, the state’s central role has led to overcapacity in many Chinese industries. Businesses that would close for financial reasons in many western economies are often allowed to remain open in China, supported with government funds. The resulting overcapacity in steel manufacturing has contributed to substantial emissions of heat-trapping gases from that sector. The lack of market discipline due to state control is also a factor in the continued approval of new coal-fired power plants. In China, coal-fired power plants operate at roughly 50% of their capacity on average.²⁵ In economies where market signals play a greater role, there is more pressure to operate power plants at higher capacities instead of building new ones.

Second, state ownership of businesses with high carbon emissions can weaken pressures for a transition. This is compounded by China’s fragmented governance system, under which provincial and local authorities have considerable authority in implementing central government directives. These provincial and local governments often own conventional carbon-emitting businesses and rely on those businesses for tax revenues and employment. Provincial and local officials—usually rewarded for boosting GDP more than for environmental performance—can be reluctant to interfere with these businesses or shift toward lower-carbon alternatives. (Similar dynamics can occur in systems without state ownership, but the ability of state-owned enterprises to influence policy is even greater under the Chinese system.) The Leading Group on Carbon Peaking and Carbon Neutrality chaired by Vice Premier Han Zhen is intended in part to address this and similar challenges.²⁶

A final aspect of the state dominance of energy in China relates to technical innovation. In all countries, the low-carbon energy transition relies on technical and managerial innovation along multiple supply chains. Many of China’s most successful and innovative companies are in the private sector. Research suggests that China’s SOEs tend to be less innovative than the private sector. The continued dominance of SOEs in China’s energy sector may constrain the pace of low-carbon innovation, especially in design-intensive fields requiring high stakeholder coordination and engagement.²⁷

Fifth, China—like all major emitters—will need to do more for the world to achieve its climate goals.

In the Paris Agreement, more than 190 nations agreed to the goal of:

“Holding the increase in the global average temperature to well below 2°C [3.6°F] above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C [2.7°F] above pre-industrial levels.”²⁸

In the Paris Agreement, these countries also agreed to submit national action plans for addressing climate change (known as Nationally Determined Contributions or “NDCs”). Almost all have now done so. Many countries have also pledged to achieve net zero emissions by mid-century.

However these NDCs and national net zero pledges fail to achieve the goals of the Paris Agreement. According to the United Nations Environment Program, if current NDCs were fully implemented, global average temperatures would nevertheless rise roughly 2.7°C (4.9°F) above pre-industrial levels. If all national net zero emissions pledges were fully achieved as well, temperatures would nevertheless rise roughly 2.2°C above pre-industrial levels.²⁹

Yet the NDCs are not being fully implemented. UNEP reports that Australia, Brazil, Canada, Mexico, the Republic of Korea and the United States, among others, are all at risk of failing to meet their NDC targets. Few if any countries have policies in place to achieve net zero emissions of heat-trapping gases by mid-century.³⁰

For all these reasons, it is clear the world will need to do much more to meet its climate goals. It is also clear that China must play an important role in these efforts, for several reasons.

First and most obvious, China is the world’s largest emitter of heat-trapping gases, by far. There is no solution to climate change without China.

Second, China has enormous potential to contribute to solutions to climate change. In the past decade, it played a central role in dramatic cost reductions for solar power—a technology with the potential to significantly reduce power sector emissions around the world in the decades ahead. China’s current investments in electric vehicles could play a transformational role for that technology, helping reduce transport sector emissions around the world as well. The Chinese government’s focus on innovation and commitment to clean energy could help generate important discoveries and advances with global impacts in the decades ahead.

Third, many countries look to China’s development model with enormous interest. Countless countries would like to emulate China’s economic miracle. The way China integrates climate change into economic development has the potential to be a model for many countries around the world.

Fourth, China’s activities abroad have considerable emissions impacts. The extent to which Chinese financial institutions and companies support low-carbon infrastructure under the Belt and Road Initiative could make a significant difference in global emissions in the decades ahead.³¹

Finally, China will play an important role in climate diplomacy in the next several years and beyond. As the world considers next steps under the Paris Agreement (including the Global Stocktake scheduled for COP-28 in fall 2023), the Chinese government’s positions and views will be key to shaping a global consensus.³²

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As the world meets the climate challenge in the decades ahead, China’s role will be central.