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China Briefing: Power market reform; ‘Energy-conserving’ 14FYP scheme; Xi’s trip to coal province

China Briefing
Welcome to Carbon Brief’s China weekly digest. 
We handpick and explain the most important climate and energy stories from China over the past seven days.

Two Chinese central government agencies have announced joint directives to deepen the nation’s power market reform. A Beijing-based professor has told Carbon Brief that the document – published last Friday – intends to guide China to build a Europe-style unified power market and signifies that power market reform is now at a critical stage.
The news followed the publication of a plan on “energy conservation and emissions reduction” for the 14th five-year plan period (2021-2025). Carbon Brief explains the purpose of the policy document and how its significance has evolved below.
Elsewhere, China’s president Xi Jinping inspected the nation’s largest coal-producing region last week ahead of the Lunar New Year holiday, state media said. In one of his stops, Xi visited a thermal power company and received reports on the development of “clean coal” technology.
Key developments
China deepens power market reform with ‘guiding opinions’
WHAT: China’s National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) – the state economic planner and state energy regulator, respectively – jointly published a set of directives on “fast-tracking the construction of [a] unified national power market” on 28 January. The lengthy document – at 4,690 Chinese characters – contains various short-term and long-term orders, guiding China to build a nationwide single power market to facilitate its energy transition under its climate goals. To summarise, the directives instruct that a “unified national power market system” should be “initially” established by 2025 – a move that could improve market-led, cross-region trading of renewable energy. They also order the nation to “basically” complete the system by 2030, which would allow renewable energy to participate in market trading “fully” and “further optimise” the distribution of power resources. 
WHO: The document was sent to more than a dozen recipients, ranging from government agencies to power grids. On the government front, they include all of China’s provincial, regional and municipal governments as well as the ministries, bureaus and institutions affiliated with the State Council, China’s highest organ of state administration. In terms of power grids, the list names the China State Grid and China Southern Power Grid, the two state-run companies in charge of transmitting and distributing power in China. It also includes major state-owned power generating companies – such as China National Nuclear Corporation and China Energy – plus the organisers and participants of power trading. 
HOW: The directives were delivered in the form of “guiding opinions (指导意见)”. According to a government explainer, “opinions” refers to those official documents that “provide insights and solutions to important issues”. (For example, the leading document under China’s “1+N” policy framework for achieving its climate goals – which was released last October ahead of COP26 – is a set of “opinions” in its original Chinese title.) Prof Yuan Jiahai from the North China Electric Power University in Beijing told Carbon Brief that the latest document was named “guiding opinions” because it would have a “long-term, directional and systematic impact”.
WHEN: The “guiding opinions” were published three days before the Lunar New Year holiday – an unusual time for the central government to issue an important release. (A draft of the document had been discussed and passed at a government meeting hosted by Xi on 24 November last year. Its sign-off date – according to the final document – was 18 January.) Prof Yuan noted that the timing sent “a clear policy signal that China’s power system reform and power market development have entered a deep-water zone”. (In Chinese, “deep-water zone” is often used as a metaphor to mean a critical and challenging period.) He added that it showed the policymakers’ “determination to push forward the reform”. Dr Yang Muyi – senior electricity policy analyst of Asia at Ember, an independent climate and energy thinktank – told Carbon Brief that, in his “bold speculation”, the timing reflected that China’s leadership had “fully recognised the urgency of reducing emissions”.
WHY IT MATTERS: According to Prof Yuan, this is the first Chinese government document that has clearly set the goal of establishing a national power-trading centre. The move, in his opinion, would allow power to be traded across the nation in a system similar to that of Europe and not be subject to the territorial barriers under the current operation of the China Southern Power Grid and China State Grid. (The former is in charge of power transmission and distribution in five provinces in southern China while the latter deals with the missions in the rest of the country.) He added that, in line with the country’s climate goals, the directives could “promote the sharing of power resources on a larger scale across the country, improve the stability and flexibility of the power system, and achieve low-carbon transformation and high-quality development at a lower cost using market-based means”.
QUOTES: Dr Yang said: “To set up a coordinated national market for electricity trading is a key aspect of China’s efforts to electricity decarbonisation. Due to the fact that renewable energy sources are often distributed unevenly in time or location, a better-coordinated national market could help improve the flexibility of the electricity system so that it could be able to accommodate large outputs from variable renewable sources while maintaining supply reliability and security. Electricity decarbonisation is an important part of China’s agenda to achieve its ‘dual-carbon’ goals.”
Beijing releases 14FYP scheme on energy conservation
WHAT: On 24 January, China’s State Council published its “work scheme” on “energy conservation and emissions reduction (节能减排)” for the 14th five-year plan (FYP) period, which runs from 2021 to 2025. The document is not to be confused with the yet-to-be-released sectoral 14FYP on energy, which will lay out an overall development plan for the energy sector for the five years. 
TARGETS: The scheme has one specific energy target: by 2025, the nation’s energy intensity – energy use per unit of GDP – should be 13.5% lower than the 2020 level. The objective is not new and had been mentioned in the “opinions” and carbon-peaking “action plan” under the “1+N” framework from last year. Separately, the scheme stipulates that the emissions of chemical oxygen demand, ammonia nitrogen, nitrogen oxides and volatile organic compounds should drop by 8%, 8%, “more than 10%” and “more than 10%”, respectively, compared to the 2020 levels by 2025.
POLICY: “Energy conservation and emissions reduction” is a national policy aimed at cutting energy intensity and the emissions of pollutants. It was first mentioned in the 11FYP running from 2006 to 2010, a “key period” that saw China “accelerating” its social and economic development. In 2007, the State Council established a “leaders group for tackling climate change as well as energy conservation and emissions reduction” to take charge of relevant works. This leaders group still exists today and is currently chaired by China’s premier, Li Keqiang. It is different from the leaders group formed last May to help China deliver its climate goals. (Read more on the latter group in this Carbon Brief explainer.)
PURPOSES: Since 2010, the State Council has released a dedicated energy-conserving and emissions-reduction scheme aligned with the FYP periods every five years. Those plans “served as the centrepiece of China’s national energy policies”, Dr Kevin Mo – principal at innovative Green Development Program (iGDP), a Beijing-based consultancy focusing on green and low-carbon development – told Carbon Brief. However, since President Xi set the goals of peaking carbon emissions before 2030 and achieving carbon neutrality before 2060 in late 2020, the “dual-carbon” goals have become dominant policy drivers. The latest energy-conserving scheme says that its purpose is to “lay a solid foundation for the realisation of the carbon-peaking and carbon neutrality goals”.
QUOTES: Dr Mo said that the 14FYP energy-conserving scheme was “much more condensed” than the 13FYP (2016-2020) version and “attracted less attention”. He noted that this was “probably due to China’s strategic transition from energy conservation to carbon reduction”. He pointed out that a cap on total energy consumption is absent from the latest scheme “even though it is mentioned in the section of general requirements”. In comparison, the 13FYP version capped the total energy consumption at five billion tonnes of standard coal equivalent (tce). “Furthermore, the 13FYP version broke down the national caps of total energy consumption and pollutant discharges by province; the 14FYP version made no such effort,” Dr Mo said, adding: “It is likely that the recent global energy crunch alarmed the Chinese government, who recently emphasised that China shall make energy policies based on the reality of coal dominance.”
SIGNIFICANCE: Qin Hu – senior director of research at Environmental Defense Fund’s Beijing representative office – told Carbon Brief that energy conservation and emissions reduction is a “major measure” for China to achieve its carbon-peaking and carbon neutrality goals. He said the 14FYP scheme, as a regular policy release, represented a “comprehensive deployment” of energy-saving works from 2021 to 2025 and clarified the key targets and tasks. He added that it “provides solid support” for the nation’s “dual-carbon” pursuit. 
‘CLEAN’ COAL: Matt Gray – co-chief executive of TransitionZero, a London-based “climate analytics firm” – told Carbon Brief that the scheme included several “increased targets”, such as 20% of new vehicle sales to be electric by 2025, which is “likely due to the accelerated growth of the EV sector”. But he noted that its instruction to promote “clean and highly efficient utilisation of coal” was “of particular concern”. He explained: “Coal is China’s 800-pound gorilla and phaseout is absolutely critical in order for China to meet its climate targets. Failure to caveat spending to avoid coal plant investments will have implications on China’s net-zero pledge and economy.” 
Other news
XI: China’s president Xi Jinping visited the nation’s largest coal-producing province, Shanxi, last Wednesday and Thursday to wish the locals a happy Lunar New Year, state news agency Xinhua reported. Xi went to various places in the province, including a thermal power company, Xinhua said. It added that Xi received reports on “clean coal” technology and industry transition at the company. Xi then inspected the amount of coal the company had in its warehouse. CCTV, China’s state broadcaster, aired a 16-minute news clip about Xi’s trip. 
ORDERS: According to Xinhua and CCTV’s readouts, Xi gave a speech at the thermal power company. He emphasised that pursuing carbon-peaking and carbon neutrality “is not what others ask us to do, but [something] we do on our own initiative” – a slogan Xi had previously used in reference to China’s efforts to tackle climate change. Xi also stated that achieving “dual-carbon” goals was not something that “can wait” or “be rushed”, instead it should be carried out steadily. He called on the factory’s workers – and by extension all energy workers in China – to recognise that China was “rich in coal, poor in oil and low in gas”. He ordered them to strengthen coal and energy supply.
NON-FOSSIL: China’s installed capacity of non-fossil power generation is expected to account for half of its total power generation capacity for the first time by the end of 2022. The prediction was made by the China Electricity Council (CEC) – a state-approved not-for-profit organisation. It projected that China’s total installed capacity of power generation would reach 2,600GW by the end of this year and around 1,300GW of it would be non-fossil. In 2011, China’s non-fossil capacity reached 1,120GW, making up 47% of the overall capacity and overtaking that of coal power for the first time, the CEC said.
RENEWABLE: The CEC’s report projected the installed capacity of China’s wind and solar power to be 380GW and 400GW, respectively, in 2022. Carbon Brief has calculated the figures against the 2021 year-end figures from the National Energy Administration. The calculations showed that – based on the CEC’s forecasts – China’s wind and solar power capacity will increase by around 52GW and 93GW, respectively, this year. Their combined growth – at 145GW – would be a 44% year-on-year leap from the 101GW increase in 2021. (Last week’s China Briefing reported on the rise of wind and solar power in 2021 in China.)
GLOBAL CALL: A new paper has found that China’s role in international collaboration and coordination in climate action is “increasingly important”. The paper – authored by policy advisers from the Grantham Research Institute on Climate Change and the Environment in London – said that the finding reflected “the growing and intensifying economic ties between China and the rest of the world, particularly emerging markets and developing economies”. Apart from recognising China’s achievements to date, the paper called on the nation to go further to play a bigger role in global climate cooperation.
OPPORTUNITIES: Lucie Qian Xia, a co-author of the above paper, told Carbon Brief: “In lieu of focusing on China as a source of climate risk, given its status as the world’s largest emitter of carbon dioxide, we found enormous opportunities for China to become a stronger leader in climate action and diplomacy, which comes with its potential transition from a carbon-intensive manufacturing growth model to a more sustainable path; this relates particularly strongly to China’s roles as a source of investment in energy infrastructure, as a creditor and provider of sustainable development finance, and as a pioneer in research and innovation for green technologies and solutions.” 
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