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China Briefing: ‘Unified national energy market’; Guidelines for petrochemical; Energy storage analysis

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

Snapshot
China has called for the establishment of a “unified national energy market” in new guidelines. This attempt could help China withstand soaring global prices for oil and gas and enhance its domestic energy supply, according to Chinese analysis. The country has also published “guiding opinions” for the petrochemical and chemical industries over the 14th five-year plan period (2021-25). China Briefing assesses both documents below.
Analysts from the policy research firm Trivium China have analysed China’s recently published energy storage development scheme for Carbon Brief. They said energy storage and other “flexible” power resources are “becoming increasingly valued” in China’s power system.
On Wednesday, China’s leadership instructed the nation to increase its coal production capacity by 300m tonnes this year in its latest effort to ensure energy supply, according to state media. Meanwhile, China’s daily coal production reached “record high” last month as “Beijing urged miners to crank up operations”, Reuters reported.
Finally, China Briefing has been selected as a finalist in the Covering Climate Now Journalism Awards. The judges for the awards – which are run by Covering Climate Now, a US-based “non-profit collaboration of 500-plus news outlets” – praised China Briefing’s “punchy” language and original reporting. They added: “For anyone with an interest in global climate policy, this is a valuable service.” See all the finalists on the awards’ website. The winners are due to be selected in May. 
Key developments
Guidelines call for ‘unified national energy market’
WHAT: China’s State Council – the country’s top administrative agency – has issued instructions for setting up a “unified national energy market”. The orders are part of new guidelines published by the authority on 10 April, which direct the country to “accelerate the development of a big unified national market”. The guidelines also instruct the nation to establish nationally “unified” trading markets for carbon emissions and “water usage”.
‘OPINIONS’: The document was delivered in the form of “opinions”. (According to a government explainer, “opinions” refers to those official documents that “provide insights and solutions to important issues”.) It lays out the “general requirements, main goals and key tasks” of building a “unified national market” across all sectors – including the logistical, stock, labour markets and so on – from an “overall and strategic” level, according to the Paper, a Shanghai-based news website. CCTV, China’s state broadcaster, said that the aim of the “opinions” is to tackle “local protectionism” and remove “regional barriers” to allow commodities and resources to “move freely in larger areas”. Dong Yu – deputy executive dean of the China Institute for Development Planning at Tsinghua University in Beijing – told CCTV that the document intends to break “tangible and intangible” regional market barriers by setting nationwide rules. 
ENERGY: The document issues several directives to improve the trading of oil and gas, which China relies on imports for. It also calls for reform for market-based trading of gas. Additionally, the document orders the country to “improve a multi-layered unified power market system” and promote the establishment of a national electricity trading centre “at an opportune time”. It also stipulates that the country should “further play the advantage” of the national coal trading centre to “improve” a national coal trading market. (The national coal trading centre was established in October 2020 to enhance the production, supply, storage and sales of coal.)
INTERPRETATION: Li Lei – supervisor of the strategic research department at Shanghai Petroleum and Gas Exchange – told the Paper that a “nationally unified energy market” could allow oil, gas, power and coal to “complement” or “replace” each other in times of need. Li said that a “unified national market” means the “unification” of trading rules, price-forming mechanisms and the operating rules of infrastructure. Hou Ruining – a senior journalist with Shanghai-based Jiemian News – wrote that the guidelines were released amid a global trend of “increasing internal and external uncertainties”. Hou noted that, although China had enhanced the energy security from the production side with its energy plan for 2022, the new guidelines would strengthen energy’s “price security” from aspects including trading, price discovery and market circulation.  
SIGNIFICANCE: Dr Yang Zhiming – associate professor at the School of Economics and Management at the University of Science and Technology Beijing – told Carbon Brief that the directives have raised new requirements for China’s oil and gas, power and coal markets. Dr Yang said that each of these three markets is in a “different developmental stage” – the coal market is “mature”, the power market is in a “trial” phase, while the oil and gas market is still in an “exploration” stage – and the requirements echo these standings. He noted that the order points to the challenges facing China’s “dual-carbon” agenda. He added that, as the directive shows, coal is still the “mainstay” of China’s energy consumption, while the development of the oil and gas market – alongside the power market – is “still on the way”. He also said that in the context of the carbon peaking and carbon neutrality goals, in the future, the “low-carbon” energy market would be the “key focus area” of the “unified national market”.
QUOTES: Commenting on the order of establishing a “unified power market system”, Dr Yang Muyi – senior electricity policy analyst of Asia at Ember – described it as a “key” aspect of China’s policy approach to addressing its energy “trilemma” between supply security, affordability and environmental sustainability. Dr Yang told Carbon Brief: “[Such a system] can contribute to electricity decarbonisation by enabling more effective sharing of complementary renewable resources, like hydro, wind and solar. It can also contribute to the security of energy supply by enabling better sharing of backup and flexibility capacity across larger regions, as well as to lower cost of supply through the exploitation of scale and scope economies in electricity generation.” 
Government issues 14FYP ‘opinions’ for petrochemical
WHAT: On 7 April, China’s central government issued “guiding opinions” on “promoting the high-quality development” of the petrochemical and chemical industries – which are often grouped together and treated as one sector in China – over the 14 five-year plan (FYP) period from 2021 to 2025. The document repeatedly stresses the significance of the “low-carbon” development for these two industries, which it calls a “pillar” of China’s economy. In recent months, China has released a flurry of 14FYP-related sectoral instructions, including the 14FYP plan for energy and the 14FYP “implementation scheme” for energy storage. (This briefing analyses the latter below.) 
WHO: The petrochemical guidelines came from six national-level government bodies. They include four ministries, namely those for industry and information, science and technology, ecology and environment, as well as emergency management. The other two bodies are the National Development and Reform Commission and the National Energy Administration, which are the state economic planner and the state energy regulator, respectively. 
HOW: The document lists five “main goals” for the two industries over the five years, including enhancing technological innovation, improving the sectoral structure and promoting “high-quality development” that is “green, safe and low-carbon”. Each of the “main goals” contains quantitative targets. For example, the “opinions” require that by 2025, the energy consumption per unit product and the CO2 emissions per unit product of “bulk commodities” should “significantly decrease” and that the total emissions of volatile organic compounds (VOCs) should drop by “more than” 10% compared to the 13FYP period (2016-20).
MEDIA COVERAGE: China Daily, a state-run newspaper, interviewed Luo Zuoxian, who is head of intelligence and research at the Sinopec Economics and Development Research Institute, an affiliation of the Sinopec Group. (Sinopec Group is a state-run conglomerate comprising “a large number of” oil refining and petrochemical companies, according to its website.) Luo said that the “high-quality development” and the “upgrade” of petrochemical and chemical industry products has a “significant role” in improving China’s manufacturing quality. Prof Yang Chaohe, former dean of the School of Chemistry and Chemical Engineering at the China University of Petroleum, told another state-run newspaper, People’s Daily, that the petrochemical and chemical industries “concern all aspects of life”. He said, therefore, they should aim for “safe and stable” industry and supply chains, as well as “high-quality development” that is “green and low-carbon”.
SIGNIFICANCE: The document is “significant” because China’s industrial sectors have been trying to “strike a balance” between growth and cutting emissions, according to Ivy Yin, APAC energy transition and carbon specialist at S&P Global Commodity Insights, a provider of energy and commodities analyses. Yin told Carbon Brief that the industries’ focus had switched from decarbonisation and meeting energy intensity goals in 2020 to supporting economic growth in 2021. She said: “China’s refining sector will be at the crossroads of this decision-making in coming years, and the guidelines will help provide direction without losing track of both objectives.” The guidelines also point to the sector’s direction in the long run, such as shifting the focus to low-carbon and high-value chemicals production and developing hydrogen and carbon capture and storage (CCS) technologies, Yin added.
EMISSIONS: According to analysis by Shanghai-based Haitong Securities, the petrochemical and chemical industries emitted a combined 1.4bn tonnes of CO2 in 2020, accounting for about 14% of China’s total emissions that year. The figures match those reported by People’s Daily. PetroChina – a state-run company affiliated with Sinopec – reported last July that China’s Ministry of Ecology and Environment was planning to incorporate petrochemical and chemical industries into the national emissions trading scheme (ETS) – which only covers the power generation sector now – in the 2022-23 trading year. S&P Global Commodity Insights said last November that the national ETS “could be rolled out in the country’s refining and petrochemical sector as early as 2022-23, in a move that will introduce carbon pricing in one of the most energy-intensive sectors”. (Read Carbon Brief’s in-depth Q&A on China’s national ETS.)
WHY IT MATTERS: Oceana Zhou – senior editor of China energy policy and markets at S&P Global Commodity Insights – told Carbon Brief that, according to industry estimates, China’s refining and petrochemical sector was the country’s fourth most emission-intensive industry in 2020, after power generation, steel and building materials. She noted that China’s oil demand and CO2 emissions from oil combustion are “expected to peak around 2035”, five years later than the nationwide timeline, according to S&P Global Commodity Insights Analytics. “As such, more ambitious emissions abatement measures are anticipated from the government, so as to accelerate the decarbonisation progress of the related industries,” Zhou said. She added that promoting emissions mitigation and energy saving from existing industrial processes “will significantly accelerate the fulfilment of China’s carbon peaking and neutrality pledges”. 
Analysis
What is the significance of China’s energy storage scheme?
(This analysis is written by Andy Chen and Cory Combs – senior analysts at Trivium China, a policy research firm with headquarters in Beijing – for Carbon Brief. It assesses China’s recently published “implementation scheme for the development of new-type energy storage” over the 14FYP period.)
As China aggressively ramps up its development of renewables, flexible power sources – such as energy storage – are becoming increasingly valued in the national power system and are set to become a vital component in balancing future power demand and supply. 
The two major outstanding problems for the further buildout of China’s energy storage infrastructure are: reducing the total system costs and appropriately allocating the costs across the consumption chain. 
The implementation scheme on energy storage development directly targets the first issue, aiming for a 30% reduction in the costs by 2025. However, while the document touches on the market reforms necessary to alleviate the second issue, the measures remain high-level as the targeted reforms are likely still in the works.
Renewable energy plants will benefit from further energy storage development. Above all, the pairing of energy storage with wind and solar farms will help stabilise power output and increase sales to grid networks, especially as more local governments start requiring renewable plants to adopt battery storage before granting project approvals. 
By targeting a 30% cost-cut per unit of battery storage in five years, the scheme will enable cost reduction for renewables developers required to build up energy storage capacity. The scheme’s repeated calls for energy storage to play a greater role in replacing grid infrastructure might also potentially ease pressure on power generators by pushing grid companies to shoulder larger parts of the construction costs of storage projects.
Moreover, the scheme aims to encourage energy storage projects to participate in ancillary services markets, either as part of providers for aggregate energy storage services or virtual power plants. This, along with the establishment of demand-side responsive compensation mechanisms linked to electricity spot markets, is a very positive development for energy storage operators and developers. 
When combined with other important pricing reforms – such as expanding peak-to-valley power price ratios and allowing projects to participate in market trading independently – innovative business models centred around the ancillary services market will help increase the financial feasibility of projects by providing them with multiple revenue streams.
Finally, for the first time, the plan mentions the possibility of establishing an energy storage development fund. Industry insiders have long called for a national energy storage subsidy programme to help drive down the cost of energy storage products – calls the central government has so far ignored. Although tangible outlays remain to be determined, the outlook for such a fund is strongly positive.
(China Briefing has run analysis of China’s 14FYP for energy, written by Jin Boyang – senior analyst for energy transition at Refinitiv.)
Other news
COAL: China’s leadership has instructed the nation to increase its coal production capacity by 300m tonnes in 2022. The order was among a series of directives from an “executive meeting” held by the State Council and chaired by China’s premier, Li Keqiang, on 20 April. In general, the meeting called on the nation to “ensure” and “increase” energy supply to maintain economic and social development. On coal, the meeting ordered the nation to “give full play” to coal as the nation’s “mainstay” energy. It also included directives on retrofitting coal-fired power units, setting the annual revamping target as “more than” 220 gigawatts (GW) in installed capacity. Xinhua, China’s state news agency, reported on the meeting. The news came after China’s daily coal production hit “record high” in March, Reuters reported. China’s coal production reached almost 400m tonnes in March, a 14.8% year-on-year increase, the National Bureau of Statistics said.
NUCLEAR: On nuclear power, the State Council meeting instructed the nation to develop nuclear power in an “orderly” manner under the premise of “strict supervision and total safety”. It also said that the central government had approved three new nuclear power projects that “had been under preparation and comprehensive review for many years”. In an “exclusive” report, the Shanghai-based financial outlet Yicai said that each of the projects comprises two generation-three nuclear power reactors. An “nuclear industry insider” told Yicai that this was the first time since 2008 that China had approved six nuclear power reactors in one go. The insider described the approvals as “important measures” to implement the government’s instruction of developing nuclear power in “proactive, safe and orderly” manners.
MINE: Bloomberg reported on 7 April that officials in the northern Chinese city of Ordos had greenlighted a “massive” coal mine, called Baijiahaizi, which “can produce 15m tonnes [of coal] annually and operate for nearly 97 years” – or 96.8 years to be exact. The outlet said that “China wants miners to boost output and enhance energy security”. Bloomberg cited an independent Chinese industry website, China Coal Resource, as the source of the news. SupChina – a US-based website focused on China – also wrote about the “new mega-mine”, which it said “can operate for nearly a century”. The website reported that the approval showed that “Beijing is still committed to mining coal”. 
97 YEARS: It remains unclear whether the new licence for Baijiahaizi is linked to China’s recent coal push. (Read Carbon Brief’s recent analysis on that.) However, according to a release from the Natural Resources Bureau of Ordos on 4 April, the new licence “legalises” the mine’s operation. (China’s Ministry of Ecology and Environment said last November that the mine had begun operating “illegally” without environmental approval. The mine itself was approved by the state economic planner in 2019.) An image published by the Ordos authority showed that the licence lasts 30 years, not 96.8 years. Various experts told Carbon Brief that “96.8 years” is a technical figure and reflects how long the mine’s coal would last, based on its total reserve and designed annual production capacity.
‘POWER CRUNCH’: China’s “industrial heartlands” are at risk of “another power crunch” as the nation’s coal imports “dwindle” while domestic transport faces delays amid new Covid-19 outbreaks, Bloomberg reported on 14 April. The outlet said that eight provinces – including the manufacturing hub Guangdong – are “expected” to see a “growing shortfall” of coal for both industry and cooling needs, according to Li Xuegang, vice president of the China Coal Transportation and Distribution Association. (Read Carbon Brief’s analysis of last year’s power shortages, which struck dozens of provinces in China.)
OIL: Daqing Oilfield – China’s “largest oilfield” – has hit its quarterly target after putting out more than 10m tonnes of “oil equivalent” in oil and gas production in the first three months of 2022, Xinhua reported on 12 April. Daqing has set its annual oil and gas production goal as “more than” 40m tonnes of oil equivalent to “safeguard [the] country’s energy security”, the newswire said. It added that last year, the oilfield oil and gas output reached 43m tonnes of oil equivalent. (China’s 14FYP for energy has set quantitative targets on energy production, especially for oil and gas, to boost energy supply. China Briefing has analysed the plan.) 
EXTREME HEAT: The north China plain – which covers China’s capital Beijing, its nearby port city of Tianjin, and five neighbouring provinces – could face “15 extra days of extreme heat and ozone pollution” every year by 2050, the South China Morning Post reported, citing a new paper. The study’s lead author told the publication that the “co-occurrences of extreme high temperatures and ozone pollution” are expected to be “more frequent” by 2050 in China compared to the current level against the backdrop of “global warming and increasing heatwaves”. By 2050, the north China plain – home to nearly a quarter of China’s population – is projected to be the worst-affected area in China by ozone pollution and extreme high temperatures, the report cited the paper as saying.
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