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”.