Summary: 

In Q4, the State Council released a top level decarbonization policy framework and action plan, setting targets and directions for industries and localities to carry out decarbonization work. These include limiting “two high” projects and promoting renewable energy sources. However, the government has to balance its climate ambitions with the need for energy security to avoid power rationing and production curtailment, which hit industry badly in 2021 Q3. Thus, China’s leadership signaled a continued role for coal both at home and COP 26, and set up funds to explore the use of clean coal. Q4 also saw China’s carbon accounting structure take shape, involving senior officials, industry association leaders, and experts from chemical MNCs. 

Key developments

China’s “1+N” decarbonization policy system comes into shape

October saw key steps in the development of the “1+N” policy system to achieve China’s dual carbon goals, where “1” refers to overarching policy principles and “N” refers to action plans for major emitting sectors and supporting measures such as technology, statistical accounting, and fiscal matters. 
The “1” aspect of this approach was unveiled on October 24 in opinions on carbon peaking work issued by the State Council, which sets the following long-term targets:

• By 2025, reduce energy consumption per unit of GDP by 13.5% and CO2 emissions per unit of GDP by 18% compared to 2020, and increase the share of non-fossil energy consumption to about 20%.

• By 2030, cut CO2 emissions per unit of GDP by over 65% compared to 2005, increase the share of non-fossil energy consumption to about 25% and the total installed capacity of wind/solar power to over 1200 GW. 

• By 2060, the share of non-fossil energy consumption shall reach over 80%.

The document specifies 31 tasks across 10 areas, including industrial structure adjustments, a clean and low-carbon energy system, green rural-urban construction, and decarbonization-related legal and accounting systems. Tasks to note include:

• Formulate sectoral carbon peaking action plans (e.g., petrochemicals, buildings), strictly control “two high” projects (esp. control of petrochemical capacity and ethylene projects) and promote green/low-carbon industries (such as NEVs, green manufacturing). 

• Tighten control of energy consumption/intensity, improve energy efficiency for various sectors and data centers, develop non-fossil energy, and push market-oriented reform of the power sector. 

• Accelerate the development of NEVs, ultra-low energy buildings and green/low-carbon building materials.

• Enact decarbonization-related laws like the Circular Economy Promotion Law, tax policies, standards, and monitoring systems. Implement tax incentives for NEVs and energy conservation. 

Two days later, State Council issued Action Plan for Peaking Carbon Before 2030, the lead “N” policy for the “1+N” system, to guide industries in decarbonization planning. Ten major actions are listed, and key actions include: 

• Promote carbon peaking in the petrochemical industry. Strictly limit new oil refining projects, promote the lightening of petrochemical and chemical raw materials, and push the coordinated development of petrochemicals for building materials, chemical fibers, etc. The plan aims to cap China’s primary crude oil processing capacity at 1 billion tons/year by 2025. 

• Develop circular economy. Promote clean, large-scale and standardized utilization of renewable resources and products. Tighten plastic pollution control across the whole chain. The total recycling of nine major renewable resources, including waste plastics and rubber, shall reach 450 million tons by 2025 and 510 million tons by 2030.

• Support green urban-rural development and low-carbon transport. By 2025, new buildings in cities and towns will 100% comply with green building standards. By 2030, the proportion of NEVs among new vehicles shall reach about 40%. 

• Energy conservation, carbon reduction and efficiency enhancement. Carry out projects to conserve energy and reduce carbon emissions in key industries, including petrochemicals, building materials, and power. Tighten supervision over energy conservation with methods such as green electricity and penalties.

COP 26: China outlines decarbonization framework and signals importance of clean coal

COP26, held from October 31 - November 12, saw a flurry of announcements on China’s plans for decarbonization in the years and decades to come. On October 27, the government published a white paper on China’s Policies and Actions on Climate Change, to showcase China’s commitment and approach to tackling climate change.

Clean coal looks set to play a major role in China’s energy mix for some time to come. At COP 26, China and India intervened to downgrade the joint pledge to “phase down” (rather than “phase out”) coal use. 

In a State Council executive meeting in November, Premier Li Keqiang announced the creation of a CNY 200 billion (USD 31.4 billion) special re-lending fund for coal industrial chain upgrades including clean and efficient coal processing, utilization, and green intelligent mining. 

COP26 also saw a surprise breakthrough with the US-China Joint Glasgow Declaration, pledging bilateral cooperation over the next decade on topics from promoting renewable energy and consolidating regulatory frameworks to developing technology applications such as carbon capture utilization storage. 

Meanwhile, to make more capital available for green initiatives, on November 8, the People’s Bank of China announced it will lend state-owned banks 60% of loan principals for green projects at a low-cost 1.75% interest rate. These funds will support projects in clean energy, energy conservation, environmental protection, and carbon reduction technology.

Central work conferences outline policy directions for energy and decarbonization in 2022

In December, top policymakers outlined key directions for energy policy in the coming year at two annual work meetings held in Beijiand reliable renewable energy sources. Coal will remain the main source in the energy mix, with the promotion of cleaner and more effng. The Centric Economic Work Conference gave guidance to address the over-zealous “campaign-like” decarbonization efforts, stating that the gradual phase-out of traditional energy sources should be based on the set-up of safe icient coal use. To promote renewables and prevent undue disruption to industry, newly added renewable energy capacity and energy used for producing raw materials are not subject to total energy consumption quotas set for localities. 

At the 2022 National Energy Work Conference held on December 24 in Beijing, National Energy Administration Director Zhang Jianhua outlined key tasks for energy work in 2022, echoing the continued importance of coal alongside efforts to make the energy sector more green, including the following steps: 

• Issue policy guidance such as the Implementation Plan for Carbon Neutrality in the Energy Sector and the 14FYP for a Modern Energy System. 

• Accelerate renewable energy substitution by building wind and PV power bases in the northeastern, north, and northwestern regions.

• Strengthen technological innovation by achieving breakthroughs in key green technologies, including renewable energy, stored energy, and hydrogen energy. 

China’s carbon accounting structure takes shape

Previously, the Workgroup for Statistical Accounting of Carbon Emissions, formed by the Leading Small Group on Carbon Peak and Carbon Neutrality in September, outlined a clearer picture of its organizational structure. Group leaders are senior officials from National Development and Reform Commission (NDRC) and National Bureau of Statistics (NBS). NDRC will draft medium- and long-term strategic plans for various sectors while NBS will handle statistics on carbon emissions. 

Aside from NDRC and NBS, over 20 ministries and associations are members, including Ministry of Environment and Ecology (MEE), which oversees the implementation of national emission reduction targets; Ministry of Industry and Information Technology, which drafts decarbonization industry policies and standards; and China Petroleum and Chemical Industry Federation (CPCIF), which coordinates a workgroup for carbon statistical accounting in the chemical sector.

CPCIF has gathered experts from BASF, Covestro, ExxonMobil and Shell for the carbon statistical accounting workgroup and is formulating industry standards related to green product design, intelligent manufacturing, and environmental responsibility for petrochemical/chemical firms.

After the “1+N” system was outlined on December 1, Fu Xiangsheng, vice chairman of CPCIF, published an article on decarbonization routes for the petrochemical sector. These include accelerating low-carbon technology innovation and digital transformation, pushing R&D on green and energy-saving techniques and equipment, and strictly aligning with national energy efficiency benchmarks and baseline levels to promote technological upgrading.