China's Noise On Climate Reinforces Existing Energy Policies

For China, developing a climate plan is a way to reiterate and strengthen existing energy and environmental policies. Any steps that are taken as part of an effort to reduce GHG emissions will reinforce rather than dilute other policy objectives, including energy efficiency, promoting alternative energy sources, and cleaning the local environment.

With an almost insatiable energy appetite to power its vast economy, Chinese demand for traditional fuels continues to grow strongly with overall economic growth. Adding to its heavy use of fossil fuels, China will continue to be aggressive both in encouraging efficiency and in developing alternatives to coal and oil - including gas, nuclear and hydro power. But despite strident efforts to expand alternative and renewable energy supplies, China's high GDP growth and heavy use of fossil fuels is estimated to put China on track to eclipse the United States in total GHG emissions as early as this year.

After many years standing on the sidelines of international climate negotiations, at the APEC summit in mid-September, Chinese leadership put forth a multifaceted proposal for addressing climate change that targets international cooperation, sustainable development, and promotes scientific and technological innovation. Without committing to quantifiable emission targets, Beijing has turned up its visibility both on the international climate stage and on climate policy at home.

In light of high economic growth and heavy use of traditional energy sources, Chinese domestic policy now includes climate objectives. But China's new emphasis on climate change represents less of a new initiative than a shift in emphasis on long-standing policies to promote energy efficiency and air quality issues that have long featured in China's energy policy.

Adding climate change to China's official list of environmental objectives simultaneously procures several domestic and internationally focused benefits. In this way, China can temper international criticism and avoid environmentally-driven international sanctions. Local governments and industry are prodded to advance energy conservation and renewable fuel consumption goals. Furthermore, China stands to improve access to international technologies for GHG emissions reduction-and has already begun to do so in making bilateral pacts with the United States and Japan. And finally, there are the social costs and concerns related to major pollution levels in Chinese cities which, in some cases, have reached crisis point.

For global energy markets, China's quest to clean up its act means that China will become a more important player in renewable energy and low-carbon technology markets. If its rhetoric is backed up by action, could this be the trigger for concerted efforts within the other major economy, the US?

Key Conclusions

Chinese leadership acknowledges responsibility for addressing climate change.

Many actions required to reduce GHG emissions are steps that the leadership favors for purposes of energy security, efficiency and local air quality.

Adding climate policy to the list of official objectives provides a number of advantages, domestically and internationally.

China will continue to take steps toward GHG mitigation so as to temper international criticism and maintain economic growth.

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Dana Wong is an Analyst in the Markets and Countries Strategy practice, which houses PFC Energy's expertise in country risk and clean energy policy practice. For further information on this article contact Enews_dwong@pfcenergy.com.