By Anders Hove
For two days last week, energy experts in Beijing didn’t come to the office. That’s because most of them were at an important conference on establishing caps on China’s coal production and use. The China Coal Consumption Cap Plan and Policy Research Project, run by the National Development and Reform Commission, held a workshop attended by more than 400 Chinese and international experts to discuss the health, economic and environmental aspects of capping coal energy in China.
Why was this conference a big deal? It came just a few days after the announcement of the U.S.-China climate agreement, in which China pledged to hit peak carbon emissions before 2030. The urgent question now is how will China achieve its goals—exactly what the experts were discussing. Just two years ago, few officials were even talking about setting concrete plans for capping carbon emissions.
Today, peak coal in China is official policy. The questions now are when and how.
A new paper by the Rocky Mountain Institute and Lawrence Berkeley National Laboratory argues that China can achieve its goals by promoting electric vehicles, designing better buildings, and building a more efficient energy grid. At the conference, Yu Cong of the NDRC’s Energy Research Institute echoed their emphasis on the importance of better buildings (the subject of a recent Paulson Institute conference in Beijing) and pointed to an apartment complex in Northeast China that reduced energy consumption by 92 percent by using passive house design.
The opening of markets will be a key factor in helping China reach its coal targets, too. For one thing, the U.S.-China climate agreement will open China’s markets to U.S. energy technology, ranging from smart buildings to super-materials for solar, LEDs, and batteries. That means China may soon open up its power market to competition that can promote efficiency, renewable integration and more widely distributed energy generation.
Moves to fix the energy pricing system will increase energy efficiency, too. Pricing structures until now have incentivized utilities to produce and sell as much energy as possible. But Shenzhen last week announced a pilot project that will create a utility revenue cap that will encourage the local utility to save energy by decoupling grid company revenue from sales. This week’s national energy action plan called for establishing wholesale power markets and direct trading in electricity, which would promote energy efficiency and unblock access to distributed power.
China is also designing emissions trading mechanisms to implement coal and carbon caps. The country already has seven carbon trading pilot projects, and other trading mechanisms are being explored. At last week’s conference, Zhang Xin, Deputy Director of Carbon Market Management at the National Center for Climate Change Strategy and International Cooperation, suggested that the eventual goal is to determine the most effective way to implement caps—either through trading coal quotas or emissions allowances.
While skeptics have argued that China’s commitments are too incremental to guarantee the world prevents temperatures from rising two degrees Celsius this century (scientists say that above that would lead to apocalyptic results), China’s actions would have been unimaginable a few years ago. Assuming implementation and continued technology progress, there is every reason to believe the next few years will bring even more ambitious steps.
Anders Hove is Associate Director for China Research at the Paulson Institute.