The 21st Century climate challenge

Box 3.10Coal and energy policy reform in ChinaWith the world’s fastest growing economy, one-fifth of its population,and a highly coal-intensive energy system, China occupies acritical place in efforts to tackle climate change. It is the world’ssecond largest source of CO 2emissions after the United Statesand is on the verge of becoming the largest emitter. At the sametime, China has a small per capita carbon footprint by internationalstandards, just one-fi fth of that in the United States and a third ofthe average for developed countries.Climate change confronts China with two distinctive butrelated challenges. The fi rst challenge is one of adaptation. Chinais already registering highly damaging climate change impacts.Extreme weather events have become more common. Droughts innorth-eastern China, fl ooding in the middle and lower reaches ofthe Yangtze River and coastal flooding in major urban centres suchas Shanghai are all examples. Looking to the future, it would beno exaggeration to say that China faces the prospect of a climatechange emergency. Yields of the three major grains—wheat, riceand maize—are projected to decline with rising temperatures andchanged rainfall patterns. Glaciers in western China are projectedto thin by 27 percent to 2050. Large reductions in water availabilityare projected across several river systems, including those innorthern China—already one of the world’s most ecologicallystressed regions.As these scenarios suggest, China has a strong national interestin supporting global mitigation efforts. The challenge is to change theemissions trajectory in a high-growth economy without compromisinghuman development. Currently, emissions are on a sharply risingtrend. They are projected by the IEA to double to 10.4 Gt CO 2by2030. Under its 11th Five-Year Plan, the Chinese Government hasset a wide range of goals for lowering future emissions:• Energy intensity. The current targets include a goal of reducingenergy intensity by 20 percent below 2005 levels by 2010.Achieving that goal would reduce business-as-usual CO 2emissions by 1.5 Gt by 2020. Progress to date has been slowerthan anticipated, at around one-quarter of the required level.• Large enterprises. In 2006 the National Development and ReformCommission (NDRC) launched a major programme—the Top1000 Enterprises Programme—to improve energy effi ciencyin the country’s largest enterprises through monitored energyefficiency improvement plans.• Advanced technology initiatives. China is now becoming activein the development of IGCC technologies that could enhanceenergy effi ciency and set the scene for an early transitionSources: CASS 2006; Li 2007; Watson et al. 2007; World Bank 2006d.to CCS. However, while a demonstration project has beenauthorized, implementation has been delayed by fi nancingconstraints and uncertainties over commercial risks.• Retiring ineffi cient power plants and industrial enterprises.In 2005, only 333 of China’s 6,911 coal-fired power units hadcapacities in excess of 300 MW. Many of the remainder havea capacity of less than 100 MW. These smaller units tend touse outmoded turbine designs that combine low effi ciencywith high levels of emissions. An NDRC plan envisages theaccelerated closure of small, ineffi cient plants with a capacityof less than 50 MW by 2010. Targets have also been set forclosing ineffi cient plants in areas such as steel and cementproduction, with stipulated reduction quotas for regional andprovincial governments. In 2004, large and medium-sized steelmills consumed 705 kg of coal per tonne of steel, while smallermills consumed 1045 kg/tonne.• Renewable energy. Under a 2005 renewable energy law, Chinahas set a national target of producing 17 percent of primaryenergy from renewable sources by 2020—more than twice thelevel today. While hydropower is envisaged as the main source,ambitious goals have been set for wind power and biomass,backed by financial incentives and subsidies.These are ambitious targets. Translating them into measuresthat shape energy market outcomes will be difficult. For example,very small and highly inefficient units (less than 200 MW) accountedfor over one-third of the new capacity installed from 2002 to 2004.That outcome points to a governance challenge in energy policy.In effect, a signifi cant proportion of Chinese coal-fi red powerplant development is out of central government control, with localgovernment not enforcing national standards. Similarly, there arevery large gaps in effi ciency between small enterprises and thelarger enterprises subject to government regulatory authority.Enhancing energy efficiency and reducing carbon intensity willrequire sustained reforms in China. At the same time, the currentdirection of energy reform, with a growing emphasis on effi ciency,renewables and carbon mitigation, opens up opportunities forinternational cooperation and dialogue on climate change. The entireworld has an interest in China deploying coal technologies that willfacilitate the earliest and most rapid cuts in CO 2emissions—andthe earliest transition to CCS. Multilateral fi nancing and technologytransfer could play a critical role by meeting the incremental costsof a low-carbon transition, creating incentives and supporting thedevelopment of capacity.3Avoiding dangerous climate change: strategies for mitigationYet the experience of coal again provides apowerful demonstration of current failuresin international cooperation. While there hasbeen a proliferation of exercises in cooperation,delivery has been largely limited to dialogue. Oneexample is the Asia-Pacific Partnership on CleanDevelopment. This brings together a large groupof countries—including China, India, Japan andthe United States—committed to expandingthe development and deployment of low-carbontechnology. However, the partnership is notbased on binding commitments and has so farHUMAN DEVELOPMENT REPORT 2007/2008 151