Key points on China’s 14th Five-Year Plan
From October 26 to 29, the Fifth Plenary Session of the 19th Communist Party of China (CPC) announced the upcoming publication of the 14th Five-Year Plan (FYP) (2021-2025) and a long-term goal for 2035 to be released sometime in 2021. The FYP would set the tone for achieving carbon neutrality while ensuring economic development. It will also represent an important step in China’s energy transition and efforts to reduce climate change.
China has been issuing the FYP since 1953 for every five years, where it details a series of social and economic development initiatives ranging from growth targets to reform implementations. Chinese authorities like NDRC will draft specific measures based on the general idea conveyed from the CPC and submit to the top policymaker, State Council, which will then be officially released once it passes the review during the Two Sessions in early 2021.
Under the previous 13th FYP, the Chinese government only capped its total energy consumption at 5bn tons of standard coal equivalent, while ignoring the carbon intensity of energy sources. Carbon intensity refers to CO2 emission per unit of GDP. According to the Ministry of Ecology and Environment (MEE), the Chinese authority responsible for energy-related issues, the bureau will set a carbon intensity target for the 14th FYP following the releases of carbon emission targets. In other words, increasing GDP paired with measures to decrease carbon intensity indicates that a nation is developing its economy with carbon reduction efforts.
In other aspects related to energy transition in the 14th FYP, Wang Yi, a member of the Standing Committee of the National People’s Congress (NPC) and a government adviser on climate and sustainability, suggested during the NPC sessions this year that China should replace the energy consumption limit with a carbon emission threshold. This would, in effect, control coal consumption in a more targeted manner and encourage more use of low-carbon power, as opposed to enacting a blanket energy limit on industries.
What does the 14th FYP mean for China’s coal power industry?
Given China’s goal to achieve carbon neutrality by 2060, the energy industry is poised for a disruptive shift from fossil fuel energy to renewable energy sources. Citing He Jiankun, the academic chair of the Institute of Climate change and Sustainable Development at Tsinghua University, China may have to increase the use of non-fossil energy to over 90% of its total power generation by 2050 to meet its pledge of carbon neutrality.
However, according to data provided by the International Energy Agency (IEA), China at present still relies heavily on coal and oil for energy production. These two energy sources contributed to around 60% of its total energy supply in 2018. While a complete shift to renewable energy is difficult, China has been gradually transitioning its energy mix to cleaner sources, such as natural gas, hydro, biofuels, wind, solar, etc. According to the National Bureau of Statistics, in 2019, Chinese energy consumption went up 3.3% YoY. Among them, the use of natural gas, hydro, nuclear, and wind power increased by one percentage point, with the proportion of coal consumption down 1.3 percentage points.
To reduce the use of fossil energy, China is pushing for the electrification of terminal, and energy-consuming industries, especially the transportation and industrial sectors. For example, China expects to fully phase out traditional fuel vehicles by 2050, by introducing electric cars. Nevertheless, China is still expanding its coal-fired electricity capacity. At present, the country has coal-fired power stations with a combined capacity of over 400m kilowatts under construction. These will need another two to 2.5 years to come into use and thus, will extend China’s coal power capacity expansion through at least 2025. Meanwhile, China’s established coal power stations now have a total capacity of 1.06bn kilowatts. According to Sina, China will peak in its coal-fired electricity demand to 1.2bn kilowatts in 2025, signifying that the country may need policy controls to limit its coal power capacity expansion to meet a carbon neutrality goal.
How will the 14th FYP promote China’s CSR development?
In the last ten years, during implementation of the 12th and 13th Five-Year Plan, Chinese companies have increased their CSR efforts in accordance with policies surrounding domestic consumption, rural revitalization, low carbon transformation, etc, and these will continue in the 14th FYP rollout. In detail, for the domestic consumption sector, Chinese firms are expected to launch more innovative and environmentally friendly products due to major consumer groups becoming younger. Moreover, there will be a change in their consumption structure from favoring a large quantity of cheap products to higher-quality, sustainable products. The proportion of retail sales of consumer goods satisfying basic living needs to total retail sales will continue to decrease, while that of consumer durables will increase. Consequently, Chinese firms, especially business-to-consumer (B2C) enterprises, will need to consider how they can add corporate social responsibility in their marketing and product development.
In regards to social responsibility, mainland businesses will increasingly contribute to rural revitalization, which is a goal that the 14th FYP will include. In the past, under the 12th (2011-2015) and 13th FYP (2016-2020), the Chinese government prioritized industrialization and urbanization, laying the ground for agricultural modernization and rural poverty alleviation. In the future, companies will not only support rural areas through donations, but most likely leverage their professional advantages to help those regions create economic value.
Since a transition to low-carbon emission in the 14th FYP will be critical to China’s pledge for carbon neutrality, Chinese companies have also need to seek ways to comply with the newest rules. First of all, it will be necessary for them to more accurately estimate their respective carbon emissions and make disclosures, especially for listed companies. In the previous FYPs for the last decade, the Chinese government only demanded firms to improve green development, whereas cutting carbon emission was not explicitly included in the plans. Thus, corporates will be held to a higher standard in regards to their environmental accountability in the coming years.
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