China’s Long Road to a Green Economy

Government faces severe challenges is an over worn phrase but in China’s case it is an understatement – the balancing act of maintaining economic growth and political stability while simultaneously reducing greenhouse emissions and improving the environment on such a grand scale is a tall order.

There has been much justified criticism of the failure to protect the environment for decades and China’s water crisis is just one element of a wider malaise.  But there is also a sense that China is finally changing its ways and the root of this perhaps lay in the third plenary session of the 18th Central Committee of the Communist Party which met in 2013 around the time of the last major leadership changing of the guard. The plenum’s conclusions supported general support for an ecological civilization – which sounded rather vague and high minded, but actions soon followed the words.

In 2014 Prime Minister Li very publicly declared war on pollution, this initiative was building on a series of declarations going back a decade, but this was couched in strong emotional language rather than just a bland policy statement. Public awareness about air and water pollution, villages where heavy metals and pollution have given all or the majority of residents cancer and food safety scandals have risen to the top of the political agenda.

The Chinese Communist Party know that their legitimacy rests on its competency and while for many years this was based on increasing wealth, but people increasingly realise that material riches need to go hand in hand with health and quality of life. As Prime Minister Li said “Being rich and well-off isn’t OK either if the environment deteriorates,

For the coal industry in particular its future may lie in a rather obscure policy document published last year by the National Energy Administration (NEA) Clean and Efficient Coal Use 2015 – 2020 which outlines the plan to reduce coal’s share in the energy mix down to 62% by 2020 from around 70% now.

But the government’s strategy on new coal power fired stations has been rather contradictory – there was a suspension of new plants being built in 2016 but prior to that there was a flurry of new construction projects, partly because there was an assumption the government would stop any further building. These new power stations will most likely add to the overcapacity already apparent in across the industry with many power stations operating at well below their maximum capacity.

Local governments remain keen to construct new coal power stations as they provide revenue and jobs. The coal industry also retains a lot of influence in China, it has provided the lion’s share of Chinese energy production which has driven its much vaunted industrial growth for the last couple of decades. Perhaps thanks to this legacy for many years renewable energy has been “curtailed” by fossil fuels as these get priority across the Chinese grid, as a result 15- 20% of renewable energy is currently wasted because current incentives favour older forms of energy.

Now the Chinese energy agency’s new plan (Document 625) is for energy to be “dispatched” with precedence given according to its emissions levels – which will create the incentive for renewable energy to be prioritised. The energy created by renewable sources has to be purchased by either the grid or the cost is met by fossil fuel producers. This rather technical policy adjustment should help tip the scales in favour of renewables and hasten the decline of coal.

A looming water shortage is compelling the government to invest in water saving technology and in renewable energy sources and finally get tough with polluters.

There is now a government warchest of USD 330 billion on hand to tackle pollution and also talk of the currently impotent Ministry of Environmental Protection (MEP) being beefed up and allowed to target a complacent industrial sector which has been allowed to break the already weak environmental legal protections with unlimited daily fines.

Chinese industry is also grossly inefficient when it comes to energy and water use and refitting factories and processing plants with modern equipment would dramatically reduce usage and lower costs. The Wilson centre estimated that the Chinese textile industry could make 25% savings in water and 30% in energy through capital investments which could be repaid in under a year.

The underlining issue is that water in China is priced too low – and the government is loath to allow any increase for economic reasons, but this would reduce demand and push users to invest in water conservation. Introducing greater market signals into the water industry would improve matters at stroke (albeit at the cost of higher prices) and make users treat water with the importance it deserves.

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