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China Business Weekly

China's changing energy policy

Recent news that China is fast-tracking its investment in energy-saving technologies should be welcomed by everyone, not just those living in China who are subject to pollution from the use of fossil fuels. Given the size of China's economy, the positive implications for the rest of the world are significant, ranging from lower coal and gas prices to cheaper renewable energy technologies, not to mention the health of the planet's environment.

The State Council - China's cabinet - announced on August 11 plans to make the energy-saving sector a "pillar" of the economy by 2015, setting an annual growth target of 15 per cent to reach an output of 4.5 trillion yuan.

The plan allocates government funding to environmental-protection agencies to encourage technological innovation to address problems such as air, water and soil pollution, with energy-saving products, waste disposal, electric vehicles and pollution monitoring. It also provides for pilot programmes, standards, financing mechanisms, emissions and carbon trading.

The commitment is a logical step for the administration of President Xi Jinping, who has made reducing pollution a priority since he came to power at the start of this year. As part of this, China has pledged to reduce its carbon emissions by 40-45 per cent by 2020 from 2005 levels and is aiming to boost renewable energy to 15 per cent of its total energy consumption.

How effective will the new policy be?

Experts say that while the plan clearly demonstrates the ambition of the Chinese government to tackle its growing environmental problems and make the country the biggest global producer of environmental-protection technologies, more details are needed before judgement can be made on its likelihood of success.

Looking for relief

It will be interesting, for example, to see what difference the new plan makes to China's struggling solar energy sector. This formerly thriving industry has taken a big hit, including the financial default of one of the country's biggest producers of solar panels early this year, as production outstripped demand both at home and abroad. International trade disputes caused further harm. The sector will be looking to the plan for relief, and hoping that it leads to better times ahead.

However, even if the government achieves its targets, and renewable energy use increases, both in absolute terms and as a proportion of total energy use, China's immense energy needs mean environmental risks will remain high for many years.

A report from Bloomberg New Energy Finance, released a few weeks after the renewable energy plan, predicts investment in new coal capacity will continue to grow rapidly through to 2022 with capacity being added each year equivalent to three large coal plants a month. While the report predicts the growth of the Chinese coal sector will slow down through the 2020s, it warns that efforts to tackle rising greenhouse gas emissions and deadly levels of air pollution are likely to take 10 to 15 years before they prove successful.

As with many other aspects of China's growth story, implementing the new energy policy won't be easy. But at the very least, the plan's introduction is a clear sign that China is making a genuine effort to ensure its growth is both sustainable and environmentally sensitive.

For more columns in this series please see

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