4. The outlook for China’s decarbonization
4.1 Strong policy foundations, questionable policy connections
4.1.1 Policy foundations
In China, as elsewhere, climate policy is fundamentally a matter of economic policy. What separates China from the rest of the world is the power of its leader, Xi Jinping, to make climate a politically non-negotiable pillar of long-term policymaking.
Where China is far from unique, however, is the large degree to which its long-term climate goals have, despite their high political prioritization, faced competition with short-term economic aims and skewed policy incentives across the governance landscape.
This leaves a questionable set of policy connections:
- The dual carbon targets, for all intents and purposes tied to Xi’s political legitimacy, are effectively non-negotiable.
- Also non-negotiable are short-term economic demands, which hinge particularly on energy security – and, for the time being, coal.
But realistically, for now, officials will not sacrifice short-term economic demands for the 2030 target – and certainly not for 2060 – raising the prospect of serious challenges near the end of the decade.
4.1.2 The policy hierarchy
Notably, the “1+N” climate policy system, with its long-term perspective, is here to stay. Its plans hold the weight of the NDRC, even if specific plans are not inherently political gospel (the way the dual carbon targets are) and could change if decided by Xi, the Politburo Standing Committee, or the State Council.
Policies set by industry associations, which help inform national government policies, are themselves entirely subject to change. They represent the efforts of industry associations and embedded Party leadership to enact Beijing’s intentions, as reflected in FYPs, “1+N” plans, and the like, but Beijing will form policy as it sees fit – and industry must continually adapt.
Meanwhile, provincial policy, and particularly subprovincial policy, contains elements of experimentation by nature. While certain targets – such as renewable energy capacity targets – are reliable indicators, other areas of provincial policy are designed to evolve based on trial and error (see section 4.2). This makes provincial policy both a source of uncertainty in projecting future trends as well as a source of innovative policy ideas, which can later be scaled for national implementation.
4.2 Provinces as laboratories
Naturally, provincial policy experiments revolve around local needs. In many cases, this leads to highly tailored approaches to overcome systemic challenges – including competition with economic interests.
The past year has seen numerous noteworthy policy experiments, far too many to list in full. Table 1 highlights several examples of interest just since the beginning of 2022 – in addition to the slew of plans establishing local renewable energy installation targets:
While none of these plans or efforts is guaranteed success, what is notable is:
- None were initiated through central policy, but instead locally initiated based on a combination of local interests and alignment with national policies.
- All provide potentially scalable solutions to challenges faced across China – as did various new energy vehicle manufacturing, solar power project, and even carbon trading pricing pilots in the past.
4.3 The question of global influence
The Belt and Road Initiative (BRI), largely on hold amid the pandemic, is nonetheless alive and well.
In September 2021, Xi announced that China would not build new coal-fired power plants overseas. The move came amid diplomatic and host country pressure on China to end its overseas coal finance. In March 2022, the NDRC issued updated guidelines for the BRI, which broadly imply it is a means to support economic upgrading, with clean energy producers gaining new markets much the way coal-fired power generation project developers used to.44
While the guidelines clearly lean into a new, green identity for the BRI, they could hardly be called concrete:
By 2025:
- Expand international cooperation on climate change
- Improve the environmental risk mitigation capabilities
- “Achieve remarkable results” in green development – no metrics provided
By 2030:
- Further expand green BRI cooperation
- Enhance the “going out” capabilities of green developers
- Improve environmental risk and control systems for overseas projects
- Complete a basic green development framework
Meanwhile, oil and gas investments in BRI host countries tripled between 2020 and 2021, making clear that, despite the exit of coal, fossil fuels are far from out of the BRI equation.45
Nonetheless, current plans make clear that green tech innovation is core to Beijing’s vision for the next era of the BRI. R&D features prominently, as does the use of demonstration zones and technology parks as hubs for experimentation.
It is too early to predict the net impact of project developers actually implementing BRI on the ground over the next decade. But in the long term, the market outlook points to green projects having the strong upper hand in overseas investment – even if it takes China itself far longer to phase out fossil fuels.