Almost six months have passed since the release of the 12th Five-Year Plan – China’s overarching social and economic development guide for the 2011-15 period – and none of the specific sectoral development plans have been unveiled. Among them, the specific energy development plan has attracted the most attention due to the fact that a dual-target control system, with binding goals for both energy intensity and total energy consumption, will be used to ensure the country’s transition to a more environmentally-friendly economy.
In its 11th Five-Year Plan, China set a goal to reduce economy-wide energy intensity – defined as the country’s total primary energy per unit of its gross domestic product (GDP) – by 20 percent. Preliminary data showed, however, that China only achieved a reduction of 19.06 percent by the end of 2010. The 12th Five-Year Plan, released in March 2011, intends to achieve a 16 percent reduction in energy intensity from 2010 to 2015; moreover, the plan also includes language like, “appropriately control the total energy consumption” with specific implementation targets and measures to be detailed in the Energy Development Plan for the 12th Five-Year Period. So far, the national energy intensity target has been preliminarily decomposed and designated to each province and municipal city in China. In addition, in April 2011, a key official from China’s National Energy Administration (NEA) indicated that the 2015 total primary energy consumption target will be set at 4.1 billion tons of coal equivalent (tce). Compared to the 2010 level of 3.25 billion tce, such a cap would require China’s total energy consumption to increase by only 26.15 percent over five years, or by 4.76 percent annually. Considering the country’s total energy consumption increased by 46.4 percent from 2005-2010, or 7.92 percent annually, China’s ability to curb its soaring energy consumption remains in question.
Some outsiders, however, question the necessity of setting a total energy consumption target. Since the 12th Five-Year Plan already details an ideal GDP growth target and an energy intensity reduction goal, doesn’t that mean the 2015 total energy consumption is already set as well? In fact, based on the information given in the 12th Five-Year Plan – a 7 percent annual GDP growth and a 16 percent reduction in energy intensity – we can easily deduce that China’s total primary energy consumption in 2015 should be 3.8 billion tce. Therefore, why all the fuss about the publication of a concrete total energy consumption target? Moreover, on what ground was the previously rumored 4.1 billion tce target based?
Answers to these questions are related to different characteristics of these three basic indicators in the 12th Five-Year Plan: total energy consumption, GDP, and energy intensity. It turns out that, among them, the energy intensity goal is binding while the 7 percent annual increase of GDP is only a guiding target. Provinces and local municipalities are strongly encouraged to keep their economic growth in line with the suggested rate, but there will be no punitive measures taken if they fail to achieve that goal. After all, influenced by a range of both international and domestic factors, GDP growth rates are difficult to predict, let alone to control.
In fact, China’s economic growth rates over the past 10 to 15 years have never followed the guiding rates published in corresponding Five-Year Plans. For instance, the realized average annual GDP growth rates during the 9th, 10th, and 11th Five-Year periods were 8.6, 9.5, and 11.2 percent, respectively, while the goals set in respective Five-Year Plans were only 8.0, 7.0, and 7.5 percent. If the actual economic growth experienced during the 12th Five-Year period is again faster than the 7 percent goal set in the 12th Five-Year Plan, assuming the 16 percent reduction target in energy intensity still holds, total energy consumption in five years will change as shown in the table on the right. The table shows the causality effect on China’s total primary energy consumption in 2015 due to possible changes of the average annual GDP growth rate. As demonstrated in the table, the 4.1 billion tce goal previously mentioned by the NEA official would reflect an annual GDP growth of between 8.5 and 9 percent, higher than the 7 percent goal listed in the 12th Five-Year Plan. Based on historical record, the Chinese economy is likely to again grow faster than the 12th Five-Year Plan suggests.
As China has committed to reducing its carbon intensity – defined as the economy-wide total carbon dioxide emissions per unit of GDP – by 40 to 45 percent by 2020 compared to its 1990 levels, adding a binding target on total energy consumption is necessary to ensure that the 2020 climate goal is achieved. After all, carbon-intensive fossil fuels still account for more than 91 percent of China’s total primary energy consumption, and non-fossil fuels are only expected to reach 15 percent by 2020 (11.4 percent by 2015). Already under great pressure from the international community due to its status of being the world’s greatest energy consumer and carbon emitter, the Chinese government has to put a cap on absolute energy consumption in addition to a binding target on energy intensity. In this way, even if realized annual GDP growth exceeds the 7 percent goal by 2015, an appropriately set cap on total energy consumption could still hopefully make it possible to achieve the binding energy intensity target.
Fulfilling its international climate commitment is not the only motivation behind the Chinese government’s move to slow down the country’s total energy consumption; China’s national government also hopes to use such binding measures to induce more sustainable economic development at the provincial and local levels. Still largely locked into a growth pattern focusing too much on high growth rates, China’s local governments tend to rely on energy and carbon intensive industries to boost local economic output in a short period while at the expense of the environment. With a cap on total energy consumption, the Chinese national government hopes to see a change of growth pattern to reduce the country’s overall carbon footprint.
However, to what extent China’s provincial and local governments could embrace such a goodwill policy measure in an effective and efficient way still remains largely uncertain. In the second half of 2010, when the country was rushing to achieve the 11th Five-Year Plan energy intensity reduction target, many local governments were reported applying desperate measures such as shutting down an entire region’s power supply. Let’s just hope that the national government will be wiser in decomposing nation-wide energy consumption targets and that provincial and local governments will be more rational in seeking approaches to achieve their designated targets during the 12th Five-Year Plan. As highlighted in a recent Worldwatch report, we hope that the approaches and processes used by the Chinese government to build a sustainable future are sustainable in practice as well.