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Vanand Meliksetian

Vanand Meliksetian

Vanand Meliksetian has extended experience working in the energy sector. His involvement with the fossil fuel industry as well as renewables makes him an allrounder…

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China Drops Energy Efficiency Targets Amid Covid-19 Crisis

China’s incredible economic expansion has earned it the status of the world’s largest CO2 emitter. While the Asian country’s economy is second only to the U.S.’ its emission of greenhouse gasses far outstrips its competitors. Partly it can be attributed to globalization because emissions as a result of the production process are attributed to the origin country, not to foreign consumers. Another reason for China’s status as the world’s largest polluter is the cheap and relatively inefficient production processes.

 

Rampant environmental pollution motivated Beijing to decouple economic growth and fossil fuel consumption in 2015 when Beijing pledged to cut energy intensity by 15 percent from 2016 to 2020. The country was on track in the first three years, but by 2019 the goal was lowered to 13 percent. The slowing economy at the end of 2019 created room for the easing of restrictions. The Coronavirus pandemic has exacerbated that trend. Related: Oil Markets May Not Fully Recover Until 2022

During this year’s gathering of the National People’s Congress (NPC), the top legislative body dropped the annual growth figure. Also, the pandemic forced Beijing to drop another key measure concerning energy conservation. Although China’s premier Li Keqiang told the congress that the 13 percent target will be dropped, he did confirm the country’s commitment to decrease energy consumption per unit of GDP.

The health crisis is posing a similar question to countries across the world: where to draw the line between the economy and health. In China's case, it means that its CO2 emissions will increase stronger than anticipated as the economy is struggling to regain its momentum. Besides financial-economic considerations, geopolitics and security strongly influence Beijing’s decisions in the short term.

The easing of environmental restrictions opens the door for additional investments in the Asian giant's coal sector, which makes up for about 65 percent of the energy mix. Chinese investors are moving ahead with 120-130 GW of new capacity approvals over the next 5 years, bringing the total to around 1,200 GW. However, according to Frank Yu, principal consultant at Wood Mackenzie, “we expect the government to reaffirm commitments to environmental targets.”

Beijing’s contradictory policies concerning the easing of restrictions on CO2 emissions on the one hand and increasing support for renewables on the other, partly stem from security concerns. Chinese-U.S. relations have cooled to their lowest point since Tiananmen square making policymakers wary of their overseas dependence on energy. China is already expected to tighten import rules of coal to promote its domestic sector. These restrictions will first impact Australia after Canberra called for an international investigation into the origins of the Coronavirus pandemic which angered Beijing.

Also, Western countries are increasingly feeling pressure to reduce the import dependence of essential goods, especially from China. This has not gone unnoticed in Beijing who owes its wealth and power to globalization. Officials seem to be preparing for a world where the country’s outsized role in global supply chains is going to diminish. President Xi announced China’s most recent development plan during the NPC which will focus on the domestic market rather than export-led growth.

Renewable energy technologies fit perfectly in this plan. While CO2 emissions will undoubtedly grow in the next couple of years, expect investments in China's domestic wind and solar power industry to maintain momentum. The production of wind turbines and photovoltaic cells strengthens the country's energy security as production is done domestically. An additional benefit is the reduced dependence on foreign fossil fuels.

According to Jonathan Luan, an analyst at BloombergNEF in Beijing, China’s policies show its “willingness to be prudent and conservative amid the pandemic". In the short term this means increased CO2 emissions, but don’t expect it to undermine the country’s long-term goals regarding reduced fossil fuel consumption and efficiency. Especially the growth of renewables is important which is part of Beijing’s ‘Made in China 2025’ strategy.

By Vanand Meliksetian for Oilprice.com

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