China’s Carbon-Energy Policy and Asia’s Energy Transition

Carbon Leakage, Relocation and Halos

Akihisa Mori

• Publisher: Routledge
• Year: 2021
• Print ISBN:
  9781032041803
• Edition: 1
• eBook ISBN:
  9781000518214
• Topic: Politics & International Relations
• Subtopic: Environment & Energy Policy
• Index: Politics & International Relations

This book seeks to examine the impacts associated with China's carbon-energy policy in Asia and how, coupled with the Belt and Road Initiative, these effects prompt foreign direct investments in coal power and exports of renewable energy technologies.

China shows a co-evolution of carbon-energy policy and energy transitions from coal to renewables. Assessing how the policy intensifies pressures and motivations to Chinese companies, chapters in this edited volume analyse how the policy has changed energy and CO2 emissions in Asia through the lens of carbon leakage, relocation, and halos. Contributors present in-depth studies on China's investments and exports, and also its impacts on Indonesia, India, Vietnam, and Japan. Using applied computable general equilibrium and scenario input-output analyses, chapters investigate if regional electricity connectivity reduces new coal power investments through efficiency gain. Arguing that China is shifting from the world's factory to the leading innovator and Asia's demand centre, it is ultimately demonstrated that China is likely to achieve climate targets whereas Asia to increase CO2 emissions and economic reliance on China.

China's Carbon-Energy Policy and Asia's Energy Transition will be of significant interest to students and scholars of energy, environment, and sustainability studies, as well as Chinese studies and economics.

Part I Energy transition and carbon leakage, relocation, and halos Concepts and framework

1 Carbon leakage, relocation, and halo A framework to understand impacts of China’s carbon-energy policy on Asia’s energy transitions

Akihisa Mori

DOI: 10.4324/9781003190905-2

1 The Paris Agreement and Asia

In 2015, 195 countries and the European Union (EU) signed the Paris Agreement under the United Nations Framework for Climate Change Convention (UNFCC). The agreement aims to strengthen the global response to the threat of climate change by limiting the global temperature rise in this century to below 2°C, above pre-industrial levels, and endeavoring to limit the temperature increase even further to 1.5°C (UNFCCC, 2015). This goal requires all Parties to submit nationally determined contributions (NDCs), report their emission and efforts regularly, and update them every five years.

In response, 186 countries submitted their first NDCs by September 2020 (UNFCCC, 2020), but only some submitted their updates. Except for Brunei and the Philippines, all the countries in Northeast, Southeast, and South Asia submitted their NDCs (Table 1.1). Although full implementation of unconditional NDCs is estimated to result in a 15 gigaton gap in CO₂ emissions (GtCO₂e) by 2030 compared with the 2°C scenario, and a global mean temperature rise of 3.2°C by 2100 (UNEP, 2019), the step is an advancement toward reducing greenhouse gas (GHG) emissions.

Table 1.1 Nationally determined contributions (NDCs) in selected Asian countries

	Unconditional contribution target	Conditional contribution target (international support)	Year of achievement	Metrics	Base year	Year of submission
Northeast Asia
China	60%–65%	-	2030	Intensity	2005	2016
Japan	25%	-	2030	Absolute	2005	2016/2020
South Korea	37%	-	2030	BAU scenario	2020	2016
Taiwan		-	2030	BAU scenario		-
Mongolia	14%	-	2030	BAU scenario	2030	2016
Southeast Asia
Cambodia	27%		2030	BAU scenario		2017
Indonesia	29%	41%	2030	BAU scenario	2010	2016
Malaysia	35%	45%	2030	Intensity	2005	2016
Singapore	36%	-	2030	Intensity	2005	2016/2020
Thailand	20%	25%	2030	BAU scenario	2005	2016
Vietnam	9%	27%	2030	BAU scenario	2014	2016/2020
South Asia
Bangladesh	5%	15%	2030	BAU scenario		2016
India	33%–35%		2030	Intensity	2005	2016
Pakistan	-	20%	2030	BAU scenario		2016
Sri Lanka	3%	7%	2030	BAU scenario	2010	2016

Note: As of September 2020.

Source: The author’s compilation based on UNFCCC (2020) and Industrial Energy Saving and Carbon Reduction Information Web, Taiwan (n.a).

In its NDC, China committed to achieving peak carbon dioxide (CO₂) in approximately 2030 and to an endeavor to peak early and reduce CO₂ per unit of GDP or carbon intensity by 60%–65% from the 2005 level. To achieve the targets, the government committed to an increase of approximately 20% in the share of non-fossil fuels in primary energy consumption, and an increase of approximately 4.5 billion cubic meters in the forest stock volume compared with the 2005 level (NDRC, 2015). However, these commitments can raise the long-standing concerns of energy security and the cost of climate change measures decreasing economic growth.

To prevent climate policy from restricting economic growth, the government reframed climate change prevention as part of development (NDRC, 2007) and clean energies as new growth points (Chen, 2013). It fostered renewable and nuclear power industries and energy efficiency as a means of safeguarding energy security. The government mandated large power generators to supply renewable energy-sourced electrcity (RES=E), and annually increased its ratio to the total power supply. Additionally, it implemented various preferential measures to foster renewable-energy manufacturers (de la Tour et al., 2011; Horii, 2014) and expanded the scope of the feed-in tariff (FiT) to solar photovoltaic (PV) to rescue their manufacturers from the adverse impacts of the anti-dumping measures by the EU and the United States. The government also initiated local carbon emission trading pilots in four provinces and five cities to advance the nationwide emission trading scheme, and low-carbon development pilots in 42 provinces and cities. After the government implemented these measures, in the 13th Five-Year Plan for Energy (2016–2020), it set mandatory targets, for example, to reduce carbon intensity by 18% of the 2015 level and increase the installation capacity of wind and solar power by 210–250 and 110–150 GW, respectively.

The sudden increase in wind and solar power in the domestic market intensified the contestation with incumbent coal power generators, resulting in substantial wind and solar curtailment in the first half of the 2010s (Mori, 2018). In addition, rising health concerns over China’s worsening air pollution, represented by Chai Jing’s 104-minute documentary Under the Dome (2015), provided opportunities to transform consumer behavior and government policy (Koehn, 2016). The government responded to the pressures to implement administrative order and regulations on coal power and heating plants, including consolidation of small and obsolete plants, mandates to employ technologies that are more efficient, and installation of fuel-gas desulfurization. It also prompted State Grid to invest in long-distance ultra-voltage transmission lines to mitigate the renewable curtailment and increased consumption of wind and solar power.

These stringent regulations on coal power and complementary measures to increase RES-E have increased the installed capacity of wind and solar PV and their power generation (Figures 1.1a and 1.1b) and decreased the potential new coal power opportunities within China.

Figure 1.1a Energy mix in power generation in China in 2000–2018.

Source: The author’s compilation based on IEA (2020).

Figure 1.1b Energy mix in installed power generation capacity in China in 2000–2018.

Note: Data for the years 2001–2009 is available only for thermal power as a whole.

Source: The author’s compilation based on China Electricity Power Statistical Yearbook, each year.

2 Implications to China–Asia energy relation

The decreased opportunity for new coal power projects and fierce competition over RES-E have motivated the Chinese power industry—including existing power companies, emerging RES-E producers, manufacturers, and developers (engineering and construction companies)—to seek business opportunities in foreign countries.¹ On this temporal occasion, the Chinese government has accelerated its “going global” strategy and Belt and Road Initiative (BRI), which direct them toward foreign projects (Mori and Takehara, 2018).

China had already started overseas official finance in the resource extraction sector to secure energy that was indispensable for sustaining economic growth. In the mid-2000s, it reframed energy security to recognize that additional development of oil and gas worldwide would enhance the energy security of China through increasing global energy security (Hayashi, 2006). In this recognition, China expanded the scope of overseas finance to infrastructure projects necessary for mining and transporting resources to China, and then Chinese company-initiated projects, including new installed capacity (greenfield investment) in the electricity sector (Hervé-Mignucci and Wang, 2015). To reduce country and commercial risks, the country employed the resource-financed infrastructure in which host country governments pledge their interest in some or all of the revenue flows it will receive from the resource production project to a lender (Beardsworth and Schmidt, 2014). In addition, the Chinese government set up bilateral and regional development funds to finance investments in connectivity infrastructure as a part of the BRI. These funds amounted to US$164.4 billion, of which the Silk Road Fund accounted for the largest contributors (Gallagher et al., 2018). Fossil fuel investments accounted for 91% of energy-sector syndicated loans by the six major Chinese banks and 61% of energy-sector loans financed entirely by state-backed China Development Bank or Export-Import Bank of China between 2014 and 2017 (Lechner et al., 2020).

Finance and investments can satisfy increasing electricity demand in developing countries, helping them increase access to affordable, reliable modern energy, overcome power shortages, and sustain economic growth at a lower cost. In particular, developing countries with power shortages that could easily access cheap coal accepted China’s finance and investments in the 2000s. Indonesia’s ratio of coal power increased from 24% in 1995 to 36% in 2000, and to 56% in 2015. Vietnam’s ratio also increased from 12% in 2000 to 30% in 2015, despite a temporal decline in 2006–2009 due to the completion of large-scale hydropower (Figure 1.2). This finance and investments go beyond coal-rich countries to arrive at coal-poor small countries, such as Cambodia, Laos, and Uzbekistan, after the global financial crisis in 2008–2009; the crisis sharply reduced the appetite of commercial banks for long-term financing, and Chinese financing institutions became a valuable source for power projects (Vagliasindi, 2013). As a result, these countries have sharply increased coal and lignite imports (Figure 1.3), deteriorating the trade balance.

Figure 1.2 Ratio of coal power in power generation in selective Asian countries in 1980–2015.

Source: The author’s compilation based on World Bank (2020).

Figure 1.3 Net coal and lignite imports in the selected Asian countries in 2000–2018.

Source: The author’s compilation based on United Nations Statistics Division (n.a).

Foreign finance and investments result in the suspicion that they might generate cross-border carbon relocation or relocation of CO₂ emissions to countries with lax commitments in GHG emissions reduction in their NDCs, in addition to ecological and social concerns that have triggered local protests and the suspension or abandonment of coal power projects (Vidal, 2016; Boulle, 2019), as well as hydropower (Fawthrop, 2019). The increase in coal power can intensify a tradeoff with NDCs in host countries, especially those who entrench dependency on China and the institutional lock-in for coal-centered energy systems. It makes these countries incapable of moving the sys...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• Acronyms and abbreviations
• List of contributors
• Preface
• Acknowledgements
• Part I Energy transition and carbon leakage, relocation, and halos: Concepts and framework
• Part II China’s energy and industrial transformation as push factors
• Part III Carbon, leakage, relocation, and halo effect in host countries
• Part IV Countermeasures and future challenges
• Index