What Will China’s Next Energy Intensity Target Be?

A number of Chinese and international news outlets reported Monday that China’s next energy intensity reduction target (2011-2015) is likely to be 17.3%. These articles quote a Deputy Director named Huang Li at the Chinese National Energy Administration. This does not appear to be an official announcement, but rather one official’s comments on likely policy direction. The same People’s Daily article that quotes Huang stating the 17.3% target for the next five year plan and 16.6% for the following plan (2016-2020), also quotes an official from the National Development and Reform Commission (NDRC) as suggesting the next energy intensity target would be between 15 and 20%.

Energy intensity measures the amount of energy used per unit of GDP output. China’s target in the current five year plan, which ends at the end of 2010, was 20%. This target has proven difficult to meet, and China is currently in an all-out push to meet it. Policy and academic discussion for the last year or two has centered around what the next energy intensity target would be with most experts weighing in that it would have to be somewhat lower than the 20% target of the last five years. The reasoning for a lower target is that many of the “low hanging fruit,” the easy savings, have already been taken, so increasing efficiency will be more challenging moving forward. We have heard about advocates for numbers like 15 and 16%, and we do also know of those within Chinese policy circles that are advocating for somewhat higher numbers than 17.3%.

This recent announcement is not in fact an “official” announcement, although it is by a government official. In general, the Chinese make official statements of policy either through official documents on letterhead (the type discussed below in the State Council’s announcement of its new Pillar Industries), as statements from official spokespeople, or as public speeches at official party or government meetings by very high-level officials, such as the President, the Premier, a Vice Premier or Minister. Comments by lower-ranking officials in less official venues are growing and seem to be part of a wider pattern of floating policy proposals and target numbers unofficially for at least two different reasons. Surrounding the recent Plenum of the Chinese Communist Party there have actually been a number of similar “unofficial” announcements on trade, economic growth and other issues. The official Plenum document released yesterday contained no target numbers at all. This type of floating of figures suggests that officials want to gauge reaction either domestically or internationally or both before fixing on exact targets by the time the actual 12th Five Year Plan gets adopted in March 2011. But we have also seen a number of cases where officials have floated new policy ideas, such as carbon taxes and experimental trading systems, in the Chinese press. Chinese officials are using the press for domestic policy debates much more than they have in the past.

The net result is that readers need to be more cautious in taking any statement by a Chinese government official as “official” policy, just as in the US readers are aware that administration experts may present analysis that is not policy and Congressmen and Senators express their own and not administration views. The public debate in China is becoming more complex.

In this particular case, the 17.3% figure seems important and influential, but we should be aware that it might well change between now and March of next year. In addition, it is worth noting that the fact that both this number and the 13th Five Year Plan number (16.6%) are lower than the current figure (20%) suggests that the Chinese government is predicting that GDP growth rates are likely to slow and continue to reduce somewhat throughout the decade, because it is easier to achieve higher rates of reduction when GDP numbers are higher (see the discussion in our earlier piece on the carbon intensity target).

Where is China’s Industrial Policy Headed?

While the energy intensity target is not yet official, other aspects of the next Five Year Plan have started to emerge as official statements. China’s State Council, its top government body, has announced what the new “Pillar Industries” that the government wants to encourage will be in the next Five Year Plan. The most significant development is that real estate has been eliminated from the list. This is a positive sign for reducing real estate speculation and the overbuilding it brings with it – a fairly carbon-intensive industry. “Energy savings and environmental protection” is now named as one of the Pillar Industries. The other new industries include high-end manufacturing equipment, information technology and biotechnology. Advanced autos, new energy and new materials all become “leading industries” – a designation one step down from “Pillar” industries.

This announcement points to the importance the Chinese government is putting on moving up the value chain, which will be one way to diversify away from energy intensive industry. Several of the choices also clearly point to the Chinese government’s efforts to develop the industries that support its energy efficiency, pollution abatement and clean energy goals.

Advancing the “People First” Principle

The Chinese Communist Party’s major meeting, the Plenum, also wrapped up this week with its official announcement. As is common with Chinese Communist Party announcements, it included no numerical targets, but highlighted the overall focus the party plans to take. The statement uses a broad-based definition of development, with a focus on “people first” and development in both the “economic and social sectors.” The scientific approach to development is highlighted, and perhaps the most critical sentence for those following environmental policy is, “The building of a resource-saving and environment-friendly society should be a focal point in the transformation of the economic development mode.” The announcement also said that “more work should be done to proactively combat global climate change,” as well as addressing the full range of environmental issues.