freemclimate for cooperation the eu, china and climate changean holslag eu china climate

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Clite CpetinThe EU, Chin nd Clite Chnge

A report by the Brussels Institute o Contemporary Chinese Studies



The Brussels Institute o Contemporary Chinese

Studies (BICCS) at the Vrije Universiteit Brussel

(VUB) ocuses on research and teaching on

contemporary China, including the economy and

business, oreign and security policy, and law.

Brussels Institute o Contemporary Chinese Studies

Vrije Universiteit Brussel

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permission o the authors.



Clite Cpetin

The EU, Chin nd Clite ChngeDuncan Freeman and Jonathan Holslag

A report by the Brussels Institute of Contemporary Chinese Studies

September 2009



The EU, China and Climate Change 3

PrEaCE

China’s economic development over the past 30 years has brought enormous gains in welare to theChinese people, but it has been achieved at high cost to the environment. For much o the period o economic reorm since the late 1970s the Chinese government gave only low priority to the environment

and climate change was not considered to be an issue o importance. More recently the priorities o the Chinesegovernment have changed. Questions o energy security and climate change are now central to China’s domesticpolicy considerations. Furthermore, as the United Nations Climate Conerence in Copenhagen approaches,China, along with Europe, is at the centre o negotiations creating a new international ramework to set policy on dealing with climate change.

Te report is written with the intention o inorming discussion on the role o the EU and China inthese negotiations and their relationship with regard to climate change. During the last three decades China has

undergone a period o dynamic change. Tis is as true in the area o energy and climate change policy as it is inany other. While the image o China as indierent to climate change has been a true reection o reality in thepast, this is no longer the case. Only in 2007 did China adopt its National Climate Change Programme, buteven beore then, driven mainly by concerns over energy security, it had been implementing policies that havean impact on energy eciency and greenhouse gas emissions.

Much o China’s policy in this area remains little understood in the outside world. Te targets andmethods that China has adopted are oten very dierent rom those that are used in Europe. In an economy that is still dominated by state control, and where institutional and technical capacities are oten limited, how China tackles climate change will be based on its own past and current situation.

I there is to be global cooperation on climate change, then it is important or all sides to have anunderstanding o the others’ positions. Tis applies not only to the policy makers who will negotiate the agree-ments, but also to the wider public. Policy makers will need to understand the background to the negotiating

positions o their counterparts. At the same time, international agreements must be based on public support. I the public believes that their side is giving too much away, or that the other side is not doing enough, it will bedicult to sustain support. Tis report is intended to contribute to a wider understanding o how the EuropeanUnion and China can cooperate in tackling climate change. We would like to acknowledge the support o theEuropean Climate Foundation in the writing this report.

Duncan Freeman Jonathan Holslag




Eecutie Su 6

Chpte 1: Chin’s Chnging Clite agend 8

1.1 China and Climate Change 8

1.2 Energy and Climate Policy in the Reorm Period 13

1.3 Energy and Climate: Te New Priority 13

1.4 International Dimension 14

Chpte 2: The EU nd Chin: Dieing appches t Clite Chnge 16

2.1 Policy Background 16

2.2 Legislation 17

2.2.1 Eciency standards 17

2.2.2 Building Energy Standards 18

2.2.3 Vehicles 18

2.3 Industrial policy 18

2.3.1 Economic Stimulus 19

2.3.2 Energy Eciency 19

2.3.3 Power generation 19

2.3.4 Renewable Energy 18

2.3.5 Energy Consumers 21

2.3.6 ransport 21

2.4 EU Policy 22

2.5 Dierent approaches 23

Chpte 3: The EU-Chin Diensin : Cpetin nd Cpetitin 25

3.1 Te Evolution o Clean Energy Cooperation 25

3.2. Prospects or Climate Cooperation 28

Chpte 4: The New Intentinl ewk: Hnessing Cn Inteests 30

4.1 Copenhagen Proposals 30

4.2 Conficting or Common Interests? 32

4.3 Recommendations 33

Ntes 35

CoNTENTS


http://slidepdf.com/reader/full/freemclimate-for-cooperation-the-eu-china-and-climate-changean-holslag-eu 8/406 The EU, China and Climate Change

ExECUTIvE SUmmary

The policy priorities o the Chinese government have undergone a signifcant change in recent years.Economic development remains a central objective, but this is increasingly considered in terms o sustainability. Energy security has become a primary concern o the Chinese government and it recognizes

that China has already begun to suer signifcant eects o climate change. Te twin questions o energy andclimate security have prompted China to ocus increasingly on how it produces and consumes energy.

China’s greenhouse gas (GHG) emissions have increasingly contributed to global climate change. AsChina’s economy and energy consumption has grown, so have its carbon emissions. Growth in emissions romChina was particularly rapid in the period rom 2001 when the economy expanded very quickly, notably insectors that have high energy intensities. A signifcant percentage o the growth in emissions was also accountedor by the rapid grwoth o China’s export industries.

But the situation with regard to China’s emissions is complex. Compared to most developed econo-mies, China still has low per capita GHG emissions, although these are rising. At the same time, the carbonintensity o the Chinese economy has been alling, although the trend was reversed in the years ater 2001.Nevertheless, i there is no change in current trends, China’s emissions will continue to rise sharply, and even i eorts at mitigation are undertaken it is likely that they will grow or a lengthy period o time.

Mitigation by government policy in China aces many challenges, among the most important o whichis the structure o China’s energy consumption. China is more reliant on coal or its energy supplies than any major developed economy. Despite the rapid growth and size o its economy, China remains a relatively poorcountry with a large population, most o whom have living standards well below those in developed nations. Aseconomic development and growth continue, so will the rise in its energy consumption. In particular, China will experience a rapid move towards urbanization, which will greatly increase demands or energy.

Te challenge aced by China will be dierent rom that aced by developed nations, since it will have

to fnd a path to greater resource eciency and a low carbon uture rom a much lower level o economic devel-opment. Tis may create diculties, or instance the relative technological backwardness o China’s economy,but also oers opportunities, since it is not yet committed to many o the highly energy intensive practicesprevalent in developed economies.

China has adopted a wide range o policies that will have an impact on climate change. Te NationalClimate Change Programme promulgated in 2007 sets out a strategy or tackling climate change, but evenbeore this policies had been adopted that impact GHG emissions. Many o the policies China has adopted donot directly address carbon emissions, but are concerned with energy conservation and eciency. For instance,at the centre o its policy China does not set goals or reductions in GHG emissions, but has targets or energy intensity (the amount o energy required to produce a unit o Gross Domestic Product).

Te means China has adopted derive very much rom the domestic circumstances. Even ater 30 years

o economic reorm, the state still plays a central role in the Chinese economy. In addressing climate change,there has been an emphasis on state direction through administrative targets and enorcement, and industrialpolicy. Unlike the European Union (EU), China has not adopted market methods such as an Emissions rading Scheme (ES) as a central pillar o its climate change policy. China has committed itsel to strong targets onenergy eciency and expansion o renewable energy production. Tere are signs that it is well on track to meetor exceed many o the targets which it has set itsel.

China has a strong interest in continuing its commitment to seeking energy and climate security. While participation in the international process will be part o that commitment, the domestic policy process will be more important. Most o China’s policy initiatives that aect climate change have come about withoutany direct reerence to international rameworks, but have been driven by domestic policy needs. It is likely thatChina’s policy on climate change will be strengthened in the uture as the government seeks to address energy and climate security.

Te EU and China have adopted dierent approaches to dealing with climate change, but have sepa-rately set ambitious objectives or the coming years. Te EU has had a signifcant policy ocusing on cli-




mate change or much longer than China, culminating in the Climate Action and Renewable Energy Package(CARE) o December 2008, and has claimed a position as an international leader in mitigation eorts.

China and Europe have highlighted clean energy cooperation as a key pillar o their partnership. TeEU considers the combat against climate change as an important element in the development o its externalrelations and even as a source o sot power. China and the EU have adopted a number o mechanisms to coop-erate on climate change and various Member States have their own initiatives. Tese mechanisms have createda substantial basis o cooperation on climate change ocusing on a number o key issues like Carbon Captureand Storage (CCS). Despite the many cooperation projects that exist between the EU and China, it is not clearthat their eect has been as great as desired by either side.

In the run-up to the United Nations Climate Conerence to be held in December in Copenhagen the

EU and China have set out positions that diverge considerably. Te CARE Package states that by 2020 the EU will reduce its emissions rom the 1990 level by 20 percent, and will increase this to 30 percent i other devel-oped countries commit themselves to the same target. Te EU also argues that as a group developing countries

will need to limit the rise in their GHG emissions to 15 to 30 percent below the baseline projection or theirgrowth by 2020.

By contrast, China rejects any binding targets or developing countries. China insists on the principleo “common but dierentiated responsibilities” rather than universal targets or all countries. According to theChinese government, developing countries should adopt Nationally Appropriate Mitigation Actions. China also demands that developed countries accept their historical responsibility or GHG emissions and accept a binding target o a 40 percent reduction by 2020.

China and the EU appear to have dierences in negotiating position, but both sides clearly take cli-mate change seriously, even i their policies are not the same. Te relationship between the EU and China on

climate change does not just ocus on the post-Kyoto agreement, although this will be an important in defning the ongoing relationship. Te EU and China have considerable experience in cooperating on climate change,and have made it one o the key areas o their relationship. At another level, there is also the business relation-ship that must be taken into consideration. Although still relatively small, the potential economic gains romcooperation in the energy and other sectors related to climate change may be enormous. All o these will have tobe taken into account in the uture relationship between the EU and China, including the negotiations leading to the Copenhagen Summit.

Te EU will need to recognize that China presents unique problems within the negotiation o a globalagreement. Both quantitatively and qualitatively, China’s climate change challenge is dierent rom other devel-oping countries. While it is a developing country, China has taken greater strides than many to tackle climatechange. Both the EU and China have recognized the importance o climate change. Tey will need to combine

their domestic and international eorts to seek a successul outcome to the Copenhagen Summit and to sustaintheir long-term partnership on climate change that is likely to be based on both cooperation and competition.

Te report recommends that the EU must have a clear understanding o China’s priorities on climatechange and harness the domestic policy dynamic to achieving global goals. Te EU must balance concern orclimate change with commercial interests, and ensure its own policy is eectively coordinated. Te EU may provide policy models or China, and also ocus on specifc technologies such as clean coal, and will also haveto eectively address the wider question o technology transer.



CHaPTEr 1

Chin’s Chnging Clite agend

Economic development in China over the past 30 years has brought enormous improvements in welareor the Chinese people, but there have been many costs associated with these gains. One o the highestcosts has been to the environment. Economic development, interpreted as high levels o Gross Domestic

Product (GDP) growth, was the primary goal o Chinese government policy rom the beginning o the processo “opening and reorm” in the late 1970s, and protection o the environment was not given the same priority.Despite the enactment o a ramework o environmental legislation beginning in the 1980s, policies to protectthe environment and their implementation were given little emphasis. Te environmental consequences o thispolicy have been evident or many years in China’s increasingly polluted land, water and air. Similarly, climatechange was not considered as a priority or government policy-making. Tis situation has now changed: theenvironment and climate change are at the top o the Chinese government’s agenda, and it has adopted measures

to tackle energy and climate change issues. Te government has set ambitious targets across a number o policy areas that are having an important impact both domestically, and as part o international eorts to tackle climatechange.

11 Chin nd Clite Chnge

Some o the most obvious costs associated with China’s rapid economic development are to be ound in air, water and land pollution. Te air in most Chinese cities is highly polluted, as are many rivers and extensive areaso land. Major incidents involving environmental hazards are a requent occurrence, and problems such as deg-radation o armland are also widespread. Te eects o climate change in China are less immediately obvious,but the Chinese government has increasingly studied and recognized both the impacts that already exist, and

the potential risks or the uture.China has already begun to suer signifcant eects o climate change. For instance, higher temperatures

have been measured across China. According to the China National Climate Change Programme, annual aver-age air temperature has increased by 0.5 to 0.8°C over the past 100 years, with an acceleration in the last 50years.1 Tere have been seasonal changes in temperature, with most o the increase occurring in winter, and thecommencement o spring has advanced by several days.2 National precipitation trends are less clear. Tere hasbeen a decrease since the 1950s, but there have been strong regional variations. Tere has been a all in precipita-tion in the north, with an average decrease o 20 to 40 mm per hectare, while in the south and southwest therehas been signifcant a increase averaging 20 to 60 mm per hectare.3

On current trends, the eects o climate change will continue in China and will intensiy. emperatures will continue rising, annual mean air temperature will rise by 1.3 to 2.1°C by 2020 and by 2.3 to 3.3°C by 2050.

Te greatest temperature increases are projected to occur in northeast and northwest China. Te largest rise isexpected in the Qinghai-ibetan Plateau, where the annual mean temperature is expected to increase by 2.2 to2.6°C. Precipitation will increase in some regions, especially in the southeast coastal provinces. In the coming decades, more extreme weather events are likely to occur, desertifcation will increase and the sea level will rise.4

Te Chinese government predicts that climate change will have broad impacts. Tere has been anincrease in extreme weather events such as droughts in the north and oods along the Yangtze River and in thesouth. Eects have also been observed in the melting o glaciers in mountainous regions, which could urtheraect China’s access to drinking water as well as the potential or hydro-power. Agriculture will suer romincreasingly unstable production, and yields o key crops such as wheat, rice and maize will decline, and thecosts o agriculture production are likely to rise as conditions change. Tere will be increased desertifcation o armland and reduction o grassland, and droughts will be more requent. Climate change will also impact otherimportant parts o the ecosystem. Already, the area o glacier in northwest China has decreased by 21 percentover the past 50 years, and the thickness o the permarost on the Qinghai-ibet Plateau has been reduced.5 Tisprocess is projected to accelerate in coming decades. Water is one o the most critical problems China aces, and




in recent decades major river systems such as the Haihe, Huaihe, Yellow, Songhuajiang, Yangtze and Pearl Rivershave experienced reductions in their water ow. Water scarcity will increase in many parts o northern China.On the coasts rising sea levels are increasing erosion and saltwater intrusion. Tis will continue, along with moreextreme weather phenomena such as typhoons and storm surges.

China’s greenhouse gas (GHG) emissions have increasingly contributed to global climate change inrecent years, although historically they have been low. From 1904 to 2004, China’s carbon emissions accountedor only eight percent o the world total, and on the basis o cumulative emissions per capita China ranked92nd in the world.6 Te Chinese economy has expanded enormously over the past three decades, and its energy consumption and GHG emissions have also increased. According to fgures rom the Energy Inormation Ad-ministration (EIA) o the US Department o Energy, expressed in British Termal Units (Btu), China’s primary energy consumption roughly quadrupled rom 17.3 quadrillion Btu to 73.8 quadrillion Btu between 1980 and2006.7 However, energy consumption has grown at a slower rate than the economy. Te energy used to producea unit o GDP o the Chinese economy has allen by about 60 percent since 1980. Te energy intensity o theChinese economy declined rom 37,299 Btu per 2,000 US dollars in 1980 to 13,780 Btu per 2,000 US dollarsin 2006 and now has lower levels than the US and even approaches those o many European countries.8 How-

ever, the downward trend was reversed rom 2001 to 2005, when the very rapid growth in the Chinese economy was accompanied by a huge expansion in energy intensive industries.

Chart 1: Energy intensity o major economies 1980-2005.

Even though energy intensity per unit GDP in China has allen since 1980, the growth o the Chineseeconomy has resulted in much higher GHG emissions. According to China’s own ocial estimates, China’s totalGHG emissions were 6.0 gigatons o CO

2equivalent in 2005, compared to 4.06 gigatons o CO

2equivalent

in 1994 9. Estimates o China’s GHG emissions rom dierent scientifc bodies vary considerably, and pastorecasts o their uture growth have oten been very inaccurate, but it has generally been accepted that China has overtaken the US as the largest GHG emitter in the world.10 In absolute terms, growth o emissions by China has outstripped all other major economies. According to International Energy Agency (IEA) fgures,between 1990 and 2005 China’s CO

2emissions rom ossil uels increased by 129 percent (See able 1). 11 Tis

25 000

20 000

15 000

10 000

5 000

0

Btu / UU$ 2,000

US

Brazil

France

Germany

UK

Russia

China

India

Japan

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CHaPTEr 1

7,000.00

6,000.00

5,000.00

4,000.00

3,000.00

2,000.00

1,000.00

0.00

Million Metric

Tons CO2

US

Brazil

France

Germany

UK

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China

India

Japan

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was greater than the 96 percent increase or India, another large developing country, and much more than thefgures recorded or most major developed countries. Some developed economies such as the UK and Germany actually managed a reduction in emissions. Almost all o the recent increase in China has occurred since theturn o the century.

Chart 2: CO2 emissions o major economies 1980-2006. Source: EIA

Measured on a per capita basis the trend is similar. China’s per capita CO2

emissions doubled between

1990 and 2005, while those in India increased by 52 percent. In the US they increased by one percent, but inGermany there was a reduction o 19 percent. Despite the signifcant increases in its emissions, as a relatively poor country, on a per capita basis China still consumes much less energy than developed nations. As a con-sequence, China’s per capita CO

2emissions also remain low compared to most developed nations. In 2005,

carbon emissions rom ossil uels in China were 3.88 tons per person, ar less than the US where the fgure was19.61 tons per person, and also signifcantly lower than the most developed economies in the EU. China’s rela-tively small but increasing per capita emissions reect the level o development and the expansion o its economy

Chart 3: CO2 emissions per capita o major economies 1980-2006 Source: EIA

25,00

20,00

15,00

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Metric tonsCO2/capita

US

Brazil

France

Germany

UK

Russia

China

India

Japan

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In contrast to its low per capita CO2

emissions, China produces large amounts o GHG in relationto its output. Tis reects the still relatively low levels o energy eciency in the economy despite the improve-ments that have occurred, and its structure, notably the high concentration o manuacturing industry com-pared to other economies, especially those sectors such as metallurgy and cement making that consume large

amounts o energy. While CO2 intensity, like energy intensity, had been alling in China, this trend was reversedrom 2001 as economic growth accelerated, and output in energy-intensive industries surged. Another important actor in the recentincrease has been the rapid growth in China’s export industries. Ithas been estimated that in 2005 one third o China’s emissions camerom export industries.12 Indeed, emissions rom export industriesbetween 2001 and 2005 grew more rapidly than those rom the rest

o the economy. Te growth in export emissions has ollowed the expansion o dierent export sectors. Te larg-est share o emissions is accounted or by exports o electronics, which have grown very rapidly in recent years.Te preponderance o high energy intensities in some domestic and export sectors results in the CO

2intensity

o China’s economy being signifcantly greater than other major economies. Measured on the basis o emissions

per unit GDP, according to the IEA, in 2005 China’s CO2 emissions were 0.65 tons per US$1,000, comparedto 0.53 tons per US$1.000 in the US. In general European economies have much lower intensities, or instance,0.23 tons per US$1.000 in France and 0.37 tons per US$1.000 in Germany.

Chart 4: CO2 intensity o major economies 1980-2008 Source: EIA

Tis picture has been changing in recent years, as China’s carbon emissions per unit GDP have de-creased even as its economy has been growing. According to the IEA, China’s carbon emissions per unit GDPdecreased by 46 percent between 1990 and 2005, among the asted reductions in the world. India managed a decrease o 18 percent and in the US emissions per unit GDP ell by 23 percent over the same period, while inFrance there was a all o 17 percent and a 34 percent reduction in Germany. In China the reduction has beenthe result o energy eciency gains, and also a shit in the structure o the economy as the share o manuactur-ing industry has allen and that o services has grown. Tis considerable advance has not been sustained con-stantly. Ater 2000 the trend o reduction was reversed as CO

2emissions per unit GDP began to rise again. Tis

reected a surge in demand or energy, especially rom industrial sectors such as metallurgy and cement making,as the growth rate o China’s economy accelerated.

It has been estimated that in 2005one third o China’s emissions camerom export industries

3,50

3,00

2,50

2,00

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1,00

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0

Metric TonsCO2 / US$2,000

USBrazil

France

Germany

UK

Russia

China

India

Japan

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CHaPTEr 1

12 The EU, China and Climate Change

Table 1: Comparison o CO2 emissions rom ossil uels 1990-2005 Source: IEA

I there is no change in current trends, China’s emissions will continue to rise sharply, and even i e-orts at mitigation are undertaken it is likely that they will grow or several decades. A number o predictionshave been made or China’s GHG emissions. Te results o these orecasts are dependant on the assumptionsmade, including the uture economic growth rate, mitigation policies adopted by the Chinese government andpossible technological progress. Te IEA has ormulated a number o scenarios or the uture development o

China’s energy sector. Under its reerence scenario, energy-related CO2 emissions are predicted to grow rom7.2 gigatons in 2010 to 11.4 gigatons in 2030. Under its high growth scenario, CO

2emissions are orecast to

grow to 14.1 gigatons by 2030. 13 McKinsey & Co in a widely discussed analysis, gave a baseline orecast o CO2

emissions o 14.5 gigatons by 2030. 14

Figure 1: Structure o China’s energy consumption 2007 Source: National Bureau o Statistics

Mitigation by government policy aces many challenges, among the most important o which is thestructure o China’s energy consumption. China is more reliant on coal or its energy supplies than any othermajor economy. China is largely sel-reliant or energy, and the dominance o coal is determined by its domesticenergy resources. In 2007, 70 percent o China’s energy consumption was rom coal and only 19.7 percent came

CO2 Emissions (Million tons CO2) CO2 Emissions per capita (Tons CO2/person) CO2 emissions per unit GDP (PPP)

(Tons CO2/US$1,000)

1990 2005Change (%)2005 / 1990

1990 2005Change (%)2005 / 1990

1990 2005Change (%)2005 / 1990

France 355.4 388.4 9.3 6.11 6.19 1.44 0.28 0.23 -16.8

Germany 967.6 813.5 -15.3 12.19 9.86 -19.09 0.57 0.37 -33.9

Italy 398.4 454.0 14.0 7.03 7.76 10.45 0.32 0.30 -5.7

UK 557.6 529.9 -5.0 9.75 8.80 -9.70 0.47 0.31 -33.7

US 4850.5 5817.0 19.9 19.39 19.61 1.13 0.69 0.53 -23.1

Russia 2188.6 1543.8 -29.5 14.76 10.79 -26.90 1.44 1.12 -22.2

Brazil 192.7 329.3 70.8 1.29 1.77 36.97 0.20 0.24 17.7

China 2210.9 5059.9 128.9 1.95 3.88 99.16 1.20 0.65 -46.2

India 586.9 1147.5 95.5 0.69 1.05 51.74 0.42 0.34 -18.2

Japan 1058.0 1214.2 14.8 8.57 9.50 10.90 0.37 0.35 -5.5

World 21024.4 27136.4 29.1 4.01 4.22 5.34 0.64 0.50 -21.9

OECD 11091.6 12909.7 16.4 10.63 11.02 3.69 0.53 0.43 -19.6

Non-OECD 9283.4 13267.5 42.9 2.21 2.52 14.26 0.77 0.55 -28.7

Coal

Crude Oil

Natural gas

Hydro-power,nuclear power,wind power




rom oil and 7.3 percent rom hydropower, nuclear, wind and solar sources.15 Even these shares represent a slightreduction or coal which in 1990 accounted or 76.2 percent o primary energy.

Despite the rapid growth and size o its economy, China remains a relatively poor country with a largepopulation, most o whom have living standards well below those in developed nations. As economic develop-

ment and growth continue, so will the rise in its energy consumption. In particular, as economic developmentcontinues, China will experience a rapid move towards urbanization, which will greatly increase demands orenergy. Te challenge aced by China will be dierent rom that aced by developed nations, since it will have tofnd a path to a low carbon uture rom a much lower level o economic development.

12 Eneg nd Clite Plic in the re Peid

For many years in Europe the prevalent view has been that China lacks any concern or the environmental con-sequences o rapid economic growth, and specifcally or climate change. o a large degree this view has beenaccurate. Prior to the 1980s the environment had little signifcance as an object o political action in China,

which under Chairman Mao was ocused on revolutionary class struggle. Te adoption o the policy o “reormand opening” in 1979 brought a undamental change in China’s policy priorities. From revolution and classstruggle, the ocus shited to economic development.

Te shit in China’s priorities brought with it a process o reorm o the economy resulting rapid eco-nomic growth. It quickly became evident that China needed to strengthen policies on the environment and inthe 1980s the Chinese government began to adopt environmental legislation, much o it based on principleslearned rom the West. Te requirement that the state protect the environment was included in China’s constitu-tions o 1978 and 1982, but the policy consequences were limited, even though the frst major environmentallegislation was adopted in the 1980s. In 1984, the Water Pollution Prevention Law was adopted, ollowed in1987 by the Air Pollution Prevention Law, and in 1989 an Environmental Protection Law was enacted.

By the 1990s climate change had begun to climb up the international agenda. Increasing internationalconcern over climate change was not reected in any substantive change in Chinese domestic policy. Following

the 1992 United Nations Conerence on Environment and Development in Rio de Janeiro, China began work on a white paper on the environment,16 but undamental policy did not change. Energy policy in China was toa large extent ocused on the question o supply required to sustain high rates o economic growth.

Nevertheless, there were signs o a change in government thinking on energy questions. While China remained largely sel-sucient in energy supply, in 1993 it became a net importer o oil and rapid economicgrowth created domestic energy shortages. Legislative eorts, most importantly the Energy Conservation Law o 1998, reected increasing ocus on development o policy to address energy issues, including eciency andconservation, but environmental degradation continued and concern or the eects o climate change was notcentral to government thinking in China. Economic policy remained ocused on output growth which was seenas the most important measure o success and welare.

13 Eneg nd Clite: The New Piit

Te advent o the leadership o President Hu Jintao and Premier Wen Jiabao in 2003 has brought a signifcantchange in the thinking o the Chinese government on broad questions o economic development, energy andenvironmental impacts, including climate change. Te concepts o scientifc development and a harmonious so-ciety with “people-centred” development that Hu and Wen have espoused implicitly rejects the previous policy that ocused on GDP growth fgures above all else.17 Te Chinese leadership has increasingly recognized theenormous cost in terms o welare and security that environmental degradation and climate change represents.Te concept o scientifc development espoused by China’s government insists on the centrality o developmentin order to improve the welare o its people, but this welare is seen as being more complex than simple outputor income growth. Sustainability o development is now one o the core issues o economic planning.

Under Hu and Wen the environment and energy eciency have risen to the top o the policy agenda.Environmental, energy and climate security are now among the highest concerns o the Chinese government,



CHaPTEr 1

14 The EU, China and Climate Change

and are arguably now considered to be a matter o undamental national security. Tis is reected in the in-stitutions China has established to deal with the issue. In 1998, China had already established the NationalCoordination Committee on Climate Change. Te importance o climate change in government policy waselevated in 2007 by the establishment o the National Leading Group on Climate Change, which is headed by

Premier Wen Jiabao, and brings together 20 dierent government departments working on climate change. TeNational Development and Reorm Commission (NDRC), the main economic planning entity in the centralgovernment, in eect has charge o implementing policy on climate change.

Te importance attached to these issues is also shown at a policy level. Each year in December theNational Economic Work Conerence sets the economic policy targets or the ollowing year, and the environ-ment and energy have in recent years begun to be ranked among the highest priorities. In December 2007strengthening energy conservation and reducing pollution was ranked as the ourth most important task or2008.18 In the ollowing year energy conservation was also cited as an important task, although its priority

was somewhat downgraded in the midst o the economic cri-sis.19 Te government has adopted long-term policy strategiesto tackle energy issues. In 2004 the State Council approved the

Medium- and Long-erm Energy Development Plan Outline2004-202020 and the NDRC ormulated the China Medium-and Long-erm Energy Conservation Plan in the same year.21

Te latter plan set comprehensive energy eciency targets orthe Chinese economy and specifc industry sectors. In additionto these policy plans, the government has adopted a number o

laws that demonstrate increasing ocus on energy and climate security. In 2005 the Renewable Energy Law wasadopted and in 2008 the revised and strengthened Energy Conservation Law became eective. In August 2008the Circular Economy Promotion Law, which sets basic principles on eciency and recycling, was passed andbecame eective in January 2009.

Te 11th Five Year Plan or 2006-2010, or the frst time in one o China’s Five Year Plans, which re-main the country’s key economic planning document, set clear targets to reduce energy intensity per unit GDP

by 20 per cent by 2010.22 In 2007 the government issued the National Climate Change Programme setting outin broad principles on how climate change will be tackled in the period up until 2010. Te policy documentsand laws emanating rom the central government have been ollowed by many specifc policies that put theirgeneral principles into eect.

As the 11th Five Year Plan indicates, the ocus o China’s policy has been on energy eciency targetsand this is likely to continue. Te main means to achieve these targets are twoold. Firstly, the Chinese govern-ment has adopted administrative means to set and enorce targets. Secondly, it uses industrial policy to shapeeconomic development, thus encouraging those sectors that will increase energy eciency while discouraging those that are inecient in their energy use.

Recent economic events have reinorced the perception in China that it must address the energy issue.Te sharp rise in oil prices in 2007 and 2008 drove home the message that dependence on ossil uels, especially

those that are imported, may have serious economic consequences that could extend to the social and politicalspheres. Te global economic crisis has reinorced the message that China cannot continue to rely on the modelo development that it has ollowed or 30 years. Te Chinese leadership has sought to portray the crisis as an op-portunity to accelerate the rebalancing the Chinese economy.23 Included in this remodeling is an increased ocus onquestions o energy eciency and development o a green economy, including renewable energy sources. Accord-ing to Chinese government fgures, a signifcant proportion o the RMB4 trillion (600 billion US dollar) stimuluspackage announced in November 2008 to address the economic crisis will go to environmental and green sectors.

14 Intentinl Diensin

Over many years China has been regarded as a laggard in addressing issues o the environment and climatechange on the international stage. Te perception in Europe o China has been that o a country that has dis-missed these issues as the concerns o developed nations who can aord the luxury o tackling them. In the past

Environmental, energy and climatesecurity are now among the highest

concerns o the Chinese government,and are arguably now considered tobe a matter o undamental nationalsecurity




China has emphasized the historical responsibility o the developed nations or GHG emissions, and their obli-gation to take action on them. Tis has been restated as the Copenhagen Conerence approaches, as China hasagain said, “Developed countries shall take responsibility or their historical cumulative emissions and currenthigh per capita emissions to change their unsustainable way o lie and to substantially reduce their emissions

and, at the same time, to provide fnancial support and transer technology to developing countries.”25 China has been active in the international process on climate change through its participation in the

United Nations Framework Convention on Climate Change (UNFCCC) and it has ratifed the Kyoto Protocol.China has also participated in a number o other international rameworks. Te Carbon Sequestration Leader-ship Forum set up in 2003 includes China in its membership. In 2004 China was a party to the establishmento the Methane to Markets Partnership, and in 2006 it was one o the ounding members o the Asia-PacifcPartnership on Clean Development and Climate. China has been the largest recipient o projects in Clean De-velopment Mechanism (CDM) under the Kyoto Protocol.26 But the impact o these international rameworkson China’s domestic behaviour in the past has been limited. Under the Kyoto Protocol China had no binding emission targets, and it maintains the position that, “Te frst and overriding priorities o developing countriesare sustainable development and poverty eradication.”27

China has set out its position prior to the Copenhagen Summit, and continues to insist on the prin-ciples that it has adopted in the past. For instance, the Chinese government continues to assert the principle o “common but dierentiated responsibilities” in negotiation o the new agreement to succeed the Kyoto Proto-col28 and that China will not accept any binding targets or GHG emission reductions. Still, China’s attitude toclimate change policy has changed considerably in recent years. While it has not yet brought about a completechange in its stance with regard to the successor to the Kyoto Protocol, the increasing seriousness with which it istaken indicates that it may be possible to negotiate an agreement which achieves real progress in tackling climatechange. Te targets that China has set or its domestic policy, along with indications that it may move to seteven more ambitious goals, suggests that there may be room to negotiate a successul agreement at Copenhagen.



CHaPTEr 2

The EU nd Chin: Dieing

appches t Clite Chnge

Although the problem o climate change is common to both the EU and China, the background and cur-rent situation concerning GHG emissions and the mitigation policies that they have adopted are not thesame. Te EU has an economy with a signifcantly higher level o development than China. Te EU’s

economic structure and the patterns o its energy production and consumption are very dierent rom China. At the same time, the institutional settings o the EU and China also dier and are derived rom origins that arear rom being the same. Nevertheless, both sides have developed an array o policies that address either directly or indirectly the issue o climate change. Tese policies create possibilities or both cooperation and competition

in the feld o climate change between the EU and China (see Chapter 3 or urther discussion)

21 Plic Bckgund

In Europe, at the EU level there is a relatively clear policy ramework on climate change that addresses the issuedirectly. Te EU’s Climate Action and Renewable Energy (CARE) Package o December 2008 29 was the mostrecent eort to set out a comprehensive policy on the issue. In 2007 China issued a National Assessment Reporton Climate Change,30 which provides a scientifc oundation or analysis and adoption o mitigation measures.Te National Climate Change Programme promulgated in 200731 in theory sets out a coherent strategy ortackling climate change. Te National Climate Change Programme sets out broad principles, or instance thatclimate change will be tackled within the ramework o sustainable development and that equal emphasis will be

given to mitigation and adaptation, and also asserts that China will rely on advancement and innovation o sci-ence and technology to address climate change. It also states that China will actively participate in internationalcooperation on the issue, but reiterates the basic principle o common but dierentiated responsibilities. Despitethis ramework, China’s climate change policy is much more diuse than the EU’s.

Economic development remains a central objective o the Chinese government, but this is increasingly considered in terms o sustainability. Energy and climate security have become undamental to China’s view o the sustainability o its economic development. In 2004, the China Medium- and Long-erm Energy Conser-vation Plan stated clearly that, “Energy conservation is a long-term strategic guideline in China’s economic andsocial development, and an extremely urgent matter at present.”32 Te Plan directly criticized the view o theissue that had been prevalent in China, saying, “Energy conservation is only regarded as an expedient to ease upthe unbalance between energy supply and demand, paying attention to energy conservation only when energy

supply is tight, and neglecting energy conservation when energy supply is improved.” It went on to argue that,“Along with the increase in population and the acceleration o industrialization and urbanization, particularly the rapid development o heavy industry and transportation, the demand or energy will increase signifcant-ly. Te imbalance between energy constraints and economic development, and the environmental pollutionbrought about by energy utilization will become even more evident.”

Since this plan was issued in 2004, the question o energy and climate security has become even morepressing. While it is recognized as an urgent international problem, China insists that its strategy or dealing with climate change must depart rom its own circumstances. Tus, the policies to tackle the issue will take ac-count o China’s position as a poor developing country, and be based on its own economic structure and energy needs. Tis results in some obvious dierences with Europe. In the international context China has consistently reused to accept binding emissions targets and insists that the developed countries have the greatest responsibil-ity or mitigation eorts. Nevertheless, in domestic policy it has set its own targets, but unlike the EU, these arenot ocused on GHG emissions. Instead China has set energy intensity reduction goals, such as the 20 per centreduction target included in the 11th Five Year Plan.




Not only is the key target o Chinese policy dierent, but the means China has adopted derive very much rom the domestic environment. Even ater 30 years o economic reorm, the state still plays a central rolein the Chinese economy. Te Chinese state directly owns and controls many o the largest enterprises, but italso actively directs economic activity through a strong industrial policy and the many administrative levers that

remain in the hands government ocials. Climate change policy is no exception. In addressing climate change,there has been an emphasis on state direction through administra-tive targets and enorcement, and industrial policy. Unlike in theEU, the Chinese government has not adopted market mechanismssuch as cap and trade as the keystone o its policy. Te choice o policies is based on China’s existing policy mechanisms, and also

technical and institutional challenges that would be aced in implementing cap and trade. Te eective measure-ment o emissions is beyond current technical capacities in China, and establishment o a carbon market wouldrequire more sophisticated fnancial institutions than those which currently exist.

China will continue to address climate change through application o its domestic policies, while alsoparticipating in international mechanisms. Domestic eorts will be complemented by the international mecha-

nism, especially in areas such as technology transer, but it is likely that China will place greatest emphasis onits own policy rameworks and goals.

22 Legisltin

Documents such as the China National Climate Change Programme set the broad outlines o Chinese govern-ment policy on climate change, but the detail o implementation exists in numerous dierent laws, regulationsand policy documents. One o the most important o the sources o policy is the laws passed by the centralgovernment which oten have a basic regulatory unction, but also provide a legal ramework or implementing policy goals. Te enactment o legislation has been one o the key areas o action by the Chinese government,and is one o the most important maniestations o its increasing attention to questions o energy security. Over

the past decade, China has issued a number o major laws that have an impact on energy and climate change.Long beore climate change became a ocus or serious policy attention, the energy sector and its eciency be-came the subject o legislation by the Chinese government. Te Energy Conservation Law o 1997 was the frstsignifcant step in beginning the process o addressing energy eciency. Tis law set out basic goals on energy conservation, and prescribed the means that could be adopted to achieve them.

Since the passage o initial legislation in the 1990s China has increasingly legislated on energy e-ciency and sustainability. In 2002 the Cleaner Production Promotion Law was passed, in 2005 the RenewableEnergy Law was adopted and in 2008 the revised and strengthened Energy Conservation Law became eective.In August 2008 the Circular Economy Promotion Law, which sets basic principles on eciency and recycling, was passed and became eective in January 2009. Te main unction o these laws is to set the basic parametersor the relevant area o activity. Oten they do not just provide a legal ramework but also outline policy goals

and the means that may be used to achieve them.Tis basic legal ramework does not in itsel provide the detail o how the goals are to be achieved,

but the passage o such laws indicates the undamental direction o government thinking. None o these lawsdirectly addresses climate change, but they nevertheless have a strong ocus on energy conservation. Te laws areimplemented through subsidiary regulations, and other policy documents.

2.2.1 Efciency Standards

Te legislation and government policy documents covering energy are increasingly expressed through detailedstandards that set eciency targets across many sectors. China frst introduced energy eciency standards orelectrical appliances in 1990 and since then the number o products covered has been expanded. Between 2005and 2008 three groups o electrical products were subject to energy eciency labeling standards. Following onthe amendment o the Energy Conservation Law, the government has taken new initiatives. Tese include en-ergy eciency standards or seven types o appliance which were issued in 2008.33 Te standards cover variable-

China has consistently reused toaccept binding emissions targets



CHaPTEr 2

speed air conditioners, multi-connected air conditioners, electric water heaters, induction cookers, computermonitors and copiers.34Te three previous groups that were required to meet labeling requirements included wa-ter chillers, gas water heaters, motors, sel-ballasted uorescent lamps and high-pressure sodium vapour lamps.

2.2.2 Building Energy Standards

Energy use in buildings is one o the most important sources o consumption. China has imposed increasingly stringent building standards as part o its strategy to raise energy eciency. Buildings account or about 18 per-cent o China’s energy consumption, but this level is expected to rise as urbanization increases with economicdevelopment. Te China Medium- and Long-erm Energy Conservation Plan set the target that all new build-ings constructed must reduce energy consumption by 50 percent on current levels, while in some relatively developed cities such as Beijing and Shanghai, the requirement is a reduction o 65 percent. 35 and the DesignStandard or Energy Conservation in Civil Buildings introduced in 2006 provided details on how the goalsshould be reached. Te Design Standard requires the use o energy ecient materials and insulation, and energy saving technology or heating, air conditioning, ventilation and lighting systems in new buildings.

2.2.3 Vehicles

China has set increasingly strict uel economy standards or vehicles which are being implemented in two phasesrom 2005-2006 and 2008-2009. Te vehicle uel standards are less stringent than those applied in the EU and Japan, but are more stringent than those in Australia, Canada and the US.36 Te requirements or uel eciency will become increasingly strict under the policy currently in place.

23 Industil Plic

Industrial policy is increasingly at the heart o China’s eorts to tackle climate change. Tat the Chinese gov-

ernment sees this as essentially an economic planning problem is indicated by the act that the coordinationor climate change policy is carried out under the auspices o the NDRC. Indeed, the China National ClimateChange Programme and other key policy documents in this area are issued by the NDRC. Te NDRC, which isChina’s most important economic planning body and which retains considerable power to direct the economy,is responsible or setting and implementing much o the detailed policy that puts into eect the goals that havebeen established and now has a Department o Climate Change.

Te creation o government institutions in China is not just a reection o the imperative o eec-tive policy implementation. Tey also show the hierarchy o policy priorities. Te creation o National Lead-

ing Group on Climate Change in 2007 headed by Premier Wen Jiabao demonstrates the importance attached to the issue atthe highest level o the Chinese government. Energy sustain-

ability, and by implication climate change, are included at thevery heart o China’s economic planning. Energy conservation is

now suciently important that leading ocials at the provincial level and major enterprises are assessed on thebasis o their success in achieving goals set in this area.37 Failure to achieve targets is likely to end the promotionprospects o any ocial responsible.

Industrial policy in China has increasingly ocused on energy eciency and conservation, as energy security has become a priority concern or the Chinese government. Although China has adopted what in the West have oten been called “market oriented” reorms since the late 1970s, it remains an economy where thestate either directly or indirectly plays a central role. Te state still dominates many key areas o economic activ-ity through state owned enterprises (SOEs), and government-directed industrial policy. State policy oten playsa direct role in setting targets and providing support to preerred sectors and eliminating capacity in those thatare deemed to be undesirable. Such action has increasingly been taken in the area o energy production andconsumption.

Industrial policy is increasingly atthe heart o China’s eorts to tackle

climate change




2.3.1 Economic Stimulus

Te most signifcant recent example o government intervention in the economy was the stimulus packageannounced in November 2008 to address the economic crisis. Tis was intended to stimulate the domestic

economy particularly in the ace o alling international demand, nevertheless its environmental and climatechange implications came to be seen as a vital element o the package. Te ull implications remain open debate,but the government has insisted that the package will not lead to a return to the previous attitude on energy andclimate change. According to the Chinese government, out o the headline RMB4 trillion package, RMB210billion was allocated to environmental and energy eciency projects.38 Other estimates have put the real “green”element in the package much higher. According to HSBC, the Chinese package oered the largest green stimu-lus undertaken by any government. Te bank estimated that 38 percent o China’s package was “green”, includ-ing investment in railways, power grids as well as the environment and energy eciency.39 Yu Qingtai, China’sspecial representative or climate change negotiations, has said that over 15 percent o the stimulus package would be spent on reducing carbon emissions by 2010.40Te real impact o the stimulus package on the climateremains dicult to estimate as details o the actual spending in this area remain unclear

2.3.2 Energy Efciency

One o the key targets in the National Climate Change Programme is optimization o the structure o energy consumption. By this is meant the reduction in the use o ossil uels, especially coal, through the use o renew-able energy, nuclear power and coal bed methane. Te National Climate Change Programme sets a target o 10percent o primary energy rom renewables by 2010 and increasing extraction o coal bed methane to 10 billioncubic metres. Beore the National Climate Change Programme was issued in 2007, China had begun to addressclimate change. Tis was oten done under the auspices o other policy goals. For instance, the key target o a 20percent reduction in energy intensity per unit GDP by 2010 ound in the National Climate Change Programmehad already been set in the 11th Five Year Plan which covers the years 2006-2010.

Te 11th Five Year Plan was the frst o China’s Five Year Plans to set clear energy eciency targets. Te

Plan requires a 20 percent reduction in energy intensity per unit GDP by 2010. Even beore then the Chinesegovernment had issued plans that address issues related to energy eciency and sustainability. Te China Medi-um- and Long-erm Energy Saving Plan41 o 2004 had already set a target o reducing energy intensity per unitGDP rom 2.68 tons o coal equivalent (tce) per 10,000 RMB in 2003 to 2.25 tce per 10,000 RMB in 2010,an energy saving rate o 2.2 percent a year. In the decade rom 2010 the rate o saving was planned to increaseto 3 percent a year, and energy intensity to all to 1.54 tce per 10,000 RMB by 2020. Te long-term target isthat China’s GDP will quadruple between 2000 and 2020, but that energy consumption will only double in thesame period. Since the beginning o the 11th Five Year Plan, statistics rom the Chinese government show thatenergy intensity has been reduced. In 2006, there was a reduction o 1.79 percent, then in 2007 and 2008 thereduction increased to 4.04 percent and 4.59 percent. In the frst hal o 2009, the reduction was 3.35 percent. 42

China’s industrial policy with regard to energy eciency has several aspects. One is the encouragement

o desired outcomes through supports including subsidies, tax incentives or preerential pricing. Another is theelimination o enterprises, capacity or technology that are deemed to be undesirable or the creation o barriersthat prevent the entry into production o capacity that is unwanted. China uses all these methods to addressclimate change.

2.3.3 Power Generation

China’s uture energy requirements will continue to largely be met by coal. Even under the ambitious targetsset or renewable and other energy sources such as nuclear, coal will continue to dominate power generationin China. Te technological development o coal-fred power stations will be important in China reducing theenergy intensity o the economy, and mitigating GHG emissions increases as a result o economic growth. Tedanger o carbon lock-in as a result o investment in coal-fred generating capacity that will continue to producehigh levels o GHG emissions is a critical actor in the uture o China’s mitigation eorts. Investment decisionsmade today will have consequences or emissions during the lietimes o power stations over the next our to



CHaPTEr 2

fve decades China’s policy in this area includes both elimination o inecient plants, and the introduction o highly ecient new plants.

Te Chinese government has adopted a policy o supporting technological improvement and imple-mentation. In the past China’s coal fred power stations have had eciency levels signifcantly below internation-

al averages, and the leading developed nations. Recent years have seen concerted eorts to change the situation. A key element o this is the introduction o large super critical or ultra supercritical plants. Since 2005 China hasset requirements that all new large coal-fred power plants use super-critical technology. In 2007 China beganconstructing ultra super-critical coal plants that are even more ecient. China’s large new power stations now use super-critical technology that has raised the overall eciency o coal-fred power stations to 30 percent, closeto the level o developed countries. Te eciency o the super-critical plants now used is over 41 percent, andthis will be urther increased to 43 percent by the ultra super-critical plants. Integrated Gasifcation CombinedCycle plants being introduced will have an eciency o 45 to 55 percent.43

European media oten reer to the large number o power plants that China has constructed in recentyears. Much less well-known is that China also has a programme requiring the closing o small and inecientthermal power stations. Te NDRC has set a target o closing such power plants totaling 50 GW by 2010, o

which 40 GW are coal-fred and 10 GW oil-fred. In mid-2009 the Chinese government announced that it hadachieved the target more than one year ahead o schedule. According to the National Energy Administration, by the end o June 2009, a total o 7,467 thermal electricity generators with a total capacity o 54 GW had beentaken out o service. Te reduction is expected to reduce SO2 emissions by 1.06 million tons and CO

2emissions

by 124 million tons.44 Carbon Capture and Storage (CCS) has attracted considerable attention as part o the solution to

mitigating GHG emissions both in Europe and China. Te Chinese government has yet to ully commit itsel to the idea, but it has provided unds or research and there are pilot plants under development. Te Green-genproject is a major eort to develop CCS and other energy sectors with a CCS power plant being developed inianjin.45 China and the EU have invested joint projects in development o CCS and made this a central pillaro their cooperation on climate change.

2.3.4 Renewable Energy

Renewable energy has become a key element o China’s eorts to reduce emissions. Under the Medium- andLong-erm Renewable Energy Development Plan issued in 2007,46 China aims to increase the share o renew-able energy in total primary energy consumption to 10 percent by 2010, with a target o 15 percent by 2020.Te target or 2010 is to have installed hydropower capacity o 190 GW, and 300 GW by 2020. Biomass energy is targeted to reach 5.5 GW by 2010, and 30 GW by 2020, and or wind power the target is to reach 5 GW by 2010 and 30 GW by 2020. For solar power the goal will be 300 MW by 2010 and 1.8 GW by 2020. Solarthermal applications such as solar water heaters will be expanded, with a target o 150 million m2 in use by 2010and 300 million m2 by 2020. By contrast, nuclear power remains a relatively small part o China’s energy mix and the target is that by 2020 nuclear will account or 40 GW. 47

Te means to achieve these targets will include avourable pricing policies, mandated market sharesand also state investment and concession programmes. For instance, mandated market shares will require thatin areas covered by large scale power grids, non-hydro renewable power generation’s share o total power genera-tion will reach one percent by 2010 and over three percent by 2020. Te Medium- and Long-erm RenewableEnergy Development Plan states that power generators with sel-owned installed capacity o over 5 GW will berequired to have a non-hydro renewable energy installed power capacity that accounts or three percent o theirtotal capacity by 2010 and over eight percent o their total sel-owned capacity by 2020. Te Plan commits thegovernment to introducing avourable pricing polices or renewable energy, and the establishment by the centralgovernment o a renewable energy und or investment in the sector. Local government authorities are also en-couraged to set up unds. Te plan also calls or avourable tax policies or the sector.

Te goal o this industrial policy is not just to ensure that this production capacity is created, but alsothat it will be under the control o China. Te Medium- and Long-erm Renewable Energy DevelopmentPlan emphasizes the need or China to enhance its own technological development in the renewable energy sector, stating that, “[t]he capacity to absorb and innovate should be strengthened, so that, as soon as possible,




independent innovation capabilities are achieved. By 2010, a basic system o renewable energy technologies andindustry will have been established, so that equipment capabilities based mainly on domestic manuacturing willhave been established. By 2020, a relatively complete renewable energy technology and industry system will havebeen established, so that a domestic manuacturing capability based mainly on China’s own intellectual property

will have been established, satisying the needs or deploying renewable energy on a large scale in China.”Te strong policies o the Chinese government have resulted in China becoming a major investor in

renewables with rapid growth in the sector. By mid-2009 China claimed an installed wind power capacity o 11.81 GW, an increase o 101 percent o one year earlier and armore than the target or 2010.48 China is now the second largestmanuacturer o photovoltaics in the world ater Japan.49 In 2007annual production capacity was 1,300 MW, and this is predictedto increase to 4,000 MW by 2010. On current trends it is likely

that the targets or renewables will be met well ahead o 2020. Ocials have predicted that China will have 100GW o wind power capacity by 2020.50It has also been predicted that nuclear power capacity will ar exceed thetarget previously set, and may reach over 80 GW by 2020.51

2.3.5 Energy Consumers

Industrial policy applies to both energy producers and consumers. Te Chinese government has adopted severalprogrammes to reduce energy consumption. Te role o the state in directing energy policy is evident in the op1,000 Enterprises Programme. Tis programme under the direction o the NDRC was launched in 2006 andtargets energy eciency in China’s 1,000 largest enterprises, including both energy producers and consumers.54 Te op 1,000 Enterprises Programme covers nine sectors: iron and steel, non-errous metal, chemical, petro-leum and petrochemicals, construction materials, textiles, paper, coal mining and power generation. In 2004the 1,000 enterprises accounted or 33 percent o national energy consumption and 47 percent o industrialenergy consumption. Under the plan provincial governments signed agreements with the NDRC stipulating each province’s share o the energy saving target under the programme. Te provincial governments then signed

a contract with each enterprise setting the energy to be saved. Initial results suggest signifcant savings in energy will be achieved by the target date o 2010.55

Te aggressive industrial policy applies especially to sectors that are high consumers o energy. In 2007the NDRC announced a programme to close inecient producers in the cement, aluminium, erro-allow, coke,calcium carbide and steel sectors. Te target was to decommission 250 million tons o outdated cement capac-ity by 2010, and in the pig iron sector to remove 100 million tons o capacity and 55 million tons in steel. 56

Many industrial sectors in China are highly export-oriented and some o these are high energy users. It has beengovernment policy over a number o years to reduce reliance on such export sectors. In 2006 the governmentannounced reductions in export Value Added ax rebates across a wide range o high-energy using and polluting sectors. China imposes taxes on certain products in order to discourage their export, one o the reasons being that are energy intensive. Tese include 15 percent duty on exports o refned copper, nickel, aluminium and

other metals, 10 percent duty on steel products and fve percent on petroleum, coal and coke.

2.3.6 Transport

ransport will be a key element o emissions policy. China’s transport sector has been growing enormously. TeChinese government is taking steps to address the issue. Unlike in the EU, uel prices in China are not reely determined by the market. For many years, prices or pertroleum products have been set well below interna-tional market prices, which has done nothing to contribute to uel eciency. But China has now adopted a policy o raising prices or uel and bringing them more into line with international price movements.57 At thesame time, tax policy is used to direct vehicle sales. Cars with an engine size o 4 litre or more are taxed at a rateo 20 percent, while those with engines o under one litre are taxed at one percent.58 China’s government R&Dprogrammes support development o new vehicle technologies such as hybrids.

Renewable energy has become a keyelement o China’s eorts to reduceemissions



24 EU Plic

Te EU has had a signifcant policy climate change or much longer than China. Like China, in addition toconcerns over climate change, the EU is aced with the question o energy security, which has been a stimulus to

addressing energy eciency. Te EU began taking action on climate change at an early stage, and has claimed a position as an international leader in mitigation eorts and has entered into international agreements that haveplaced binding obligations on it. Under the Kyoto Protocol, EU Member States were subject to binding emis-sions reduction targets. Te EU was required to reduce GHG emission to eight percent below the 1990 level by 2008-2012, and the EU was thus orced to adopt measures to achieve these targets. Tus, unlike China, target-ing o emissions has important to climate change policy in Europe.

Te European Climate Change Programme was launched in 2000 to coordinate policy on climatechange, and has been central to the EU’s eorts to address the issue. As in China, policy on climate change hasnumber o disparate elements, some o which do not necessarily directly address climate change, but do havea mitigating eect. Over a number o years, the EU has adopted a wide range o measures addressing energy conservation and climate change. It has pioneered the adoption o and emissions trading scheme (ES), an

approach which China has yet to accept. Te ES, which came into operation in 2005, covered 11,500 majoremitters o GHG accounting or about hal o the EU’s emissions. In addition to the ES the EU has alsoadopted a number o other measures that impact GHG emissions.

Te Integrated Pollution Prevention and Control Directive, which sets out requirements on approval o industrial plants, including their energy eciency and emissions, requires that operating permits must be basedon best available technology. Te EU seeks to develop the use o renewable energy sources and has also adoptedmeasures to promote renewable energy production.59 Te RES-E Directive o 2001 set an indicative target o 21percent o EU gross electricity consumption rom renewable energy sources by 2010. Te EU has also adoptedbiouels as a means o reducing GHG emissions in transport. In 2003, the Commission set a target o a 5.75percent share or biouels by 201060 and the EU has a biomass action plan that seeks to increase its use rom 69million tons o oil equivalent (Mtoe) in 2003 to 150 Mtoe in 2010.61 Te EU’s Energy Eciency Action Planset a target o reducing energy intensity by 1 percent a year.

ransport is an important contributor to GHG emissions in Europe and the EU had targeted the sectorin its eorts to address climate change by adopting an agreement that requires car manuacturers to reduce CO

2

emissions o their vehicles to 140 g per km by 2008/2009, or by 25 percent rom the mid-1990s. Energy usein buildings accounts or signifcantly more energy demand in Europe than in China and the EU has targetedenergy eciency o buildings. Te EU has pioneered energy labeling o products. From the 1990s, the EU beganenergy labeling to domestic appliances. More recently it has adopted measures to promote energy eciency o products.

In December 2008 the EU adopted a Climate and Renewable Energy (CARE) Package that is con-siderably more ambitious in its goals than the previous policy. Te CARE Package targets a 20 percent cut inGHG emissions by 2020 compared to 1990 levels, an increase in the share o renewable energy sources to 20percent and a 20 percent cut in energy consumption rom the levels projected or 2020. I other developed na-

tions commit to comparable goals, then the EU will set a target o a 30 percent reduction in GHG emissions by 2020.

Te most important element in the package is a strengthening o the ES. Emissions permitted underthe ES will be reduced by 21 percent by 2020 and the system will be reormed so that a single EU cap onemission is set, and the ree allocation o emissions which had existed previously will be phased out and replacedby auctioning o permits. Tere will be targets or emissions reductions by sectors, such a transport, housing,agriculture and waste, which were previously not included in the ES. In the case o these sectors, there will benational targets that tack into account the level o development o Member States. Te more developed MemberStates will be required to achieve a 20 percent reduction in emissions, which the least developed will be permit-ted a 20 percent increase in emissions. Te renewables target will also be achieved by binding national targets which will also vary in accordance with the conditions o each country. Te Package also seeks to promote CCS, which seen as a key element in dealing with emissions. Also included in the Package are tougher binding emis-sion standard targets or cars. Te long-term target will be emissions o 95 g CO

2per km by 2020.

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25 Dieent appches

Te EU and China have adopted dierent means to deal with climate change, but both in their dierent ways have set ambitious objectives or the coming years, and the ends may eventually be the same. Te contrast can

be seen in the dierent emphasis in the mechanisms used to achieve the goals adopted. China has ocused on statedirection through administrative means and industrial policy, although the market has an increasing role, as shownby the move toward market prices or uel over recent years. Te EU has no equivalent o the economic planning mechanism that remains central to the Chinese economy. Te EU and the Member States have taken steps to directeconomic activity, or instance the programme it has adopted to remove traditional incandescent light bulds romthe market or the targets set or renewable energy, but it certainly does not have the same dimension as in China,and the cornerstone o the policy has been the use o market mechanisms through the ES.

China has committed itsel to strong targets on energy eciency. Tere are signs that it is well on track to meet or exceed many o the targets which it has set itsel. Even i targets such as that or energy intensity reduction are not met, the achievements attained will be signifcant. China has a strong interest in continuing its commitment to seeking energy and climate security. While participation in the international process will be

part o that commitment, the domestic policy process will be more important. Most o China’s policy initiativesthat aect climate change have come about without any direct reerence to international rameworks, but havebeen driven by domestic policy needs.

Box1: Key EU Climate Change Policies

1992 Energy Labeling o DomesticAppliances

Directive requiring energy labeling o domestic appliances.First applied to washing machines in 1996, subsequentlyexpanded to cover other products.

1995 Programme to reduce CO2

emissionsrom cars

Voluntary agreements with manuacturers to reduce CO2

emissions rom 186 g per km to 140 g per km by 2008/2009.

1996 Energy Efciency Requirements orIndustrial and Agricultural InstallationsIntegrated Pollution Prevention andControl

Major polluting installations must obtain permit to operatebased on Best Available Techniques to use energy efcientlyand reduce emissions.

2000 First European Climate ChangeProgramme

Established to identiy environmentally and cost-eectivemeasures to reduce GHG emissions and meet Kyoto targets.

2001 Directive Promoting ElectricityGeneration rom Renewable Sources

EU Directive requiring promotion o non-ossil renewableenergy sources. Target o 21% o gross electricityconsumption rom renewables by 2010.

2002 Energy Perormance o Buildings Directive requiring minimum standards or energyperormance o buildings.

2003 Motor Efciency Programme Voluntary Programme to improve efciency o motors .

2003 Promotion o Biouels or Transport Directive requiring Member States to promote bio-uels in

transport. Target o 5.75% o uels sold by 2010.2004 Promotion o Cogeneration Directive establishing ramework to support cogeneration.

2005 ETS Operational ETS covering 11,500 plants in 25 Member States. Allocation otradable emissions allowances.

2005 CDM Operational CDM created under Kyoto becomes operational. EUcompanies active in China.

2005 Biomass Action Plan Proposal to increase biomass in heating, electricity andtransport sectors.

2005 Eco-design Requirements or Energy-using products

Directive requires integration o environmental considerationsincluding energy efciency in design o products.

2005 Second European Climate ChangeProgramme

To urther work o frst programme, especially in areas suchas CCS, emissions rom small vehicles and aviation.

2008 Climate Action and Renewable EnergyPackage

Commits EU to 20 percent reduction in emissions by 2020and increasing share o renewables to 20 percent by 2020.Strengthens ETS. Promotes use o CCS.



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Box 2: China Key Policies on Climate Change

1994 China’s Agenda or the 21st Century:China’s Population, Environment andDevelopment

Set broad development goals, including low consumption, lowpollution, high efciency.

1998 Energy Conservation Law Makes energy conservation a basic goal o policy, and meansor attaining it.

1997 Kyoto Protocol Ratifcation o Protocol, but no binding targets.

2002 Wind Energy Tax Incentives Reduction o tax rates or wind power projects.

2002 Ethanol Support Programme Subsidies and tax reductions or ethanol producers.

2004 Government Procurement o EnergyEfcient Products

Government units must give priority to energy efciency whenpurchasing products.

2004 Medium- and Long-Term EnergyDevelopment Plan Outline 2004-2020

Set long-term efciency targets or economy and specifcindustries.

2004 Medium- and Long-Term EnergyConservation Plan

Provides plans or energy conservation, and means to achievetargets.

2004 Efciency Upgrade or Coal-fredBoilers and Kilns

Plan to improve efciency o boilers and kilns.

2004 Electric Motor Efciency Upgrade Requires 2% average improvement in energy efciency oelectric motors.

2005 11th Five Year Plan Sets energy efciency targets. Energy intensity to be reducedby 20% by 2010.

2005 Vehicle Fuel Economy Standards Introduction on vehicle efciency standards or vehicles, withpassenger vehicles rom 2005 and light-duty vehicles rom2008.

2006 Top 1,000 Enterprises Programme Programme to raise energy efciency o 1,000 largestenterprises accounting or 33% o energy consumption. Theprogramme covers, energy production, textiles, iron andsteel, chemicals, construction materials, coal, petroleum andpetrochemicals, non-errous metals and paper.

2006 Renewable Energy Law Sets ramework or development o renewable energy. Setstargets or development o renewable energy. Regulatespricing and connection to grid.

2006 Vehicle Tax Rates Sets excise rates or vehicles depending on engine size

2007 Aluminium Industry Planning Controls Sets efciency targets in aluminium production chain rommining to processing.

2007 Tax Incentives or Renewable Energy

2007 National Climate Change Programme Sets out policies on climate change mitigation and adaptation

2007 Medium and Long Term Development

Plan or Renewable Energy

Set targets or renewable energy and methods to achieve

them. Targets include 300 GW o hydro power, 30 GW o windpower, 30 GW o biomass, 1.8 GW o solar power, 300 millionm2 o solar hot water heaters and 44 billion m2 o methane ayear by 2020.

2008 National Building Energy Standard Set energy efciency targets or all new buildings.

2008 Circular Economy Promotion Law Provides principles or development o a “circular economy”based on recycling

2008 Energy Conservation Law Revision Strengthens provisions o law

2008 Economic Stimulus Package Provides unding or environmental and energy conservationprojects, and improved inrastructure

2009 Implementation o the Bali Roadmap:

China’s Position on the CopenhagenClimate Change Conerence

Sets out position on principles or




The EU-Chin Diensin:

Cpetin nd Cpetitin

China and Europe have highlighted clean energy cooperation as a key pillar o their partnership. Te EUin particular considers the combat against climate change to be an important element in the develop-ment o its external relations and even as a source o soft power . But the creation o sot power depends

on hard deliverables. Te EU’s sot power will depend on how it strengthens its own know-how and technology,the contribution it makes to curbing emissions, fnancing technology transer and to managing projects withdeveloping countries like China in a coordinated way. Constructive strategizing will be the key to building a mutually benefcial partnership with Beijing, as well as to turning clean energy technologies into a positive game

changer or 21st

century global aairs.

31 The Elutin Clen Eneg Cpetin

At the 2007 China-EU Summit, both sides stressed the great importance they attached to the issue o climate change and their willingness to strengthen cooperation to jointly meet the serious challenge it represents.But climate change is not a new topic on the agenda. In 1994, the EU and China began to explore clean en-ergy as a new area or collaboration. Tat year, a new policy dialogue was established to conceive priorities andprojects or jointly combating climate change.

Initially, this process integrated growing interest rom both corporate players and development agen-cies, and was actively promoted by member states like Spain, Germany and Denmark. Te frst joint Energy

Conerence, organized in 1996, identifed various technologiesthat the EU sought to promote in cooperation with nationaland local Chinese governments. In 1999, a delegation o theEuropean Parliament, the European Commission and high-ranking representatives rom the industry, called on China to

make an assessment o the co-operation between the EU and China in energy-related areas. From that moment,clean technologies gained prominence as a ocal point o the energy partnership.

In 2003, a vice-minister-level Environment Dialogue was started. Tis move coincided with the ap-proval o the Energy and Environment Program (EEP).59 Tis fve-year programme, with a 45 million Eurobudget co-fnanced by China and the EU, aimed at encouraging the ormulation o good energy policies via assistance to the central government and local authorities, as well as to promote new technologies by unding

easibility studies.60

Between 2004 and 2008, 26 workshops and conerences were organized in the ramework o the programme and cooperation was expanded to new areas like biomass resources, rural power supply andoshore wind power.

In May 2005, two important action plans were agreed between the European Commission’s Directo-rate General or ransport and Energy and the Chinese Ministry o Science and echnology. Te ocus o theprogrammes was on the development o clean coal technologies in China and promoting energy eciency inChinese industries. Te EU and China launched their Partnership on Climate Change at their bilateral Summitin September 2005.61 Endorsing the objectives o the UNFCCC and the Kyoto Protocol, this partnership par-ticularly aims at strengthening the dialogue on climate change policies and exploring practical co-operation. Tepartnership comprises fve main sectors: clean coal, methane recovery, CCS, hydrogen and uel cells and powergeneration. Building on the action plan or the development o clean coal, the partnership’s main priority until2020 is to develop and demonstrate advanced near-zero emission coal technology through carbon storage, andto reduce the cost o such technologies. At the same Summit that year, a frst dialogue meeting on energy andtransport strategies was held between the European Commission and the NDRC. In 2006, these priorities were

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The EU and China launched theirPartnership on Climate Change at theirbilateral Summit in September 2005



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included in a Rolling Work Plan and a memorandum was signed on a agship project, namely the constructiono a near-zero emission coal fred power plant by 2020.62 Apart rom various preparatory research projects, theCommission indicated that it would invest an additional 50 million Euro or the construction and operationphase o this plant.63

In the context o the EU-China Partnership on Climate Change, the European Investment Bank ex-tended a 500 million Euro loan to China in 2007. Te loan will support the NDRC’s National Climate ChangeProgramme, with the ocus on renewable energy sources, energy eciency enhancement, the capture and use orstorage o greenhouse gases and aorestation projects.64

Another avenue o cooperation that resulted rom the 2005 Partnership on Climate Change is theCDM, established as part o the Kyoto Protocol. In 2007, Beijing and Brussels established the 2.8 million EuroEU-China CDM Facilitation Project, which will run until 2010. Te project supports China’s CDM throughresearch, capacity development, technical exchange and training activities. It is being 65 implemented by Chineseand European partners and associates with grants rom the European Commission and is the largest Europe-an-unded project addressing CDM-related activities. A year later, the EU-China Environmental GovernanceProgramme was ounded and which aims at an improved policy and legal ramework or promoting public par-

ticipation in environmental decision-making, increased public awareness, and more participation by the privatesector. Te largest part o the 15 million Euro budget will be allocated to projects to improve the accountability o local governments and the judicial system in implementing and enorcing environmental rules.66

Table 1. Major EU projects in the feld o climate change and clean energy and the committed unding

(million Euro). Sources: European Commission. *The FP projects’ unding in the sector o climate change is allocated to a

wide range o European and Chinese participants.

Programme Budget

EIB loan to China’s National Climate Change Programme 500

Energy and Environment Program 45

EU-China CDM Facilitation Project: 2007-2010 3

EU-China Environmental Governance Programme: 2008-2010 15

EU-China Clean Energy Centre (EC2) 10

Euro-Chinese Institute or Clean and Renewable Energy (ICARE) 10

FP-6 and FP-7 relevant joint research projects* 12

Construction o near zero emission coal fred power plant: 50

Total 633

Many research activities are also fnanced through the Commission’s Framework Programme (FP) orResearch and echnological Development (FP6 and FP7 2002-2006-2010). In this ramework, research is car-ried out or example with singhua University on geological storage o CO

2and with the Dalian Institute o

Chemical Physics on CO2

capture. Te FP also partially fnances a bilateral CO2

Capture and Storage ResearchProgramme (COACH) which is expected to prepare the ground or implementation in China o large-scaleenergy acilities with options or coal based electric power generation as well as production o hydrogen andsynthetic uels.67 New channels or EU-China cooperation on clean energy are the EU-China Clean Energy Center (EC2) and Euro-Chinese Institute or Clean and Renewable Energy (ICARE). Te objective o the EC2,to be set up by 2010, will be to support the Chinese government in enhancing its perormance in the fve sec-tors that were highlighted in the 2005 Partnership. Te centre received 10 million Euros rom the Commission’sbudget.68 Te Institute o Clean and Renewable Energy will receive the same budget, and is expected to increaseinstitutional capacity and skills or achieving China’s energy policies. Te institute’s school is expected to take onabout 100 renewable energy engineering students per year.




Apart rom the eorts at the level o the European Commission various member states have their owninitiatives. able 2 provides an overview o clean energy projects fnanced by Member States ocial developmentaid budgets. Between 2000 and 2008, Member States collectively spent 238 million Euros on energy-relatedprojects in China. Germany leads with a total aid package o 98 million Euros, which is mainly invested in e-

fcient electrical transmission and solar energy projects in various provinces. More than 74 percent o Spain’s 53million Euro budget has been allocated to natural gas distribution projects in Lanzhou and Xian. Most o Den-mark’s aid was unneled into wind energy and heating projects. Out o the entire budget o 238 million Euro, 32percent went to ecient energy consumption projects, 23 percent to solar energy, 19 percent to training and 11percent to wind energy acilities. Such cooperation is oten backed by various bilateral exchanges. Germany hasa clean energy dialogue and France organizes an annual energy conerence. Finland has a technical dialogue tosupport “Nordic energy utilisation solutions” and to promote Finnish energy technology exports like gas boilers,heat distribution systems and electricity.69 Te UK has started its near-zero emission coal initiative (NZEC-UK) with a 1.1 million Euro investment, and set up a UK-China consortium to build a clean coal power station.70

Table 2. ODA in the Chinese Energy Sector per Donor (Million Euro). Sources: OECD-DAC Database and

member states governments.

2000 2001 2002 2003 2004 2005 2006 2007 Total

Germany 3.0 5.6 9.3 7.8 13.0 4.0 54.7 1.1 98.5

Spain 1.3 0.0 0.1 0.4 14.8 1.9 2.2 32.4 53.2

Denmark 4.1 2.7 1.2 9.3 3.4 5.4 3.2 0.9 30.1

Finland 0.0 0.1 2.9 4.0 5.5 5.0 2.3 0.1 19.8

Netherlands 1.0 8.9 0.4 0.2 0.0 0.0 0.0 0.9 11.4

Italy 0.0 5.3 0.0 4.2 0.0 0.0 0.0 1.0 10.5

UK 5.7 2.1 0.6 0.0 0.0 0.0 0.0 0.9 9.2

France 0.9 0.0 0.0 2.5 0.0 0.0 0.0 0.0 3.4

Sweden 0.0 0.0 0.0 0.0 1.8 0.0 0.0 0.0 1.8

Belgium 0.0 0.0 0.2 0.1 0.0 0.0 0.0 0.0 0.4

Total 16.0 24.7 14.7 28.4 38.5 16.4 62.4 37.2 238.2

Tere are several drivers behind Europe’s unneling substantial fnancial resources and time into theenergy partnership with China. First, there is a sincere concern that the damage due to soaring energy consump-tion threatens both the international environment and the sustainability o China’s role as important element inthe world economic system. According to one German diplomat, “More than fve percent o our trade dependson the extent to which China succeeds in merging economic growth with environmental protection.” 71 Second,the EU assumes that it has sucient comparative advantages in this feld to position itsel as a role model and

to gain diplomatic inuence rom it. “We intend jointly to lead the way in energy policy and climate protec-tion,” the Heads o State proclaimed in the 2007 Berlin Declaration. Tird, there is an element o enlightenedsel-interest with regard to China’s position as a leading export market or European clean energy technologies.able 3 depicts the evolution o European exports o selected energy systems to China between 2002 and 2008.In that period, accumulated exports o solar power appliances amounted to 424 million Euros, wind power to283 million Euros, and hydro-power to 273 million Euro. Fourth, the EU is a key stakeholder in the ormula-tion o a comprehensive energy security strategy that prevents China rom manoeuvring itsel onto a collisioncourse with the EU with regard to the supply o mineral uels.72 Stimulating China to diversiy its energy sourcesis expected to mitigate competition or conventional sources like oil and gas.



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Table 3. European exports (EU 27) to China o selected goods in the feld o clean energy (Million

Euro). Source: UN Comtrade statistics, categories HS 854140, HS 85023, HS 8401: http://comtrade.un.org.

Solar Wind Hydro

2002 17 24 10

2003 17 5 24

2004 30 53 27

2005 55 27 65

2006 76 119 56

2007 106 40 60

2008 124 15 32

Total 424 283 273

32 Pspects Clite Cpetin

Europe has now been engaging China or many years to promote the adoption o clean energy technologies. Tesuccess o its policies can be assessed at two levels. On the one hand, the degree to which Europe has beneftedeconomically can be measured. China’s burgeoning alternative energy industries were clearly seen as an oppor-tunity to increase European exports to China. On the other hand, and this is key, how ar positive adjustmentsin China’s energy policies can be considered an outcome o European engagement should also be assessed. o what degree does the People’s Republic o China recognize the EU as an example or clean energy policies and what is the impact its cooperation with Europe in the context o international eorts to combat climate change?

From a European commercial perspective, the gains rom providing aid to China have remained lim-

ited. Te EU expected its companies to reap large export revenues and to generate profts rom operating powerinstallations in China, but in reality the results have remained meagre. Tere have been 1.4 billion USD incumulative exports rom the EU to China o goods related to solar, wind, and hydropower between 2002 and2008, but annual exports have only doubled in the same period, and remain less than 1 percent o Europe’s totalexports. Moreover, or every 100 Euros o exported energy goods or generating wind, solar, or hydro-power,the EU is spending about 115 Euros in energy-related aid projects. All in all, the EU has not been perorming spectacularly compared to competitors like Canada, Australia and Japan.

Many European companies complain that the Chinese market is too protectionist. Government pur-chasing policies require local content to be used, or the installations to be assembled in China, and China keepsimport duties on fnished energy systems high. Intellectual property rights are violated on a wide scale. echnol-ogy transers have been a pre-condition or doing business in this sector, and or this reason European compa-

nies are systematically required to establish joint ventures with Chinese frms.73

For this reason, Germany hasremained very reluctant to transer its precious clean coal technologies to China, and several wind power com-panies now also have stated their reluctance to expose their latest turbine technologies to the Chinese market.

Tis apprehension is strengthened as many European companies see their Chinese peers catching uprapidly and seizing an increasing part o the global market. “Chinese cell and module manuacturers are rapidly establishing a signifcant share o the world market,” a recent report signaled, noting that, “their productioncapacity increases are unrivalled.”74 It appears that the Chinese government intensively supports companies inpositioning themselves to proft rom the worldwide rush or solar energy. Te government unds specializedairs and fnances a program to acquaint technicians and ocials rom 60 Asian, Arican and Latin Americancountries with Chinese solar-heating and photovoltaic products. Specialized in cost eective state-o-the-artphotovoltaic systems, China’s Suntech Power has grown into the world’s third-largest solar energy company, andimplemented a successul international expansion.75 According to a leading scientist, by 2020 Chinese compa-nies will be able to ulfll many o the domestic requirements or clean coal by themselves, and to deliver theirservices abroad. 76




Europe’s shrinking leading edge in clean energy technologies results in China having greater diculty in considering the EU as a champion in the combat against climate change. Many Chinese ocials and expertsbelieve that China is doing more to develop clean energy technologies than Europe.77 While the EU has ear-marked about 1.1 billion Euros or private and government research per year or the period between 2007 and

2013, the Chinese government alone is reported to spend an annual average o 2.7 billion Euros. And even theUS is doing much better with an annual budget o more than 5.2 billion Euro committed or 2008 and 2009.Chinese decision makers oten complain that the EU claims to be a clean energy champion, but that its invest-ment in green energy production is dwared by the 30 billion USD that Beijing promised to spend in the next11 years on its alternative energy industry.78 China has 14 to 16 new pilot projects on coal gasifcation in thepipeline. Europe has just one.

Chinese ocials also contend that despite China’s lower development level, Chinese rules or carbonemissions are becoming very strict. Tey reer to China’s new uel economy standards or cars that will get closeto Europe’s standard o 42 miles per gallon. Another argument that Chinese experts invoke to downplay theEuropean position in clean energy, is the lack o coherence between the European Commission and the MemberStates. Te dominant perception is that at the EU level environmental and commercial objectives are quite bal-

anced, but that the European capitals just want to do business and to either promote or protect their own com-panies. An example that is oten mentioned rom this perspective is clean coal. Chinese representatives clearly understand that this is central to the agenda o the European Commission, but complain that countries likeGermany and the Netherlands do not want to share their knowhow because they ear intellectual property thet.

Europe-China cooperation on clean energy has oten appeared to be a student-pupil relationship.Based on its policy experience in other parts o the world, the EU expected to have sucient inuence to coax China into new partnerships, or to be able to barter its know-how or both political and commercial conces-sions. o acilitate this, European institutions and various Member States have invested close to one billionEuros in various exchange programmes and aid projects. European and Chinese ocials speak positively o thecooperation and its successes, but there are nevertheless underlying problems that indicate some serious di-erences. European policy makers have assumed that collaboration on clean energy could develop into one o the most important pillars o the EU-China partnership. Yet, China does not necessarily have the same vision.

While it can be argued that the EU is already subsidizing China’s clean energy strategies, this is not sucient orBeijing. China has welcomed the EU’s cooperation initiatives and it has paid attention to Europe’s past experi-ence with clean energy policies, but that does not yet mean that the EU has signifcantly inuenced Beijing’spolicy making.

China’s domestic concerns have led it to address energy and climate change issues. Driven by its ownneeds China has come to understand that investing in renewable energies is a matter o national survival. De-spite riendly public statements directed toward Europe on their bilateral cooperation, China reuses to recog-nize the EU’s global leading role on climate change. In act, in its rhetoric at least, Beijing is dismissive o theEU’s lack o political courage to accept tougher greenhouse gas targets, scorns its alleged green protectionism,and lambasts its reluctance to transer its know-how. In the eyes o China, Europe pretends to be a responsibleinternational player, but reuses to live up to this status. Europe also has its concerns, especially on questions

such as access to the market, the protection o intellectual property and the possibility o growing competitionrom Chinese companies. Both sides will need to address such issues i they are to advance their cooperativerelationship and to make signifcant contributions on the global stage.



CHaPTEr 4

The New Intentinl ewk:

Hnessing Cn Inteests

The Copenhagen Climate Conerence in December 2009 will be the culmination o international eortsto reach agreement on global policy to tackle climate change in the post-Kyoto period. Te EU andChina will be among the most important parties in the negotiation o an agreement at the Conerence,

not least because they are both major GHG emitters. At the same time, in their dierent ways, the EU andChina can make claim to international leadership positions on climate change policy.

In recent years, China has increasingly placed energy security and climate change at the centre o itspolicy making, but there are still doubts about the exact role that China will assume in the post-Kyoto world.

With regard to international agreements, China has held to the same basic principles or a number o years. Tisunchanging position on basic principles with regard to the Copenhagen Summit to some extent masks the poli-cy changes that have taken place in China. China has recognized thatclimate change has real consequences or the world and itsel. Tisrecognition that climate change will have serious negative impacts onChina that could undermine many o the gains made in recent yearsis coupled with concerns about energy security. China has thereore

embarked on a major programme to transorm how it produces and consumes energy and it is determined that it will be a leader in green energy technologies. Much o this programme does not currently directly target climatechange or GHG emissions, but it will have an impact on them. Te strong goals that China has in this area have been set despite the act that it has no binding international obligation to reduce GHG emissions. It seemsvery probable that many o the current goals in this area, such as those or renewable energy sources, set by the

Chinese government will be ar exceeded even i no new goals are set.Te relationship between the EU and China on climate change does not just ocus on the post-Kyoto

agreement, although this will be an important actor in defning the ongoing relationship. At another level, thereis an important bilateral cooperative relationship on climate change between the EU and China. Te EU andChina have considerable experience in cooperating on climate change, and have made it one o the key areaso their relationship. Te business relationship must also be taken into consideration. Although, still relatively small, the potential economic gains rom cooperation in the energy and other sectors related to climate changemay be enormous. All o these will have to be taken into account in the uture relationship between the EU andChina, including the negotiations leading to the Copenhagen Summit.

41 Cpenhgen PpslsTe EU has proposed that developed countries should commit themselves to reduction targets consistent withthe goal o limiting the average global temperature increase to 2°C above the pre-industrial level. As the EUitsel says, this would require emissions reduction or developed countries in the range o 25 to 40 percent by 2020 and 80 to 90 percent by 2050.79 Te EU has set out its basic position or the Copenhagen Summit in theCARE Package o December 2008. Tis states that by 2020 the EU will reduce its emissions rom the 1990level by 20 percent, and will increase this to 30 percent i other developed countries commit themselves to thesame target. Te EU also argues that as a group developing countries will need to limit the rise in their GHGemissions to 15-30 percent below the baseline projection or their growth by 2020. Tis should be achieved by Nationally Appropriate Mitigation Actions rather than a single binding target. In order to achieve this, the EUsays that developing countries, except or the least developed countries, should commit to adopting low-carbondevelopment strategies by 2011. Te EU has proposed that developing countries should receive support in creat-ing and adopting these strategies. Te EU has also identifed fnancing o mitigation and adaptation to climate

There are still doubts aboutthe exact role that China willassume in the post-Kyoto world.




change as a key area, although detailing specifc mechanism to implement this, and advocates the creation o a global carbon market.

In its stated position on the Copenhagen Summit,80 China has reiterated its belie in common but di-erentiated responsibilities, and the rejection o binding targets or developing nations. It also has said that the

commitment by developed nations to fnancing o mitigation and adaptation in the developing world is neces-sary i developing countries are to take action on climate change. In view o their historic responsibility, China

has said that the developed nations must commit to a binding target o a 40% reduction in GHG emissions rom the 1990 levelby 2020. Developing countries, on the other hand, will adoptNationally Appropriate Mitigation Actions. echnology transerrom developed countries is necessary to combat climate change,

and appropriate mechanisms, including a und to provide fnancing, must be established to ensure this. Teund should be mainly fnanced by the developed countries.

Some thinkers on environmental questions in China see climate change in terms o national interest.“Leadership in today’s world is not to conquer another country,” Beijing University’s Zhang Haibin has stated,

” but depends on the extent to which you can save the earth.” Chinese experts and ocials tend to assume thatall countries have a clear strategic and economic sel-interest in curbing pollution and reducing reliance on ossiluels, and that they all will have to seek a balance between economic and environmental development.

China argues that i the EU really wants to demonstrate its leadership, it should compensate or itslarge historical contribution to climate change on which its high level o development is based by being pre-pared to maker bigger sacrifces. Te Chinese government believes that it has committed itsel to enough by itseorts to reduce energy intensity per unit GDP by 20 percent between 2005 and 2010, and another 20 to 30percent by 2020.81 China also aims to contribute more in terms o clean energy production: it seeks to provide15 percent o its energy needs rom renewable energy by 2020, and claims that given the projected growth o itsenergy consumption this will orm a much larger eort than the EU’s 20 percent target in a deindustrializing or perhaps even shrinking economy.

Te EU, by contrast, sees some o China’s demands as excessive or unrealistic, or instance the expec-

tation that the governments o developed countries will give virtually unlimited access to technology, and alsofnance a und to pay or it. One o the main sticking points, they argue, is that governments normally donot control the technology which is in the hands o private companies who seek a return on their investment.Secondly, it is not obvious that such a und is the best way to achieve transers. Tere are also real concerns,especially in the business community, over the protection o intellectual property. In the case o China, this iscombined with a eeling that it will in any case soon be a serious competitor to year in clean energy technology.In their public positions, China and the EU oten appear ar apart.

During the EU-China Summit in May 2009, both sides agreed on the need to work together in orderto make progress in Copenhagen, but they remained at odds over two critical issues. In its Communication o February 2009, the European Commission proposed that developing countries, except Arica’s least developedones, should all slow their emission growth by 15 to 30 percent below business-as-usual levels by 2020. As such,

China does not have a problem with this target, because it is close to its own benchmarks, but it argues thator many other third world countries the EU’s standards are unrealistic, and that it is once again neglecting itsown historical carbon debt. Chinese media have portrayed this proposal as a orm o outright greed and pro-tectionism vis-à-vis developing nations.82 Instead, Beijing continues to insist on the principle o common butdierentiated responsibilities and that, “Within the overall ramework o sustainable development, economicdevelopment, poverty eradication and climate protection should be considered in a holistic and integrated man-ner”83 Tis implies that instead o uniorm universal goals, each country should maintain the right to balancethe environment and economic development in a way that is suitable to its national interests, thus, “Nationally Appropriate Mitigation Actions shall be taken in the context o sustainable development and in line with thelegitimate needs o developing countries or development and the eradication o poverty.”

Beijing and Brussels are also divided over the amount o support that should be provided to poor coun-tries. Gao Guangsheng, the Director General o the National Coordination Committee on Climate Change, hascomplained that developed countries’ support to the third world was “virtually nothing” and proposed that they increase their support to developing countries to one percent o their GDP. By contrast, the European Commis-

Thinkers on environmental questionsin China see climate change in termso national interest



CHaPTEr 4

sion has said that developing countries will need an increasing amount o fnance or mitigation over the coming decade, rising to 100 billion Euros a year by 2020. It has said that domestic public and private fnance rom de-veloping countries should cover 20-40 percent o this, about 40% would come rom an expanded internationalcarbon market, and the remainder rom international public fnance. Te amount o fnance rom developed

countries would depend in it responsibility or past emissions and its ability to pay. Te Commission proposesthat the EU would provide 10-30 percent o the global total, depending on how the contribution is calculated.84

42 Cnficting Cn inteests?

Te resistance rom the Chinese side derives rom both strategic realism and genuine indignation over Europe’sperceived unwillingness to accept that richer countries will have to bear most o the burden in tackling climatechange. First, by emphasizing the primacy o national interest rather than universal norms, China is adhering to its traditional state-centric diplomacy and economics-frst paradigm. What matters is the national combatagainst harmul and destabilizing pollution, rather than trying to fght against global challenges that each coun-

try experiences dierently.85

It also highlights the importance o South-South cooperation.86

In regard to theglobal negotiations, Yu Qingtai, Special Representative or Climate Change o the Ministry o Foreign Aairs,underlined China’s “common goals and common destiny” with third world countries.87 China sees itsel asstanding with third world countries that are suspicious o Europe’s intentions, and it sees the Copenhagen talksas another opportunity to demonstrate its solidarity with or leadership o these states. “Developing countriesmust remain united,” Yu stated, “we must tell the developed countries in clear language that we are becoming the victims as our manuacturers do not have the same ability to take the same responsibility.” 88 China is awarethat it will have to balance between the West and the South on this issue, but it sees that with regard to climatechange the West is at least as divided as the South.89

Second, many decision makers in China want to avoid being seen by their public opinion as kowtow-ing to the West. In many leading bodies in China such as the China Communist Party Central Committee, theState Council or the NDRC, a new strand o national pride leads ocials to resist alleged Western “lecturing”. 90

“In the past China has been reactive in policy-making, responding when the West has put orward its demands,” Wang Yi, a leading expert on climate change at the Chinese Academy o Sciences claimed, “Now instead o others criticizing us, we are saying: Why don’t we take the initiative by proposing our own policy goals?” Tiscoincides with indignation that the West, particularly the US, is using climate change as a means to “humiliate”China. “In China, many believe that the United States is using climate change as an excuse to hold back China’speaceul development,” Zhang Haibin has said.91 Even i such such sentiments are not valid, they exist and arestrong, and the EU will need to be much more persuasive to overcome them beore the summit in December. According to Liu Gao, Director o the NDRC’s Department o Climate Change, “Any substantial progress inthe next round o talks will most decisively depend on the political will o developed countries.”

Tis raises the question o Europe’s internal constraints. While all Member States have accepted theEU’s 20 percent goal or 2020, they are deeply divided over how to get there. Te German government has

argued that the goals would create an unequal burden or its industries. Italy ears it cannot aord the ambi-tious scheme. Britain and most Scandinavian countries say that the package on the table could result in beneftsor many companies. Tis division has already orced the Commission to backtrack rom its goal o imposing the same requirement on all o Europe’s high-emission industries in the ES, and to protect sectors vulnerableto international competition. Tis sense o vulnerability has been increased by the consequences o the globaleconomic crisis, and by the act that many individual companies, even in the sector o clean energy, are start-ing to be worried about their own competitiveness. Most countries do understand that a green technologicalrevolution may create great potential or economic growth and raise the international standing o Europe’s de-velopment policy, but they have neither the technical know-how, nor the fnancial means or the political will totrigger such a revolution. It is this limited degree o exibility that will continue to constrain the EU’s capacity tomanoeuvre in making additional concessions in the bargaining or a deal in Copenhagen, or to present a credibleunifed vision that convinces countries like China o the EU’s leading role.

Te methods that the EU and China will adopt to achieve their objectives will continue to dier inmany ways. Teir domestic goals are indicative o the positions that each side may take in the negotiations lead-



CHaPTEr 4

6. Te development o CCS has been one ocus o eorts by the EU in China. However, cooperationrequires more coordinated and ambitious policy or support or CCS in China. Te EU and MemberStates, and also China, should step up their commitments in this area.

7. echnology will be a key issue. China is seeking technology transer. Te EU should have coordinat-

ed policy on technology transer mechanism with China within Copenhagen ramework. A successulpolicy in China will require a technology transer mechanism that is eective in dealing with the spe-cifcs o China’s situation. Te EU should work toward an eective unding and transer mechanism,as well as monitoring and verifcation o technology use.

8. Agreement will need realistic and achievable commitments on the part o China and mechanisms toachieve them. Coordinated support on development o standards, legislation and enorcement romthe EU would be a positive contribution. Tis is one area where in China the EU has a perceivedadvantage.

Although part o a global negotiation, the EU will need to recognize that China presents uniqueproblems. Both quantitatively and qualitatively, China’s climate change challenge is dierent rom other

developing countries. While it is a developing country, China has taken greater strides than many to tackleclimate change. Both the EU and China have recognized the importance o climate change. Tey will need tocombine their domestic and international eorts to seek a successul outcome to the Copenhagen Summit andto sustain their long-term partnership on climate change that is likely to be based on both cooperation andcompetition.



NoTES54. China’s New Fuel Price Hike Hurts Drivers, Impact Limited On Economy, Xinhua , 1 July 2009.

55. China Revamps Passenger Car ax Rates o Conserve Energy, Xinhua , 13 August 2008.

56. Directive 2001/77/EC

57. Directive 2003/30/EC

58. Biomass Action Plan COM (2005) 628

59. See the special webpage o the European Commission: http://ec.europa.eu/environment/climat/china.htm60. More inormation about the Energy Environment Programme (EEP), see: www.eep.org.cn/index.php.

61. Joint declaration on Te EU-China Partnership on Climate Change , Brussels, 2 December 2005.

62. China-EU Partnership on Climate Change Rolling Work Plan, Chinese Ministry o Foreign Aairs, 16 October 2006 and European Commission and China step up co-operation on clean coal technologies and other energy issues , European Commission, 20 February 2006.

63. Interview with EC ocial, 31 June 2009.

64. EUR 500 million to support climate change mitigation in China , European Investment Bank, 28 November 2007: www.eib.org/projects/press/2007/2007-123-eur-500-million-to-support-climate-change-mitigation-in-china.htm

65. See http://unccc.int/kyoto_protocol/mechanisms/clean_development_mechanism/items/2718.php

66. EU-China Environmental Governance Programme , European Commission’s Delegation to China, 15 April 2008: www.eu-chinapds.org/WebSite/eu/UpFile/2008/200851516226660.pd

67. See the project’s website: www.co2-coach.com

68. EU-China Clean Energy Centre, European Commission’s Delegation to China, 27 May 2009: www.eu-in-china.com/download/EC2.pd

69. Ahola, Eeva, Finnish energy technology heads to China, Ministry o rade and Industry, 9 March 2006 .

70. See the project’s website: www.nzec.ino/en/what-is-nzec.71. Interview with German diplomat, Brussels, 4 September 2007.

72. Interview with EU Commission Ocial, 4 October 2007.

73. Interview with EU Commission Ocial, 4 May 2009; Interview by telephone with German energy company, 2 July 2009, also: Lewis, Joanna, A Review of the Potential International rade Implications of Key Wind Power Industry Policies in China , Paper Prepared or the Energy FoundationChina Sustainable Energy Program, October 2007.

74. Te Strategic Research Agenda , Assembly o the Photovoltaic Energy echnology Platorm, Berlin, 12 June 2007, p. 3.

75. Suntech, Annual Report 2006, Suntech, Wuxi.

76. Interview by email with vice-director China Coal Research Institute (CCRI), angshan, 3 October 2007.

77. Interviews with Chinese experts, 12 and 13 March 2009, and interview with European Ocial, 2 April 2009.

78. Zhang, Qi, $30b set aside or green stimulus to double alternative uel use, China Daily, 25 May 2009.

79. owards a Comprehensive Climate Change Agreement in Copenhagen, Communication From Te Commission o Te European Parliament,Te Council, Te European Economic And Social Committee And Te Committee O Te Regions, COM (2009) 39 fnal, January 1, 2009.

80. Implementation o the Bali Roadmap: China’s Position on the Copenhagen Climate Change Conerence, NDRC, 20 May 2009.

81. Xie Zhenhua, Keu kunan jinli er wei qihoubainhua zuo gongxian [We do our best to overcome diculties to contribute to curb climate change],National Development and Reorm Commission, 29 June 2009.

82. Shijie zou xiang luse baohuzhuyi [Te world is moving toward green protectionism], China Academy or Social Sciences, 15 June 2009; Wang, Xiaolong, Luse baohuzhuyi: enxi yu duice [Green Protectionism: Analyis and Countermeasures], Lanzhou Academic Journal, June 2006; Shijie zouxiang luse baohuzhuyi [Te World is Moving owards Green protectionism], Sohu, 17 June 2009.

83. Luoshi bali luxiantu [Te Implementation o the Bali Road Map], NDRC, 20 May 2009, www.ndrc.gov.cn/zcb/zcbqt/2009qt/t20090521_280387.htm.

84. Stepping Up International Climate Finance: A European Blueprint or Te Copenhagen Deal, Communication From Te Commission o TeEuropeanParliament, Te Council, Te European Economic And Social Committee And Te Committee O Te Regions, COM(2009) 475/3,September 10, 2009.

85. Hong, Yuan, Qingjie nengyuan he zhongguo huanjing waijiao [Clean Energy and Environmental Diplomacy], Luye [Green Magazine], May 2008.

86. Ouzhou kechixu nengyuan zhengce ji dui woguo de qishi [Sustainable Energy Policy in Europe and the Lessons or China’s Energy Policy], Zhongguonengyuan [China Energy], Vol.25 (4); Pan, Jiahua, an yusuan angan: rang shijie gongping de paiang CO2 [“Carbon rade Plan”: o make airCO2 emissions in the world], China Academy or Social Sciences, 2 February 2009.

87. Yingdui qohoubanhua xuyao guoji shehui zhencheng hezuo [International Community Should Cooperate in Good Faith to ackle Climate Change],

Xinhua , 21 November 2007.88. Fazhanzhong guojia bixu baochi tuanjie [Te Developing Countries Must Remain United], Caijing bao [Business News], 25 May 2009.

89. Hong, Yuan, Quanli zhanyizhong de nengyuanlian ji qi taozhan [Te transer o power in the energy chain and its challenge], Shijie jingji yanjiu[World Economy], February 2008; Aobama zhizheng hou zhongmei dui qihoubainhua hezuo mianlin de taozhan he jiyu [Obama in oces and theopportunities and challenges or cooperation to address climate change], International review, Spring 2009, pp. 64-69, Yi Quintai, Yingdui guojitanpan – bali luxiantu jincheng huigu yu zhanwang [International Negotiations to Address Climate Change: “Te Bali Roadmap” prospects andretrospect’s], International Review, Spring 2009, pp. 8-14.

90. For example: Pan, Jiahua and Zheng Yan, Carbon Emissions and Developmental Right, International Outlook , Spring 2009, pp. 14-22;Luoshi bali luxiantu [Te Implementation o the Bali Road Map], NDRC, 20 May 2009; Yingdui qihoubianhua de zhongguo budiao [China to Accelerate Dealing with Climate Change], NDRC, 23 June 2009; Holzer Constantin and Zhang Haibin (2008), Te potentials and limits o China–EU cooperation on climate change and energy security, Europe-Asia Journal , Vol. 6 (2), pp. 217-227.

91. Haibin, Zhang, New hope or climate cooperation, China Dialogue , 5 January 2009; Wang, Jinnan et al, Responding to “China Environment Treat”and Ponderings on Climate Change Negotiations, International Outlook , Spring 2009, pp. 3-14.

92. China Drats Energy Stimulus Plan, Xinhua, 1 June 2009.

93. op Legislature o Consider Drat Climate Change Resolution, National People’s Congress, August 18, 2009. http://www.npc.gov.cn/

94. 2009-Zhongguo kechixu azhan zhanlue baogao [China Sustainable Development Strategy Report 2009], China Academy o Science SustainableDevelopment Strategy Research Group ed, Kexue Chubanshe, Beijing 2009; 2050 Zhongguo nengyuan he tanpai baogao [2050 China Energy andCO2 Emissions Report], NDRC, State Council Development Research Centre, ed, Kexue Chubanshe, 2009.



Brussels Institute of Contemporary Chinese Studies

Vrije Universiteit Brussel

Pleinlaan 15 - 1050 BrusselsBelgium

www.vub.ac.be/biccs

The Brussels Institute of Contemporary Chinese Studies (BICCS) at the VrijeUniversiteit Brussel (VUB) focuses on research and teaching on contemporary China,including the economy and business, foreign and security policy, and law.