The National People’s Congress of the People’s Republic of China approved China’s 14th Five Year Plan (the “Plan”) at the annual “two sessions” in early March 2021, setting forth the overarching economic and social policy directive for the country in the coming five years. Released months after President Xi Jinping’s carbon neutrality pledge of September 2020, which targets to peak carbon emissions before 2030 and reach carbon neutrality in 2060, the Plan is expected to provide a clear roadmap for achieving the climate goals.

The Plan specifies binding indicators for energy intensity and CO2 emissions intensity, which demand a 13.5% reduction in energy consumption per unit of GDP and a 18% decrease in CO2 emissions per unit of GDP by 2025. In addition, the Plan proposes to establish a modern energy system, detailing the construction of major energy projects and setting the goal of increasing the share of non-fossil energy in China’s total energy consumption from 15.8% to around 20% by 2025. The Plan also calls for regional and departmental action plans on peaking CO2 emission before 2030 and acknowledges that the country would make efforts to reach carbon neutrality by 2060.

The Plan’s vision for a modern energy system mainly focuses on five types of power projects, including clean energy, coastal nuclear power, electricity transmission tunnels, power conditioning systems and oil energy storage systems. A substantial share of the proposed projects concerns clean energy, including hydropower, coastal wind power, onshore wind power and solar power. Such clean energy power plants would be located across the country, along major rivers, such as the lower course of Yarlung Zangbo River, Jinsha River, and the upper course of the Yellow River, and in both coastal and inland provinces in regions such as Southeastern and Northwestern China. In addition, the Plan envisions the building of electricity transmission tunnels across the country, between the Western and Eastern regions, and between the Northern and Southern regions.

Despite these action guidelines, international reception of the Plan poses mixed attitudes, with much attention on the lack of a cap on the CO2 emission both near term and over a longer term towards 2060. However, as some suggest, given the economic concerns of the country, the current Plan already presents significant momentum and a leap forward toward a clean China.

It should be noted that the Plan itself does not necessarily provide a once and for all answer to the question of carbon neutrality. More operable departmental plans, such as the “Provincial Action Plan for Peak Emission by 2030” (the “Action Plan”) being  promulgated by the Ministry of Ecology and Environment, would also lay out more details under the Plan’s current overarching framework. The current draft of the Action Plan, for example, contemplates requesting provincial governments to monitor CO2 emission and set emission targets by industry and region for progressing towards the carbon neutrality goal. Financial solutions such as establishing a carbon market for trading carbon credits or emission units are also being developed.

For more information about how China’s energy transition policies could affect financial institutions, please our Blog Post on the green finance priorities of the People’s Bank of China.

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