Clean Revolution case study: China

Author:
Clare Saxon Ghauri
Reading time: 15 minutes
26 September 2012

This is part of The Climate Group's Clean Revolution case study series. 

China's plans on clean technology respond to a complex set of strategic, social and financial drivers. The Strategic Emerging Industry plan, a key element of China’s current 12th Five Year Plan, seeks to improve the nation’s competitiveness, energy security and rate of social development. Setting bold targets and seeking continuous improvement have been key traits of China’s success to date in developing clean technologies.

This case study draws on research commissioned by HSBC bank and published in Low Carbon Growth – A Guide to China’s 12th Five Year Plan.

China’s 12th Five Year Plan (FYP) makes it clear that the Government sees clear economic opportunities in reducing energy use and carbon emissions. A key component of the plan is the development of seven ‘strategic emerging industries’ (SEIs) signaling China’s intention to balance its growth with ‘social harmony’ and ‘environmental sustainability’. Four of the seven SEIs are closely tied to clean technologies. This sets an international precedent in tying a nation’s future economic growth to the growth of the clean technology sector. Furthermore, the plan sets long-term growth goals and engages a wide range of industrial sectors and provincial and city governments.

China has impressed the world with the speed and scale with which it can deliver low-cost, clean technology to the world. In the last five years, it has installed the world’s largest wind-power capacity, become the world’s leading manufacturer of solar panels and begun to develop markets for electric vehicles (EVs) and LED lighting. The detailed SEI plans, expected imminently at the time of writing, are highly likely to establish the long-term policy support investors and companies are seeking to bring clean technology to scale globally.

China’s commitment to being the leading global manufacturer and implementer of clean technology is bringing large economic benefits to China’s clean technology companies. By 2009, China had developed from a non-player to the world leader in creating economic value from clean technology. In 2010, $51 billion of the global $234 billion invested in new clean energy projects was deployed in China.

BY PROMOTING THESE STRATEGIC EMERGING INDUSTRIES, WE WILL ACCELERATE THE STRATEGIC TRANSFORMATION OF OUR ECONOMY AND SOCIETY… AND BUILD AN INNOVATIVE NATION.
– Hu Jintao, President, People’s Republic of China

China’s SEI development strategy is based on a three-step pathway, outlined below. The national government is expected to provide tailored plans for each sector, focusing on R&D and demonstration projects for immature technologies, and deployment incentives in more mature sectors.

THREE STEPS TO SEI DEVELOPMENT

2015: Industrial added value from all SEIs to contribute 8% of GDP.

2020: Industrial added value to contribute 15% of GDP. High-growth and mature development-stage SEIs to be ‘pillar industries’. Pre-commercial SEIs to be leading growth industries.

2030: SEIs to be ‘international leaders’ (parameters for leadership are set to include not only volume but also quality of technology, for example).

The clean technology focused SEIs include EVs, next generation information technology, energy efficient products and services, and renewable energy. In support of all seven SEIs, China aims to increase research and development funding dramatically, leveraging both public and private funds from the current 1.75% to reach 2.2% of GDP. The national government has not committed to providing a set amount of funding, but rather is seeking to leverage some central and local government funding of key activities to attract investment from state-owned enterprises, banks and private companies.

The focus of central Government funding is likely to be as follows:

A National Development & Reform Commission (NDRC) fund supporting technology breakthroughs and scale-up.

A Ministry of Information and Information Technology (MIIT) technology fund supporting SEI companies to purchase or upgrade new equipment.

Ministry of Science and Technology (MOST) R&D support under the framework of the existing national ‘863’ and ‘973’ industrial research programs.

Ministry of Finance (MOF) funding for large-scale pilot programs and other large-scale subsidy-based programs.

HIGH-CARBON INDUSTRY GROWTH

Although the SEIs are broad in definition, the vast majority of the listed sub-sectors either directly target or are aligned with the creation of a low carbon economy, but they nevertheless do include some high-carbon sub-sectors (e.g. high-end manufacturing includes investing in aviation). Furthermore, The Chinese Academy of Social Sciences believes that over the next two years the economy is not likely to slow down and that the investment rate in large-scale industry could grow rapidly, especially in Midwestern provinces, which will overwhelmingly be based on high-carbon sources of fuel.

COORDINATION

There is limited regional coordination and balance amongst regional governments’ plans for SEIs, posing a potential risk for industry development across the provinces. China has already experienced over-supply issues with wind turbines and solar photovoltaic panels because of poor coordination between provinces.

COAL REMAINS KING

Coal-fired generation and heavy manufacturing still make up the lion’s share of China’s emissions (81%). So, while the new energy industry is a focus area, absolute coal-generating capacity will increase, outstripping new energy growth in 2015.

“BLACK SWANS”

China’s new energy industry includes nuclear and hydropower, two very controversial topics in China because of the Fukushima disaster in nearby Japan and public scrutiny of the Three Gorges Dam project. China aims to expand nuclear and hydropower rapidly to meet its new energy target but may face unforeseen challenges to expansion.

$690 BILLION

Annual gross economic output from the energy and environmental project industry sector by 2015

390 GW

New energy targets for 2015, mix of hydropower, wind and solar

$46 BILLION

Annual gross economic output from the energy services sub-sector by 2015

$58.5 BILLION

State grid investment in smart grid technology (2009-2020)

$230 BILLION

Annual gross economic output of the new energy industry by 2020

1 MILLION

The Ministry of Science and Technology’s (MOST) goal for electric vehicles on the road by 2015

$1.12/W (WATT)

China’s utility-scale solar photovoltaic (PV) cost target for 2015

30%

Proportion of the general lighting market that China aims to be supplied by LED lighting by 2015

11.4%

Percentage goal of total energy use from new energy by 2015

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