China to loosen energy consumption caps, and focus on energy intensity

Central government has made major revisions to its policy for controlling provinces’ energy use. Consumption caps have been loosened and renewable energy will no longer count towards consumption totals.

The aim is to make the policy more flexible, so energy needs can be met and poorer provinces can catch up economically.

The revisions have major implications for renewable energy development, coal-to-chemical facilities and equality between provinces, according to the action plan for energy conservation and emissions reduction (2021-2025) released by the State Council on Monday.

The “dual controls” policy – of controlling energy consumption and energy intensity (meaning energy used per unit of GDP) – has been a key driver of China’s decarbonisation since its implementation in 2006. 

Observers believe the revisions will have a mixed impact on China’s emissions trajectory.

The discounting of renewable energy from consumption totals removes a key barrier to developing renewables fast enough to reach carbon neutrality by 2060. Provinces can now consume green electricity knowing this won’t affect their precious energy allowance.

Other exemptions may provide incentives that are less promising for the climate. Use of coal and oil as feedstocks for chemical processes, such as in coal-to-chemical facilities, will no longer figure in provinces’ energy consumption or intensity calculations. Such processes mostly just change the form of the energy rather than consume it, the argument goes. But research shows coal conversion still generates substantial emissions and is very water intensive. The exemption is considered a boost to the coal-to-chemical industry, whose coal use was previously kept on a tight leash by energy quotas. 

Overall, the revisions make energy consumption caps less binding, while doubling down on energy intensity. Under the new rule, a province overachieving its GDP growth target will be allowed to go beyond its energy consumption cap “accordingly”, as long as it hits its energy intensity target. This will be a relief for poorer provinces, which felt rigid energy consumption caps limited their ability to catch up on economic growth. 

China has committed to reducing the energy intensity of its economy by 13.5% between 2021 and 2025.

Read China Dialogue’s earlier article on the dual controls policy for more.