China’s Failure to Hit Energy Targets Could Prompt Policy Reset at National People’s Congress

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(Bloomberg) — China is under-performing on one of its main climate goals — cutting the amount of energy needed for economic growth.

Getting back on track is likely to be a focus at the National People’s Congress that starts in Beijing this week. But to do so will require an ambitious target to reduce energy intensity for this year. While a change to how the target is calculated will make it easier to reach, effectively calibrating economic and environmental objectives remains one of the biggest challenges facing policymakers. 

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In its five-year plan that began in 2021, China set out to reduce the amount of energy consumed for each unit of gross domestic product by 13.5%. When it announced the aim, the math was simple – energy used and GDP is calculated in the government’s annual statistical bulletin, so simple division was all that was needed to arrive at a ratio for energy intensity.

But the rules were changed in late 2022, after global energy costs soared and China had suffered a series of embarrassing power outages. Neither renewables, nor any energy source used as a feedstock — such as coal converted into chemicals — would be counted.

The impact became clear this year, the first in which the new formula was used in the annual bulletin. Energy consumption jumped 5.7%, more than the 5.2% increase in GDP, so energy intensity should have risen. Instead, the new math showed China reporting a 0.5% drop. 

The move doesn’t completely exculpate China from its short-term climate goals. The five-year plan also includes a goal of reducing carbon emissions per unit of GDP by 18%, which is unaffected by the new calculation. China’s emissions intensity was basically unchanged last year, according to the bulletin.

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Sharp Reductions

But both measures of intensity are still tracking well below Beijing’s targets, indicating it will need sharp reductions by 2025 in order to meet them, according to the Centre for Research on Energy and Clean Air.

Committing to hit the goals could have a big impact on President Xi Jinping’s international climate pledges, making it “more likely that China’s CO2 emissions will peak before 2025 – far earlier than its target of peaking ‘before 2030’,” CREA said.

That has implications for China’s economic growth targets, and how it decides to meet them, which will be the main focus of the party congress. Too high a target and the promise of a massive burst of carbon-heavy infrastructure investment, for example, would be difficult to square with cutting energy and emissions intensity.

ANZ Group Holdings Ltd. thinks that economic concerns may need to give way. The bank expects Chinese growth to be lowered to 4.5% to 5%, from 5% last year, accompanied by an aggressive 4% cut to the energy intensity target, according to a note last week.

On the Wire

China is set to announce its 2024 growth target and outline its strategy for supporting the slowing economy at the nation’s most high-profile annual political gathering this week.

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China’s trade data for the first two months of 2024 are likely to show small year-on-year expansions in imports and exports, buoyed by favorable base effects.

China would be barred from buying oil from the US’s emergency stockpiles under a provision included in must-pass government funding legislation unveiled Sunday.

The Week’s Diary

(All times Beijing unless noted.)

Monday, March 4:

• Chinese People’s Political Consultative Conference begins in Beijing

Tuesday, March 5:

• China’s National People’s Congress begins in Beijing
• Caixin’s China services and composite PMIs, 09:45
• EARNINGS: MMG

Wednesday, March 6:

• CCTD’s weekly online briefing on Chinese coal, 15:00

Thursday, March 7:

• China’s 1st batch of Jan.-Feb. trade data, including steel, aluminum & rare earth exports; steel, iron ore & copper imports; soybean, edible oil, rubber and meat & offal imports; oil, gas & coal imports; oil products imports & exports. ~11:00
• China’s foreign reserves for February, including gold
• BNEF energy transition forum in Beijing, 13:00
• China International Forum on Imported Coal, Xiamen, Fujian, day 1

Friday, March 8:

• China weekly iron ore port stockpiles
• Shanghai exchange weekly commodities inventory, ~15:30
• China International Forum on Imported Coal, Xiamen, Fujian, day 2

Saturday, March 9

• China’s inflation data for February, 09:30
• China to release February aggregate financing & money supply by March 15

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