China's sectoral strategies in energy conservation and carbon mitigation

Abstract

This article reviews China's energy and climate strategies in the electric power, industrial, building, and transport sectors. These four sectors account for about three-quarters of China's total energy consumption and energy-related carbon emissions. We identify major gaps in China's energy and climate polices based on the status quo: first, command-and-control policies not only are costly, but also cannot accommodate the transition of energy consumption from production sectors to consumption sectors; second, unsmooth deployment of renewable energy poses challenges for decarbonizing China's electricity system. To close these gaps, we suggest two policy priorities: a carbon market to achieve cost-effective emission reduction, and a Renewable Quota System to promote the utilization of renewable energy. Challenges associated with these policies are discussed. Furthermore, we suggest that a sectoral approach can serve as a first step for China to make meaningful commitments under a prospective international climate treaty. In particular, the cement, steel, and aluminium sectors can be among the first groups to join this sectoral approach.Policy relevanceWe argue that China's sectoral climate policies should prioritize both the development of a carbon market to achieve cost-effective carbon mitigation and the improvement of renewable supporting polices to foster long-term renewable technology investment. However, to fully explore the advantages of a carbon market, we suggest that more stringent emission caps should be set at the national level. In addition, the carbon market and existing energy and climate policies should be carefully harmonized. In particular, the overlaps between existing command-and-control mitigation polices and the carbon market should be reduced to improve cost-effectiveness. In parallel with a carbon market, we suggest a second-best policy, the Renewable Quota System, as a supplement to the carbon market to foster green technology development and to create preconditions for a more stringent cap. At the international level, a sectoral approach can serve as a first step for China to make meaningful commitments under a prospective international climate treaty. In particular, the cement, steel, and aluminium sectors can be among the first group to join this sectoral approach.