How China can solve its energy ‘trilemma’ and avoid a climate policy swing

This piece first appeared in South China Morning Post on 8 January, 2023, available here. Below is an author's copy.

There has been a longstanding and doomed cycle in China’s political and economic arena: total control leads to stagnation, followed by an abrupt change towards complete delegation; the lack of responsibility in turn results in disorder and chaos (yi guan jiu si, yi fang jiu luan 一管就死、一放就乱). This cycle has been most evident in the country’s recent responses to the COVID-19 pandemic.

A manifestation of this cycle has also appeared in China’s climate actions in recent years. Following the climate pledge in 2020 to peak its carbon emissions before 2030 and achieve net-zero by 2060, the country saw a wave of “campaign-style” carbon reduction efforts. There was a surge of climate-orientated policies and initiatives by governments at various levels. In some regions, factories were forced to close down and power supply was cut as local governments were under pressure to hit energy-control and carbon emission targets.

However, a notable swing of the policy took place amid energy supply shortages and soaring prices. Contrary to the previous policy that placed a strict control on coal to cut emissions, production of coal has been boosted since the second half of 2021. 300 million tons of new coal production capacity was approved in 2022, on top of the 220 million tons of capacity that was added in 2021. Coal output in the country reached a record high of 4.07 billion tonnes in 2021, and again in 2022 with a further increase of 8% at 4.45 billion tonnes.

More concerning is a significant policy change on coal power projects. According to a study by Peking University’s Energy Research Institute, the government approved a total of 65GW of new coal power projects in the first 11 months of 2022, more than three times the capacity approved in the whole year of 2021. Once in operation, these new coal-fired power projects will pose a challenge for China’s emission reduction efforts in years to come.

Fundamentally, the drastic policy swing in China on climate is because of the difficulties in handling the multitask problem in its political system. This is a problem that arises when an objective cannot be comprehensively captured by reference to a single indicator, for example, GDP growth. In a political system characterized by the concentration of power and top-down decision-making, this problem is made difficult to address as a result of structural flaws, such as the ways in which power distorts information flows and the difficulties involved in evaluating performance and incentivizing officials in tasks where outcomes are less easy to measure.

Since 2014, China has formally embarked on an “energy revolution” with the goal to develop a cleaner, more secure, and more efficient energy system. During the past eight years, China’s energy mix has indeed undergone substantial changes. The contribution of non-hydro renewable power to primary energy consumption has risen from a level of less than 2% in 2014 to over 7% in 2021. The share of fossil fuels has dropped from almost 90 percent to around 80 percent. China has also developed internationally competitive industries in renewable energy technologies. In many of these areas, such as solar panels, wind turbines, and electric vehicles, Chinese firms have achieved leading positions in the global market. The country’s commitment to net-zero emissions is also widely appraised by the international community.

However, to achieve the goal of the energy revolution, the country needs to navigate three different – and sometimes competing – objectives, including energy security, economic viability, and environmental protection, commonly known as “energy trilemma”.

Indeed, the energy trilemma poses significant challenges to governments across the world. As shown in the recent energy crisis in Europe, climate policy in Western countries can be adversely affected by electoral cycles, an overemphasis on individual economic welfare and freedom, and failures to take fast and decisive actions.

Under China’s political system, however, the effectiveness and longevity of its climate policy can be undermined by the overreliance on its top-down approach.

This is because many of the activities required to achieve the objectives involved in the energy trilemma are difficult to define or evaluate with quantitative measures. Therefore, local officials tend to focus on the performance indicator that is currently emphasized by the leader. Meanwhile, the climate policy can be ineffective without sufficient information input from a wide range of stakeholders for the policy design and their participation in the implementation process.

China should complement its top-down decision making on climate with a bottom-up approach to navigate its energy trilemma and avoid drastic policy swings. Stakeholders with different interests should be more involved in the development and implementation of climate policy. Mechanisms should be established to enable transparent and just negotiations among stakeholders. And accountability of leaders should be enhanced for their decisions. These institutional arrangements seem necessary for achieving an effective and just energy transition. Unfortunately, it may become increasingly difficult to implement these principles in a backdrop of the growing concentration of political power.