China’s INDC

On Tuesday, China submitted its INDC to the UNFCCC ahead of COP 21. It includes a carbon intensity reduction target of 60-65% by 2030, a commitment to peak ‘around 2030’, and to produce 20% of its energy from non-fossil fuel sources.

It also includes a clause to steadily implement its national carbon market and to build upon the existing ETS pilots. China wants to ensure that the market ‘plays the decisive role in resource allocation’ (Section L).

Overall, IETA’s reactions to the INDC are all quite positive:

  • We’re encouraged at the progress evident in China’s INDC – and congratulate the People’s Republic of China for the hard work in putting it together.
  • While we plan to analyse it more deeply, it appears that the intensity reduction target is ambitious. It sets the pace for other developing countries to follow.
  • It’s encouraging to see China strengthen its efforts to implement climate policy in coordination with the EU and the US.
  • Emissions trading will play a key role for China in making its contribution. But little is known now whether China will, in the future, seek international cooperation through its market approach.
  • Its commitment to a national carbon market that builds on best practices, is open and is fair is key for business and key for transparency.

Recommended further analysis on China’s INDC is provided by Zou Ji of China’s National Center for Climate Change Strategy (NCSC (translation courtesy of CCF).

The INDC sets the stage for further ETS developments in China’s next five-year-plan which will begin in January 2016. What is still needed at this point is clarification from the National Development and Reform Commission as to how the national ETS will help fulfill the 2030 carbon intensity target: will it be the key policy tool that addresses GHG reductions, as has been the case in Europe with the EU ETS? Or will China’s national ETS be one of many policy tools that the country uses to reduce its carbon intensity?

Our take is that the majority of GHG reductions in China will stem from the closure of ageing coal plants and the re-structuring of China’s economy away from heavy industry and more towards services. However, China has clearly articulated in its INDC that it will use a market to help price pollution and greenhouse gases. The tea leaves couldn’t be clearer, but the scope and size of that market still remains unknown. Watch this space.

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