Deutsche Bank CCA report highlights Chinese global leadership toward a low-carbon economy; 12th Five-Year Plan

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Deutsche Bank CCA report highlights Chinese global leadership toward a low-carbon economy; 12th Five-Year Plan

04 April 2011

The many new and expanded strong policy initiatives and green targets in China’s 12^th Five year Plan, released on 5 March 2011, provide “clear evidence” that China’s low-carbon policies remain global best-in-class, according to a new report from DB Climate Change Advisors (DBCCA). DBCCA is the brand name for the institutional climate change investment division of Deutsche Asset Management, the asset management arm of Deutsche Bank AG.

According to Hu Angang of the Chinese Academy of Sciences, 33.3% of the targets in the 12^th Five Year Plan address resource or environmental objectives compared to 27.2% in the prior 11^th Five Year Plan. This is borne out in the summary Draft 12^th Five Year Plan which contains a new section on “…energy conservation and environmental protection in responding to climate change” and lays out significant progress in key areas, describing the high-level objectives of China’s National Climate Change Program, the DBCCA report notes.

Under the 12^th Five Year Plan (FYP), China will allocate more than RMB 3 trillion (~US$460 billion) to the various green-related programs. DBCCA notes that this allocation of capital is consistent with plans announced in June 2010 that China would direct RMB 5 trillion (~US$765 billion) into the decarbonizing process. The spending in the 12th Five Year Plan for the period 2011 through 2015 represents 60% of the investment capital allocated for the decade.

While the 12^th Five Year Plan document has not been publicly disclosed, it appears to DBCCA that the Plan will continue to place significant emphasis on green development, and that China is accelerating its path toward decarbonizing and cleaning up its power and industrial infrastructure.

These efforts will likely be achieved through continued renewable and clean energy development, infrastructure overhaul, new limits on pollutants and through the establishment or broader adoption of resource and environmental taxes, along with plans to introduce pilot cap-and-trade mechanisms for both carbon and various pollutants.
—DBCCA

It is also stated that pilot cap-and-trade systems for carbon and other criteria pollutants will be undertaken. This global leadership in particular contrasts to the stalled efforts at the US Federal level, DBCCA says, also noting that the days when commentators expected US carbon policy to lead the way for China to join a decarbonizing world are over. Rather, the report says, it is now China who is preparing for carbon markets by 2013 and, as the world’s largest manufacturing economy, it is stepping up to join the carbon markets in Europe.

Climate change policy regimes around the world. Source: DBCCA. Click to enlarge.

The Draft Plan establishes goals for 2015, in addition to many of the 2020 targets already announced.

China has targeted that energy intensity by 2015 will improve by 18% from 2010 and non-fossil fuel energy will increase to 11.4% of total generation.
A total of 235 GW of renewable and low carbon energy generation capacity are also announced, with new 2015 goals including wind capacity increasing by at least 70GW (from 42 GW currently) and solar capacity increasing to 5GW (from 625 MW currently).
Transmission lines for renewable are also targeted for expansion as part of State Grid of China’s announced plans to invest RMB 500 billion (US$76.7 billion) over the next five years.
Forest cover is targeted to increase by 12.5m hectares and high-speed rail is targeted to expand by 47,000 km between now and 2015.

Goals of 12^th FYP. Source: DBCCA. Click to enlarge.

DBCCA believes that China remains committed to low-carbon nuclear energy development as a necessary element of a national decarbonizing strategy. Despite the Fukushima event, DBCCA does not expect China to cancel any nuclear plants, although timetables for development may be disrupted as the experts evaluate safety upgrades and the feasibility of rapid migration to newer and safer nuclear designs. Signs of such a migration are occurring with announcement on 24 March 2011 that Huaneng Nuclear Power Development Corporation will commence construction next month of a 200MW Generation IV gas-cooled reactor in Shandong province.

DBCCA believes that China will continue to look for the safest nuclear options. The prospect of a gap in low-carbon energy plans arising from what could be multi-year delays for an estimated 24 GW of planned nuclear capacity should, the report says, give a strong boost to cleaner energy sources such as renewable solar and wind, along with more gas for base load reasons. Further, it points to continued turmoil in the oil-producing regions of the world serves as further impetus for China to speed development of renewable resources as a means to reduce the China’s strategic energy supply risk while nuclear safety and new reactor designs are reviewed.

The report says that the 12^th Five year Plan create a broad range of climate change-related investment opportunities for:

equipment and services companies in the wind, solar power and hydro sectors;
equipment and technology companies in the low-carbon transportation sector; and
project finance activity in the several areas of renewable power farm development.