Dual Control on Energy Consumption VS Stabilising Commodity Prices, Which One is the Priority under China's Carbon Strategy?

SHANGHAI, Sep 22 (SMM) – Since China established the targets of carbon peaking by 2030 and carbon neutralisation by 2060 (hereinafter referred to as the "dual carbon target"), domestic local governments have gradually increased the dual control policies on energy consumption. The imbalance between supply and demand of commodities caused by power rationing has drove up the prices and manufacturing costs rapidly.

1. What is the "dual control" on energy consumption?

The dual control on energy consumption refers to the dual control system of total energy consumption and intensity. The total energy consumption and intensity control targets are set by the administrative regions of provinces, autonomous regions, and municipalities directly under the Central Government. Local governments at all levels will be supervised and assessed. Energy-saving indicators are included into the performance evaluation systems, such as ecological civilisation and green development, which can guide the transformation of development concepts. Energy saving evaluation and assessment will be carried out for key energy-consuming enterprises to promote their energy-saving management.

2. What is an early warning mechanism?

The National Development and Reform Commission implements a "red, yellow and green" early warning mechanism for the "dual control" assessment of energy consumption in all provinces, cities, and autonomous regions.  

The red warning is the first-level warning, indicating that the dual-control target has not been completed, and the implementation degree is more than 10% lower than the target degree.

The yellow light is a second-level warning, indicating that the implementation degree of dual control is less than 10% lower compared with the target degree.

The green light is a three-level warning, indicating that the dual control target is basically completed.

In the first quarter in 2021, Zhejiang, Guangdong, Guangxi, and Yunnan received the first-level warnings.

At the end of August, the National Development and Reform Commission issued the "Performance of Energy Consumption Dual Control in Various Regions in H1 2021".  The energy consumption intensity in Qinghai, Ningxia, Guangxi, Guangdong, Fujian, Xinjiang, Yunnan, Shaanxi, and Jiangsu increased in the first half of the year, and these regions received the red warning. Qinghai, Ningxia, Guangxi, Guangdong, Fujian, Yunnan, Jiangsu, and Hubei received the red warning on the amount of energy consumption.

Compared with the first quarter, the regions with double red warnings increased from 4 provinces to 7 provinces. Among them, Qinghai and Ningxia have the double red warnings for the first time, and Yunnan and Guangxi both had red warnings in two assessments.

These regions must strengthen the implementation of local dual control. 13 cities (districts) have announced power rationing policies under the influence of energy consumption control targets.

3. Imported inflation and power rationing in many regions is weighing on manufacturing industry.

Sufficient liquidity in the post-pandemic era pushed up commodity prices, and the dual control of energy consumption further drove up the prices. In the industries with high energy consumption such as magnesium, silicon, aluminium, and chemicals, the prices have risen by 50-200%. The current policy control is expected to remain serious in the short term, and the prices may keep rising.

Chinese President Xi Jinping announced at the Climate Ambition Summit that by 2030, China’s carbon dioxide emissions per unit of GDP will drop by more than 65% compared with 2005, the proportion of non-fossil energy in primary energy consumption will reach about 25%, the forest stock will increase by 6 billion cubic meters from 2005, and the total installed capacity of wind power and solar power will reach 1.2 billion kilowatts or more. The dual carbon target demonstrates China’s firm determination to tackle climate change, and will bring about profound changes in China’s economic structure as well as the economic and social operations. The scope of environmental regulations will expand from the high-polluting industries to the high-emission industries, which will greatly promote the cleanliness and greening of China’s industrial chain in the next 40 years.

The rise in commodity prices inevitable for China to move from the local optimum to the global optimum.