The Central Committee, the top-level authority of the Chinese Communist Party (CCP), recently concluded its Fifth Plenary Session and created China’s 14th Five Year Plan (the Plan). The Five Year Plan is the primary policy document for the CCP, covering a variety of social, economic, and foreign policy topics, and effectively serving as the CCP’s political platform. The Fifth Plenary was attended by 198 members of the Central Committee, including President Xi Jinping in his role as General Secretary of the Central Committee (his most important title). The full text of the new Plan is not yet public, but a communique summarizing the discussions at the Plenary has been released (Chinese version only). The communique indicates that the CCP will continue its focus on developing environmental governance policies through 2025, and the party will also prioritize aggressive climate policies aimed at reaching the 2060 carbon neutrality target recently announced by President Xi.
In recent years, China’s government has adopted a number of significant laws and regulations aimed at protecting the environment and ensuring sustainability, so it was no surprise that the CCP focused on these issues at the Plenary. On September 22, 2020, during a speech before the UN General Assembly, President Xi Jinping announced China’s commitment to become carbon neutral by 2060. This target is a significant step further than China’s previous commitment under the Paris Agreement, which was to peak its carbon emissions and reduce the carbon intensity of its economy by 60-65% below 2005 levels by 2030. How these targets will be reached is less clear, particularly with respect to the role that carbon pricing and emissions trading will play. Pilot ETS programs were launched in seven cities and provinces between 2013 and 2016, and continue to operate today. A national program covering eight industries was announced in 2017, but was subsequently pared back from eight industries to only power plants, and the requirement that facilities purchase allowances or credits to cover their emissions was eliminated. As the first major policymaking event following the carbon neutrality announcement, the Plan will therefore expected to give the Ministry of Ecology and Environment (MEE) and other administrative agencies a broad mandate to implement decarbonisation policy. That mandate, in turn, will be closely scrutinized by industry for indications as to the direction of emissions trading and carbon pricing in China, and whether that will translate into material costs for heavy emissions. One potential early indication that new developments for emissions trading may be on the horizon is that following the Plenary, MEE released new draft carbon trading regulations for public comments on November 2, 2020 (Chinese version only).
Expanded Climate Commitment
The communique reiterates the goal of peaking carbon emissions by 2035 and set a goal to improve overall environmental quality by that time as well. The CCP also promised to speed up modernization in the agricultural sector, which is a significant source of pollution, but remains much less regulated than manufacturing and other industry. The communique noted China’s commitment to accelerating its development of low-carbon technologies and infrastructure, and improving resource utilization in general, with the aim of improving and stabilising its ecosystems and natural resources.
In addition to climate issues, the Plenary’s communique notes the improvements China has made in pollution prevention and control efforts during the course of the previous Five Year Plan (2016-2020), but also observes that ecological environmental protection has “a long way to go,” and that China will continue to strive for sustainability and ecological protection. The new Plan sets out several major environmental goals, including:
- Constant reduction of major pollutants
- Constant improvement of environmental quality
- A significantly greener economy
Another point of discussion at the Plenary was an expected lower GDP target than in previous years, reflecting not only the uncertainty created by the COVID-19 pandemic, but increased emphasis on the sustainability of economic growth. The CCP recognized that the previous decades’ double-digit growth must, at some point, “revert to the mean” of slower growth typical of middle-income countries. While the communique does not specify a GDP target, and no official target has been released, most observers expect a target close to 5%, still enviably high when the GDP of most developed nations, and the global economy as whole, is expected to contract, not grow, in 2020. These growth targets will be set in the context of longer-term goals President Xi described at the Plenary, including a goal to make China a “high income nation” (defined by the World Bank as per capita GDP above US$12,535) by 2025 and a “moderately developed nation” (per capita GDP above US$20,000) by 2035.
In addition to GDP targets the Plenary also discussed a shift in focus from integrating the Chinese economy into the international market to the concept of “dual circulation,” meaning a commitment to developing the country’s domestic economy alongside its international economy. Because China has historically run large trade deficits with the rest of the world, and received large quantities of foreign investment in return, in practice this will mean refocusing the economy on domestic demand rather than export-driven manufacturing. Such a shift would potentially reduce the trade deficit that has been a source of tension with some of China’s trading partners. Dual circulation is also discussed in the communique as a means of addressing unequal development between Chinese provinces and the related “three rural issues” (agriculture, rural areas, and farmers).
The communique reiterates a commitment to allowing markets to play a “decisive role” in allocating economic resources, a concept which was first introduced in the previous Five Year Plan in 2013. The communique also indicates that China will promote a more open trade and investment environment through “innovations in trade development” and a “revolution of the global economic governance system.” These statements likely reflect the importance the Belt-and-Road initiative will have in promoting Chinese trade with regional partners going forward.
The Chinese government will likely publish a document detailing the full plan in the Spring of 2021 that will shed more light on China’s target carbon emissions levels, the implementation timeline for the national ETS, and other climate change and environmental initiatives.
Latham & Watkins will continue to monitor developments in this area.
This post was written with the assistance of Zhuoshi Liu of the Environmental Law Institute and Sabina Aionesei in the London office of Latham & Watkins.