Following a weeklong meeting in March, China’s 14th Five-Year Plan (FYP), which covers 2021-2025, was approved by the National People’s Congress at the Two Sessions in Beijing. The plan signals the direction of China’s economic, environmental, and social development in a critical period in which China will lay the foundation for its climate goal to peak carbon emission by 2030, reiterated by President Xi at the China-France-Germany virtual climate summit on April 16.

How will the 14th FYP steer the country’s development for the next five years, and what does it mean for business? In this blog post, we look at the environmental and climate considerations of the new FYP.

An Evolving Environmental Approach: From Pollution Control to Emissions Reduction

In the recently released plan, energy and climate targets take center stage. For the first time since 1986, China has omitted a numerical GDP target in its FYP, instead setting longer-term climate goals and introducing the idea of a CO2 emissions cap. The FYP set an 18-percent reduction target for CO2 intensity and a 13.5-percent reduction target for energy intensity from 2021 to 2025.

This marks a significant shift from pollution prevention to carbon emissions reduction.

In the 12th FYP, the Chinese government began dedicating significant funds and high-level attention to reducing energy consumption and greenhouse gas emissions, and it declared war on pollution in 2014. This continued into the 13th FYP, with specific sectoral targets and milestones to eliminate pollution.

In the 14th FYP, energy and climate stand out as a central-policy priority, building on the existing efforts and strategies focusing on ecological and environmental protection.

The 14th FYP Will Guide Sector-Specific and Regional Plans to Reduce Carbon Emissions

The international business community and climate experts have raised questions regarding China’s energy transition and specifically how it will reach its 2030 emission peak goal through actions set in the 14th FYP. These details, especially regarding timeline, road map, and the KPIs at the local and sectoral level, will be clarified in the 14th FYP’s forthcoming sector-specific and regional plans. These clarifications are important and worth watching for.

Still, we have information from key ministry and state-owned enterprises, which take the lead in setting direction for policy implementation. For example, the Ministry of Ecology and Environment (MEE) will set targets for nationwide greenhouse gas emission controls between late 2021 and early 2022. These targets will break down those outlined in the FYP at the sectoral and administrative level and will provide greater details concerning road maps and action plans for implementation, evaluation, and reporting.

Industry experts anticipate there will be more demand for both mandatory and voluntary carbon disclosure. In particular, as the national carbon emission trading market kicks off in 2021, there will be increased expectations for data on emissions reductions and company measures to control emissions.

Meanwhile, state-owned enterprises also vowed to peak carbon emission and reach carbon neutrality goals ahead of the country’s goal. The State Grid Corporation of China released a plan for peaking emissions and achieving carbon neutrality goals in March 2021. China Baowu, the world’s largest steel company, announced its aim to have CO2 emission peak before 2023 and Sinopec, the world’s largest oil refiner, has set a target for carbon emissions to peak by 2025. 

Major cities, including Beijing and Shanghai, the industrial provinces of Guangdong and Jiangsu, and the island of Hainan, have all included emissions peaks in their proposed five-year plans, which will align with the overarching national blueprint guiding policy through 2025.

Business Operating in China Should Expect Changes to the Market to Align with Climate Goals

As sector-specific and regional FYPs start to take form, these policy changes will gradually be delegated down to businesses and society across sectors and regions.

The net-zero transition will have a significant impact on almost every part of the supply chain, particularly those still dependent on coal-fired power and which are not yet ready to transition to renewables. This could include sectors such as mining, steel, petrochemicals and chemicals, transportation, textiles as well as others. The impact will be concentrated in coal-reliant regions and provinces, affecting local economies, employment, tax revenue, and social benefits, and could push business and talent to regions where renewable energy is cheaper.

The financial market is responding quickly to the government plans. Carbon neutrality-themed shares in the Chinese stock markets have surged since early in the year. We also expect that the national carbon neutrality goal will activate the financial market and encourage more long-term value investors to focus on zero-carbon development and invest in zero-carbon assets, projects, and technologies.

Businesses operating in China should thus expect these changes to take into effect soon and prepare their own operations as well as their supply chains to meet both policy and market expectations for a net-zero transition.

What’s Next

BSR’s China team will continue to unpack business impacts of the national plan. Future blog posts will provide more details on industry impacts and how businesses should prepare through insights and dialogues with climate and energy experts and key opinion leaders from important stakeholders across sectors.

If you are interested in learning more about how BSR can help shape your China strategy, please reach out to connect with the team.