In the run-up to Copenhagen, China's announcement of a plan to reduce carbon emissions per unit of gross domestic product between 40 to 45 percent by 2020 received characteristically mixed reviews by the global press and environmental advocates. Noting that China's aggressive target would still result in an absolute increase in emissions, many decried China for not shouldering enough responsibility as the world's largest emitter of carbon dioxide.

While some criticism and concern is understandable, this target is in fact very ambitious, and if fully implemented, will change business as usual in China. According to Jiang Kejun, a researcher with the Energy Research Institute of China’s National Development and Reform Commission, reaching this target would require the energy intensity of the Chinese economy to be reduced by 18 to 20 percent from 2011 to 2015.

To date, China’s energy intensity reduction projects have focused on the top 1,000 national energy consuming enterprises—which by 2010 will already have reduced their energy intensity by 15 to 20 percent. The need for an additional 18 to 20 percent reduction will likely mean that the burden will spread to smaller emitters, many of which will include multinational brands’ direct operations or that of their Chinese suppliers.

I anticipate two potential direct impacts of this policy on companies operating in China:

  • Heightened government scrutiny: Mandates similar to the ones used on the top 1,000 emitters—including quarterly energy data reporting and annual energy inspections by provincial government officials—could be applied to companies emitting as few as 2,500 tons of carbon dioxide per year.
  • Increased cost of doing business: A national carbon tax scheme starting at 10 to 20 Chinese RMB per ton of carbon emitted is currently being discussed by China’s Ministries of Environmental Protection and Finance. Power plants, steel manufacturers, and petrochemical companies could face fines of over US$1.5 million per year, which would likely raise the costs of raw materials and the overall cost of doing business for certain industries.

All signs coming out of Beijing indicate that this target is not a negotiating tactic for Copenhagen, but rather a serious measure that will be enshrined in China’s next five-year plan, which will be released next year.

Many companies are already taking action. In 2009, BSR designed Wal-Mart’s supplier energy-efficiency program in China, which included energy-efficiency and carbon-management trainings for over 600 factory managers. BSR also launched an interactive website (www.chinajieneng.org) for Chinese energy professionals to drive energy efficiency in their factories.

Now is the time to get ahead of the expected legislation, and adequate action will require strong leadership.