Since launching its open door policy and economic reforms in late 1978, China has experienced spectacular economic growth and hundreds of millions of Chinese people have been raised out of poverty. But to achieve this, China has relied heavily on coal to fuel its rapidly growing economy.

Burning coal contributes to the overwhelming majority of China’s sulphur dioxide, nitrogen oxide and carbon emissions. This has given rise to unprecedented levels of environmental pollution and health risks across the country, with dense smog and haze frequently shrouding Beijing and other areas. On top of this, global climate change is expected to pose additional threats to China.

Chinese leaders are well aware of these challenges. The country has given ecological goals the same level of priority as existing economic, political, cultural and social development policies and is making impressive progress towards implementing a low-carbon economic development framework.

Before the 2009 Copenhagen Climate Change Conference, China pledged to cut its carbon intensity by 40–45 per cent by 2020, relative to 2005 levels. Under the joint China–U.S. climate statement in November 2014, China further strengthened its commitments, agreeing to cap its carbon emissions by 2030 and increase the share of non-fossil fuel use to 20 per cent.

These commitments were officially incorporated into China’s Intended Nationally Determined Contributions submission to the United Nations in advance of the Paris climate summit. As a crucial step to meet the commitments, the Chinese government set an absolute limit for energy consumption at 5 billion tonnes of standard coal by 2020 and announced its aim to cut energy intensity by 15 per cent and carbon intensity by 18 per cent, relative to 2015 levels.

Given China’s coal-dominated energy mix, abating carbon emissions is closely linked to reducing the state’s energy consumption. While coal production appears to be slowing, the key challenge for China is to ensure that coal consumption peaks in the Thirteenth Five-Year Plan period from 2016–2020. On this trend of coal consumption, current estimates suggest that carbon emissions will peak between 2025 and 2030.

Capping coal consumption not only requires enhanced efforts in key energy sectors but also coordinated regional efforts. The Chinese government’s Atmospheric Pollution Prevention Action Plan has set more stringent concentration targets for hazardous particles in the Beijing–Tianjin–Hebei region, the Yangtze River Delta, and the Pearl River Delta. Given that many environmental issues are of a cross-border nature, neighbouring regions are increasingly acting collectively, which significantly increases the effectiveness of their efforts.

Renewable energy is another long-term solution to China’s environmental worries and is one of seven strategic emerging industries. China has fixed a target for alternative energy sources to meet 20 per cent of its energy requirements by 2030. Renewable energy can also help to both lower the level of peak emissions and move the peak forward.

While China has committed to cap its absolute greenhouse gas emissions by 2030, the level at which they will peak remains unknown. This is the "make or break" figure, and will determine whether China’s commitments have been sufficiently ambitious. Experts believe that if non-fossil-fuel use can contribute to at least 25 per cent of total energy use by 2030, then the peak emission figure will be low enough to limit further environmental damage and could come earlier than the target year.

This is achievable. China began to experiment with low-carbon city development in 2010, with all pilot provinces and cities setting carbon emissions peaks. Twenty-three provinces and cities formed the Alliance of Peaking Pioneer Cities, committing to reaching the emissions limit ahead of the national schedule. Beijing, Guangzhou and Zhengjiang are aiming to beat the national goal by 10 years.

But China needs market-based approaches to complement administrative measures. Administrative steps can be effective but are often not efficient. Harnessing market forces to reduce energy consumption and cut carbon and other conventional pollutants will be crucial to success. Getting energy prices right is the first step in sending clear signals to both producers and consumers.

China has moved away from centrally planned pricing towards more market-oriented mechanisms, though the pace and scale of change differs between energy types. The natural gas price has long been set below production costs. Electricity has also lagged, with the government still retaining control over electricity tariffs. Thus, power pricing reforms are critical for internalizing the cost of carbon in energy market prices.

China is also reforming its narrow coverage of resource taxation, experimenting with seven pilot carbon trading schemes and preparing for the transition to a nationwide trading scheme by 2017.

A variety of existing programs and initiatives also need to be strengthened. For example, coal-fired power generation policies need to go beyond longer-standing policies on closing small, inefficient power plants while building larger, more efficient and cleaner units, given that existing coal power plants face falling utilization rates, displacement by renewable energy sources and lower-than-expected demand. As of March 2016, such effects are already being felt, with the National Energy Administration ordering 13 provincial governments to stop issuing approvals for new coal-fired power plants until the end of 2017.

To ensure a smooth and successful transition to a green economy, more emphasis should be placed on economic restructuring, remodeling and innovation. Studies suggest that these factors have been underestimated in the past.

Eliminating outdated energy producers and tackling the perennial problem of overcapacity should also be at the top of the priority list. In the coal and steel industries, the government has announced targets to limit excess production capacity and imposed a three-year moratorium on new coal mine approvals. This supply-side reform is painful and will leave millions in need of alternative employment. The central government is well aware of the hard landing that some will face and has already set up funds to support those within the restructuring process.

China’s green push is not completely new. Former leaders Hu Jintao (胡锦涛) and Wen Jiabao (文駕胞) recognized the seriousness of environmental degradation in China and insisted that encouraging economic growth at the expense of the environment had to end. Environmental compliance costs are now even higher and will likely continue to rise, as emissions targets become increasingly stringent amid widespread non-compliance with environmental regulations.

The difference this time is that China is being strict and methodical, implementing policies that will ensure change. This gives reason for optimism.

This article appeared in the most recent edition of the East Asia Forum Quarterly, "Managing China."

The News Lens has been authorized to republish this article from East Asia Forum. East Asia Forum is a platform for analysis and research on politics, economics, business, law, security, international relations and society relevant to public policy, centered on the Asia Pacific region.

TNL Editor: Edward White