Tom Sedzro – PhD student at Shanghai Jiao Tong University. Expert in the field of Chinese energy policy. Speaker at conferences and co-author of academic articles including an insightful paper “The Stringency of Regulatory Instruments and Energy Development and Transition in China,” which is an analysis of China’s energy policy documents. The paper is to be published officially yet has already been presented to the general public.
China is both the world’s largest producer and consumer of coal. It accounts for approximately 50% of global coal consumption. China is also a major investor in green and sustainable solutions. We are talking 676 billion USD last year, which far exceeds the whole Polish budget. We sat down with Tom Sedzro to learn more about Chinese energy policies. He went through over a hundred Chinese official documents issued in the course of many years. He has a comprehensive view on Chinese energy policy.
INE: Is energy policymaking stable in China in terms of sustainability?
Tom Sedzro: I would say Chinese policies can be considered stable. First of all, unlike Polish or Canadian policies, they are developed around mostly five-year plans. So, if you follow these five-year plans, you will see a degree of stability. Also, the sustainable aspect in Chinese energy policies actually started in 2007. That is when China started speaking about the ecological civilization. An evolution is clear in their policies from then onwards. You can see a clear trend. What matters is that it is followed by the main leaders in the Politburo and the decisions of the State Council. Let’s look at an example. China stated they want to reach carbon neutrality by 2060. And that there will be a peak in their emissions by 2030. A policymaker or someone who works in the industry can now make plans on how it’s going to evolve. You can now expect the industry is going to make a move by 2030 and by 2060, because the goal is set: carbon neutrality.
INE: The policies are introduced and sectors have no option but to comply. Do they actually comply? Are there any sectors that have experienced significant shifts in dynamics due to state-imposed energy-related regulations?
Tom Sedzro: Yes, there are huge differences. I can think of many sectors that change. Number one: the renewable energy sector. It evolved with all the huge subsidies it received. China is now the first manufacturer of solar panels worldwide. Number two: the electric car sector. Historically, most cars manufactured in China were fuel cars. But now China is the leader in electric vehicles. BYD, which stands for Build Your Dreams, just surpassed Tesla in terms of number of cars produced.
These companies were able to grow thanks to Chinese subsidies for the sector. State regulations boosted the growth of companies which focused on renewable energy.
INE: State heavily subsidized some industries. What about traditional strategic sectors? Can you highlight any major instances where the government has implemented measures to ensure energy security for them? Would you say that right now the electric vehicles industry is considered strategic in terms of energy?
Tom Sedzro: Yes, it is highly strategic. You can see where China is going in terms of renewable energy in general. There are three main legs: solar power, wind power and electric vehicles. Throughout the interview I’ll keep highlighting the importance of electric vehicles because China seems to have a global advantage here. Other sectors will also benefit from China’s shift to renewable energy, but the three are very specific and their benefit will far exceed any other. Please note the industries that China is subsidizing mostly feature state-owned companies. State-owned companies must follow five-year plans and are supervised directly by management linked to the government. So basically you are sustainable because the law requires it, but also because you are state-owned so you need to do more or you need to do better than other players.
INE: Can you expand on it?
Tom Sedzro: If you don’t comply you can be replaced. This is the finesse of the Chinese public administration. If you want to keep your job you know you need to do more and go the extra mile. I’ll give you an example of the system. The head of a state company is appointed by the government. If he wants to keep the job, he must comply. He will receive instructions and direction. It won’t be a global policy like a five-year plan. I found such cases when I was analyzing policies for my article. These policies are minor and very specific. If you take a careful look at how they are drafted and worded, you will see they are actually targeting one or two specific companies. For example, let’s take aeronautics. China is building the C919, plane which is supposed to compete against Airbus and Boeing. Companies that make it are state-owned and so are those that will be using the plane to promote it. A state-owned system is created where each and every member is responsible for making it work. State-owned China Eastern Airlines cannot refuse to use the new plane. A nationalist feature in the policies.
INE: You mentioned a nationalistic aspect, but all sustainable or green energy and generally speaking energy-related matters must take into account international situation. Are global standards taken into account in the policies? Would you say that industries in China benefit equally from meeting global standards?
Tom Sedzro: My first answer would be no. They do not benefit equally from meeting the global standards. China is following a specific path. There are industries that are favored through subsidies, etc. Some industries, maybe those less energy efficient, can kind of be left on the side. By that I mean they will be aimed more at the domestic market. And this will be difficult times for them.
INE: You went through dozens of policies. Did you notice any instances where some global standards have been omitted to improve the situation for a given sector in China? Can you think of such a case?
Tom Sedzro: Yes, in terms of subsidies. Subsidies that China gives to these industries. Sometimes they do not strictly meet all the rules. They seem to meet, but they try to go around the rules as much as possible. Example: BYD subsidies are under scrutiny because – if I’m correct – it is more than 200m EUR. A huge amount. These cannot be simply overlooked by the European Commission.
INE: Policies are introduced through 3 tools: command and control, economic incentives and voluntary policy tools. Which of the three would be most often used in the future?
Tom Sedzro: C&C will keep the prominent role. China can direct this way. Economic incentives are growing in importance. Especially for the government. In order to be efficient companies need incentives. C&C is good to set the direction and make everyone follow it. Efficiency requires incentives. Intensive economy requires that. VPT is not understood so far. And hard to quantify, like campaigns to promote something. How to quantify the results? Central government does not really appreciate it.
INE: Shaping policies. Was there always a single decision making center?
Tom Sedzro: Yes, there is always one center making the decision. It’s in the implementation where the differences are. Institutions are numerous but the path is the same. Managers do matter. Central government sets a clear path.
INE: Do you see any changes on the horizon?
Tom Sedzro: Not at the central level. Everyone knows where to go. The question is: how will provincial and local governments implement the policies. Professor Xiang from the School of International and Public Affairs at Shanghai Jiao Tong University sent special teams to see how they are implemented. Central level did not trust local authorities. They resorted to sending teams to make sure the policies are implemented. That factories are respecting standards.
INE: So there is a gap between local and central approach. Are there any platforms where you see that local authorities are discussing day to day operations and vision with the central government?
Tom Sedzro: No, there are is no bottom-up approach. Chinese way is to have rules and introduce them top-down. And then leave some room for local governments to adhere according to localities. Initiatives are possible but will they follow the spirit of the policy? Will specific incentives be different?
INE: Central government is following international standards. Do they try to be proactive or only last in the class?
Tom Sedzro: They’re making huge efforts in terms of renewable energy. From our point of view, they are acting for themselves. China is a de facto leader, but they act not to meet standards as such. They make the effort because it is beneficial for China. The rest doesn’t really matter. China is the leader, but they see no need to boast about it.
INE: Does that mean that they tend to overlook solutions that are not beneficial for China?
Tom Sedzro: I think so. Not overlooking, but limiting efforts if their outcome would harm social harmony. China is using coal: more than 50% of energy mix is from coal. They launched slow transformation (carbon neutrality by 2060) but I don’t think it will disrupt social harmony. It’s their own pace. An informed decision they made. Focus is always domestic. Chinese scholars and people always look into domestic market. International community is for strategic purposes only. Priority is given to internal social policies.
INE: What are the top 3 challenges for the Chinese central government in 2-3 years with respect to shaping energy policies?
Tom Sedzro: To make sure policies are implemented. Provincial leaders have specific promotion system. A 10% GDP growth makes you a better candidate for promotion. So, these leaders act to be promoted. If you are driven by coal, you disregard its green aspect. Number two: to remain competitive on the internation level. Carbon tax. Being able to export. Why? Because their companies are productive this way. China’s GDP growth is the central measure. And number three: they need to make sure to allow balance between growth and compliance. China needs to take care of air pollution.
INE: Do you see any global consequences of their actions? If China continues this energy policy making, what should we expect in Europe?
Tom Sedzro: China to become a leader in several aspects of sustainable practice: EV, wind power and solar power. In Europe and the West. We need to ask ourselves: are we going to allow these technologies in our lands? What about national security issues? Are we willing to let them in our markets? China is the leader, but security issues remain.
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