This interview discussing the challenges China faces on its path to low-carbon development and parallels with other countries’ experiences first appeared in Mandarin in the China Economic Times. In it, our executive director, Thomas C. Heller, references CPI’s recent publication The Policy Climate, which presents 30 years of climate and energy policy in China, Brazil, India, the EU, and the U.S.. Reporter: Why did you undertake this report and what was most surprising about your findings? Heller: A lot of the attention to date has been on international climate negotiations, but actually, there’s more action at the national level. We wanted to examine climate and energy policies in key regions around the world, and share lessons about their experience. It was interesting to see how much nations had in common. All nations want green growth. And they face the same choices about how to get there. China has a very different governance and economic system from other countries, but like other countries, it faces the same decisions on how to balance national and regional policies, whether to use mandates or incentives, how to target large as well as small enterprises. Our report talks about some of these common challenges. R: Can you give us an example of these countries that face similar challenges? H: Brazil has already reduced large-scale deforestation; it is now trying to figure out how to reduce smaller-scale deforestation, and it now realizes that this will require different policies than before. This situation is similar to China’s, which is now addressing energy saving targets for the Top 10,000 enterprises, after targeting the Top 1,000 enterprises in the 11th FYP. Like China, the U.S., Europe, and India are all thinking about how to coordinate national policies versus local or regional policies. R: What do you think China is doing well in the area of climate and energy policy? H: China has aggressive targets, which is the first and most important thing. It has continued to be innovative in its policy approach – first through its target responsibility system, and now through experiments in low carbon city pilots, in cap and trade systems, and in incentive systems. R: What do you think it could be improving? H: There are two primary challenges facing China. First, China has to somehow break out of the continued growth of coal-fired power and change its energy system to focus on renewable and lower-carbon sources of energy. Despite China’s six-fold increase in renewable energy capacity, in 2010 these sources still only totaled 1.37% of the electricity produced from conventional sources. And no matter how efficient the production of coal, it is not going to be sufficient to get China to its targets. Second, and China is already doing this, China needs to make the economic decisions that will significantly restrain the growth in energy demand. Transitioning to a service economy, which is much less energy-intensive – the service sector consumes only one-sixth of the energy as the industrial sector – and focusing the economy on domestic consumption rather than investment and exports, will make a huge difference in China’s energy profile. Leadership in China will need to make important decisions on industrial policies and finance policies to facilitate this transition and achieve a low-carbon development path. In fact, we see that China is already turning a corner. In 2012 the service sector accounted for 57% of China’s economic growth, as opposed to 44% in 2011, and the growth in power demand is already slowing. In 2012 electricity demand rose only 5.5 percent, less than half of what it was in 2011. At the same time, coal demand saw a sharp decline in 2012 and coal price remains low this year. This is exciting news for China as it shows a tremendous opportunity for China to decarbonize its economy. R: That does sound promising. For industry, which at the moment is still a huge part of China’s economy, how can China continue to improve energy efficiency? H: China’s industrial emissions intensity has been reduced dramatically across all sectors since the ‘90s, but most of the large enterprises have now already adopted some energy efficiency measures, so that further reduction will be more difficult and more expensive. The next step beyond the Top 1000 enterprises is the Top 10,000 enterprises. What we’ve found in other regions is that a mix of incentives and mandates is important to pursue energy efficiency more cost-effectively with these smaller enterprises. In addition, the Chinese government recognizes that currently, enterprises in the West and Northeastern regions are less energy efficient than enterprises in the east and need more attention. R: Is China on the right track for low-carbon development? H: China has made a lot of progress, and it has been aggressive in pursuing the path to green growth, but the scale of the problem is immense. As I mentioned, China’s efforts to shift its economy to a service model are already making a very significant difference and putting China on the right path. It needs to continue this transition, as well as focus on transitioning from coal to renewable and lower-carbon energy, and continue to improve energy efficiency of its industry and buildings. Many other countries are also working on this transition to low-carbon development, so it is helpful to learn from each other’s experience. Ultimately, we all want the same thing – a strong economy as well as a healthy planet.