Responding to Climate Change: China’s Renewable Energy Audit-SAI China

Climate change is a common challenge for humanity. As stated in the State of the Global Climate 2020 released by the World Meteorological Organization, the global mean temperature for 2020 was around 1.2°C warmer than pre-industrial times, and the last 10-year average (2011-2020) was the warmest on record. Effective efforts to reduce greenhouse gas emissions are of extreme urgency for the world. For China, actively responding to climate change and accelerating green and low-carbon development offer major opportunities for adjusting its economic structure, transforming its economic development mode and achieving sustainable development. With no or little greenhouse gas and pollutant emission in its production and use, renewable energy becomes an effective tool for climate action and pollution control. The transformation from fossil energy consumption to renewable energy consumption, through increasing power generation from renewable energy and reducing greenhouse gas, such as carbon dioxide, emissions from coal power generation, is of vital importance to the achievement of the United Nations’ Sustainable Development Goals.

Energy is an important material basis and driving force for the progress of human civilization, and is a matter of people’s livelihood and national security. Since the beginning of this century, the global response to climate change has set out on a new journey. China together with over 130 countries and regions has set carbon neutrality targets. The global energy mix is being quickly adjusted and the technical level and cost efficiency of renewable energy have significantly increased. Electricity generation from renewable energy sources such as wind, solar and biomass has leapt forward, increasing tens of times. Renewable energy took about 60% of the world’s new electricity generating capacity in the last five years.

At the general debate of the 75th Session of the United Nations General Assembly on September 22, 2020, President Xi Jinping announced that China would scale up its Nationally Determined Contributions (NDCs) by adopting more vigorous policies and measures, strive to peak carbon dioxide emissions before 2030, and achieve carbon neutrality before 2060. By 2030, China aims to bring its total installed capacity of wind and solar power to over 1.2 billion kW. China announced in 2021 a decision to stop building new coal-fired power projects overseas, demonstrating its concrete actions in response to climate change. Also in 2021, China submitted two documents to the UN Framework Convention on Climate Change Secretariat--China’s Implementation of National Independent Contribution Effectiveness and New Initiatives for New Targets and China’s Long-term low-GHG-emissions development strategy (LGEDS) for the Middle of this Century. China has formulated and released top-level design documents on the first anniversary of the double carbon target, representing the Chinese government's unremitting efforts in fulfilling its international commitment to reduce carbon emissions.

Carbon dioxide mainly comes from the burning of fossil fuels. To achieve the goals of peaking carbon emissions and subsequent carbon neutrality requires the development of renewable energy including photo-voltaic, wind power, etc. By the end of 2020, China has further adjusted its energy mix and madethe remarkable achievement of low-carbon transformation, with non-fossil energy consumption increased to 15.9% of the total energy consumption while coal consumption dropped to 56.8%. The installed capacity of renewable energy¹ power generation, 600 million kW, accounting for 27% of China's total installed power generation capacity, ranked the first in the world. Within this figure, wind power contributed 290 million kW, photovoltaic 270 million kW, and biomass 34.09 million kW, ranking the first in the world for 12, 7, and 4 consecutive years respectively. In 2020, China’s total renewable energy utilization reached 680 million tons of standard coal, equivalent to a coal replacement of nearly 1 billion tons.

In terms of government subsidies for renewable energy, the Chinese government has allocated more than RMB 600 billion yuan in total. China has reduced subsidies for photo-voltaic power since 2011, and has been accelerating subsidy cuts since 2016. Nevertheless, as the technological cost decreased, the supply of photo-voltaic power and wind power rapidly increased. With the dramatic subsidy declines, the supply of solar power grew sevenfold, and the supply of wind power also expanded rapidly with the lowering cost of technology.

The INTOSAI Working Group on Environmental Auditing (WGEA) Auditing Sustainable Energy: Guidance for Supreme Audit Institutions issued in 2010 after studying the theories and experience in various countries, marked auditing sustainable energy has become a new area for SAIs following the auditing of water resources, waste, biodiversity, etc. To comprehensively and systematically assess the development status of renewable energy such as wind, photo-voltaic and biomass power, SAI China organized a special audit of electricity generated from renewable energy sources. The audit aimed at promoting better and faster development in this area by revealing common problems and providing feasible recommendations. The audit basically followed the four major steps proposed in Auditing Sustainable Energy: Guidance for Supreme Audit Institutions, namely understanding the sustainable energy issue and its influence on society, economy, and the environment, understanding the governmental response to the sustainable energy issue, how to choose audit topics and design the audit.

Questions: 1. How were the national policies implemented and the goals related to renewable energy achieved? 2. How to identify and assess potential risks in this area? 3. How effective were the government subsidies? 4. Were the supporting market mechanisms working?

The purpose of initiating the audit was to promote more efficient and cost-effective use of renewable energy. By conducting the special audit on electricity generation from renewable energy, our objectives were to:

• evaluate the efforts made by central government departments and local governments in implementing macro policies responding to climate change, and in promoting the development of renewable energy such as wind, photo-voltaic and biomass power;
• evaluate the performance in collecting, managing, and using of government subsidies;
• detect common problems and potential risks in fund management and program implementation;
• evaluate the implementation of central policies and effectiveness of fiscal funds;
• identify any obstacles in the system; and
• make appropriate and practical audit recommendations.

• Performance of central government departments and local governments in promoting renewable energy development and delivery of relevant tasks: We checked whether the development plans were prepared for renewable energy such as wind, photo-voltaic, and biomass power, whether the targets for installed capacity and power consumption were achieved, and whether there were uncoordinated, incompatible, or even conflicting plans made by the departments and local governments;
• The natural resources providing renewable energy, including land, ocean, forest, and their biodiversity status: We checked the use of land and forest for developing photo-voltaic power and compensation paid for such uses, the balance between the massive occupation of arable land and food security, and the negative effects of offshore wind power on marine resources and the biodiversity status;
• Collection, management, and use of government subsidies for electricity generation from renewable energy: We revealed problems in the use of fiscal funds such as inadequate collection, unfair and untimely distribution, inefficient management and illegal charges, and special attention was paid to projects with low efficiency of the fund. We also checked the financial sector's support to the development of renewable energy, such as green credit mechanisms, etc.; and
• Operation of the national carbon emissions trading market: We checked the implementation of policies, the design of the trading system, market management, assessed its effectiveness, and detected potential risks of fraud such as false trading of renewable energy generation in the name of carbon emissions reduction.

Based on an overall evaluation of the industry of the electricity generation from renewable energy we identified some common problems. In general, the electricity generation from renewable energy in China achieved rapid development in the past five years, both in terms of its market share and core technology, which has laid a solid foundation for the achievement of carbon dioxide peak and neutrality goals. Some common problems found in the audit are as follows:

• Some local governments failed to perform their responsibilities or achieve targets on renewable energy. For example, some regions had an insufficient investment in renewable energy such as wind, photo-voltaic, and biomass power, which were significantly lower than the national average growth rate in installed capacity.
• There were conflicts between renewable energy development and ecological protection including the protection of arable land, forests, and oceans, especially the grain production was affected by the reduction of arable land in some regions, though risks were generally under control.
• There were problems in the collection, management, and use of government subsidies for renewable energy, such as inaccurate calculation of electricity generation from renewable energy and their subsidies, and insufficient management in some projects, which affected the effectiveness of the subsidies.

From the auditors’ perspective, the challenges in the development of renewable energy in China are as follows:

• Synergy needs to be fostered between government policy guidance and technological progress. Compared with the technological progress of renewable energy, government policy generally has a lag. This may lead to contradictions between policy guidance and rapid technological innovation in the renewable energy sector. Therefore, a synergy between policy and technology is particularly crucial to the development of the industry.
• The volume and exit time of government subsidies need to be determined. The government subsidies are used to promote the development of the sector of electricity generation from renewable energy. However, with the increasing government expenditure, it is unlikely that subsidies will always be available. Therefore, the volume of government subsidies and exit time become issues to be addressed.
• A right balance should be achieved between the government and the market. Similar to other emerging industries such as the new energy vehicles, the development of renewable energy requires government support in its early stage. But with the improvement of the market, it is supposed to enter a soundtrack of self-development, where the market becomes the main driving force of its development. Therefore, it is equally important to determine the intensity and timing of government support.

The audit results show that the development of renewable energy in China will remain in the fast lane, thanks to a well-developed market, the development of advanced technologies, as well as strong policy and financial support. Our audit which aimed at further development of renewable energy indicates that the wide use of renewable energy in China has contributed to the cost-reducing of renewable energy. Moreover, an increasing number of Chinese photo-voltaic and wind power equipment manufacturers and operators have invested globally, accelerating the global green energy transformation. For example, in 2021, Chinese enterprises signed 198 agreements abroad related to electricity generation from renewable energy including solar, wind, biomass power, and energy storage. In particular, there is a rapid growth in their investments in renewable energy projects in developing countries and regions, helping less developed countries and regions in applying advanced technologies of green energy, and consequently contributing to the high-quality development in these countries and regions.