China outlines carbon plan for civil aviation sector, sets emissions targets

China has introduced energy intensity and carbon emissions-related targets for the aviation segment in the 14th Five-Year Plan, paving the way for the inclusion of a key transportation sector in the country's carbon market.

The five-year economic plan is one of China's most important policy documents that maps out development strategies and sets growth targets. The 14th Five-Year Plan for 2021-2025, in particular, is expected to lay the groundwork for China's long-term decarbonization after its COP26 pledges.

Aviation presents challenges for the decarbonization of transportation due to few alternative fuels, but it remains a key contributor to global CO2 emissions. Carriers have committed to voluntary carbon reductions through programs like the International Civil Aviation Organization's, or ICAO's, market-based Carbon Offsetting and Reduction Scheme for International Aviation, or CORSIA.

Low-carbon technologies in China's civil aviation sector have been lagging, and energy intensity and emissions have been rising in recent years, as per the plan. It said the country's aviation fuel consumption per ton-km rose to 0.295 kg in 2020 from 0.293 kg in 2015, and carbon emissions per ton-km rose to 0.928 kg in 2020 from 0.926 kg.

The plan aims to reduce energy and carbon intensities, as well as pave the way for setting a price on carbon in the aviation sector by introducing carbon pricing mechanisms, and improving existing emission Monitoring, Reporting and Verification (MRV) systems.

It said carbon pricing needs to be market-based, well-coordinated with international stakeholders, and take China's economic realities and the sector's current development stage into consideration.

By 2025, China's aviation sector aims to reduce carbon emissions per ton-km by 4.5%, and energy consumption per person-time in the airport by 10% from 2020 levels, the plan outlined. It aims to increase total turnover by 17% annually, and total passengers by 17.2% annually.

The annual growth targets for total turnover and passengers are high at about 17% because the 2020 baseline levels are low. If compared with the 2019 level, the total turnover and total passengers are expected to grow by 5.2% and 5.9% annually, according to the plan.

China's air transportation turnover achieved an average 11% annual growth during 2015-2019, but the volume slumped 38% on the year in 2020 due to COVID-19 outbreak.

The global aviation sector has taken a hit since the pandemic and a drop in air traffic has also resulted in lower carbon footprint, but emissions will rebound with economic recovery.

TABLE: Key targets in the 14^th Five-Year Plan for Aviation (2021-2025)

Carbon trading

China's environment ministry plans to enroll the aviation sector into the national carbon market by 2025, as one of its eight targeted sectors.

The five-year plan expects to prepare the sector with concrete roadmaps for carbon peaking in 2030 and carbon neutrality in 2060, and aims to measure and report emissions statistics for carbon trading.

The registration for China's domestically certified voluntary carbon credits -- China Certified Emission Reductions, or CCERs -- is expected to restart this year, and a national CCER trading platform will be launched, hosted by the Beijing Green Exchange.

CCERs are eligible for offsetting carbon emissions under CORSIA, the well-established UN-led global carbon scheme for aviation. The inclusion of China's aviation sector in carbon trading and CCERs could potentially open opportunities for a more hybrid carbon market with international participants and cross-border trading.

According to the five-year plan, China will work with ICAO to develop standards for decarbonization technologies in aviation and emphasized the principle of common but differentiated responsibilities between developed and developing countries.

S&P Global Platts assessed CORSIA-eligible carbon credits at $7.60/mtCO2e on Jan. 11.

Jet fuel demand

The five-year plan highlighted the possibility of pilot airports in China with near-zero emissions and demonstrated projects for sustainable jet fuels. These will be necessary as China will build more airports and open new routes in the coming years.

China's jet fuel demand registered year-on-year declines both in 2020 and 2021, and demand growth in 2022 will be limited to single-digits due to Beijing's zero-COVID-19 policy. However, China's future jet fuel demand is expected to grow exponentially.

Analysts said jet fuel is expected to be China's last transportation fuel to reach demand peak around 2030, and COVID-19 has slowed investment in sustainable fuel development, adding that, while China tested on bio-jet fuel in domestic flights, it is far from commercial adoption.

Still, sustainable aviation fuels synthesized from renewable feedstocks are emerging as a compelling solution to achieve emissions reductions within aviation. Platts launched SAF assessments for Southeast Asia in January 2021.