How Will China's Economy, Politics and Daily Life Be Reshaped by a Dramatic Emissions Reduction Campaign?

Initium Media editor's note: Peak carbon emissions by 2030, achieving carbon neutrality by 2060—one of the most important aspects of China's carbon reduction pledge for 2020 is clearly energy, that is, reducing the Chinese economy's reliance on a sedimentary rock. Will China's "coal exit" happen quickly? How should China shed its coal dependency? And will these commitments be reflected in China's investment in energy projects? Initium Media presents "The Future of Coal Exit?” This is the second in a series of reports.

“It's the second lamp I’ve recently bought, as the Northeast is restricting electricity use. Best to buy a rechargeable lamp.”  Such are the words recently posted on an online shopping platform, Taobao, this past October.

For the average person in mainland China, the frequent rainstorms, power restrictions, and premature cold waves have made the words "climate change," "carbon reduction," and "carbon emissions market," common in policy documents and electric vehicle propaganda, tangible these days. To a degree. Take Fan Zhuo:* although his factory was shut down amid electricity shortages, none of it makes sense. "Isn't using electricity already environmentally friendly?” he queried.

On November 25, the Center for Energy and Clean Air Research (CREA), an independent research group, reported that China's CO₂ emissions fell 0.5% from June to September compared to the same period the year before—the first decline since the second quarter of 2020, when the country’s economy recovered from COVID-19. In both the fourth quarter of 2020 and the first quarter of 2021, China's carbon emissions rose by the largest amount in a decade. Analyst Lauri Myllyvirta attributed the decline to the housing slump and widespread electricity restrictions, but warned that if China resumes infrastructure development as a result of the economic slowdown, CO₂ emissions could increase even further and stymie the country's efforts to reach peak carbon targets by 2030.

On the eve of the recently concluded COP26, the 26th United Nations Climate Change Conference, China renewed its commitment to its Nationally Determined Contributions (NDC). While the climate crisis has manifested itself through the increasing frequency of extreme weather, China's investment in fossil fuels and power plants powered by them has not diminished, and greenhouse gas reductions have mostly been seen in the closure of small non-state coal mines or those on the cusp of ceasing production anyway.

Even so, there is still not enough coal to go around. According to Caijing’s recent report, thermal power coal stocks are facing a shortage right now, and with the winter heating demand already happening, there may still be a significant gap to fill throughout December. 

So why is it so difficult for China to wean itself off of coal? We try to use data and reporting to dissect the problem step by step.

Peak emissions by 2030, carbon neutrality by 2060—the most important part of China's CO₂ reduction commitment in 2020 is the energy sector. China needs to reduce its economic dependence on coal, but will it "exit” coal quickly? How should China leave coal behind in the first place? And will these commitments be reflected in the country’s foreign investment in energy projects?

Coal: Hard to break the addiction

Since 2006, China has overtaken the United States to become the world's largest emitter of carbon dioxide. Due to its huge population base, China is still not the top emitter per capita, but its share of global carbon emissions has been growing—from less than 20% in 2010 to nearly a third in 2020. 

In late 2015, the 195 member states of the United Nations (UN) adopted the Paris Agreement at the Climate Summit, with the intention of working together to stop further climate change. However, in the past five years, CO₂ emissions have continued to increase, the climate crisis has worsened, and the United States has withdrawn from (and reentered into) the Paris Agreement. China, which has positioned itself as a "climate change leader," has itself been criticized by environmental groups for investing heavily in coal-fired power plants under its international “Belt and Road Initiative” and making poor progress in reducing its own emissions.

In September 2020, Chinese President Xi Jinping said at the UN Climate Summit that China was striving to reach peak CO₂ emissions by 2030 and achieve carbon neutrality by 2060. (Peak carbon refers to the peaking of CO₂ emissions, while carbon neutrality refers to the offsetting of CO₂ emissions and atmospheric absorption within a designated period of time.) Most countries and regions at the conference have pledged to achieve carbon neutrality by 2050―which means that China's carbon neutrality will be completed 10 years later than other developed nations, while the transition period from peak carbon to carbon neutrality will happen in 10-30 fewer years.  This leaves a very tight window for the world’s largest emitter.

The internationally committed carbon reduction targets are also reflected in China's domestic policy formulation in the 14th Five-Year Plan released in 2021, CO₂ emissions per unit of GDP will be reduced by 18%, the consumption of fossil fuels such as coal and oil will be reduced from 84.15% at the end of 2020 to 80% in 2025, and the consumption of non-fossil energy such as photovoltaic and wind power is expected to increase to 20% of the energy mix. 

In October, China's State Council also released a document entitled, “Opinions on Fully, Accurately and Comprehensively Implementing the New Development Concept to Achieve Carbon Peak and Carbon Neutrality,” which mentions peak emissions by 2030. This is when the proportion of non-fossil energy consumption will reach 25%, and the total installed capacity of wind power and photovoltaic power generation will reach more than 1.2 billion kilowatts—more than twice as much as in 2020. By 2060, the share of China’s nonrenewable energy consumption will be 80%—a full reversal from the current situation (exactly 80% fossil fuel energy).

Patrick Tung, Executive Director of the China International Institute of Low Carbon Economy, previously told the media in an analysis of the 14th Five-Year Plan energy targets that although fossil fuel energy is mentioned, the focus is still on coal. TransitionZero, an agency that provides climate risk data, also notes that to achieve the target of no more than 1.5°C of warming, 3,000 coal-fired power plants would have to be shut down worldwide, half of which are located in China. 

Due to its "coal-rich, oil-poor, gas-poor" energy reserve structure, coal has always been the most solid nonrenewable pillar of China's economic expansion. Since 1985, coal has accounted for about 70% of China's energy consumption for 30 years, and then gradually reduced with a"de-capacity" policy starting in 2016.

The consumption structure of coal is 60% for thermal power generation and 30% for the steel, chemical and construction industries. Coal used for thermal power also supports 60% of China's current electricity consumption, which is nearly 5 trillion kilowatt hours. Over the years, even though new energy sources have been promoted, especially wind power and photovoltaics, the total volume of coal consumption is still increasing due to the expansion of economic development.

Wind and solar: Development still constrained

Carbon dioxide reduction in energy production requires an expansion of renewable energy generation. In 2020, China installed 50 GW of solar power installations and 70 GW of wind power, bringing the total installed capacity of photovoltaics and wind power to 250 GW and 280 GW. In order to achieve the 2030 target of 1,200 GW from wind and solar installations, China will need to increase renewables by 50% in five years. 

Installation is only the first step in the energy transition, however. The bigger dilemma for wind and photovoltaic energy lies in transmission and storage.

Both wind and solar energy are very dependent on climate conditions and are volatile and intermittent. They can produce an overall surplus of electricity but a shortage of it at peak times. In Shandong, Qinghai and other provinces with large installed photovoltaic power generation capacity, many areas have abundant power at midday but intermittent power in the evening at peak periods of consumption. This results in thermal power units shutting down at noon and running at full load in the evening, resulting in low utilization and loss of efficiency. At the same time, photovoltaic and wind power have high “abandonment rates” due to consumers transitioning to more abundant, nonrenewable energy during low peak periods.

Qinghai and Gansu, the two provinces with the largest installed capacity of new energy in China, are severely discarding wind and solar energy due to constraints in transmission and storage in the early days of their rollout. The technology and equipment for transmission and storage necessitates huge capital investments. Currently, the key to solving the wind and photovoltaic transmission problem are ultra-high voltage (UHV) lines. According to big data company Sadie Data, China's UHV industry and its upstream and downstream supply chains  drove investment to 300 billion yuan in 2020; by 2025, when carbon emissions peak, investment is expected to reach 587 billion yuan—which would account for more than 60% of Gansu province’s GDP in 2020.

Many scholars have suggested that there is an "impossible triangle"—in reference to the Penrose triangle puzzle—in energy reform: There is no single energy source that is stable and abundant, cheap and clean at the same time. This dilemma is one of the reasons why China limited electricity supply in October in many places such as Northeast China. Lara Dong, an analyst at consulting and analysis firm IHS Markit, told the Financial Times that China must balance environmental pressures on coal with energy security and stability, which cannot be achieved at the same time, hence the term “energy dilemma.”

In addition, some experts quote a passage from Mike Berners-Lee’s There is No Planet B that global energy use is three times what it was 50 years ago. The British carbon footprint researcher noted that at this rate of development, even if the current problem of storage and transmission of solar and wind energy can be solved, in 300 years it may be necessary to install solar panels on every square inch of the planet.

Natural gas: Increasing residential and industrial use; high dependence on imports

It is worth mentioning that in Europe, which is currently undergoing a more thorough energy transition, the move from coal to renewable energy has been made possible by the use of relatively cleaner natural gas as a bridge fuel. Due to China's lack of natural gas reserves and dependence on gas imports, the country's structural changes in its grid have meant missing out on the natural gas revolution altogether. At the same time, however, China's natural gas consumption continues to grow, mainly for residential winter heating and everyday use.

According to the China National Energy Administration's "China Natural Gas Development Report," natural gas consumption in mainland China reached 328 billion cubic meters (bcm) in 2020, accounting for 8.4% of total primary energy consumption. In this mix, urban and industrial gas consumption accounted for basically the same proportion of 37-38%, power generation at 16%.

In order to improve air quality and reduce fine particulate matter (PM_2.5) beginning in 2017, mainland China has been rapidly pushing forward its "coal to gas" policy, thus restricting the burning of coal for residential use and replacing it with natural gas. In the winter of 2017, Hebei, Shanxi, Shandong and Henan provinces were plunged into a heating crisis against the backdrop of the pressures from new energy policy, unfinished r pipeline installations, and rising natural gas prices. But after a sudden cold snap this year, a number of areas in Northeastern China, Shanxi and Inner Mongolia have moved up their heating schedule, which could also overlap with the gas required for the Winter Olympics in Beijing planned for February 2022. As a result, the demand for natural gas is likely to remain high from the end of 2021 to the beginning of 2022.

China is currently the world's third largest consumer of natural gas after the United States and Russia, with a consumption of more than 320 bcm in 2020. According to the "China Bulk Coal Control Survey Report (2017)," China's share of primary energy consumption of natural gas in 2030 may reach 15%. In other words, over the next 10 years, China's demand for natural gas may increase twofold to 700 bcm, making it the second-largest consumer of the fuel globally.

As natural gas accounts for only 6% of China's proven fossil energy sources, it has become one of the country’s major net imports since 2016―in 2018, China became the world's largest natural gas importer. According to the China Institute of Petroleum Economics and Technology (CIPET), China's dependence on foreign natural gas imports will have reached 43% of total gas used in 2020, and with the further promotion of "coal-to-gas" conversion for residential use, it is expected that natural gas dependence will reach 53% of gas used in 2040.

Notably, commodities with high import dependency are vulnerable to geopolitical influences. For example, in 2020, China began to sharply reduce its natural gas imports from Australia in favor of increased gas imports from Russia and the US due to the deterioration of Sino-Australian relations.

It should be noted that although natural gas is cleaner than coal and oil and produces less CO₂ per unit of use—30% less than burning oil and 45% less than burning coal—it is still a fossil fuel and emits greenhouse gases during extraction, production and transportation. A carbon-neutral energy transition will simply not be achieved by switching to another fossil fuel, even if it emits fewer greenhouse gases.

Energy is the economy, and the economy affects daily life

Energy is the engine of economic development in China, and any modifications to that engine means a restructuring of the economy as a whole. If it cannot be modified quickly, the economy will suffer. For the Chinese government, which places great importance on economic development, the aches from this transformation are particularly painful.

According to the Global Electricity Review report published by Ember2021, an EU think tank focused on climate change, only five G20 (the world’s most industrialized) countries have seen growth in coal-fired electricity since 2015, with China in third place with a consumption growth rate of19% over five years. In 2020, coal-fired electricity generation declined in most countries due to the COVID-19 pandemic, but the sector grew in China at a rate of 1.7%. 

Last year, manufacturing orders from Southeast Asia, including Vietnam, were returned to China amid rampant coronavirus infections. To cushion the economic impact of the pandemic, many local governments restarted thermal power generation between January and May, pushing forward 48 GW of coal-fired power projects—more than the total installed capacity of 2019. Despite the sudden halt to coal projects as a result of peak emissions policy , 38.4 GW of new coal-fired power plants were commissioned in 2020, the most in the world(India and Japan, in second and third place in this category, only commissioned 2 GW of new power).

In October 2021, nationwide power restrictions caused public anxiety about national energy policy, and the severe rainstorms in Shanxi, a major energy province, exacerbated coal shortages. All of this was in addition to the prematurely wintry weather mentioned above. In the wake of these restrictions, China eased limits on coal production and actually increased coal imports from Kazakhstan, South Africa and Mozambique.

Meanwhile, the restrictions on electricity from late September to October, especially in the three Northeastern provinces, forced many people to finally experience firsthand what "carbon reduction" entails.

On September 26, Ziyou,* a local resident of Daqing, Heilongjiang province, found out that the power went out early in the morning without any prior notice. The elevator in his building stopped working, and street lights were turned off nearly half of the time. Even cell phone signals became intermittent because the nearby network signal base station was affected. Right after the power outage, the water pressure pump in the area was rendered useless, and water could no longer be supplied to the upper floors of multi-story buildings. After two or three days of intermittent outages, people gradually learned to prepare drinking water and started charging  lamps and other equipment before nightfall. The online shopping platform Taobao has especially profited: many messages are posted on its forums from Northeastern customers looking for rechargeable table lamp products.

Fan Zhuo, who runs a chemical factory in Zhejiang, received a notice from the authorities on September 28, asking the factory to choose one day between the 29th and 30th not to produce anything. The factory was then required to take an early National Day holiday, which falls on October 1.

In early October, electricity restrictions became more frequent, and soon Fan Zhuo's factory was required to restrict electricity on Tuesday, Wednesday and Thursday.

According to Fan Zhuo, the power limit is affecting the duration and cost of the entire industrial supply chain. Indeed, upstream raw material prices for chemicals have soared in the wake of the outages. Glycerin was once 7-8 yuan per kilogram but has since doubled to 16 yuan. Packaging, too, has slowed down, and although the price increases will not be immediately transferred downstream, delivery times in subsequent links in the supply chain are delayed.

The power restrictions in late September and October also had a wider impact on the supply chains of international manufacturers such as Apple, Tesla and Intel, as their global industrial operations slowed down.

China still serves as the "factory of the world," and the world relies on its cheap electricity and production costs to manufacture goods from steel to aluminium to even solar panels, not to mention the energy needed for oil refineries. These energy-intensive products provide a low-cost baseline for the global supply chain and also serve as the bedrock for the Chinese economy, which in turn means the country has become the world's largest greenhouse gas emitter.

Recently, Bloomberg produced an interactive website based on a study published by Finland's environmental research group CRE, which mentions dozens of large Chinese state-owned enterprises. They are mainly concentrated in energy-intensive industries such as electricity, steel, cement and oil refinery, and account for a major share of carbon emissions in China and throughout the world. For example, state-owned China National Petroleum Corporation (CNPC) emits more CO₂ than all of Canada, while China National Building Materials (CNBM) alone emits as much as France. Of the more than 13 billion tons of CO₂ China emitted in 2019, 4 billion tons came from solely the production of steel and cement.

Zhang Kai, deputy project director of the East Asia branch of the NGO Greenpeace, has told the media that among the different sectors undergoing a renewable energy transition, what's facing industry is the most challenging Blast furnaces in steel production, for example, require ultra-high temperatures during the combustion of coal coke, which could be theoretically replaced by green hydrogen in the future; but this all depends on technological progress and baseline investment.

The comprehensive report "Study on China's Long-Term Low-Carbon Development Strategy and Transformation Path,” released by Tsinghua University’s Institute of Climate Change and Sustainable Development (ICCSD) last year, also points out that China's manufacturing industry is at the middle and lower end of the international industrial chain, so its products consume too much energy inefficiently so as to keep prices low and are therefore in urgent need of industrial upgrades.

Industry upgrades and changes in dynamics will result in greater economic costs. According to estimates by ICCSD, if the global temperature rise is capped at 1.5°C, the loss in GDP in 2050 could be close to 4%, in comparison to the estimated GDP in 2050 under the current policy context where 1.5° is quickly outstripped. At the same time, however, PM_2.5 concentrations would fall and environmental quality could improve significantly.

At the same time, according to the analysis of Industrial Bank economist Lu Zhengwei, the growth rate of energy consumption per unit of GDP is negatively correlated with the share of GDP in the service sector. In other words, the eventual transformation of the industrial sector in the Chinese economy means that the service sector is likely to increase its overall share of the pie.

Further developments include the fact that China finally launched a carbon emissions trading market this past July after years of trials. It is supervised by the Ministry of Ecology and Environment and is traded on the Shanghai Environmental Energy Exchange. The carbon market means that the government issues carbon emission credits to each enterprise, which can be used for subsequent trading. However, China's carbon market currently applies only to power companies, including more than 2,200 enterprises primarily state-owned, which account for more than 40% of China's total CO₂ emissions each year.

According to financial analyst group TransitionZero, the Chinese government has allocated too many credits to these power companies, such that only a small amount needs to be purchased at any given point. At the same time, China's carbon trading market sets allowances per unit of electricity generated, rather than an overall cap, a much more lenient standard than the now-established European carbon market.

Authoritarian environmentalism

Jiang Xiao Juan, former deputy director of the Research Office of the State Council of China, wrote an article in May 2021 entitled, "How Do the Top Brass Really Make Decisions?”  In it, he cited environmental policies as an example, arguing that the will of the top management plays the decisive role in policymaking.

Under its authoritarian system, all levels of government in China are upwardly accountable: lower-level leaders mainly carry out the tasks assigned by their superiors with minimal autonomy, often through major plans such as the Five-Year Plan. These directives often have specific targets and performance measures that must be achieved. The degree of importance and intensity of the upper echelons in government determines the rigor of policy implementation, and public participation in policy formulation and implementation is extremely limited.

When Xi Jinping first came to power in 2012, the 18th Communist Party Congress included "ecological civilization construction" as part of the Party Constitution. In 2018, President Xi attended the 8th China Eco-Environmental Conference in which Vice Premier Han Zheng mentioned "Xi Jinping's Thought on Ecological Civilization." And this year, the Ministry of Ecology and Environment even established the "Xi Jinping Ecological Civilization Thought Research Center" in Beijing.

In 2016, the Ministry of Environmental Protection (now reorganized as the Ministry of Ecology and Environment) also announced the completion of China's National Ecological Data Platform, which intends to integrate previously incomplete, inaccurate, and multi-source data and unify the management and monitoring of relevant datasets. However, the extent to which the relevant data is made public is still facing criticism from experts in the field.

Meanwhile, in late 2015, China established a central ecological and environmental protection inspection system, which was promoted in Hebei province as a pilot project and later spread across the country—some provinces even set up their own special policing stations. Earlier this year, the Central Ecological and Environmental Protection Inspectorate even publicly criticized the National Energy Administration for its unreasonable layout and failure to limit the expansion of coal power projects, arguing it was "not building what should be built and building what shouldn't be built." No central-level agency has ever been criticized for energy development in China since the Communist Party took power in 1949.

As of August 2021, more than 6,000 Chinese officials have been put under the Chinese official accountability system for environmental and energy incidents, including 20 at the provincial and ministerial level.

Nevertheless, strict discipline does not necessarily equal the best results. After all, the most important figure for measuring the effectiveness of local government is still GDP, and carbon reduction targets are often not as singularly visible as GDP. Therefore, in most cases, local governments have seesawed back and forth between meeting CO₂ reduction targets and achieving economic growth, relying on campaign-style rhetoric and programs.

The “Blue Sky Protection War” program, for example, was implemented in 2018 to reduce PM_2.5 mostly in the cities of Beijing, Hebei and Shanxi. The government has quickly achieved its goal through aggressive tactics: shutting down factories, traffic restrictions based on license plate numbers in some cities, and brutal "coal-to-gas" conversions that affect people’s ability to heat their homes.  In 2017, ”coal-to-gas” conversions left many Northern rural villages, and even some schools, to suffer through the coldest winter in the region’s recorded history.

In the wake of China's "30/60" dual emissions targets, local governments have begun to mercilessly shut down certain manufacturers or production lines in order to achieve climate change performance, as well as pulling the plug on the electrical grid without warning, as what happened this past September.

At the same time, according to Greenpeace, the National People's Congress of China approved a US$6.35 trillion fiscal stimulus package in 2020 to counter the economic impact of the COVID-19 epidemic, yet very little of the new local bonds added by local governments across the country have been invested in the green energy economy. To add insult to injury, local governments also released permits for coal-fired power plants last year, allowing a large number of new coal installations to come online.

Meanwhile, scholars at the Institute for China Studies at the Free University of Berlin and the Fudan Institute of Social Sciences have pointed out, in a related study, that as the number of environmental edicts from the central government increase, local bureaucrats may also face the problem of "over-mobilization” of local cadres, leading to diminishing returns as these officials try to launch subsequent environmental campaigns.

Other academics have a different view. In a study published this year, scholars at Tsinghua University argue that environmental quality and climate change are becoming a global public good in which the Chinese government is seeking legitimacy in governance after having already established international economic legitimacy. They cite three reasons for this: First, the results of China's coronavirus management during the pandemic were incorporated into the state’s ideological propaganda; second, economic legitimacy may be difficult to sustain given continued uncertainty in the global economy as the pandemic continues apace; and third, the rise of millennials and Generation Z, who are more climate- and environmentally conscious and therefore proffer a source of support for “green” policies.

In 2017, China promulgated the Law on Foreign Non-Governmental Organizations, which has made NGO registration and scrutiny increasingly stringent. However, in other countries and regions around the world, environmental NGOs have played an indispensable role in pointing to the need to balance the rights of all parties, regulate enterprises exceeding greenhouse gas emissions, and defend the voices of affected people during the country’s energy transition.

As a result, there are two types of environmental NGOs in China today: One type works with the government or government-backed research institutes, and the other is suppressed and silenced.

Questions remain for global climate leaders

In 2016, a research specialist with the U.S.-China Climate Partnership named Yi Chen* was in Morocco for that year’s iteration of the global climate change conference, COP. Former US President Donald Trump had recently been announced as the winner of the presidential election. The Americans who attended the conference were so disappointed that they shook Yi Chen’s hand and said, "The future depends on China; we are completely out of the climate arena.” 

”That's what a lot of Americans were thinking at the time," Yi Chen recalls.

But Trump is gone, yet there are still concerns about the export of the hard-line Chinese model, which could undermine the global democratic process. This past September, when US climate envoy John Kerry visited China to discuss climate matters, the Chinese side neglected to send Xie Zhenhua, a veteran negotiator on the subject, to participate, and instead steered talks to ongoing controversies related to the Uyghurs of Xinjiang and Taiwanese sovereignty. This did not go over well. Even though China and the United States issued a joint statement near the end of this year’s COP26, seemingly putting aside their geopolitical conflicts for the time being, they soon engaged in a war of words through the media.

"The question of which is more conducive to environmental policy implementation, authoritarian or democratic [systems], has been a matter of debate in environmental research circles," said Yi. The implementation of China's environmental policies does appear to be relatively efficient, but some studies have suggested that such efficiency may have little to do with authoritarianism. What is more important is that China prefers to adopt pilot environmental policies first, and this model of trial balloons and then learning from the experience is not necessarily a feature of authoritarianism.

In addition, the lack of accountability mechanisms and the difficulty of feedback from the public in authoritarian environmentalism remains a possible hindrance, such as whether the goal of CO₂ reduction can really be achieved and how sustainable it is after all is said and done.

In late September 2021, China announced a halt to new offshore coal power projects. Prior to that, South Korea announced in April it would stop state-sponsored overseas coal power investments. Japan followed, and with that, more than 95% of global overseas coal power investments were on the table, as China, Japan and South Korea are the giants in this sector. Only China announced no new construction without reference to coal plant projects underway or under expansion. 

Just as China's domestic emissions reduction measures do not have a defined total target, a moratorium on new coal power plants, their expansion, and when these commitments to coal will finally end all remains an open question.

*Pseudonyms were used so interviewees could speak more freely.

This story was produced with the support of the Earth Journalism Network and was originally published in Chinese by Initium Media on November 29, 2021. It has been lightly edited for length and clarity. Intern journalists Zhu Xiaoying, Ma Da and Zhuo Lin also made important contributions to this article.

Banner image: A man grows vegetables in a field near a coal-fired power station in Tongling City, Anhui Province, China in 2019 / Credit: Qilai Shen/Bloomberg via Getty Images.