Environmental, Natural Resources, & Energy Law Blog

As the world’s biggest carbon emitter and energy consumer,[1] China’s 2021 pledges to reach peak carbon emissions by 2030 and carbon neutrality by 2060[2] sent a strong message to the rest of the world about the importance of decarbonizing the global economy.[3] As China is responsible for more than a quarter of the world’s overall greenhouse gas emissions, its dual carbon pledges are also critical to limiting global warming to 1.5°C in line with the Paris Agreement. However, the long timeframes for these targets question their efficacy, with many arguing that greater ambition is needed from China.[4] As warned in the latest report of the Intergovernmental Panel on Climate Change, the 1.5°C global temperature goal is unlikely to be met unless immediate actions are taken to reduce emissions, with global greenhouse gas emissions peaking no later than 2025.[5]

Whether or not China’s climate pledges are sufficient, the strong message they have sent to the rest of the world has been muddied in recent months by the Chinese government’s renewed commitment to increasing domestic coal production. Ironically, this renewed commitment to coal has been driven by widespread electricity shortages caused by high coal costs and electricity pricing regulations directed at reducing carbon intensity and increasing the share of renewable energy.[6] These power shortages exposed weaknesses in the capacity of China’s energy system to support a rapid transition to renewable energy.[7] They also brought to light the danger of China’s reliance on foreign imports of coal to meet demand.

China’s annual domestic coal output is projected to increase by a further 6% in 2022, with oil and gas production expected to increase too in response to the surge in gas and oil prices caused by the war in Ukraine.[8] This rise in fossil fuel production is at odds with China’s carbon reduction goals and demonstrates that China’s climate pledges will take a back seat to energy security and continued development. It also shows that China’s climate pledges are unlikely to achieve widespread changes to China’s energy system in the short term.

China faces two main obstacles to phasing down its reliance on coal and other fossil fuels and speeding up the low-carbon transition. First, significant investment is required to construct high-voltage transmission lines to transmit new renewable energy across the country to high-supply areas, and corresponding updates are needed for the electrical grid to incorporate these intermittent power sources.[9] Second, the central government needs to address the poor enforcement of laws and policies that govern renewable energy generation and integration at the local level which are slowing down the transition to renewables.[10] There is some hope that China’s 2021 power market reforms can help address these challenges,[11] however strong policies creating a pathway away from coal are needed for China to truly demonstrate its commitment to the renewable energy transition.

Translating the Renewable Energy Boom into Renewable Power

In light of both its dual carbon pledges and ever-increasing energy demand, China has strong political motivations to increase its share of renewable energy and become the world leader in renewable energy production. Due to its policies and subsidies designed to promote the development of renewable energy, including renewable energy targets set at both the national and provincial levels,[12] China has achieved this, becoming the world leader in producing, exporting, and installing solar panels, wind turbines, batteries, and electric vehicles.[13]

When it comes to integrating renewable energy into Chinese markets, however, the regulatory system has had less success. Thermal power plants have been given priority over wind and solar plants, meaning that many existing wind and solar plants are not utilized and some have even been built without transmission connections.[14] As a result, China has one of the highest curtailment rates[15] for wind and solar power in the world, in 2017 reaching 13.6 percent and 15.5 percent, respectively.[16]

To address grid integration and transmission issues, the central government is investing $300 billion USD to develop a network of “ultra-high transmission” lines to transmit wind and solar power from remote parts of the country across to high population cities along China’s coast where it is needed most.[17] Despite this investment in transmission infrastructure, the transition to renewables in China still faces the hurdle of local governments that are tasked with implementing national renewable energy policies at the local level.[18]

Enforcement Roadblocks at the Local Level

The prioritization of renewable energy production by the central government over the past few decades has been undercut by ineffective enforcement of renewable energy policies and regulations at the local level.[19] Two key causes for poor enforcement include the competing goal of economic development that drives local decision-making, and the complexity and fragmentation of China’s energy planning systems.[20] While China has experienced a strong and steady increase in the production of wind and solar power, political barriers, as well as technological barriers, have prevented full utilization of this new renewable energy capacity, in particular relating to local government authorities with vested interests in coal.

The political bias in favour of existing or even newly constructed coal-fired power stations, perceived as the more reliable energy source, are a significant barrier to the integration of renewable energy in coal-rich provinces like Inner Mongolia and Shaanxi.[21] As commentator Chen Gang notes, these provinces also happen to be regions with abundant solar and wind resources. However, government officials and grid dispatchers with vested coal interests have been accused of using their administrative powers to restrict access to the grid for wind and solar resources. [22]

Even provinces without strong ties to the coal industry are heavily reliant on coal as a means of achieving economic growth and maintaining energy security.[23] Energy-importing provinces in eastern and southern China remain heavily reliant on coal, despite conflicting provincial-level policies advocating for carbon neutrality to address climate change.[24] These provinces were particularly impacted by the widespread power shortages in 2021, which raised the importance of energy security and resulted in decisions to increase coal capacity as a short-term fix.

China’s Coal Dependence

Despite the strong and steady increase in renewable energy development across the country, China is now the largest consumer, producer, and importer of coal in the world.[25] The impact of this reliance is significant, given the carbon intensity of the resource and the size of China’s energy market. China’s power generation accounts for one-third of global coal consumption, with China’s overall coal use making up more than half of the world’s total.[26]

China’s dual carbon pledges should affect the dominance of coal over time; however, as the International Energy Agency has observed, there is a major gap between China’s ambitions and actions meaning that it is difficult to forecast the impact of these targets on the coal market.[27] Furthermore, China continues to build new coal-fired power plants as part of its post-pandemic economic recovery plan, and to address energy security. In 2020 alone, China installed three times as much new coal power capacity as the rest of the world combined.[28]

The key to reversing this trend and transitioning effectively away from coal and other fossil fuels is for the central government to incentivize local governments to monitor and enforce renewable energy policies and undertake market and grid reform to address the issues of overcapacity and curtailment.[29] Instead of doing so, the central government has stepped up its support for coal, declining to set an energy intensity target for 2022 to allow for flexibility in the use of coal-fired power, with the Chinese President recently declaring to lawmakers in the coal-rich Inner Mongolia that “we can’t toss away what’s feeding us now while what will feed us next is not yet in our pocket”.[30] These actions and words from the central government undercut the credibility of China’s decarbonization pledges made some months earlier.

Pathways forward for the Dual Carbon Pledges

China’s recent “coal push” has dominated energy news headlines over the past year,[31] and yet the government has also been quietly working to establish a large relending facility to support low carbon industries and has indicated further reforms to the national power marked to address weaknesses exposed in the 2021 energy crisis.[32] As the central government moves to resolve the infrastructure problems that prevent the integration of wind and solar into the energy market, administrative measures are also needed to address enforcement issues and form cohesion between the central and local government regulators.

Improving the enforcement of renewable energy laws and policies at the local level will be critical to the success of China’s low-carbon transition. Two measures suggested by analyst Anders Hove are to increase subsidy policies for wind and solar so that it can better compete with the already heavily subsidized coal industry, and to change renewable energy targets from targets based on the installed capacity of renewables to targets based on output and consumption.[33] In addition to these measures, large-scale reforms of China’s power markets are required to move away from the reliance on conventional “baseload” fuels such as coal.[34]

The transition away from coal is not a challenge unique to China, with many countries around the world facing the same problems in transitioning their energy systems to intermittent renewable energy resources.[35] Nevertheless, given its large share in both global emissions and coal consumption, China’s actions in the short term that delay its clean energy transition will have significant consequences, threatening threaten global efforts to achieve meet the Paris Agreement’s 1.5°C temperature goal. As commentator Ma Tianjie recently observed in respect of China’s shift towards system building over “crowd-pleasing promises to cut emissions”:[36]

China still has a long way to go to convince the world why, at this critical point in its decarbonisation journey, it should be given space to walk quietly for a few more steps before it talks again.