China Progress Report: Midway 2023
China’s decarbonization efforts stagnate as the country must balance between economic recovery, energy security, and meeting the 30/60 carbon targets.
Greenhouse Gas or CO2 emissions-related data for the first half of 2023 appears unavailable via official sources such as the National Bureau of Statistics. The NBS usually publishes aggregated information, such as percentages on carbon intensity for the previous year. Output of coal for energy and electricity production may indicate emission trends. However, even here, official data is available for March, April, and May but not for January, February, or June.
According to the National Development and Reform Commission, electricity output in China grew again by 3.9% year-on-year in the first five months of 2023. Thermal power generation, mainly based on coal, increased by 6.2%, indicating that emissions may not grow as significantly as in previous years. Still, they are also nowhere near abating significantly for the first half 2023. Therefore, GHG emissions reduction appears to stand a standstill as China balances the acceleration of post-COVID economic recovery, energy security, and its commitment to a low-carbon transition.
How China will move forward hinges to a large extent on how able the country will be in securing the energy supply for both industry and households while at the same time promoting technologies for energy storage, demand management, hydrogen production, as well as diversifying the energy mix away from coal to renewables. A core policy addressing this topic is the NDRC’s “Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality in Full and Faithful Implementation of the New Development Philosophy,” issued in October 2021. The “Guidance” has, in turn, triggered a series of concomitant policies that regulate and impact China’s energy transition. This policy framework was dubbed 1+N, with the “Working Guidance” being considered Document 1 and sequential documents like the “Action Plan for Carbon Peaking Before 2030” being considered an “N” document.
Ramping up renewable energy capacity has been a recurring policy within those documents. China has devoted significant resources to building its renewable energy capacity in recent years, constructing large wind, solar and hydropower plants in the west of the country. In the first five months of this year, wind, solar, and nuclear grew by 18.4%, 5.7%, and 5.0%, respectively. Due to factors such as drought in several regions, hydropower was down 19.2%. Overall electricity generating capacity increased by 10% from January to June 2023 to 2,670 gigawatts (GW), thereof a share of 38% growth in solar capacity, reaching 450GW, while wind reached 380GW, up 13%, China is also on track to nearly double wind and solar capacity by 2025, meeting its 2030 target five years early. These efforts are further compounded by the latest policy governing renewable energy build-up. On 6th January 2023, China’s National Energy Administration (NEA) released the first draft of the Blue Book on Developing the Renewable Energy-based Power System. At the heart of this policy lies a “three-step roadmap” for developing China’s new power system in 2030, 2045, and 2060. It outlines an accelerated transition phase from fossil fuels to renewables, with additional coal plants for energy security until 2030, then increasingly to more low-carbon coal power plants, and finally focusing on renewables
This is also important in light of China’s efforts to further electrify everything from industrial production to transportation in order to reign in emissions. The government’s support to grow the New Energy Vehicles (NEVs) share continues unabatedly for emission reasons and to underpin its claim for international technology leadership. The “Guidance” document calls for the more rapid growth of new-energy and clean-energy vehicles and vessels, promotes intelligent transportation, moves forward with the electrification of railways, and pushes forward the construction of hydrogen refueling stations as well as a convenient and efficient network of battery charging and swapping facilities. China’s EV industry continues to be supported by generous subsidies and mandatory production quotas. With prioritized access to hydrogen charging stations, NEV charging infrastructure facilities will nearly double in 2022. However, the expiration of the generous subsidies to consumers at the start of January 2023 has led to a slump in NEV sales before stricter national emissions standards come into effect in July 2023.
And last but not least, China’s government is increasingly banking on green financing tools and financial policies to drive a low-carbon transition. In that sense, the Chinese government has recently expanded its policy of tax breaks for Electric Vehicles until 2027. By the end of 2022, the cumulative tax exemption had exceeded 200bn yuan ($27.7bn) and was expected to surpass 115bn yuan ($15.9bn) in 2023. China Central Bank had already in July 2021 launched a new green financing tool to direct capital towards green and sustainable projects by appraising and grading the green performance of investments through quarterly evaluations. 80% of a banking institution’s grade will be drawn from quantitative criteria such as share of Green Finance (GF) business, year-on-year growth rates, and the share of GF business risks. Prior to it, China had already positioned itself as the world’s biggest seller of green bonds (i.e., a type of promissory note issued by a corporate or public entity designated to finance climate-change-fighting projects) in 2019. In addition, it is expected that the Chinese Certified Reduction Scheme (CCER) will be relaunched in 2023, with the hope to boost demand for offsets and play a significant role in achieving emissions cost reductions. CCER refers to emissions reduction activities conducted by companies on a voluntary basis that are certified by the Chinese government, including renewable power generation and forestry projects.
In short, while emissions reduction measured by carbon intensity may have stalled during the first half of 2023, policies continue to be introduced to support China’s low-carbon transition. Much of it will not make an impact short-term but aims to steer and guide the transition over time. As such, its impact will only become measurable over time.
This Post was submitted by Climate Scorecard China Country Manager Annette Wiedenbach.