Walking Shanghai’s streets nowadays is a quieter experience than four years ago. Cars and buses glide silently as the electrification of China’s transport system progresses. Electrification and the accompanying transition towards a more diversified energy mix – despite continued headlines decrying increased coal capacities – hold the potential to initiate a structural decline in emissions by 2024.
Much of this would be due to China’s massive efforts to introduce more renewable energy sources into its energy mix, in combination with concurrent policies like green electricity certificates, emissions trading, and the development of low-carbon energy efficiency technology.
In 2020, China’s government announced it was set to double its capacity and produce 1,200 gigawatts of energy through wind and solar power by 2025, reaching its 2030 goal five years ahead. Supporting this goal, China has since been investing heavily in renewable energy sources, with investments totaling 140 billion US$, driving a massive expansion of the domestic market from distributed roof solar energy to offshore wind energy.
Pending final official figures, 2023 may have seen a new record of 230 GW installations in renewable energy sources, and the outlook for 2025 sets the percentage for wind and solar energy to 43% or 380 GW. In addition, China has set out to tackle the old challenge of grid overload resulting from the need to transport green energy from its remote source in the far West to the urban production centers along the coast. The government has earmarked grid investments totaling 455 billion US dollars for 2021-2025 to fix transmission issues. This includes long-distance transmission lines of more than 1,000 kilometers.
Furthermore, simultaneous policies targeting financial tools to incentivize the different players in the energy transition have been introduced or updated. In August 2023, China’s National Development and Reform Commission (NDRC), the Ministry of Finance (MoF), and the National Energy Administration (NEA) announced the expansion of the issuance of green electricity certificates (GEC) to promote renewable electricity consumption. A Green Energy Certificate is an electronic certificate with a unique identification code issued for green power generated by renewable energy projects. They are the sole proof of the environmental attributes of electricity generated by renewable energy in China and the exclusive certification for producing and consuming renewable electricity. One GEC unit corresponds to 1,000 kilowatt-hours of green electricity. Eligible power types now cover all wind, solar, hydropower, biomass-to-power, geothermal, and wave power. GECs can be traded.
Another concomitant policy in 2023 aimed at strengthening investment into renewable energy sources regards the establishment of a coal power capacity pricing mechanism. The policy proposes a two-part pricing system for coal-fired power, comprising capacity pricing and electricity pricing. The new pricing system pays more per kW to coal-fired plants in provinces with a more significant renewable energy share. Introducing so-called capacity pricing targets provinces with a higher coal-based energy share to invest more in renewable energy sources. However, there are concerns about whether the policy could indirectly reduce renewable energy profitability and slow the energy transition.
The driving forces behind the energy transition are the all-powerful National Development and Reform Commission and the National Energy Administration. But other ministries like the Ministry for Ecology and Environment or the Ministry of Finance are also involved as they monitor or structure financial incentive instruments such as subsidies, tax breaks, green certificates, etc.
China’s government is addressing its energy transition on different levels and from different angles. Over the past years, its policies and incentives have created powerful interests in the renewable energy industry, which have formed a counterweight to the powerful coal industry. With profits increasing for the renewable energy industry, its lobby has increased and may drive China’s transition from fossil fuels to low-carbon energy.
This Post was submitted by Climate Scorecard Country Manager Annette Wiedenbach.
Learn More Resources
https://energyandcleanair.org/analysis-chinas-emissions-set-to-fall-in-2024-after-record-growth-in-clean-energy/
https://www.theguardian.com/world/2023/jun/29/china-wind-solar-power-global-renewable-energy-leader