Last year was both the first full year since China committed to carbon neutrality, and the first of the 14th Five Year Plan (FYP) period. It saw the dual carbon targets – of peaking by 2030 and neutrality by 2060 – included for the first time in the annual Government Work Report to the Two Sessions, as well as a procession of policy changes and market responses.
So, how did China perform? Recently released data from the National Bureau of Statistics (NBS) can indicate progress on the low-carbon transition.
Carbon intensity fell 3.8% in 2021, against GDP growth of 8.1%. Total carbon emissions grew 4% – a fall on the 9% growth seen in the first half of the year. Once again there were big increases in renewables generation capacity, while products representative of the transition, such as electric vehicles, outshone construction materials like steel and concrete.
Coal remains the trickiest problem for the transition: in the year since committing to peak carbon by 2030, coal consumption reached a new high in China, nearing but not surpassing the peak figure from 2013.
Strong growth in new energy
The dual carbon targets spurred activity in the renewables sector during 2021. A range of electricity market reforms were announced, and there was a call at a Party conference to build “a new type of power system with renewables at the centre”, further unleashing potential. Renewables led in terms of added capacity during the year, and overall generation is gradually rising.
The latest NBS data show 46.95 gigawatts (GW) of new wind power and 53.13 GW of new solar over the year – 26.6% and 30.1% of total added capacity for the year, respectively. China now has over 300 GW of both solar and wind power generating capacity. Figures made public earlier by the National Energy Administration show renewables including hydropower accounting for 16.1% of total power generation in 2021. Meanwhile, wind provided 7.9% and solar 3.9%.
Distributed solar grew rapidly in 2021, with 29.2 GW of new capacity installed, representing 55% of all new solar. This is the first time distributed solar growth has outstripped that of solar farms. Ma Lifang, an expert at the policy research department of the China Association of Circular Economy’s Renewable Energy Committee, thinks that promotion of rooftop solar installations at county level, as well as new requirements for rooftop solar on public buildings last year, are contributing to the expanded space for the development of distributed solar. Meanwhile, Anders Hove, project director for the Sino-German Energy Transition Project, has written that new time-of-use (TOU) power prices have also made rooftop solar more economically viable.
Elsewhere, offshore projects made a huge contribution to growth in the wind power sector, with 16.9 GW of new capacity representing 1.8 times as much as was previously installed. China now has more installed offshore wind capacity, with 26.38 GW, than any other nation. Liang Wanliang, China director for the Global Wind Energy Council, thinks government subsidies for offshore wind are driving that expansion. “Offshore wind is expensive, and that’s even more true without subsidies,” he explained. “So, developers, builders and manufacturers are all trying to get capacity installed before subsidies are removed.”
Lauri Myllyvirta, lead analyst at the Centre for Research on Energy and Clean Air, commented that the strong performance by renewables in 2021 was a positive sign, but that if China’s peak carbon target is to be met, it will need to double the speed of growth in clean energy sources, or reduce the speed of growth in demand for power, or some combination of the two – actions he described as “achievable”.
Coal: it’s complicated
The rapid growth in renewables does not tell the whole story. Coal production and sales data demonstrate the size and complexity of the task ahead.
It was once thought China had already hit peak coal. In 2013, China burned through 4.24 billion tonnes of the fuel, then saw consumption fall for the following three years. There was then some increase, but not to 2013 levels, and the overall trend remained downwards.
A 2016 paper by Qi Ye, a professor at Tsinghua University’s School of Public Policy and Management, and others including Nicholas Stern, said this showed China had decoupled coal consumption from economic growth, and that an inflection point could already have been reached.
But warning lights flashed in 2021, both in terms of production and consumption. The new figures show 4.6% growth in coal consumption for 2021. Calculations based on those numbers indicate China burned 4.23 billion tonnes of coal last year, just 100 million tonnes less than in 2013. Although the share of coal in the energy mix fell a further 0.9%, to 56%, the continued increase in coal use must be closely watched.
Meanwhile, China mined 4.13 billion tonnes of coal last year, and imported a further 323 million tonnes. Those figures are higher than they were in 2013, when 3.974 billion tonnes were mined and 327 million tonnes imported. Some of that coal is being stored by power generators to be used in case of coal or power shortages, such as were seen last year.
Dr Yang Fuqiang, a senior fellow at the Climate Change and Energy Transition Project at Peking University’s Institute of Energy, told China Dialogue that such growth of coal consumption is an inevitable outcome of the rapid post-pandemic economic recovery and a normal fluctuation in the country’s transition. “We expect to see coal consumption peak during the 14th FYP period – which means we may still see increases over these five years, but probably lower growth rates than we have seen in 2021,” Yang said. “We could think of it as another peak, but it’s better to describe it as a continued plateau. Current economic and environmental policies make it impossible for coal consumption to remain high or grow. Once this plateau has passed, it should fall after 2025.”
Yang also explained why the rebounding economy had boosted coal use: 2021 saw higher demand for exports, which spurred manufacturing, and so increased demand for coal-fired power. Electricity generation accounts for the lion’s share of coal use. Data from the General Administration of Customs show China’s foreign trade figures breaking US$6 trillion in 2021, an increase of $1.4 trillion. That growth was equivalent to the total foreign trade figure for 2005, and made a significant contribution to GDP. And as renewable power generation cannot yet keep up with rapidly growing power demand, some of the extra demand has to be met by coal power. Calculations based on the new data shows that coal accounted for 68% of power generation in 2021.
But Myllyvirta pointed out one area of concern: China is still investing in coal power. According to a recent briefing he authored, China started building 33 GW of new coal power in 2021 – the most since 2016 and almost three times as much as the rest of the world combined. Meanwhile, 25 GW of new coal power was hooked up to the grid, slightly less than in 2020 but still more than the rest of the world combined. Myllyvirta thinks a failure to stop rapid growth in coal consumption during the 14th FYP period and allowing too high a peak will make reaching carbon neutrality by 2060 extremely difficult.
Industrial wax and wane
The energy transition may be challenging, but last year saw clear signs of new industries on the rise, and old ones losing momentum.
According to the latest figures, crude steel output in China fell 2.8% in 2021, an 8% drop in rate of growth. Output of steel products rose 0.9%, a 6.8% drop in rate of growth. Despite that small increase in output of steel products, domestic consumption fell. Customs statistics show exports increasing by 24.6% and imports falling 29.5%. Meanwhile, cement output fell 0.4%.
The changes in the steel and cement sectors are primarily due to a slowdown in construction. In the second half of 2021, the government issued a range of policies clamping down on investments in the real estate sector – moves which were reflected in steel and cement output data. Myllyvirta pointed out that the real estate sector was a key driver of the recovery, but also of carbon emissions: steel and cement production are China’s biggest emitters after coal power generation. If economic growth becomes less dependent on real estate, steel and cement output will continue to fall, and China will be closer to its carbon targets. And while that dependence still exists, attitudes amongst China’s leadership and new policies indicate that in the long term, the sector will cool off.
Electric vehicles, meanwhile, are charging ahead. NBS data shows that China manufactured 3.545 million EVs in 2021, and 3.521 million were sold, a 60% increase on 2020. Market penetration is now 13.4%, up 8%.
Gong Huimin, senior programme director at the Energy Foundation China’s Transportation Program, told China Dialogue that this was due to a combination of demand, supply chain and policy factors. First, the pandemic slashed demand for public transport, with people opting to travel in private vehicles to avoid the risk of infection. Second, the pandemic hit supply chains, but as EVs are less reliant than traditional vehicles on imported components, they were less affected. Also, almost every car manufacturer put strategies for electrification in place and boosted their marketing spend. As the number of options on the market increased and after-sales services improved, buyers were more willing to go electric. Finally, government incentives for manufacturers to move away from internal combustion engines, combined with subsidies, also did a great deal to increase both output and sales.
Gong points out that, as the number of EVs increases, China will face the challenges of transitioning to a complete electrification of road transport. This means another urgent mission: ensuring that the charging infrastructure, grid and renewable energy supply are up to the task. He emphasised that China is currently a global leader in EVs, but other nations are snapping at its heels. Clear mid- and long-term targets are needed to further encourage the sector.
Commenting on China’s overall performance in 2021, the first year since it made its commitments to peak carbon and carbon neutrality, Myllyvirta said: “Policies on cutting carbon weren’t as specific as I’d hoped… China is moving towards peak carbon, but we’re still not clear what route will be taken over the coming five to ten years to achieve that goal.”