In China, the energy transition is progressing surprisingly quickly and is slowly saying goodbye to coal. This also has geopolitical consequences.
China: “Two new coal-fired power plants per week”
“Two new coal plants per week” approved was the headline in the “Tagesschau” on August 29th. this year about the expansion of coal-fired power generation in China. This made it clear to many that China would not be serious about the energy transition and reducing CO2 emissions. But the new numbers paint a surprisingly different picture. China is expected to start reducing its greenhouse gas emissions as early as next year – although not entirely voluntarily.
Not only is China the biggest emitter of CO2 in absolute terms, it has also surpassed industrialized countries like Germany when measured per person.
Figure 1: C02 emissions per capita since 1980 (beginning of China’s opening). Data source: Our world in data
The numbers relating to the expansion of coal-fired power plants are truly impressive. Over the course of this year, 129 gigawatts of new plants were added, 52 gigawatts were approved, of which 37 gigawatts are already under construction. 41 gigawatts of new plants were announced. Furthermore, 133 gigawatts were already approved last year. However, China also removed 775 gigawatts of coal-fired power plants from service or never put them into service. Many of the power plants currently planned or even under construction will not be built or will remain more or less unused. Part of the gross domestic product is generated by infrastructure measures that bring little or no benefit. Chinese authorities are well aware of this, as a measure by China’s powerful National Development and Reform Commission (NDRC) shows. This wants to pay plant operators compensation based on installed capacity – regardless of whether they are in operation or not. This covers 30-50% of capital costs.
Solar energy beats coal
What is also forgotten in reports about the installation of new coal-fired power plants is the fact that energy sources with low or no CO2 emissions are outpacing the expansion of coal. 285 gigawatts from sources other than coal have been added to the grid so far. Most of the 210 gigawatts come from solar energy; only one new nuclear power plant has entered service so far.
Figure 2: Increase in energy sources in 2023 in gigawatts. Data source: CREA, own calculations
In addition to massive investments in solar farms in the deserts of China, the Gobi Desert and Katlamakan, where the largest wind farm is expected to have a capacity of 450 gigawatts in its final phase, the “Whole County PV” program contributes to the use decentralized solar energy. The program is roughly comparable to the “100,000 Roofs Program” in Germany. The objective is to install solar panels in residential units. Especially in rural areas, you can see many rooftops that house a combined solar hot water generator. Around 20% of solar energy should be generated and used directly in homes.
With the massive expansion of solar energy, China has reached an important milestone. For the first time, China’s electricity needs can be met from low-carbon energy sources.
Figure 3: Growth in electricity demand vs. expansion of low-emissions energy sources in China. Source: CREA
This is changing coal’s role as an electricity supplier. Coal-fired power plants are no longer needed to cover current demand, but rather to provide protection during peak demand. The utilization of Chinese coal-fired power plants was 49% in 2022 and the trend is decreasing. This is still significantly more than in Germany, for example, where occupancy was around 20% in 2020.
Steel production reaches peak
In addition to electricity, coal is important for the production of steel and other construction materials. And this is where the crisis in the Chinese real estate sector arises. “China’s cement production capacity has now peaked at around 1,800 kilograms per capita,” said a representative of the China Cement Association at the 2023 Coal Market Summit in Nanning in early September. Savings on coal consumption directly lead to savings on CO2 emissions.
Figure 4: Contributions to changes in emissions in China. Source: CREA
These effects mean that China will likely reach its peak in annual coal consumption next year, but certainly in 2025, and will continue to decline thereafter.
This is bad news for three countries, namely Indonesia, Russia and Australia, China’s three main coal suppliers. Russia in particular is the big loser because China is the most important buyer of coal, gas and oil. In the coming years, depending on economic development, oil consumption will also reach its peak.
The main reason for this is the electrification of cars. And no, the electrical grid in China will not collapse, even with a share of almost 40% of new electric cars, because China is also massively upgrading it.
Let’s go back to the massive approvals for new power plants. If built, they will be available to the electricity market within 2 to 4 years. But this is also the point at which more coal piles go offline than new ones are added. Furthermore, Beijing plans to further expand other energy suppliers, as shown in the following graph:
Figure 5: China’s projected growth in electricity production. Source: CREA
China could very well abandon coal more quickly if Xi Jinping did not prioritize electrical safety over speed, as he highlighted in his speech at the party congress last year.
Excessive compliance with the initial plan: China is expected to reduce CO2 emissions from 2024
Xi Jinping also announced that China would reduce its CO2 emissions from 2030. As was said in the GDR, China will report that the plan was exceeded ahead of schedule. According to current data, it is likely that peak CO2 emissions have been reached – structurally and not due to a crisis, as in 2022 due to Covid restrictions, as emphasized by Lauri Myllyvirta from the Center for Energy and Clean Air Research in its most recent analysis: “Furthermore, it could “This decline in emissions in the energy sector, which is China’s second largest emitter, along with other key sectors such as cement and steel, which are already seeing declines in CO2, will lead to a sustained structural change decline in emissions for the entire country.”
China could also do much more. In the southern regions – where the “south” also includes Shanghai, which has a similar harsh winter to Hamburg – heating systems are virtually unknown. There, air conditioning is used to heat and cool, which is extremely inefficient. Furthermore, thermal insulation is a rather unknown word and double or triple glazed thermal windows are a strange concept. The same applies to office buildings or factories. There is still great potential for savings here.
Figure 6: China’s CO2 emissions – past and future. Source: CREA
This means that Chinese representatives can go to the World Climate Conference, which starts today in Dubai, with very good news.
Why Germany’s climate critics have to rethink
For German critics of the national climate and energy transition, an important argument no longer applies: the biggest emitter of CO2 is also starting to reduce its emissions. Germany is by no means alone in its efforts to reduce CO2 emissions.
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