Welcome to Carbon Brief’s China Briefing.

Carbon Brief handpicks and explains the most important climate and energy stories from China over the past fortnight.

Snapshot

TRADE WARS:China strongly criticised the EU’scarbon border adjustment mechanism(CBAM), which is due to enter force in October.

‘NEW ENERGY’ PUSH:China’snon-fossil fuel energysources have surpassed 50% of its total installed electricity generation capacity, meeting a target for 2025 two years early.

EXTREME HEAT:El Niño is expected to bring moreextreme weatherto China in the coming weeks, putting more pressure on the country’spower grids.

SPOTLIGHT:In this issue, a Carbon Brief Q&A looks at China’senergy marketand recently announced government reforms, in light of the heatwave-driven spike in demand.

NEW SCIENCE:Peer-reviewed studies examineanthropogenic emissionsandair pollution trendsin China.

Key developments

China’s reaction to CBAM

CBAM:The EU’slong-planned“carbon border adjustment mechanism” (CBAM), which is set to enter force in October, has become a major focus of Chinese political and media attention. The scheme isdesignedto prevent “carbon leakage”, where high-carbon imports outcompete domestic industries subject to carbon pricing under theEU’s Emissions Trading System(EUETS). Initially, only six industries will be affected by the CBAM – namely, cement, steel, aluminium, fertilisers, electricity and hydrogen – noted an analysis first published by Chinese financial outletCaijing.

TRADE TARIFFS:During a transition period until the end of 2025, importers will need to report on emissions embodied in their goods. Carbon charges will then be phased in from 2026-2034, noted an April explainer published bySinoCarbon. The CBAM could increase export costs for China’s steel industry by 4-6% ($200m-400m), according to a May 2023yabo亚博体育app下载fromRenmin University. As much as $35bn of trade between China and the EU could eventually be affected, Chinese websiteEnorth.comreported, citing estimates from the China office of consultancy PwC.

CHINA’S REACTION:Speaking at a meeting in Geneva on 5 June, China’s WTO ambassador Li Chenggang “lashed out” at the CBAM and other EU trade measures, including on critical minerals, theSouth China Morning Postreported. It added: “Li said it would unfairly penalise developing countries, according to the source – a complaint common across the global south.” China’s representatives at the WTO said the CBAM was “regrettable” and “fails to comply with UNFCCC, Paris Agreement principles and WTO rules”,Yicaireported, adding that they also criticised the EU’s increasingly “defensive” approach to trade, which could have “serious implications for international trade, global supply chains and the WTO”. (A March article published by Chinese outletClimate Trade Lawsaid the CBAM was a “unilateral measure” that would “objectively weaken the status of the WTO’s multilateral system”.)

OTHER COUNTRIES:Chinese delegates at the WTO meeting said the CBAM could cost African countries $25bn, quoting a Junereportfrom the African Climate Foundation and the London School of Economics,Yicaireported. (OnLinkedIn, Tennant Reed, director of climate change and energy at the Australian Industry Group, called the June report “interesting, but highly problematic and to be read with great care”.) Elsewhere, India planned to file a complaint to the WTO over the CBAM, according to a May report fromEurActiv.

China’s ‘new energy’ capacity exceeds fossil power

NON-FOSSIL MILESTONE:China’s top economic planner theNational Development and Reform Commission(NDRC) announced that non-fossil sources, including renewables and nuclear, had reached 50.9% of the country’s power capacity, state news agencyXinhuareported. The milestone means that China met a target for 2025 two years early,Reutersnoted. Covering the milestone under the headline, “Carbon goals, green transition within reach”, state media outletChina Dailyreported: “There is no doubt that China can achieve carbon peak before 2030 and carbon neutrality before 2060…said Lin Boqiang, head of Xiamen University’s China Institute for Studies in Energy Policy. AnotherChina Dailyarticle reported that the country had installed 33 gigawatts (GW) of new solar in the first quarter of the year, a 155% year-on-year increase, while solar manufacturers were ramping up their production capacity.

‘ENERGY REVOLUTION’:Writing forSina News,Ouyang Minggao, professor at Tsinghua University and a member of the Chinese Academy of Sciences, said China’s “green industrial revolution” was “accelerating”, based on renewables, electrification, hydrogen and batteries. Speaking at a US-China climate cooperation summit earlier this month, an official from Shanxi province – China’s top coal producer – described its “energy revolution pilot”,China Newsreported. Meanwhile, two conferences onChina’s energy industryandcarbon neutralitygoals opened in Beijing and Shanghai, respectively. The conferences discussed solar energy, energy storage and “green finance” in “digital green energy transition” that should be supported by “energy policy”,China Newsand energy mediaescn.comreported.

‘BLUE BOOK’:The developments came as China’sNational Energy Administration, its top energy regulator, issued the final version of its “blue book” – an officialstandard referencedocument – on the “the development of new power systems”. The book, issued indraft formfor consultation in January, says the “fundamental principle” for a “new electricity system” is to ensure “energy security”. At the time of the draft,Yicaireported that the new power system is not only a necessary component of China’s new strategic energy layout, but also a key element in achieving the country’s “dual-carbon goal“. The final book says the new power system will have four characteristics under a “four-in-one framework”, including “clean and low-carbon” as the “core goal”, along with safety and efficiency, flexibility, and intelligent integration of “new energy sources”, such as renewables. It sets out three phases: accelerating power system transformation until 2030; establishing the new power system until 2045; and then consolidating and improving it out to 2060.

Summer heat and power demand

EXTREME HEAT:CNNreported that this year’s extreme heat has come to China earlier than last year, “with farm animals dying, crops damaged and food security concerns”. The developingEl Niñoweather phenomenon will lead to more extreme weather for China, state media outletGlobal Timesadded, citing a statement from theChina Meteorological Administration. The administration said 446 Chinese weather stations had recorded record-matching or record-beating heat in May,Hongxing Newsreported. Meanwhile,China Dailyreported that seasonal temperature records “continued to tumble” across Asia, under the headline: “Asia swelters amid climate change.”

POWER DEMAND:The extreme weather has put pressure on China’s power grids, reported theGuardian. State mediaoutlet Global Timesreported that industry group theChina Electricity Councilestimated the highest national electricity load this year could increase by 80GW; with prolonged extreme weather, it could increase by 100GW above 2022 levels – which, as亚慱官网reported in May, were already 20% above 2020 levels. The summer peak demand for electricity in five southern Chinese provinces could grow 10% year-on-year,China Securities Journalreported. However, the Global Times article said “widespread damage [such as electricity shortages] is not likely to occur” this year, as the Chinese government has prepared “complete solutions in all aspects”, including coal power security and coal supply.

COAL DROUGHT:Reutersreported that the heatwave across China could drive coal use for electricity generation to “new highs…priming the region that accounts for more than 60% of world coal emissions to boost pollution further”. Recent亚慱官网analysis found China’s emissions growth would have been 0.6 percentage points slower if the country had not experienced a long drought in 2022. AnotherReuters articlesaid that “as droughts loom, China is planning ambitious new water infrastructure projects in hope that moving more of the precious liquid across the country will mitigate the impact of climate change – but experts warn more river diversions may be costly”.

Spotlight

China’s power industry is responsible forabout 42%of China’s total carbon dioxide (CO2) emissions. Summer power shortages worsened by heatwaves and drought in 2021 and 2022triggereda renewed focus on coal. As a feature in theFinancial Timesnotes, “environmentalists believe a renewed coal frenzy threatens to undermine [president] Xi’s ambitions”.

With China again experiencing extreme heat this year (see above), anew reportfrom theCentre for Research on Energy and Clean Air(CREA) reviews the causes of the shortages and finds that accelerating solar, wind and energy storage would be a more cost-effective solution than building further new coal capacity.

In this issue, Carbon Brief takes a close look at China’s power market.

• What are the features of China’s power market?
• Does the current system serve China’s decarbonization goals?
• What problems exist in the current system?
• What steps is China taking to reform its power market?
• Could China rely on coal?
• What next for power systems in China?

What are the features of China’s power market?

China’s power market remains primarily coal-fueled. Coal made up61% of electricity generationin 2022, while wind and solar power – despite making up a growing proportion of power capacity – accounted foronly 14% of generation.

The electricity is transmitted to China’s vast network of grids, which are largely managed by state-owned companies and bought by users in accordance with tariffs set by the central government.

Thecentral government also mandatesthat power-producing provinces in the west export a set amount of electricity to thepower-hungry provincesin the east through rigid cross-provincial transfer agreements.

largel克雷亚指出,跨省流动”y fixed ahead of time and are not easy to change”. For example, Sichuan province was exporting power last summer, under contracts agreed in 2021, despite experiencing shortages at the same time.

Does the current system serve China’s decarbonisation goals?

In a 2021report,International Energy Agency(IEA) stated that, in a scenario where China meets its target of carbon neutrality by 2060, renewable power generation will be the “foundation for China’s clean energy transition”, “energy efficiency improvements and electrification drive most of the industrial emissions reductions in the short term” and “electrification is the key to decarbonising [the] transport and buildings [sectors]”.

China’s recently published “blue book” on the development of the “new power system” (see above) gives a major focus to increasing system flexibility and efficiency, setting “clean and low-carbon” as its “core goal”.

However,power shortagesin 2021 and 2022 prompted Chinese officials to increase coal-fired capacity. Whilesome worrythat the trend could slow China’s decarbonisation progress, CREA’s Lauri Myllyvirtawrites:

“Given the rapid growth of clean energy and expected slower electricity demand growth, the massive additions of coal-fired capacity don’t necessarily mean that China’s coal use or CO2 emissions from the power sector will increase.”

What problems exist in the current system?

The main challenge for China, Amanda Miao Zhang, manager atAFRYManagement Consulting (Energy) tells Carbon Brief, is managing the power market’s shift from a “coal-dominant, single-buyer system” to one that is more “liberalised and renewables-based”.

But Zhang explains the transition will be far from smooth:

“As more renewables enter the wholesale spot market, they may push the market prices down due to near-zero fuel costs, [creating more] revenue risks for fossil fuel generators.”

Effectively coordinating the integration of renewable sources is “crucial” for China, she adds.

Cosimo Ries, analyst at thinktankTrivium China, tells Carbon Brief that it is important for the Chinese system to improve its flexibility, which in turn create incentives for greater investment in low-carbon energy and reduce strain on existing power sources. There are “still a lot of questions that need answering”, he says – noting that China is not alone in this regard.

China’scurrent use of gasin its energy mix is lower than that in Europe, limiting its ability to harness the more flexible fuel in its transition strategy.

Transferring energygenerated from western provinces to eastern provinces also poses challenges. According to Ries, power is transferred usingultra-high voltage(UHV) lines, but there is “not nearly enough [lines]” to meet current demand.

CREA’s new report points to other issues, including coal power tariffs set too low to cover fuel costs and tariffs that fail to reward power plant flexibility.

The challenges China faced managing a “crippling” power crunch in Sichuan in 2022 is “an example that China’s energy system is far less robust than it needs to be to face the growing challenges from climate change”,CNNreports.

What steps is China taking to reform its power market?

China’s drive to reform its power sectorbegan in 2002, with renewed efforts launchedin 2015. These reforms are “perhaps the most overlooked” of China’s climate policies.

Growing capacity for low-carbon electricity sources, which topped 50% of China’s total this year (see above), is one main task set by the government, says Chinese financial outletYicai.

According to a recentdocument国家能源局发布的,the country will continue to install “massive amounts of renewable energy” and to push down its prices in order to make it more competitive.

Building out UHV infrastructure to improve the efficiency of interprovincial power transfer is set as another priority by the government. The UHV linestransmitted1,770 terawatt hours (TWh) of electricity across provincial borders in 2022, representing only a fifth of the total national consumption.

China’s State Grid Corporation plans todoublethe capacity of UHV lines by 2025, Ries says.

The country is also slowly shifting from an “equal share” dispatch system to an “economic dispatch”, which is more responsive to consumer demand. (CREA notes that the “equal share” system is another barrier to greater flexibility.)

In May 2023, China announced its latest round ofprice reforms, which are “intended to bring fairer and more transparent rates as well as more efficient distribution”, according to Chinese financial mediaCaixin. Astudyled by the University of California at Berkeley estimates that such efforts would reduce China’s mortality related to air pollution by 11% and CO2 emissions by 3%.

Could China rely on coal?

Coal is still viewed as a guarantee for China’s “energy security”. Dr Xie Chunping, policy fellow at the Grantham Research Institute on Climate Change and the Environment,toldCarbon Brief last year that “China’s resource endowment means that coal is low in cost”, supporting economic growth.

An official from China’s economic planning body, theNational Reform and Development Commission,said in 2021b:“ecause renewable energy [sources such as] wind and solar power are intermittent and unstable, we must rely on a stable power source”, CNBC reported. CREA’s report notes:

“In 2021 and 2022, several provinces in China experienced power shortages. As a result, many provincial governments have reverted to the ‘old’ solution of approving and building large amounts of new coal capacity to address the power shortage issue. However, such a simple solution does not address the core reasons for the power shortages in China.”

It adds that there is “no shortage of physical capacity”, with Chinese coal plants running an average of 52% of hours in the year (4,600 out of 8,760 hours). CREA continues: “Thus, simply adding more coal capacity across the whole of China may not fundamentally address the power shortages in China.”

Moreover, China’s coal use incurs significant costs to the environment and human health,accordingto the World Resources Institute (WRI).

Coal combustion contributed toapproximately 366,000 premature deathsin 2013, and air pollution-related health impacts were estimated to total$38bn annuallyin 2019, WRI says. The World Meteorological Organizationfinds thatextreme flooding in 2021 cost China $18.4bn, the highest level among all Asian nations.

What next for power systems in China?

According to Chinese state news agencyXinhua, China’s next “major milestone” for power market reform is to create a unified national power market by 2025.

Zhang tells Carbon Brief that “[currently], market arrangements across different provinces could vary, ranging from products and participants to the development stages ofancillary servicesandcapacity pricingschemes”.

CREA points to the need for policy and regulatory reform to tackle China’s power shortages, including to incentivise energy storage anddemand-side response.

Based on a detailed modelling case study of Guangdong province, CREA’s report concludes that an economically efficient approach to tackling shortages would be based on expanding wind, solar and storage, as well as cross-province trading.

里斯说,一件事情看是重击opment of inter-provincial power markets, such as in China’s Jing-Jin-Ji region of Beijing, Tianjin and Hebei. Such regional projects could become blueprints for the development of a national power market, he says.

最大的挑战,他补充道,不是infrastructure development, but ensuring that all stakeholders in China’s energy sector are signed up to the new system.

Watch, read, listen

WTO ENERGY DISCUSSION:China organised apanel discussionon “energy transition and the role of trade” at theWTO.It featured China’s WTO ambassador Li Chenggang and Wang Zhongying, director general of the Energy Research Institute of the Chinese Institute of Macroeconomic Research.

CLIMATE RESPONSIBILITY:China’s UN ambassador Zhang Jun told theUN Security Councilon Tuesday that developed countries have “a historical responsibility to shoulder for global climate change”.

ENERGY TRENDS: TheCentre for Research on Energy and Clean Airpublished a “snapshot” on China’s energy and emissions trends in June.

SUSTAINABLE GROWTH:An editorial from state news agencyXinhuacriticised the “grow first, clean up later” model of developed countries and said China was instead pursuing “harmony between humanity and nature” in its “drive to advance Chinese modernisation”.

New science

Anthropogenic emissions and land use/cover change contributions to extreme temperature changes over China
Atmospheric Research

New research has examined the effect of human activity on extreme temperature in China over the past six decades. Using an attribution method known as “optimal fingerprinting”, the study found that greenhouse gases increased warm spells by about 10 days between 1960-2020 and extended the growing season by six to eight days, with the Tibetan Plateau experiencing the strongest changes. Changes in land use/cover are the second most dominant factor on nighttime extreme temperatures after greenhouse gases, the study noted.

Emission trends of air pollutants and CO2 in China from 2005 to 2021
Earth System Science Data

Scientists have developed a new inventory of air pollutants and CO2 emissions in China between 2005 and 2021, providing insights into reducing both types of emissions “synergistically” in future. Analysing the data regionally and by sector, the findings included that cities with a higher potential to reduce nitrogen oxides (NOx), volatile organic compounds (VOC) and CO2 emissions were within the Yangtze River Economic Belt, while those with a higher potential to reduce sulphur dioxide (SO2) and CO2 were in southern China.

China Briefing is edited byWanyuan SongandSimon Evans. Please send tips and feedback to[email protected].