Many important events related to the climate have occurred in China over the last year or so. The country has dealt with floods, droughts and a summer heatwave, all exacerbated by climate change. Yet the renewable energy and electric vehicle sector have both continued to thrive, and a voluntary carbon market has restarted. On the other hand, coal consumption keeps rising.
Here, China Dialogue editors take a look at China’s most important recent climate-related developments.
We find that, amid challenging economic circumstances, the clean-energy sector has been a key driver of the country’s continued growth. The voluntary carbon market has reopened after a seven-year hiatus, to support emissions reductions. Efforts are ramping up to direct green finance towards sectors with stubbornly high emissions. And China’s overseas infrastructure projects may be shifting towards the smaller and the cleaner.
EXPORTS AREN’T JUST EXPORTS
China used to pride itself on its “three exports” of clothing, domestic appliances and furniture. Nowadays, there is talk of a “new three”: solar cells, lithium batteries and electric vehicles (EVs). Exports of these exceeded one trillion yuan (US$139 billion) in 2023, up 29.9% on the previous year, according to customs data reported by CCTV [https://news.cctv.com/2024/01/17/ARTIVbETEBnkd2zkD1wwMung240117.shtml].
This success has not arrived out of thin air. In 2022, exports of EVs, photovoltaic solar products and lithium batteries had increased [https://www.chinanews.com.cn/cj/2023/03-02/9963396.shtml] by 131.8%, 67.8% and 86.7% respectively compared to 2021, according to government figures [https://www.chinanews.com.cn/cj/2023/03-02/9963396.shtml]. That performance prompted the coining of the “new three” term. By the third quarter of 2023, taken together the new three had seen 14 quarters [https://www.jiemian.com/article/10670827.html] of consecutive double-figure export growth.
RecommendedAs reported by You Xiaoying for China Dialogue in November, the driving forces behind this growth have been: consistent policy support, strong supply chains, a huge domestic market, and innovation by businesses [https://chinadialogue.net/en/business/new-three-china-solar-cell-lithium-battery-ev/].
In 2023, the value of China’s exports only grew by 0.6%, which makes the significance of the new three obvious. As such, government officials often speak approvingly of the contribution these products make to “trade resilience [https://www.gov.cn/yaowen/liebiao/202308/content_6897581.htm]”. They are also examples of the advanced manufacturing [http://www.china.com.cn/opinion/think/2023-12/18/content_116886734.shtml] sectors the government wants to encourage.
The new three provide low-carbon solutions [https://m.cyol.com/gb/articles/2024-01/12/content_wdYeJVuRVK.html] for transportation and electricity generation both in China and abroad. However, geopolitical tensions have prompted the EU and US to seek to diversify supply chains and try to place trade restrictions on these products. It is therefore unclear how long the growth and success of the new three will continue.
RENEWABLES: RACING AHEAD, DESPITE WORRIES
First, some data from the National Energy Administration. As of the end of 2023, China had 1.45 [https://finance.people.com.cn/n1/2024/0127/c1004-40167805.html] terawatts of renewable-electricity generation capacity, primarily driven by hydropower [https://www.iea.org/countries/china/renewables]. That is more than 50% of China’s entire electricity capacity and, for the first time, more than its thermal-electricity capacity. Renewables generated 3,000 [http://www.news.cn/fortune/2023-12/22/c_1130040585.htm] terawatt hours of electricity, about one-third of all power used. Furthermore, a 2030 target to have 1.2 terawatts of solar and wind capacity installed looks like it will be hit five or six years early.
The energy transition is of unprecedented importance to the Chinese economy. In 2023, 40% of China’s GDP growth came from the clean-energy sector, according to an analysis [https://www.carbonbrief.org/analysis-clean-energy-was-top-driver-of-chinas-economic-growth-in-2023/] by the Centre for Research on Energy and Clean Air. (The centre used a broad definition of “clean energy” that comprises renewables, nuclear power, power grids, energy storage, EVs and railways.)
Workers hoist a 123-metre wind turbine blade onto a ship in Lianyungang, Jiangsu province, in 2023 (Image: Alamy)
As renewables have taken the lead in China, so Chinese renewables have taken the lead globally. Of the 0.51 terawatts of renewable-energy capacity installed worldwide in 2023, more than 50% [https://news.cctv.com/2024/01/25/ARTI3J8k8wkRs13fMqQU0sLF240125.shtml] was in China. The country commissioned as much solar photovoltaics in 2023 as the rest of the world did in 2022, while its wind power additions grew by 66% year-on-year, according to a recent report [https://www.iea.org/reports/renewables-2023] by the International Energy Agency.
Yet discordant notes accompany this march of the renewables. One issue is concern about renewables overcapacity [https://www.eiu.com/n/solar-and-ev-battery-overcapacity-are-risks-to-china/]. Another is that China’s coal consumption continues to increase [https://chinadialogue.net/en/energy/where-are-chinas-emissions-really-headed/], presenting challenges for emissions reductions.
In any case, the IEA sees China as retaining its lead in renewables – the country is predicted to account for 60% [https://www.iea.org/reports/renewables-2023/executive-summary] of global renewable energy additions to 2028.
CARBON MARKETS: THE VOLUNTARY MARKET RELAUNCHES
Last year was the third since China set its “dual-carbon targets” – of peaking carbon emissions before 2030 and reaching carbon neutrality by 2060 – and the first in which associated top-level policy designs have been implemented. The most important of these was the voluntary carbon market, known as the China Certified Emission Reduction (CCER) scheme, which restarted in October.
CCERs are a form of carbon credit that quantify the contribution of projects towards avoiding or absorbing emissions. The government issues CCER quotas that can be traded on carbon markets. Heavy emitters can earn CCER credits by, for example, developing a product that helps them to reduce emissions, or purchase them from other companies, to make good on their emissions commitments.
CCER credits were first issued in 2012, but the scheme had been suspended since 2017 due to small [https://www.ndrc.gov.cn/xxgk/zcfb/gg/201703/t20170317_961176_ext.html] trading volumes and poor data quality. It restarted on instructions from the Ministry of Ecology and Environment (MEE) and the State Administration for Market Regulation.
The CCER scheme is a valuable complement to China’s emissions trading scheme (ETS), under which thermal power companies are obliged to participate in trading designed to encourage emissions cuts. The restarting of CCER means companies that hardly produce carbon emissions, such as renewable power generators, can also join in carbon trading.
Birds-eye view of a power plant in Huai’an, Jiangsu province (Image: Dongxu Fang / Alamy)
Last year was also the second anniversary of the ETS itself. In terms of the amount of carbon emitted by the companies covered by it, China’s ETS is the largest in the world – three times the size of the EU’s equivalent. The ETS currently only covers the power-generation sector but preparations are underway to expand it to other high-emitting sectors such as cement and steel.
The ETS’s challenges, like those that saw the CCER scheme suspended, lie in the data [https://chinadialogue.net/en/business/better-data-key-to-success-of-china-carbon-market/]: ensuring reliable disclosures and using them to set up effective laws.
Progress is being made. On 4 February this year, carbon trading regulations [https://chinadialogue.net/en/digest/first-carbon-trading-regulations-released/] were published that include much stricter punishment for fraudulent disclosures.
GREEN FINANCE: A WHOLESALE TRANSITION
Last year, the focus of green finance in China expanded beyond sectors that obviously help the low-carbon transition (such as renewable energy and EVs) to include decarbonisation in all sectors, including heavy industry. China has previously called for a “wholesale [http://www.news.cn/fortune/2023-08/15/c_1129803720.htm]” green transition and 2023 featured a new attempt at that.
In 2023, as in 2022, over one trillion [https://m.21jingji.com/article/20240129/herald/fa44bfc6d437a697b3a0511dd4e25ec8_zaker.html] yuan of green bonds were issued, and over 2,000 [http://www.news.cn/fortune/2023-11/03/c_1129955179.htm] projects are lined up to be part of climate investment and financing trials [https://chinadialogue.net/en/climate/climate-finance-in-china-how-are-23-pilot-cities-doing/]. Funding is being directed towards projects that can reduce and avoid emissions, and more attention is being paid to the environmental performance of industry as a whole.
First, there has been progress around environmental disclosures. “Environmental, social and corporate governance” (ESG) is now commonly heard and ESG reports are being referred to as the “fourth statement” a company must make, after those on income, balances and cash flow.
In July, the State-owned Assets Supervision and Administration Commission (SASAC) published [http://www.news.cn/2023-08/07/c_1212252896.htm] guidelines on ESG reporting by listed subsidiaries of state-owned companies.
In September, the China Securities Regulatory Commission (CSRC) said [https://news.cnstock.com/news,yw-202309-5119647.htm] it is heading up work by the Shanghai and Shenzhen stock exchanges to produce guidance for sustainability disclosures from listed companies.
RecommendedThen, last month, the Shanghai, Shenzhen and Beijing stock exchanges together launched their public consultation on the SASAC reporting guidelines. The guidelines, which were drafted with oversight from the CSRC, provide detailed guidance on ESG disclosures made by listed companies. They make it mandatory for large companies from several major indexes – as well as companies listed both domestically and internationally – to publish their 2025 annual sustainability reports by 30 April 2026.
China has also indicated it wants to align itself with international practice. Last year, two standards were published by the International Sustainability Standards Board (ISSB), itself set up by the International Financial Reporting Standards Foundation (IFRS). One of them is for general sustainability disclosures, and the other is for climate-specific disclosures. The IFRS opened [https://www.casc.org.cn/2023/0620/242979.shtml] a Beijing office in June, and at the opening ceremony a Ministry of Finance spokesperson said China would give full support to the foundation’s work and the setting of international standards for sustainability disclosures. Hong Kong’s Securities and Futures Commission, meanwhile, has said [https://www.cnfin.com/gs-lb/detail/20230726/3902459_1.html] it is working on a roadmap for implementing ISSB rules, meaning tougher disclosure requirements for companies listed on the Hong Kong exchange.
China is also taking a harder look at sectors with stubbornly high emissions and ensuring transition finance is in place to help them change. In September, the People’s Bank of China announced [https://www.cdmfund.org/33712.html] that work is underway on transition-finance standards for four sectors: steel-making, coal power, construction materials and agriculture. The standards are to be published “when conditions are right”. And at the end of 2023, Shanghai published [https://jrj.sh.gov.cn/ZXYW178/20231229/078f722f64b540678cd496d3f62f6764.html] a trial taxonomy for transition finance. The first batch of incorporated sectors covers waterborne transport, ferrous-metal smelting and rolling, oil processing, chemical feedstocks and products, automobile manufacturing and aviation.
THE NEXT DECADE, AT HOME AND ABROAD
It is possible to perceive the beginnings of these developments a decade ago. In 2013, the Belt and Road Initiative (BRI) was announced, against the backdrop of the 2008 global financial crisis, domestic industrial overcapacity and industrial restructuring. The initiative would see China provide loans to developing nations, with Chinese companies then building infrastructure in those countries.
Back at home, winter and spring smogs were causing public complaints; the national strategy of “building an ecological civilization” had been announced two months earlier. The government soon launched an “assault” on pollution, with an air-quality action plan and a clean-heating plan [https://www.ndrc.gov.cn/xxgk/zcfb/tz/201712/W020190905503624116481.pdf] for northern China.
Ten years later, there have been many changes, spurred both by the economic shock of the pandemic and the global transition to renewable energy. As we will see, these factors have changed the kind of energy projects China is investing in overseas, along with its efforts to improve air pollution at home.
The situation has also prompted a more cautious and greener approach from the BRI [https://chinadialogue.net/en/business/is-chinas-belt-and-road-initiative-on-the-brink-of-a-green-shift/]. In October 2023, China announced an approach to overseas infrastructure that would favour “small but beautiful [https://www.gov.cn/yaowen/liebiao/202310/content_6910132.htm]” projects, and the use of “market-orientated and commercial [https://www.mfa.gov.cn/zyxw/202310/t20231018_11162839.shtml]” methods to support public BRI projects. The two Chinese development banks overseeing BRI investments have reduced lending since 2016 [https://chinadialogue.net/en/business/our-take-on-the-third-belt-and-road-forum/], indicating a more cautious approach to overseas investment and financing.
Yet the shift away from overseas coal-power projects and an increase in support for green and low-carbon energy in developing nations will have a far-reaching impact on the BRI’s next decade. In the first half of 2023, almost 41% [https://greenfdc.org/china-belt-and-road-initiative-bri-investment-report-2023-h1/] of the overseas energy deals China funded or signed involved wind or solar power.
RecommendedThe transition to renewables at home has brought significant improvements to air quality. According to data [https://www.mee.gov.cn/ywdt/zbft/202303/t20230328_1022381.shtml] published by the MEE in early 2023, PM2.5 levels had fallen by 57% over the previous decade, with the number of days of poor air quality falling by 92%.
Ten years of shifting from coal to gas have also bought many changes to China’s energy structure. For example, small-scale coal burning fell 60% [https://chinadialogue.net/en/energy/what-next-for-clean-heating-in-rural-china/] between 2015 and 2021. Traditionally, coal has been used for heating during winter in China’s villages, but it is gradually being replaced by natural gas and other cleaner options.
The remaining challenges are still immense. During 2023, environmentalists worried that new coal-power capacity installed to meet peak demand, combined with policies boosting general consumption among the public, would lead to air quality falling again. However, an air pollution action plan, and the stressing this January of the aim to build a “beautiful China [https://www.gov.cn/zhengce/202401/content_6925405.htm]”, are sending environmentally friendly policy signals: tackling pollution and improving the environment are still of huge importance to China.
