Published a few days before the start of the COP21 in Paris, this article tries to quantify and emphasize the weight of China in global greenhouse gas (GHG) emissions, their link with electricity generation and economic growth, and the country’s energy strategy.

China’s CO2 emission revolution

China’s rapid economic development starting in the early 1980’s required a huge increase in energy consumption, including important needs of electricity to manufacture goods, but also to produce the cement, steel, and other construction material needed for urbanization. Consequently, GHG emissions skyrocketed, growing at a average annual growth rate of 8.1% between 1980 and 2012 and making China the world’s largest CO2 emitter. Between 2000 and 2014, China contributed to 62.5% of worldwide CO2 emissions growth, and by 2012 it accounted for 1/4 of global GHG emissions.

1980-2012 World CO2 emissions

Electricity generation is the main source of GHG emissions around the world: in 2014, the Energy Information Administration estimated that 38% the share of the US’ CO2 emissions resulted from electricity generation. China’s National Development and Reform Commission announced similar proportions for China in 2005; although no recent data have been published, this share is unlikely to have declined. In 2012, the World Bank estimated that CO2 emissions coming from electricity and heat production reached 46.7% in the US and 53.7% in China.

CO2 from electricity (1971-2012)

It is well known that China is a very large consumer of coal. A focus on China’s energy mix for electricity generation highlights the considerable weight of this fuel. The country made the strategic choice of coal for several reasons:

  • Coal is abundant in China: the country is the 3rd largest holder of reserves (behind the USA and Russia), with about 13% of the world’s total reserves. This allows China to preserve its energy independence for primary energy supply;
  • In addition to being plentiful, coal is cheaper than oil and gas;
  • By using coal, China also helped to transfer oil resources from power generation to usage in transport (China became a net oil importer in the early 1990’s);
  • Coal power plants are less technical and faster to build than nuclear and hydro-power plants.
  • It is more “productive” than recent renewable energy technologies (wind and solar) and provides a stable energy output.

Unfortunately, coal is the also the most polluting fuel.

China electricity produ type (2013)

China electricity instal prod (2013)

China’s rapid economic development and reliance on coal is thus the main reason for the surge of CO2 emissions. China’s massive use of coal is also highlighted in the fast increase of GHG emissions per capita and the high level of emissions per GDP unit, even if the latter is declining.

CO2 emissions China vs. World

More worrying is the fact that, despite a high level of pollution resulting from coal consumption, China is still a relatively low consumer of primary energy and electricity. Consumption per capita is in line with the world average, but is well below developed and some developing countries. This means that to pursue its economic development, China will continue to increase its energy generation and consumption.

Per capita energy consumption comparison (2013

China’s renewable energy revolution?

However, the Chinese central government is aware that this current energy model is creating an unbearable pollution with potential destabilizing consequences. Recent and increasingly regular air pollution scandals are raising public awareness to the grey reality of China’s rapid economic growth at ‘all costs’. In most urban areas, health has become a major concern and air pollution is one of the most readily visible type of pollution. In addition, the health costs related to pollution are weighting heavily on China’s poorly funded healthcare system.

For these reasons, the government decided to invest massively in renewable energies. It took opportunity from the Great Financial Crisis in late 2008 to dedicate some RMB 210 billion (5.3% of the total) of its stimulus package to new energies (especially wind and solar), GHG emission cuts and energy savings. As shown on the graph below, hydro-power is leading China’s newly installed renewable capacity, (it is currently one of the most reliable renewable power), followed by wind and solar power, while nuclear is emerging.

China add capacity (2013)

In fact, China is already among the global leaders for the production of electricity from solar and wind energies, and as of 2014, renewable energies (and nuclear) grew much faster than fossil fuels, with solar registering a +87.6% year-on-year growth!

China share world energy 2013

For the next 15 years, forecasts highlight the strong development of renewable energy. In addition, China is massively investing to build cleaner coal plants turbines and implement a carbon capture and storage technology that would reduce GHG emissions from coal firing.

China electricity forecasts 2013-2030

A few other important points about the future of China’s fuel mix are worth highlighting:

  • China will become a major nuclear energy country, with 15 reactors currently under construction and several dozen planned.
  • China shows interest in gas to reduce its coal dependency as gas consumption being much less polluting than coal. Several supply agreement have already been signed and China had ambitious targets for shale gas production. Nevertheless, shale gas prospects in China are still uncertain as several basin are located in high population density areas.
  • Reducing pollution linked to electricity generation requires a better management of power distribution, especially with the development of renewable energy, which has an intermittent  production. In light of those facts, the national power distribution company, State Grid Corporation, plans to invest USD 150 billion between 2010 and 2020 to start building a smart grid for power distribution.

However, there are several limits to China’s energy rebalancing toward more renewables. Firstly, China’s reliance on coal means that this energy will continue to increase in absolute number even though it is expected to decline as a share of the fuel mix. This is very likely to continue to increase China’s GHG emissions. In addition, the current distribution of renewable energies inside the country is very unequal, with large wind and solar resources in Western areas and water resources in the mountainous Southern areas while population is concentrated on the coast.

To bridge this gap, China is investing into large power lines crossing the country from West to East. But long power lines have significant energy perdition. In addition, the combination of intermittent renewable energy production of renewable and the absence of smart grids and storage capacity creates complications to effectively take full advantage of available natural resources.

Finally, stable renewable energies such as hydro-power or nuclear have a limited potential. China already massively exploited its large scale hydro-power opportunities, who have significant social (relocation) and environmental (increased earthquake risks) impacts. China’s moratorium on nuclear power was lifted after its centrals were fully inspected in the wake of the Fukushima accident. However, there are questions about the aggressive development plans of the country in this sector.

As we can see, China’s energy development is thus experiencing a variety of pressures which only provide the government with choices that must compromise between economic growth, public health and energy security. It remains to see how the government’s constant preoccupation about stability will influence the country’s decisions.

China energy rebalancing: the evolution of pollution

From a business point of view, China’s challenges and shift toward greener solutions for electricity production offer opportunities to foreign firms with higher technical know-how. These companies are trying to capture a share of this huge market by partnering with local firms. Nevertheless, this sector remains sensitive and highly regulated by Chinese authorities.

On the other hand, pressure to change the energy model lead to a fast development of Chinese companies which develop their own technologies and know-how, not only in renewable energies but also in nuclear power, smart grid and carbon capture and storage. This will lead to the creation of national champions able to compete internationally with foreign firms. Indeed, Chinese firms are not only leaders to supply solar panels and wind turbine but they are also expanding around the world, selling hydro-power dams and nuclear power plants to other countries.

To conclude, China’s energy future is very likely to continue to be grey. This doesn’t bode well for the world as domestic pressure will obviously be a higher concern to the government. In this light, current GHG emission reduction targets must be looked at with this background in mind.

About Nicolas Houilliez

Luxemburg based with strong analytical skills, I worked as market and strategy analyst in large multinational companies. Passionate about China, economics, geopolitics and finance.