Lauri Myllyvirta is an analyst covering air quality and energy trends in China.
China’s CO2 emissions from fossil fuels and cement production grew by an estimated 4% in the first half of 2019, analysis of preliminary data suggests.
Power-sector emissions, which had driven the rebound in overall emissions since 2017, flattened off. However, there was a surge in real estate and infrastructure construction that saw emissions from steel and cement expand rapidly.
Estimates based on preliminary data for the first half of 2019, compared to the same period last year, indicate that:
- China’s coal demand increased by 3%;
- Oil demand was up 6%;
- Gas demand rose by 12%; and
- Cement production increased by 7%.
In this guest post, based on an assessment of various sources of Chinese government and financial sector data, I explore the drivers of these trends and the outlook for the next year or two.
A breakdown by fuel (below) shows that coal consumption is far below its peak in 2013, but has been rebounding since early 2017, while emissions from cement production started climbing last winter. Oil and gas, although making up less than a quarter of total emissions, are contributing half of the overall increase due to high growth rates.CO2 emissions in China between 2012 and the first half of 2019 from cement, coal, gas, oil and the combined total (annualised 12-month moving average, millions of tonnes) Note the different y-axis scales. Source: Apparent consumption based on China National Bureau of Statistics output data, China customs trade data and coal inventory data from sxcoal.com. Chart by Carbon Brief using Highcharts.
Rising emissions in the power sector have driven much of the increase in China’s CO2 output over the past decade, with burgeoning supplies of coal-fired electricity fuelling rapid economic growth. In the first half of 2019, however, there was close to zero growth in power-sector emissions.
This is because, overall, demand growth slowed, allowing additional output from renewables (yellow and orange bars in the chart, below), hydro (dark blue) and nuclear (light blue) to cover the incremental increase (red) and leaving no space for fossil fuel generation to rise (grey).Increase in electricity generation by source in the first half of 2019 compared to the same period last year (terawatt hours). Source: China National Bureau of Statistics. Chart by Carbon Brief using Highcharts.
CO2 emissions from the power sector might even have fallen if the amount of solar capacity added in China had continued its previous trend, shown in the chart below (top right). Instead, solar additions fell abruptly after subsidy cuts and quota restrictions announced in 2018.
On the other hand, a series of nuclear reactors were completed and connected to the grid in the first half of the year (middle right), resulting in a largely one-off increase in capacity that helped push down generation – and CO2 emissions – from fossil fuels.
Wind-power installations increased (top left), but so did thermal power (coal and gas, bottom left) after a very slow 2018.Electricity generating capacity added to the Chinese fleet in the first half of each year since 2012, by source (gigawatts). Source: China Electricity Council.Chart by Carbon Brief using Highcharts.
Despite the dip in growth during 2019 to date, the longer-term outlook for solar capacity is perhaps stronger than expected. This is because the first solar projects with “subsidy free” power prices matching those paid to coal-fired generators are coming through faster than thought. Solar “grid parity” – where the technology can compete on price even with coal – appears to have arrived.
The first batch of 250 subsidy-free grid-parity wind and solar projects, with a total capacity of nearly 21 gigawatts (GW) in 16 provinces, got approved in May this year. These projects will be given priority access to the grid and long-term (at least 20 years) contracts at the benchmark price of coal-fired power.
While power-sector emissions growth halted, steel and cement production and rising oil consumption drove China’s emissions upwards. Demand for steel and cement, in turn, is driven by infrastructure construction and real estate, with the latter appearing to be the only major sector of the economy growing strongly (red line in the chart, below).Year-to-year change in investment, by sector (%). Source: National Bureau of Statistics. Chart by Carbon Brief using Highcharts.
This means that China is again relying on construction and “smokestack” industry to drive growth – in spite of its stated goal of transforming the economy. The surging construction volumes are best illustrated by output of escalators and lifts (up 18% in the first half of 2019 compared to the same period in the previous year) and sales of excavators (up 19%).
Outside the power sector, the brunt of the increase in coal demand in the first half of 2019 came from coking and metals – such as steelmaking – as well as manufacturing of building materials such as cement and glass. This is shown in the chart, below.Change in the amount of coal used by each sector of the Chinese economy in the first half of 2019 (excluding the power sector) compared to the same period in 2018 (millions of tonnes). The “others” category includes other industrial sectors, households and other small scale use. Source: WIND Information. Chart by Carbon Brief using Highcharts.
As demand for fossil-fueled electricity has stagnated this year, an important trend that has emerged is bankruptcies and financial distress of coal-power companies. Some 47% of these firms have become loss-making in January-August 2018, according to the online publication “Energy Magazine”, and their “return on assets” – a measure of the profitability of existing generating plants – has fallen to a meagre 1.1%.
The reasons for low profitability include overcapacity, which means that, on average, power plants run fewer hours than expected. The article also highlights how coal power profits are being eroded by the increasing capacity and competitiveness of renewable energy, regulation to prioritise grid access for renewables and deregulation of the power market, which has exposed older coal plants to competition and further cut the number of hours they operate.
All of this means that old and inefficient coal plants, with high costs, might be pushed out of the market in the next few years, forcing them to close. The rest will increasingly move to flexible and “peaking” generation – matching output to demand and gaps in renewable supply – surviving on lower operating hours thanks to higher prices during peak periods.
In China’s transport sector, 2019 has been a breakthrough year for electric vehicles, as well as a difficult time for the conventional auto industry.
Sales of passenger cars plummeted by 14% in the first half of the year, according to China’s auto industry association after posting the first year-on-year decline in at least 15 years last year. This is a dramatic turnaround for an industry that saw average growth of 15% per year in the decade up to 2017.
At the same time, the same data shows sales of electric vehicles continued to grow rapidly, increasing by 61% in the first half of 2019 compared to a year earlier and going from 1.4% of overall auto sales two years ago to 6%.
After June, the central government cut EV subsidies, precipitating a 9% drop-off in sales in July. But an array of non-cash incentives, such as exemptions from road use and licensing restrictions, remain in place and are likely to support continued growth, particularly given falling EV costs.
Consumption of refined oil in transport has fallen this year, indicating falling road freight volumes and personal car use. This is another indication of longer-term oil demand trends turning around, but this year, increased demand from industry – for the manufacture of chemicals, for example – has offset the fall in use from transport.Sales of passenger cars in China during each rolling 12-month period since 2012, millions (blue line, left axis) and the share of sales made up by electric vehicles (red line, right axis). Source: China Association of Automobile Manufacturers. Chart by Carbon Brief using Highcharts.
While China’s CO2 emissions continue to rise in 2019 and the stimulus launched in response to economic headwinds – including the “trade war” with the US – is putting pressure on its climate goals, a number of important energy and air pollution policies remain in place.
Next year, 11 provinces that account for more than 40% of China’s coal consumption will have to stay within absolute caps for the fuel as set out in their “Blue Sky Defense Plans” for 2018-2020 and shown in the chart, below. Given the increase in coal use since 2017, meeting these caps is likely to require strong measures.Coal consumption in 11 provinces (coloured bars, millions of tonnes) subject to caps in 2020. These provinces’ share of national consumption is shown with the dashed line. Source: Coal consumption 2000-2017 from National Bureau of Statistics; 2018 calculated from data on year-on-year changes from sxcoal.com; 2020 targets from province “Blue Sky Defence Plans”. Chart by Carbon Brief using Highcharts.
Furthermore, industrial plants in several industrial provinces around Beijing are going to have their output restricted to improve air quality over the winter and in the run-up to the National Day holiday at the beginning of October 70th National Day on 1 October. Some of the recent production activity – and related emissions – is likely to have been in anticipation of these upcoming restrictions.
At the same time, the debate about energy targets for the 14th five-year plan, to run from 2021 to 2025, and a longer-term plan until 2035, has taken off in earnest.
The five-year plans for different sectors will be published in 2021-22 and will include detailed targets for different energy sources, power generating capacity, share of coal in total energy and so on. This plan will be immensely important in charting the country’s future energy policy, as almost all detailed targets are currently for 2020. One of the proposals being discussed is adopting a CO2 emission cap for 2025.
China’s energy policies for the next five years, along with economic policies and developments, will determine when the country’s emissions reach a peak. Given China’s role as the largest emitter of greenhouse gases, this outcome will also have major global consequences.