Have China’s emissions finally peaked?
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Welcome to Xero, I'm Akshat Rati. This week, have China's emissions peaked? Everything about China tends to be big, including its planet heating impact.

China is, after all, the world's largest consumer of coal and produces nearly a third of global carbon dioxide emissions. And that's why what China does makes a big difference to the world's climate trajectory, even more so than what the U.S. does.

In recent years, China's actions have tended more towards clean energy than fossil fuels. It deploys more solar power than the rest of the world combined, and about half of all new cars sold in the country are electric. But the conversation about China tends to miss a lot of nuance. With the US under President Donald Trump taking big steps to reverse climate policies, it's even more important to understand what China is doing.

That's why this week we're speaking to Lowry Moolavirtha, co-founder of the Center for Research on Energy and Clean Air, and one of the foremost experts on all things climate and energy in China. He recently published an analysis for Carbon Brave that says China's emissions have peaked. And they're going into reverse, not because of a financial crisis or the pandemic, but because there are structural reasons for it.

And it's the kind of good news on the climate front that has become rare these days. Calling the peak is not easy, whether that's oil consumption or CO2 emissions. Often you can only be sure years after the peak has passed. So how confident is Lowry that this really is the peak? What's behind it? And how will the trade war affect China's climate and energy policies in the years to come? Lowry, welcome to the show. Thank you.

Let's start with the big picture and situate the listener on where China is. Obviously, it's a big manufacturing powerhouse for the last three decades as emissions have been growing really quickly. It is now the world's second largest economy. But what are its climate targets? So China's been pledging climate targets since the Copenhagen Climate Conference, which was more than 15 years ago now. So the first...

quantitative targets that they pledged were for 2020. And then another set of targets was set for 2030. That's the current target year for China. The targets were announced in 2021. The headline target that China has been setting is carbon intensity. So CO2 emissions from the energy sector per unit of GDP.

which when your GDP is growing fast is, of course, a flattering way of setting targets, because even if your emissions are going up, let's say 5% in a given year, if you clock 10% GDP growth, then you can say that you got a reduction in your carbon intensity. So the target for 2030 is to reduce CO2 intensity by more than 65% from the

2005 levels, so over a period of 25 years. To make that a bit more tangible, when the target was set in 2021, it looked like it would allow pretty much business as usual CO2 emissions growth of 1% to 2% per year until 2030.

What happened, though, is that during the zero COVID period, China's economic strategy shifted towards emphasizing manufacturing very heavily, which caused a spike in emissions. And now that 2030 target is, in fact, a very meaningful, if not challenging one. So from the current level, China's emissions will have to fall in absolute terms.

out to 2030 in order to meet that target. And then it does have an absolute target too, which is to try and peak carbon emissions by 2030. So if it does both things, then China may be on track. But right now it is quite off track. Now, in terms of where things are, specifically over the past year, you've done an analysis looking at China's CO2 emissions and

they've been down by a significant percentage. And that tends to only happen during times of financial crisis. Is China in a financial crisis? And is that why the emissions are down? Just talk us through what have you seen over the past year? For sure. So as I said, China's emissions went up rapidly during the zero COVID year. So from 2020 out to 2023. But at the same time, China's clean energy industries boomed.

Because of the emphasis on manufacturing, because of government drive to get all kinds of projects and investment moving, because of a shift of investment from real estate to the clean energy industries. And so because of all of that, China's clean energy additions have reached a level that no one really expected. The past 12 months were the first time

that all of the growth in electricity demand was covered by clean energy while electricity demand grew at above average rates. So this is the first time that power sector emissions and total emissions have gone down without the cause being the global financial crisis, zero COVID, something else that would lead to a drop or a slowdown in electricity demand. There are, of course, economic headwinds in China,

related to the trade war, related to the long tail of the economic impacts from zero COVID and so on. But the key point is that over the past 12 months, electricity demand growth was still above average. So whatever was happening in some sectors of the economy didn't result in a slowdown in energy demand or electricity demand. How?

How much have emissions fallen by? Yeah, so China's emissions over the past 12 months are down by about 1%. So it's significant enough, especially compared with the rapid growth of several percent per year in the past few years to mark a change in the trend. But it also means that if there is a surprise like severe drought and heat wave over the summer, that could still cause a spike that would cause emissions to top the previous peak.

How certain are we that this peak might be the peak and we might not just see a rise next year? I think it's quite certain that the key trends driving this structural production emissions will continue this year. For the next few years, there are two key uncertainties. The first one is the

will the clean energy growth continue? So China changed the prices paid to new renewable power projects early this year. The change is kicking in in the summer of this year. And so the industry has been quite optimistic that they can keep the development going, but it does create uncertainty. So that's one thing that we need to be mindful of. The other one is what happens with energy demand growth

And so the expectation would be that if China's aim of weathering the current trade tensions and so on by stimulating consumption is successful and so on, then energy demand growth would be at or even below the historical trends. But of course, if there is another decision to resort to construction stimulus, for example, then we could see faster energy demand growth and that could also upset China.

Before we get into the details of how exactly China came to this point, let's just talk about how reliable these numbers are. You know, how do you know whether we can trust China's carbon accounting, its renewables figures, its coal deployment figures?

And what are the big holes that are still there in the data? Right. So I would really point to two things in terms of how to think about China's statistical data. So one of them is that there are always uncertainties for a big country with a complex, rapidly changing economy. And simply in terms of the quality of the statistics, China's statistics are much better than many other emerging economies. The other thing is

intentional statistical manipulation, which does happen in China. And it does happen in China more than in just about, or let's say most other countries, simply because China sets so many quantitative targets. So whenever there's a quantitative target to do something, the statistics tend to show that it happened, whether or not it did. So the quality of the statistics has been improving. This kind of statistical manipulation has gotten

harder to do and less blatant than it used to be but it's something that one always has to be mindful of so the way i evaluate the robustness of different statistics is looking at okay so have these statistics shown trends that the government wouldn't want to display electricity statistics are famed for doing that so they're one of the indicators that uh

that we know that China's policymakers themselves have used when economic numbers have looked too good to be true. And so they've shown slowdowns when the government wouldn't like there to be a slowdown or they've shown rapid growth when the government wouldn't like there to be rapid growth. That said, over the past 12 months, there has been very little, if any, pressure on China's provinces or governments

enterprises to actually show that emissions are going down. So there isn't much of a reason to think that there would be that kind of distortions right now. Let's look at what is causing the decline in emissions. You talked about the large amount of solar and wind power and battery capacity that China is installing.

How much renewables is it in numbers? The numbers are pretty hard to get your head around. So we're talking more than 300 gigawatts of wind and solar per year.

The US has less than 200 gigawatts of solar installed in total. So China's additions in one year exceeded that. And last year was a record year for solar in the US as well with 50 gigawatts added. So it turned it almost five times. In terms of power generation, the amount of solar and wind added in 2024 was enough to generate the entire electricity consumption of the UK.

And so most importantly, we're talking about 5% of China's own electricity demand added in clean power generation per year, which is the average historical growth rate of electricity demand. So that crossover where these vast additions start to actually cover electricity demand growth is what makes a turnaround in emissions possible. And in terms of EVs,

They're approaching 50% of all passenger vehicles sold, also gaining share rapidly in heavier commercial vehicles where the next breakthrough is expected. The same is happening now for electricity storage. So there's almost 200 gigawatts of pumped hydro storage in operation and under construction. And just last year, about 30 gigawatts of battery storage

was added in China. So to put things into scale, China's peak demand is just over 1000 gigawatts. So when we start to talk about a few percent of that in battery storage added per year, then that starts to definitely make a dent in how much gas or coal fired power you need to cover those peak demands.

So is this just a power sector story then that emissions are falling because electricity consumption is getting cleaner with all the solar and wind and energy storage that is coming online? The other big thing that's happening in China besides clean electricity generation is electrification.

And that's happening, of course, we already talked about transportation, but it's also happening in industry. It's also happening in buildings. So that means that for quite a while already, all of the growth in emissions has been coming from the electricity sector because you get growth in energy demand in the other sectors, but they're shifting to electricity. So the direct use of fossil fuels in the other sectors has been falling.

The third thing that has been happening is a dramatic slowdown in the construction sector.

So construction, especially real estate and construction and infrastructure have been a massive source of GDP growth and emissions growth for China over the past couple of decades, because those are very energy and carbon intensive sectors. So all of the cement and steel consumed by those sectors has been a major driver of emissions.

Cement production has come down by more than 20% of its peak in 2021. So that has been a major part of this story in emissions starting to come down. Simply the process emissions from cement made up almost 10% of China's CO2 emissions at its peak.

And for the steel sector, the trends are slightly more confusing because manufacturing has started to use more steel, but steel consumption for construction has come down dramatically. And overall, steel consumption looks like it's plateaued or starting to come down. And there's a huge opportunity to shift to more steel recycling, which would reduce the energy demand for steelmaking significantly, even if total production stays flat.

And so that is an interesting story because we typically hear of the renewable story in China, of the electric car story in China. But just put the steel sector in context here and what this move towards recycling steel, which is mostly driven by electricity and this electricity is becoming cleaner, could do to not just...

Right. So first of all, the steel sector in China is, of course, massive. China makes more than half of the world's steel. And so the steel sector is, of course, massive.

And energy use for the steelmaking is the largest source of emissions if you include the electricity use. Even without the electricity use, it's almost a fifth of China's emissions.

And so the opportunity here is that as long as China's steel demand was growing rapidly, the only way to meet that demand was to produce a lot of primary steel. Because if your demand is going up 5%, 10% per year, then whatever vehicles and buildings and so on that are coming to the end of their life, so built decades ago, are a tiny fraction of your current demand. But once demand plateaus and a lot more demand,

buildings and vehicles and so on start to come to the end of their life, the amount of scrap steel available for recycling or potentially available for recycling starts to go up fast as a percentage of your steel demand. That shift hasn't really happened in China yet.

The share of electric arc steelmaking, so the kind of steelmaking that uses scrap as the primary input, has stagnated and is in fact missing the target for this year. And that's because it's too cheap or too cost competitive in China to make steel out of iron ore and coke and coal.

But that's something that I expect to be fixed because, as I said, the target for this year is being missed and it clearly needs a further push. There's also just the electrification story of China, which has been remarkable. So over this century, China has almost tripled the share of energy that it consumes coming from electricity. So from about 10% to nearly 30% now.

And in that same period, Western economies have largely remained flat at about 18 to 20 percent of their energy coming from electricity.

With the trajectory that you have outlined in terms of deployment of wind and solar, but also some coal, and we should talk about that, and all this electrification of transport, even now industry that might happen with steel, are we starting to see China becoming an electrostate?

I've been a bit skeptical of that broad categorization because there are still at least pockets of industry where electrification trend isn't clear. But electrification is certainly a big part of the strategy for transportation for industry.

So there was a time that shifting from coal to gas, fossil gas, was a big part of the strategy, especially for addressing air pollution. But because of energy security concerns, the emphasis on shifting to gas has declined and also because of economic considerations. And so I think electrification will become even more clearly important.

And so what makes you pause if all the numbers are pointing towards electrification and this is not just in the transport sector, but also in buildings and also in industry and the fact that even steel, which is a laggard, might start to catch up? Why do you think the electrostate thesis is not relevant?

yet one that is the trajectory China is taking? I think that's the trajectory for everyone. It's quite obvious. It's just that it's not clearly stated as a policy endpoint. But certainly, China has been moving much faster than just about everyone else.

We'll be back with more of my conversation with Lowri Moolavirtha after this short break. And hey, if you're enjoying this episode, please take a moment to rate and review the show on Apple Podcasts and Spotify. Your feedback really matters and helps new listeners discover the show. Thank you.

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So far, we've looked at the good story, which is renewables are helping power emissions decline and things are electrifying. So that means emissions will decline in other sectors.

But when you look at the numbers, there are currently sectors where emissions are growing. What are those? The main sector with a clear expectation that coal consumption and emissions will go up is the chemical sector. China has this...

longstanding program of building a coal to chemicals industry, which is basically petrochemicals industry using coal as the feedstock to produce synthetic gas, synthetic liquid fuels and chemicals industry outputs. And this is incredibly carbon intensive. It's even more much more intensive than making the same stuff out of crude oil.

So this is an area where a massive amount of capacity is being built to process coal into chemicals. The utilization of that capacity has remained quite low because it's struggling with profitability. The policymakers are quite clear that this is an energy security play or what Xi Jinping might call planning for extreme scenarios. So basically making sure that China has the capacity to

to keep its economy working if maritime transportation of oil and gas is blocked as a part of a major conflict with the US. Given the macroeconomic situation right now, which even before Trump came to power was the case where the Chinese economy was slowing down, plus the Chinese population has started to decline,

Is there some contribution to this peaking of emissions that is coming from these two factors?

You can always talk about the counterfactual, which is if we were still seeing 7%, 10% GDP growth like two decades ago, then of course, even the current massive clean energy additions would fall way short of covering demand. But overall, the slowdown of the economy is something that has been expected for a long time. So slowing down to maybe 50%.

5% GDP growth.

in the first half of this decade and towards 4% in the second half. China does have a target, or Xi Jinping maybe personally has a target of doubling GDP per capita from 2020 to 2035, which means you have to maintain over 4.5% GDP growth for the remainder of the period. That's very clearly the red line for the policymakers, and that's why they stuck with an around 5%

GDP target for this year as well. And what about China's population, given it's been falling significantly

By about a million people each year for the past three years, is that contributing to a decline in emissions? Where that definitely comes in is the real estate and infrastructure sector. So if you had a lot of population growth contributing to needing more real estate and more infrastructure and so on, then of course that would be a different situation. And then if you look at the trade war that is ongoing right now, there is something that we can learn from the past where people

In the first Trump administration, China responded to the tariffs that were deployed by the U.S. by increasing its manufacturing capacity to try and offset the decline that it would have in exports to the U.S. by sending those exports to other countries.

Do you expect China to have a similar trajectory given this time around the tariffs are even higher? A big part of the response during the first Trump administration was in fact domestic stimulus to the construction sector.

very much unannounced and only really visible after the fact. This time, what China's policymakers are saying is that they want to stimulate consumption, so household spending power, instead of relying on this kind of stimulus, which has been dubbed low quality by the Xi Jinping administration. And this also very much aligns with Xi's overall position

economic guidelines of common prosperity, aiming for a large middle class and so on. So there is a happy development here that could take place where this in fact pushes along

China's own ambitions for changing the structure of the economy. If you're used to the environmentalist messaging of consumption is the root of all evil, it might sound a terrible idea to increase consumption. But the point here for emissions is that household consumption is in fact much less carbon intensive than the construction and manufacturing industries which have been

driving growth in the past. So if more of the spending power in the economy was directed to households, they would spend much more of that on services like healthcare or a range of other services. And even the manufacturing that caters to households is much less energy intensive than the manufacturing that caters to the construction sector, for example.

And what about China's climate diplomacy? Given the past decade, we've seen the U.S. flip every time there's been a change in the president. But there have been moments where U.S. and China have cooperated. But now that the U.S. is firmly with the Trump administration, not going to be part of climate diplomacy and maybe even

play the role of spoiler. How is China responding to this moment? I think two things have changed. If you think to Obama's announcement in 2014, where the two leaders announced their new climate targets together. So one of them is the entire political dynamic in both countries

It's very hard to see that there would be any kind of political upside foreseen in the current atmosphere from announcing something like this together with a U.S. president, because that would be just seen as caving and being weak. So China has been very clear that their ambition is unchanging, is not influenced by pressure from others. And the other thing that has really changed is that clean energy industry, including exports, has become such a

driver of China's economy, that China has a much stronger self-interest now in also keeping a global energy transition going. So just in the past few years, China has made a massive investment in manufacturing capacity for solar, for batteries, for EVs and so on. And if the global transition stalled, that would mean that quite a bit of that capacity would go unused and cost financial disbursement.

distress. That said, this hasn't really translated into multilateral diplomacy from China yet. So China, for example, didn't put its weight behind the target of tripling renewables and doubling efficiency. So this is where China still needs to get more comfortable with taking the initiative and in fact, persuading other countries to do more. And I think here,

Things are really going to change once China's leaders are secure in thinking that they've turned the ship on emissions. They're going to be a lot more comfortable because they don't have to be defensive about their emissions growth anymore. If this is the peak, how quickly will we see a decline or will it be a slow plateau like it has been for coal consumption over the past decade?

There's certainly a risk of China getting stuck at pretty much current levels of emissions in the absence of setting ambitious emission reduction targets for 2035. I think one key concern is that once the coal industry starts to see their demand increase,

go down in absolute terms, especially as they've been investing in new coal mines, in new coal-fired power plants recently, that could generate a lot of pushback. But at the same time, keeping emissions at a plateau would mean upsetting the growth ambitions of the clean energy industry. So there is going to be push from both sides.

But so the targets that China is going to set this year, first in its new Paris commitment and then in the five-year plan that is due to be released next year, will be key in calibrating that level of ambition. And finally, what do people in China think about the US right now, which is the world's largest producer of oil and gas, has a ton of fossil fuels still available for it to burn, but

but it is not really deploying electricity technologies, which are more efficient and economically cheaper. Instead, it is

doubling down on fossil fuels, especially under this administration. Do they see the U.S. losing out on the future of energy, even as it might be currently the global energy superpower? I was, in fact, in Beijing when the U.S. election results were coming in. And I can say that in a room full of Chinese people, I was the only one who was

trying to shake my phone under the table for the results. So people weren't paying as much attention as Americans might expect.

And also when under the Biden administration, the U.S. was starting to actually make an effort. I think the reaction from Chinese experts was one of skepticism or at least one of wait and see, like see whether the U.S. can actually pull this off because there is a sense that the U.S. is so far behind, especially in terms of manufacturing and manufacturing

just doesn't have the kind of ecosystem and the kind of let's get it done spirit that China has. So currently, I think Chinese experts and Chinese policymakers are very concerned

and secure in thinking that they have the lead in these markets and technology areas. And it would actually be really good to get some more competition. So if there was more of a sense that others are at least making an effort to catch up and put up some competition, that would keep China moving faster. Thank you, Lauri. Thank you so much. And thank you for listening to Xero. Now for the sound of the week.

That was the sound of a bucket wheel excavator used for open pit coal mining. And it's essentially a shovel as big as a skyscraper. If you like this episode, please take a moment to rate and review the show on Apple Podcasts or Spotify. Share this episode with a friend or with a China skeptic.

This episode was produced by Oscar Boyd. Bloomberg's head of podcast is Sage Bauman and head of talk is Brendan Newnham. Our theme music is composed by Wonderly. Special thanks to Jessica Beck, Eleanor Harrison-Dengate, Somer Sadi, Moses Andem, and Siobhan Wagner. I'm Akshat Rati, back soon.