As China approaches its goal of peaking carbon emissions before 2030, the push for clean energy and a green economy has become a strategic imperative. This transition is essential not only for achieving climate targets, but also for ensuring energy security and driving economic growth. The rapid expansion of the clean energy sector has elevated it to a crucial role in shaping China’s future, making it a central element of the country’s broader economic and energy strategy.
Policy commitment: strategic shift
In recent months, China has introduced an unprecedented wave of policies aimed at accelerating its green transition and carbon emission reduction, reflecting a significant elevation in the priority of sustainable development within government strategy.
The Third Plenary Session of the 20th Central Committee marked a historic milestone by including “carbon reduction” in its communiqué for the first time. This is particularly significant as the Third Plenary Session is traditionally known for setting the key economic and policy directions for the country.
Following this, the State Council released comprehensive guidelines for the green transition, marking another first at the national level. This concentrated policy effort, including industry-specific action plans and a dual control system for carbon emissions, underscores a clear policy shift — demonstrating the government’s heightened commitment to achieving climate goals while fundamentally reshaping the nation’s energy and economic priorities. These initiatives are central to China’s broader pursuit of modernization and its ambition to lead in global climate action.
Green transition as core of economic, energy, and climate policy
China’s green transition is increasingly becoming the powerhouse of its economic and energy policies, demonstrating that sustainable development can drive economic growth while reshaping the nation’s approach to energy and climate challenges.
Since the early 1990s, China has aimed to balance economic growth with environmental protection. However, in recent years, the drive for green development and carbon reduction has faced challenges at the local level. During the pandemic, some local governments prioritized short-term economic gains over environmental goals, leading to a surge in energy consumption that exceeded pre-pandemic levels and caused significant delays in achieving carbon intensity targets.
In 2023, a pivotal shift occurred: the clean energy sector emerged as a key driver of GDP growth, compensating for the downturn in real estate and contributing approximately 40% of the year’s economic expansion. This development underscores that the green transition is not an obstacle but a new engine for growth. President Xi Jinping has emphasized that green development is integral to the broad goal of “high-quality development,” positioning it as a core driver of China’s economic future.
The rise of clean energy has also prompted adjustments to the energy policy, with a gradual shift from reliance on coal to a focus on renewable sources. While coal remains crucial for energy security, recent policies signal a stronger commitment to expanding wind and solar power. The expansion of these renewable energy sources has already begun to reshape China’s energy mix, reducing the share of coal in power generation.
Despite challenges, China’s ongoing green transition is positioned to play a central role in its economic and energy strategies, with the potential to further its global leadership in climate action. The rapid growth of renewable energy and the commitment to reducing coal consumption are key to achieving more ambitious climate goals in the future.
Carbon emissions edge down in Q2
China’s green transition is beginning to show tangible results, with a notable decrease in carbon emissions for the first time since the pandemic. In the second quarter of 2024, China’s carbon dioxide (CO2) emissions dropped by 1%, primarily driven by the power sector, which saw a 3% reduction thanks to the rapid expansion of clean energy capacity.
According to the National Energy Administration, solar and wind power generation increased by 171 terawatt-hours in the first half of 2024, surpassing the total electricity output of the U.K. for the same period in 2023. This shift contributed to an 8 percentage point drop in the share of coal-fired power in June 2024. If this trend continues, February 2024 could mark China’s carbon emissions peak, with annual emissions potentially falling below 2023 levels.
The steel industry, the second-largest source of carbon emissions in China, is also seeing a shift. With the implementation of stricter policies and a downturn in demand, steel production and its associated emissions have slightly declined. Efforts to adopt lower-carbon technologies, such as electric arc furnaces, are gaining momentum, marking an important turning point for the sector.
Additionally, the rapid adoption of electric vehicles (EVs) is playing a growing role in reducing oil consumption and emissions. In 2024, EV sales continued to surge, capturing a larger share of the market and further driving down demand for fossil fuels. This trend is expected to have a lasting impact on China’s carbon footprint as the transition to clean energy and green technologies accelerates.
Structural and market challenges
Despite significant progress in clean energy, China’s energy consumption continues to grow rapidly, driven by its reliance on energy-intensive industries. In the second quarter of 2024, energy consumption rose by 4.2%, while GDP grew by 4.7%, indicating only a modest improvement in energy efficiency. This trend, rooted in post-pandemic industrial practices, presents a challenge to achieving more substantial carbon reductions.
A major factor contributing to the rise in energy demand is the coal-to-chemicals industry, which saw a 21% increase in coal consumption in the first half of 2024. While this industry enhances energy security by reducing reliance on oil, its high carbon emissions are a significant obstacle to meeting climate targets. The rapid expansion of coal-based industries, coupled with the ongoing integration of coal power in the energy mix, poses a serious challenge to China’s goals of controlling and eventually reducing coal consumption.
Moreover, the current inflexibility of the power grid, despite recent policy efforts, hampers the efficient distribution and utilization of renewable energy, particularly in integrating large-scale wind and solar power. Addressing this requires reforming the power market, including transitioning long-term contracts from physical to financial agreements and accelerating the establishment of a fully operational spot market. Such changes are essential for optimizing resource allocation and enhancing grid flexibility.
In the steel industry, which remains a significant source of carbon emissions, progress has been slow in adopting low-carbon technologies like electric arc furnaces. Overcapacity remains a persistent issue, hindering investment in greener technologies. On Aug. 23, China suspended permits for new steelmaking projects, indicating current policy cannot solve these issues. Structural reforms are necessary to reduce high-carbon capacity and increase the production of low-carbon steel.
The EV sector, while experiencing record sales, faces challenges from intense domestic competition and international trade barriers. The recent price wars have strained profitability across the industry, underscoring the need for continuous innovation and technological advancement to maintain growth and expand globally. As trade restrictions tighten, particularly from the U.S. and EU, China’s EV industry must focus on strengthening its entire supply chain to compete on the global stage.
These challenges highlight the complexities of China’s green transition, where significant progress in clean energy and emissions reductions must be balanced against the ongoing pressures of industrial growth and global competition.
China’s green transition is advancing at an unprecedented pace, with clean energy development becoming a central driver of economic growth and the achievement of carbon reduction targets. However, the path forward is fraught with challenges, including the need to control coal consumption, improve grid flexibility, and adjust industrial structures.
To ensure the success of this transition, China must deepen reforms, refine and marketize its policies, and accelerate technological innovation and structural optimization. Only by doing so can China solidify its leadership in global climate governance, ensure the harmonious development of its economy and environment, and lay a strong foundation for a sustainable future.
Qin Qi is a China Analyst at the Centre for Research on Energy and Clean Air (CREA) and
Shen Xinyi is a researcher at CREA.
Contact editor Lu Zhenhua (zhenhualu@caixin.com)
