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China’s Energy Intensity and Carbon Intensity Targets Are All But Unachievable

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China Power | Environment

China’s Energy Intensity and Carbon Intensity Targets Are All But Unachievable

China is far behind on its international commitments for reducing energy consumption and carbon emissions per unit of GDP.

China’s Energy Intensity and Carbon Intensity Targets Are All But Unachievable
Credit: Depositphotos

On May 29, China’s State Council released its 2024-2025 action plan for energy conservation and carbon reduction, setting targets to decrease energy intensity (energy consumption per unit of GDP) by 2.5 percent and carbon intensity (carbon emissions per unit of GDP) by 3.9 percent in 2024. However, these goals appear insufficient to meet China’s previous commitments of reducing carbon intensity by 18 percent and energy intensity by 13.5 percent between 2020 and 2025 as part of its international climate pledges. 

China’s progress in reducing its carbon and energy intensity has been lackluster from 2020 to 2023, with only a 4.6 percent reduction in carbon intensity and a 2 percent decrease in energy intensity during this period. This leaves the country severely off track to achieve its 2025 targets. According to Carbon Brief, for China to meet its 2025 goals, it would need to reduce carbon emissions and energy consumption in absolute terms – not relative to China’s still-growing GDP – by 7 percent and 6 percent per year, respectively, in 2024 and 2025. This would require an unprecedented drop in carbon emissions and energy consumption, even as China’s economy continues to grow. 

The modest targets set for 2024 suggest that China is effectively admitting its inability to meet the ambitious 2025 goals and may be focusing on more achievable targets to maintain credibility. Nevertheless, clarification is needed on how China intends to fulfill its international climate commitments and accelerate its low-carbon transition to peak emissions before 2030.

In China, the proportion of investment and net exports, which are both more energy-intensive compared to household consumption, in GDP growth increased from just over 40 percent during 2015-2019 to 45 percent in 2019-2023. Since the pandemic, China’s GDP growth has been predominantly driven by energy-intensive sectors. From 2015 to 2019, services contributed two-thirds of GDP growth, but this share dropped to about half from 2019 to 2023. Ongoing investments in infrastructure, manufacturing capacity, and real estate have been key drivers of Chinese growth, thereby increasing energy intensity. 

Energy consumption and carbon emissions are closely related. China’s clean energy growth was insufficient to keep pace with surging energy demand, which increased by around 6.1 percent – a percentage point more than GDP growth for the year. In 2023, China’s CO2 emissions increased by 565 million tonnes, reaching 12.6 billion tonnes. 

In addition to these structural factors, cyclical elements also contributed to the rise in emissions. Following the lifting of COVID-19 lockdowns, highway passenger kilometers increased by nearly 50 percent, and aviation passenger kilometers surged by over 160 percent in 2023, although both remained below 2019 levels. This recovery added approximately 100 million tonnes to China’s emissions. Additionally, a shortfall in hydropower generation further increased emissions by 115 million tonnes.

China faces significant challenges in its journey toward achieving carbon neutrality by 2060, a goal that requires a drastic reduction in carbon emissions within a relatively short time frame. Unlike the European Union and the United States, which peaked their carbon emissions in 2006 and 2007, respectively, China has yet to reach its emissions peak. This delay presents a unique challenge for China, as it compresses the timeline for the transition to carbon neutrality into just 30 years, compared to the 40-60 years available to the EU and the U.S., respectively. With a population of over 1.4 billion people, China also has to achieve carbon neutrality on a much larger scale than the EU or United States. 

Even today, transitioning away from coal remains a significant challenge in China for several reasons. First, China’s heavy industrial sectors, such as steel, cement, and chemicals production, are deeply reliant on coal for energy and as a key input. They also wield substantial political influence and are major employers in China, making it difficult for the government to push for a rapid transition without causing economic disruption and potential social unrest. China’s coal and electricity industries are intrinsically linked, with coal comprising more than 60 percent of China’s electricity generation by source. Excessive government interventions have made it difficult for the two industries to form a stable, reasonable, and transaction cost-saving relationship.

Second, the production of clean energy technologies, such as solar panels, wind turbines, and electric vehicles, requires significant amounts of steel and aluminum, which are currently manufactured using coal-intensive processes. This creates a complex interdependence between China’s clean energy sectors and its coal-reliant heavy industries

Lastly, there is also a fear that China’s transition to a low-carbon economy could also negatively impact many other assets closely tied to the coal industry. This includes physical assets (e.g. infrastructure, coal processing technologies, and coal mines), natural assets (e.g. water reserves), financial assets (e.g. equities, debt, and derivatives), human assets (e.g. knowledge, management practices, and labor), and social assets (e.g. community networks).

China’s clean energy boom in the past two years, particularly in solar power, has put most of its 2025 climate targets within reach despite falling severely behind earlier. If the rapid pace of low-carbon power generation additions continues and electricity demand growth returns to pre-pandemic rates, China’s CO2 emissions could fall this year and stabilize, potentially achieving the 4-6 percent reduction needed to meet the CO2 intensity target by 2025. Given the sharp increase in solar and wind installations in 2023, the non-fossil energy share target also appears achievable. 

However, meeting the target of renewable energy contributing half of the growth in total energy demand remains challenging. It would require a significant slowdown in energy consumption growth coupled with a doubling of the renewable energy production growth rate. Nonetheless, China’s clean energy momentum, driven by enthusiasm from local governments, state-owned enterprises, and investors, has exceeded official targets and, if maintained, could enable the country to meet its headline climate goals.