Welcome to Carbon Brief’s China Briefing.

China Briefing handpicks and explains the most important climate and energy stories from China over the past fortnight. Subscribe for free here.

Key developments

EVs pushed oil consumption into decline as tensions grow

DRIVING CHANGE: Oil products demand in China “peaked in 2023” and may drop 1.1% annually between 2023 and 2025, Reuters reported. Demand is falling in the world’s second-largest consumer of oil due to “growing adoption of liquefied natural gas trucks and electric vehicles (EVs)”, as well as the broader economic slowdown, the newswire added. EVs accounted for the majority of Chinese car sales “for the second consecutive month”, the Hong Kong-based South China Morning Post (SCMP) said, making up 53.9% of August’s total sales. Carbon Brief analysis of the data showed combustion-engine car sales falling 28% year-on-year. Meanwhile, China will create “vehicle-to-grid” (V2G) charging pilots – where EV batteries supply the grid –  to test if EVs “can be used to smooth out peaks and troughs in electricity supply and demand”, Bloomberg said, adding “all provinces will…nominate one city to set up a V2G system”.

TWISTS AND TURNS: The team of Chinese commerce minister Wang Wentao, who visited Europe this week, is “actively working” with Germany to persuade EU members to oppose imposing tariffs on Chinese electric vehicles (EVs), ahead of a vote planned for 25 September, the SCMP reported. Spain is also on board, another SCMP article reported. Last week, the European Commission “rejected offers by Chinese EV makers to adjust their prices in a bid to avoid sharply higher tariffs”, according to the Financial Times. Meanwhile, former Italian prime minister Mario Draghi called for “far more aggressive industrial policy and subsidies” in order for the EU to compete with China and the US, the Wall Street Journal said. Chinese financial news outlet Cailian said this “comes [as] European leaders increasingly realise that the EU is losing competitiveness against major rivals in the east and west”. (See Carbon Brief’s Q&A on the Draghi report for more.)

HOME-GROWN: China announced plans to launch its first-ever anti-discrimination investigation and appeal at the World Trade Organization following Canada’s “hike” of import tariffs for EVs, state news agency Xinhua reported. China also advised “dozens” of EV manufacturers to “focus on” producing key components domestically and “avoid investing in countries like India and Turkey”, SCMP reported, due to concerns around boycotts and “the risk of Chinese technology being stolen”. Reuters covered the US’ confirmation that its tariffs, “including a 100% duty on Chinese EVs, 50% on solar cells and 25% on…EV batteries and key minerals” will become effective from 27 September.

China envoys meet in run-up to COP29

LAST CHANCE: The US urged China to make “ambitious plans to cut greenhouse gas emissions by 2035” in climate envoy John Podesta’s meetings with his Chinese counterpart Liu Zhenmin, foreign minister Wang Yi and other climate-related officials, the Financial Times said. Talks also covered “efforts to tackle methane and nitrous oxide emissions”, it added. Podesta was quoted by Reuters saying China and the US still have “some differences” on climate finance, but that they have narrowed their differences on the matter.

RESILIENT RELATIONS?: Wang told Podesta that “China and the US should be partners, not rivals” and that cooperation on climate change is “integral” to bilateral relations, state broadcaster CGTN said. Liu Yuanling, assistant researcher at the Chinese Academy of Social Sciences, told Shanghai-based newspaper the Paper that “the outcome of the talks sends a signal reflecting the resilience and continuity of US-China climate diplomacy” ahead of COP29. An editorial in the state-run newspaper China Daily said that “in light of” a series of high-level US-China meetings on climate, trade and other areas, “the Chinese side has expressed cautious optimism” on future relations. Nevertheless, China “is preparing a new energy security law to become more self-reliant”, including by diversifying supply chains and enhancing renewable energy supplies, as it “braces for continued friction with the US”, Nikkei Asia reported.

China hit by a typhoon double-whammy

TYPHOON YAGI: Four people in south China were killed by Typhoon Yagi after it made landfall on 6 September, with another 95 people injured, SCMP reported. It added that “more than 1.2m people in Hainan, Guangdong and Guangxi [provinces] were affected”. Typhoon Yagi caused at least 78.6bn yuan ($11bn) in damage in Hainan province alone, finance news outlet Yicai said. Consultancy firm Carbon Keeper (Tan Guan Jia) said that the typhoon also “damaged” five to six under-construction wind turbines in the province. In its coverage, Reuters said “typhoons are becoming stronger…amid climate change”.

TYPHOON BEBINCA: On 16 September, Bebinca, the “strongest typhoon to hit Shanghai since at least 1949” made landfall, with more than 414,000 people evacuated, the Associated Press reported. The storm “[brought] the financial hub to a virtual standstill”, the New York Times said, adding that “the timing of the storm, during China’s three-day Mid-Autumn Festival holiday, could disrupt consumer spending that the country desperately needs as its economy slows”. Bloomberg reported that Bebinca could cost China 10bn yuan ($1.4bn). 

NEW RECORD: Following Yagi and Bebinca, Typhoon Pulasan – the 14th typhoon of the year – was also approaching China, said China News. These typhoons come after China saw its “hottest summer on record”, according to Bloomberg, with “average temperature between 1 June and 31 August [at] 22.3C”, the highest since records began in 1961, and with “heatwaves arriv[ing] earlier than usual this year”. According to the China Daily, while “national average precipitation in August was 97.3mm, 9.2% less than the same period of a normal year”, some regions saw “20-70% higher” rainfall than average, with “some even doubling the normal amount”.

China’s voluntary carbon market and ‘green’ electricity schemes linked

TRADING TRANSITION: China has clarified the links between two trading schemes, its  “green electricity certificates” (GECs) – a document for “green” electricity generation that can be traded – and “China certified emission reduction” (CCER) – a voluntary carbon credits trading market, according to a joint notice issued by National Energy Administration (NEA) and Ministry of Ecology and Environment (MEE) that will take effect from 1 October, energy news outlet BJX News reported. (Differences between GECs and CCER can be found in Carbon Brief’s China Briefing.) Offshore wind and solar thermal projects will be able to choose between selling either GECs or CCERs during a two-year transition period, but onshore wind and solar photovoltaic schemes will not be included in the CCER market, said the outlet.

NO DOUBLE COUNTING: The line between GECs and CCERs has been “notoriously fuzzy”, Paula VanLaningham, director for carbon research at Refinitiv, previously told Carbon Brief. The latest move aims to “avoid double counting and ensure the additionality of new offset credits”, wrote Veyt carbon market analyst Duong Thi Thuy Mai on LinkedIn. There remain question marks over the “additionality” of offshore wind projects receiving CCERs, according to a feature from Quantum Commodity Intelligence. In an interview with Finance China, He Qixiang, assistant researcher from thinktank China Center for International Economic Exchanges, said the notice “drew a line” between the two systems, which can reduce the “risk of double calculation of environmental value” and improve the “effective use of incentives in the carbon emission reduction market”. 

GAINING TRACTION: More than 952m GECs were issued in August, with hydropower and wind power accounting for the biggest proportion of 44% and 34% respectively, said China Energy Net, adding that this brings the total of GECs issued so far to 1.8bn. Meanwhile, the CCER scheme also released its “first batch of certified voluntary emission reduction projects”, which are expected to cut emissions by more than 70m tonnes of carbon dioxide equivalent, the Communist party-affiliated newspaper People’s Daily reported.

Spotlight

China’s carbon market to cover steel, aluminium and cement this year

In early September, the head of the Ministry of Ecology and Environment (MEE) announced that China will expand its national carbon market to cover the steel, cement and aluminium sectors this year. Two days later, the ministry released a draft policy outlining implementation details.

In this issue, Carbon Brief assesses whether this move will support decarbonisation of these emissions-intensive industries.

China has published a draft policy stating that by the end of this year, China’s national carbon market (emissions trading scheme, ETS) will expand from covering only the power sector to also cover steel, aluminium and cement. 

The new plan will raise the share of national carbon dioxide (CO2) emissions covered by the market from 40% of China’s total to 60%, according to the MEE.

Between 2024 and 2026, companies from the three new sectors will receive free allowances for their CO2 emissions, with no cap on total allowances, which represent emissions that the government authorises companies to emit. Allowances will then be tightened from 2027.

Adding to the glut

Yan Gang, vice-dean of the MEE’s China Academy of Environmental Planning, told the state-supporting newspaper Economy Daily, that the sectors were chosen in part due to the relative “urgency” of reducing their emissions.

However, in contrast to other carbon markets, China’s ETS is based on carbon intensity  – the emissions per unit of output – rather than total emissions.   

Lauri Myllyvirta, senior fellow at Asia Society Policy Institute’s China Climate Hub, told Carbon Brief this is the “fundamental” issue limiting the scheme’s ability to penalise high carbon emitters. 

He wrote on Twitter that this means carbon-intensive enterprises “face a carbon price…a fraction of the price of the emission allowances”, adding that they may even profit from increasing output if their emissions intensity falls below their industry’s benchmark – the government-set standard at which companies are expected to emit CO2. 

Even assuming the system shifts to a total emissions cap, setting a ceiling on the total amount of CO2 companies covered by the ETS could emit, this “would only be meaningful if the cap was strong enough to actually drive up carbon prices to then push emissions down”, he told Carbon Brief. 

“We haven’t seen allocation plans, so it’s hard to evaluate” the expansion’s impact, said Chen Zhibin, senior manager for carbon markets and pricing at consultancy Adelphi. But, he told Carbon Brief that he does not expect “high pressure” on industry to start cutting emissions immediately. 

The provision of generous allowances in previous years has led to an oversupply in the market. The release of even more free allowances could add to this problem of oversupply, suppressing prices and reducing incentives to trade, Xu Nan, member of the All-China Environmental Federation’s Green Inclusivity Committee, wrote for Dialogue Earth, ahead of the policy’s release. 

Managing steel output

Myllyvirta said that the addition of steel to the market could create an opportunity to improve the benchmarking system, due to the growing adoption of electric arc furnaces (EAFs) – a method of steelmaking that significantly reduces carbon emissions.

Having the “same benchmark” for EAFs and blast furnace-basic oxygen furnaces (BF-BOFs) “could drive much more utilisation of EAFS”, which would also support China’s drive to meet targets for EAF steel production targets, he explained. But if the existing design for power plants is anything to go by – with different types of plant receiving different benchmarks – this is unlikely to happen, he said. 

Luyue Tan, senior carbon analyst at the London Stock Exchange Group, and Chen both said that the ETS’s current focus on emissions intensity may also be part of an intentional drive to push less efficient and smaller manufacturers out of the overcrowded steel production market. 

This would reduce the number of steel manufacturers and therefore lower overall emissions in the industry. 

At the same time, Tan added, this consolidation would reduce the supply of allowances in the carbon market, improving its attractiveness to market participants. 

The long game

China’s timeline for instating a cap on allowances is likely governed by its broader “dual-control” policy for carbon emissions, which said China’s focus will switch from targeting emissions intensity to total emissions after 2030.

In the long run, Myllyvirta and Chen expect the ETS to also switch to a total emissions cap after 2030, after China’s emissions peak is confirmed.

At the same time, Tan noted that there is “top-down” pressure to further expand the ETS’s coverage to other sectors. 

This is driven by the EU’s carbon border adjustment mechanism (CBAM), as well as calls for China to adopt more ambitious international climate pledges, she said.

Elements of the draft, such as the focus on direct emissions and the first phase’s conclusion in 2026, have clear links to CBAM, which comes into effect the same year.

Industries covered by the ETS might be able to avoid CBAM charges when exporting to Europe, Xu wrote, which would make the ETS “a plus [for those companies] rather than a burden, as it will make exports easier”.

Watch, read, listen

UNLOCKED: The Wall Street Journal said Chinese businesses’ success in producing nickel and cobalt unlocked “a new source of…two minerals the world needs for EV batteries”.

SECURITY MINDSET: The China Power podcast spoke with UC San Diego assistant professor Dr Michael Davidson about the factors behind China’s energy security concerns and its implications for future energy, climate and foreign policy.

HIGH-QUALITY SHIFT: Political economy professor Yuen Yuen Ang questioned in Project Syndicate whether China’s strategy to develop advanced technologies, including low-carbon energy technologies, to support economic growth, can “realistically grow fast enough to replace [traditional growth drivers] soon”.
STRATEGY CHANGED: In an analysis of Chinese president Xi Jinping’s speech about “large-scale wind and solar bases” last week, economic news outlet Jiemian noted he had changed the strategy from “accelerating [the] construction” of the bases to their “orderly advance”.

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1.3bn

Tonnes of new annual coal mining capacity under development in China, according to research by thinktank Global Energy Monitor. Nearly 80% are “greenfield” developments, it said, “indicating a strong industry push to establish new operations”.

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New science 

Coastal blackout? Power assets vulnerable to rising seas demand rethink of energy resilience & transition strategies across North Asia

China Water Risk

China has 40 gigawatts (GW) of coal assets vulnerable to a rise of 1 metre (m) in sea levels, a new study assessing the impact of rising sea levels on energy production in China, Japan and South Korea found. It added that 18-22% of the country’s national gas fleet could be impacted by 1-3m of sea level rise respectively. Of all of China’s coastal provinces, the study said, Tianjin “is the most vulnerable” to sea level rise, with 30% of its power assets affected by a 1m rise in sea levels, followed by Guangdong at 18%. 

Climate change attitudes and the world’s biggest CO2 emitters

Environment, Development and Sustainability

People in emerging economies, such as China and India, have “cultivated more favourable views toward environmental protection and climate actions over time”, according to new research looking at how attitudes have shifted over the last three decades. These populations have also “started demanding better environmental policies and shown willingness to contribute to environmental protection both monetarily and symbolically”, the study added. In contrast, those in the developed world “are gradually moving towards less favourable climate opinions”, the study said. 

Urban rooftops for food and energy in China

Nature Cities

A new study examined possibilities for balancing the use of rooftops in urban China between rooftop agriculture and solar power production. It found that if 61% of a given rooftop area is earmarked for rooftop agriculture and solar panels are installed on the rest, it would be possible to realise significant value from both. However, the study noted that both rooftop agriculture and rooftop solar power production are both water-intensive, and could require “up to 15% of urban residential water use”.

China Briefing is compiled by Wanyuan Song and Anika Patel. It is edited by Wanyuan Song and Dr Simon Evans. Please send tips and feedback to [email protected]