Beijing Lines Up the Pieces for Peaking Emissions by 2030 

When President Xi Jinping announced in September 2020 that China would aim to peak carbon emissions by 2030 and achieve carbon neutrality by 2060, he effectively changed the metrics by which the country’s energy and climate policies are judged. For the first time, China has clear mid- and long-term climate targets, and all eyes are now focused on how it will get there.  

The latest 14th Five–Year Plan (FYP) was supposed to offer more clarity on the “how.” But it turned out neither as clear nor as ambitious as some had hoped. In the 75,000-word text, “carbon neutrality” (碳中和) was mentioned just once. And the two key binding targets—18% carbon intensity and 13.5% energy intensity reductions from 2021-2025—leave ample room for absolute growth in emissions.   

Yet, when Xi spoke at the Central Committee on Finance and Economics just days after the conclusion of the National People’s Congress (NPC), he struck a decidedly different note. Xi reiterated the commitment to peak emissions by 2030, emphasizing that it was a major strategic decision of the Chinese Communist Party (CCP) and that it would be a testament to the CCP’s ability to govern.  

What the 14th FYP lacked in quantitative ambition, Xi made up for with ambitious political commitment. But why the seeming paradox? This is likely because the ambition is tied to the 2030 timeline, and Beijing still wants to buy time to make the difficult adjustments across the economy, from industry vested interests to institutional reforms and electricity markets. Therefore, the next five years will be mainly about lining up the pieces to get more significant outcomes on decarbonization post-2025.   

As highlighted in my Forecast 2025, the clean energy transition requires more than just expanding renewables. It will also entail systemic changes and the introduction of new market mechanisms, all of which takes times to see results and aren’t readily quantifiable. With provinces and industries working to develop their goals out to 2030, all these factors explain why Beijing was rather modest on energy targets in the 14th FYP. 

This analysis on China’s energy landscape picks up where the 2025 energy forecast left off. It first looks at the trends for expanding renewables and nuclear in the energy mix and the longstanding challenge of curbing reliance on coal. Then it examines more closely the interest-driven and institutional challenges Beijing faces, and areas where there might be more progress than others. 

Balancing Energy Security with Decarbonization  

As anticipated in the energy forecast, the 2025 target for non-fossil fuels as a share of overall energy mix has been set at 20%. Nuclear will contribute to that target, as its installed capacity is expected to rise from just over 53GW today to 70GW as part of the 14th FYP.  

But the bulk of non-fossil fuels will come from renewables, which the National Energy Administration (NEA) expects to make up two-thirds of additional energy capacity over the next five years. When it comes to solar and wind, Beijing has already committed to installing 1,200 GW by 2030 as part of its nationally determined contribution to the Paris agreement.  

Reaching that target requires solar and wind installations—which stood at just over 530 GW at the end of 2020—to more than double over the next decade. Although that sounds ambitious, it tracks with the average growth of renewable installations in recent years. This suggests that the 1,200 GW target may just be a floor that China aims to overshoot.  

Yet despite the bullish outlook on renewables, recurrent concerns over energy security in the near term mean that coal power will have runway to expand. Although it is yet unclear how much coal growth is planned over the next five years, the rising concern for energy security provides a strong rationale for allowing some coal capacity expansion.  

The expansion underway since 2019 suggests that banning new coal plants altogether is unlikely before 2025, though Beijing will likely manage how much coal capacity actually expands through administrative actions. For example, a highly publicized central government inspection sternly reprimanded the NEA for greenlighting excessive new coal installations. 

The current tension between energy security and energy decarbonization, which reflects the fact that conflicting interests are still far from settled, all but ensures that phasing out coal will be a gradual process over the next five years. In addition to being viewed as the most reliable resource to address load peaking, coal is also politically important.  

This is why restricting the growth of coal is far more of a political challenge than expanding renewables. In fact, China’s current economic and political structure is well suited when it comes to expanding infrastructure rapidly or scaling production, but less so when it comes to enabling a whole-of-economy transition to cleaner energy. And while Xi’s strong political support for curtailing emissions is necessary, it won’t be sufficient to untangle the reality of implementation challenges at the local level.  

The following sections will address 1) the main structural obstacles to peaking emissions, which is essentially the problem of coal; 2) specific areas of policy focus in coming years; and 3) potential outcomes from those policies. 

1. The Structural Challenges  

Reducing reliance on coal remains the key to achieving peak emissions, since it still accounts for close to 57% of China’s primary energy supply. But this very dominance is also what makes reducing it so challenging. Three main structural challenges will need to be tackled to address coal emissions in China: incentives, vested interests, and enforcement.  

First, despite Beijing’s efforts to purge short-termism, the political incentive of prioritizing economic growth at the local level won’t change quickly. The nature of that growth depends on infrastructure investment, which is usually carbon intensive. For example, construction of new coal plants is still viewed as a reliable way of boosting local growth and creating local jobs.  

Second, the coal industry remains a powerful lobby with deep political ties, not least because it employs millions. Moreover, local governments rely on local power generators and state-owned companies to ensure sufficient power supplies and have a vested interest in their success.  

For example, anxiety over energy security was spurred again this past winter as several provinces saw rolling power shortages. As a result, Hunan province, which was hit the hardest by the shortages, is proposing to build eight new coal–fired power plants in its provincial 14th FYP to mitigate its energy security problems.  

Third, the monitoring and enforcement of emissions reductions is still inadequate. This isn’t a challenge unique to China, but one that is especially daunting for Beijing given the size of the country. Moreover, local monitoring capacity and enforcement mechanisms are mainly targeted at air pollution rather than carbon per se. So additional capacity such as human capital and deployment of technologies, including artificial intelligence and big data, is needed. 

2. Areas of Policy Focus: Reforming the System, Changing Incentives, Building Capacity   

The next five years will put a spotlight on incentives and vested interests in the energy sector, as systemic reform is put into motion. Both the top leadership and NEA officials openly recognize the need to make the power system more flexible and responsive. That inflexibility has several dimensions: systemic, institutional, and regional. 

Within the power system itself, flexibility can be improved on both the supply and demand sides. For example, energy efficiency standards and better demand-side response can help reduce peak demand challenges. On the supply side, adding a lot of renewables quickly can put strain on fossil fuel plants that provide peaking capacity, causing their dispatch and generation hours to fall. This means that power generators need to find ways to operate efficiently while being more responsive to shifting demand throughout the day.   

When it comes to the grid, however, institutional reforms are crucial. For example, only 30% of energy transactions are market-based in China, with the government still playing a crucial role. Moreover, spot markets are still in the pilot program phase, while ancillary services remain underdeveloped. This all contributes to inflexibility and poses an obstacle to integrating renewables.  

Regional manifestation of inflexibility takes the form of barriers to interprovincial trading of power. The risk from renewables variability can be mitigated by buying excess energy from other provinces, thus reducing reliance on local peaking capacity from fossil fuels.  

Within regional grids, increased integration and more trading increases flexibility. But provincial governments have been resistant to relying on other provinces for their power supply, even within the same regional grid. This is especially the case when the dispatch decisions are made by provincial rather than regional authorities, which tend to be more independent. 

As expected in our forecast, power sector reforms will see momentum in the next five years, as reinforced by Xi’s mention of “power sector system reform” for the first time in his speech. Premier Li Keqiang in his NPC work report also noted that manufacturing firms should engage in power markets to lower costs. Finally, the NEA also emphasized for the first time the need to build a new type of power system centered on renewables.   

This top-level commitment implies that a number of tools will be used to make progress on this complex challenge, the newest of which is the national emissions trading scheme (ETS) expected to launch later this year.   

The initial benchmarking approach of the ETS will have a modest impact. For now, it is structured to mainly incentivize efficiency improvements at coal plants and reduce carbon intensity and unlikely to lead to the actual replacement of fossil fuels with renewables. 

Over time, however, China’s ETS can become a key market instrument for reducing carbon emissions. Not only is it expected to surpass the European Union’s to become the largest ETS in the world, its development trajectory could well follow that of Europe’s. An immediate consequence of that development is that industries and government agencies are building more data monitoring, collection, and reporting capacity.  

In fact, having accurate, timely, and transparent data and credible auditing is the sine qua non for the ETS to function. This type of capacity is necessary to identify sources and volumes of emissions to actually conduct trading as well as addressing emissions through other measures. The various 2030 carbon peaking action plans that provinces and state firm are currently drafting are also likely to include data collection and monitoring capacity building. 

Another important tool is changing political incentives. Xi’s March 15 speech mentioned the need for cadres to educate themselves and to strengthen the monitoring and evaluation system. This could mean that while Beijing deemphasizes GDP targets, it may begin elevating carbon targets in cadre evaluations. Such changes certainly won’t take hold overnight, but if implemented will have significant implications on how local governments spend money and what they invest in.  

Shifting incentives can also lead to diversification of investments that could eventually decouple growth and emissions. In some cases, investing in green technologies and prioritizing the services sector will be consistent with provinces’ existing development strategies, thereby reinforcing positive feed-back loops. When the 2030 action plans are revealed, local government investment priorities over the next five years will become clearer, which will in turn shape local policymaking.  

Beijing will also continue to shut down less efficient and older coal plants and concentrate mining and generation in large bases. This may offset some of the new capacity and lower average carbon intensity from coal generation, though it will also complicate coal phase-out in the longer term. Other low-hanging fruit measures include continued replacement of direct coal combustion with electric and gas heating, such as having this heating conversion in northern China reach 70% by 2025.  

Looking Forward: Uneven Progress  

Now that Beijing’s long-term decarbonization goals have been set, the task turns to mobilizing the entire country to achieve them. Local implementation, as it has always been, holds the key to making progress on reforms of institutions and incentives over the next few years.   

Of course, much like the United States, a decentralized continental-size economy does not march to the same beat, even if the man beating the drum is Xi Jinping. That’s why some flexibility is already baked in. The state firms and provinces have the option to peak carbon before 2030 and tailor their approaches based on their local circumstances. For example, the steel industry has pledged to peak emissions before 2025, a goal that may be facilitated by a future trend of reduced demand. 

As a consequence of this flexibility, there will likely be a multi-speed approach to decarbonization, not entirely unlike the path of China’s economic development since reform and opening up in 1978.  

Some provinces will be much more aligned with central mandates and timeline on decarbonization, while others will be laggards. For example, wealthier regional economies with larger services sectors and less carbon-intensive industries will have first-mover advantage when it comes to implementing peak emissions policies. This dynamic may well lead to a significant “decarbonization gap” between regions in terms of both the decarbonization targets they set for themselves and their performance.  

China’s leadership has set a very large ship of state on a course correction that involves both an economic and energy transition, without getting stuck. To do so, restrictions on coal capacity are inevitable if not immediate. But no less important are the lesser visible structural reforms. If the challenges posed by incentives, vested interests, and capacity are ameliorated, then other measures, including green finance, R&D funding, and renewable expansion, will be more likely to succeed.  

China’s decarbonization future is thus linked just as much to the expansion of renewable infrastructure as it is to the institutional infrastructure, and progress in each respective area will have to reinforce the other.