China's CO2 emissions expected to fall in CY'24 on rapid growth in low-carbon power

• CO2 emissions may fall nearly 250 mnt in CY'24
  
  
• Solar, hydro output to exceed power demand growth
  
  
• Renewables turning more cost-competitive than thermal generation
  
  

Morning Brief: China's carbon dioxide (CO2) emissions are likely to fall in 2024 and could be facing a structural decline mainly due to record growth in the installation of new low-carbon energy sources, as per recent research by UK-based think tank Carbon Brief which estimates that emissions may drop 249 million tonnes (mnt) in 2024.

As per data available with BigMint, China's CO2 emissions were recorded at around 12.6 billion metric tonnes (bnt) in 2023-an increase of 4.7% y-o-y, or around 542 mnt higher compared with 2022. In absolute terms, China's CO2 emissions have increased by nearly 308% since 2000. China, the top emitter of CO2 globally, witnessed its emissions per capita increasing by 207% from just 2 tCO2 per capita in 2000 to 7.54 tCO2 in 2021, according to data from the International Energy Agency (IEA).

Electricity and heat production in China constitute the bulk of national emissions at around 56-57%, while the industrial sector accounts for over 26% of total emissions and transport around 9-10%.

Rise in emissions post-COVID

China has experienced robust economic growth in recent years, considering the impacts of pandemic lockdowns and the property sector disruption. From 2019 to 2023, GDP growth averaged 4.6% in China. In 2023, it grew 5.2% y-o-y. The economic recovery during the period impacted by the COVID-19 pandemic was quite energy-intensive. Continued investment in infrastructure, manufacturing capacity and real estate has been a major driver of growth, pushing up energy intensity, as per IEA.

Although investment in new real estate projects fell, 2023 construction activity was higher than in 2022 as developers worked to clear a large backlog of already started projects.

China's emissions were also pushed up by cyclical factors. After the reopening from COVID-19 lockdowns, highway passenger kilometres increased nearly 50% and aviation passenger kilometres by more than 160% in 2023.

Why emissions may fall in 2024?

• Phenomenal growth in solar, wind capacity: In 2023, China contributed around 60% of the global additions of solar photovoltaic (PV) and wind power. While emissions have increased in 2023, it has also seen a historic expansion of low-carbon energy installations. Expected solar power installations in 2023-210 gigawatts (GW)-are twice the total installed capacity of solar power in the US and four times what China added in 2020, as per Carbon Brief. The newly installed solar, wind, hydro and nuclear capacity added in 2023 alone will generate an estimated 423 terawatt hours (TWh) per year. The country's solar photovoltaic manufacturing capabilities have reduced local module prices by nearly 50% in 2023, increasing the economic attractiveness of both utility-scale and distributed solar PV projects.
  
  
• Surge in hydropower: China is likely to see a large y-o-y increase in output from its hydropower fleet in 2024. Around 29 GW of hydropower has been added from the beginning of 2022 to September 2023, marking a 7% increase in capacity. Utilisation levels will rise in 2024 after droughts and heatwave impacted the sector in 2022-2023.
  
  
• Increasing EV sales: In 2024, electric cars sales in China are projected to leap to about 10 million, accounting for about 45% of all car sales in the country. In China, the number of new electric car registrations reached 8.1 million in 2023, increasing by 35% relative to 2022. More than one in three new car registrations was electric in 2023. China dominates battery production for EVs with over 83% of the global total and close to 60% of EV manufacture in 2023.
  
  

Steel sector

Coal use outside the power sector has dropped due to a major drop in building materials driven by the ongoing contraction of real estate construction and infrastructure. This is also reflected in the drop in cement sector emissions.

However, other uses of coal have increased, particularly the use of coking coal in the steel sector. The rate of increase in coal use for steelmaking has been larger than the increase in steel output, indicating a shift from electric arc to coal-based steel production.

However, the State Council's carbon restriction roadmap envisages EAF capacity increasing to 15% by 2025, surge in scrap usage to 300 mnt, and prohibiting further permits for standalone coking, sintering and ferroalloys capacity in favour of integrated setups to boost energy efficiency and curb transport-related emissions.

Mid-term outlook

In the short term, record additions in low-carbon electricity generation capacity will push fossil fuels and CO2 emissions into gradual decline in 2024. In the mid-term, as per some estimates, renewable energy capacity would reach 7,300 GW by 2028, with China responsible for almost 60% of the new renewable capacity added worldwide. According to the IEA's forecast, by 2028, almost half of China's electricity generation will come from renewable sources.

China's power sector is already under the ambit of the country's ETS and, as per recent disclosures, the steel sector is also expected to become a part of the ETS either this year or next. Peaking of coal-fired power capacity by 2030 and the expansion of the national carbon market will, too, play a key role in increasing the attractiveness of low-carbon alternatives.