China Briefing 21 September 2023: New power-market rules; 1,000GW of solar ‘by 2026’; Impact of ‘EV wars’ 

§ Snapshot 

POWER-MARKET REFORM: China published long-awaited rules for establishing national “spot” markets for electricity, which could boost uptake of renewable energy and improve energy efficiency in a “milestone” for the power system.

SOLAR FLARE-UP: Solar additions in China exceeded 100 gigawatts (GW) in the first eight months of 2023 and overall capacity may reach 1,000GW by 2026. Meanwhile, European solar manufacturers have called for support from policymakers in the face of “dumping” of Chinese panels.

WEAPONISED: China’s ministry of foreign affairs released a proposal on global governance in which it stated its opposition to the “weaponisation” of energy issues.

SPOTLIGHT: In this issue, Carbon Brief assesses the factors boosting EV production in China and what it means for the energy transition.

NEW SCIENCE: Peer-reviewed studies assess how vegetation has changed across China between 2001-2020 as weather patterns shift, as well as compare carbon emissions produced by the computing sector in the US and China.

§ Key developments

China releases first national-level power spot market rules

LONG-AWAITED: China’s top economic planner, the National Development and Reform Commission, and regulator the National Energy Administration (NEA), have issued new “basic” rules for the power spot market (explained below), reported economic news outlet Jiemian. The outlet said that the rules will “give full play to the market’s decisive role in the allocation of electricity resources”. State news agency Xinhua also covered the story, explaining that the rules will promote the “equal participation” of new energy sources across the grid. Speaking to Bloomberg, Refinitiv analyst Qin Yan said: “It’s a milestone for China’s power market reform…The basic rules are focused more on the overall guidelines and clarifying key concepts, but it is far from being a comprehensive spot-market rules document. It needs a well-defined and detailed implementation plan.”

BOOSTING RENEWABLES: In analysis published shortly before the new rules were announced, China Dialogue stated that “spot trading of electricity helps discover electricity’s real-time prices, better reflects supply-and-demand and market costs in real time, and can bring surplus capacity, not subject to [medium- to long-term] contracts, into the real-time market, to compete on the grid”. The development of a spot market could reduce renewable energy curtailment, discourage installation of new coal power and help align provincial markets, it added. (See Carbon Brief’s China Briefing on 15 June). 

INTERPROVINCIAL MARKETS: Monday’s announcement also called for power spot markets to allow more stakeholders to directly participate in interprovincial transactions and to create a robust link between interprovincial and provincial markets, reported Caixin. It published a comment from Xue Jing, a former department director at China Electricity Council, a trade body, arguing that only by allowing more users to enter the spot markets can China’s use of power become more economical and efficient.

COAL DROP: Meanwhile, new data from the NEA showed China’s electricity demand continuing to climb, up 4% year-on-year in August. Hydro generation surged 19% as waters held back to meet summer peaks were released, pushing output from fossil fuels down 1% – the first decline in 14 months, said the Centre for Research on Energy and Clean Air.

China’s solar capacity and exports surge

ACCELERATING GROWTH: China’s solar capacity is expected to reach 1,000GW by 2026, said energy consultancy Rystad Energy. It found that China will likely install 150GW of solar capacity in 2023, bringing the total up to 500GW – or “40% of global capacity”. (By comparison, overall US solar capacity stands at 145 GW, or 12% of the global total.) In its coverage of the Rystad analysis, Reuters highlighted that, by the end of 2022, China had installed 365GW of wind power capacity and 392GW of solar capacity. Meanwhile, energy news outlet IN-EN.com reported that China’s solar power generation in August rose by 14% year-on-year, double the pace of year-on-year growth recorded in July. BJX News said that China had already installed more than 100GW in the first eight months of 2023, with additions standing at 113GW by the end of August.

EXPORTS SOARING: Meanwhile, China’s solar-panel exports saw a 34% year-on-year increase in the first half of 2023, said industry news outlet EnergyPortal.eu, covering new research by energy thinktank Ember. It found that Europe received just over half of China’s exported solar panels, followed by Brazil at 8% of total exports. India “was the only country to see a large fall in imports” from China, it added, as the country focused on developing its own manufacturing base.

EU PUSHBACK: Ember’s report noted a lag between imported solar modules reaching Europe and the modules then being installed. This came as industry association SolarPower Europe sent a letter to the European Commission calling for policy support in the face of “a dumping stance” taken by Chinese companies in the European market, reported the Financial Times. Politico also covered the letter, highlighting that European firms called for “emergency acquisition” of manufacturers’ inventories that could cost up to €100m ($107m).  A few days earlier, industry news outlet PV Magazine revealed that China solar module prices “have fallen to their lowest values ever” due to intense competition and weakening demand.

China continues to position itself as a climate leader

ENERGY COOPERATION: China’s ministry of foreign affairs stated its opposition to attempts to “politicise, instrumentalise or weaponise energy issues” in a “proposal”, published on its website, on the reform and development of global governance, said industry newspaper China Energy News. The proposal also attributed the “current global energy crisis” to “disruption to supply chains and international cooperation”. The day before the proposal was released, state news agency Xinhua published a “commentary” saying that the US “has failed to make the [financial and technical] contributions commensurate with its role as the largest economy and No. 1 historical polluter” and describing the country as a “skinflint”. Meanwhile, National Energy Administration director Zhang Jianhua called for countries to “accelerate the construction of a global clean-energy partnership” and pledged that China will “strengthen international energy cooperation on all fronts” in an article published under his name in energy news outlet IN-EN.com.

GEOTHERMAL DIPLOMACY: The 2023 World Geothermal Congress concluded in Beijing with the release of the Beijing Declaration, which calls for the “steady advancement of cooperation on and development of global geothermal energy”, reported Xinhua. The first-ever set of international geothermal energy standards were released at the congress. Chinese vice premier Zhang Guoqing also attended, announcing that China will expand its use of geothermal energy and work with other countries for clean-energy cooperation at the congress, reported the outlet on its English-language platform. 

New metrics assessing the global energy transition

NEW RESEARCH: The China Renewable Energy Engineering Institute (CREEI), a research body under China’s National Energy Administration, released the “2023 energy transition index (blue book)”, developed in partnership with BloombergNEF. The index is an assessment of 65 countries’ progress in transitioning to “green” energy systems. CREEI president Li Sheng described the research as a way of “comprehensively understanding the performance of [different] countries in the key areas of energy transition”, in comments reported by the People’s Daily, a communist party-backed newspaper.

FIVE KEY AREAS: The “blue book” (which is a form of policy paper published by non-government organisations or individuals, as opposed to the official government “white papers”) focuses on countries’ progress in five areas: energy consumption across key industries; carbon intensity and energy efficiency in energy supply systems; advancements in energy technology; institutionalisation of green policies and market mechanisms; and international cooperation. Germany ranked first overall, followed by Sweden, China, the UK and the US. For each of the five categories, Germany received the highest score for “green” energy consumption and international cooperation, Sweden for energy supply systems, the US for energy technology and Finland for energy institutionalisation.

POLICY RECOMMENDATIONS: CREEI also put forward a number of policy proposals, including: increased adoption of renewable energy; greater application of hydrogen energy; cost reduction of mature technologies and greater funding for research and development of new “green technologies”; improved global governance on climate change; and more support for developing countries.

LEARNING AID: Li told state media organisation CCTV that the metrics will help China evaluate its progress in the energy transition and help countries around the world compare their progress and “learn from each other”.

§ Spotlight 

What’s happening with China’s EV market?

China’s car exports, particularly of electric vehicles (EVs), are rising rapidly. In response, European Commission president Ursula von der Leyen has announced an investigation into whether to impose tariffs on Chinese EVs, saying that “global markets are now flooded with cheaper Chinese electric cars and their price is kept artificially low by huge state subsidies”.

Carbon Brief looks at China’s EV market – and what it means for the “green transition” in Europe.

Why are there concerns about China’s EV industry?

China is currently the world’s largest automotive exporter, outpacing Japan in the first half of 2023. This has been fuelled by the “explosive growth” of EV exports, China Passenger Car Association secretary general Cui Dongshu wrote in a WeChat post. 

EVs accounted for more than one quarter of China’s 3.32m total vehicle exports in 2022. (Global demand for EVs could reach 14m units this year, the International Energy Agency has estimated.)

Nevertheless, top policymakers in the US and Europe have had long-standing concerns that their countries’ “reliance” on China for EVs must be reduced. German foreign minister Annalena Baerbock and French finance minister Bruno Le Maire both reiterated these concerns in comments supporting the EU investigation.

Baerbock told Bloomberg that being “bound too closely” can “endanger yourself”, adding that “being a partner in climate issues…but also seeing that we are systematic rivals and that we have to protect our own vulnerabilities” is important.

Le Maire focused on trade in his comments to Bloomberg that “in all areas, maybe solar panels, maybe other areas, we have to ensure that trade is based on fair rules…It is maybe the beginning of a new period…where the EU starts thinking about its own interest.”

If the investigation concludes that China has breached anti-subsidy rules, Chinese cars sold into the EU could see tariffs as high as those levelled in the US, according to Bloomberg, citing a person familiar with the matter. 

There are significant price differences between EVs on the market in China and in Europe, fuelling concerns that China’s industrial policy is “distorting” the market. Roughly one-fifth of EVs available in China are priced at less than $15,000, whereas in the US and Europe, there were no electric models on sale for less than $20,000, according to research by Ilaria Mazzocco, senior fellow with the trustee chair in Chinese business and economics at the Center for Strategic and International Studies (CSIS).

But the focus on “Chinese EVs” – EVs designed and produced in China by domestic Chinese brands – ignores that half of all EVs exported from China are manufactured either by Tesla or by Sino-European joint ventures, Mazzocco told Carbon Brief. 

(Additional detail can be found in her paper published by CSIS, co-authored by Gregor Sebastian, a research analyst at the Mercator Institute for China Studies.)

The focus of the investigation should be on “cheap Chinese manufacturing, not cheap Chinese manufacturers”, Mazzocco added.

Is industrial policy behind China’s EV growth? 

EVs have historically been included by China in a basket of advanced technologies that have received policy support. 

This includes tax breaks on purchases of EVs. Bloomberg reported that overall support amounted to almost 39bn yuan ($5.4bn) through the end of last year in production subsidies, research and development subsidies, robust government procurement, plus access to cheap loans, land and grants. 

Another estimate from CSIS placed total EV subsidies between 2009 and 2022 at more than $47bn.

The support helped the industry develop economies of scale that have reduced the cost of manufacturing EVs by up to €10,000 ($10,699), the consulting firm Grant Thornton estimated.

With the exception of purchase tax exemptions, these subsidies were “completely phased out by the end of 2022”. The remaining tax exemptions, Mazzocco stated, are not “a major driver of sales”.

According to Mazzocco, a larger factor in the industry’s growth was the dual-credit policy, a system similar to a carbon market that incentivised automakers to switch from traditional fuel vehicles to EVs.

Are China’s EVs a ‘replay’ of its dominance over global solar supplies? 

“We have to activate our trade defence instruments to avoid another solar panel attack,” European People’s Party leader Manfred Weber said in response to the commission investigation, reported Politico.

China’s “over-subsidising” led to rapid growth of the export-oriented solar power industry, Huizhong Tan wrote in China Focus. China’s solar module manufacturers now “account for up to 95% of global manufacturing capacity”, reported Caixin. This has created “concrete risks” of insolvency for European firms, said industry association SolarPower Europe.

Exports by China’s top five solar panel producers alone would fulfil the majority of global solar power demand this year.

Akshat Rathi argued in the Bloomberg Zero newsletter, however, that China’s recent EV strength “isn’t a repeat of [the] 2000s solar flood”, as “China gained leads in [the two] technologies quite differently”. 

Unlike European solar companies, he stated, “legacy automakers have had nearly two decades to catch up…but warnings of [China’s] coming dominance largely went unheeded”.

What does EV growth in China mean for climate action in Europe?

Analysis in the Washington Post argued that “there wouldn’t be an EV market in Europe today, or anywhere, without the supply chain built by Chinese subsidies”.

China’s dual-credit policy supported the “green transition”, creating an “ambition loop” that allowed “clear government policies and ambitious business initiatives [to] work together to…curb carbon dioxide emissions”, Andrew Steer wrote for the World Resources Institute. 

Nevertheless, at risk is the EU automotive sector, which employs 6.1% of the bloc’s workforce. Several European automotive companies have warned of job losses as they switch to EV production. “Electric car batteries – which make up between 30-40% of the value added of an electric car – will be key to future employment in Europe,” claimed the Green European Journal. 

Another uncertainty, Mazzocco pointed out, is that the “green” jobs promised by policymakers  – in the US, Europe and China – “may never materialise” due to the automation of production lines.  

To keep the cost of EVs down and encourage more consumers to make the switch, she and Sebastian argued in their CSIS paper that EU policymakers must “strengthen innovation and incentivise companies to pursue decarbonisation technologies”, while also avoiding “shielding them from competition”.

§ Watch, read, listen

DEEP THINKING: The Shuang Tan newsletter compiled a list of more than 100 “big” questions on the minds of leading China climate experts, including: Will the current leadership’s strong political will to tackle climate change stand in the next three decades?; What are the primary obstacles to clean energy investment in China?; and Do Chinese people, particularly the younger generations, care about climate change? (Answers will appear in future editions.)

GIANT TURBINES: State-run newspaper China Daily published an explainer video on how the world’s first typhoon-resistant floating offshore wind turbines are built. 

CARBON SINKS: China Daily also reported on research assessing the efficacy of protecting and restoring coastal “blue-carbon” ecosystems as a carbon-reduction strategy. The researchers stated that China already stores up to 118m tonnes of carbon in these ecosystems. 

US-CHINA COOPERATION: Wu Changhua, chief executive officer of the Beijing Future Innovation Center, gave a TED talk titled: “Can the US and China take on climate change together?”

§ New science 

Vegetation response to changes in climate across different climate zones in China

Ecological Indicators

A study found that from 2001-2020 vegetation in China showed a significant greening trend, with the exception of the north China plain and Yangtze river delta regions, which saw degradation trends. China’s climate showed an overall trend towards warming and humidification with drying trends observed mainly over the western regions. During this period, vegetation change in China was mainly derived by changes in precipitation and radiation rather than temperature.

Differences in carbon emissions between the digital economy sectors in China and the USA

Environmental Science and Pollution Research

A study calculated the embodied carbon emissions of the information and communication technology (ICT) industry in China and the US in 2005, 2010 and 2016, assessing both production and consumption. It found that emissions are greater on the production side of the sector in the US and on the consumption side in China. For both countries, electricity is the largest upstream sector in terms of emissions, although the US ICT sector is typically more efficient.

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