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Shift Key with Robinson Meyer
Shift Key Classic: Have China’s Carbon Emissions Peaked?
00:51:34
Rob and Jesse unpack one of the key questions of the global fight against climate change with the Centre for Research on Energy and Clean Air’s Lauri Myllyvirta.
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- [00:00]
Gillian Goodman
You are listening to Shift Key Heat Maps weekly podcast on decarbonization and the shift away from fossil fuels. On this week's show, we're pulling up a favorite from the archives. We're talking about China, the world's largest emitter of planet warming pollution, and specifically whether those emissions have peaked. This was a big topic of conversation toward the end of last year and this week we got some new evidence that, yes, that might actually be what's happening. This was a fantastic episode and we're excited to bring it back. It's all coming up after this.
- [00:31]
Podcast Sponsor/Announcer
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- [02:01]
Gillian Goodman
Hi, my name is Gillian Goodman. I am the deputy editor of Heat Map News and you are listening to Shift Key, Heat Map's weekly podcast on decarbonization and the shift away from fossil fuels. Your regular hosts Robinson Meyer and Jesse Jenkins are off this week. So as we do from time to time on Shift Key, we decided to go back into the archives and resurface one of our favorite episodes from Time Gone by. Back in January, Rob and Jesse sat down with Lori Miaverta, the co founder of the center for Research on Energy and Clean Air, or crea, to ask one of the key questions of the energy transition, which is have China's greenhouse gas emissions finally peaked and are they maybe even already in decline? At the time, Korea had recently released its annual report on China's Climate Transition Progress, which estimated that China's CO2 emissions would be flat or record a small increase for 2024. That was last year. Since then, Korea has released a handful of new reports showing that, yeah, China's carbon emissions have started trending downward. Korea has found year over year declines in all three quarters of this year so far. The latest set of findings released Tuesday, November 11, that is yesterday, shows that power sector emissions were flat in the third quarter compared to the same period of 2025. Even though electricity demand growth actually accelerated from the beginning of this year. A lot of that is due to new solar and wind capacity. Just this year, China has added 240 new gigawatts of solar and 61 new gigawatts of wind. By comparison, the US added just shy of 50 gigawatts of solar capacity and 4 or 5 gigawatts of wind capacity, depending on how you count it, in all of 2024. And that was with the more generous clean energy subsidies in the Inflation Reduction act, which have since been, you know, walked back. If China's emissions have peaked, that would be huge for the global energy transition. As Jesse said at the time we recorded this episode, as goes China, so goes the world when it comes to greenhouse gas emissions. He and Rob and Lori get really deep into all the structural factors that have shaped China's energy transition so far. I learned a ton from listening to it the first time around. So if this is new for you, congratulations, you're in for a treat. And even if it's not, you know, might be time for a refresher anyway, in any case, I'm excited for you to listen right now.
- [04:20]
Robinson Meyer
Laurie, welcome to Shift Key.
- [04:22]
Lori Miaverta
Thank you so much. Thanks for having me.
- [04:24]
Jesse Jenkins
Yeah, we have been excited to try to dig in a bit more to what is happening with greenhouse gas emissions in China. Perhaps the most important story in the world when it comes to the trajectory of global greenhouse gas emissions. China, of course, is responsible for, I think, over 30% of global emissions now. So we're not going to be able to peak global emissions and begin to draw down emissions rates unless China itself reaches those targets. And there are some early signs that perhaps that peak has either arrived or will arrive soon. What's going on? Where is China at in its journey towards peak emissions, which I should note for listeners, the official goal was to have emissions peak by 2030. So we're talking about potentially quite a bit earlier if emissions indeed are flattening out now.
- [05:10]
Lori Miaverta
So the really big thing that happened around 2020 was, was a massive acceleration in the deployment of clean energy, especially solar. China was doing a lot already before that, but that's when things really took off. So in the past 12 months, more than 260 gigawatts of solar have been added alone and almost 90 gigawatts of wind. So that's enough to cover the growth in electricity consumption up to 6% or so in and of itself. There's also quite a bit of nuclear coming in, especially next year, which is the target year for the current five Year plan period. So all of that is adding up to potentially covering all of China's electricity demand growth. The other thing though that happened in the past few years is an acceleration in total energy demand and electricity demand. So if those variables had stayed at their pre 2000, 20 pre Covid growth rates, emissions would have already come down for the past couple of years. But now it's a race between those two things. And that's of course where it gets really hard to predict because energy consumption growth has been energy intensive manufacturing industry, the government pursued policies that favored those kinds of manufacturing industries during the zero Covid and after the zero Covid period to make up for weakness in services and domestic demand. And that pattern has now continued into this year. My expectation last year was that energy consumption, electricity consumption growth would slow down quite markedly this year. And that would mean that this year would have already clearly marked a turnaround. Now it looks more like emissions have plateaued. This year might post even a small increase, but probably if you look at the period since March, which is when the rebound from zero Covid ended, then they will have come down. But the short of it is that the rapid emission growth of the past few years and the past couple of decades has now at least hit a pause. But there is definitely not the kind of structural downward trend that we need to see in order for China to get on track to carbon neutrality.
- [07:40]
Jesse Jenkins
So there's sort of two key variables here and this, you know, we hit both those. The growth rate in new clean energy supplies, particularly in the electricity sector, and then the pace of demand growth. And this has been the story globally. The argument that we actually haven't really seen any energy transition, only energy addition, right? We're adding enough new clean energy maybe to meet growth, but not actually to drive down emissions, which would require us to exceed the growth rate and demand, right? So we can eat into the market share of existing fossil generation. And that's sort of the fundamental equation in China as well, right? Is if demand is growing rapidly, more rapidly than clean electricity additions, emissions go up, and if the opposite is true, emissions go down. There's also seems like some evidence that the Economy itself is slowing or at least going through a bit of a structural change. Right. So still growing, but not growing perhaps at the target rates that the government has said. I think the expectations for this year, if I'm not mistaken, are under 5% growth, maybe 4.5 to 4.7%. So you know, in US terms that's still quite rapid, but in Chinese terms a bit slower than. And then the goal. And part of that is a slowdown in the construction industry. Is that right. Which is another major driver of emissions due to cement consumption and steel consumption.
- [08:50]
Lori Miaverta
Yeah, so I'm a bit allergic to talking about the economy as a whole. You know, the economy is slowing down or the economy is speeding up, because the economy is of course made up of a lot of different sectors. And in order to understand energy demand, those sectors are not created equal. So if you have 5% GDP growth that comes from service industries, from consumer facing industries, that can mean much less than 5% growth in energy demand. And that's what China was seeing until the COVID period. So China was actually making a pretty big deal out of improving the energy or reducing the energy intensity of the economy. And that's what stopped in 2020. So since 2020, there has been essentially no reduction in the energy intensity. Energy consumption and GDP have grown at the same rate. And when you consider the fact that there's a lot of technical improvements still going on, different processes are getting more energy efficient, then that means that the structure of the economy has in fact gotten more energy intensive. And that's the key concern. So the less than 5% growth now is driving faster growth in total energy demand than the 6%, even 7% growth was during the previous decade?
- [10:12]
Robinson Meyer
Is that also just a shift from this residential and housing led kind of speculative growth to leading further into exports.
- [10:22]
Podcast Sponsor/Announcer
That they're doing now?
- [10:23]
Robinson Meyer
Right. And so like you were making a lot of cement and steel and concrete six years ago, but maybe the financial value of that was seen as higher. Is that part of what was happening?
- [10:33]
Lori Miaverta
That's a part of it that, yeah. When you have real estate that is overvalued or highly valued, depending on who you ask, then you might assign more value to a ton of steel. But it's also really that, at least to me and a lot of people who look at commodities, they were looking at the end of the real estate boom as a major potential downside for commodities. And I was expecting that that would lead to less energy intensive growth. But the fact that it was replaced by energy intensive manufacturing just upended that.
- [11:11]
Jesse Jenkins
Whole expectation, what are the main manufacturing growth areas? Is it automotive or other areas?
- [11:18]
Lori Miaverta
It's incredibly broad based. That's the thing that frustrates me about most takes on why this is happening. So we have very detailed breakdowns for electricity demand, which is the most of it. And if you look at the breakdown of where electricity demand growth came during the past few years, there's no single sector that accounts for more than 10% of that. It's non ferrous metals, It's a lot of chemical industry stuff. It's of course, some of that going to batteries, going to other products that are part of the clean energy boom, but a lot of it is simply generic chemical and metal industry stuff also. So it's very much a macro shift where that growth in exports and also growth in output volumes for the domestic market has just happened across those energy intensive industries.
- [12:08]
Robinson Meyer
I think we want to dive into some of the sectoral drivers going forward and I have particular questions about electricity. Before we get in there, can you just orient us to, can you just talk about on a longer time frame what our understanding of the trajectory of Chinese emissions has been? Because I feel like even while I've been a climate reporter, which hasn't been that long, we've really brought that, that peak year in a lot.
- [12:37]
Lori Miaverta
Right. So the initial announcement of peaking by 2030 was made in 2014. And at that point I was saying, and quite a few people in the finance and commodities space were saying that China's emissions were in fact falling at that point. And a lot of people were saying that that could have marked a peak, but that would have required the government to go through with what they were dubbing economic new normal at the time. So shifting from smokestack industries to service driven, high tech industry driven growth. However, what actually happened was that especially in response to the Trump tariffs, starting from 2017, the government shifted back to the old playbook of stimulating construction, stimulating the smokestack industry. And that pattern intensified with the zero Covid and the efforts to offset the economic impact of that. So then back in 2020, President Xi announced the target of peaking emissions before 2030 rather than by 2030, which still leaves quite a bit of room for interpretation. He even said that the government would make efforts to peak earlier than that, but that was pretty much forgotten as an official effort. So now it's very clear what the government is emphasizing is that they're committed to before 2030. But so certainly back in 2014, the idea that emissions would peak definitively was a major change in expectations for policymakers and experts in Beijing. Of course, there's a difference between what do you expect to actually happen and what you're prepared to commit to. But especially making this kind of a commitment was seen as significant in the 2020 announcement. The big piece was targeting carbon neutrality before 2060. And that was of course enormously significant because before that there was no commitment beyond stopping the rise in emissions or starting to peak and possibly hopefully decline emissions. So for the long term, cumulative emissions from China, that was enormously significant.
- [15:03]
Podcast Sponsor/Announcer
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- [16:09]
Jesse Jenkins
So, so let's dive into the key sectors. If we look at the breakdown of China's emissions, over half of it is from the power sector. Right. You know, they're building a coal plant a week. And it's true that coal plant construction has actually continued alongside this massive growth in renewables. So what's the sort of balance there? I think you've dived pretty deep on what's going on with the Chinese coal fleet. I think it's a pretty interesting story that's probably underappreciated by most folks. So maybe we could start there. And I do want to circle back to the renewables growth story. So let's start with coal and then, and then let's talk a little bit more about what is driving the boom in renewables.
- [16:44]
Lori Miaverta
Yeah, absolutely. So I think I'm going to start a decade back again. So China's coal power fleet, of course, incredibly fast growth. Starting from the early 2000s, there was an expansion targeted in the 11th Five Year Plan up to 2015, but that was the point where there was A downturn in electricity demand and energy demand because of a construction slump. So yeah, trans emissions and the power sector emissions were falling from around 2013-16. But then in 2015, the central government gave provincial governments the authority to start approving coal fired power plants. They authorized an absolutely massive amount, I think a couple of hundred gigawatts over the span of a year and a bit then the government clamped down on that. So they suspended a lot of the projects that had already been approved and then those kept trickling through the pipeline out to 2020. But capacity growth in fact slowed down quite significantly. Then in 2020 there was an electricity shortage scare that happened because so the government was driving down, trying to push down electricity prices as a part of this economic policy of promoting industry and manufacturing. And at the same time, coal prices were jumping because of the rebound in coal demand after the first COVID lockdowns. And so then when coal prices were too high to make coal fired power generation profitable, coal plants just stopped buying coal or reduced coal purchases. And suddenly they didn't have fuel or they were telling the regulators that they don't have fuel to run or that they've suddenly got technical problems. Regrettably, it seems that the government basically bought into the idea that this was a shortage of capacity rather than a shortage of fuel. But they responded both by a major drive to scale up domestic coal mining and moving to authorize more coal fired power plants. And then when electricity demand grew at a blistering pace in the past few years, there started to be actual shortages of dispatchable capacity. None of those shortages would make sense if the grid was managed in a competent way. So I've looked at essentially every episode of electricity shortage somewhere in China and they always report the peak demand that they were dealing with. And then even if you assume that wind and solar make no contribution to meeting that peak, if you look at how much coal fired nuclear and hydro capacity is available in the province that is experiencing the shortage, and in neighboring provinces that did not have a shortage then there's always been enough capacity to keep the lights on if dispatch was working in a flexible way. But we know that across provinces it doesn't work in China. So in fact, in many of those episodes of power shortages, the drip region or the province that was having the shortage kept exporting to other provinces. Because the dispatch between provinces runs on a schedule it doesn't respond to.
- [20:21]
Jesse Jenkins
Yeah. Which is it's scheduled as much as a year ahead of time on a fixed schedule.
- [20:25]
Lori Miaverta
And so that, that when you have that kind of a thing, it leads to a massive redundancy. You need a lot more capacity when you're not using it effectively. And if you think about the response to these electricity shortages, you have the hydropower rich provinces that export a lot of power. They say that if we're going to be forced to export in the future, we have to build more thermal power in the provinces that are importing from those provinces. Say that we have to build more locally because those provinces might not export in the future if they have a shortage. And then there's another batch of provinces that are designated as exporting coal fired power that are also building power plants to export to the importing provinces in the east. So you have basically a triple redundancy being put in place to serve the same load.
- [21:15]
Jesse Jenkins
Yeah, this is actually what I was in China to discuss the reforms to electricity markets, which is very much an ongoing and active conversation in China and has been for some time. And China does some very interesting pilots in the way that they sort of roll these things out is they will try certain reforms out at a provincial level. And so some of these reforms have been made, you know, spot markets for, for dispatch in the short term, more flexible use of interconnectors between regions. But nationwide there's still a long way to go, but certainly does provide an opportunity to manage the existing capacity much more efficiently. And you know, they seem keenly aware of the importance of this. It just takes time to get from here to there.
- [21:51]
Lori Miaverta
Yeah, no, absolutely. I'll just say that basically I want to emphasize that I know that China has not been standing still. So if you think about grid management, the other issue besides these power shortages is of course the curtailment of wind and solar. So situations where there's wind and solar plants that would be able to produce, but they're not allowed to feed into the grid. And this issue emerged a decade ago when China had a fraction of the wind and solar that they have now. And so they actually managed to bring down the rates of curtailment over the past decade, even as the capacity multiplied. And none of this was based on kind of textbook market based methods or reforms. So a lot of it is administrative measures. And I think that's how it's also working to a large extent with making the use of interconnectors more flexible. It's implemented on a much more line by line, province by province basis and maybe introducing more flexible schedules instead of really letting the market work its magic.
- [22:55]
Jesse Jenkins
Yep. Yeah. And so, you know, backing up to the high level what, what we're seeing with the coal construction boom today at least, is largely driven by these concerns about peak demand and capacity requirements. But of course, what drives greenhouse gas emissions is how much coal is burned throughout the year, not what the sort of peak installed capacity is. And that's where the story looks a bit more positive. Right. The growth in renewables has been so fast over the last few years that it really is eating into coal's market share. Actually, it's interesting that China and the United States both have about the same share of carbon free electricity generation now. It's about 40% in both countries. And renewables are about the same share actually as well. Wind and solar, I should say are about the same share. We have a bit more nuclear and a little less hydro and the remainder mix than China does. But you know, wind and solar have grown to maybe 12% of the electricity supply in that, that neighborhood. And annual additions are over 300 gigawatts per year. The US has a total installed capacity of just over a thousand gigawatts for the whole country. So these are enormous numbers I think we're building. We're expected to set a record in the US this year for solar additions. Somewhere around 35 to 40 gigawatts of solar additions in China, that number's over 250 gigawatts at both the distributed and utility scale. So if they're able to sustain that rate, the expectation is that they could add one and a half terawatts, 1500 gigawatts of new wind and solar between now and 2030, which would push renewable share up to about 30% of their mix. And that would be a huge chunk out of global emissions. Right? Not just keeping up with growth, but also driving down CO2 emissions on a level that's not just measurable in China, but really globally. So in your sense, what is, from your understanding what is driving renewables growth? The explosion in solar has really been quite recent, right? Is it just that the cost of solar have gotten so cheap? Obviously China manufactures a lot of solar panels most of the world. Or was it market reforms or changes in compensation? What's going on on the ground?
- [24:54]
Lori Miaverta
The easiest thing to identify are two different policies. So one thing that was introduced in the current five year plan is so called clean energy bases. So these are massive designated areas where wind and or solar is built at a large scale. And so the concept is that the transmission, the spatial planning, the contracting and so on are all done in a coordinated way. And these are areas that are seen as economically marginal. So deserts, abandoned coal mines, everything else where the land use conflicts don't arise or are not as severe as elsewhere. So all of that makes those projects faster and easier to execute. And the grid connection, of course, everywhere in the world getting a grid connection is the biggest hurdle for projects. So the fact that the transmission lines are being built is the biggest single factor. The other policy that is something that I think deserves a lot more attention and could be applicable in a lot of other places as well is the so called a whole county solar policy. So this is an approach where a county or a village sets a target for the percentage of roofs effectively or the amount of solar capacity that should be installed in the county. And then there are developers who will speak to building owners to negotiate with the grid company and set this up as a large scale project. So you bring in the workers, you negotiate with the equipment suppliers and so on. So it's basically a centralized way of doing distributed solar and that.
- [26:35]
Jesse Jenkins
Yeah, it's like basically a franchise. Right. You're sort of auctioning off the franchise rights to, to build distributed solar within a given area to a single firm that can do it at scale. And it's incredibly cheap. I was blown away. I didn't realize how much of China's solar editions are distributed now. It's, and that's a big shift. Recently Global Energy Monitor reported that 40% of all solar additions in China are distributed. So that's 140 gigawatts of distributed solar or something like that. And about half of that is on roof residential rooftops. So that makes the residential rooftop market in China this year expected in 2024, double all solar PV additions in the US across all scales. So just what's going on to rooftops is twice as big as the entire US solar market.
- [27:20]
Lori Miaverta
It's just a stunning amount. Yeah. And I want to highlight one more policy that came out in December from the Economic Work Conference which is creating a batch of carbon neutral industrial parks. And so a lot of the solar has also been happening in industrial parks. It makes sense of course because you have local demand and you have industrial land that where it's easy to install. But this could take it further because about 30% of China's emissions come from industrial park. So that's a big, big segment.
- [27:55]
Jesse Jenkins
One thing that I picked up while I was there as well is that because China broadly doesn't have spot electricity prices in most markets, I think there's four or maybe it's eight provinces that, that have been trialing Electricity markets based on economic dispatch and with a single clearing price that reflects the marginal resource in that time period. That's how electricity markets work in the US or Europe or elsewhere. In China mostly it's been driven on a kind of long term power purchase agreement or contractual. And so a few years ago, China ended feed in tariffs or sort of additional subsidies offered for solar and wind that were above the rate set for coal and announced that solar and wind had reached, you know, quote unquote fossil parity. Right. In the sense that their level is your average cost was the same or lower than coal. My understanding is that most of the country right now, basically, if you add solar or wind to the grid, you are paid the same as a coal plant would be for the power under these long term contracts. And that means that as long as the cost of solar is less than that, the cost of coal, you're in the money. And there's not really the market feedback signal that you would see in California or Texas or Europe where as you add more and more solar, it has to keep getting cheaper to sort of stay ahead of the declining value. And so that is one area where if China does move forward with spot pricing and market reforms, it will help with this sort of capacity shortages and it'll make coal dispatch much more flexible. It'll get, you know, coal out of the way during the middle of the day more often. But it may also put a bit of an economic break on the economics of solar deployment given the large scales that we're seeing. And so be interesting to see how those two dynamics work out. And of course, if solar just keeps getting cheaper and cheaper as it has been, then maybe it doesn't matter because it sort of outruns the value decline. But that's the sort of key race that we see in most other markets. And it's not really an active feature in most of China's electricity market today.
- [29:47]
Lori Miaverta
Absolutely. And yeah, so solar developers are concerned about moving to sport markets. So currently it's a bit better than what you described because solar plants get what is called the coal benchmark price and coal plants currently get quite a bit more than the coal benchmark price because there is a float price that is added or subtracted from the benchmark price. Currently, because gold prices are fairly high, they get more than the benchmark price. So solar is already ahead of that gold price. So yes, certainly in places where there's already grid congestion or a high local share, they would get less. In a spot market, on the other hand, there's already quite a bit of storage being added to the grid, but it's not being utilized a whole lot because there's no spot market that would actually make it profitable to use a battery and so on. So that's one thing that would provide a bit of a buffer if you went to a spot market that then all of those batteries and pump the storage plants of which there are a lot coming on stream would start doing some of the work and helping solar capture more of the value.
- [31:01]
Podcast Sponsor/Announcer
This episode of ShiftKey is brought to you by Uplight. Power demand is growing at unprecedented rates, creating a critical moment to meet load growth with customer owned distributed energy resources to ensure a reliable, affordable and sustainable energy future. Uplite is a clean energy tech company that unlocks grid capacity by activating customers and their connected devices to generate, shift and save energy. Uplight combines personalized customer experiences with an AI driven flexible load management platform that harnesses customer ders at scale to maximize program value. Uplight integrates energy efficiency, time varying rates and virtual power plant programs into a single cohesive portfolio. These solutions help meet surging demand while improving grid resilience, accelerating decarbonization and reducing costs for energy providers and their customers. Uplite serves over 80 energy providers, including eight of the 10 largest North American utilities. Learn how Uplight solutions can help your utility meet the moment with existing customer assets@uplight.com heatmap.
- [32:13]
Robinson Meyer
So we've spent a lot of time on the show talking about the rise of the Chinese EV industry and obviously one of the biggest stories in the world right now. The CNBC Economics and Technology Research Institute said that China's oil demand had peaked last year because of the rise in EVs.
- [32:32]
Podcast Sponsor/Announcer
Can you.
- [32:32]
Jesse Jenkins
This is the research arm of the China National Petroleum Corporation, the state owned oil company.
- [32:37]
Robinson Meyer
Yeah, exactly. And so can you just let's say stipulate that folks know the rise of the Chinese EV industry is a big deal, but what has that meant for the emissions picture and are we seeing in some ways what we don't want to see, which is China switching from oil to coal? What is the trajectory that you're tracking here?
- [33:00]
Lori Miaverta
So if you look at the emissions, the life cycle emissions from an EV in China at the moment, compared with a gasoline vehicle, the EV is going to be a bit better. I just got roasted by a lot of people when I posted a back of the envelope calculation on multiple social media platforms. But it's going to take anywhere from a few years to seven or eight years for an EV to pay back the emissions associated with making the battery. And so this is for a fairly large EV driven at the average rate. So of course for a taxi or a delivery vehicle or a bus, it's going to be a lot less. But so for the average ev, that's the picture. And so what it's currently doing is that it's of course causing upfront emissions in the manufacturing of batteries. And then in the next few years the reduction from in oil consumption is going to offset that. And then of course the most important thing that it does is that it sets China up for steel productions in transportation sector emissions as the grid gets cleaner. And that's the key point about the transition, that it takes at least a couple of decades to clean up the grid. It takes at least a couple of decades to transition the transportation sector from oil to electricity to the extent possible. And so if you do that, those two transitions one after the other, that's just way too long in terms of air pollution, way too long in terms of reducing greenhouse gas emissions and so on. So it makes sense to do the two of them together. But it only really delivers substantial reductions in emissions if you do clean up the grid while you are doing that transition to EVs.
- [34:54]
Jesse Jenkins
Yeah, this is a very big difference in the US emissions pie in the sense that, you know, in the US transportation related emissions are now the largest source of greenhouse gas emissions in the country. In China it's I think under 10%, maybe about eight, eight and a half percent of emissions. So while peaking oil consumption is going to send shockwaves around the market globally for oil. Right. It's been one of the major drivers of increasing demand for oil. As China's increased consumption, they've sort of gone on to become the largest importer in the world of oil. So peak oil consumption is a big deal for markets. It'll have a less of an impact on their overall emissions trajectory, but still a quite important one. And I think you highlighted one of the other key drivers, which is the air pollution story. We all have seen reports of terrible smog and air pollution in major cities in China that really has changed quite dramatically over the last, really just five, six years. And EVs are a major part of that. I think probably something like a fifth or maybe even a quarter of the vehicles I saw on the road in Beijing were electric now. And that was when I was there in 2016. It was zero, basically. So that's a huge shift in just a few years. And the expectation is that by 2035, half of all vehicles on the road in China will be electric. And that has a huge impact on urban air quality because Beijing is a city of, you know, 20 million people, it's a massive city and there's a lot of driving. And so that's a major contributor. The other big shift that's happened, important on the air pollution side as well, is there were a lot of two stroke engine mopeds and things like that for people to get around, delivery drivers, people moving around their neighborhoods, et cetera. And those have been almost 100% replaced in the last few years by electric mopeds. So not E bikes, but you know, more like substantive scooter type mopeds. And they're everywhere now. And that's made a huge impact on local pollution as well because the two stroke engines are enormously polluting compared to the fuel consumption. So good, good news for air quality.
- [36:48]
Robinson Meyer
Let's talk about construction, steel and cement. My sense is that historically these were a huge driver of China's emissions. Since the real estate boom collapsed, they have been a far smaller driver of emissions. Can you talk about that where we stand on those for sure.
- [37:05]
Lori Miaverta
So what happened is in 2020, the government introduced policies that clamped down on excessive leverage and financial risk in the real estate sector. And that led to a much more profound drop in construction volumes than the government expected at the time. The biggest effect of that has been on the production of cement, which is about 10% or at least used to be about 10% of China's emissions. And that production has been coming down at double digit rates for the past three years. So that's been a key downward influence on China's emissions. And one sector where there are reductions this year as well with steel. Steel demand has plummeted, but the slack was largely taken up by manufacturing. And that's why we've only seen a steel demand plateau and not come down the way that you would have expected given the huge drop in construction activity. The thing that that hasn't happened or the reason that steel emissions haven't come down more is that China's struggling to execute a shift from, from coal based steel making to using electric arc. So now that steel demand has at least stabilized and could well be starting to come down. At the same time the availability of scrap is increasing because you have more, more buildings, other structures, vehicles and so on coming to the end of their life can be the steel can be recycled. So when your steel demand is growing at 10%, then the supply of scrap is going to be way, way behind and going to be very small compared with the total demand, but when it plateaus, it starts to catch up. But so the issue is that blast furnaces are coal based. Primary steel making is too cheap. Coal is too cheap compared with electricity. And that just means that a lot of the scrap is in fact fed into the coal based steel making route rather than used to carry out the shift to electric arc steel making. So this year when steel production fell sharply, the drop took place mainly in the electric arc segment. And that meant that the reductions in emissions from the sector were much smaller than they had been if the drop had taken place in the coal based segment. And China has a target for the share of electric arc for next year when it should reach 15%, whereas it's hovering just above 10% at the moment. So it's really challenging the targets that the government has said as well.
- [39:48]
Robinson Meyer
When we think about Chinese emissions going forward, it sounds like somewhat to my surprise, perhaps this is increasingly a power sector story, which is, is that wrong? Is it an industrial story?
- [40:02]
Lori Miaverta
Is it a. I want to emphasize the steel sector besides power. So if you simply look at what the, what the China Steel association is projecting, which is a gradual dental decline in total output and the increase in the availability of scrap, if you use that to replace gold based with electricity based steel making, you can achieve an about 40% reduction in steel making emissions over the next decade. Of course that some of that is going to shift to electricity. So you need the clean electricity as well to realize it. But that's an, at least as large an opportunity as there is on the power sector. So that's what I'm telling everyone, that if you want to understand what China can accomplish over the next decade, it's these two sectors first and foremost.
- [40:53]
Jesse Jenkins
Yeah, I mean there's some positive overall trends. Right. If you look at the arc that we're seeing in each sector, with renewables growth starting to outpace demand for demand growth and electricity and eat into coal in absolute terms, not just market share. With the transition in the steel industry, which is sort of a story that we've seen in multiple countries as they move through different phases, right. As you're building out your primary infrastructure, first time you don't have enough scrap, but as the sort of infrastructure and rate of car recycling and things like that goes up, you now have a much larger supply. And that's the case in the US where the vast majority of our steel now comes from scrap. And then, you know, the slowdown in the construction boom. You know, China's built an enormous amount of infrastructure and Housing, and there's only so much more that they need. And so the pace of that construction is likely to fall as well. And then finally the big shift to EVs in the power in the transportation sector. So you've got your, your four largest emitting sources on a very positive trajectory when it comes to greenhouse gas emissions.
- [41:52]
Lori Miaverta
Absolutely. So on the negative side, I'll flag two things. One of them is this trend of abnormally rapid growth in energy consumption. And that's the one when I was in Beijing the last time a couple of months ago, that's what everyone who's modeling this and projecting out to 2030, 30, 2035, that's what everyone was working to understand. What does this period mean? Does it mean that China's now path, where energy demand just keeps growing faster, or does it in fact mean that there's a bit of an unwinding to be expected, that the economic structure will shift back? And that would mean that the recent jump in demand would be followed by a slower period. And that has a major bearing, of course, on the outlook. The other one is the coal to chemicals industry. So China's been building a lot of coal to chemicals plants that try to replace oil with coal based petrochemicals. And if you look at the capacity that is being built, it's frightening, it's not being utilized a lot. And what people say openly is that it's an insurance in case there's a major disruption to China's oil imports because of a conflict with the United States or some other eventuality. So as long as it remains utilized at a low rate, it should not upset the emissions peak, but it's still a concern.
- [43:16]
Jesse Jenkins
Larry, maybe one last question on the industry side too is, you know, we talked briefly about the role of tariffs, but you know, if we start to see increasing decoupling in global markets, right, with the United States throwing up tariff walls, with Europe doing so potentially as well, how does that shift the economic growth story or the sort of the focus in China? One sector that comes to mind, right, is steel. If you see declining utilization of blast furnaces because of the growth of scrap, maybe they start to export that steel to other countries and you continue to see large use of blast furnaces, if that's the case. But if the markets start to close off, maybe that export story doesn't continue to drive emissions in China. So what do you see as sort of the plausible trajectories there?
- [44:02]
Lori Miaverta
So, as I said, the last time that the US Introduced tariffs on China during Trump's first administration, the response was about more energy intensive, emissions intensive growth in China. It's hard to see that happening again because it does seem that the potential for grabbing market share from China, everyone else in the world, has largely been exhausted. And there's of course a lot of counter reaction to that, not just in the States, but in a lot of other places as well. The other other thing would be trying to revive the construction industry as a growth driver. But at least everyone that I speak to in Beijing seems skeptical of that. So I don't see that as a likely scenario. Overall, in terms of what happens with Trump coming in, I think it's very uncertain how the EU will react, how other major economies will react, and that will of course moderate the impact on China as well. It's kind of hard to see the EU going along with 60% tariffs on China if that's what comes to pass. But I think there are too many scenarios to cover in the few minutes that we have.
- [45:17]
Robinson Meyer
How much is the structure of the Chinese government tied up with these continued structural emissions drivers? Either because as you were describing, there's a lot of provincial led economic management that can be quite inefficient, or because at the same time, and I've heard folks who work in China refer to this in different ways, but the provincial officials, local officials, often have a personal interest in continuing the development of these projects, even if they are not economical per se.
- [45:50]
Lori Miaverta
I think the main thing is that the Chinese economic system has a huge bias for mega projects. And that's it's very much the same if you look at the former Soviet Union. So it's just an economic system that is where banks and the financial sector exists to mobilize resources for government led megaprojects. And that's of course all of the factors that you described come into play. There is personal interest, but it's also the easiest way for the government to hit economic targets because that's what the system knows to do. And currently the government is trying to trying out different ways to stimulate consumption and so on, but it's a very long way to go because they also don't have the fiscal resources to do that. They can mobilize a lot of lending and they can write that off, make that disappear in the banking system, but they just don't have fiscal resources to execute the kind of income transfers and so on that it would take to carry out consumption stimulus.
- [46:56]
Robinson Meyer
It's so interesting. You realize how much, what would you call it? You realize how much know how exists at the level of governments too. And that what the US Government's really good at is like moving money through the tax code system system. And so when after Covid, we like were able to send checks really quickly to all Americans because it turned out we had that latent capacity in the government system in China, the government's really good at all these supply side incentives and moving money through the supply side and around the supply side of the economy. And as they consider what might happen on the demand side, it's, in some ways it feels a lot like the American conversation on the supply side, which I'm sure to a Chinese observer looks extremely juvenile and extremely like, oh, you're thinking about that. We solved that 15 years ago. Now we're onto this much more nuanced problem while on the demand supporting the demand side of the Chinese economy is much more rudimentary. Could I ask one more thing, which is what did the Chinese conversation, I mean, I realize you follow the climate and emissions side of this, but on the megaproject side, what do Chinese fights over land use look like?
- [48:11]
Podcast Sponsor/Announcer
Because.
- [48:13]
Robinson Meyer
The Chinese capacity for mega projects and China's government's ability to requisition land for megaprojects is often compared to the US Government's struggle to marshal public resources for mega projects. And one claim that often floats around is that China does not see the same kind of fights over land use that we have here in the United States. You've mentioned land use a few times and land use coming into certain planning or economic decisions. So what is the Chinese status quo, let's say, or the Chinese government's approach to land use?
- [48:51]
Lori Miaverta
Those conflicts certainly exists. So there are these famous households refusing to sell out their house and getting surrounded by some kind of a development. People traveling to provincial capitals, even to Beijing to petition and protest against this or that development or getting inadequate compensation and so on. And the government for the most part does try to respond to these, provide compensation and resolve the conflict. So of course the government has a lot more coercive power. Often the people who are on the, at the receiving end of these developments are quite low income and so on. So it's easier to find ways to make them better off than they were and so on. So yeah, I don't want to downplay the fact that there are a lot of people who, whose lives have been wrecked by different projects in China. But I also want to emphasize that there is quite a bit of effort that goes into finding ways to, to resettle people and resolve conflicts and to direct development in areas where it doesn't have these kinds of negative effects, such as the clean energy bases. Also pretty strict policies on converting agricultural land into industrial land and so on. So in fact, right now there's one thing that's happening right now is trying to find some ways of allowing renewable energy development on agricultural land that doesn't in fact prevent the agricultural use. But because the policy is so strict, that takes a bit of doing. But land use is super complicated anywhere in the world. So you can always find a counterexample to everything that I said.
- [50:43]
Jesse Jenkins
Yeah. This is also where, similar to the US the conversation around transmission is so important because something like 95% of China's population lives east, like in the eastern quarter of the land area. And there's an enormous open land in the west with very little population, deserts and mountainous land. And this is where a lot of those large renewable developments are. But if you don't have the transmission to bring it to where all the people are, it's not going to be able to be used effectively. So these large scale high voltage DC lines are increasingly the way to get more energy from the west to the population centers in the East. Well, thanks so much, Laurie. I really appreciate it.
- [51:16]
Robinson Meyer
Thank you so much.
- [51:17]
Lori Miaverta
Thanks so much.
- [51:18]
Robinson Meyer
So interesting.
- [51:21]
Podcast Sponsor/Announcer
Shift Key is a production of heatmap News. Our editors are Ghislaine Goodman and Nico Lauricella. Multimedia editing and audio engineering is by Jacob Lambert and by Nick Woodbury. Our music is by Adam Kramolow. See you next week.