China aims to waste production in key sectors to reduce pollution and mitigate overcapacity

Beijing on Wednesday pledged to eliminate China’s “backward manufacturing capacity” characterized by high levels of energy consumption and pollution – a move expected to meet carbon reduction goals and also ease concerns among Western politicians about excess production capacity.

The country will also increase the share and utility rate of renewable energy in its power grid by increasing energy storage capacity while “strictly and judiciously” controlling coal consumption, according to the state-issued Energy Saving and Carbon Emissions Reduction Action Plan 2024-2025 Advice.

It said the plan was formulated to “adopt pragmatic and effective measures” and “make every effort to meet the binding energy conservation and carbon reduction targets set out in the 14th Five-Year Plan.”

This long-term economic development template, launched in 2020, sets a target of reducing carbon dioxide emissions by 18% per unit of GDP over the period 2021-2025.

The new action plan clearly lists four industrial sectors where wasted capacity should be removed: steel, petrochemicals, non-ferrous metals and construction materials, with the creation of new capacity strictly prohibited or “strictly limited” in specific sub-sectors.

Dong Xuyang, Climate Energy Finance

“The plan sets more specific targets and quantitative thresholds, emphasizing energy conservation in manufacturing operations and reducing energy consumption and waste,” said Jingwei Jia, deputy director of ESG research at Sustainable Fitch.

“This is a clear improvement in terms of ambition to reduce emissions, raise technical standards and encourage structural changes in the production of key emitters compared to the broad guidelines previously agreed,” she said.

The energy intensity of China’s economic activity is very high, which in turn creates huge strategic opportunities, said Dong Xuyang, China’s energy policy analyst at Climate Energy Finance, an independent think tank based in Sydney.

“This is certainly a step in the right direction as China is experiencing a glut of steel production and demand from the domestic real estate sector has declined significantly, leading to excessive growth in steel exports.

“However, China’s crude steel is produced using the highest carbon intensity compared to other major steel-producing countries,” Dong said.

Reaching peak steel production in China could seriously help accelerate the decarbonization of the Chinese economy, potentially pushing forward peak emissions targets, but more ambitious and detailed regulation is needed for significant changes, she added.

The new plan also indicates that China’s current mission is to improve its capacity to use renewable energy, analysts say.

Published data shows that China has become a world leader in the organic sector, and its production is growing at an unprecedented rate. In 2023, installed renewable capacity exceeded 1.45 billion kilowatts, accounting for more than half of the country’s total installed power generation capacity. by the National Energy Administration.

However, the key issues with renewable energy in China are variability in electricity generation and geographic disparities in production and consumption. As a result, much of the energy generated by solar panels and wind turbines in China’s far west is now wasted.

Proposals in the new plan include accelerating the construction of large-scale transmission channels to improve inter-provincial and inter-regional energy transmission capacity, enabling the transformation of distribution networks to increase the capacity of distributed new energy, and the active development of pumped storage and new energy storage.

It said the installed capacity of new energy storage in China would exceed 40 GW by the end of 2025 – a target that is likely to be reached this year, Dong said. According to the China Electricity Council, at the end of March, China had a total of 35 GW of power.

Meanwhile, the new plan allows wind and solar power to be reduced by up to 10 percent in “better resourced areas” compared to the previous restriction level of 5 percent.

“This is an important short-term concession until the backlog of battery and pumped storage power plants is cleared,” Dong said.

“A real signal of policy clarity could be to say that China will not allow grid integration problems to slow down its massive, mutually reinforcing, world-leading strategies to decarbonize and electrify everything in the near future,” he added. she added.

Meanwhile, the country will strengthen the clean and efficient use of coal and promote the low-emission transformation of coal-fired power plants, the plan says.

“Increasing the use of clean coal is still a short-term priority for China’s energy policy due to energy security concerns,” Jia said.

China, heavily dependent on coal for energy consumption, once launched a campaign-style effort to reduce the use of coal for power generation, leading to a prolonged energy crisis across much of the country in the fall of 2021.

Last summer, President Xi Jinping said that to reduce energy intensity, the country should “introduce the new before abolishing the old,” indicating a shift from the previous approach of radical decarbonization.

The action plan also mentions that the use of other cleaner energy sources, such as natural gas and biomass, for heat generation will also be promoted.