China’s Growing Energy Demand Creates a Climate Conundrum

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(Bloomberg) — China’s electricity demand is becoming a key hub in the fight against global climate change.

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As the world’s largest polluter, China plays a key role in ensuring that emissions cannot be reduced quickly enough to avoid the worst effects of global warming. The country’s adoption of clean energy technologies has raised hopes that it will ramp up and begin reducing greenhouse gases much earlier than its stated 2030 goal.

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But that has not happened so far, mainly because the nation’s electricity demand is growing at an unprecedented rate, requiring more coal to be burned. Electricity consumption grew by 6.8% last year, outpacing overall economic growth at the highest rate in at least 15 years. And with China grappling with economic instability and trade tensions likely to be exacerbated by new US President Donald Trump, the future of growing electricity demand remains a big question mark in China’s efforts to decarbonise.

“Electricity demand and energy demand are the main drivers of emissions,” said Lauri Myllyvirta, lead analyst at the Center for Research on Energy and Clean Air. “There’s certainly a lot of room for divergence on the demand side, depending on Trump and everything that’s happening in international trade.”

Energy and growth have long been linked in China. Former Premier Li Keqiang once said that electricity consumption, rail transport and bank lending provide a more accurate picture of the economy than reported GDP figures. Increasing efficiency by reducing the amount of energy needed to produce goods has long been a metric that governments use to measure themselves.

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But that relationship has soured in recent years as Beijing relies on manufacturing to reinvigorate the economy following the end of the Covid-19 pandemic. Electricity consumption has grown faster than GDP growth to some extent in the past three-fifths of the past decade, after trailing it throughout the past decade. The China Electricity Council, the power industry’s top lobbying organization, expects consumption to grow by 6% by 2025.

Growing demand for electricity is hampering efforts to decarbonize the electricity sector, which accounts for nearly half of the country’s greenhouse gas emissions. Even after record additions of wind turbines and solar panels, clean electricity generation was not enough to meet all the growing demand last year, forcing thermal power plants to burn more coal and produce about 1.5% more power by 2023.

A major driver of this high energy demand has been the industrial sector, which accounts for nearly two-thirds of China’s electricity consumption. Even as the housing slump drags down steel and cement, production of materials such as copper, aluminum and petrochemicals hit record highs last year on the back of rising energy prices.

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President Xi Jinping’s push for so-called ‘new energy production quality’ also meant more energy was needed to produce goods such as biopharmaceuticals, aircraft, solar panels and EVs, as well as the machinery and factories needed to make them, according to the China Electricity Council. .

All of that “makes the economy more energy efficient,” said Muyi Yang, senior China analyst at climate and energy research group Ember.

Other factors also contribute to the increase in energy demand. The economy has gradually electrified in recent decades, replacing small coal-fired power plants and homes with electricity or gas. That is now also happening in the transportation sector, where sales of EVs are booming. Demand for charging EVs increased 38% last year and now accounts for about 1.1% of all energy used, according to data from the National Energy Administration.

Although EV charging may put a lot of pressure on the energy system, it is still a result of “climate success” because electric motors are more efficient than gasoline or diesel ones, said Cosimo Ries, an energy analyst at Trivium China. China National Petroleum Corp. recently said it now expects oil demand to peak this year, half a decade ahead of its previous forecast.

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Artificial intelligence is also having a negative impact. Data centers are expected to account for 5% of total energy consumption in 2030 from about 1.6% in 2023, according to Goldman Sachs Group Inc. analysts. including Jacqueline Du. Then there are the heat waves that have hit China every three years, driving air conditioner sales and reshaping the curves needed to make summer peaks more pronounced.

“Certainly a lot of it comes from external shocks that we’ve seen, especially with summer heat waves,” said Ries.

There are signs that economic growth in China may slow, as industrial energy demand growth fell to historic levels in the last few months of 2024, CREA’s Myllyvirta said. Still, with the government set to unveil fiscal stimulus measures later this year and likely to respond to tax increases from the US, uncertainty over the path of the economy, and the country’s decarbonisation journey, is rife.

—Courtesy of James Mayger.

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