Bulletins and News Discussion from November 13th to November 19th, 2023 - Much To My Chagrindavik - COTW: Iceland

China is on track to blow right past their Paris Agreement targets. Peak oil, peak coal and peak carbon are all coming way ahead of schedule and China's contracting construction industry is a huge boon to GHGe targets.

Some aggregated analysis on the current status of China's energy transition. Recall what China's updated Paris Agreement commitments are

Analysts today are expecting China to hit peak carbon by 2024, 6 years ahead of schedule. This is primarily driven by hitting peak gasoline in 2023 driven by plug-in EVs and hybrids making 38% of new car sales and growing fast, as well as peak coal in 2024 driven by massive adoption of renewable energy. New solar deployments in China in 2023 are expected to reach >150GW and wind projects are progressing at a similar rate. In fact, clean energy deployments are expected to exceed demand growth in 2023. By every metric, China is on track to blow this commitment out of the water.

Note that some research was already indicating that China could hit peak carbon around this time:

We develop an ensemble time-series model with machine learning approaches as the projection benchmark, and show that China’s carbon peak will be achieved by 2021–2026 with > 80% probability. Jiandong Chen, Chong Xu, Ming Gao & Ding Li. Carbon peak and its mitigation implications for China in the post-pandemic era. Scientific Reports 12, 3473 (2022).

The optimized results show that China's energy-related carbon dioxide emissions could peak between 2022 and 2025, most likely in 2023, with CO2 emissions of 11.21–11.56 Gt. Shiwei Yu, Shuhong Zheng, Xia Li, Longxi Li. China can peak its energy-related carbon emissions before 2025: Evidence from industry restructuring. Energy Economics 73, 91-107 (2018).

Joint research by NRDC and Chinese Academy of Environmental Planning (CAEP) finds that China’s top coal-consuming sectors—power, steel, cement, and coal-chemicals—can collectively peak both coal consumption and carbon dioxide emissions in 2025. Jake Schmidt et al. China’s Top Industries Can Peak Collective Emissions in 2025. National Resources Defense Council (2022).

We can also choose to break this down by industry. Today, China's emissions are dominated by electricity (42%), steelmaking and cement (15%+12%), and transportation (11%). Let's consider each industry.

In the electricity sector, we have already discussed the rapid deployment of renewables and the possibility of peak coal by 2024. Looking at things more closely, we see how this does not contradict with China's construction of more coal power plants with 392GW of coal power plant capacity in the pipeline. First, note that China has decreased coal power plant utilization from 70% to 53%. This means that each power plant is on for only 53% of the time. Moreover, recall that the past few years have seen rolling blackouts across the country due to droughts and insufficient peak electricity capacity. It's difficult to argue that addressing rolling blackouts shouldn't be a pressing issue, and it's one that renewables are currently unsuited to address due to variability in production. It's expected that China will use coal power plants for peaking demand and rely on renewable deployments increasingly for typical load. This is supported by recent national policy that pays for unused capacity for fossil fuel producers: the goal is to idle plants until they are needed to address peak demand.

With regards to steel and cement, we have to look at China's construction industry which is the largest consumer of these products. Recall that in 2020, China took the decision to tighten financing rules for developers to curb reckless borrowing. This has driven a significant contraction in the construction industry and has led to stagnating demand for steel and cement. This is not a coincidence. Meanwhile, China has been increasing EAF deployment (which uses scrap instead of iron ore to produce crude steel) to further decarbonize the steel industry. The cement industry is further along and China's mass adoption of modern cementmaking techniques have significantly reduced the carbon footprint of cement. In general, the real estate industry is a microcosm of Chinese economic policy: China drives massive investment into an industry using economic stimulus, cuts stimulus and pushes towards privatization with large government contracts, pushes the industry to overcapacity to leverage economies of scale (exploiting market processes to drive down costs), then ratchets down demand to replenishment levels. What this means is that costs get driven down extremely fast and efficiencies are extracted at scale, but long-term market stability is iffy. For example, we can compare costs between China and the US in construction (Tier 1 cities in China average 1000USD/sqm, US (apartments) average 4300USD/sqm), or in high-speed rail (21 million USD/km of HSR in China, compared to 126 million USD/km in the US). The same story is true in the solar, wind, and battery industry. China sacrificed short-term GDP growth from real estate in exchange for reducing emissions from a contracting construction sector... and it's worked.

With regards to transportation, we can point to the rise of HSR (supplanting air travel), the rise of electric vehicles (supplanting ICE vehicles), the rise of subways (supplanting cars), and the rise of micromobility vehicles (also supplanting cars). Passenger volume on HSR replaces air travel demand, 38% of new cars are EVs, buses and taxis are increasingly electrified, massive expansion into urban rail transit, and the largest micromobility sector in the world. This increased electricity demand was expected to drive an increase in coal demand, but as we saw coal demand is expected to plateau as early as next year anyway.

China is also leading in reforestation, which acts as a huge carbon sink that is often misreported in official numbers. Frankly, more data is needed to understand the true impacts of reforestation in terms of carbon sequestration. I believe that reforestation efforts provide the key to carbon capture and storage mechanisms in the near future.