China Increasingly Dictates The Speed Of The Energy Transition

 No other large energy-consuming country has such an outsized impact on both fossil fuels and renewables consumption than China. Its economic growth and infrastructure build-out in the last three decades have changed the world of energy. But now China is changing and setting the pace of the global energy transition, the International Energy Agency (IEA) said in its new World Energy Outlook 2023 report this week. 

China’s economic growth could be nearing an inflection point in which the resource-intensive investment in urbanization, infrastructure, and factories may slow down—suggesting lower demand for cement and steel, and possibly for oil and coal, the IEA says. 

However, the size, shape, and speed of China’s structural economic change is highly uncertain, which makes predictions about China’s energy demand uncertain, too. 

“Our analysis explores some key uncertainties, notably regarding the pace of China’s economic growth and the possibilities for more rapid solar PV deployment opened by a massive planned expansion in manufacturing capacity (led by China),” the IEA said in the report. 

China is the global leader in renewable energy spending, but it’s also one of just a few major economies still approving and building coal-fired capacity. Energy security and the need for stable power generation during peak demand to back the growing economy and supply stability precede concerns about emissions.  

China has already reached its goal to have more non-fossil fuel installed electricity capacity than fossil fuels earlier than planned, with 50.9% of its power capacity now coming from non-fossil fuel sources. Back in 2021, the Chinese authorities said they would target renewables to outpace fossil fuel-installed capacity by 2025.

The IEA acknowledges the key uncertainties about China’s energy use, but it seems to bet on structurally lower GDP growth going forward as it revised down the long-term projection of GDP growth in China to just under 4% per year for the period 2022 to 2030, and 2.3% per year for the period 2031 to 2050. 

“But slower growth results in China’s total energy demand peaking around the middle of this decade; with stable and then slowly declining demand, clean energy growth is sufficient to drive a decline in fossil fuel demand and hence emissions,” the IEA said.   

“As China’s demand growth slows, clean energy pushes fossil fuels into decline,” is a bold statement from the agency which also predicts global peak oil, natural gas, and coal demand to occur by 2030.  

“In China – the world’s largest coal consumer – the impressive growth of renewables and nuclear alongside macroeconomic shifts point to a decrease in coal use by the mid-2020s,” said the agency. 

This is based on the assumption that “China will gradually use its coal-fired power more to provide flexibility and less to deliver bulk energy, though there is inevitably some uncertainty about the speed and degree of this shift,” the IEA notes. 

No one, least of all the IEA, has a clear outlook on how much and how fast China’s economy and energy needs will change. The international agency’s wishful forecast that “clean energy pushes fossil fuels into decline” in China is unlikely to materialize any time soon. 

Even if it did, China also has an outsized role in the global supply chain of clean energy technology, which brings another set of energy security concerns due to the highly geographically concentrated supply chains for both technology and critical minerals, as the IEA acknowledges. According to the agency’s forecast in the World Energy Outlook, China will have a 79% share of the solar PV supply chain in 2030, 64% in wind power, 68% in batteries, 54% in lithium chemicals, and 72% in refined cobalt. 

Further trade restrictions from China and escalating China-West frictions could slow down the energy transition due to the Chinese dominance in several key minerals and technology supply chains. This will raise the already very high bill for industries and governments to ensure the supply of key components to advance the transition away from fossil fuels. 

“Energy transitions also bring new risks to energy security,” the IEA warned. 

“Diversified investment to meet growing demand can help, but international partnerships will also be necessary.”  

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