In May 2024, China unveiled key action plans for energy conservation and carbon reduction for 2024-2025, targeting energy savings equivalent to about 100 million tonnes of standard coal and a reduction of CO2 emissions by around 260 million tonnes. The energy and chemical, steel, non-ferrous metals, and building materials industries are required to contribute to nearly 80% of these goals. Some relevant sectors may face stricter requirements and their capacity expansions may also be restricted.
The energy and chemical industry, responsible for 40% of the energy savings and 42% of the CO2 reduction, is under the most pressure. In 2023, this sector's energy consumption reached 805 million tonnes of standard coal and its CO2 emissions stood at 1.63 billion tonnes. Over the next two years, these figures need to decrease by 4.97% and 6.75%, respectively - larger reductions than those required in the other three industries.
The energy conservation and carbon reduction initiative requires equipment upgrades and technological transitions in key industries, focusing on energy-using equipment in the energy and chemical, industrial, information and communication, and transportation sectors. This aligns with China's 2024 policy on large-scale equipment renewals. In the chemical industry, facilities that have operated for 30 years or more and fail to meet national safety standards would be phased out by the end of 2029.
Over 50% of the binding targets for reducing energy consumption and carbon emissions per unit of GDP set by the 14th Five-Year Plan (2021-2025) remain unmet. These goals need to be achieved by 2025, making the tasks highly challenging. To reduce pressure in meeting these targets, China is expected to accelerate the development of its green power and green electricity certificate (GEC) markets while increasing non-fossil energy consumption. Key energy-consuming entities (KEEs) and energy-intensive industries/projects will face mandatory non-fossil energy consumption requirements, driving demand for green power and GECs.
Outdated Capacity Elimination, Stricter Entry Standards, New Capacity Cap
In 2024-2025, China aims to save energy equivalent to about 100 million tonnes of standard coal and reduce CO2 emissions by around 260 million tonnes. Four industries, including the energy and chemical (saving 40 million tonnes of standard coal and reducing 110 million tonnes of CO2), steel (20 million tonnes of standard coal and 53 million tonnes of CO2), building materials (10 million tonnes of standard coal & 26 million tonnes of CO2), and non-ferrous metals (5 million tonnes of standard coal and 13 million tonnes of CO2), are the main contributors to the overall targets, collectively accounting for 75% of the energy savings and 77.7% of the CO2 reductions.
These industries are expected to accelerate the elimination of outdated, inefficient production capacity, raise threshold for new entrants, and strictly control capacity expansions. In the energy and chemical sector, for instance, China has repeatedly emphasized since 2023 that the national refining capacity of crude distillation units (CDUs) shall be capped at 1 billion tonnes/year, and CDUs with capacity at 2 million tonnes/year or below shall be phased out. Additionally, construction of CDUs with capacity below 10 million tonnes/year will not be approved.
Outdated Chemical Facilities Expected to Be Phased Out by 2029
The energy conservation and carbon reduction initiative requires equipment upgrades and technological transitions in key industries, aligning with China's 2024 policy on large-scale equipment renewals. The focus will be on energy-using equipment in the energy and chemical, industrial, information and communication, and transportation sectors.
In April 2024, the National Development and Reform Commission (NDRC) initiated a nationwide survey to assess the efficiency levels of key energy-using equipment in major industries. The NDRC called for the establishment and regular updating of lists for energy-saving and carbon-reducing retrofit projects as well as energy-using equipment renewal projects, specifying plans and timelines. In June, the Ministry of Emergency Management released an action plan for phasing out outdated equipment in the chemical industry. While no detailed information was disclosed, industry insiders expected that by the end of 2029, chemical production facilities in operation for 30 years or more and failing to meet national safety standards will be phased out.
China to Promote Green Power and GEC Transactions
During the 14th Five-year Plan period (2021-2025), China aims to reduce energy consumption and CO2 emissions per unit of GDP by 13.5% and 18%, respectively. To achieve these goals, an additional reduction of at least 8.3% in energy consumption and about 10.6% in CO2 emissions by 2025 will be necessary, assuming the 2024 targets (2.5% and 3.9% reductions, respectively) are met. During the 13th FYP (2016-2020), impacted by the COVID-19 pandemic, energy consumption per unit of GDP decreased by 13.2%, achieving 88% of the target, with a 13.1% reduction in the first four years - compared to the expected 5.7% decrease in the first four years of the 14th FYP.
China has excluded non-fossil energy from its total energy consumption and intensity control assessments. To alleviate pressure of meeting the above-mentioned targets, increasing green power consumption is essential. China plans to refine the trading rules for green power and GECs while imposing mandatory non-fossil energy consumption requirements on key energy-consuming sectors. This will significantly boost corporate demand for green power and GECs.
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Edited by Aggie Hu, huchenying@mysteel.com