ENERGY

TRANSITION
OUTLOOK
CHINA 2024

A national forecast to 2050

DNV Energy Transition China 2024 — CONTENTS HIGHLIGHTS

FOREWORD HIGHLIGHTS

I am delighted to introduce this forecast on China’s energy transition through Energy independence is a key motivation Already leading in renewable energy
1 3 investments, China will more than quintuple
to 2050. The publication of this report is one of the ways we are celebrating for the Chinese energy transition, but is
only partly achieved. renewable energy installations by 2050.
DNV’s 160th anniversary year. For most of our long history we have had a
— Domestically-produced coal is replaced by — China’s power mix shifts from 30% renewables
business presence in China, which in fact started in 1888 with the posting of domestically-produced renewables in the power today to 55% by 2035, and 88% by 2050
our first surveyor in Xiamen. The making of this report would not have been sector
— Leveraging its scale, experience, and export
possible without the insights of our colleagues in China, and also our network — Most oil and gas will still be imported, and while network advantages, China is poised to assist the
of experts there, to whom we are very grateful. oil consumption halves by 2050 from the 2027 rest of the world in meeting global renewable
peak; natural gas consumption remains high energy targets
through to 2050
— Nuclear installations double in absolute terms,
No one who has visited China regularly over the past larger service sector will also impact the nature and scale — A faster transition to net zero in 2050 with less oil but the share of nuclear in power production
decade or so, as I have done, will have failed to notice the of energy demand. and gas use would significantly boost energy remains small, around 5% in 2050
skies above the cities becoming clearer and the streets independence
increasingly filled with electric cars and buses. These are Energy independence is the key motivation behind China’s
the visible signs of a vast decarbonization effort taking energy policy. We find that this is only partly achieved by
place in China. From a position where, in 2023, China was mid-century, when China will still be importing sizeable China's energy use will peak by 2030 and Emissions in China are projected to peak
responsible for a third of the world’s energy-related CO2 quantities of oil and gas. In our view, there is potential for 2 reduce by 20% by 2050, driven by electrification 4 by 2026, with a 30% reduction by 2040.
emissions, by 2050 that share will have reduced to a fifth. China to accelerate its transition to reduce its reliance on and energy-efficiency improvements.
In absolute terms, China’s emissions will reduce by a these sources further and faster — and to bring China — China aims to reduce carbon intensity per
staggering 70%. As we show in this Outlook, this is closer to net-zero emissions by 2050. That extra push — In 2050, China will rival OECD Pacific as the most unit of GDP by 65% from 2005 levels by 2030;
related mainly to the replacement of coal by renewables relies to some degree on China’s successful participation electrified world region, with electricity meeting we forecast a reduction of only 59% by then
in the power mix and the electrification of end-use in global supply chains for critical inputs into renewable, 47% of final energy demand
demand. storage, and transmission technologies. — In the longer term, China is close to meeting its
— Energy intensity will decline by a third in 2035 target of carbon neutrality by 2060, but will need
In 2022, China was responsible for 35% of solar and 40% We hope you find the insights contained in this report and will halve in 2050 from today’s levels, to accelerate decarbonization of some sectors,
of wind power capacity additions globally. Moreover, its useful, and, as an inspiration for further action. reaching 2.2 MJ/USD e.g. manufacturing, to ensure net-zero by then
high relative contribution of renewable capacity additions
will continue all the way through to mid-century. The — Demographic changes, including the population — China is responsible for a significant share of
rollout of efficient, clean green electricity is not only a reducing by 100 million people, contribute to global CO2 emissions — 33% currently and 22%
boon to the citizens of China but will profoundly impact the decline in energy use in 2050, exerting a significant influence over
the global push for clean energy. levels of global warming and global climate
impacts
In the next three decades, China will move up the rankings
from 6th place currently to rivalling OECD Asia Pacific
as the most-electrified region globally. Continued
electrification, coupled with a policy-driven push for
Remi Eriksen
energy efficiency will see final energy demand peak in
2030 and fall by 20% by 2050, despite the rising prosperity Group president and CEO
of Chinese households. The structural economic shift
DNV
towards a more automated manufacturing base and a

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DNV Energy Transition China 2024 — CONTENTS Executive Summary HIGHLIGHTS

Energy independence is a key motivation for China's energy use will peak by 2030 and China, already a leader in renewable energy Emissions in China are projected to peak
1 the Chinese energy transition, but it is only 2 reduce by 20% by 2050, driven by electrification 3 investments, will more than quintuple 4 by 2026, followed by a 30% reduction
partly achieved. and energy-efficiency improvements. renewable energy installations by 2050. by 2040.

China’s energy transition and carbon neutrality will be By 2030, China's energy usage is slated to peak, followed We expect a substantial transformation of China’s power In 2022, China contributed 33% of global energy and
pursued in balance with other social and economic by a remarkable 20% reduction by 2050 as a result of mix from fossil-dominated to a much cleaner one. The process-related CO2 emissions, mainly from coal
objectives. National energy security is an overarching electrification and efficiency initiatives. This decline is share of renewables in total electricity generation in combustion. China's 2022 emissions hit a record high of
strategic goal at the centre of Chinese policy. Energy also enabled by demographic shifts, including a China will increase from 30% today, to 55% by 2035, around 12.1 GtCO2. China aims to reduce carbon intensity
independence is targeted through energy conservation, projected 100 million population decrease. and 88% by 2050. per unit of GDP by 65% from 2005 levels by 2030; we
energy switching, and expansion of domestic energy forecast a reduction of only 59% by then. Nevertheless,
supply capabilities and underpinned by nationally- Of the 10 world regions in our forecast, China currently By mid-century, solar and wind each will be generating DNV finds emissions likely to peak by 2026, well in line
controlled technology supply chains and, to the extent ranks as 6th in terms of electrification of demand, but it is about 38% of electricity. For solar, more than a third of with the official target of peaking ‘before 2030’, thereafter
possible, domestic resource bases. projected to rise to 2nd place, comprising 47% of final the installed capacity will be combined with storage, gradually declining by two-thirds by 2050. By 2050,
energy demand by 2050, surpassing Europe and North mainly batteries. For wind, 77% of power will be provided we project that China's emissions share will drop to 22%
However, the ambition for energy autonomy is only partly America and trailing behind only OECD Pacific. Energy by onshore installations while 20% will be delivered by of the global total. In the longer term, China is close to
achieved. The power sector is the first mover in replacing efficiency improvement is an important part of Chinese fixed offshore and 3% by floating offshore structures. meeting its target of carbon neutrality by 2060, but will
coal with domestically sourced renewable energy, and energy policy, and the targeted decline in energy Sustained cost reductions due to learning effects are the need to accelerate decarbonization of some sectors,
domestically produced coal will be sufficient for the intensity is evident: a 33% reduction, to 3.4 MJ/USD, main driver behind the projected increase in solar and especially manufacturing, to ensure net-zero by then.
remaining coal demand segments by 2050. Oil and gas is anticipated by 2035, falling to 2.2 MJ/USD by 2050. wind, with both technologies becoming the cheapest
usage will continue to rely on imports. Although oil Legal frameworks like the Energy Conservation Law and power sources in 2050. Of other non-fossil sources, Given the weight of China’s contribution to global
consumption halves by 2050 from its 2027 peak, its use Renewable Energy Law fortify these endeavours. Sectoral nuclear installations will double in absolute terms, but emissions, the timing and depth of China’s emissions
in petrochemicals and heavy transport (aviation and analyses reveal a notable efficiency surge in buildings, will remain small in relative terms, producing only 5% of reduction are of immense importance globally. The
shipping) will linger and 84% of oil use will be met where efficiency more than doubles by 2050, propelled power in 2050. net-zero trajectory for China outlined in DNV's Pathway
through imports. Natural gas consumption will remain by the widespread adoption of air conditioners and heat to Net Zero report (2023) shows that China's cumulative
high with 2050 consumption only 2% below 2022 levels pumps. The manufacturing sector exhibits gradual gains, Leveraging cost reductions and sustained global emissions could be 113 GtCO2 lower than expected,
and 58% being imported. The continued use of gas in while the transport sector anticipates a modest increase exports, China is poised to assist the rest of the world in significantly aiding global efforts to reach net zero by
power generation and buildings would be prime candi- to 75% efficiency by 2050. Notably, China's holistic meeting its renewable energy targets, exporting solar 2050.
dates for further replacement. A faster transition to net strategies extend beyond sectors, embracing insulation, panels and most likely also wind turbines to most parts
zero in 2050 where more oil and gas are replaced by recycling, and sustainable transportation logistics to of the world.
domestically produced renewables or nuclear would curtail overall energy consumption.
significantly boost energy independence.

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DNV Energy Transition China 2024 CONTENTS

CONTENTS

Foreword 2 5 Energy supply 78

Highlights 3
5.1 Coal 80
1 Introduction 10 5.2 Oil 82
5.3 Natural gas 84
2 Policy 14 5.4 Solar 88
2.1 Governance and key agents of change 16 5.5 Wind 92
2.2 Policy agendas shaping the transition 20 5.6 Bioenergy 96
2.3 China and the global transition 32 5.7 Nuclear 98
2.4 Implementing policy in the outlook 35 5.8 Energy efficiency 100
5.9 Comparison of energy flows 102
3 Energy demand 36
6 Finance and investments 104
3.1 Transport 38
3.2 Buildings 44 7 Carbon emissions and removal 110
3.3 Manufacturing 48 7.1 Energy and process-related
3.4 Non-energy demand 54 CO2 emissions in China 110
4 Electricity and hydrogen 56 7.2 Carbon removal, CCS and DAC 112

4.1 Electricity 58
4.2 Power grids 64 References 116
4.3 Storage and flexibility 68 Project team 123
Balancing power supply and demand 72
4.4 Hydrogen 74

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DNV Energy Transition China 2024 — CONTENTS Key Figures CHAPTER 1

KEY FIGURES

China Population
(Billion)
GDP* (USD trn)
GDP/person (USD)
Energy Use (EJ)
Energy Use/
Energy-related CO2 emissions (GT)
Energy-related CO2 emissions/
person (GJ) person (T)

33 159 10.5
2022 1.42 23,200 112 7.4

2050 1.34 67 142 3.3

50,400 106 2.5

This region consists of Mainland China, Hong Kong, Macau, and Taiwan *All GDP figures in the report are based on 2017 purchasing power parity and in 2022 international USD

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DNV Energy Transition China 2024 — CONTENTS Introduction CHAPTER 1

This will be tempered somewhat by the fact that urban energy technology competitively — nuclear, bioenergy,
INTRODUCTION high-rise buildings will use electricity, not the coal and and renewables — and to that extent, clean technology
biomass prevalent in more rural settings. does foster energy independence for China. However,
it does remain dependent on imports of critical materials,
Growth including silver powder for PV panels, nickel, lithium, and
Today, China has 18% of the world's population, uses 26% of global primary After decades with extraordinary real GDP growth of close cobalt for batteries, and uranium, and those supply chains
energy, emits 33% of global energy-related CO2, and is by far the leading to 10% per year on average, economic growth in China is will have to be nurtured.
widely expected to cool off. DNV’s forecast has an average
installer of renewables. The energy transition in China is critical to its future GDP growth in China of 2.5% per year through to 2050.
and to the success of the global energy transition. A declining population and slowing migration to cities is
one part of the root cause, but there are broader structural China prioritizes national security and
challenges. China faces a difficult era ahead of economic
stability in its energy development strategy.
China currently finds itself in a transitional space in terms Population rebalancing towards consumption-driven growth, with a
of its energy profile. It is by far the largest consumer of Most demographers, including the UN’s Population more targeted allocation of capital to less labour-intensive
coal globally at over 50% of worldwide consumption, yet Prospects, estimate China’s population to have already production, and the changing profile of exports made
it is also by far the leading installer of renewable capacity. peaked. The future rate of decline is somewhat uncertain, more difficult by continued protectionism. Growth rates China is constantly positioning itself towards the large oil
Over the next three decades, renewables will largely but fertility rates in recent years have remained very will rely to a significant degree on China’s domestic and gas exporting nations in the Middle East and strength-
replace coal in China’s power mix, helping to elevate it to low despite policy countermeasures. With an ageing consumption and ability to raise productivity. However, ening its energy cooperation with Russia. Nevertheless,
the top rank of regions in terms of the non-fossil share of population, the energy needs of the country are shifting. China has a formidable capacity for innovation, not least, China’s long-term aim is to become energy independent,
its power mix. as we explore in this report, in green technologies. While and domestically controlled coal will gradually be
Importantly, the continued shrinking of the workforce in growth rates will cool, we nevertheless expect per capita replaced with domestically controlled renewables and
The central government sets China's policy direction China introduces productivity challenges, particularly in GDP to rise by more than 120% by mid-century. nuclear. Policy measures are focused on maintaining
and goals and has the power to ensure the party line is manufacturing where an emphasis on added value and stability and meeting societal needs, such as ensuring
upheld, but relies heavily on lower levels of government automation will gain primacy. Efficiency sufficient and affordable energy for all, reducing local
and local officials for implementation. The stability of the China's programmatic focus on energy intensity — defined pollution, and maintaining jobs.
government arguably removes some uncertainty from Two-thirds of China’s population currently lives in cities, as the amount of primary energy used per GDP unit — has
a forecasting perspective. However, there remains and while rural-urban migration is expected to slow, the led to significant reductions, and these are expected to Short- and long term
some uncertainty over the effectiveness of the future proportion of individuals living in cities is expected to continue. The current rate of 4.8 MJ/USD is projected to The year 2023 was an outlier relative to China’s energy and
investment strategy of the state as it pivots from property reach 80% in the next two decades. The larger urban decrease to 3.4 MJ/USD by 2035 and 2.2 MJ/USD by 2050. emissions trends since 2005 (Myllyvirta, 2024). With the
and infrastructure spending towards support for higher population, coupled with smaller family sizes and an The drivers of energy efficiency gains are complex and rebound from COVID-19, energy demand grew at 5.7%,
value-adding manufacturing and consumption-led increased standard of living, will lead to an expanding intertwined — for example urbanization drives efficiencies the first time in almost two decades that energy demand
growth. demand for floor space and rising energy demand. in terms of more compact living and electrification, but growth outstripped GDP growth. Moreover, the growth
also increases economic activity. Moreover, technological was particularly carbon intensive with coal consumption
factors exert a strong influence, for example in transportation growing 4.4%, largely due to drought-impacted hydro-
where technology shifts are leading to a rapid move to EVs power. However, it appears that subnational authorities and
and will later boost automation and sharing that will industries were also pursuing carbon-intensive projects in
change and enhance the efficiency of the road transport the ‘window of opportunity’ that remains ahead of the
subsector. Private car ownership in China will peak in the China’s stated ambition to achieve peak emissions before
late 2030s while high-speed rail and especially aviation 2030. In consequence, emissions rose by over 5% in 2023
will grow, but the latter’s energy demand will increase at a and China’s carbon intensity ticked up by 0.5%, leaving it
lower rate than passenger flight numbers due to cumulative off-track in terms off meeting its carbon intensity target of
operational and fuel efficiencies. -18% set out by the 14th Five-year plan (FYP 2021-2025).

Energy security An array of supporting targets, goals, and measures is in

China prioritizes national security and stability in its place in the present Five-year plan and the 15th FYP to 2030.
energy development strategy, emphasizing resilience and For the 2060 goal, the measures to achieve it are much less
societal needs over rapid economic growth. The provinces pronounced. Key to the achievement of both short- and
have the same security and stability perspectives from long-term goals will be a continuation of the boom in clean
their areas of jurisdiction, sometimes challenging the energy installations. Planning in five-year cycles is likely to
national priorities. Coal is predominantly domestically result in sufficient stepwise change to broadly achieve the
supplied, while 58% of natural gas and 76% of oil are 2060 goal but will likely not deliver the more ambitious
currently imported. China leads the world by a considerable trajectory needed for both the Chinese and global energy
margin in its ability to develop and manufacture non-fossil transition to deliver on the Paris Agreement goals.

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DNV Energy Transition China 2024 — CONTENTS About this report CHAPTER 1

ABOUT THIS REPORT

Our approach cases are fine-tuned to reflect hourly dynamics. We

Unlike most energy forecasters, DNV does not develop continually update the structure of our model and its
scenarios. This is not because we know what the future will input data. In this report, we do not repeat all the
be like, but because not all futures are equally likely. We see details on methodology and assumptions from the ETO
a lot of merit in giving a best estimate. Hence, our analysis 2023 report but refer readers to that open report for
produces a single ‘best-estimate forecast’ of China’s energy further details. China, with a 25% share of global
future. This forecast accounts for expected developments energy demand, has led economic and technological
in policies, geopolitics, economics, technologies and developments in recent areas. Therefore, what
associated costs, as well as some behavioural changes. happens to this region's energy system has enormous
DNV also publishes a net-zero ‘back-cast’, looking into what implications for the rest of the world, including through
is needed globally and in each of the regions to achieve a energy exports, financing, and technology innovation
future that limits global warming by 2100 to 1.5 degrees and breakthroughs with powerful impacts on cost
This Energy Transition Outlook (ETO) report details the energy Celsius above the pre-industrial average. That Pathway to learning rates.
future of China through to 2050. The analysis, the model frame- Net Zero was published in a separate report (DNV, 2023b),
work behind it, the methodology, the assumptions, and hence also which also details the pathways of the 10 world regions in Chapter guide
the results lean heavily on DNV’s global forecast, Energy Transition DNV's Energy Transition Outlook (ETO), including China. The policy landscape shaping China's transition is
Outlook 2023 (DNV, 2023a). This is important, as the energy system discussed in Chapter 2. In Chapter 3, we discuss the
in China represent a significant share of the global energy system, Our model simulates the interactions over time of the energy demand of the various demand sectors, and
energy consumers (mainly transport, buildings, and then in Chapters 4 and 5 we look at how the energy is
where technologies (learning rates, technology costs, technical
manufacturing) and all sources of supply. It encompasses supplied through energy carriers like electricity and
solutions), economics (costs of materials, market prices, etc.), and
the demand and supply of energy globally and the use and hydrogen, and by all the primary energy sources —
policies are influenced by developments in other regions. The ETO exchange of energy between and within the 10 world fossils, renewables, and nuclear. Chapter 6 describes
model takes this into account by modelling China as a stand-alone regions (see illustration below). the financial aspects of the transition, both for the
region linked to the other regions globally; global and regional sup- region as a whole and for individual households.
ply and demand balances are integrated into one single model. The analysis covers the period between 1990 and 2050, Finally, in Chapter 7, we quantify and discuss the
with changes unfolding on a multi-year scale that in some emissions from the evolving energy system we forecast.

Our best estimate, Long term dynamics,

not the future we want A single forecast, not scenarios not short-term imbalances

Continued development Main policy trends included; Behavioural changes: some

of proven technology, not caution on untested assumptions made, e.g. linked
uncertain breakthroughs commitments, e.g. NDCs, etc. to a changing environment

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DNV Energy Transition China 2024 — CONTENTS Policy CHAPTER 2

2 POLICY

Given China’s share of emissions and the size of its economy, its energy CHAPTER HIGHLIGHTS

policies matter fundamentally for global climate goals, global sustainability,

There are carbon peak (before 2030) and carbon neutrality (before 2060)
and climate change diplomacy. As the world's largest coal user and objectives from China's central government but little clarity on the expected
producer of renewable energy, China’s policy targeting these two fields emissions peak level, which until now is mainly projected by research
institutions. Government targets relate to emission intensity of GDP.
will impact both the nature of China’s energy transition and its ability to
achieve carbon goals. The pendulum is now swinging towards renewables
China has clean energy at the centre of policy developments for energy system
even though China's industrial economy is presently still mainly fuelled by decarbonization. However, deep fossil-fuel dependence results in only a minor
coal. While a massive undertaking, China’s climate goals are aligned with change in near-term absolute fossil-fuel use. Emissions peak is forecast for 2026.
deep-seated domestic objectives and myriad policies are setting a large
transformative shift into practical action. Policy and energy transformation plans have steadily materialized with targets
and measures in the present 14th Five-year plan (2021-2025) and some plans
extending to 2035. The central government communicates continued commitment
and support to the 2060 goal, although there are no specific targets on the
emissions trajectory between 2030 and 2060. An absolute cap on emissions and
binding reduction targets have yet to be set, but 2023 announcements on
dual-carbon control signal a shift in this direction.

National security and stability top China’s energy development strategy and
policy priorities. Nuclear, hydro power, solar, and wind are synergetic with
security objectives, yet before the emissions peak year, the central government
also emphasize expansion of domestic coal and gas production for energy
supply security reasons.

Power is the first-mover sector to transition away from fossil fuels and policies
promoting renewables uptake increasingly rely on market-based measures.

Coal will be subject to regulatory command and control with policy aspiring to
control coal consumption. However, capacity mechanisms for energy security
reasons risk entrenching coal use, despite rapid expansion of renewable capacity.

Switching from coal in end-use sectors is the basis for policies advancing
electrification and developing green hydrogen and its derivatives (synthetic fuels).

Policies for CCUS have focused on pilots and demonstrations as per China’s NDC
submission. CCUS scaling is expected to rely on carbon pricing, mandates and
low-cost loans.

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DNV Energy Transition China 2024 — CONTENTS Policy CHAPTER 2

2.1 Governance and key agents of change production and consumption structures, and meet
emission reduction targets. SOEs also take the lead on
certainty around low-carbon opportunities (demand) in a
large home market that has targets and fiscal frameworks
innovation, carrying long-term strategic projects with a to incentivize uptake. In fact, private enterprises lead in
20- to 30-year timeframe that are non-commercial in the low-carbon manufacturing and play a critical role in
Policy plays a pivotal role in shaping China’s energy future and the near term. They have a key responsibility in progressing China’s renewable energy sectors such as solar, wind,
technology development (e.g. to evolve hydrogen and EV companies (Sheng, 2020).
central government provides steadfast planning to direct energy system energy and carbon capture, utilization, and storage)
development towards a green transformation. China follows its own through larger budgets for basic research and piloting. Near- and long-term goals
China Huaneng as an example, responsible for about While China has many agendas that shape the transition
pragmatic pace in decarbonization, joining international initiatives when 10% of China’s total power generation, has increased its (Section 2.2), governance is progressively focused on
those align with domestic plans. R&D input 40% annually in recent years. In alignment with unleashing changes in China’s economy and energy
2021 requirements set by the State-owned Assets structure required by the dual-carbon goals announced
Supervision and Administration Commission of the State by President Xi Jinping in 2020. China officially submitted
Council, Huaneng’s share of non-fossil installed capacity its mid-century, long-term low GHG emission development
is scheduled to reach more than 50% by 2025. By 2035, it strategy and an updated National Determined Contribu-
Nationwide holistic planning and innovation capacity Its economic policy arguably resembles a mission- aims for 75%, focusing on non-hydro renewable energy, tion (NDC) in October 2021, pledging to reach carbon
A nationwide Five-year plan (FYP) framework dominates oriented approach to grand challenges (Mazzucato, hydropower, and nuclear. Most SOEs have set targets in neutrality before 2060 and peaking CO2 emissions
governance. FYPs are manifestos for how the central 2017) with a clear future direction for the transformative line with the national target of peak carbon by 2030 or before 2030 (Table 2.1on the next page).
government wants to steer the country and have been and structural changes in the economy it is aiming for. are even more ambitious. 20 of the 97 central SOEs have
issued since the 1950s. FYPs are blueprints providing established clear roadmaps and pathways geared At COP28, Xie Zhenhua, China's special envoy for climate
overall objectives and goals related to social and Local and regional implementation towards reaching the 2060 carbon neutrality goals change, revealed that China’s government will put forward
economic development and industrial planning in key Although China’s climate and energy policy formulation (Zhang et al., 2023). its NDC to the Paris Agreement by 2025 with new targets
sectors and regions. In October 2020, the central is centralized, provincial and local governments are the and new measures for 2030 and 2035 (ChinaNews, 2023).
government formulated its recommendations for the key agents in policy implementation. China seeks to Although SOEs gain more R&D funding and preferential
14th Five-year plan (2021-2025). Unlike past plans, this overcome an implementation gap with a target responsi- support as government policy directs energy-industrial With ambitious goals, there is a wide range of increasingly
one outlines long-range objectives through to 2035 bility system through which key climate and energy development, private enterprises also strategically align dense climate and energy-related policy documents.
(Government of China, 2021). The plan period sets the targets are allocated to individual provinces, with and enjoy the tailwind of government policy, such as Table 2.2 on the next page highlights a selection of key
basis for the second centenary goal of building a modern provincial leaders responsible for fulfilling them. Since gaining support from local governments and having targets.
socialist country by 2049 — the year when the People’s 2014, officials’ performance ratings — a key criterion for
Republic of China marks its 100th anniversary. promotions — started to include the implementation of
climate goals (Liu et al., 2023). Local officials have less
FYPs have a hierarchy where national plans are translated discretion to ignore environmental regulations in pursuit
into region- and sector-specific FYPs at the ministerial, of GDP growth. However, from a regional perspective,
provincial, and municipal levels under the central there is vast disparity in resource endowments, economic
government’s guidance. Economic and social goals are development, and technology capacity (Lou et al., 2022).
expressed in both qualitative and quantitative terms and There are also conflicts of interest, such as the prospect
supported with sector- or area-specific FYPs with targets of social costs from loss of fossil industry and jobs in coal
and allocated measurable contributions from govern- mining, washing, and coal power (Zhang et al., 2021).
ments at lower levels (e.g. the government’s mandatory
target of 10% reduction of SO2 in the 11th Five-year plan State-owned enterprises captaining the transition
on Environmental Protection (2006-2010) and resultant State-owned enterprises (SOEs) play a key role in meet-
implementation of desulfurization projects for coal-fired ing the basic needs of the country and are the lead
power plants). responders to polices at all levels. They dominate the
energy sector and are the main clean energy investors
Banks, research funding agencies, universities, and and major energy producers, and consequently the main
public research institutes are expected to align priorities contributors to CO2 emissions. As major energy consumers,
with the FYPs. In other words, China’s top-down and they also help commercialization of private investments
rules-based approach can concentrate resources on by being offtakers of clean energy (e.g. through require-
desired objectives. ments for green power consumption).

Successive FYPs have been accompanied by persistent SOEs are instruments to serve national strategic goals.
R&D support and favourable funding arrangements to They carry a lot of political mandates oriented towards
cleantech areas and prioritized industry development. decarbonization, follow policies to adjust their energy

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DNV Energy Transition China 2024 — CONTENTS Policy CHAPTER 2

TABLE 2.1
China’s commitments to the Paris Agreement

2030 2060

— Peak CO2 emissions before 2030

— Reduce carbon intensity (CO2/unit of GDP) to 65% below
2005 levels — Achieve carbon neutrality before 2060
— Increase the share of non-fossil fuels in primary energy
consumption to around 25%

Source: UNFCCC (2021a)

TABLE 2.2
A non-exhaustive list of transition targets announced in China’s 14th Five-year plan, Guidance1, Action Plan2,
and to the UNFCCC3,4

Economy-wide Target

Energy intensity — By 2025, decrease energy consumption/unit GDP by 13.5% (binding, versus 2020 levels)

— By 2025, decrease CO2 emissions/unit of GDP by 18% (binding, versus 2020 levels)
Carbon intensity
— By 2030, decrease 65% (versus 2005 levels)

Supply transition Target

— Increase the share in power generation to about 39% in 2025 and more than 50% by 2030
Non-fossil sources — Increase the share in total, primary energy consumption to about 20% by 2025 (at around 16%
in 2020); about 25% by 2030; over 80% by 2060

— 18% share of power consumption from non-hydro renewables by 2025

— 33% of power consumption from all renewables by 2025
Renewables
— 1,200 GW wind and solar generation capacity by 2030
— About 40 GW of new hydro power capacity to be installed in both 14th and 15th FYP periods

— Limit the increase in coal consumption over the 14th FYP period
— Phase down of coal in the 15th FYP period
Fossil sources
— Maintain steady oil production (from its 2021 level)
— Increase natural gas production (aim for 11% increase from 2021 levels)

Demand transition Target

Electrification rate — About 30% electricity in final energy consumption by 2025

1. CCP and State Council (2021), 2. State Council (2021a), 3. UNFCCC (2021a), 4. UNFCCC (2021b)

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DNV Energy Transition China 2024 — CONTENTS Policy CHAPTER 2

2.2 Policy agendas shaping the transition

Domestic economic resilience, technological self-reliance, stability, and

security are the overriding Chinese policy objectives that will be balanced in
the transition.

Self-reliance and development are the overriding for talent have long been at the heart of China’s moderni-
policy priorities zation. Policy aims to boost economic autonomy and
A reliable energy supply that is affordable and meets basic domestic economic resilience to market dynamics and
needs tops China’s energy development strategy and is trade tensions. China’s dominance in cleantech did not
essential to sustain resilience and security objectives. come into being in a short period of time; it is the result of
While domestic coal usage aligns with these objectives, sustained investments in R&D and manufacturing. Several
it runs counter to decarbonization priorities. Overall, there decades ago, then-leader Deng Xiaoping reportedly
is synergy between policies supporting non-fossil energy, made the statement ‘The Middle East has oil, and China
cutting reliance on fossil-fuel imports, and advancing has rare earths’. To follow up on this statement, China’s
cleantech industries as an engine of future growth. 863 Programme launched in 1986 to stimulate the
development of ‘advanced’ technologies. The
Economic development in the 14th Five-year plan (2021- programme identified the role of strategic metals,
2025) has an indicative target, formulating GDP growth materials, and rare earth elements for China’s High-Tech
to be kept ‘within a reasonable interval’ given circum- Development Plan and to render China independent of
stances. The formulation reflects uncertainty from a more foreign technologies. In 1997, the 863 Programme was
volatile geopolitical and post-COVID-19 global economic replaced by the 973 Programme, also known as the
environment and provides political flexibility to pursue National Basic Research Programme, to achieve technology Semiconductor Manufacturing International Corporation aim is to be energy independent, and the switch to
other targets, such as environmental goals and supporting and strategic advantages, especially in the minerals (SMIC) and Huawei, which may be an important step in renewables will make China less reliant on imported
a shift to high-quality production. Nevertheless, economic industry. rendering China independent of foreign suppliers. energy over the coming decades. In the near term, the
growth is a prominent policy priority embedded in China’s energy transition will advance, but not at the expense of
2035 vision of long-range objectives, which includes Dual circulation enshrines the ambition to be self-sufficient supply security. In fact, the 14th Five-year plan named coal
President Xi’s aim to double the size of the economy by together with fully controlled supply chains. While as ‘the backstop of supply security’. Recent insufficient
2035 (Xinhua, 2020). international circulation and pursuing an export-led hydropower output, scorching summer temperatures
growth strategy has been a dominant source of revenue, driving an increase in electricity demand, and intensifying
China sees decarbonization and clean energy
The central government wants to maintain the GDP share the central government, as elaborated in the 14th Five- regional weather extremes make most parts of China
from manufacturing but targets adjustment towards industries as the future growth engine. year plan, aims to substantially bolster the consumption susceptible to power shortages (Xia, 2023a). With
high-quality production, pivoting from industry and share of GDP. China’s domestic consumption and market looming power shortages, the government recognizes
investment spending (e.g. infrastructure, real estate) demand for services and Chinese-manufactured products thermal power and coal as the guarantor of supply,
to a rising share in medium- and high-tech products (domestic circulation) will become a bigger engine of balance, and flexibility, albeit with low coal-plant utilization.
and consumption-led growth in consumer goods and future economic growth, driven by a lower disparity While energy security is the basis for renewable energy
services. This shift, to the degree it is successful, will China currently has a stronghold on mining and processing between urban and rural living standards. Domestic and promotion to keep resources domestic, non-fossil
decrease demand for heavy industrial goods and help of strategic minerals and rare earth elements critical for overseas markets will reinforce each other, with the sources will replace fossil sources only gradually.
adjust manufacturing from high- to low-energy intensity. energy technologies (e.g. batteries, solar panels, wind domestic market as the mainstay. Nonetheless, as China’s Recently policy also signals ambitions to expand coal
Industrial capabilities and manufacturing that have turbines, and electrolysers) and favourable to industrial economy is slowing down after years of high growth, usage to replace imported oil and gas (over 70% and 40%
environmental advantages and low-carbon development positioning in technologies for decarbonization. it seems that its economy has yet to reach a plateau in imports in primary energy supply in 2022, respectively)
as a strategic direction are enjoying favourable government However, China still relies heavily on overseas critical which consumer demand sufficiently buffers volatilities through construction of coal-to-oil/gas strategic bases
policy. China sees decarbonization and clean energy minerals — such as nickel, cobalt, and copper — which are in China’s export markets. The economic performance (CCP and State Council, 2022). We believe this will make
industries as the future growth engine. essential for new energy, and is making overseas metals in 2023 appears to support this point. a modest contribution compared to overall oil use.
and mining investments to secure the same (GFDC, 2023). Furthermore, we do not expect energy security to
Domestically-controlled supply chains sustained by The push for self-reliance is similarly behind the recently Energy security is the basis for renewables promotion reverse the long-standing coal-to-gas/electricity
technological self-sufficiency, innovation, and education reported breakthrough (Levi, 2023) from the Chinese but also nuclear and coal expansions. China’s long-term switching policy that is rooted in air pollution concerns.

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DNV Energy Transition China 2024 — CONTENTS Policy CHAPTER 2

China’s push for self-reliance and willingness to prioritize ‘Ecological civilization’ first appeared in policy documents Policy to further the agenda controls, promotion of new energy vehicles and car-sales
domestic energy resources is reflected in our forecast. at the 17th Congress of the Communist Party of China in The 2010 China National Biodiversity Conservation restrictions (ICEs), and a massive expansion of public
Due to energy security reasons, various policies — ranging 2007. Since 2012, President Xi Jinping has elevated the Strategy and Action Plan (2011-2030) has guided plans transit.
from capacity mechanisms for coal-fired power plants to concept’s maturation and practice, incorporating environ- and programmes on biodiversity conservation, but it has
guaranteed prices for solar PV and onshore wind — incen- mentalism into the logic of the Communist Party for a new faced challenges from accelerated urbanization and Air quality improvements have been registered with
tivize power technologies such as variable renewables, development philosophy that rejuvenates economic industrialization, that increase pressures on water year-on-year decreases in China’s national average
coal, and nuclear and de-incentivize gas-fired power sectors and realigns China’s values with sustainable resources, habitats and ecosystems. January (2024), pollution measures, such as PM2.5 levels. However, air
plants, in the range of 5% to 20% of their cost. Looking development goals. In 2018, the concept was embedded China issued its National Biodiversity Conservation pollution rebounded in 2023 (Qiu, 2023). This was partly
ahead, decarbonization efforts will likely create new in China’s constitution. Strategy and Action Plan (2023-2030) to align with goals due to unfavourable weather conditions, but mostly
dependencies, such as import of ammonia, which is and targets of the KMGBF. explained by increases in emissions from a change in
discussed in more detail in Chapter 4. This concept has become a cornerstone of China’s national thermal power production and industrial output in
development strategy for a new era that emphasizes Focusing on air pollution which saw significant peaking in heavy industry that are both reliant on coal.
Strengthening environmental protection at home economic development with ‘quality over quantity’ 2013 and 2014, China declared a ‘war against pollution’ and
Rapid economic growth has had serious impact on China’s and reversing degradation of air, water, and soil harmed expanded policies to tackle pollutant concentrations. The The central government will continue to reinforce
environment; air pollution, water availability and quality, by rapid industrialization and urbanization. Pollution Air Pollution Prevention and Control Action Plan (APPCAP, increasingly stringent measures to improve air quality.
soil loss, and biodiversity are among the main challenges. prevention and action plans have advanced in these 2013) established a multi-pollutant abatement plan by To this end, the State Council issued the Action Plan for
To address environmental degradation, the concept of areas (air, water, soil) in 2013, 2015, and 2016, setting prohibitions on transportation and coal-burning Continuous Improvement of Air Quality in November
‘ecological civilization’ has taken root in China’s effort to respectively. Additional measures and targets were entities such as in industry, power, and residential heating. 2023, adding quantitative targets for a PM2.5 decrease
integrate environmental goals with human-economic adopted for 2020 and 2030. China also played a crucial during the 14th Five-year plan to 2025 (State Council,
activities. This concept has links to Chinese Taoist role in facilitating the Kunming-Montreal Global The new 2018-2020 Three-year Action Plan for Winning 2023a). This Action Plan signals continuation and intensi-
philosophy (Wei et al., 2021), and has environmental Biodiversity Framework (KMGBF) concluded at the the Blue-Sky War deepened measures and established fication of the air pollution control measures, such as:
management, ecological restoration, and green Convention on Biological Diversity, COP15 in December a stronger link between managing air pollution and
development as its guiding principles to reconcile 2022 as a step-change in biodiversity conservation and climate emissions. For instance, the Ministry of Ecology — Controlling coal consumption, improving energy
economic development and environmental protection. stopping biodiversity loss. and Environment (MEE) was established in 2018 to efficiency, and setting carbon emission peak targets;
absorb more responsibility for environmental protection for example, all localities will be expected to incorporate
functions and has principal responsibility for managing coal-fired heating boiler replacement projects into
GHGs and climate change policy. urban heating planning

— Green upgrading of industries and clean energy

The 14th Five-year plan emphasizes the promotion of
substitution implemented in industrial furnaces to
green development for ‘harmony between humanity and
replace coal with electricity and gas
nature’ by promoting high-quality economic growth and
high standard environmental protection. It restates the — Withdrawing backward production capacity in key
ambition to eliminate heavy air and water pollution in industries (i.e. those with pollutants and GHG emis-
cities and aspires to expand forest coverage to above sions significantly higher than the industry average)
24% of China’s land area. and accelerating development of clean, low-carbon,
and efficient energy
The central government recently released the Opinion
— Accelerating the transition to a green transportation
on Comprehensively Promoting the Construction of
system with an emphasis on rail and new energy vehicles,
Beautiful China (Xinhua, 2024) outlining further efforts
and specifying coverage rates for EV charging stations
for pollution prevention and control and ecological
protection of land, water, and sea with goals formulated
for 2027 and 2035. The list of actions on air pollution suggest a tight knit
between government interventions on environmental
Policy linked to air pollution control considered in the protection, energy developments, and climate policies
Outlook (elaborated next). However, lack of concern for environ-
In general, China has the ambition to replace high-emitting mental protection has been voiced in the past. For
coal with lower-emitting natural gas to reduce local example, the Ministry of Ecology and Environment’s
emissions. Key policies considered in our forecast Environmental Audit Committee report (2021) criticized
include coal consumption caps, acceleration of coal-to- the National Energy Administration for neglecting
gas and coal-to-electricity switching, and retrofit projects requirements for ecological and environmental protection,
(desulfurization for SO2 control, denitrification for NOx failing to integrate requirements in energy development,
control, and dust removal for PM control) in key industries. and preventing coal power capacity expansions in key
In transportation, China has pursued stricter emissions polluted areas (MEE, 2021).

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The recent rush by provinces to permit new coal capacity Emissions reduction is driven by the bold 'dual-carbon
to bolster supplies also illustrates the challenging balance goal’ — for CO2 emissions to peak before 2030 and to
between environment, energy security, and decarboniza- achieve climate neutrality before 2060 — which is now a
tion priorities. Of late, speeches by China’s leaders lean in guidepost for policymaking and sets the tone for
favour of stability and self-reliance (Government of China, economic and social development in coming decades.
2022).
China communicates continued commitment to this goal,
as mentioned in Section 2.1, despite no new bold
announcements since the commitment was made, and
China played a crucial role in facilitating the despite the fact that macro-economic conditions and
geopolitics over the past two years have augmented focus
Global Biodiversity Framework concluded
on energy shortages and seen a ramp up of coal plants.
at COP15 as a step-change in biodiversity
Policy to further the agenda
conservation.
China’s ‘1+N’ policy framework is designed to deliver
China’s dual-carbon goal with central government
guidance provided in two documents. The ‘1’ refers to the
Working Guidance for Carbon Dioxide Peaking and
Deepening climate policies Carbon Neutrality in Full and Faithful Implementation of
China’s decarbonization success is paramount to achieving the New Development Philosophy (CCP and State Council,
global climate goals. China is the world’s largest carbon 2021), referred to as simply ‘Guidance’ in the following
emitter accounting for about a third of global emissions and pages. The ‘N’ refers to key sector policies, the first of
exceeds the total emissions of high-income regions North which is the Action Plan for Carbon Dioxide Peaking by
America, Europe, and the OECD Pacific as covered by 2030 (State Council, 2021a), in the following referred to as
DNV’s global Energy Transition Outlook (DNV, 2023a). ‘Action Plan’, which details developments in energy and
other key sectors building on the central government’s
Climate change was moved from China’s State Meteoro- Guidance. China’s provinces are tasked to develop ‘1+N’
logical Administration’s remit in 1998 to the State Planning strategies following the national framework and most have control household prices (to avoid a consumer backlash). standards. The 14th Five-year plan (2021-2025) focuses on
Commission (the predecessor to the National Develop- developed sectoral FYPs (2021-2025), but have yet to There have been several phases in China’s electricity controlling fossil-fuel consumption, enhancing energy
ment and Reform Commission (NDRC)), reflecting that develop roadmaps for carbon neutrality (CCNT, 2023) reform (Xu, 2022), deepening in 2015 with the central efficiency, and increasing the non-fossil energy share in
climate change had become an issue of national interest government’s Policy No. 9 (CCP and State Council, 2015). total energy consumption. Compulsory procurement and
and relevant for energy development. The motivation for The central government has long emphasized the energy A key ambition is to improve the market-based pricing clean energy obligations on government entities
decoupling economic growth from emissions has been sector’s contribution to a low-carbon and efficient energy mechanism for electricity and other energy products (CCP combined with green electricity certificates and explicit
predominantly domestic with the coal-dominated energy system through a strengthened dual-control system. and State Council, 2021) and it aims for a national unified emission costs from carbon pricing are central elements in
system seriously impacting China’s soil, air, and water ‘Dual energy control’ limiting total energy consumption power market system by 2025 and 2030 (NEA et al., 2022). China’s regulatory portfolio.
pollution. and energy intensity has steadily been augmented since Price signals are needed to enable a renewable dominated
the 11th Five-year plan (2006-2010) with binding targets. energy system — including flexible power production, To advance implementation, the Opinions on Financial
Today, climate risks are also getting mounting domestic Recently (July 2023), the Opinion passed by the Central storage capacity, ancillary services, inter-provincial Support for Carbon Peaking and Carbon Neutrality issued
attention. Intensifying effects of climate change — with Commission for Comprehensively Deeping Reform electricity trading, etc. — as well as ensuring price by China’s Ministry of Finance (MOF, 2022a,b) outline a
worsening weather extremes ranging from record-break- (CCCDR) suggests a shift in future policy focus to ‘dual responsiveness at the consumer level to provide opera- ‘clear focus on supporting the construction of a clean,
ing heat and drought to the heaviest rains and floods carbon control’ that will limit the total amount of carbon tional flexibility and demand response. As of yet, the low-carbon, safe, and efficient energy system’, and a
(MEE, 2023) — are impacting water availability, energy emissions and carbon intensity (Lu, 2023), which is also government’s main goal is price stability and supply ‘green and low-carbon transformation of key industries
supply, and food production alike and are threatening clearly stated in the central government’s recent Opinion adequacy (while reform implies more volatility), and and fields’. By 2030, it aims to have formed the tax and
the stability of the country. Adaptation efforts have long on Comprehensively Promoting the Construction of pricing structures in the power system continue to have a fiscal framework to be conducive to green and low-carbon
been stepped up as part of national strategy since 2013 Beautiful China (Xinhua, 2024). mix of market and administratively allocated generation development using a range of fiscal and taxation policies.
and most recently outlined in the National Strategy for volumes, electricity dispatch, and regulated power prices.
Adaptation to Climate Change 2035 (NCSC, 2022). The Policies pursuing electricity and gas market reforms are China has myriad plans and policy documents. High-
environmental protection and nature conservation also relevant for decarbonization. Reform in natural gas Policy linked to decarbonization considered in the lighted in the following are some key supply-side and
agenda described previously is also interlinked with the has been taken in steps (O’Sullivan, 2018) aiming for more Outlook demand-side initiatives that demonstrate the policy
climate agenda, such as enhancement of the carbon sink market-oriented pricing that both stimulate domestic Common emission reduction measures, reflected in central orientations in select energy areas and sectors. Initiatives
capacity of ecosystems. However, given this report’s production (to curb imports) and encourage domestic government policy documents, involve improvement of are indicative of preferential government policy and
emphasis on energy transition, the mitigation policy for demand aligned with the government’s coal-to-gas energy and resource utilization driven by mandatory support ranging from state-directed R&D to investment
CO2 emissions will be in focus here. switching policy (to curb pollution), while also seeking to energy conservation targets and energy efficiency funding and fiscal incentives.

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TABLE 2.3
A non-exhaustive list of supply-side policy initiatives

Supply-side Policy focuses and key levers of change Supply-side Policy focuses and key levers of change

Insight: Renewables are front-and-centre in policies as the backbone of decarbonization — 14th FYP Coal Development Plan emphasizes promotion and speedy construction of coal mines, giving play
to the role of coal as a guarantee for energy security; seeks to restrict coal consumption, new coal power
projects and strives to eliminate coal in key areas of air pollution by 2025; and aims to phase-out outdated
— 2005, the Renewable Energy Law makes renewables preferred development
Coal power4 capacity, accelerate energy saving upgrades and flexibility retrofits for coal to serve as flexible power and a
— 2006, the central government implements subsidy policy with national feed-in tariffs (solar, onshore wind);
(continued) system regulating source
terminated in 2021 to pursue grid parity projects; renewables to compete for long-term contracts at or below
— 2023, capacity payments (guaranteed payments) based on installed capacity are introduced to ensure
tariffs paid to coal plants
stability of supply while transitioning towards variable renewable power sources
— 13th FYP period (2016-2020) establishes generation targets over capacity to emphasize grid integration and
— 2023, the Blue Book outlines CCUS as part of the low-carbon transition of coal power (2030-2045)
directs provinces to reduce curtailment by 2020
— 2021, central government encourages local governments to have policy and support to development of
renewable energy industries; support (auctions, funds, and electricity prices for new offshore wind and solar Insight: Near-term development for synergies between emission cuts, new energy + storage
Renewable power) is decided at the provincial level, such as offshore wind with provincial subsidies projected until
Power1 around the mid-2020s
— 14th FYP period (2021-2025) deepens market-oriented policies, such as renewable energy quotas and green — 14th FYP has hydrogen as an area for future industry incubation and advancement to help store and transport
power trade; electricity market reform efforts aim to optimize resource allocation for economic efficiency renewable energy; R&D and innovation support aim to establish an industry value chain, such as the Daxing
gains and decarbonization benefits International Hydrogen Energy Demonstration Zone
— 2021, SASAC requires central SOEs to have at least 50% renewable generation capacity by 2025 — SOEs are expanding investments; e.g. Sinopec aims to become China’s largest hydrogen energy company
— 2021, the Action Plan emphasizes active development of the ‘new energy + energy storage’ model with total investment over the next five years to exceed CNY 30bn yuan (more than USD 4bn) in e.g. hydrogen
— 2022, 14th FYP for Renewable Energy directs flexible power sources to reach 24% of supply, energy storage Hydrogen5 refuelling stations and renewable-based hydrogen production; PetroChina and CNOOC pursues invest-
for at least 30 GW by 2025, and pumped-storage at around 120 GW by 2030 ments in hydrogen supply and refuelling stations
— 2022, 14th FYP for Modern Energy System aims for demand flexibility at 3-5% of max power load — 2022, the Medium- and Long-Term Plan for the Development of Hydrogen Energy Industry (2021-2035) targets
— 2023, the Blue Book on the Development of New Power Systems (Blue Book) formulates a ‘three-step’ annual renewables-based hydrogen production to reach 100,000 to 200,000 tonnes/yr to enable CO2 emis-
development path to 2060 and is expected to be the basis for future policy development sions reduction of 1 million to 2 million tonnes per year; it aims for comprehensive hydrogen energy industry
formation and significant increase in renewables-based hydrogen in final energy consumption by 2035
— The Blue Book envisions electricity and hydrogen energy provision to enable shifts in end-use consumption
Insight: Willingness to support for energy security reasons evolving between 2045 and 2060

— The nuclear power programme aims for safe and orderly expansions as nuclear meets energy needs, Insight: Recognized decarbonization role but last choice and later advancement
decarbonization, and energy security objectives
Nuclear2 — 2020 target (58 GW in operation and 30 GW under construction) was missed, suggesting higher priority on — Long-standing government funding to research and pilot projects (around 100 CCUS demonstration
renewables expansion projects with various scales, as of November 2022) in different sectors, including in power, cement, and
— 2021, the Action Plan outlines push for demonstration projects of advanced reactor types, e.g. small modular chemical industries
reactors and offshore floating reactors to promote nuclear energy development — China’s NDC and Long-Term Low Greenhouse Gas Emission Development Strategy state policy and support
— 2022, 14th FYP for Modern Energy System targets 70 GW installed nuclear capacity by 2025 CCS, DAC6
to push forward demonstration and industrial application of large-scale carbon capture, utilization, and storage
— Internationally, China did not sign the COP28 declaration to triple nuclear energy capacity by 2050 — CCUS scaling is expected to rely on carbon pricing and mandates, such as requirements on SOEs, to realize
carbon neutrality by 2060. Furthermore, low-cost loans are available through the Carbon Emission Reduction
Insight: Deepening investments for transmission, a unified market and high renewables share Facility of the People's Bank of China
— Direct air capture (DAC) is recognized as an advanced CCUS technology for the longer term, but not widely
discussed yet, and barely sees relevant policy support
— Infrastructure policy targets transmission expansion to facilitate transport, including cross-provincial
transmission, and accommodate high renewable electricity penetration
Grids3 — 2021, power market policy aims for cross-provincial electricity trading Policy insight summary:
— 2021, the Action Plan regarding trans-regional transmission states ‘no less than 50% of electricity transmitted
— Renewable power, flexibility sources, and non-fossil supply are key pillars in the transition with supremacy and steadfast
via newly constructed lines is generated from renewable resources’ and structural reform will deepen for a
advancement by government policy and support. Coal is assigned a complementing role in power
unified national electricity market
— Policy to transition supply sectors favour advancement of renewable electricity, green hydrogen and hydrogen derivatives
— 2021, the 14th FYP for National Economic and Social Development and Long-Range Objectives for 2035
— CCUS to decarbonize fossil sources is acknowledged but policy and support for its advancement, in terms of commercialization
emphasizes strengthening and deployment of high and ultra-high voltage transmission channels
and large-scale application, appear to be at the tail end of the transition

Insight: Enhanced efficiency and continuation to secure supply, cognizant of low utilization
1. NDRC (2023b); NEA (2023a,b); SASAC (2021); State Council (2021b); NDRC et al. (2022a,b); Hove (2022)
Coal power4 2. CCP and State Council (2021); State Council (2021a); NDRC et al. (2022)
— 13th FYP targets efficient use of coal, mandating retrofits on existing coal-fired plants to reduce coal usage 3. CCP and State Council (2021); Government of China (2021); State Council (2021a, 2023b); Hove (2022)
4. State Council (2021a); OIES (2022); NDRC (2023a)
and emissions
5. Government of China (2021); State Council (2021a); NDRC (2022); NEA (2023b)
6. GCCSI (2023b); UNFCCC (2021a)

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DNV Energy Transition China 2024 — CONTENTS Policy CHAPTER 2

TABLE 2.4
A non-exhaustive list of demand-side policy initiatives

Demand-side Policy focuses and key levers of change Demand-side Policy focuses and key levers of change

Insight: Longstanding policy for electrification and industrial advantages in the road segment; aviation and
Insight: Upgrade and industry prioritization to modernize economic structure
shipping segments move at slower pace

Road: — Longstanding policy for demonstration and establishment of eco-industrial, circular economy, and low-
— 2009, official New Energy Vehicle Programme (NEV = battery electric, plug-in hybrid electric, fuel cell electric carbon industrial parks
vehicles) with Ten Cities, Thousand Vehicles Programme for NEV development through large-scale pilots — 12th FYP period (2011-2015) emphasizes industrial transformation and upgrade, focusing on seven ‘strategic
— Vehicle purchase subsidies from central government extended through 2022 for passenger vehicles; tax emerging industries’, including new energy, energy conservation, environmental protection, and clean-
incentives 2014-2023 with purchase tax and annual vehicle tax exemptions energy vehicles; the central government mandates support to favoured industries
— Controls through tightened fuel efficiency regulation and restrictions on ICE sales; e.g. limits on annual — 2015, the Made in China 2025 innovation plan aims to push the industrial structure to the middle and high end,
number of license plates for conventional fuel vehicles targeting higher value-added manufacturing and increased production in high-tech products and services
— 2017, NEV mandated quotas for sales on vehicle manufacturers that a certain percentage of vehicles sold are — 2021, the Guidance and Action Plan outline they will control coal consumption in energy intensive industries,
battery-powered; NEVs to account for about 20% of new vehicle production by 2025 curb energy-intensive and high-emission projects, shut down outdated production capacity, and promote
— 2020, Energy-saving and New Energy Vehicle Technology Roadmap (2.0) commissioned by the Ministry of coal substitution (e.g. coal-to-gas and coal-to-electricity)
Industry and Information Technology (MIIT) outlines NEV production and sales volume targets of over 20% — 2021, China’s NDC states ambition to increase the proportion of clean and low-carbon energy use and
Manufacturing2
by 2025, 40% by 2030, and 50% by 2035, and envisions BEVs to have above 90% share of targets encourage factories and industrial parks to develop and utilize renewable energy
— 2020, the State Council’s NEV Industry Development Plan (2021-2035) directs national, provincial, and — 2021, Development Plan for the Circular Economy outlines initiatives during the 14th FYP period — such as
municipal requirements and funding; 2025 targets include: EV power consumption efficiency (12 kWh / 100 recycling, remanufacturing, and green product design — and aims to improve resource utilization for a 20%
km), NEVs to reach 20% of new sales (all vehicle types), acceleration of infrastructure rollout (charging/ increase in resource productivity and 13.5% reduction of energy consumption (see Table 2.2), and set tonnes
swapping infrastructure, hydrogen refuelling), battery traceability and end of life responsibility on producers targets for use of scrap steel and production of recycled non-ferrous metals
— 2020, Notice on Carrying out the Demonstration and Application of Fuel Cell Electric Vehicles sets new policy — 2021, the 14th FYP elevates the status of manufacturing to move China up the value chain by gearing up its
replacing direct purchase subsidy mechanisms to consumers with incentive funds and awards providing clean modernization and upgrading its industrial system; R&D spending is to increase by more than 7%/yr
support (CAPEX and OPEX) to urban clusters for industrialization of key core technologies of FCEVs, — 2022, 14th FYP for Modern Energy System outlines promotion of the expansion of electric boilers, electric
demonstration applications, and hydrogen ecosystems kilns, electric power, and other applications in industrial production
— 2022, Medium- and Long-term Plan for the Development of Hydrogen Energy Industry (2021-2035) aims for — 2023, the Blue Book envisions in-depth promotion of electrification in the industrial field prioritized for
50,000 FCEVs on the road by 2025 development (2030-2045) and hydrogen (2045-2060) to become main bodies meeting energy end-use
— 14th FYP for Green Transportation targets pilot applications of hydrogen vehicles and acceleration of NEVs in — 2023, the Catalogue for Guiding Industry Restructuring is updated, as flagged in China’s NDC submission
public transportation, aiming to increase the share to 72% of all ground bus vehicles (at about 66% in 2020) by (2021), to guide investor alignment with national policy priorities; this signals a strategic shift to high-tech
Transportation1 2025 industries and environmental priorities
Maritime:
— 2015, domestic emission control areas with gradual implementation of requirements covering SOx and NOx
air pollutants from ships Insight: Efficiency and coal substitution policy to safeguard quality of life
— A draft amendment to the Marine Environment Protection Law provides financial support and implements
preferential policies to enable the upgrading and operation of shore power supply facilities, as well as the
building of vessels powered by clean and new energies — Policies favour coal-to-gas and coal-to-electricity switching
— 2021, the Action Plan states faster upgrading of old ships and development of ships fuelled by electric power — The Implementation Plan for Carbon Emissions Peaking in Urban-Rural Construction sets a 65% building
and liquefied natural gas (LNG) with government support electrification rate by 2030, pushing for full electrification of new buildings
Buildings3 — Available subsidies to household heat-pump investments to increase the electricity share of buildings’ energy
— 14th FYP for Green Transportation sets ambitions to lower shipping emissions, including promotion of shore
power and ‘road-to-water’ shifts in transportation of cargo, expanding emission control areas, stricter demand and instalment of rooftop solar PV (e.g. for 50% of new public buildings and new factories)
emission control requirements, and promotion of LNG — 14th FYP sets targets relating to energy conservation of new buildings and renovation of existing building stock
— International collaboration, such as the Shanghai port-Los Angeles port Green Shipping Corridor aims to — All localities are required to incorporate coal-fired heating boiler substitution projects into urban heating
demonstrate the feasibility of zero carbon container ships by 2030 planning and promote clean, low-carbon heating using heat pumps, biomass, geothermal energy, and solar
Aviation: energy according to local conditions
— The Action Plan push for the substitution of advanced liquid biofuels and SAF for traditional fuels and
improvement of fuel end-use efficiency
— The 14th FYP for Green Civil Aviation Development (January 2022) sets expectation for the aviation sector to Policy insight summary:
achieve breakthroughs in promoting the commercial use of SAF, aiming to raise SAF consumption to over
20,000 tonnes in 2025 and cumulatively to 50,000 tonnes by 2025 and to establish an expected goal for — End-use sector policies will focus primarily on improving energy consumption patterns and switching end-use demand from
reducing fuel use per tonne-km for air transport fleet to 0.293 kg and reducing carbon emissions per combustion of fossil fuels to increased renewable energy use and hydrogen
tonne-km by 4.5% (to 0.886 kg) from 2020 levels — Efficiency and electrification will continue to be key pillars and enjoy favourable government policy
— The 14th FYP for Bioeconomy Development encourages areas with good conditions to promote and pilot — Hard-to-electrify transport segments, aviation and shipping, have less concerted decarbonization policy
biodiesel use and advance the demonstrative use of aviation biofuels
— The 14th FYP for Renewable Energy Development (June 2022) aims to scale up efforts in non-food liquid
biofuels, R&D, and promotion of advanced technology and equipment for biodiesel and aviation biofuel
production 1. NDRC (2022); MOT (2017, 2020, 2021); State Council (2020); State Council (2021a); Yiru et al. (2022)
— Domestic aviation is expected to be included in the national ETS scheme in the future 2. NDRC (2021, 2023b); NEA (2023b); CET (2023)
3. State Council (2023); OIES (2022); State Council (2021a); Yu et.al (2022)

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DNV Energy Transition China 2024 — CONTENTS Policy CHAPTER 2

How our forecast accounts for China’s carbon pricing

China’s national carbon emission trading system (ETS) is inclusion. Steel, building materials, and aluminium are For comparison, DNV projects the regional average Our pathway requires China to frontload ambitions and
indicative of a gradual transition to a hybrid approach to likely top candidates to be the first new sectors. carbon price level at USD 56/tCO2 (2050) in the North reach net zero in the late 2040s. To this end, the required
decarbonization consisting of both market mechanisms America region, and USD 250/tCO2 (2050) in the Europe average carbon price level is USD 100/tCO2 in 2030 and
and direct regulation. It will contribute to achieving China’s Existing regional ETS pilots will continue to operate in region. For a more detailed discussion of the carbon price USD 200/tCO2 in 2050. This is challenging, given the most
dual-carbon goals and is mentioned as part of the ‘1+N’ parallel with the national market in the near term to 2035. trajectories in the 10 world region’s covered in DNV's likely forecast of China’s transition to 2050 projects emis-
policy framework. Other carbon markets — such as the Certified Emission global Energy Transition Outlook, please refer to the 2023 sions reduction of around 8 GtCO2 and a net zero future
Reduction (CCER) scheme, China’s domestic voluntary publication (DNV, 2023a). requires an additional reduction of around 5 GtCO2 by 2050.
The ETS targets energy-intensive and high emitting carbon market — are set for relaunch and will also work in Nonetheless, adopting such an ambition of frontloading
sectors, such as power, refining, chemicals, steel, building tandem with the national ETS. Emitters in the national ETS Note: DNV has (DNV, 2023b) assessed the necessary emission reductions would coincide with the centenary
materials, non-ferrous metals, paper, and aviation. that exceed their allowances may acquire CCER credits to pathway to achieve global net zero by 2050 elsewhere. celebration of the People’s Republic of China in 2049.
Presently, the national ETS covers power with around 2200 offset emissions; while the allowed use of CCER credits is
entities, 4.5 billion tonnes of emissions, and approximately limited to up to 5% of verified emissions, several credit
40% of the country’s emissions. Emission permits have options for compliance and several parallel carbon market
free allocation based on an output-based benchmarking schemes are likely to limit increases in the national ETS
method (see ICAP, 2022). price level.

The 14th Five-year plan (2021-2025) signalled expansion of To date, improving the efficiency of coal plants has been
the national ETS to eventually cover high-emission sectors the primary emissions abatement measure in response to
(70% of emissions). The EU’s carbon border adjustment tightened benchmarks. Future ETS adjustment is
mechanism (CBAM) adds urgency to the extension of expected with a switch to an absolute cap on emissions
scope to other industry sectors. Exporters of carbon and auctioning by the early to mid-2030s. However, this
intensive CBAM covered goods (aluminium, cement, shift is not likely to happen until knowing emission levels
electricity, fertilizers, hydrogen, iron, and steel) to the EU after emissions have peaked. As power progressively
need to report embedded emissions during the transi- decarbonizes, price-setting will increasingly be the
tional period between 2023 and 2026, with payments industry abatement measure to trigger the necessary
through surrender of CBAM certificates starting in 2026. decarbonization technologies and options, such as CCUS
and hydrogen, suggesting a surge in the carbon price
China’s national ETS will take time to mature and its design trajectory after 2040 to achieve carbon neutrality by 2060.
will be fine-tuned. Its expansion will likely mirror the EU The upward pricing trend is underpinned by the inclusion
CBAM exposure; industry over-capacity and potential for of more sectors and expanding coverage in China’s
decarbonization will also influence the sequence of national emissions trading scheme.

TABLE 2.5
Our projection for China’s regional average carbon price level and trajectory

2025 2030 2040 2050

USD 10/tCO2 USD 20/tCO2 USD 40/tCO2 USD 90/tCO2

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DNV Energy Transition China 2024 — CONTENTS Policy CHAPTER 2

2.3 China and the global transition the UN General Assembly in September 2021, pledging
to support green energy developments instead of
China has extensive leadership in cleantech areas and
the materials and metals to support them thanks to
coal-fired power plants and to overall decarbonize government policy, a large home market supporting
overseas projects. The 2021 Action Plan states ‘we will economies of scale, complete renewable energy industrial
China is taking an active role in climate diplomacy and expanding its make overseas projects more environmentally sustainable, chains, and capabilities in manufacturing, installation,
develop a BRI energy partnership characterized by operation, and maintenance. The frontrunner position is
climate-change cooperation (MEE, 2022). With growing economic power, green development and inclusiveness, and expand the evidenced by China accounting for more than 80% of
China has become more assertive on the global stage since 2010. export of new energy technology and products’. The global solar cell exports, more than 50% of lithium-ion
first half of 2023 had 55% of the BRI’s energy spend batteries, more than 20% of EVs (Xiaoying, 2023), and
going into renewables (GFDC, 2023), and after a period Chinese manufacturers supplying nearly 60% of installed
of overall BRI investment pause in overseas energy wind capacity worldwide in 2022 (Okamoto, 2023).
projects (Baxter, 2023) and scale back, there are indica-
tions of a reboot of the initiative with emphasis on Lately, the energy transition is increasingly entangled in
smaller and greener projects. President Xi Jinping is geopolitical rifts and there is a race to roll out industrial
promising an extra USD 100bn in development funding and sectoral policies among industrialized high-income
(CHN, 2023). regions (North America, Europe, OECD Pacific) to de-risk
and support strategic positioning in clean energy value
Supporting the global low-carbon development agenda chains. China will respond — as we have seen in tightened
is a way for China to show that it is honouring its green export controls on e.g. gallium, germanium, and graphite
pledges. It is mutually beneficial for the host country and — aiming to defend its technological leadership and
China domestically. The latter because it helps boost value chain advantages. Chinese companies will
demand from new emerging market destinations which continue to internationalize with production outside
helps diversify revenue away from mature (Western) China, seeking to mitigate restrictive trade policies by
markets in a context of fragmented trade with tariff and moving operations overseas. Already, Chinese solar
non-tariff barriers. It also buffers excess capacity in panels going to the US and EU markets have production
China's renewable energy manufacturing industries and
paves the way for long-term exchanges as energy
infrastructures are built following Chinese standards.
Middle- and low-income countries, on the other hand,
see BRI as enabling trade and investments.

The G7 infrastructure initiative — the Partnership for

Global Infrastructure and Investment (PGII) — launched at
the Elmau Summit (2022), similarly focuses on infrastructure
needs in developing economies. Through public and
private investments in pressing priorities — such as
climate change, energy crisis, and sustainable infrastructure
— the G7 aims to mobilize up to USD 600bn by 2027, while
also leveraging synergies with Just Energy Transition
EU-China Summit. December 7. 2023 ©European Union Partnerships (JETPs).

While both BRI and the PGII are illustrative of geostrategic

President Xi Jinping supports a reshaping of the interna- A greening Belt and Road Initiative positioning, such overseas investment (to middle- and
tional system and economic ties have been enhanced China’s Belt and Road Initiative (BRI), officially announced in low-income regions) is helping access to finance much
worldwide in which energy and infrastructure projects are 2013 to build a new ‘Silk Road Economic Belt’, is at the heart needed energy investments.
centrally placed, especially within middle- and low-income of China’s foreign policy strategy and is funding infrastruc-
countries and regions. China’s key motivations are to ture projects and special economic zones. BRI stretches Cleantech competition is triggering an industrial
reduce dependence on the European and US markets by globally and 150 countries had signed agreements for policy race
expanding trade with others, as well as to raise China as an cooperation as of April 2023; BRI investments extend into China is a front-runner region in the energy transition
economic hub in a flourishing global economy. While this Asia, Africa, the Middle East, and Latin America. and Chinese firms have played an extensive role in
Outlook focuses on China’s domestic energy transition, both driving down the cost of cleantech and making
we highlight three key policy-related areas that shape the Critically for the energy transition and climate objectives, adoption of technologies affordable to the world China hosted the third Belt and Road Forum for International
global energy transition. China made a ‘no new coal overseas’ announcement to at large. Cooperation, October 2023 ©Xinhua/Chen Bin

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DNV Energy Transition China 2024 — CONTENTS Policy CHAPTER 2

The Statement included ambitions for cooperation in key While long-term stability in relations remains to be seen,
areas, such as controlling methane emissions, boosting such working groups can sustain progress despite
renewable energy deployment (both countries supporting electoral shifts. Furthermore, the Statement endorses
the G20 Leaders Declaration on tripling global renewable sub-national cooperation like the kind that already exists
energy capacity by 2030), advancing CCUS with each between China and California on emissions policy, which
country promising 5 large-scale CCUS projects (industrial will likely continue regardless of the 2024 US presidential
and energy) by 2030, and deepening policy exchanges on election outcome.
energy-saving and carbon-reducing solutions in end-use
sectors. Operationalizing the working group, agreed back Overall, the Statement signals efforts to balance cooper-
in 2021, to enhance climate action in the 2020s (US Depart- ation and competition in China and US relations, and
ment of State, 2021) was given new momentum to advance commitment among the world’s two largest emitters is a
climate action in the next decade on issues such as positive for the energy transition.
methane, deforestation, and the circular economy.

2.4 Implementing policy in the outlook

Our model is informed by the policies set out in China. From DNV's global Energy Transition Outlook
Policy factors, as seen in Figure 2.1, span the supply (DNV, 2023a), we have a comprehensive discussion
and demand sectors. We have also factored in our own of the policy factors influencing the forecast and we
assessments of the state of play in the various sectors advise the reader to visit that source for a detailed
of the economy based on our global energy sector description of how we account for policy in our forecast.
knowledge, our technical and commercial expertise, The same policy factors are incorporated in the China
and discussions with a broad range of stakeholders. forecast. For assumptions on China’s carbon-price
On announced policy goals and pledges, such as those trajectory, please refer to the earlier highlight and
submitted to the Paris Agreement, we do not assume that Table 2.5.
these will be met and hence do not pre-set our Energy
President Joe Biden and President Xi Jinping, November 2023 in California ©Doug Mills / The New York Times via AP, Pool / NTB Transition Outlook model to achieve them.

locations in Southeast Asia’s ASEAN countries. However, energy security considerations and efforts to de-risk and
FIGURE 2.1
scrutiny over inbound investment across different reshore manufacturing value chains into account. We do
jurisdictions may restrain actual investments. not foresee a decoupling of global supply chains and Policy factors included in our Outlook
expect future technology cost-learning dynamics to
Defining and establishing a level playing field for continue enjoying global benefits. For a more detailed
economic cooperation is in flux at the time of this report. discussion, please refer to DNV’s Energy Transition
Climate and cleantech multilateral initiatives are taking Outlook (DNV, 2023a).
new shapes and new region alliances and partnerships
are evolving in fields such as in green hydrogen, mining Climate momentum in US and China relations
and processing, and trade in commodities. China will Internationally, after years of strained cooperation, 1. Renewable 2. Energy-storage 3. Zero-emission 4. Hydrogen 5. CCS, DAC 6. Energy-efficiency
power support support vehicle support support support standards
continue to play a central role given its natural resource there has been extraordinary commitment on both
base and existing position in materials and transition- sides (from climate envoys Xie Zhenhua and John Kerry)
related technology value chains. to keep dialogue open. The Sunnyland Statement (US
Department of State, 2023) issued following the meeting
The global competition in cleantech is clearly beneficial between President Joe Biden and President Xi Jinping
considering that technology deployment in middle- and ahead of COP28 rejuvenated the US-China dialogue on 7. Bans, phase-out 8. Carbon pricing 9. Fuel, energy, and 10. Air pollution 11. Plastic pollution 12. Methane
the energy transition and climate action and set the plans, mandates schemes carbon taxation intervention intervention intervention
low-income countries and the speed of the energy
transition will predominantly be determined by the cost tone for further engagement in 2024.
of transitioning. In DNV’s energy forecasting, we take

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In China, the demographic shift, mainly the declining and needs for heating, water heating, and cooking will be
3 ENERGY DEMAND ageing population and rural-urban migration, affects all relatively stable, energy for cooling increases more than
energy demand sectors and further reduces available six-fold over the next 20 years, and by 2050 it represents
labour (with the working age population already having 29% of China's buildings’ energy use, just behind energy
peaked around 2010), creating labour cost and productivity needs for heating with 30% share.
Energy demand in China grew rapidly from 2002 to 2014, but is now challenges. Additionally, shifts in consumer preferences
slowing owing to several structural reasons. Energy demand is expected and demands, influenced by changing demographics,
can alter the types of goods produced and affect energy
to plateau in 2029 at around 122 EJ for five years before gradually usage within the manufacturing sector.
The carbon intensity of China's energy
declining towards 104 EJ by mid-century.
The declining population is nevertheless becoming more demand reduces from today's 104 gCO2/MJ
prosperous, and so the density of passenger vehicles is
to 34 gCO2/MJ over the coming three decades
expected to undergo significant growth, with a potential
China’s total energy demand has been growing at an As Figure 3.1 shows, fossil fuels directly met 65% of final peak around 2038, reaching over 70% more than the 2022 and is first and foremost coupled with the
average of 3% per year for the past five years. In 2022, energy demand in 2022, but fossil fuel's share was in fact count of about 252 million vehicles. However, a high level
reduction in China's coal consumption.
energy demand growth slowed to approximately 1%, significantly higher than that, given that 60% of 2022’s of urbanization and extensive build-out of public transport
reflecting sluggish economic growth and weakened grid-connected electricity was from coal and 6% was will mean vehicle density remains lower than in OECD
consumer confidence and spending during that period. from gas. By 2050, excluding the remaining 7% fossil fuel countries. In the 2040s, a reduction in population along-
However, as economic activity rebounded in 2023, albeit share in the power mix, the fossil share in final energy side greater automation and car sharing will reduce
not reaching pre-pandemic levels, energy demand demand will be 38%. The share of electricity is projected vehicle numbers. Aviation is likely to double through to
surged by 5.7%, according to preliminary official figures. to increase to 46.5% by 2050 from 25% in 2022, while 2050 as an increasing number of China's residents
This growth, predominantly fuelled by fossil fuels, has set hydrogen is anticipated to rise from almost 0% in 2022 become middle class, including many pensioners who
new global records for China's fossil CO2 emissions in to 3.6% of final energy demand in 2050. would like to travel.
2023. In the remaining years of this decade, we expect
China’s energy demand to decelerate for a variety of Figure 3.2 shows the final energy demand by sector. The urbanization rate in China is growing rapidly; today,
reasons, including: the demographic shift now under- By 2050, manufacturing will still be the largest sector of almost two-thirds of the China's population lives in cities,
way, a decreased dependence on heavy industry as a energy demand with a 42% share of the total, down from mostly in new high-rise buildings. Small family sizes and an
catalyst for growth, an increase in energy efficiency, and 51% today, while buildings’ share will grow from 19% to increased standard of living will see building stock in
slower overall economic growth. These trends will in fact 28%. Transport’s share will initially grow from 16% now to China grow by 28% for residential buildings and 157% for
lead to a plateauing of energy demand at 122 EJ from 18% by 2027, then decline to 14% in 2050 as electrification commercial buildings by 2050. However, a strong focus on
2029 for a decade or so, before a steady decline in — and hence efficiency — of road transport scales from the energy efficiency will limit growth in buildings’ energy use,
energy demand to 104 EJ by 2050. late 2020s. which is relatively stable from 2030 onwards. While energy

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3.1 Transport demand in China in 2023, marking a shift of two years

earlier than its previous projections. The primary factor
Close to 5% of the passenger-vehicle fleet is now either
battery-electric or plug-in hybrid vehicles. Additionally,
behind this change is the rapid increase in the number of the internal combustion vehicle fleet is becoming more
EVs on the roads. We forecast that by 2050, oil demand in efficient, thanks to increasing fuel-economy targets.
China's road sector reduces by 94%, with large implica- We forecast the uptake of EVs in China to be the fastest
Demand for energy services in China is poised for significant growth, tions for domestic oil production and oil imports as well. among all regions, with EVs reaching half of new
but the resulting energy demand will move in the opposite direction: passenger vehicle sales there by 2027 and EVs
China's consumers are rapidly embracing EVs, which constituting half the entire passenger fleet of vehicles by
decreasing slightly from 19 EJ in 2022 to 15 EJ by the year 2050, after accounted for around 20% of new passenger vehicle 2035. Another aspect of EV uptake is that these vehicles
peaking at around 21 EJ at the end of this decade. More transportation sales for the entire year 2022 and around a quarter in are much more prevalent among ride-hailing vehicles in
recent months, meaning the country has already China, constituting nearly 40% of the fleet, in contrast to
with lower energy demand will be delivered by the efficiencies inherent exceeded its target of 20% New Energy Vehicle (NEV) privately owned vehicles.
in electrification as well as the growing use of low-carbon fuels. sales share by 2025 (see Table 2.4). The Chinese govern-
ment has consistently committed to the development and Two- and three-wheeled vehicles, a sub-sector of road,
widespread adoption of EVs, motivated by concerns are already a step further than passenger vehicles in the
The global transportation sector is poised for significant dispersed across road vehicles, airplanes, and ships, about the adverse health effects of local air pollution transition to zero-emission propulsion. For over a
growth and a profound transformation, and so is the posing significant challenges in terms of effective capture. and the nation's dependence on imported oil, along decade, fuel demand for two- and three-wheeled
Chinese transportation sector. Anticipated developments Beyond CO2 these emissions frequently encompass with the associated energy security challenges. vehicles has been in steep decline, with around 40% of
from 2022 to 2050 include a 18% larger vehicle fleet, a potent GHG and detrimental particulate matter, which can sales in this category being electric today. By the end of
tripling in passenger flights, and a close to two-fold rise in exert adverse effects on both environmental conditions In December 2022, China ended its national NEV subsidy this decade, electric two- and three-wheelers will make
rail passenger and rail freight numbers. In 2022, these and human health. Electrification of road transport and scheme. However, in June 2023, the country introduced a up 97% of the fleet.
diverse transport activities collectively consumed 19 EJ of the adoption of biofuels and hydrogen (and its derivatives) significant tax package totalling CNY 520bn over four
energy. Despite the heightened activity expected in 2050 in maritime and aviation will result in an almost halving of years. NEVs purchased in 2024 and 2025 will be entirely
with increased transportation of goods and people, China’s transport sector emissions by 2050. exempt from purchase tax, up to CNY 30,000 per vehicle,
energy consumption in the sector is projected to be just but this maximum benefit will be halved for purchases in
15 EJ by mid-century. This reduction primarily stems from Road 2026 and 2027. The government’s move aims to propel
We forecast that by 2050, oil demand in
substantial efficiency gains achieved through the wide- Over the past two decades, China has played a pivotal the EV market and aligns with China’s broader goals,
spread electrification of road transport. role as the primary catalyst for the global growth of including achieving a 50% NEV sales share by 2030 in China's road sector reduces by 94%, with
refined oil products such as gasoline and diesel. key air pollution control regions and a 40% sales share
large implications for domestic oil production
Ultimately, the mitigation of carbon emissions in the However, in mid-2023, Chinese oil giant Sinopec made nationwide by the same year. The tax breaks mark a
transportation sector hinges on addressing the fuel an unexpected announcement that went largely unno- significant effort to revive the automotive industry amidst and oil imports as well.
challenge. Emissions stemming from transportation are ticed: the company now anticipates a peak in gasoline sluggish sales and the phase-out of previous subsidies.

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While the gasoline peak is expected by 2023, diesel China recently surpassed Greece as the global leader Shanghai Port methanol marine fuel project. The two
demand for heavier vehicles is expected to continue in maritime fleet ownership by gross tonnage (GT). For parties will join hands to explore green methanol fuel
growing for a short period. However a significant transfor- the first time, the Chinese-owned fleet now stands at vessel-to-vessel bunkering operation after Maersk’s
mation is also taking place in this segment: electric, fuel 249.2 million GT, securing the top spot (Longley, 2023). green methanol container vessels being delivered in
cell, and battery-swapping alternatives have rapidly Greece follows closely in second place with 249 million 2024. The agreement will also support the aspiration
entered commercial vehicle sales. We forecast that the GT. Despite Greece holding the first position for the of Shanghai Port to become one of the world’s first
share of commercial vehicles adopting zero-emission past decade, China's role as the world's manufacturing commercial green methanol bunkering ports.
alternatives will surpass 50% by 2030 and grow to around hub, its resilient cargo trade, and robust financial
90% within the coming decade. support for the shipping sector have propelled it to the The utilization of green methanol is a pivotal measure for the
forefront of the industry, particularly in the dry bulk and shipping sector to reduce emissions. Establishing a green
While the sale of EVs is growing continuously and exponen- container ship sectors. methanol industrial chain is essential not only for shipping
tially in all road sub-sectors, fuel-cell vehicles in the passen- companies to align with the emerging trends of green,
ger segment play close to no role. However, fuel-cells are In pursuit of decarbonization, the shipping industry is low-carbon, and intelligent shipping but also to provide
seen as an alternative in the commercial segment by China's particularly focused on addressing the challenge of customers with sustainable and eco-friendly global supply
government. By the end of 2023, fuel-cell vehicles on securing a reliable supply of carbon-neutral fuels and chain logistics services. Additionally, it represents a signifi-
China's roads were in the low ten-thousands only and will establishing port infrastructure for their efficient cant initiative in fostering green and low-carbon industries,
increase only marginally to 50,000 by 2035. The goal of delivery to ships. This concern stems from the industry's steering the industry towards high-quality development.
China's government to have one million hydrogen-powered competition with other sectors for the limited supply of
vehicles by then will be met slightly later in the early 2040s. such fuels and the anticipated higher costs associated Apart from advancements in technology, such as the
We see a supply shortage of low-carbon hydrogen and with carbon-neutral alternatives. introduction of new technologies, fuels, and operational
The successful reduction of carbon emissions
high costs as the main barriers to increased uptake. measures, the successful reduction of carbon emissions in
Shanghai International Port (Group) Co., Ltd. (SIPG), the the shipping industry relies on the implementation of in the shipping industry relies on the
Maritime main operator of the world’s busiest container port is suitable laws and policies.
implementation of suitable laws and policies.
The maritime sector holds a crucial position on the China's first and the world's third port able to provide
economy of China, given the extensive coastline of ship-to-ship bonded LNG bunkering with simultaneous China's legal context of a multi-level regulatory system
around 14,500 km and immense dependence on interna- operations, registered LNG bunkering of over 260,000 covers various aspects, including infrastructure, technol-
tional trade. Transporting cargo on keel stands out as the cubic metres in 2023. ogy, organization, and governance, with specific focus on sustainable biofuels in the short term. Our recently
most efficient mode in terms of emissions per ton-mile. port shore power, ship power facilities, promotion of published white paper, titled Biofuels in Shipping,
However, it is important to note that ships are characterized SIPG also commits to becoming a leader in developing low-carbon ships and fuels, carbon emissions verification, provides insights into key aspects such as biomass
by significant capital investment, with an expected green and ecological ports. SIPG signed a Memorandum and trading. availability, biofuel refinery capacity, and the compatibility
lifetime exceeding 20 years, which results in a relatively of Understanding (MOU) with A.P. Moller-Maersk of ships and engines with biofuel use (DNV, 2023c).
inert sector when it comes to transformation. (Maersk) in March 2023 on strategic cooperation for For example, the Chinese State Council issued the Action
Plan for Carbon Dioxide Peaking Before 2030 in 2021 A notable and emerging trend we are currently witnessing
which includes the commitment to work faster to upgrade involves certain cargo owners establishing ambitious
old ships, develop ships fuelled by electric power and decarbonization objectives for their operations. Achieving
LNG, further promote the use of shore power by ships these targets, particularly in the reduction of so-called
while in port, and make in-depth efforts to advance Scope 3 emissions related to cargo transportation, hinges
demonstration and utilization of green, smart ships along on securing access to low- and zero-emission shipping
coastline and inland waterways according to local condi- services. In response to this demand, shipping companies
tions. In parallel, China’s Ministry of Transport published have already initiated the provision of 'zero-emission
the development plans of both waterborne and green services', and we anticipate a further expansion of this
transportation for the 14th Five-year plan period (2021- sector to meet the requirements of cargo owners.
2025) separately in January 2022. In these development
plans, the application of new and clean energy including As described, the maritime sector's approach to decar-
methanol, hydrogen, ammonia, as well as the use of shore bonization has rapidly evolved, driven by the Interna-
power in the shipping sector have been further encouraged tional Maritime Organization's (IMO) strategy introduced
and refined. in 2018 and revised in 2023. The industry is shifting its
mindset to contribute to the net-zero challenge, leading
Beyond governmental and regulatory initiatives to to a substantial change in fuel composition by 2050.
decarbonize the maritime sector, the crucial factor We forecast that 84% of the composition will consist of
enabling the adoption of zero-emission shipping services low- and/or zero-carbon fuels, with ammonia, biofuel,
lies in the response to decarbonization requirements from and e-fuels commanding significant shares. Regional
cargo owners. This, in turn, creates a market demand for decarbonization initiatives will further support this shift.

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However, uncertainties, including biofuel availability and the United States and Brazil. A well-developed rail 60% share. Given the far-reaching policies China has
renewable hydrogen for e-fuels, are outlined in DNV's network is the key driver for this. implemented in various sectors to reduce energy
2022 Maritime Forecast to 2050. The 2023 forecast, dependence, this might be quite surprising. However,
influenced by the updated IMO strategy and external Essential initiatives implemented at airports, airlines, and aviation is one of the sectors where decarbonization is
pressures, anticipates a more decarbonized fuel mix. Yet, infrastructure have helped to reduce emissions from hardest due to, for example, technical limitations of peak
it recognizes challenges due to the lack of enforcement aviation activities. This includes advocating the adoption power to be supplied from batteries, but also availability
mechanisms for IMO ambitions, emphasizing the need of Ground Power Units (GPUs) instead of aircraft-based of drop-in fuels such as sustainable aviation fuels. We
for ship-specific regulations. The fuel mix forecast in Auxiliary Power Units (APUs) at airports with an annual have commented on this in more detail in our 2023
Figure 3.5 is based on expert assessment, acknowledging passenger count of 5 million or more. Furthermore, there Transport in Transition Report (DNV, 2023d)
significant uncertainties detailed in DNV's Maritime has been the introduction of over 1000 new-energy
Forecast to 2050. ground vehicles at airports, a measure aimed at reducing Rail
carbon footprint. Efforts have also been made to decrease China’s rail progression over the last decade and contin-
Aviation aircraft taxiing time, achieving an average reduction of ued expansions position trains as a competitive, low-
Civil aviation is one of China's fastest-growing sectors, three minutes. Additionally, a strategy involving the carbon alternative to short-haul flights. By further
playing a crucial role in global interconnectedness. phased retirement of ageing aircraft has been imple- establishing high-speed rail as an integral part of the
Additionally, commercial aviation has significantly mented. These multifaceted initiatives collectively country’s sustainable and efficient transportation system,
contributed to China's economic progress. With a contribute to China's endeavours in managing and China will see improved mobility access, which will
flourishing middle class, an increasing number of mitigating emissions in the aviation sector. Aviation sector enable a modal shift and meet the increasing passenger
Chinese citizens are opting for air travel, resulting in emissions by 2050 will be only 17% higher than 2023, demand. As illustrated in Figure 3.7, an almost twofold
China's airlines and airports ranking among the busiest despite a tripling of passenger-flights, while the world as growth in passenger numbers between 2022 and 2050
globally in recent years. a whole grows aviation sector emissions by just 8%. is anticipated, propelled by increasing living standards
and urbanization. We also foresee a doubling in freight
We forecast a continued notable uptick, projecting However, the biggest impact on emission reduction will demand over the next three decades. High-speed trains
passenger trips to triple between 2022 and 2050, come from a comprehensive fuel switch to low-carbon in China offer advantages such as cost-effectiveness,
reaching 2.7 billion by mid-century. The increase in air fuels. In 2022, 99.6% of aviation’s energy demand was punctuality, and time efficiency, making them an appealing
travel is propelled by increased income levels, a growing met by oil, with the remaining being biofuel. We will see choice for consumers.
willingness to travel, and ongoing rapid urbanization. oil continue to dominate the energy mix by mid-century,
With more civil transport airports anticipated, totalling with its absolute use growing 30% while its share By a considerable margin, the second-most populous
270 by 2025, and an increasing number of international declines to 59%. The remainder of aviation’s energy nation boasts the largest high-speed railway network
flight routes, the industry is poised to accommodate this demand is met by bioenergy (22%), e-fuels (13%), globally. A vast expanse of 37,900 kilometres of railway
heightened demand. However, this figure remains hydrogen (4%), and electricity (2%). China's fuel mix lines connects its major mega-city clusters. Notably, all
modest when compared with larger countries, such as closely resembles the global mix, where oil will have a these lines have been constructed since 2008, and half of

the total length has been added in just the last five years.
There are ambitious plans for the network's expansion,
with expectations that its length will double once again,
reaching 70,000 kilometres by the year 2035. Expansions
are also to be seen for the urban rail network, increasing
from 6,600 km to 10,000 km by 2025.

Rail's energy demand is forecast to decline 24%, from 525

PJ/yr in 2022 to 400 PJ/yr in 2050, and we see significant
expansions and electrification for the Chinese rail network
in the near future.

Rail's suitability for electrification further positions it as an

attractive choice for transport decarbonization and
energy-efficiency advancements. From its already high
share of 52% in 2022, electricity’s share in rail energy
demand is expected to increase to 79% by 2050.

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3.2 Buildings China has prioritized energy saving in buildings and

green building development in their 14th Five-year plan.
in 2022, declining to 0.40 GtCO2 in 2050 — only 10% of
China’s total 2050 energy-related and process emissions.
While there will be improvements in energy efficiency,
insulation, and heating/cooling equipment, buildings Building stock
In buildings, electricity expands from 34% of the mix today to 63% in 2050. energy demand and floor area are still set to increase. The growth in floor area is one of the main drivers of
Though the region’s population has peaked, GDP buildings energy demand. By 2050, the floor area of the
Total energy demand is set to grow over 40%, with the floor area of the continues to rise. Driven by this increase, the floor area of buildings stock in China will be over 100,000 km2, around
buildings stock in China rising 49% to over 100,000 km2 by 2050. residential buildings rises by 28%, and commercial the size of Iceland, and making up about a quarter of the
buildings’ floor area rises by 157% by 2050. Buildings’ world’s floor area, with growth driven primarily by GDP.
Retrofitting buildings and improving insulation will be key to improving energy demand in China is set to grow over 40% between China is currently facing industry-wide challenges in the
energy efficiency and lowering emissions. now and 2050, peaking in 2045 before declining slightly buildings industry, particularly residential buildings, with
to come to rest at 29 EJ in 2050 — almost one-fifth of weak demand fuelling oversupply and capital issues
global buildings’ energy use (Figure 3.8). The share of (Kelter, 2023). The current crisis is likely to be eased in the
buildings’ energy demand in final energy is also set to medium term by a range of government policies designed
increase from 19% to 28% in 2050 due to both this growth to ease restrictions on residential purchases and stimulate
of floor space and the shrinking of energy demand in the home completions — along with lower interest rates insofar
manufacturing sector and the inroads made by more as the dollar to yuan exchange rate allows that. However,
efficient electricity there. the present distress in the construction industry does
foreshadow a longer-term slowdown in building sector
The buildings sector is split into residential and commercial demand across China. The country’s largest construction
properties in our model. Presently, about 80% of energy company, Evergrande Group, defaulted in late 2021, has
is consumed by residential buildings. This drops slightly filed for bankruptcy protection in the US, and is now facing
to 70% in 2050 due to faster growth in GDP than in liquidation. It is not alone; many building companies are
population, where the 29 EJ sectoral demand in 2050 struggling financially with high debt and leaving buildings
will be split into 20 EJ residential and 9 EJ commercial. unfinished (Stevenson, 2023). We see this in residential
Electricity grows to be the dominant energy carrier, buildings additions, where they will decline and generally
expanding from 34% of the mix today to 63% in 2050. Oil, level out by the end of the 2030s, while commercial
biomass, and coal decline to negligible levels, though we buildings additions will grow steadily until this time and
still see a fair amount of natural gas — 22% of the mix in then plateau (Figure 3.9).
2050 — due to the prevalence of this energy carrier in gas
boilers for space heating and cooking equipment. Retrofitting buildings and improving insulation will be key
Emissions for this sector are relatively low, at 0.42 GtCO2 to improving energy efficiency and lowering emissions.
As previously mentioned, China has mandated urban
regeneration in its 14th Five-year plan, ending the cycle
of demolishing and rebuilding, and instead focusing on
energy-saving renovations. As of 2021, China has made
the retrofitting of old buildings in the north a priority,
intending to complete energy-efficiency renovations for
more than 350 million square metres by 2025. There is also
legislation around the efficiency of new residential
buildings, which in the north of China must on average run
on 75% less energy than a new building in 1980 (Zhijian,
2023b). We see this legislation broadly achieving its aims,
with the u-value (a measure of thermal transmittance, or
the rate of heat transfer through matter) of both residential
and commercial buildings dropping by around 15% by
2050.

Space Cooling
The need for space cooling increases the most among all
the energy end uses, rising from 7% of the mix to 29% in
2050. This will be split around 80:20 between residential
and commercial space. There are two drivers of this

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increase: Firstly, the demand for cooling rises with GDP Appliances and Lighting
as more people can afford the technology. Secondly, In our model, demand for energy for appliances and
the effects of climate change; a study from Tsinghua lighting is driven by the share of the tertiary sector in GDP,
University predicts that heatwave days in 74 key cities while also accounting for energy efficiency improvements
will increase from 2.7 to 8.8 per year (Zhijian, 2023c). over time. With China’s tertiary sector set to grow from
53% of GDP to 72% by 2050, we will see energy use for
We measure the effect of increasing world temperatures appliances and lighting double in terms of energy used
through the rise in cooling-degree days. In 2022 these (6,550 PJ/yr in 2050), rising from 16% of the mix to 23% by
stood at 519°C-days/year in China, by 2050 they will have 2050 (Figure 3.10). Electricity is naturally the only energy
increased over 40% to 742°C-days/year. Insulation plays carrier in this sector. Demand for appliances, especially
a significant role in lowering space cooling energy smart appliances, is already on the rise and is only
demand; without improvements over time, the space projected to grow. China is already the largest consumer
cooling demand in 2050 would be around 20% higher. market of smart home devices.
In 2050, China will use a little over 30% of the world’s total
cooling energy, around 8.5 EJ (Figure 3.10).

Cooking Insulation plays a significant role in

In cooking, we see the results of both efficiency improve-
lowering space cooling energy demand;
ments and access to modern cooking. By 2050 house-
holds without access to modern cooking will drop from without improvements over time, the space
21% today to nearly zero in 2050. Biomass makes up the
cooling demand in 2050 would be around
largest part of cooking energy demand today at 56% of
the mix. By 2050, this will be overtaken by natural gas at 20% higher.
57%, while modern biomass will come in at 21%, and
electricity, favoured by the younger generations, will
make up 19% of the mix. Both electricity and natural gas
are far more efficient for cooking than biomass. We see Space Heating
the effects of this efficiency improvement in the end-use Space heating declines from 38% of the mix today to
mix, where cooking’s share decreases from 17% to 8% in 30% in 2050 as improvements in energy efficiency will
2050. Cooking energy use in China in 2050 will be 2400 outweigh much of the growing demand for energy. This
PJ/yr (Figure 3.10). trend is also aided by fewer heating degree days towards
2050. In 2050, space heating will use 8,600 PJ/yr (Figure
3.10). There will be an uptick in electricity as an energy
carrier, from 17% of the mix today to 24% in 2050. The
major driver of this increase is the rise of heat pumps. Their
inclusion in the space heating technologies mix is one of
the biggest changes we see in buildings in China towards
2050. Today, heat pumps make up about 8% of the
technology mix, but by 2050 this will rise to almost 39%.
They will be used both in new buildings and to replace
fossil fuel boilers. At present, China is already leading the
world in new sales for heat pumps, along with patenting,
manufacturing and installation; with over 12 million air
source heat pumps installed today (Rudgard, 2022), and
we see this trend continuing. The technology is well suited
to the south of the country, where it is used both to heat
residences in the winter and cool them in the summer.
Other regions in China have different economic levels,
climates, resources, and infrastructure, so heat pumps are
not a 'one size fits all' solution to heating energy demand.
Gas boilers (25%), direct heat (13%), and conventional
electricity (12%) are the other prominent technologies
used for space heating in 2050 (Figure 3.11).

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3.3 Manufacturing city-level action plans. The broader policy goal stated in
the 14th Five-year plan is to build up industry in provinces
reduction, but this can be difficult for Beijing to implement
as provinces and industries are reluctant to cut jobs and
in central and western China, as current production is tax revenues.
focused in the eastern and coastal provinces, which are
Manufacturing was China's largest consumer of energy in 2022, accounting more developed and populated. King coal will progressively lose ground
The growth in manufacturing has historically been
for over 50% (56 EJ) of the final energy demand. China has historically Central policies have a very strong influence. One of the supported by intensive coal use. As shown in Figure 3.12,
been a manufacturing powerhouse, making up a large global share of most recent striking examples is the supply-side reform more than 80% of manufacturing energy has been
policy implemented in the late 2010s. In 2015, overcapacity provided by coal in the last two decades if accounting for
key industries like iron and steel, cement, manufactured goods, and base problems became clearer in some sectors. The most both direct and indirect energy use. The share of coal is
materials. While coal will more than halve in China’s manufacturing energy polluting, less energy-efficient plants were forced to now progressively declining, as heavy industries become
reduce production or close down, as part of overall policy less important and other production is increasing. Coal
mix by 2050, manufacturing in China will still use more coal than aims to shift economic activities from energy-intensive use will fall to about a third of manufacturing demand to
the rest of the world combined. industry to other sectors. The policy-driven shift led to a 2050.
significant decrease in coal growth in the 2010s, after the
global peak coal consumption in 2014. The compound Declining emissions with little help from CCS
annual growth rate for coal between 2000 and 2009 was Manufacturing is responsible for around a third of China’s
around 10%, dropping to just 1.3% in the following emissions today. As processes become more energy-
decade. efficient, coal is phased down, and electricity takes an
increasing share, emissions will progressively reduce. As
Although policy is driven by the vision of the central shown in Figure 3.13, although manufacturing emissions
government’s Five-year plans, the provinces have signifi- will almost halve by 2050, they will decrease at a slower
cant freedom to create their own policies to reach the pace than the rest of the energy system. Despite large
targets. These consist of binding targets for both energy emission reductions, manufacturing will remain responsi-
and emissions efficiency per unit of GDP. There is domestic ble for half of China’s emissions in 2050.
competition between the provinces to keep industries
locally in the province to support the tax base, and growth CCS is not expected to play a huge role in the decarboni-
and subsidies are the provinces’ responsibilities. An zation of manufacturing in China in the short term. CCS is
example is Anhui province’s big investment in EV startup not a high priority in policy planning as there are fewer
NIO, where subsidies were used to attract the company to opportunities for commercialization and thus there are no
relocate to Anhui’s capital Hefei (Mazzocco, 2020). The concrete measures for CCS. However, some research
state is responsible for consumption and emission mandates have been issued for state-owned enterprises

The locus of global manufacturing Heavy industries have been the backbone of Chinese
Industrial development has been the key driver for the rise development, but manufacturing in China is an evolving
of China in the last two decades and has supported both sector. This is reflected in the shifting of industrial
domestic and international development. This capacity economic activities from energy-intensive, low-value
has led to the moniker 'factory of the world', which is added products like steel, building materials, and textiles
inseparable from China’s global influence. Over 40% of to more high-tech, advanced manufacturing.
global manufacturing energy demand is concentrated in
China, which has doubled over the last 20 years. After this Industrial strategy is guided by the central government’s
period of rapid, energy-intensive growth, manufacturing Five-year plans, which are supported by policies and
in China is gradually shifting focus to improving energy implementation plans from the National Development
efficiency (Institute of Climate Change and Sustainable and Reform Commission (NDRC) in China’s '1+N' policy
Development of Tsinghua University, 2022). framework. This framework is supported by province and

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(SOEs) in northern provinces where heavy industry is Iron and steel production is increasingly concentrated in TABLE 3.1
concentrated. Most of the manufacturing capacity will be China. Second only to power, iron and steel production is Top producers in China in 2022
installed in ammonia production, where costs are lowest. the second highest emitter in China and is highly dependent
About 100 MtCO2/yr will be captured by 2050, covering on coal and coal products. Crude steel (by production) Cement (by annual production capacity) Aluminium
about 5% of manufacturing emissions.
China is the largest consumer of steel and, since 2018, has Baowu* China National Building Material (CNBM)* Chinalco*
Heavy industries dominate in energy use produced over half of the world’s steel, over 90% of which
Ansteel* Anhui Conch Hongqiao Group
The explosion of manufacturing energy demand in the is produced via energy-intensive blast furnaces and basic
last two decades has been supported by the boom in oxygen furnaces (BOF). Steel production in China is mostly Shagang Group Jidong Cement* Xinfa
the construction of buildings and infrastructure, which state-owned and production is decentralized, where the
significantly raised the demand for energy-intensive top three producers accounted for only 22% of annual *Indicates enterprises that are fully or majority state-owned.

products like steel and cement. Together, these two crude steel production in 2022, shown in Figure 3.14.
industries account for half of China’s manufacturing Transitioning to electric arc furnaces (EAF) drastically
energy demand today, and around a quarter of the reduces emissions and energy usage, as it primarily uses China, compared to 14% in the US and over 43% in Europe domestic demand. Aluminium is an essential material for
country’s total energy demand. Steel and cement are scrap steel rather than virgin steel in production. However, (RMI & China Cement Association, 2022). The use of the energy transition, especially for its lightweight
likely to be the first manufacturing subsectors to join many BOF facilities in China are somewhat new, making alternative fuels or electrification to replace coal in the properties (e.g. for cars and solar panels). However
an ETS scheme in China. the transition to EAF less economically appealing (Sandalow cement industry is expected to increase, in line with the current production is close to the ceiling imposed under
et al., 2019). 14th Five-year plan's goals to control coal consumption in the supply-side reform policy, meaning that domestic
Demand for these products is highly reliant on the major coal-using industries and to promote energy production will stagnate. Although China is one of the
economic situation. As a result, China has had chronic China’s iron and steel plants are often located in provinces savings and carbon reduction. largest bauxite producers (the raw mineral for aluminium
overcapacity issues in these industries which were solved with rich iron ore and coal resources, such as Hebei, production), it still needs to import more than half of its
by tough policies like the supply-side reform in 2015. The Liaoning, Shanxi, and Inner Mongolia, and in coastal Energy use in the base materials subsector in China is needs and outsourcing some of the capacity abroad
recent downturn in the real estate market has, for the regions that have a higher demand for steel products. dominated by non-metallic minerals and non-ferrous metals (Indonesia) is seen as an option. China will also have a
moment, been compensated by a strong demand for production. The energy-intensive aluminium production is growing energy-efficient recycled aluminium produc-
infrastructure, but we forecast a progressive decline in Cement production and consumption in China accounts the largest contributor among them. Primary aluminium tion (requiring about 5% of the energy use of primary
demand by 2050. However, the inertia of newly installed for more than half of the global total. The cement industry production has risen steadily from 3 Mt/yr in 2000 to 40 Mt/yr production).
and planned capacity additions will keep China at a very is highly dependent on fossil fuels and accounts for in 2022, making China the largest producer by far, with
high level of production. We expect short-term overca- approximately 11% of China’s carbon emissions. It is the 60% of global primary production (IAI, 2023). Coal and electricity have dominated the fuel mix. This will
pacity issues to be solved through air pollution measures, third highest emitter, after power and steel. An estimated be one of the main drivers for a decreasing energy use in
which are forcing the worst performing installations out of 90% of cement production facilities in China were built in Although roughly a quarter of the production is currently the base materials and a growing share of electricity in the
cities, without necessarily replacing the lost production the last 20 years and 40% in the last 10 years (RMI & China exported, with the US being the first export market, the fuel mix. Figure 3.15 shows the energy demand for each of
capacity elsewhere. Cement Association, 2022). This is reflective of rapid increasing production is supported by an increasing the manufacturing subsectors.
development both domestically and internationally,
particularly urbanization in the past two decades in
middle-income countries like China, Indonesia, and Brazil.
Energy demand for cement more than doubled from
about 2,500 PJ/yr in 2000 to over 5,600 PJ/yr in the 2014
peak. We forecast the energy demand for cement to
slowly decline to around 3,000 PJ/yr in 2050 due to
factors such as slowing urbanization and improvements
in build-material efficiency.

The cement industry in China is characterized by a low

market concentration rate among top cement companies,
where the top 10 clinker producers account for approxi-
mately 55% of total production capacity. Low centraliza-
tion hinders the large-scale proliferation of new
technologies, which could improve efficiency and
decrease carbon emissions. An example is the use of
alternative fuels rather than coal for clinker sintering,
which accounts for around 90% of total cement production
emissions. In 2018, alternative fuels accounted for less
than 2% of energy consumption per tonne of clinker in

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In construction and mining, state decarbonization plans

are contributing to the growing demand for battery- and
hydrogen-powered heavy equipment. Chinese manufac-
turers, such as the state-owned Xuzhou Construction
Machinery Group, aim to increase the uptake of
A global centre for clean technologies
battery-supported and fully electric heavy trucks and
equipment, mirroring the overall trend of electrification
in transport and manufacturing. China has become essential in the manufacturing and semiconductor fabrication processes require intensive
development of key technologies for the energy R&D, staying at the forefront demands significant
Whilst energy demand will operate a decline in most transition. It is impossible to dissociate China from the investment and a highly skilled workforce. Many cutting-
subsectors, chemicals and petrochemicals production will dramatic growth in production and related reduction of edge semiconductor technologies are patented and
continue to increase, driving an average 2%/yr growth in costs in clean-energy technologies. guarded by multinational corporations, making access to
energy demand to 2030, then reaching a plateau in the these technologies a complex endeavour for Chinese
2030s. The subsector development is essential in reaching In 2022, China accounted for more than 80% of the global companies. Additionally, certain key materials and
China’s self-sufficiency goal. China is home to a large share solar cell exports, more than 50% of lithium-ion batteries equipment in semiconductor manufacturing are essen-
of today’s chemical market and has built its industry first and more than 20% of electric vehicles (You, 2023). China is tial and often sourced from foreign suppliers (Vyrian,
around coal and is now importing increasing amounts of also emerging as a dominant player in global wind power 2023).
crude oil, as discussed in Section 3.4. generation, with the country's manufacturers supplying
nearly 60% of installed capacity worldwide in 2022. The US has imposed export controls and sanctions on
The manufactured goods subsector is where most of Chinese semiconductor-related companies, limiting
value added and export value is created, especially given The development in cleantech industries is also supported their access to certain technologies and components.
that China is turning to higher value-added products, by an oversupply of skilled workers attracted to the Similarly, Beijing has revised export/import guidelines
notably related to the energy transition (see Factbox). booming EV and solar panel industries. These industries to restrict the export of solar panel equipment (though
Lower-value added industries are also relocating to other are regularly ranked among the most attractive by fresh not the panels themselves) (Lee, 2023). However, the
countries. In this subsector, temperature needs are graduates, competing with the popular but increasingly domination of China in a significant number of steps of
usually lower and more efficient electrified processes are regulated IT sector (People's Daily Online, 2019). the cleantech supply chains and the slow progress in
often available. That is why even though manufacturing increasing production in other regions (IEA, 2023a)
value-added (MVA) will increase, we forecast a decrease When it comes to the semiconductor industry, China still means that China will remain a key player in this field
in energy use. faces challenges in achieving self-sufficiency. Because for the coming decade.

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3.4 Non-energy demand assets are young, so retrofitting facilities with CCS is the
cost-efficient route for low-carbon production. The
concentrated CO2 from the coal gasification makes
capture easier, and as levelized costs converge, our
China is the largest producer and consumer of chemical products, leading forecast sees a significant uptake of CCS, covering 30%
of hydrogen production for ammonia and methanol
to increasing global influence in the sector. Demand for chemicals is feedstock by 2050.
increasing and is expected to continue increasing until 2050, also driven
by the energy transition. A growing oil-based industry
Most of the growth in non-energy demand will continue to
come from the production of plastics and other chemicals.
Demand is on the rise for these products, first and fore-
As in the rest of its industry sector, China has developed 55 MtNH3/yr from today until 2050. Decreased demand most to support domestic demand. The feedstock
and is still developing a chemical industry at an impressive for agricultural ammonia, due to improved fertilizer depends on local availability and prices, but oil-based
pace. This is the main factor explaining the historical and utilization, is likely to be compensated by increased naphtha is now dominating and will be supporting future
future growth in non-energy demand shown in Figure ammonia use in the chemical industry. growth.
3.16. To support this growth, China has chosen a rather
distinctive path relative to other large chemical producers. Despite China using increasingly more natural gas as Oil-based petrochemical production is mainly concen-
an alternative, and although coal-based processes are trated in two coastal provinces with different characteris-
Domestic supply via coal-based chemicals much more emission-intensive than natural gas-based tics. Shandong is the biggest hub for refinery plants with
A major difference was the early and massive use of coal as processes, coal-based chemicals production will remain proximity to oil resources, has easy access to trading
a primary feedstock, as it is abundant, cheap, and available strong. These are often considered by the authorities as routes, and enjoys a greater presence of SOEs than private
domestically. Coal, alongside petcoke (a by-product of oil a more efficient and less emissions-intensive alternative enterprises. Zhejiang is developing its petrochemical
refining), is mainly used to produce the base chemicals to using coal for power production. Coal-to-chemical industries by building its own refineries and transforming
ammonia and methanol, for which China has become the production plants are also concentrated in provinces with one of its ports with the goal of becoming a major hub for
world’s largest producer. Coal’s primacy is evident in easy access to coal resources, like Shanxi and Shaanxi in petrochemical import and export. chemicals (WITS, 2023). China’s chemical industry is also
methanol production, where over 75% of methanol the northwest, and these provinces have a strong interest currently grappling with an overcapacity of low-end
produced in China comes from coal, compared to the in defending their local industries. While there is no self-sufficiency target, the intention is to products and an undersupply of high-end ones.
global average of 8% (Li et al., 2022). grow the industry and strengthen the domestic supply (RMI, 2022).
That is why we are forecasting a continued use of coal in chain, which still relies on imports. For instance, China was
Demand for ammonia as feedstock (for fertilizer or the next decades, only decreasing after 2030 to 60% of the first importer of ethylene and its derivatives in 2022, There are efforts underway to solve these issues. Chinese
chemicals) is forecast to remain relatively stable at around today’s level by 2050. Many of the existing production which are essential building blocks for most plastics and oil refiners and petrochemical companies, led by state
oil giant Sinopec and others are, for example, investing
heavily in the production of high-end chemicals for solar
panels and batteries. This will also help achieve the 5%
per annum growth target of its industrial value-added, a
slightly lower value than for the batteries and renewables
industry (8-10%).

As a result, while oil demand for energy purposes will peak

before 2030, the demand for non-energy use will continue
to increase in the coming decade. The share of non-
energy use will double, representing around 40% of oil
demand in 2050 as shown in Figure 3.17. In contrast, the
share of non-energy use of oil in the rest of the world will
increase slowly to 18% in 2050, less than half of that in
China. Total demand for oil in non-energy use is forecast
to decline from the 8 EJ/yr peak in the 2030s to around 6
EJ/yr in 2050. The decline is not because demand for
plastics in particular will decrease, but because recycling
rates, starting from a low 20% today, will steadily increase.
Together, mechanical and chemical recycling will grow to
cover around 70% of the waste stream by 2050.

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4 ELECTRICITY AND HYDROGEN

Electricity, hydrogen, and hydrogen derivatives will reach a share of 53% of

China’s final energy demand by mid-century. The share of electricity alone
in final demand rises from 25% at present to 47% by 2050, making China
the second most electrified region in the world by mid-century. Well over
90% of electricity supplied in 2050 will be from non-fossil sources, thus
playing a critical role in China’s decarbonization journey.

By mid-century, China will have made great progress in ambitions for producing electrolysers, coupled with
electrifying all its major demand segments: buildings, ample solar and wind resources, means that the majority
manufacturing, and transport. China will use hydrogen of the hydrogen produced will be electrolysis-based.
and its derivatives in hard-to-electrify segments, such as By 2050, the share of hydrogen and derivatives such as
maritime and aviation transport and high-heat manufac- e-fuels and ammonia in China’s final energy demand will
turing processes. reach 6%. This is slightly above the global average of 5%,
but behind, for example, Europe where hydrogen and its
Electricity’s share in final energy demand will grow from derivatives will be catering to 13% of energy demand in
25% in 2022 to 47% in 2050, aided by the extensive that region by mid-century.
buildout of the regional grid. Of this relative growth,
the majority will come from the rapid rise of renewables,
particularly solar PV and onshore and offshore wind.
This growth is aided by China’s position as a clean tech Electricity and hydrogen are essential for the
leader and manufacturing powerhouse.
decarbonization ambitions of China, while
Hydrogen and its derivatives will play a relatively smaller, reinforcing its market leadership in clean tech.
albeit important, part in China’s energy system. China’s

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4.1 Electricity the only source of new electricity for China. China also
kick-started the industrial-scale manufacturing of clean
in 2050 (see detailed analysis in Section 4.3, Storage
and flexibility).
energy technologies, from solar panels and wind blades
to power converters. This was aided in part by aggressive Given this transition to VRES and low-carbon power
Despite China progressing towards being among the most electrified of policies to incentivize such production, but more so to sources, the next three decades of China’s grid-
neutralize the market-based industries of other regions, connected electricity generation (Figure 4.3) can be
world regions by 2050, we note that electricity demand grows a mere 2% most notably Europe (CREA, 2023). delineated into three time-phases, with changing
year-on-year from 2023 to mid-century, in contrast to 6% growth from 2010 priorities and accompanying policies all shaping the
This ensured that record levels of renewable power transition. The time-phases, the priorities for each of
to 2020. This slow-down is explained by a declining share of manufacturing plants also came online in China, especially from the them, and the policies which aim to support the priorities
in GDP, the leveling off of end-use electrification, and a decreasing population. 2010s. In fact, variable renewable energy sources are given in Table 4.1 overleaf.
(VRES) such as solar and wind have overtaken coal and
The slower pace of electrification also brings about a re-ordering of gas-fired power plant installations since 2019. Besides
priorities for the electricity sector, with far-reaching impacts on the rest of kick-starting the clean energy industries, curbing
excessive local air pollution caused by coal-fired power
the world. plants was a major motivation for installing VRES plants.
Until 2030, coal will continue to play an
Going forward, China's electricity generation sector
important role in the electricity supply,
The three decades leading up to 2023 have seen great Electricity supply (Figure 4.3) will be occupied with continuing to grow
societal and structural upheavals in China. Increasing We forecast China’s grid-connected electricity generation VRES while ensuring resource adequacy and flexibility. accounting for almost 50% of on-grid
industrialization — and the accompanying growth in to grow from 9.2 TWh/yr in 2022 to 16.5 TWh/yr by Until 2030, coal will continue to play an important role in
electricity generation.
prosperity, urbanization, and electrification — and mid-century. As impressive as these numbers are, they the electricity supply, accounting for almost 50% of
opening of the country to the global market economy all indicate a marked slow-down in electrification (see Figure on-grid electricity generation despite its share reducing
contributed to increasing electricity demand. To cater to 4.2). By contrast, the period from 2000 to 2019 saw a gradually from 2023. From 2030, the following two
this demand, the foremost priority was capacity expan- massive increase in electricity demand which led to the decades will see a very fast transition/substitution
sion and electricity generation 'at least cost' (Glachant rapid expansion of the coal power fleet in China to the happening: the share of coal will dwindle, while wind
and Rossetto, 2022). This need for capacity and genera- point where half of the world’s total coal power capacity and solar make up for the lost coal generation.
tion was not helped by the energy geography of this vast and half of global annual coal electricity is now in China
country, with its industrial demand centres located far (DNV, 2023a). Central to maintaining adequacy and flexibility while
away from both its renewable energy sources and fossil increasing the share of VRES is electricity storage, the
sources such as coal. Given the lack of other fossil fuels, coal was China’s go-to share of which in the on-grid supply in energy terms
source for cheap growth in electricity supply, but it was not (TWh) will increase from near-zero in 2022 to about 4%
We foresee, and indeed are already witnessing, changing
priorities when it comes to the electricity sector of China.
The main reasons for changing priorities are:

— Declining growth of electricity demand and supply

(Figure 4.2) due to restructuring of the economy
and declining population

— Climate and decarbonization goals and local air-

pollution mitigation

— Ever increasing need for energy security in a multi-

polar world

— Strong desire to consolidate its leadership position as a

clean energy technology powerhouse amidst mounting
competition from the US and Europe

China’s electricity supply and demand are going to

change in different ways in the next three decades
compared with the last three decades, the salient aspects
of which will be dissected in the following sections.

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DNV Energy Transition China 2024 — CONTENTS Electricity and Hydrogen CHAPTER 4

TABLE 4.1 Power capacity declining. If one looks at the installed grid-connected
Priorities and accompanying policies for China's electricity supply China’s grid-connected installed capacity grows from 2.6 capacity of China shown in Figure 4.4, coal-fired capacity
TW in 2022 to 6.7 TW by 2040, and reaches 8.7 TW by accounts for about 13% of total capacity in 2050, while it
Time period Priorities Policies 2050. Unsurprisingly, both solar and wind dominate power accounts for only 3% of the total generation (Figure 4.3).
capacity in China, their combined share growing from 30%
Capacity mechanisms for coal-fired capacity, ensuring coal capacity is profitable even
in 2022 (780 GW), to 50% by 2030 (2.3 TW), and to 77% The installed grid capacity is a function of capacity
while not generating electricity and is on stand-by during winter and summer demand (6.7 TW) by 2050 (Figure 4.4). additions and retirements in China's power plant fleet.
peaks (Haley & Howe, 2023) Figure 4.5 shows the net capacity additions for selected
Maintaining adequate firm and One defining feature of China's electricity supply is the types of power plants as yearly averages by decade. While
ramp-able capacity, while Market-based economic incentives for renewable electricity beyond Central and maintenance of coal capacity, through established the decade preceding 2020 saw high net installations of
continuing to phase in VRES Provincial-level subsidies, such as electricity trading spot-markets at a central level capacity payment mechanisms, even while generation is coal power plants, in the future, net coal power plant
(NDRC, 2023c; RMI, 2023)
Central support for strategic battery market to grow electricity storage (Xu, 2021),
or 'pairing policy'

2022-2032
Ensuring there is no significant growth in gas-fired power plants by 'de-prioritizing' them
Laying the foundation for through disincentives, since China is dependent on imported natural gas (DNV, 2023a)
long-term energy security Dedicating funding to the development of nuclear power for firm capacity needs
(DNV, 2023a; Murtaugh, 2023)

Plan and begin the re/location of major demand-centres from existing rust-belt to ‘sun
and wind’ locations (You, 2022)
Work-around for electricity and
demand geographies Funding the expansion of an ultra-high-voltage power grid to ensure adequate
interconnection of the provinces, which enables a robust power system (Zhang et al.,
2023)

Continuing the uptake of VRES through efficient spot-markets while phasing down and
retiring gas-fired power plants (NDRC, 2023c)
Consolidating energy security Despite the more likely non-favourable economics, ensuring the installation of nuclear
capacity through 'premiums' and funding technological advancement of smaller units
and small modular reactor technologies
2032-2042

Phasing down coal-fired generation while maintaining stand-by capacity for peak
Striving for carbon neutrality in demands through capacity mechanisms (Hove, 2023)
the power sector Ensuring the smooth operation of VRES through economic incentives such as power-
price arbitrage for storage and a functioning electricity spot-market

Scale-up of CCS for coal-fired power plants through support for CCS and efficient
Achieving as much carbon trading markets (Communication with experts, 2023)
decarbonization as possible Expansion of the nuclear fleet through continued support mechanisms such as
'premiums'

2042-2050
Policies favouring the co-location of storage with solar to ensure dispatchable
A fully functional VRES- renewable electricity
integrated electricity system
built on dispatchable storage Technological development to enable majority two-way charging and to integrate
vehicle-to-grid storage capacity into the power grid

As suggested in Table 4.1, nuclear power will play a fairly combined will share about three-quarters of the total
prominent role in the power mix with its share in grid- generation, while coal will have a paltry share of 3%.
connected generation increasing from 4% in 2022 to 93% of the total on-grid electricity generation will come
about 5% by mid-century, a 550 TWh increase in the from low-carbon energy sources in 2050 (Figure 4.3).
corresponding time. By mid-century, solar and wind

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capacity coming online is going to be lower than solar PV — Intra-year/seasonal demand variability increases, with a decades, despite reducing total energy demand due (specifically air-conditioners) energy demand will
and wind capacity. Despite this, the capacity mechanism more pronounced peak in summer, leading to peakier to higher rates of electrification. On the other hand, overtake the other two end-uses by 2030s, while electric
payment for coal leads to positive, albeit small, capacity demand within a year electricity demand for manufacturing of all other goods heat demand in buildings will actually peak in 2040s and
additions, meaning that capacity coming online is still reduces slightly, thus maintaining almost the same slightly reduce to 2050.
higher than capacity being retired. — In combination, higher growth in annual peak demand, electricity demand in manufacturing.
despite slower in annual electricity demand growth Most importantly, spurred on by EVs, transport electricity
As more and more solar PV comes into the power system, the The end-use with the highest electricity demand in demand increases from 116 TWh/yr (1%) in 2022 to 1,142
price cannibalization effect becomes apparent, and the price Figure 4.7 presents the evolution of electricity demand in buildings in 2022 is appliances and lighting, followed by TWh/yr (8%) by 2050, an average annual growth of 12%.
solar electricity garners (which is termed as average received China, from 2022 to 2050. Total annual electricity demand heating uses (space, water, and cooking), then finally Similarly, storage charging is another demand category
price) starts reducing. Over time, solar+storage becomes a increases from about 9.6 TWh/yr in 2022 to about 17 TWh/ space cooling (Figure 4.8). However, with increasing which sees eight-fold growth from 2022 to 2050, reaching
profitable option for developers, which is also reflected in yr in 2050, dominated by manufacturing and buildings global warming and rising prosperity, space cooling 800 TWh/yr in 2050.
increasing net capacity additions of solar+storage, in electricity demand.
absolute numbers and when compared to solar PV.
In 2022, manufacturing accounted for a little more than
Figure 4.6 shows the spread of levelized cost of energy half of all electricity demand, with buildings accounting for
(LCOE) versus the average received price of electricity a quarter and the rest spread equally among energy
from selected power plants in China. While the LCOE of sector own use and others. This electricity demand
solar PV is lowest among all the featured types of power structure is set to change by 2050, with manufacturing
plants, the received prices of this solar PV electricity is also growth slowing down in China, even while electrification
commensurately low. On the other hand, solar+storage, of manufacturing is seeing modest growth. Total manufac-
which is dispatchable and provides flexibility, has higher turing electricity demand remains almost constant from
received prices, in general. Coal has increasing LCOE, due 2022 to 2050 (Figure 4.7).
to increasing carbon prices but at the same time it also
By 2050, buildings electricity demand will be equal to
garners higher received prices during the limited hours
manufacturing electricity demand, spurred on by a
that it does supply electricity to the grid.
climate that is warming along with higher penetration of
air-conditioners as more and more households in China
Electricity demand
can afford them.
Although growing more slowly than in the 2000s,
electricity demand in China will undergo a quiet
This can be further explained if one were to break down
revolution in three key aspects:
the unique electricity segments within these demand
— Growth of new demand segments such as space categories (Figure 4.8). For manufacturing, base material
cooling and other appliances and storage charging electricity demand sees very small growth over the three

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4.2 Power grids

China’s grid capacity expands by 120% from 540 TW-km in 2022 to 1,200
TW-km by mid-century, owing to the vast amount of renewables coming
online. Since the country is large, and different energy sources and
demand-centres are concentrated in far-flung places, the power grid acts
as a high-speed network that enables instantaneous electricity transfer,
while making cleaner electricity more affordable over time.

Power grids are important for China to meet its economic, Figure 4.9 shows the forecast grid expansion in China,
social, energy, and CO2 emissions targets because grids both in terms of grid length given in circuit-kilometres
are needed to: (c-km) and in grid capacity given in terawatt-km (TW-km).
While total grid capacity grows about 3% year-on-year,
— Transport electricity between the dispersed geograph- grid length grows about 2.7% year-on-year from 2022 to
ical locations of China's VRES and other energy sources 2050, signifying that transmission grid expands at a
and its large demand centres slightly faster pace than the distribution grid compared
to the existing electricity access rates in China.
— Achieve energy security and independence through
clean electricity and to phase out fossil fuels
The power grid can be divided into two fundamental
— Connect the different provinces and regions of China to
components: the transmission and distribution grid.
increase efficiency and efficacy of access to electricity
The transmission grid transfers electricity over long
and electricity markets (IEA, 2023b)
distances at higher rated power, while the distribution
— Enable shorter time-frame and spot-markets for grid distributes power to smaller consumers such as
electricity, especially renewable electricity, and in turn, households and public or commercial consumers at a
faster de-regulation of the power sector (IEA, 2023b) lower rated voltage and power.

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Transmission grid which aims to transmit significant renewable power ments, which is also part of China’s Belt and Road One reason for the growth in LV distribution lines is that
The transmission grid is made up of high-voltage (HV), capacity from the west of China to the east (Government Initiative (Temple, 2019). Beyond this, Chinese state- the electricity demand is becoming peakier with the
extra-high-voltage (eHV), and ultra-high-voltage (UHV) of China, 2021). owned enterprises and firms/organizations are involved penetration of air-conditioners and other high-powered
lines (collectively referred to as HV); step-up and step- in installing UHV lines in parts of the world where these appliances such as induction cookers and electric storage
down transformers; and other accoutrements which Figure 4.10 shows the development of the transmission lines will move renewable electricity from remote areas water heaters, along with EV charging growth in China. As
connect utility-scale power plants and large-scale grid capacity, divided into HVDC and HVAC. At present, to its population centres, such as in the Amazonian Brazil prosperity grows, more people seek comfort and can
demand centres to the main grid and transmit electricity the HV lines are divided 80:20 in terms of AC to DC in grid (Leal, 2016). From being a necessity, HVDC lines are afford space cooling and other appliances. Similarly, with
over long distances at high voltages to minimize capacity and this ratio is more or less preserved until increasingly used as a strategic export by China, and its increasing global warming and a higher incidence of
energy loss. mid-century. Total transmission grid capacity increases first mover advantage is expected to hold out long into extreme high temperatures in China, air-conditioners are
from 490 TW-km in 2022 to 1,050 TW-km by mid-century. the future. also becoming a necessity. Thus, as the demand becomes
For transmission of electricity, one can either use alter- more jagged/peaky, the distribution grid needs to be
nating current (AC) or direct current (DC). While gener- At present, the majority of the HVDC cables are overhead Distribution grid designed to handle demand loads even at the highest
ally HVAC is cheaper, given the distance, terrain, and lines. We forecast this changing with the installation of The distribution grid is made up of low-voltage (LV) and demand. Thus, LV lines are growing in both length and
possible losses, in specific cases, HVDC may be more offshore wind farms, in the future. By mid-century, a major medium-voltage (MV) lines and step-down transformers. capacity.
cost-effective than HVAC. portion of the HVDC lines are going to be undersea cables These get low-voltage power across to distributed
connecting offshore wind power plants off the East and consumers such as households, hospitals, and schools. Similarly, the growth of distributed solar, especially on
Over the last 10 to 15 years, China has invested a lot of South China Sea to the major coastal cities, which are also The distribution grid is expected to grow from 24 million rooftops, also requires both LV and MV grid strengthen-
resources in developing its transmission grid through economic powerhouses of China. As shown in Figure 4.11, c-km in 2022 to 51 million c-km by mid-century, with its ing, especially since many provincial grids are already at
long-distance UHV transmission lines, especially HVDC the length of undersea lines are going to expand starting grid capacity growing from 56 TW-km to 134 TW-km capacity in terms of integrating distributed solar.
lines. In 2023 alone, the State Grid Corporation of China from the 2030s as offshore wind power projects prolifer- during the same time-period.
invested a record USD 77bn in transmission infrastruc- ate and shift further offshore where the economics of DC
ture and energy storage systems, up by 4% from 2022 cables become even more favourable. Figure 4.12 shows the growth of LV and MV lines in China.
(Rogers, 2023). We estimate the transmission grid Both LV and MV see similar growth, even though in 2022
With increasing electricity demand, and
component of this investment level to double by 2032. HVDC lines are especially suited to offshore applications China has near universal electricity access. The main
and are cost-effective in more cases compared to HVAC reason for the growth in the distribution grid is the electrification of key demand sectors such as
A major focus of spending has been on HVDC lines lines, especially with longer distances from shore, which increasing electricity demand among the different
passenger transport and buildings heating
interconnecting the provincial and local grids, enabling we expect in the longer timeframe. In the near future, low domestic, commercial, and small industrial consumers.
the supply of electricity from remote (renewable) genera- frequency AC cables are also looking promising in marine With increasing electricity demand, and electrification of and cooling, strengthening the robustness of
tion sources to load centres. Currently, China has the operations (China Daily, 2022). key demand sectors such as passenger transport and
the electricity sector is key to uninterrupted
highest capacity of UHV lines of any single country. building heating and cooling, it is vital that the distribu-
Furthermore, transmission lines are an essential part of China aims to become a world leader in both UHV trans- tion lines are strengthened to handle the demand so that critical services.
the electric corridors planned in the 14th Five-year plan, mission grid and HVDC technologies through its invest- critical services are not interrupted in the future.

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4.3 Storage and Flexibility measure to balance the grid when the capacities of
storage or electrolyser systems are fully utilized. The
Simultaneously, China is reforming its approach to
demand-side response (DSR). Moving beyond simply
function of storage systems will evolve, transitioning mandating industrial users cut back on consumption
from merely accumulating excess energy to releasing it during peak demand, the focus is now on employing
A strong government policy framework, investment in a range of during periods of reduced solar and wind energy output. financial incentives to foster more flexible energy
This change is especially critical when conventional utilization. The influence of rural electrification is
technologies, and an emphasis on both domestic and international market energy generation faces limitations. Furthermore, significant, extending the grid's reach and amplifying
competitiveness characterize China's approach to energy storage. The consumer involvement in demand response initiatives is overall energy demand requires more sophisticated
expected to increasingly contribute to energy consumption DSR strategies. Complementing this, smart city initiatives
policies are not only focused on technological development, but also on management during peak times. After 2040, as coal are propelling the advancement of more intelligent
integrating energy storage into broader energy and industrial strategies. power stations are retired, solar power combined with and responsive energy systems. The integration of
storage is projected to become the cornerstone of technologies such as the Internet of Things (IoT) and
China's flexible energy approach, driven by the decreasing Artificial Intelligence (AI) is enhancing the efficiency
costs of batteries and solar technology. of energy management, forecasting, and distribution,
Policy landscape and EV charging. Such a change will not only increase further fortifying China's DSR framework.
China's energy storage and flexibility landscape is short-term flexibility demands but also amplify seasonal Interconnectivity within China's power grid emerges as
shaped by an array of ambitious policies and initiatives requirements, particularly with an expected five-fold rise another key facet. Government-led initiatives to enhance
aimed at reshaping its power sector. At the heart of this in cooling needs by 2040. Moreover, the variability in inter-provincial power trading (as detailed in Section 4.2)
transformative agenda is the National Energy Storage solar and wind power generation will further increase will significantly bolster grid flexibility. New regulations
Policy which emphasizes the development of advanced daily and weekly fluctuations. Specifically, solar power aiming to optimize resource allocation and energy
storage technologies to enhance grid reliability and will contribute significantly to daily variability before efficiency will enable provinces with an abundance of
renewable integration. This aligns with the broader goals 2030. Wind power, while also adding to the variability, renewable energy to supply those facing shortages, thus
outlined in the nation's Five-year plans which consistently has a less noticeable daily impact as it does not have the minimizing wastage and improving grid stability. This The need for power system flexibility will
prioritize energy innovation and sustainability. A key same daily patterns as solar power. Throughout the year, aspect is especially crucial considering the previously
triple from now to 2050 due to shifts in
component of this strategy is the Made in China 2025 solar power shifts from creating variability to enhancing high rates of unutilized solar and wind energy in the
initiative, which seeks to domestically produce critical flexibility, aligning with the seasonal demand for cooling. northern regions, which have been a major impediment electricity usage from industrial to more
energy storage components, reducing reliance on On the other hand, wind power, which reaches its peak in to the adoption of these renewable sources. Hence,
fluctuating residential needs, including
foreign technology and promoting self-sufficiency. winter, will become a key factor in seasonal variability. these inter-provincial connections are essential for
Additionally, various other programmes focus on incentiviz- From 2040 to 2050, we expect the need for flexibility to China's continued progression towards a decarbonized heating, cooling, and EV charging.
ing research, development, and the deployment of energy keep growing, though at a reduced pace, as the balance power system.
storage solutions across the country (see Table 2.3). between supply and demand in the electricity system
stabilizes.
Flexibility needs
Figure 4.13 shows the changing requirements for flexibility Flexibility providers
in China's electricity supply leading up to 2050. We Traditional energy sources such as gas and coal will
expect the need for flexibility to triple from now to maintain their significance in China's energy portfolio
mid-century. At present, the hourly demand fluctuates by through to 2040, although their expansion will not keep
about 200 GW from the daily average, representing 18% pace with the escalating demand for adaptable energy
of that average. This variation results from the daily cycle solutions. To bridge this gap, an array of storage options,
of demand, with traditional power sources like coal, gas, including pumped hydro and batteries, will become
and hydropower adjusting their output to meet these more prominent. These systems, capable of operating
changes. The difference in electricity use between both independently and in tandem with renewable
weekdays and weekends mainly causes day-to-day energy, especially solar, are set to play a pivotal role.
fluctuations, with the daily variation being roughly half of Electrolysers, harnessing surplus solar and wind power,
the within-day change. On an annual basis, the demand are also poised to become integral to energy flexibility.
for electricity in China shows a slight seasonal pattern, However, their effectiveness is contingent upon the
balancing the needs for winter heating and summer consistency of excess energy availability, as sporadic
cooling, with the highest demand in summer. operation throughout the year is unviable.

Over the next two decades, we anticipate a significant Post-2040, with the gradual phase-out of coal power
increase in flexibility requirements. This increase stems stations and the ascent of alternative energy sources,
from a shift in electricity usage from industrial to more strategies such as curtailing surplus energy production
fluctuating residential needs, including heating, cooling, will come into play. Curtailment will act as an emergency

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Market developments In response to the increasing demand for flexibility, there

Holding the position as the world's foremost nation in is a growing interest in alternative, long-duration storage
pumped hydropower, China boasts a capacity exceeding technologies capable of storing energy for periods
50 GW, which accounts for nearly one-third of the global ranging from 5 to 24 hours. This category includes
total. The country is actively developing more pumped technologies like flow batteries, zinc-based batteries, and
hydro facilities, with a strategic plan to significantly boost gravity-based storage systems. Projected to gain main-
its capacity. Predictions suggest that by the mid-2030s, stream acceptance in the 2030s, these long-duration
this capacity could surpass 200 GW and 2 TWh, and storage solutions are targeting a capacity of 40 GW and
potentially reach around 250 GW and 2.7 TWh by 2050 345 GWh by 2040.
(Figure 4.14). Compared with other storage methods like
batteries, pumped-storage systems offer notable bene- The swift uptake of EVs, combined with investments in
fits, including their longevity, low operational and mainte- smart grid technology and economic incentives from
nance expenses, and their ability to store energy on a both China's government and local authorities, is setting
large scale for extended periods. Despite these advan- the stage for vehicle-to-grid (V2G) systems to become
tages, they are not without drawbacks. The initial invest- a vital component in stabilizing the nation's power
ment for construction is substantial, and these projects network. The National Development and Reform
can have environmental and ecological impacts. Addition- Commission (NDRC) of China has recently outlined a
ally, their establishment is limited by geographical and strategic plan for V2G integration (Industrial News, 2024).
water availability constraints. Key elements of this plan include the establishment of a
comprehensive technical framework for V2G interactions
Due to decreasing costs, governmental financial incen- by 2025, the full implementation of peak charging and
tives, lower electricity tariffs for storage operations, and a time-based electricity pricing, and an emphasis on
supportive policy environment, standalone utility-scale advancing core V2G technologies. Additionally, these
lithium-ion (Li-ion) batteries are poised for rapid expan- guidelines aim to develop both national and industry-
sion in the coming decade. It is anticipated that their specific standards for V2G interactions, while also
capacity will reach 100 GW and 250 GWh before 2030, refining electricity pricing and market strategies to
escalating to 220 GW and 675 GWh by 2040. Concur- facilitate V2G integration. As the demand for grid
rently, the integration of solar power with storage will flexibility grows, it is anticipated that financial drivers
boost the growth of Li-ion batteries used in conjunction will increasingly support the expansion of V2G systems
with solar systems. By 2050, this combination is expected throughout China. We forecast that by 2050, V2G
to become the predominant form of utility-scale storage in systems will contribute an additional 380 GW of
China, exceeding a capacity of 1 TW and 3.7 TWh. storage capacity.

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Balancing power supply and demand Summer week

Supply (GWh/hour)
China is transitioning to a VRES-dominated power 2050 Summer week
system over the next three decades. We explain this In summer the majority of baseload is provided by nuclear,
transformation using the year 2050, and a typical summer while coal power fluctuates for daytime cooling peaks. With
and winter week as an example. depressed output of wind due to seasonal low availability,
solar PV with and without storage provides the bulk of the
2050 hourly power supply and demand non-night-time demand in the week. The storages are
China’s power system will have a peakier demand in charged during hours when VRES are cheap and plentiful,
the summer months than in winter due to space cooling and then are discharged during hours of reduced solar
and appliances demand. Thus, there will be installed generation, such as after dusk.
capacity throughout the year to sustain the summer
demand. Coal power, along with both stand-alone solar 2050 Winter week
and solar with storage, will supply more electricity in the Coal generation only kicks in on some days when wind

Demand (GWh/hour)
peak period, while the wind power output is cumulatively resources are low. Generally, wind generation is plentiful
less. Coal power output during the rest of the year is in China and complements solar PV during winter. Put
lower, which leads to an overall low annual capacity together, during a typical winter day in China, electricity
factor for coal. from wind and solar can satisfy about 80% of the demand.

Hourly profiles in 2050

Supply (GWh/hour)

Winter week

Supply (GWh/hour)
Demand (GWh/hour)

Demand (GWh/hour)

Supply legend: Solar+storage Demand legend: Space cooling

Vehicle-to-grid Solar PV Other Appliances and lighting
Stand-alone storage Other thermal Energy sector own use EVs and other transport
Hydropower Coal-fired Manufacturing Storage charging
Wind Nuclear Heating and cooking Grid-connected electrolysers

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4.4 Hydrogen (2021-2035). This marked the formal integration of hydro-

gen development into China's national development
Hydrogen demand
In 2022, the demand for hydrogen in China amounted to
strategy and signaled a new era of growth for the country's 25 million tonnes (Mt). Most of this demand (90%) was for
hydrogen sector. the production of hydrogen derivatives methanol and
China, the world's largest hydrogen producer and consumer, predomi- ammonia, for example for fertilizers in the case of ammonia.
The plan establishes the criteria for the development of The remaining 10% was for use in refineries for the
nantly generates hydrogen through fossil value chains. In 2022, out of the green hydrogen regarding the specified target timelines, enhancement of oil products. In contrast to these
close to 40 million tonnes produced, 80% came from fossil fuels, 18.5% outlining the necessary milestones and activities, such as: applications focused on feedstock, the demand for
hydrogen as an energy carrier was infinitesimal in 2022.
from industrial by-products, and only 1.5% from electrolysis, with less than — A medium- and long-term plan for the development of
0.1% using renewable energy. Because it is costly and available in very the hydrogen energy industry (2021-2035) with the key Given the policy support for offtake outlined above,
development goal of having about 50,000 fuel cell significant changes are expected. The demand for
limited quantities, low-carbon hydrogen is confined to a small fraction of vehicles as part of the fleet and several hydrogen hydrogen as a feedstock is projected to grow by 20%
the transport sector so far. refuelling stations deployed (over 400). At the same by 2050. By the 2040s, the demand for hydrogen as an
time, hydrogen production from renewable energy is energy carrier is forecast to surpass hydrogen feedstock
planned to reach 100,000-200,000 tonnes/year while demand, as depicted in Figure 4.15.
achieving a carbon dioxide emission reduction of 1-2
With China's goal to achieve carbon emissions peak — High CAPEX, with electrolysis equipment being a major
million tonnes/year. Our forecast indicates that hydrogen demand will reach
before 2030, green hydrogen is poised to play a crucial cost component
72 Mt by mid-century, for both feedstock and energy
role in the nation's journey towards carbon neutrality. — There are 10 hydrogen-related policies at the national
— Reduced capacity factors due to the intermittent nature purposes. In this context, 'feedstock' encompasses the
However, by the end of 2023, China's electrolyser capacity level, 83 at the provincial level, and 252 at the city/
of renewable power, leading to increased hydrogen demand for hydrogen to produce ammonia and other
reached 1.2 GW, constituting half of the global capacity, county level. Of these, development planning accounts
production costs chemicals like methanol, while 'energy source' includes
with the addition of a new record-breaking electrolysis for 45%, financial support 20%, project support 17%,
hydrogen demand for direct usage in energy sectors or
project at 260 MW already operational this year. Beyond — Limited access to financial support, which tends to management methods 16%, and hydrogen energy
for the production of e-fuels and ammonia as a fuel.
its borders, China is solidifying its dominance in electro- favour established players with a proven track record safety and standards account for 2%.
lyser deployment, with over 40% of global electrolysis over new entrants
— Dozens of provinces/cities have implemented supporting Hydrogen demand as energy carrier in more detail
projects reaching the final investment decision (FID)
Policy incentives for clean hydrogen schemes that cover both capex and opex support. The demand for hydrogen for energy purposes is poised
originating from the country.
In March 2022, China's National Development and Reform Examples include CNY 3-10m for the building of hydrogen for significant growth, transitioning from nearly nonexist-
Commission (NDRC) and the National Energy Administra- refuelling station, CNY 2m or CNY 6-35/kg for hydrogen ent levels at present to an estimated 43 Mt per year by
The main challenges for an increasing production of
tion collaborated to release the Medium- and Long-Term station operation, and CNY 1.5-5m for the hydrogen 2050. About a third of this projected production will be
low-carbon hydrogen and its by-products include:
Plan for the Development of the Hydrogen Energy Industry transportation project (WEF, 2023). allocated to the generation of derivatives, including

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ammonia and e-fuels, catering to the maritime and Hydrogen supply contributing to Scope 1 emissions of at least 4 tonnes of bigger than ammonia demand for feedstock in China.
aviation sectors. In the year 2022, the predominant method for producing carbon dioxide per tonne of ammonia. About a third of the low-carbon ammonia production will
hydrogen for energy was electrolysis, however this was at come from renewables, either via the grid or dedicated
The initial significant uptake is anticipated for industrial heat very low levels. Towards mid-century, hydrogen produc- Coal-based ammonia production is typically more costly renewable production, the rest will come from fossil
and the alternative fuel sector. This initial usage is strictly tion via electrolysis will undergo tremendous growth in than natural gas-based production, particularly in sources equipped with CCS. However, domestic ammonia
policy-based. Close to 5 Mt of hydrogen as an energy China (Figure 4.17). Primarily coupled with solar PV and to countries with low-cost natural gas. Due to limited production will only cover about a tenth of China's
carrier will be used for the provision of industrial heat in just a lesser extent with onshore wind, electrolysis-based natural gas reserves and thus lower capacity, but also demand. Thus, a large proportion of the ammonia
ten years, while by then about 3 Mt will be used to provide hydrogen production aiming at supplying hydrogen for political will for CCS, decarbonization in China must likely demand, about 40 Mt, will be imported from North
alternative fuels based on hydrogen. Subsequently, the energy will be at 30 Mt in 2050. Low-carbon hydrogen occur through either exporting carbon dioxide via East Eurasia in the form of blue ammonia.
direct utilization of hydrogen is anticipated to gain traction also makes inroads in hydrogen use for feedstock. By pipeline and ship or, more feasibly, through electrolysis-
in long-distance trucking and aviation, with the transition 2050, 80% of both hydrogen for feedstock and hydrogen based pathways combined with renewables. China Prospects for green methanol
occurring progressively from the late 2030s to the 2040s. for energy will be based on low-carbon hydrogen. The already boasts gigawatt-scale factories for electrolyser At present, methanol is primarily utilized for chemical
About 0.3 Mt will be used in China's road sector in ten years. remaining 20% is split equally between methane reform- production at a significantly lower cost than Western production, specifically in the production of formalde-
ing and coal gasification, both without CCS. Dedicated manufacturers. hyde, and is infrequently used as a fuel. Nevertheless,
Figure 4.16 illustrates in more detail the uptake of pure solar PV accounts for almost half of the low-carbon a growing initiative to promote methanol-powered
hydrogen and hydrogen derivatives. Pure hydrogen will hydrogen production in China by mid-century, equaling transport in China may alter its prospects.
mainly be used in long-distance trucking and in aviation in 32 Mt. Electrolysis coupled with wind power production
hybrid setups. Hydrogen derivatives will make bigger will account for about 15%, while electrolysis coupled The merits of utilizing methanol as a transportation fuel
The cost gap between fossil-based and
inroads into aviation and maritime. Hydrogen-based SAFs with grid electricity will account for 10%. are manifold. It boasts lower production costs in compar-
will add to a more diversified fuel mix in aviation, together electrolysis-based ammonia production in ison to alternative fuels and is less flammable , ensuring
with sustainable biofuels. Maritime will see a diversified The selection of the production route in this forecast is enhanced safety in engine usage compared with gasoline.
China is arguably the world`s smallest.
fuel mix as well, and here methanol is currently the sustain- predominantly influenced by the levelized cost of the Moreover, its liquid state at ambient temperatures
able fuel getting the most attention, while we expect a production routes. facilitates convenient storage and distribution. Further-
higher share of ammonia in the long run. However, there more, when produced from renewable sources and
are large uncertainties associated with that prediction Prospects for green ammonia China recently revealed plans for numerous large-scale biomass or through carbon capture methods, methanol
which are further elaborated in our 2022 Maritime In 2022, China had an annual ammonia production renewable green ammonia plants utilizing its enormous is regarded as a low-carbon fuel.
Forecast (DNV, 2022). capacity of 55 million tonnes, constituting approximately land mass and the ability to develop large-scale projects
30% of the world's total capacity. This significant share quickly. While demand for ammonia for feedstock As outlined in the Chapter 3.1, Transport, the maritime
It is important to highlight that the initial and ongoing primarily stems from the reliance on coal-based ammo- reduces slightly by 2050, down to 51 Mt, the demand for industry is currently experiencing a transition in fuel
uptake in the transport sector will primarily involve nia production, driven by the absence of larger natural ammonia as an energy carrier rises from virtually zero technology, with 50% of the newly ordered tonnage
hydrogen derivatives such as ammonia and e-fuels or gas reserves in China. Coal-based ammonia production today to 57 Mt. Coincidentally, 2050 also marks the first being equipped to utilize LNG, LPG, or methanol in
sustainable aviation fuels, rather than pure hydrogen. is considered to be one of the most polluting methods, year in which ammonia demand as an energy carrier is dual-fuel engines. This is a marked increase compared to
the one-third of tonnage on order in the previous year.

In November 2023, shipping giant AP Moller-Maersk

announced the conclusion of a long-term agreement
for an annual off-take of 500 kt of methanol (a mix of
green bio-methanol and e-methanol) to be delivered by
Chinese new energy pioneer, Goldwind. This production
is intended to meet a large proportion of the fuel needs
of Maersk’s 12 large container vessels under construction,
equipped to utilize methanol, with the initial volumes
anticipated to be delivered in 2026. Production is
scheduled to commence in 2026 at a new facility
located at Hinggan League, northeast China.

We forecast a production of methanol intended for

energy use, such as transport fuel, to reach 5.5 Mt by
2030, and close to 60 Mt by 2050 stemming mainly from
non-fossil sources. Only 10% will be produced via
CCS-equipped fossil value chains.

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China’s primary energy supply has nearly tripled over the in 2022 (UNDESA, 2023), and is expected to be about 90
5 ENERGY SUPPLY last two decades, as illustrated in Figure 5.1. The strong million less in 2050 than today. With an ageing population,
increase came first and foremost from coal, which the reduction in the workforce is even greater, and this
accounted for 58% of primary energy use in China and influences productivity and economic growth. A smaller
In 2022, China accounted for 18% of the world's population and 20% of 54% of global coal consumption in 2022. Since 2013, workforce means salaries are likely to grow more than in
China’s energy use has also started to diversify into neighbouring countries. Even with increased automation,
global GDP. Energy demand in China, hitherto closely correlated with both almost all other energy sources, with strong growth in a significant share of China’s manufacturing is likely to
population and economic growth, has soared — growing from 12% of natural gas, hydropower, nuclear, solar PV, and wind. In move to countries with cheaper production.
2022, China’s renewable energy investments accounted
global primary energy in the year 2000, edging past 21% in 2010, and now for 55% of the global total (BNEF, 2023). Just two Chinese Average annual economic growth has been more than 8%
accounts for 26% of global primary energy demand. Importantly, China is companies have captured over half of the world’s electric for 30 years while the GDP per capita experienced a
vehicle battery market and 60% of electric car sales in 10-fold increase in the same period. We expect growth
responsible for a third of global energy-related CO2 emissions; developments 2022 occurred in China. It also has the world’s largest to slow significantly to an average of 2.3% for the next 30
there are crucial to whether the world will meet its emissions reduction fleets of solar and wind power plants. The most striking years due to the demographic shift described above,
growth has been in solar power, where new installations and because China is becoming a more mature economy
targets and climate objectives. in 2023 alone are expected to provide one-and-a-half with fewer productivity gains in industry and structural
times the total installed capacity of solar power in the difficulties in sustaining domestic demand growth.
United States (SEIA, 2023). Over time, its long-term economic growth rate will more
closely resemble that of other middle- and high-income
However, this remarkable progress in renewable sources countries. However, slowing growth does not mean no
has yet to crowd fossil sources out of the energy mix in growth: by 2050, GDP per capita is projected to be more
China: the share of coal and oil will increase slightly in the than double its current value, reaching USD 50,000 per
next couple of years before they gradually decline to a year.
fourth and a half, respectively, of their current volumes by
2050. In 2050, the share of fossil fuel in primary energy
supply will reduce from 87% to 40%.

The forecast energy supply and demand trends in the

coming decades are closely linked to the demographic
In 2050, the share of fossil fuel in primary
and economic developments of the region. They are also
strongly influenced by government energy and environ- energy supply will reduce from 87% to 40%.
mental policy. China’s population peaked at 1.426 billion

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5.1 Coal In 2021, China announced it would stop financing and

supporting technology for coal plants overseas. This is an
ammonia, and 80% of methanol production in the country.
China stands as the sole nation producing hydrogen from
important step that increases the costs of new coal-fired coal on a substantial scale, contributing 24% of the world's
generation in other regions and helps the transition to cleaner hydrogen supply. However, this production process is
Between 2000 and 2010, there was a substantial surge in coal demand, technologies. According to Global Energy Monitor, overseas notably emissions-intensive. To fulfil China's pledge of
coal project financing by China in 2022 had fallen 78-fold since reaching peak emissions before 2030 and achieving
rising at an annual growth rate of 10%, from 1,351 Mt to 3,526 Mt. More its peak at USD 39bn in 2017 (Hurley & Tate, 2023). carbon neutrality by 2060, coal gasification processes
modest growth followed over the next decade, with demand reaching require carbon capture and storage (CCS) units to mitigate
On the demand side, the power generation and manufac- emissions. Figure 5.3 outlines the production of methanol,
4,100 Mt by 2022, followed by a 5% leap in 2023 (IEA, 2023). We forecast a turing sectors are the major coal consumers in China. ammonia, and hydrogen (as feedstock) both with and
minor uptick in total coal consumption over the next two years before falling According to our Outlook, coal consumption in both without CCS in 2000, 2022, and 2050.
sectors will continue growing for the next two years. Coal’s
by a third by 2040 and ending at some 25% of peak coal use by 2050. share in electricity generation will reduce from 60% today If China's coal use follows the path in our forecast, the
to 3% in mid-century. The electrification of China's resulting annual emissions from coal will fall from 8 GtCO2
manufacturing is projected to decrease demand from 29 in 2022 to 1.8 GtCO2 in 2050, making a crucial contribution
In 2023, China prioritized short-term energy security to avoid China’s rapid additions of new coal-fired power plants EJ in 2022 to 13.6 EJ by 2050, with iron and steel produc- to reducing global emissions. Yet, China's coal-related
a recurrence of the power shortages that occurred in 2021 and its lack of a coal phase-out plan are responsible for tion expected to constitute the highest share of coal emissions, comprising 11% of global energy-related
and 2022. This led to an increase in thermal coal imports, with it falling behind the Paris Agreement pace, despite the demand at 35% in 2050. However, the economic appeal of emissions in 2050, stand as a significant barrier to achiev-
shipments from Indonesia up 65.9% year over year to 89.9 country’s record buildout of renewable energy (Xue, transitioning to electric arc furnaces (EAF) is hindered by ing worldwide net-zero emissions by mid-century. To
Mt, Russian shipments increasing 88.7% to 18.3 Mt, and 2023). In 2021, China's President Xi Jinping stated that the the relatively new status of many basic oxygen furnace achieve the 1.5-degree Celsius target, the share of coal in
Australian supplies rising from zero to 11.2 Mt (Chen, 2023). country would start 'phasing down' coal use starting in (BOF) facilities in China, as mentioned in Chapter 3, China's power mix must be significantly reduced to single
2026 as part of its effort to slash carbon emissions and Manufacturing. Towards the end of the outlook period, digits by 2035, and a complete phase-out of coal should
In our ETO, we forecast a minor increase in total coal reach carbon neutrality by 2060. However, China has been iron and steel (9 EJ/yr) will overtake power generation be considered by 2045, as outlined in our ETO Pathway to
consumption over the next two years before a decline to adding coal capacity at a record pace: in 2022, 86.6 GW of (7 EJ/yr) as the largest consumer of coal in China. Coal use Net-Zero Emissions report (DNV, 2023b).
3,005 Mt by 2040 and to 1,176 Mt by 2050. Anticipating the new coal-fired power plant capacity was approved in buildings, which is relatively small, will fall in the coming
decrease in coal-based power generation and the swift compared with 18.6 GW in the previous year (Energy years to be largely replaced by natural gas. Coal demand
expansion of renewable energy sources, coal plants will Foundation China, 2023), and in the first half of 2023 an in non-energy (feedstock) remains quite stable.
experience reduced revenue due to lower utilization. The average of two plants per week were approved, adding By mid-century, the share of coal in iron and
National Development and Reform Commission (NDRC) 52 GW of new coal-fired capacity. As of Nov 2023, 209 In China, over the past two decades, coal gasification has
steel production surpasses that in the power
has therefore developed mechanisms to compensate coal new coal power plants are either under construction or played a pivotal role in producing methanol, ammonia,
power plants for losses as they adjust to their new role as permitted in China, which accounts for 72% of the world’s and hydrogen (as feedstock). As of 2022, coal fuelled sector, reaching 35%.
backup suppliers (Hove, 2023). planned yet unbuilt capacity (Myllyvirta, 2023). approximately 66% of the hydrogen (as feedstock), 52% of

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5.2 Oil

For almost three decades, oil has been the second-largest contributor to
China's energy supply, with its share in primary energy supply rising from
18% in 1996 to 21% by 2022. We forecast this share will persist until 2027
before gradually declining to 11% in 2050.

China relies heavily on oil imports to supplement domestic from 5.4 Mbpd (12 EJ) to 16 Mbpd (33 EJ), despite tempo-
production. In 2022, China’s oil production and demand rary dips like those in 2008 and 2020. We anticipate oil
were about 4 Mbpd and 16 Mbpd, respectively. As oil demand to increase to 17 Mbdp (35 EJ) in 2025, but then
demand has increased about 5% per year over the last two to plateau until 2030 before declining by 71% to 8 Mbpd
decades, the share of imported oil has increased from (16 EJ) in 2050.
37% to 75%. Figure 5.4 shows historical and forecast oil
production and consumption. Over the past decade, As shown in Figure 5.5, oil demand in the transport sector
around 50% of China's imported oil originated from Russia has increased from 5.3 EJ in 2002 to 16.5 EJ in 2022, a
and Saudi Arabia. Following the Russian invasion of 5.8% CAGR. We forecast the demand to peak at about 17.6
Ukraine, adjustments in oil pricing led China to restructure in 2025 before it decreases by 74% to 4.6 EJ in 2050 due to
its crude oil imports. In 2022, crude oil imports from Russia the significant rate of electrification in the road subsector.
increased 8.2%, according to China's customs data. In The surge in passenger new energy vehicles (NEV) in
2023, due to refinery expansions in the country and 2022 pushed their market share to 27%, a significant leap The third largest sector in terms of oil use is manufacturing,
initiatives to reopen the economy after the government from 14% in 2021. This share will continue to grow to 45% which is anticipated to reduce its oil demand by one third
In 2028, the share of plastics production
eased COVID-19 mobility restrictions, record volumes of of passenger vehicles and 13% of commercial trucks and compared with its 2022 value of 3 EJ by the middle of the
crude oil were imported into China. vans in 2025. The trend will deepen in the coming decades century, while maintaining a consistent share of around 9% in oil demand increases to 23%, surpassing
to the point where passenger and commercial vehicle oil of oil demand. Oil or its products are also used in buildings,
both passenger vehicles and aviation.
Driven by the ever-increasing demand for transport, due demand will decline by 97% and 85%, respectively, by power, ‘other’ sectors, and for producing the oil itself.
to population and economic growth, oil demand rose 2050. Oil use in aviation, shipping, and rail transport Nevertheless, these uses are small (9% of total oil demand) By 2050, the share of plastics will be 42%.
steadily by about 5.6% per year between 2002 and 2022, (collectively termed ‘other transport’ in Figure 5.5) will and remain so throughout our forecast period.
initially grow for a few years. Thereafter, the shift toward
biofuel, green ammonia, e-kerosene, and other low-carbon
fuels will reduce this oil demand by 28% from 5.3 EJ in
2022 to 3.7 EJ in 2050. Detailed information and analysis
of transport fuels is set out in Chapter 3.1, Transport.

Oil’s second largest sectoral demand is as feedstock for

non-energy, plastics, and non-petrochemical production,
which do not entail any direct CO2 emissions. Oil demand
in non-petrochemical (such as bitumen), which has been
around 1 EJ in the last decade, will drop by 40% toward
the mid century. By contrast, oil demand for plastics has
doubled, from 3 EJ in 2012 to 6 EJ in 2022, and the growth
will continue to 7.5 EJ around 2035 then slowly decline to
5.6 EJ/yr by 2050, due mainly to a decrease in plastics
production caused by demand-side reduction and
substitution measures as well as higher rates of recycling
(see Chapter 3.4, Non-Energy Demand for more details).
However, with declining oil use for most energy purposes,
the share of non-energy use in oil demand rises from 23%
today to 46% in 2050.

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5.3 Natural Gas

Between 2010 and 2020, China's natural gas consumption expanded

significantly from 201 billion cubic metres (bcm) to 493 bcm, averaging an
annual growth rate of approximately 10%. Consequently, during this period,
the share of natural gas in the primary energy supply doubled, rising from
4% to 9%. We forecast growth to continue until the mid-2030s, but at a much
lower rate, about 2.1% per year, reaching around 700 bcm before it declines
to 500 bcm in 2050.

The surge in demand for natural gas in China stems from our ETO is the chemical energy content of hydrocarbon
the government's initiatives to diversify the energy mix gases including both 'associated' and 'non-associated'
and reduce air pollution, driven by environmental and gas including natural gas liquids (NGLs), and coalbed gas.
climate factors favouring the lower carbon intensity and
higher combustion efficiency of gas over coal. To meet this In 2022, China's natural gas demand was 14 EJ, and
escalating demand, China advanced the construction of according to the China Natural Gas Development Report
its 'national network' of gas infrastructure, increasing the 2023 from the National Energy Administration, it has Similarly in the non-energy sector, due to the increase more than 10 bcm. In 2022, China produced 220 bcm
total length of long-distance natural gas pipelines by more experienced a 6-7% increase in 2023. of ammonia and methanol production as feedstock, of gas, an increase of 6% over 2021 (China Gas, 2023).
than 3,000 kilometres and gas storage capacity by the demand will increase by 43% from 0.9 EJ in 2022 to In 2023, the Comprehensive Department of the National
approximately 5 bcm. The country made progress on As shown in Figure 5.7, there has been a shift in natural 1.3 EJ in 2050. Energy Administration implemented a new revision of
several large liquefied natural gas (LNG) projects, including gas usage over the years in different sectors. Since 2021, the Natural Gas Utilization Policy to promote the
putting the Binhai LNG terminal into operation and the power sector has surpassed the buildings sector as As shown in Figure 5.6, in the last two decades, natural high-quality development of the natural gas industry
building the Beijing Gas and Caofeidian LNG terminals the primary user, accounting for 26% of natural gas gas production in China has increased. According to the (China Energy News, 2023). We forecast the production
(China Gas, 2023). Figure 5.6 provides an overview of consumption, 4.5 EJ, in 2022. Demand for natural gas in China Natural Gas Development Report 2023, for six years to peak around 292 bcm in 2037 before declining to 211
production, consumption trends. Note that natural gas in the power sector will rise to to 9.2 EJ by 2038, primarily in a row, China has increased domestic gas production by bcm in 2050.
owing to its role in replacing coal-fired power. However,
following this peak, the demand is expected to gradually
diminish to 7.4 EJ as the proportion of renewable energy
sources in the power sector expands. The demand in the
manufacturing and industry’s own use remains around
the current value of 4 EJ and 2.5 EJ respectively until about
2040, before it reduces to 2.5 EJ and 1.6 EJ, driven by
improved energy efficiency and increased electrification.
Note that some own use in the energy sector will be for
liquefaction and regasification of gas that is transported
as LNG. Gas demand in the transport sector will increase
by 40% in 2037. Thereafter, it will decline by 95%,
compared with the 2022 value, due to its increasing
displacement in its main application, shipping, by the rise
of hydrogen derivatives such as ammonia and e-fuels.

This general decline in gas use is partly offset by higher

demand in buildings and non-energy sectors. In the
buildings sector, the demand will rise by 74% from 4.3 EJ
in 2022 to 7.4 EJ in 2050, primarily driven by gas substi-
tuting traditional biomass in various applications.

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Despite the country's strategic focus on further develop- Underground gas storage
ing its natural gas infrastructure and enhancing domestic Natural gas is injected into underground storage (salt
production capabilities, China's demand for natural gas caverns, aquifers, or depleted fields) when demand is
continues to outpace its domestic production capacity. lower (summer) and withdrawn when gas demand for
For example, in 2022, more than 40% of primary gas space heating increases (winter). China has been investing
supply was imported. Figure 5.8 shows regional histori- in underground gas storage facilities to enhance energy
cal and forecast gas imports to China via pipeline and as security by providing a buffer against supply disruptions
LNG. We expect an increase in imported gas in the and seasonal variations in gas demand. By December
coming decade, followed by a steep decline through to 2022, China has 84 underground gas storages in operation.
2050 as the consumption of natural gas reduces. These underground storages are able to supply 19.8 bcm
peak-shaving natural gas. To ease the seasonal gas
Except for a relatively small and consistent quantity of shortage, over 43 new underground gas storages are
4 bcm imported from South East Asia, the majority of gas planned with effective peak-shaving capacity announced
imports via pipeline into China originate from North East to be over 61.5 bcm (ARA, 2023). By 2050, about 50% of
Eurasia. In 2022, pipeline imports from North East hydrogen capacity is repurposed methane storage sites.
Eurasia grew by 7.8% year-on-year to 62.7 bcm. The 54%
jump in imports from Russia — from 10.4 bcm to 16 bcm
— was one driver of this growth, as Russia continues to
increase deliveries to China through the Power of Siberia
Despite China's strategic focus on further
pipeline, which is expected by Moscow to reach its
capacity of 38 bcm by 2025 (China Gas, 2023). Until 2016, developing its natural gas infrastructure and
China imported LNG mostly from South East Asia and the
production capabilities, its demand for natural
Middle East. However, since 2017, Australia has been the
main provider of LNG to China. In 2022, China’s LNG gas continues to outpace its domestic pro-
imports declined by 19.5% to 87.6 bcm. It was the biggest
duction capacity, leading to a more than 50%
year-on-year drop since China began importing LNG in
2006, likely caused by slower economic growth, COVID- reliance on imports to fulfill its energy needs.
19 restrictions, and high LNG spot prices.

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5.4 Solar aspirations for green energy are aligned with its efforts
towards meeting dual carbon goals announced in 2020:
58% between now and 2030. In other words, for each
1 GW of new capacity added in the years 2023 to 2030,
achieve peak CO2 emissions before 2030 and carbon 0.58 GW will be solar. This is because, on average, solar
neutrality by 2060. As part of these efforts, China set a already has the lowest LCOE. The cost learning curve
target to reach 1,200 GW of its energy through solar and effects applicable globally for solar energy will improve
We forecast that renewable generation from solar PV will continue increasing wind combined by 2030. With new solar installations solar economics even further.
and account for 38% of all electricity produced in China in 2050. More than concentrated in the country’s north and north-west
provinces (such as Shanxi, Xinjiang, and Hebei), a signifi- In 2011, new solar capacity additions exceeded 1 GW/yr
a third of solar capacity installed will be combined with storage, mainly cant potential for rooftop solar roll-out in Central and for the first time and grew increasingly thereafter,
batteries. This dramatic growth will be driven by the low cost of solar East China, as well as large solar stations being built in breaking through 10 GW/yr in 2013 and 30 GW/yr in
the Gobi Desert (Jaghory, 2022), we expect China to 2016. Accordingly, the total installed grid-connected
energy and continued policy support. reach this target ahead of the announced deadline. capacity in 2022 exceeded 300 GW compared with just
above 1 GW in 2011. We forecast that annual solar
By 2050, or 34%, of solar will be combined with storage, capacity installations will continue to rise, nearing 200
Generation and capacity The growth in solar has been largely driven by subsidized mainly battery, providing greater asset values, flexibility, GW by 2050.
China has grown its solar industry steeply over the last electricity prices (in the form of feed-in tariffs or FITs) for and cost advantages. The increase in solar will be
decade: from less than 1% of the power mix in terms of renewable energy. As part of FITs mechanism, solar and accompanied by a corresponding dramatic decrease in As more storage capacity is added worldwide, storage
total generation in 2015 to around 5% presently. Given that wind firms were offered a guaranteed price above fossil-fuelled generation, which will drop from 66% today costs decline as well, helping to drive cost learning.
the total electricity demand has increased by half over the market for their electricity. Since FITs greatly reduced the to only 7% in 2050 (Figure 5.9). Other non-fossil plants, As a result, the share of solar PV systems with dedicated
same period, this five-fold growth in solar is moderate. risks associated with the novel technology, this policy including wind, together will contribute almost 55%. In
However, at present, solar is the third largest renewable measure attracted many new developers into solar other words, by 2050, we expect substantial transformation
source in the power sector in China after hydropower and industry. The success of the FITs policy has been a of China’s energy mix from fossil dominated to a much
wind. Furthermore, we forecast that renewable generation dramatic decrease in the costs of solar energy, which is cleaner one.
from solar PV will continue increasing and will surpass already now the most economical form of energy in
hydro in terms of generation share by 2030. China on a levelized cost of electricity (LCOE) basis. Such growth is possible first and foremost due to contin- The share of solar PV systems with dedicat-
In fact, due to solar achieving the grid-cost parity, China's uing increase in electricity demand in China — driven by
ed storage will rise to about 7% of all solar
From 2026, solar will temporarily surpass wind through to government started phasing out central subsidies starting electrification of all major demand segments, including
2040, when wind will catch up and go hand in hand with 2022. road transport, buildings, and manufacturing — and by installations by 2030. It will continue rising to
solar as the two dominant sources of renewable power the emergence of new demand segments such as
reach about 50% in the 2040s and close to
through to 2050. By 2050, solar PV will have grown 14-fold The policy support for solar will however continue, grid-connected electrolysis. This expected growth in
from today’s levels, and will account for 34% of all electricity although in new forms. For example, provincial subsidies electricity demand will drive new power plant capacity 100% by 2050.
generated in China. will continue fuelling new solar installations. China’s investment. Of this new capacity, solar will account for

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storage will rise to about 7% of all solar installations by Figure 5.12 also shows that capture prices for solar
2030. It will continue rising to reach about 50% in the decline somewhat from current levels but remain mostly
2040s and close to 100% by 2050 (Figure 5.10). As stable and above LCOEs from the late 2020s. Lower
increasing amounts of solar PV electricity are grid- capture prices will not, however, hinder the strong
connected, the additional benefits of a near fully flexible growth of solar PV. The portrayed prices and costs are
storage system co-located with solar PV will be an averaged across the projects in China, and with prices
important driver for solar+storage investments. reported on an annual rather than hourly basis. Therefore,
individual project costs can be well below the average
By mid-century, total installed capacity will reach 3.9 TW values, thus yielding higher profitability. Moreover, PV
for solar PV and 1.6 TW for solar+storage. The 5.5 TW of and storage systems are increasingly designed as a
combined solar capacity projected for 2050 is nearly 13 'package' that can produce energy on demand, just like
times the level seen in 2022. Nearly a half of all installed hydropower, nuclear, or combustion plants. New business
capacity in China in mid-century will be solar (Figure models will therefore incentivize capacity, reliability, and
5.11). In addition to grid-connected solar, we expect flexibility aspects of such combined systems for solar
about 1.3 TW of off-grid capacity dedicated to satisfying project investors.
electricity demand for hydrogen production through
electrolysis; a dramatic increase from only about 0.9 GW Due to the intrinsic variability of solar, its average capacity
installed now. factors are currently the lowest compared with other
generator assets: 15% for stand-alone solar and 5% for
Economics solar+storage. However, as more solar capacity is
Favourable economics are essential for continued installed and more flexibility options are developed (i.e.
growth in solar capacity. The LCOE for solar PV is energy storage, new markets, and demand-response
currently around USD 39/MWh, which is the lowest solutions), capacity factors will increase steadily in the
among all fuel options in the power sector. For next decade. At higher penetration levels of solar
solar+storage, it is almost twice as much at USD 75/ towards mid-century, the capacity factor of solar without
MWh, though this is still more competitive than any storage will decline due to more capacity being online
fossil-fuel based option and only slightly less competitive during hours when solar generation is plentiful and
than fixed offshore wind. As new installations continue cheap and electricity demand is not proportionally as
rolling out in both China and globally, technological high. Yet, as the role of solar+storage in providing
learning effects will drive down unit investment cost flexibility becomes even more important with the rising
and reduce solar LCOE still further. The learning effects share of renewables in the power mix, its capacity factor
will also apply to battery costs which will further reduce will continue increasing to reach 17% in 2050.
the levelized costs of solar+storage. Therefore, in the
long-run, the costs of solar energy will continue their
declining trend. By 2050, we expect LCOEs as low as
USD 24/MWh and USD 44/MWh for solar PV and
solar+storage, respectively.

Another important aspect of solar economics is capture

price. Our ETO model follows levelized profitability
accounting for both price and costs. This approach
better reflects the competitiveness of generation
technologies as investment choices, given that some,
such as solar PV, are fundamentally variable. Solar PV in
China currently receives a capture price of USD 144/
MWh. Solar+storage already has some capture price
advantage over regular solar PV today. But over time, as
the share of variable renewables in the power mix
increases, the capture price advantage of solar+storage
increases even further, and surpasses the cost disadvan-
tage. Figure 5.12 shows the widening gap between
capture prices and the narrowing gap between LCOEs
for the two solar technologies.

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5.5 Wind PWh, or 13% of electricity, to be generated by wind alone

in China. This will make wind the third largest power
source after hydropower and solar (Figure 5.13). By 2050,
wind will be on par with solar generating 6.2 PWh, or 38%
of electricity, in the region.
We forecast 1.5 PWh, or 13% of electricity, to be generated by wind alone
in China by 2030. This will make wind the third-largest renewable power Such a dramatic increase in wind generation will be
enabled by strong growth in capacity throughout our
source after solar and hydropower. By 2050, wind will be on par with solar forecast period. Figure 5.14 shows that during the 2010s,
generating 6.2 PWh, or 38% of electricity, in the region. about 21 GW of wind capacity was added on average to
the grid every year. We expect the onshore wind capacity
additions to reach 44 GW/yr in the 2020s, to increase
The development of wind energy in China is an example of FITs were instrumental in boosting the roll-out of wind further to 85 GW/yr in the 2030s, and remain roughly
how a country can grow a new renewable energy industry at capacity since this policy mechanism reduced risks for around that level in the 2040s. Offshore wind capacity
an astonishing rate in just over a decade. In 2010, wind made wind energy producers at times when wind costs were additions follow a similar trajectory, albeit at lower rates:
up only 1% of electricity generation in the region. Wind high. Now, however, both wind and solar are approach- 6 GW/yr in the 2020s, 16 GW/yr in the 2030s, and 19 GW/
growth was sluggish during the first half of the 2010s; the ing cost parity (and frequently superiority on a project yr in the 2040s. These robust capacity additions are
share of wind in total generation increased only to 3% by basis) with other forms of generation. China's govern- greatly facilitated by China already being a key player in
2015. However, a range of government policies, including ment has therefore announced the phase-out of central the global wind supply chain.
generous subsidies in the form of FITs and regulations of subsidies in 2021. However, wind energy remains crucial
provincial governments and generating companies (such in delivering on China’s commitment to meeting its dual The accelerated growth of wind power capacity is driven Onshore and offshore wind
as green electricity certificates and renewable portfolio carbon goals of achieving peak CO2 emissions before by both demand and supply forces. On the demand side, In this Outlook, we differentiate between onshore and
standards), fuelled a steep growth in wind capacity by 2030 and carbon neutrality by 2060. Thus, the support electrification of major demand sectors together with offshore wind power, and within offshore, between
2020. Between 2018 and 2022, China added more wind for wind will continue but will follow a new approach that growth in grid-connected hydrogen electrolysis is fixed-bottom and floating foundations. Generally,
capacity than over the previous eight years. relies more heavily on the policy support by provincial expected to increase electricity demand in China by fixed-bottom foundations are used for offshore wind
governments. more than half by 2050. On the supply side, onshore wherever feasible, while floating foundations are
As a consequence, today wind is China’s largest source of wind is already cost-competitive against other power required in deeper waters.
energy after coal and hydropower, delivering almost 8% Given these policy aspirations as well as new onshore technologies; by mid-century, the costs of wind energy
of the total electricity supply in 2022. Moreover, China’s projects under construction in Inner Mongolia, Xinjiang, are expected to fall even further, with onshore wind Thanks to the already-competitive costs of onshore wind,
generation from wind accounted for 38% of global wind Gansu, and offshore projects along coastal areas, China becoming the cheapest source of power generation, and not only relative to offshore but also to most of the other
generation, making the region the world leader in this is already set to reach its goal of 1,200 GW from wind and offshore wind remaining cost inferior only to solar PV (but power technologies, and thanks to the availability of land
form of renewable energy. solar before the 2030 deadline. By 2030, we forecast 1.5 not to solar co-located with storage). for installations, we foresee onshore wind to be the

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primary form of wind power generation through 2050 in are already set in the near-term plans of, for example, the costs have been decreasing consistently, driven by floating offshore demonstrates a continuous dramatic
China (Figure 5.15). Even with the costs of offshore wind Shanghai’s municipal government (Martin, 2023). the effect of cost learning rates on turbine and other reduction in costs, with the LCOEs leveling off only in
declining, onshore wind will be providing 86% of total components. This decline, however, slowed down notice- the 2040s. In 2022, floating offshore exhibits LCOEs
wind power by 2030 and 77% by 2050. The share of Capacity factors ably in 2022 due to supply chain issues that pushed about four times as high as those of fixed offshore wind
fixed-bottom offshore generation in wind power will The capacity factors of wind turbines play an important component costs up. due to more costly floating structures and higher
increase from 9% in 2022, to 13% in 2030, and reach 20% role in wind power profitability and feasibility. Over the grid-connection costs. The cost reduction driven by
in 2050. The remaining 3% of wind generation in 2050 will past two decades, continuous evolution in size and Despite this recent deceleration, we forecast LCOEs for learning and volume increases reduces this differential
come from floating offshore structures. We expect that efficiency of rotors of both onshore and offshore both onshore and offshore wind to continue declining, to about 40% by 2050.
offshore projects will not be limited only to wealthier turbines led to increased power generation even at sites albeit more gradually. For onshore wind, the LCOEs are
coastal provinces such as Jiangsu, Zhejiang, and Shandong, with less favourable wind patterns. In 2022, the average expected to drop from USD 40/MWh in 2022 to USD 29/ It is worth mentioning that the described cost trajectories
but will also be pursued in Hebei, Liaoning, and Guangxi capacity factor for existing installations for onshore MWh in 2030. Afterward, the slowdown in rotor size reflect annual LCOE averaged over the entire region.
as indicated by the current pilots (Dedene, 2023). wind stood at 24%. With prime onshore wind sites improvements and the less optimal locations being This means that some individual projects will have lower
having already been utilized in China, further improve- available for new installations decelerate the pace of the LCOE over a given year at the timescale of hourly or daily
Wind capacity dedicated to hydrogen electrolysis ments in digital control and rotor design are expected LCOE reduction even further. By 2050, we expect the capture prices and, therefore, will be profitable. The
In addition to grid-connected wind capacity, we forecast to drive the capacity factors up to only 26% — a marginal LCOE for onshore wind to reduce to around USD 20/ increasing solar generation will amplify the role of wind
off-grid wind capacity dedicated to hydrogen production improvement. Offshore, where wind sources are more MWh redundant 2050. even further: in the hours when solar electricity is unavail-
by electrolysis. In the near term, it is expected that constant and abundant, the projections for wind power able, wind power will be rewarded at a premium price.
hydrogen will only start replacing a modest share of the are more optimistic due to the relative novelty of the The cost trajectory of fixed offshore wind generally
coal and gas use in manufacturing: 33% of reduction in market for this technology combined with continuing exhibits a similar pattern: a rapid fall from 2010 to 2022 Challenges to wind power
coal and gas use between now and 2030 will come from improvements in its core components. The current followed by a more gradual reduction. Figure 5.16 shows An already rapid expansion and even further prolifera-
the increase in hydrogen use. Therefore, in 2030, we capacity factors for installed offshore turbines are that the LCOE gap between onshore and fixed offshore tion of wind capacity is contingent on several challenges
forecast dedicated wind electrolysis capacity to reach already around 28%. Yet, higher capacity factors of new wind narrows substantially over the entire period. Yet, being met. One of those is the integration of wind energy
only 4 GW, comprised entirely of onshore wind. The Blue projects are expected to drive the offshore wind even by the mid-century, fixed offshore will on average in grids in a manner that reduces curtailment risks. Other
Book on the Development of New Power Systems sets average up to 40% by mid-century. have almost twice the LCOE of onshore wind. The uncertain factors include outdated electricity grids and
ambitious aspirations for scaling up the role of ‘green’ persistent cost differential between the two technologies inflexibility in interregional transfer of energy. Most of the
hydrogen or hydrogen produced within a low threshold Levelized cost of electricity is the result of some of the offshore wind-specific costs onshore wind projects are located in the north-western
of associated CO2 emissions in end-use consumption in The accelerated roll-out of wind capacity in the past few (such as construction and assembly, civil works, and part of China, which is sparsely populated. On the other
the later 2040s. Given these aspirations, we expect the years has led to a substantial reduction in costs. Figure grid-connections costs) remaining considerably higher hand, the majority of energy is consumed in the east. This
dedicated wind electrolysis capacity to increase steeply 5.16 illustrates the development of LCOE for onshore and even after reduction due to learning and scale effects. necessitates the long distance transmission of energy
towards about 187 GW of onshore wind and to be fixed offshore wind in China at the final investment between the regions which leads to inefficiencies. These
supplemented by an additional 14 GW of fixed offshore decision (FID) years. The LCOEs pertain to new wind Figure 5.17 focuses on the LCOEs of the two offshore challenges, however, are not insurmountable and should
by 2050. The offshore wind-to-hydrogen pilot projects power projects coming online. Over the past 12 years, wind technologies. Among all three wind technologies, not be regarded as showstoppers for wind.

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5.6 Bioenergy urging local authorities to carry out demonstration

projects and advising regional governments to provide
financial support.

Biofuels in aviation are projected to grow from 11 PJ in

Bioenergy in China is expected to double by 2050, growing from 7 EJ in 2022 2022 to 1,300 PJ in 2050, accounting for 22% of aviation’s
to 14 EJ in 2050, with its share in primary energy increasing from 4% to 10%. energy demand. Recent advancements for aviation biofuels
include the 14th Five-year plan for Bioeconomy Develop-
This growth will primarily be driven by bio-fuelled power generation, biome- ment that encourages areas with good conditions to
thane production, and applications in transport sectors, where bioenergy will promote and pilot the use of biodiesel and advance the
demonstrative use of aviation biofuels (DNV, 2023d).
play a niche, but important, role in decarbonizing hard-to-abate sectors. Biofuel in the maritime sector is expected to grow from
27 PJ to 700 PJ, accounting for 25% of maritime energy
demand. In contrast, biofuels in road transport play a
Biomass in China has been and is still being used tradi- 3,000 PJ by mid-century. China’s biomethane production small role relative to electrification and we forecast a
tionally for residential heating and cooking, but over the is in its early stages of development, facing an inadequate decreasing share of biofuels in road transport energy
last 20 years this share has decreased and we see that industrial system and technical challenges. However, demand towards 2050 from the already small share it
modern biomass applications are steadily taking over. biomethane has great potential in China as the government currently has. Figure 5.18 shows bioenergy demand in
The shift away from traditional use of biomass is driven by supports projects promoting the valorization of waste as different sectors.
rising income levels and improved access to electricity, part of its financial plans for the development of rural
prompting a move towards more modern and efficient areas (Air Liquide, 2022). Challenges and opportunities
energy solutions. Modern use of solid biomass includes In China, modern biomass, as well as waste-to-energy
the use of agricultural and forestry residues, mainly for In the transport sector, liquid biofuels, particularly in feedstocks, are underutilized resources that will require
electricity production. This is the main driver for the aviation and maritime, will see an increase towards 2050 new strategies to ensure sustainable exploitation. China
uptake of bioenergy we see towards 2050. As of 2022, from the low share it currently has. Even though past has abundant resources of organic waste and annual
the power stations sector already accounted for 51% government policies state biofuels are part of China’s production of animal waste and agricultural crop on its
(3 EJ) of bioenergy demand in China. We project this to long-term strategic plan to protect the environment, own has the potential of reaching 2.2 billion tonnes and
increase even further, reaching 58% (8 EJ) by mid- conserve resources, and reduce dependence on 0.7 billion tonnes respectively. As of 2021, the country
century. imported energy, sparse policy support with little to no produced 6.3 billion tonnes of organic waste on average
detailed implementation measures has kept consumption per year. The same year only 5% of organic waste was
Biomethane production is another sector where we of biofuels low. To spur domestic production and processed into bioenergy (State Council, 2021a), meaning
forecast significant growth, from 4 PJ in 2022 to almost consumption, the National Energy Agency (NEA) is the potential of expanding the bioenergy sector is
extensive. More information about biomass potential
and different feedstock is presented in DNV's recently
released white paper Biofuels in Shipping (DNV, 2023c)
generation projects, a tradeable green certificate can
The development of waste-derived biogas and be applied, which means biomass power generation
upgraded biomethane can help reduce reliance on fossil projects can obtain additional income through power
fuels, diversify energy sources, and curb carbon emissions. markets and carbon trading and in this way improve
Therefore, China is stepping up its efforts in developing operating conditions and increase profit as the carbon
the biogas industry and is providing financial and price rises.
administrative support to tackle technological barriers.
In 2021, the Chinese National Development and Reform China aims to achieve an annual output of biogas
Commission, Ministry of Finance, and the NEA exceeding 10 bcm by 2025 and 20 bcm by 2030 (State
announced an additional CNY 2.5bn (USD 353m) in Council, 2021d). Although China is stepping up its efforts
subsidies for biomass power generation, of which CNY in developing the biogas industry, it still faces several
2bn was allocated for arranging non-competitive alloca- challenges. High costs associated with raw material
tion projects (IEA, 2022). Moreover, according to a report collection, combined with a lower thermal generation
from the Biomass Energy Industry Promotion Association rating compared with conventional energy sources like
(BEIPA), more support from the government is expected coal, have made government subsidies an important
in the near future, estimating that CNY 1.2trn (USD support for the industry’s development. Moreover, the
170bn) will be invested in the industry from 2021 to 2025 sector is hindered by technological barriers, lack of business
(State Council, 2021c). For renewable energy power models, high production costs, and low profit returns.

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5.7 Nuclear

The development of nuclear power in China has been marked by significant

growth and expansion and plays an increasingly important role in China’s
energy system. Since 2010 the region has increased its capacity more than
threefold, going from 15 GW to 55 GW by 2022. However, nuclear still only
represents less than 3% of the primary energy mix.

As of February 2023, China operates 55 nuclear power effective options than current nuclear power plants.
plants with a total operational capacity of 57 GW. Cost-effectiveness is especially important in Western
Additionally, there are 22 nuclear power units under developed economies such as Europe and North
construction, which will add another 24 GW of capacity America, where the latest nuclear plants have suffered
by the early 2030s. significant budget and schedule overruns. China has
managed to build conventional nuclear faster with
Beyond these, more than 70 nuclear power units are limited cost overruns (Rystad Energy, 2023). With signifi-
planned, which will contribute an additional 85 GW. cant future electricity demand, we expect a significant
This expansion places China first globally in both total portion of nuclear power stations in China therefore to
installed nuclear power capacity and electricity generation be based on conventional designs that have already
from nuclear power, and by 2050 will account for over been successfully built.
25% of the world's nuclear fleet. This robust development
is part of China's strategy to transition away from coal As for the development of SMRs in China, the overall
due to increasing concerns about air quality, climate research and development in China is very active, with
change, and fossil fuel shortages. The China General over 20 different designs creating vigorous competition
Nuclear Power Group has set an ambitious goal of among companies and encouraging innovation.
achieving 200 GW of nuclear power capacity by 2035,
which would be achieved by adding 150 more reactors In 2021, one of the most advanced small modular reactor
(Murtaugh & Chia, 2021). designs, a pilot 210 MW gas-cooled reactor (Gen IV)
based on HTR-PM design (WNA, 2023), was successfully
Our Outlook reflects a general change in perspective connected to the grid. Tests will continue with the aim of
with regions increasing focus on energy security. China in bringing 18 such HTR-PM units online (WNN, 2021). One
particular has intensified its focus on nuclear as a means reason for the interest in SMR development in China is
of securing energy while reducing emissions and air because SMRs can easily slot into existing and decom-
pollution. Our forecast shows nuclear energy output missioned coal-fired power plants, where the heating
growing slowly from today’s levels for the coming years, units are seldom very large, usually under 500 MWe, and
but accelerating from the late 2020s, see Figure 5.19. thus very well suited for SMRs to utilize a lot of existing
From today towards 2030, most of the added capacity infrastructure.
will be based on traditional reactor technology and is
already in the pipeline. Beyond 2030, additional capacity Another potential for SMRs in China is the development
will be a mix between existing designs and new Small of small district heating reactors of 100 to 200 MWt
Modular Reactor (SMR) technology. Nuclear energy capacity. There is a large potential estimated at around
output peaks around 833 TWh per year by 2050, more 400 units. The demand for buildings heat is very large in
than twice the current amount. By then, China will have northern China. Many places still use coal which is
the biggest nuclear energy output, representing 29% of causing serious pollution, particularly by dust, particu-
global nuclear energy generation. lates, sulfur, and nitrogen oxides. The other source of
district heating is based on natural gas, which is largely
SMRs and other advanced reactors are designed to imported and subject to global gas price vicissitudes,
yield safer, more flexible, and potentially more cost- and therefore subject to energy security risk.

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5.8 Energy efficiency by programmes like the Top-1000 Energy-Consuming

Enterprises Programme. This programme specifically
surpassing other sectors by 2050 — achieving over 200%
efficiency — is the widespread adoption of air conditioners
targets major industrial energy consumers, encouraging and heat pumps. With more households and businesses
them to adopt energy conservation measures. Collec- using air conditioning, space cooling is set to consume a
tively, these approaches aim to mitigate the environmen- larger portion of energy. Thus, despite the high efficiency
China's journey towards energy efficiency is deeply rooted in its government's tal consequences of China's rapid economic expansion, of these cooling systems, the overall final energy demand
commitments, demonstrated through comprehensive policies, regulatory fostering a path towards sustainable development. in the buildings sector is expected to rise.

frameworks, and national targets. Looking ahead, China is poised for further The concept of 'Useful Energy Demand' refers to the The manufacturing sector exhibits a consistent, albeit
reductions in energy intensity, delivering more energy services with less efficient conversion of consumed energy into practical gradual, increase in efficiency. This reflects ongoing
forms like motion, heat, and light. Ideally, measuring useful improvements in manufacturing processes and technolo-
energy, although the rate of decrease is expected to slow down over time. energy would involve tracking energy losses across gies, which enhance energy utilization. The introduction
various systems like boilers, furnaces, engines, motors, of heat pumps for low-temperature heat processes also
and heat pumps. However, due to practical constraints, contributes to this. However, the shift towards increased
China’s energy efficiency developments have been guided In the coming years, China's focus on energy intensity — we often rely on estimated conversion efficiencies to mechanization in industrial processes, which favours
by a series of commitments by China's government, which defined as the amount of primary energy used per GDP determine the useful energy consumption on a sectoral electricity-consuming machines over manual labour,
manifested itself in a suite of specific policies, regulatory unit — is expected to yield further significant reductions. and national scale. Despite potential inaccuracies in these somewhat counterbalances these efficiency gains.
frameworks, and national targets. Central to this commit- The current rate of 4.8 MJ/USD is projected to decrease estimates, analyzing trends in equipment efficiency allows Therefore, efficiency improvements in the manufacturing
ment are the objectives outlined in the country's Five- to 3.4 MJ/USD by 2035 and 2.2 MJ/USD by 2050. This us to discern patterns in sectoral efficiency. For example, sector are projected to be moderate.
year plans, which consistently emphasize energy downward trend, however, will moderate over time. Figure 5.21 illustrates these trends across various sectors
conservation and efficiency across various sectors and set The current annual decrease of 3% in energy intensity is in China, comparing the ratio of final energy (the energy In contrast, the transport sector shows no substantial
specific targets, such as reducing energy consumption anticipated to slow to 2% as 2050 approaches. Additionally, directly delivered to end-users in forms like oil, gas, efficiency improvement from 1980 to the early 2020s.
per unit of GDP. Figure 5.20 illustrates a broader transformation within electricity, or hydrogen) to useful energy. However, a modest increase is anticipated, reaching
China, marked by significant advancements in energy about 75% efficiency by 2050. This potential improvement
For example, in the 12th Five-year plan (2011-2015), China efficiency, a decline in GDP growth per capita, and a In the buildings sector, there has been a significant could be attributed to the adoption of more efficient
aimed for a reduction in energy consumption per unit of reducing population. improvement in efficiency over time. Historically, this electric vehicles and a shift towards less energy-intensive
GDP by 16% from 2010 levels. It achieved this target, improvement was propelled by transitioning from ineffi- transportation modes, like high-speed rail.
reporting a 18.2% reduction in energy intensity by 2015. Sectoral developments cient traditional cooking and heating methods, like biomass
The 13th Five-year plan (2016-2020) set a goal to reduce The Energy Conservation Law and Renewable Energy Law stoves and coal, to more efficient systems such as modern The 'Other' category, which includes sectors like
energy consumption per unit of GDP by 15% from 2015 provide a robust legal framework supporting China's gas boilers. As China's population increasingly relocates agriculture and fishing, exhibits the least improvement,
levels and to reduce carbon dioxide emissions per unit of energy efficiency initiatives. These laws demand the from rural areas to modern urban apartments, this trend maintaining around 50% efficiency throughout the
GDP by 18%, both of which China achieved. adoption of energy-saving practices and are bolstered persists. A key factor in the buildings sector's efficiency period. This stagnation may be due to these sectors'
limited potential for efficiency gains or slower adoption
of energy-saving technologies.

To complement these trends, China has implemented

policies aimed at reducing the demand for energy
services. These include insulating buildings to enhance
energy efficiency, increasing recycling rates to reduce
waste and energy consumption in production processes,
and promoting use of public and non-motorized transport
to discourage excessive use of fuel-consuming transpor-
tation. While these strategies do not directly impact the
final-to-useful energy ratio, they play a crucial role in
reducing overall energy consumption and, in some
cases, eliminating the need for it.

From 2022 to 2050, China's energy intensity

will reduce by 54% (from 4.8 to 2.2 MJ/USD).

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5.9 Comparison of energy flows

2022 2050

PRIMARY ENERGY FINAL ENERGY USEFUL ENERGY PRIMARY ENERGY FINAL ENERGY USEFUL ENERGY
159 EJ TRANSFORMATIONS 110 EJ 89 EJ 142 EJ TRANSFORMATIONS 104 EJ 129 EJ
Net imports Net imports

Transport Road Transport

Road
Oil refining
Aviation Aviation
Oil refining Maritime
Rail Maritime
Rail

Biomethane production Manufactured goods

Manufactured goods

Base materials
Base materials

Iron and steel

Fossil fuel
extraction
Iron and steel
Manufacturing
Manufacturing Construction & mining
Hydrogen
Cement
Construction & mining production

Cement Petrochemicals
Fossil fuel Grid-
extraction Petrochemicals connected
thermal
Solar and wind Feedstock
power stations power
dedicated to stations
Feedstock hydrogen production
Grid-
connected
thermal
Space heating
power Space heating
stations
Grid- Water heating
Water heating connected
non-thermal Buildings Cooking
Cooking power
Appliances & lighting
Appliances & lighting
Buildings
Space cooling Space cooling
Grid-
connected Other
non-thermal
power Other

Scale Scale Storage

Energy sector’s Energy sector’s
0 10 20 30 40 EJ own energy use 0 10 20 30 40 EJ own energy use

Oil Hydropower Bioenergy Direct heat Ammonia Oil Hydropower Bioenergy Direct heat Ammonia
Coal Wind power Nuclear fuels Hydrogen Geothermal Coal Wind power Nuclear fuels Hydrogen Geothermal
Natural gas Solar power Grid electricity Methanol Natural gas Solar power Grid electricity Methanol

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Favourable financing conditions interest rates keeping CoC down. Figure 6.2 shows the
6 FINANCE AND INVESTMENTS These huge investments, both past and future, are future CoC assumed in our forecast. The picture will be
supported by favourable financing conditions compared different for fossil and non-fossil sources.
to the rest of the world, especially for clean energy (DNV,
China has aggressively invested in its energy infrastructure over the last 2023b). The Opinions on Financial Support for Carbon For fossil sources, as in other growing economies in low-
Peaking and Carbon Neutrality issued by China’s Ministry and middle-income countries, we expect China to continue
two decades. We forecast this investment trend will continue in the coming of Finance (MOF, 2022a,b) indicate that transition to finance new coal investments at competitive rates
decades, pushed by an ever-increasing need for electricity. support will continue (see Chapter 2 for more details). through the 2030s, after which we expect a rapid increase
One notable feature is the generally lower cost of capital in risk and therefore CoC. The rise in CoC is driven by the
(CoC) in China, which is one of the key cost drivers for central government announcing its intention to limit the
China is investing more than any other country in energy capital-intensive projects like new power generation, increase in coal consumption over the 14th Five-year plan
supply and infrastructure. Around 13% of global energy power grids, and gas infrastructures, and for end-use period and to phase down coal during the 15th Five-year
supply investments were made in China in the past decade, subsectors such as buildings, equipment, and zero- plan period, suggesting reduced availability of capital and
and we forecast this share to stay stable over the coming emission vehicles. falling demand for coal. For non-fossil sources, we expect
decades. However, Figure 6.1 shows the distribution of both renewables and nuclear to have access to stable and
these investments will significantly change as fossil-fuel Our forecast uses the levelized cost to compare competitive financing throughout the forecasting period.
investments are progressively replaced by non-fossil competing technologies, where the ratio of lifetime
ones. Yearly investments will be at their highest level in costs to lifetime generation (like electricity or hydrogen Coal production investments to remain at high levels
this decade, around USD 470bn, before a slight decline production) are discounted back to a common year Coal has been and is still at the centre of China’s energy
in the following two decades. using a discount rate that reflects the cost of capital. system. China is currently the largest producer and
consumer of coal, covering over 90% of its demand with
Self-sufficiency and energy security are an essential part With higher discount rates, the break-even price that domestic supply (Nakhle, 2023). However, the time for
of China’s policy, as we discussed in more detail in satisfies equity and debt returns moves up. Hence, massive investments in production is now over. As shown
Chapter 2. Although China is already sourcing a lot of its predicting the competitiveness of, for example, in Figure 6.3, as coal production gradually declines, so will
energy supply domestically, mainly through coal and competing power generation technologies now and in investments. Just around USD 60bn will be necessary
renewables, it still relies on large imports of oil and the future requires carefully weighed CoC predictions. through 2050 to keep production at sufficient levels.
natural gas. However, the progressive decline of fossil- It is a crucial parameter in our forecast to 2050 and DNV
fuel use combined with a growing renewable energy has therefore continued focus on the granularity of the Although China is far from energy independence for oil and
uptake will continue to increase the domestic content of CoC. gas, China is also a significant producer of these fossil fuels
energy. This is one reason why investments will stay at a (see Chapter 5). This means that investments will continue,
high level even though energy demand will start declining In China, state-owned entities provide the bulk of equity especially in this decade when they will be above USD 1trn.
from the 2030s. and debt, with low return requirements and subsidized Gas will then dominate the investments from the 2030s on.

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fossil-fired power will be low. The long lifetime of coal- driving force’ for China's economic development (Govern-
fired power plants, some of them even still being built, ment of China, 2024). We forecast these investments will
means that operational costs, and especially fuel costs, increase rapidly as unit costs decrease and grid-balancing
will continue to dominate power sector expenditures. needs increase (see details in Chapter 4).
It is only in the early 2040s that yearly non-fossil power
expenditures will be higher than their more expensive Beyond the energy infrastructure
fossil counterparts. The development of energy infrastructures in China is
backed by huge upstream investments in manufacturing,
Power grids investments to support capacity additions mining, and research. Although not directly modelled in
Electrification will drive investments in power grids that our forecast, these are essential for understanding
will stay well above USD 1trn per decade during our China’s energy transition context.
forecast period, as shown in Figure 6.5. Increased
electricity demand in the buildings and road transport Indeed, the favourable cost of capital mentioned earlier
sectors means that investments in the distribution is not only reflected in the installation of energy assets,
network will need to increase through 2040 to allow but also along the whole supply chain. This, together with
access for the end-users. significant government support — ranging from state-
directed R&D to investment funding and fiscal incentives
For transmission powerlines, the forecasted tripling of — helps keep the price of Chinese-made renewable
Non-fossil generation set to dominate 27% of wind, and 40% of nuclear, totalling about USD installed capacity by 2050 — with 90% of the new capacity technology competitive at a global level and is one of the
power investments 1.3trn in these three sectors only. coming from variable wind and solar and the electrification key reasons behind the domination of China in clean
Power generation will account for most of the invest- of the manufacturing sector — means that significant energy manufacturing (see Section 3.3, Manufacturing).
ments in the energy sector, as electricity is set to double With the world’s largest potential, hydropower has been investments are also necessary. This is in line with the
its share to cover about half of energy demand by 2050. an early target for power investments in China. Over USD 14th Five-year plan (Government of China, 2021) that Overall, clean energy sectors (including solar power, EVs,
As shown in Figure 6.4, the forecast transition will result 330bn will be invested for an additional 120 GW during emphasizes strengthening and deployment of high- and and batteries) are currently driving growth in China. With
in a shift from relatively modest investments to CAPEX- the coming decade, until reaching the maximum potential ultra-high- voltage transmission channels to connect investments totalling USD 890bn in 2023 and growing
intensive non-fossil power generation, driving up of hydropower of around 500 GW, limited by natural clean energy bases with consumption centres. 40% year-on-year, they almost equalled all global
investments in these asset classes over the next decades. hydrological constraints, in the mid-2030s. investments in fossil fuel supply the same year (Mylly-
Investments in grid-connected ‘new energy storage’ are virta, 2024). This trend will continue as China’s 2024
Investments in renewables will be over USD 150bn Although much lower in absolute terms, China will still also growing quickly. Since the 14th Five-year plan, the Catalogue for Guiding Industry Restructuring, a government
annually before 2030 and reach around USD 250bn per represent a third of global coal investments over the new installed capacity of new energy storage is estimated roadmap for investment, puts clean energy technology
year by 2050. On the global scale, China will account for same time period. These lower investments do not mean to have directly promoted economic investment of more as one of the top priorities (NDRC, 2024).
35% of global investments made in solar PV until 2030, that total expenditures (including operational costs) in than CNY 100bn (USD 14bn) and has become a ‘new
Emerging renewables technologies, like electrolysers for
green hydrogen production, also have access to easier
financing than in other regions. China is already leading
in this growing sector, with around half of global invest-
ments in the 2020 to 2022 period (IEA, 2023a). This
supports the forecasted growth of hydrogen from
electrolysis, with China representing about a third of
global production by 2050.

Mining for critical minerals also attracted investments in

the past years, with increased spending from companies
specializing in lithium, copper, and nickel development
up as much as 50% year-on-year (IEA, 2023a).

All these developments are supported by strong invest-

ments in R&D providing technologies and skilled work-
force to the industry. China is the largest public spender
on energy research, with a recent average of USD 4bn to
6bn annually. The 14th Five-year plan is cementing that
position by aiming to increase energy R&D spending by
7% annually (OIES, 2022).

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Overseas investments conducted by the government, SOEs, and private enter-

China is also investing in energy infrastructure abroad. prises (see Section 2.1). However, it is also important to
Primarily through the Belt and Road Initiative, for which understand what the energy transition entails for the
the energy sector accounted for most investments and individuals in China. The acceptability of the energy
construction deals signed since its inception. Originally transition is a relevant indicator of its success, and house-
dominated by coal-fired power plants, the investments hold energy expenditures will have a decisive impact on
are now turning to wind and solar, which represented the whether the transition is considered socially acceptable.
largest share of investments in the first half of 2023. This
boost in exports also helps alleviate the overcapacity Figure 6.7 presents residential energy expenditure per
issue in these industries (Baxter, 2023). capita. Residential energy expenditure includes CAPEX
for residential space heating and cooling, water heating
China’s ambitious energy security targets cannot be (such as the cost of heat pumps), cooking (such as the
assured by domestic supply alone, as China is lacking cost of electric stoves), and OPEX, which is the energy
some key natural resources (e.g. oil and some critical costs and energy taxes of running all the household
minerals). For this reason, China is extensively investing equipment, along with passenger vehicles.
abroad to secure its supply. China is now changing its
financing strategy, replacing loans with more direct In 2022, the average residential energy expenditure
investments, with the resource-rich African continent was about USD 600 per person-year in our analysis,
being a prime target (Mitchell, 2023). representing around 10% of the average disposable
income (NBSC, 2023). While disposable income is likely
Coming investments for carbon capture and storage to significantly increase in line with GDP, residential
As detailed in Chapter 7, carbon capture and storage (CCS) energy expenditures are forecast to remain stable to
became part of China’s decarbonization strategy with its 2040 before a later growth.
incorporation in the 14th Five-year plan. Investments shown
in Figure 6.6 will progressively increase from the second This stability also contrasts with two factors increasing
part of this decade and will be mainly directed towards energy consumption: the forecast decline in household
ammonia and methanol production. They will total over size (which is associated with more living space per
USD 100bn, or 20% of global investments in CCS, by 2050. capita) and the increasing access to individual cars.
This shows the positive influence of electrification, with
Stable residential expenditures electricity being overall more affordable for buildings
The massive investments described in this chapter are and individual transport.

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global energy and process-related CO2 emissions in 2050. declining. Aviation is by far the slowest of the transport
7 CARBON EMISSIONS AND REMOVAL In absolute terms, China’s emissions, shown in Figure 7.1, sectors' emissions to decline. This is due to the increasing
are the biggest in the world, at around 12.1 GtCO2 of demand for flying, combined with a lack of easy or cheap
energy and process-related emission in 2022, a new decarbonization technologies. By 2035, it seems that
record high. China’s coal use increased steeply until 2013 emissions from aviation will peak and by 2050 the emissions
China uses 57% of the world’s coal and emits 32% of energy-related CO2. and has since hovered around that year’s level. Coal will be down to slightly higher than the levels of 2022,
There is increasing pressure from other countries for China to reduce its consumption increased between 2021 and 2022 and about 20% lower than the peak.
soared further in 2023. We project that consumption will
emissions faster. From the Chinese authorities’ point of view, a balance is plateau for the next four to five years before gradually The emissions from the China's building sector stay almost
important; emissions reduction are only one of several priorities. Stability reducing to a third of its current level by 2050. The decline the same as today (0.42 GtCO2/yr), which was around 4%
is due to the power generation transition from coal to of total energy and process-related CO2 emissions in
in energy prices, energy security, and economic goals are overriding renewables, which starts to make a real impact by 2035. 2022, but will represent 10% of China's emissions in 2050.
objectives in Chinese policies. The power sector’s share in energy and process- However, the fuel mix changes significantly, where today
related emissions had the biggest share in 2022, but 35% of the emissions come from coal, 10% from oil, and
reduces from the current 44% to 23% in 2050, with an the rest is based on natural gas. By 2050, 82% of emissions
absolute reduction from 5.4 GtCO2/yr to 1 GtCO2/yr. will be from natural gas, 10% from coal, and the rest from
oil. This change happens while energy demand from the
Manufacturing’s sectoral share of energy and process- buildings sector will increase by 40% and total floor area
related CO2 emissions in 2022 was the second largest space grows by 50%.
among the main energy demand sectors (4.3 GtCO2/yr).
The share increases from 35% today to 49% in 2050, albeit
while halving in absolute terms. The main reason is similar
to the power sector: the decline in the use of coal.

China's transport sector emissions have grown in line with

growing transport demand. Road transport demand
China aims to reduce carbon intensity
represents almost 70% of those emissions but is also set to
decline the fastest. In 2022, CO2 emissions from transport (per unit of GDP) by 65% from 2005 levels
7.1 Energy and process-related CO2 emissions in China were 1.3 GtCO2/yr and they are set to peak by the middle
by 2030; we forecast a reduction of only 59%
of this decade at 1.4 GtCO2/yr. Emissions from road
transport will rapidly decline, while emissions from by then.
China’s most pronounced climate policy is its commit- China’s high-level goal of carbon neutrality by 2060 maritime transport will take another five years to start
ment for CO2 emissions to peak before 2030, and to cannot be identified in our forecast, which stops in 2050.
reach climate neutrality in 2060. On the 2030 goal, there Energy and process-related CO2 emissions after carbon
is an array of supporting targets, goals, and measures, capture and storage (CCS) — and net of direct air capture
both in the present 14th Five-year plan to 2025 and the (DAC) — are expected to have decreased 66% compared
15th Five-year plan to 2030. On the 2060 goals, there are with 2022 levels, with 4.2 GtCO2/yr remaining in 2050. The
very few supporting measures so far. direction in 2050 is clear, but the present trajectory makes
it unlikely that full carbon neutrality will be achieved by
The national emissions trading scheme will cover 2060 unless China changes course to decarbonize, and
high-emission sectors (70% of emissions) with sectoral specifically de-coal, its economy even more rapidly.
expansion happening gradually to 2030, pressured by China aims to reduce carbon intensity (per unit of GDP) by
the EU’s carbon border adjustment mechanism 65% from 2005 levels by 2030; we forecast a reduction of
(CBAM). only 59% by then.

We estimate China’s average carbon-price level to be Energy and process-related CO2 emissions
USD 20/tCO2 in 2030, USD 40/tCO2 in 2040, and In 2022, 33% of global energy and process-related CO2
increase to USD 90/tCO2 by 2050, a level exceeded only emissions — 22% from coal, 7% from other fuels and 4%
by Europe and the OECD Pacific regions. The upward process emissions — were from China. This share has
pricing trend is underpinned by the inclusion of more increased steadily, with the highest growth (from 14% to
sectors and expanding coverage in China’s national 27%) being in the period from 2000 to 2010. By the
emissions trading scheme (see Section 2.2). mid-2030s, China’s emissions will fall much more rapidly
than the global average, with China accounting for 22% of

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Currently, 61% of emissions captured come from 2040s. The share of process emissions application will
natural gas processing, where the cost of capture from still be significant but constitute only 54%.
high-pressure streams is one of the lowest. However,
due to a scale-up of other CCS applications, this share Currently, China has only started research and development
will drop to 4% already in 2028 and continue declining, of CO2 removal technologies such as DAC: in particular,
further leading to nearly zero emissions captured from high-performance adsorbent and absorption material
this source by 2050. Initially, CCS will be driven largely preparation (GCCSI, 2023b). We expect China to
by capturing process emissions, namely in ammonia continue building on these efforts and deploy DAC for
and e-fuel production, owing to relatively lower costs the removal of some of its emissions, although not at a
of capture for these applications. Combined ammonia large scale. By 2050, only about 2 MtCO2/yr will be
and e-fuel production will make up 78% of all emissions removed using DAC, which is substantially lower than
captured in 2030 and sustain this share through 2040. the levels that we expect to be achieved in, for example,
Starting early 2040s, the increases in capture applications North America, Europe, and Asia Pacific.
in electricity generation and manufacturing (iron
and steel) will be driving most of the growth in CCS, Altogether, we forecast only 9% of emissions in China to
comprising 23% and 14% of all captured emissions by be captured by CCS or removed by DAC in 2050. This
the mid-century. demonstrates that to achieve its carbon neutrality goal,
China needs to consider substantially enhancing its
The explanation for the shift in driving forces of CCS support for CCS and DAC. In practice, this would mean
deployment in the later part of our forecast period is moving from policy aspirations and signals to concrete
dual. First, some level of capacity deployment for these policy mechanisms, such as incentives and regulatory

7.2 Carbon removal, CCS, and DAC applications in prior periods will reduce initially high
costs of capture to some extent because of technological
measures, as well as the development of effective
business models.
learning. Second, China’s Blue Book on the Development
Carbon capture and removal encompasses a suite of There has also been a parallel shift in the policy support for of New Power Systems envisions CCUS uptake during a
technologies that can help reduce CO2 emissions from the technology. CCS has been included in the key policy later period between 2030 and 2045. Given a relatively
sectors that continue to use fossil fuels. Carbon capture documents within China’s `1+N` climate framework, which young coal power fleet and ongoing coal capacity
refers to the separating and capturing of CO2 from provides guidance for the country’s efforts to achieve its additions in China (we forecast that about 5% of electricity
sources with high concentrations, such as in flue gases of dual carbon goals, as well as in the decarbonization generation will still come from fossil energy in the
CCS and DAC combined will only be
fossil-fuelled power stations and heavy industries (e.g. strategies of some of the provincial governments. For the mid-century), as well as limits to decarbonizing hard-to-
cement or petrochemicals). Carbon removal refers to the first time, CCUS has been incorporated into China’s 14th abate manufacturing processes, these applications will capturing 9% of emissions in China in 2050.
process of removing CO2 in low concentrations from the Five-year plan (2021-2025) among key environmental likely be key targets for further expansion of CCS in the
atmosphere. In both cases, the captured or removed CO2 protection and resource conservation projects. There is a
can be either utilized for producing value-added products shift towards mentioning CCUS beyond power and oil and
(such as e-fuels or fizzy drinks) or transported and stored gas industries and towards more sectoral policies, such as
in geological or marine reservoirs. Thus CCS is a method hard-to-abate industries (GCCSI, 2023b). This indicates that
of countering and reducing industrial emissions, whereas CCS is expected to play a crucial role in achieving carbon
DAC and storage is a negative emission technology. CCS neutrality in China. However, these developments should
combined with further utilization of captured CO2 is be viewed more as policy signals with the concrete policy
referred to as CCUS (U for utilization). tools yet to be established. Such policy tools are essential
since the cost of CCS in most of application processes is still
China’s deployment of CCS capacity has been lagging prohibitively high which means the technology cannot be
behind other regions, such as North America and driven only by economic considerations.
Europe. Large-scale commercial facilities have emerged
only as the most recent development. In August 2022, At the moment, the scale of CCS in China is immaterial,
China launched its first integrated megatonne-scale with 11 projects in operation accounting altogether for
CCUS project, Qilu Petrochemical — Shengli Oilfield, only about 1 out of 26 MtCO2 captured per year globally.
located in Shandong province (Sinopec, 2023). Another However, given four more CCS facilities in development,
large-scale, 1.5 Mtpa, Huaneng CCUS project in coal- six in construction, and around 100 projects of various
fired power began construction in December 2022 in scale in demonstration, we expect a steady increase in
Gansu province. Furthermore, Shaanxi Yanchang Petro- CCS starting the end of the 2020s. The capture rates are
leum announced plans to build a 5 Mtpa-scale CCUS forecasted to reach 38 MtCO2/yr in 2030, 148 MtCO2/yr in
facility (GCCSI, 2023a). 2040, and 277 MtCO2/yr in 2050 (Figure 7.2).

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DNV Energy Transition China 2024 — CONTENTS Carbon emissions and removal CHAPTER 7

ENERGY RELATED Europe North East Eurasia

EMISSIONS* 2022 2050 2022 2050

3.1 Gt 0.5 Gt 2.4 Gt 1.7 Gt

9% 2% 7% 9%

5.6 t 0.8 t 7.6 t 5.0 t

China
2022 2050

10.5 Gt 3.3 Gt
32% 20%
Middle East & North Africa
2022 2050

2.9 Gt 2.6 Gt 7.4 t 3.0 t

9% 14%

North America OECD Pacific

2022 2050 5.1t 3.3 t 2022 2050

5.2 Gt 1.3 Gt 2.0 Gt 0.4 Gt

16% 7% 6% 2%

13.8 t 3.0 t 9.5 t 2.0 t

Latin America Sub-Saharan Africa Indian Subcontinent South East Asia

2022 2050 2022 2050 2022 2050 2022 2050

Total energy-related 1.5 Gt 1.1 Gt 1.0 Gt 1.3 Gt 3.0 Gt 3.9 Gt 1.7 Gt 1.4 Gt
CO2 emissions
5% 6% 3% 7% 9% 22% 5% 8%
Share of world
emissions

Energy-related per 2.5 t 1.8 t

2.3 t 1.5 t 0.8 t 0.6 t 1.6 t 1.7 t *process-related emissions are not
capita emissions
included in this graph/map

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DNV Energy Transition China 2024 — CONTENTS REFERENCES

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