Highlights of China’s Energy Transition and Carbon Reduction Efforts in 2018, Part 1

The year 2018 was a challenging one for the global energy transition and carbon reduction. Global carbon emissions were projected to rise more than 2 percent in 2018, mainly due to solid growth in coal consumption and sustained increases in oil and gas use. Even so, countries around the world, including China, are pushing to reduce carbon emissions and mitigate climate change. In 2018, China continued to release various policies to further deepen energy reform and promote national carbon emissions reductions. This blog highlights China’s 2018 efforts and progress to reduce carbon emissions from the renewable energy, power, and transportation sectors. A following blog post will highlight China’s efforts and progress in the building and industry sectors.

Renewable Energy and Renewable Portfolio Standards

China continued leading global clean energy development in 2018, adding 20.33 gigawatts (GW) of wind power capacity to the grid—equivalent to about 22 percent of the total installed wind power capacity in the United States—and adding more than 44.38 GW of solar photovoltaic (PV) power capacity—nearly four times as much as the expected quantity of solar PV installed in the United States. At the same time, China kept on steadily promoting the integration of renewable energy and reducing curtailment. In 2018, China’s national average curtailment rate was 7.2 percent for wind power and 3 percent for solar power, down from the 2107 averages of 12.1 and 5.8 percent, respectively. In December, the National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) jointly issued the Clean Energy Consumption Action Plan (2018–2020), which states a goal of a national average utilization rate of wind power of at least 88 percent in 2018, 90 percent in 2019, and an international advanced level in 2020; and a goal for the utilization rate of solar power higher than 95 percent.

In addition, the NEA released for comment three drafts of Renewable Portfolio Standard (RPS) and Assessment Methods, to increase the integration of renewable energy across the country by market mechanisms, promote a cleaner grid, and reduce carbon emissions from the power system. Under the RPS policy, a wider range of obligated parties—including grid companies that directly supply electricity to users, local utility companies, retailers with distribution assets, independent retail companies without distribution assets, buyers who participate in direct power purchase transactions, and buyers who have captive generations—will be responsible for their corresponding renewable energy power quotas. The implementation of the RPS policy will help ease the pressure of government subsidies, allocate renewable energy quotas by market means, and promote the healthy development of the whole industry. The RPS policy will also enable power generation enterprises to participate in more market-oriented renewable energy transactions and effectively reduce curtailment. For enterprise users, more renewable procurement opportunities and mechanisms will be available to promote the development of renewable energy and help them achieve their own sustainability goals. Once the draft RPS policy is implemented and the quotas are distributed among provinces, provinces will have more incentive and pressure to integrate more renewable energy. But it remains to be seen how provinces will implement the policy. It is foreseeable that leading provinces will soon clarify transaction details, enabling more opportunities to develop market mechanisms to consume renewables that will greatly help provinces reduce curtailment and promote the healthy and sustainable development of the renewable energy market.

Power Sector Reform and Spot Market Construction Plan

The CO2 emissions of the power sector account for about 40 percent of total national emissions. Studies show that the introduction of a power market in China can significantly improve dispatch, increase the operational efficiency of the power system, and reduce carbon emissions by an estimated 8 percent. China launched a new round of power market reforms in 2015. The NDRC and the NEA issued a notice specifying the first eight pilot regions of the power spot market in 2017. In August 2018, the power market in the Southern Power Grid area, which started in Guangdong Province, first issued its power market rules and launched simulation trials. In November, Inner Mongolia issued the Plan for Western Inner Mongolia Power Spot Market Construction for Comments to solicit public opinions. The following month, both Gansu and Shanxi officially launched their power spot market trial operations. Up to now, other pilot provinces have not officially announced their power spot market construction plans.

In order to accelerate the implementation of power spot market pilot construction, the NEA issued a request to improve the pilot coordination mechanism, facilitating connections between several departments of the NDRC and the NEA with corresponding pilot provinces and strengthening efforts to track progress of spot market construction in pilot provinces; and to request pilot provinces to report progress on market construction monthly and launch trial operations by June 2019. According to the development plans of power spot markets already announced, several provinces have realized the significance of the design of the power market transition pathway and have taken staged approaches to construct their power spot markets.

China’s First Ban on the Sale of Fossil-Fuel Vehicles

Although government subsidies of new energy automobiles continued to decline, their sales exceeded 1 million for the first time—increasing by nearly 30 percent over 2017 sales. This happened thanks to proactive measures by auto manufacturers to respond to the “dual credit” policy implemented in 2019, and consumers’ increasing awareness of environmental protection. At the same time, fossil-fuel vehicle sales in China fell for the first time.

With the steady development of the market and the improvement of the industry, local governments actively launched supporting policies through effectively combining international best practices and big data analysis capabilities brought by advanced information technology. They also began to work on the timeline for a ban on the sale of fossil-fuel vehicles to support further development of the new energy vehicle market. In April, the governor of Hainan Province announced a goal of 100 percent new energy vehicles across the island by 2030. The governmental fleet will be electrified initially, followed by public vehicles, including buses, taxis, and street sweepers, and finally by private vehicles. The following week, the State Council unveiled the Guidelines on Supporting Hainan to Deepen Reform and Opening Up, which stated that Hainan will accelerate the promotion of new energy vehicles and energy-saving and environment-friendly vehicles, and gradually ban the sale of fossil-fueled vehicles. The Regulations on Prevention and Control of Air Pollution in Hainan Province, issued in January 2019, stated that the Hainan provincial government and local governments of cities and counties as well as autonomous counties should take measures to reduce pollutant emissions from motor vehicles and vessels, gradually ban the sale of fossil-fuel vehicles, and accelerate the construction of supporting infrastructure such as chargers and shore power infrastructure. Hainan is the first province in China to propose a ban on the sale of fossil-fuel vehicles, which will undoubtedly become an example for other provinces. It is expected that other provinces will successively announce their respective timelines of similar bans.

Be sure to check back for part 2 of this blog post, which will highlight China’s 2018 progress in the building and industry sectors.