China’s Surging Power Demand Creates a Climate Conundrum

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(Bloomberg) — China’s electricity demand has become a major focal point in the global battle against climate change.

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As the world’s biggest polluter, China has significant influence over whether emissions can be reduced quickly enough to avoid the worst effects of global warming. The country’s rapid adoption of clean energy technology has created hope that it will peak and begin reducing greenhouse gases much earlier than its stated 2030 target.

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But that has not happened yet, largely because the country’s energy demand is growing at an unprecedented speed, requiring more coal to be burned. Electricity use grew 6.8% last year, outpacing overall economic growth by the highest level in at least 15 years. While China faces an economic slowdown and trade tensions that are likely to be exacerbated by new US President Donald Trump, the future of energy demand growth remains a big question mark in China’s decarbonization efforts.

“Energy and energy demand are the No. 1 swing factors for emissions,” said Lori Myllyvirta, senior analyst at the Center for Energy and Clean Air Research. “There is certainly a lot more room for different paths on the demand side, depending on Trump and everything else that happens in international trade.”

Power and growth have long been linked in China. Former Premier Li Keqiang once said that the use of electricity, rail freight and bank lending provide a more accurate reflection of the economy than reported GDP figures. Increasing efficiency by reducing the amount of energy needed to produce goods has long been a metric used by government to rank itself.

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But that relationship has flipped in recent years as Beijing has relied on manufacturing to lead an economic recovery after the end of the Covid-19 pandemic. Electricity use has risen faster than nominal GDP growth in three of the past five years, after lagging growth for the entire previous decade. . The China Electricity Council, the energy industry’s top lobbying body, expects consumption to grow by 6% in 2025.

Growing energy demand is hampering efforts to decarbonize the energy sector, which accounts for nearly half of the country’s greenhouse gas emissions. Even after record additions of wind turbines and solar panels, clean energy generation was not enough to meet surging demand last year, forcing thermal power plants to burn more coal and generate about 1.5% more power than in 2023.

The biggest driver of this growing energy demand has been the industrial sector, which accounts for about two-thirds of China’s electricity use. Even as the real estate collapse reduced steel and cement production, production of materials such as copper, aluminum and petrochemicals hit record levels last year using increasing amounts of energy.

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President Xi Jinping’s push toward so-called “new high-quality productive forces” also means that more energy is needed to produce goods such as biopharmaceuticals, aircraft, solar panels and electric vehicles, along with the machinery and factories needed to make them, according to the China Electricity Council. .

All of this “makes the economy more electricity-intensive,” said Mu Yang, senior China analyst at climate and energy research group Ember.

Other factors also contribute to the growth in energy demand. The economy has been steadily electrified in recent decades, replacing the smaller coal furnaces that power factories and heat homes with electricity or clean gas. This is now happening in the transportation sector as well, where EV sales are booming. Electric vehicle charging demand jumped 38% last year and now represents about 1.1% of total energy consumption, according to National Energy Administration data.

While charging electric vehicles may put more pressure on the energy system, it is still a “net climate gain” because electric motors are more efficient than those powered by gasoline or diesel, said Cosimo Reis, an energy analyst at consultancy Trivium China. China National Petroleum Corporation recently said it now expects oil demand to peak this year, half a decade earlier than its previous forecast.

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Artificial intelligence is also having an impact. Data centers are expected to account for 5% of total energy consumption by 2030 from about 1.6% in 2023, according to Goldman Sachs Group analysts including Jacqueline Du. Then there are the heat waves that have hit China in each of the past three years, driving up sales of air conditioners and reshaping demand curves to make summer peaks more pronounced.

“A lot of it is definitely due to the external shocks that we’ve seen, especially with the heat waves in the summer,” Rees said.

CREA’s Mylivirta said there are signs that China’s manufacturing boom may be slowing, with industrial capacity demand growth falling to historic levels in the last few months of 2024. However, with the government set to unveil fiscal stimulus measures later this Year and the prospect of having to respond to increased tariffs from the United States, doubts abound about the course of the economy and the country’s decarbonization journey.

-With assistance from James Major.

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