Forget about COP. Focus on China

Climate Economy

Forget about COP. Focus on China

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China’s surging investment in clean power is challenging a century of fossil fuel hegemony

As pressure mounts globally to address escalating climate change impacts and nations transition their energy systems, China is decarbonizing at a stunning speed and may reach peak CO2 well before the target date 2030. China is also deploying and building groundbreaking renewable energy projects across all sectors.

These are some of the conclusions of new research by the Sydney-based Climate Energy Finance (CEF), which shows that China’s five largest energy State Owned Enterprises (SOEs) are pivoting their vast capital expenditures in line with the central government energy targets set out in China’s 14th Five Year Plan (FYP), spanning 2021–2025. The plan requires peak CO2 emissions before 2030 and carbon neutrality by 2060. It also requires that 50% of incremental electricity demand come from renewables and directs that 50% of increased electricity consumption come from renewables by 2025.  

Increase in annual clean energy investment in selected countries and regions, 2019–2023

The emergence of a clean energy superpower

No other country in the world is matching the investment to decarbonize its power sector at the scale of China. And increasingly, this surge of investment is spurring a global rush to accelerate decarbonization, triggering a new clean energy race as the U.S. and Europe ramp up clean energy initiatives, such as U.S. President Joe Biden’s landmark climate initiative, the $1 trillion Investment Reduction Act (IRA).

However, China’s top-down political structure is giving the nation a unique head start. Its centralized command and control structure and governance continuity over decades mean what the central government wants, the central government gets. And it wants its large SOEs to decarbonize. In short, when the money moves, get out of the way.

Two systems, two energy approaches

In comparison, Western democracies are falling further and further behind in the race to net zero. Unlike China, no central planner mandates could directly impact a company’s capex allocations. Instead, Western companies face strong headwinds from the short-termism of financial markets, the lack of a clear price for CO2 emissions, and the often messy political and policy uncertainty of a democracy. 

And then there is the enormous influence of the world’s $6.66 trillion oil, gas, and coal industry. Consider the recent announcement by oil giant Shell that its “top priority” is boosting output from its methane-leaking LNG assets. It plans to spend $4 billion on LNG projects by 2025.

China’s top-down political structure is giving the nation a unique head start.

Shell reflects the difficulties of incumbent fossil fuel majors in properly embracing the science and the need and investment opportunities to meet the world’s energy transition. That is not an issue for Chinese energy SOEs, who are falling in line and accelerating various strategies to achieve the country’s 14th FYP energy goals.

This global push for clean energy now poses an existential threat to companies like Shell. By 2040, 40 petrostates could see oil and gas revenues fall from an expected $17 trillion to just $9 trillion, according to Carbon Tracker. Of those, 28 risk losing more than half their expected income from fossil fuels.

China’s Electricity Generation Mix in January–September 2023

Power generated from zero emissions energy sources reached 1,982TWh, 30% of total. 

China’s accelerating energy diversification

As a net importer of oil and gas, it makes sense that China is in the driver’s seat of the global clean energy push. As our report shows, China’s SOEs are developing renewable energy-focused subsidiaries to comply with the decarbonization targets set by the government. SOEs are diversifying their portfolio by expanding their businesses to a broader range of renewable sources. For example, wind power–focused China Longyuan invested more capex in solar than wind this year; China Longyuan invested RMB5.4bn (US$736 million) in photovoltaic power projects, taking up 58% of the total capex during the first half of the year. 

China’s massive Three Gorges Corporation Limited (CTG) is diversifying away from the hydropower of its giant dam to expand into offshore wind, onshore wind, energy storage and solar energy. Following the suit of other battery, EV and solar firms in China, some of the energy SOEs are also investing heavily in research & development and technology innovation focused on new, clean technologies.

SOEs are also making strategic acquisitions to ensure that the overall portfolio of the parent entity complies with China’s climate mandate. For instance, China Energy Investment Group (CEIG) acquired China Shenhua Energy Company Limited — one of the largest coal firms in China — and matched it with China Longyuan, one of China’s largest wind power firms. The result is an overall portfolio that complies with national policy.

New installed capacity from January to September 2023 

The impact of all this state-driven policy has been profound: China’s power sector is now deploying renewable energy capacity at speed and scale — adding 20GW of new wind and solar every month this year. 

The beginning of the end of carbon emissions?

This frenzy of activity translates into the tantalizing prospect that China’s domestic CO2 emissions will start to fall next year because of record increases in the installation of zero-emissions renewable energy sources, a rebound in the use of hydropower, and enormous gains in the adoption of electric vehicles (EVs). Beyond being the #1 EV market globally, China also became the world’s leading EV exporter in 2023.

China’s CO2 emissions could start to fall next year

An emerging clean energy giant

The report confirms what many have long suspected: China now leads the world on almost all elements of the clean energy transition fronts by a substantial and growing margin. This includes dominating the global wind turbine manufacturing industry, accounting for 49% of the world’s installed offshore wind capacity, and operating the most significant number of hydropower plants globally. On solar, this year, it has added 143GW representing more than 40% of Bloomberg NEF’s forecast for annual global solar capacity installations in 2023.

China is also now the world’s biggest market for renewable energy investment, with more than $177 billion invested this year. China now accounts for almost half of global large and small-scale solar investment. 

Looming clean energy tipping point?

All of this has profound geopolitical implications. China’s progress and its aggressive R&D, manufacturing, and investment is raising the bar on what a country can do to decarbonize and drive an acceleration of global decarbonization that no one expected.

China is also now the world’s biggest market for renewable energy investment, with more than $177 billion invested this year.

Driving the change is China’s unique one-state political system, which has a level of authoritarian central control unavailable in Western democracies. That is being used to reduce China’s fossil fuel imports and accelerate the pace and scale of energy transition and has become a powerful countervailing force to global fossil fuel interests.

However, a significant shortcoming of China’s clean energy policies has been expanding coal-fired power, as it prioritizes energy security over a clean energy transition, as we have mapped out in our monthly China energy updates. Provincial governments are using this window to get more coal-fired power plants approved, potentially sabotaging national efforts to decarbonize.  

The U.S. response

China’s aggressive clean energy push has been a critical catalyst to a dramatic change in U.S. energy policy under President Biden. The Biden Administration passed the $1 trillion climate-focused IRA despite intense opposition from fossil fuel interests. Goldman Sachs reports that this has resulted in a phenomenal $3 trillion in private investment moving into the sector in just one year.

According to Climate Capital Forum (CCM editor Blair Palese), the act’s all-carrot, no-stick subsidy programs are turbocharging U.S. reindustrialization and cleantech — from battery and EV manufacturing to solar and wind — while boosting GDP, and onshoring of manufacturing jobs, particularly in battery manufacturing.

Many experts see the IRA as a direct response and challenge to China’s global leadership and dominance in energy transition and cleantech supply chain. Energy security and supply chain diversity are key sources of tension between the two superpowers, though eased somewhat by the recent talks between Biden and Chinese President Xi Jinping. As outlined in the Sunnylands Statement on Enhancing Cooperation to Address the Climate Crisis, those led to a resumption of climate cooperation between the two superpowers. 

See our related story: The U.S.-China Climate Agreement: Five Takeaways for business leaders.

The IRA is already having an effect as capital investment and green industrialization that might have gone to China is now reshoring to the heartland of America. This is best seen with major carmakers, for example, who are now building new EV manufacturing bases in the U.S. that would otherwise have gone to China.

Catalyzing a global race to clean energy 

The IRA also has a catalytic effect far from the U.S., fueling a new global investment and clean energy technology race. India’s Production Linked Incentives, Japan’s GX Roadmap and Canada’s landmark clean energy tax credits directly respond to China’s dominance and the IRA, as is the EU’s landmark Net Zero Industry Act (NZIA).

The IRA is already having an effect as capital investment and green industrialization that might have gone to China is now reshoring to the heartland of America.

While only some believe it is realistic to cut China from clean energy supply chains, increasing the number of complementary supply chains is possible. The EU’s Net Zero Industry Act (NZIA) is designed to do just that, supporting eight strategic net-zero technologies such as solar PV, onshore wind and offshore renewables, and batteries and storage, as it seeks to protect national and regional interests, reduce supply chain vulnerabilities and ensure energy independence. This imperative came into sharp focus with energy supply chain disruptions triggered by Russia’s invasion of Ukraine.

A wildcard remains mineral- and energy-rich Australia. It will need to dramatically restructure its heavy reliance on raw commodity exports if it is at risk of losing the ability to develop value-added manufacturing.


The global superpower push for clean energy has triggered a heated debate in Australia over its energy policies. Opponents of clean energy say Australia needs to learn from China’s accelerating clean energy investment ambitions and commit to a national strategic-interest public capital investment package.

Proponents believe that at least $100 billion of investments is needed to bring cleantech processing and manufacturing onshore, accelerate renewables and battery power, and deploy a new power grid. Also key will be the ability to diversify its exports away from its legacy dependence on exporting raw fossil fuels and minerals. With some of the world’s biggest reserves of critical minerals and abundant sun and wind, Australia has a generational opportunity to become a renewable energy and value-adding zero-emissions export superpower. 

The emergence of clean energy rivalries

All this decarbonization jockeying brings back memories of the Cold War debates between Western corporate capitalists and state-driven Chinese Communists. As S&P reports, the IRA effectively pits America’s free market economy and financial firepower against China’s ability to use its command and control of its economy to marshal meaningful economies of domestic scale.

It also goes to the heart of the escalating rivalry between the U.S. and China. China views its rush to decarbonization as a way to recalibrate the global geopolitical playing field and to become more energy self-sufficient. The U.S. sees darker motives and regards China as the primary threat to its nearly century-long economic and military dominance.

The U.S. sees darker motives and regards China as the primary threat to its nearly century-long economic and military dominance.

But the IRA is only one of an array of carrot-and-stick market mechanisms and fiscal policy tools in the West that are being leveraged to rapidly upscale decarbonization ambitions and increase national energy security. Alongside incentives such as the IRA’s production tax credits, we see excellent developments, such as the EU’s introduction of a Carbon Border Adjustment Mechanism (CBAM) in October.

It is designed to protect domestic decarbonization efforts as it “puts a fair price on the carbon emitted during the production of carbon-intensive goods that are entering the EU,” and encourages cleaner industrial production in non-EU countries, according to the European Commission website. China is also considering leveraging the scale of its national domestic carbon-pricing system and developing a China CBAM. 

Another critical lever at the disposal of Western governments is a credible, high price on carbon in the form of a carbon tax, something which Australia has made some progress towards in the form of its federal “Safeguard Mechanism” — a vital signal for heavy carbon-polluting industries to pivot capital to emissions abatement and clean investment.

Few will challenge China’s increasingly profound influence on future global energy policies. China’s astonishing rush to every facet of decarbonization, underpinned by capex flows in its major SOEs, is manifestly transforming the global energy landscape and driving a global race to the top as the West, led by the U.S., scrambles to respond. 

This is the kind of positive superpower dynamic sorely needed as we collectively confront both the mounting climate crisis and the boundless opportunities of a new post-carbon global economy.

Featured photo: Solar power in Dunhuang, China

Written by

Xuyang Dong and AM Jonson

Xuyang Dong is a China Energy Policy Analyst at Sydney-based think tank Climate Energy Finance. Her research focuses on China's energy transition, the interaction between China’s decarbonisation policy and finance flow, geopolitics, and energy cooperation in the Indo-Pacific region. She holds a master’s degree in international relations with a specialisation of peace and conflict studies from the University of Sydney. || AM Jonson is CEF’s chief of staff. Previous roles include joint chief of staff at the Climate Council of Australia and head of corporate for a multibillion-dollar investment fund manager. She has written and edited several books including for MIT Press and holds a PhD from Sydney University.