The heatwaves and droughts have once again underscored China’s vulnerability to climate change and extreme weather, strengthening the case for the country to act.
The droughts and heatwaves also resulted in electricity shortages in hydropower-reliant provinces of some parts of China, especially Sichuan. This exposed weaknesses and rigidities in China’s electrical grid management: Sichuan continued to export large amounts of electricity to the east, while rationing consumption within the province. There are also indications that coal and gas power plants failed to operate at full capacity during the shortage due to the high fuel prices, contributing to the shortages. The lack of flexible grid management perpetuates reliance on coal power and creates a perceived need to build more of it. Electricity shortages experienced in autumn 2021 led to fast-tracking grid reforms that had been delayed for a long time, and this summer’s power crunch is likely to accelerate this process further.
2022 has also seen record-breaking clean energy installations and some promising policy action.
An important milestone for China’s CO2 peaking target is that the first industrial sectors have had their specific emissions peaking target years confirmed. The iron and steel sector is due to peak before 2025, and the cement sector before 2023. This is highly significant, as the iron and steel sector and cement are the second and third largest carbon emitters in China, respectively, after power generation.

Despite continuous reports about China ‘going back to coal’, coal consumption and coal-fired power generation have been falling in the country since the summer of 2021. In July and August, emissions from power generation rebounded as the record heatwave increased electricity demand for air conditioning and droughts affected hydropower generation at a time that usually has plentiful available water. The more salient trends that drove emissions reductions for the past year up to June are however continuing.
Key findings include:
- Coal power plant permitting accelerated in the first six months of 2022, demonstrating increased government support for expansion. However, announcements of new projects, construction initiations and completions slowed down, indicating a waning appetite among power generators. Thermal power generation has been steeply loss making since early 2021.
- Steel companies have accelerated investments in new electric arc furnace capacity which will help the sector absorb more scrap steel and support peaking CO2 emissions from steelmaking.
- Investments in wind and solar power have expanded rapidly, approaching the market size needed to peak and reduce CO2 emissions.
- Investments in both new coal-fired power plants and in coal-based ironmaking capacity (blast furnaces) continue at a high level that is not aligned with China’s carbon goals. The most likely outcome is the build-up of excess coal-based capacity, and falling utilisation, rather than increased emissions.
- 15 gigawatts (GW) of new coal-fired power capacity was permitted in the first half of 2022, an uptick compared with last year but less than in 2020.
- 30 million tonnes per annum (Mtpa) of new blast furnace capacity was announced in the first half of 2022, the largest amount for the first half-year since 2019.
- New investments in coal-based power and steelmaking capacity in the first six months of 2022 will result in $8.5 billion (CNY 82 billion) and $15-22 billion (CNY 100-150 billion) in stranded capacity, respectively, if China’s low-carbon transition is successful. The presence of large amounts of newly built coal-based capacity complicates the transition economically and politically.