Hello Acua hi Asco.

So we're about to take a short Christmas break on zero and most of today's episode is going to be a replay of one of our favorite episodes of the past year.

It's an interview with Larry mullerverta co founder of the Center for Research on Energy and Clean Air, and that interview is all about trying to answer the question that everyone in the climate world really wants to know the answer to which is have China's emissions finally peaked?

But before we dive into the main conversation with Larry, a lot has been moving in this space, so we thought we wanted to do a quick update on the topic.

So actually in the episode, Larry talks about China's emissions flat nining or following a slight downward trend, but you both acknowledge in the interview that there's some uncessainity there about whether they are indeed plateaued or potentially falling.

Almost six months on from that episode being recorded, has the trend continued.

Peaks are very hard to go in advance after your really only know maybe a couple of years after the peak has happened, that indeed something peaked, but because China is, you know, thirty percent of global emissions.

You really want to know whether China's emissions are peaking.

And this is why we get you know, Lowry and other researchers working on this problem.

In the last six months, We've learned a couple of things.

Louri himself came out with a study, and he continues to think that China's emissions have peaked or are on a slightly downward turn, primarily because of its immense clean energy build out.

It continues to install record amounts of solar and wind and batteries and deploy huge amounts of electric cars.

All that is contributing towards that trend, Lowry says.

But a separate study from the Global Carbon Project also found something similar.

So they estimate emissions from all countries and all economic sectors.

Again, they know their uncertainties involved, and we'll only really know the real figures three years on.

So they give an uncertainty figure for China that emissions might have fallen by as much as point nine percent, or may have risen by two percent, and they land in the midpoint as an increase of about zero point four percent is what they think is likely.

That is still a plantain compared to China's emissions increased strength over the past four decades.

So both these studies are saying that we are going in a direction that you know is generally good for the planet.

So the other thing that's happened over the last six months is COP thirty, which you were at in blem in Brazil in November.

And you know, what China does on the world stage is also really important, and there was a lot of expectation in the lead up to COP thirty that China would perhaps fill in the void that's been left by the US pulling out of the Powers Agreement and start to take the lead on the world stage kind of as a multilateral issue around climate.

It is, after all, the largest producer of green tech, and it's in China's interest to see that adopted around the world.

So we see that happen.

Did China become the kind of big pressure of global climate treaties in the COP thirty forum.

Not so much, And I think there's a good reason for that.

So China has for the last many decades of these diplomacy conversations kind of remained the reluctant candidate because it knew it needed to increase emissions, and now that it is the world's largest emitter, it also knows that the harder targets it sets, the harder it will have to go to meet them.

Because China takes pride in underpromising over delivering.

And we thought maybe given how much space President Donald Trump in the US providing China to take on this climate leadership, that they would really step in.

But nope, not on the diplomacy stage.

That is not to say that they are not stepping up on the technology space.

Well, that's something I wanted to ask you about.

You know, we've had all these incredible stories coming out of China over the past year, and you know a lot of that looks set to continue in twenty twenty six.

So what trends do you think we might see continue, What trends do you think we might see emerge from China twenty twenty six, and what stories are you on the hunt for next year when it comes to China and its involvement in both the tech and climate politics space.

So, China is not just the world's largest emitter, it is the world's second largest economy, and almost anything it does is now really closely observed.

What we've seen over the past few months is that China's investment figures are declining in hard assets.

You know, a lot of China's growth was built on property development, on infrastructure development, and that's starting to fall, which is a troubling sign for an economy that is still high low middle income needs to grow.

And what we have seen is that China has been replacing that kind of investment with more investments in high tech industries, so yes, artificial intelligence for sure, chips making, but also really its core advantages now in green technologies, in solar, in wind, in batteries, in electric cars, and we expect, given that the infrastructure spend is going down, China will likely double down on its green technologies in the next year.

And here at Bloomergreen will be observing how exactly because the US is now given China this open space.

You know, the US really doesn't want to build very much of its own renewable energy, at least at a government level, doesn't want to provide any incentives for green industries to be born in the US.

That really just leaves China this open space to try and not just deploy that domestically in China, but also all around the world where people are hungry for it.

There is a rise in electricity demand in the West and in developing countries, and the quickest way to meet it is through green technologies.

And we know that China will definitely deploy green technologies in other parts of the world.

But how exactly is it going to do that and will it take advantage of America's absence.

That's what we're going to be watching for in twenty twenty six.

Well, thank you very much, a chat and a merry Christmas, and a happy New Year to you.

Happy Christmas to you too, and a happy new year.

And now here's my conversation with Loarry Millerwertha, recorded in July twenty twenty five.

We have linked to both the studies that we talked about in the show notes, and just to note that Lowry's analysis as of July is still fully relevant to understanding how China got here.

Hope you find it insightful and we'll see you in the new year.

Lowry, welcome to the show.

Thank you.

Let's start with the big picture and situate the listener on where China is.

Obviously, it's a big manufacturing powerhouse.

For the last three decades, the submissions have been growing really quickly.

It is now a word second largest economy.

But what are its climate targets?

So China's been pledging climate targets since the Copenhagen Climate Conference, which was more than fifteen years ago now.

So the first quantitive targets that they pledged were for twenty twenty, and then another set of targets was set for twenty thirty.

That's the current target year for China.

The targets were announced in twenty twenty one.

The headline target that China has been setting is carbon intensity so CO two emissions from the energy sector per unit of GDP, which when your GDP is growing fast, is of course a flattering way of setting targets because even if your emissions are going up let's say five percent in a given year, if you clock ten percent GDP growth, then you can say that you got a reduction in your carbon intensity.

So the target for twenty thirty is to reduce CO two intensity by more than sixty five percent from the two thousand and five levels, so over a period of twenty five years.

To make that a bit more tangible.

When the target was set in twenty twenty one, it looked like it would allow pretty much businesses usual COO two emissions growth of one to two percent per year until twenty thirty.

What happened though, is that during the zero COVID period, China's economic strategy shifted towards emphasizing manufacturing very heavily, which caused the spiking emissions.

And now that twenty thirty target is in fact very meaningful, if not challenging one.

So from the current level, emissions will have to fall in absolute terms out to twenty thirty in order to meet that target.

And then it does have an absolute target too, which is to try and peak carbon emissions by twenty thirty.

So if it does both things, then China may be on track, but right now it is quite off track now in terms of where things are.

Specifically over the past year, You've done an analysis looking at china CO two emissions and they've been down by a significant percentage, and that tends to only happen during times of financial crisis.

Is China in a financial crisis and is that why the emissions are down?

Just talk us through what have you seen over the past year?

For sure, So as I said, China's emissions went up rapidly during the zero COVID years, so from twenty twenty out to twenty twenty three.

But at the same time, China's clean energy industries boomed because of the emphasis of manufacturing, because of government drive together kinds of projects and investment moving, because of a shift of investment from real estate to the clean energy industries, and so because of all of that, clean energy additions have reached a level that no one really expected.

The past twelve months were the first time that all of the growth in electricity demand was covered by clean energy, while electricity demand grew above average rates.

So this is the first time that power sector emissions and total emissions have gone down without the cause being the global financial crisis, zero COVID, something else that would lead to a drop or a slowdown in electricity demand.

There of course, economic headwinds in China related to the trade war, related to the long tail of the economic impacts from zero COVID, and so on.

But the key point is that over the past twelve months, electricity demand growth was still above average, so whatever was happening in some sectors of the economy didn't result in a slowdown in edage demand or electricity demand.

How much have emissions fallen by?

Yeah, so transmissions over the past twelve months are down by about one percent.

So it's significant enough, especially compared with the repid road of several percent per year in the past few years, to mark change in the trend.

But it also means that if there is a surprise like severe drought and heat wave over the summer, that could still cause a spike that would cause emissions to top the previous peak.

How certain are we that this peak might be the peak and we might not just see a rise next year.

I think it's quite certain that the key trends driving this structur rule reduction emissions will continue this year for the next few years.

There are two key uncertainties.

The first one is will the clean energy growth continue?

So trying to change the price is paid to a new renewable power projects earlier this year.

The changes kicking in in the summer of this year, and so the industry has been quite optimistic that they can keep the development going, but it does create uncertainty.

So that's one thing that we need to be mindful of.

The other one is what happens with energy demand growth, and so the expectation would be that if China's aim of weathering the current trade tensions and so on by stimulating consumption is successful and so on, then energy de mind growth would be at or even below the historical trends.

But of course, if there is another decision, the resort to construction stimuls for example, then we could see faster energy demand growth and that could also upset the pig.

Before we get into the details of how exactly China came to this point, let's just talk about how reliable these numbers are.

You know, how do you know whether we can trust China's carbon accounting is renewables figures, it's coal deployment, and what are the big holes that are still there in the data?

Right?

So I would really point to do things in terms of how to think about china statistical data.

So one of them is that there are always uncertainties for a big country with a complex, rapidly changing economy, and simply in terms of the quality of the statistics, china statistics are much better than many other emerging economies.

The other thing is intentional statistical manipulation, which does happen in China, and it does happen in China more than just about or let's say, most other countries, simply because China set so many quantitative targets.

So whenever there's a quantitative target to do something, the statistical statistics tend to show that it happened, whether or not it did.

So the quality of the statistics has been improving.

This kind of statistical manipulation has gotten harder to do and less blatant than it used to be, but it's something that one always has to be mindful of.

So the way I evaluate the robustness of different statistics is looking at okay, So have these statistics shown trends that the government wouldn't want to display?

Electricity statistics are famed for doing that, so they're one of the indicators that we know that China's policy makers themselves have used when economic numbers have looked too good to be true, and so they've shown slowdowns when the government wouldn't like there to be a slowdown, or they've shown rapid growth when the government wouldn't like there to be rapid growth.

That said, over the past twelve months, there has been very little with any pressure on China's provinces or enterprises to actually show that emissions are going down.

So there isn't much of a reason to think that there would be that kind of distortions.

Right now, let's look at what is causing the decline and emissions.

You talked about the large amount of solar and wind power and battery capacity that China is installing.

How much venerables is it?

In numbers?

The numbers are pretty hard to get your head around.

So we're talking more than three hundred gigawatts of wind and solar per year.

The US has less than two hundred gigawatts of solar installed in total, so China's additions in one year exceeded that.

And last year was a record year for solar in the US as well, with fifty k CO setteds so turned it almost five times.

In terms of power generation, the amount of solar and wind added in twenty twenty four was enough to generate the entire electricity consumption of the UK, and so most importantly, we're talking about five percent of China's own electricity demand added in clean power generation per year, which is the average historical growth rate of electricity demand.

So that crossover where past editions start to actually cover electricity demand growth is what makes a turnaround in emissions possible.

And in terms of evs, they're approaching fifty percent of all passenger vehicles sold, also gaining share rapidly in heavier commercial vehicles, where the next breakthrough is expected.

The same is happening now for electricity storage.

So there's almost two hundred gigawats of pumped hydro storage in operation and under construction, and just last year about thirty gig awards of battery storage was added in China.

So to put things into scale, China speak, demand is just over one thousand gig awards.

So when we start to talk about a few percent of that in battery storage added per year, then that starts to definitely make a dent in how much GUS or coal fired power you need to cover those peak demands.

So is this just a power sector story then that emissions are falling because electricity consumption is getting cleaner with all the solar and wind and energy storage that is coming online.

The other big thing that's happening in China besides clean electricity generation is electrification, and that's happening.

Of course, we already talked about transportation, but it's also happening in industry.

It's also happening in buildings, so that means that for quite a while already all of the growth in emissions has been coming from the electricity sector because you get growth energy demanding the other sectors, but they're shifting to electricity, so the use of direct use of fossil fuels in the other sectors has been falling.

The third thing that has been happening is a dramatic slowdown in the construction sector.

So construct especially real estate and construction and infrastructure, have been a massive source of GDP growth and emissions growth for China over the past couple of decades because those are very energy and carbon intensive sectors, so all of the cement and steel consumed by those sectors has been a major driver of emissions.

Cement production has come down by more than twenty percent of its peak in twenty twenty one, so that has been a major part of this story in emissions starting to come down.

Simply, the process emissions from cement made up almost ten percent of China's zero two emissions at its peak.

And for the steel sector, the trends are slightly more confusing because manufacturing has started to use more steel.

But steel consumption for construction has come down dramatically, and overall steel consumption looks like it's splittored or starting to come down, and there's a huge but you need to shift to more steel recycling, which would reduce the energy demand for steel making significantly, even if total production stays flat.

And so that is an interesting story because we typically hear of the renewable story in China, of the electric car story in China, but just put the steel sector in context here and what this move towards recycling steel, which is mostly driven by electricity, and this electricity is becoming cleaner, could do too, not just peaking which might have happened, but the decline that has to happen afterwards, because China has to meet not just as twenty thirty goals, but it has the goal to reach carbon neutrality by twenty sixty, so it must start to decline pretty quickly.

Right, So, first of all, the steel sector in China is of course massive.

China makes more than half of the world's steel, and energy use for the steel making is the largest source of emissions if you include the electricity use.

Even without the electricity use, it's almost a fifth of China's emissions, and so the opportunity here is that as long as China's steel demand was growing rapidly, the only way to meet that demand was to produce a lot of primary steel.

Because if your demand is going up five percent ten percent per year, then whatever vehicles and buildings and so on that are coming to the end of their life so built decades ago, are a tiny fraction of your current demand.

But once demand plateaus and a lot more buildings and vehicles and so on start to come to the end of their life, the amount of scrap steel available for recycling or potentially available for recycling starts to go up fast as a percentage of your steel demand.

That shift hasn't really happened in China yet.

The share of electric arc steel making, so the kind of steel making that uses scrap as the primary input, has stagnated and is in fact missing the target for this year.

And that's because it's too cheap or or too cost competitive in China to make steel out of iron ore and cocin coal.

But that's something that I expect to be fixed because, as I said, the target for this year is being missed and it clearly needs a further push.

There's also just the electrification story of China, which has been remarkable.

So over this century, China has almost tripled the share of energy that it consumes coming from electricity, so from about ten percent to nearly thirty percent now.

And in that same period, Western economies have largely remained flat at about eighteen to twenty percent of their energy coming from electricity.

With the trajectory that you have outlined in terms of deployment of wind and solar, but also some coal, and we should talk about that, and all this electrification of transport even now industry that might happen with steel.

Are we starting to see China becoming an electro state.

I've been a bit skeptical of that broad categorization because there are still at least pockets of industry where electrification trend isn't clear.

But electrification is certainly a big part of the strategy for transportation for industry.

So there was a time that shifting from coal to gas fossil gas was a big part of the strategy, especially for addressing air pollution, but because of energy security concerns, the emphasis on shifting to gas has declined, and also because of economic considerations, and so I think electrification will become even more clearly the focus.

And so what makes you pause if all the numbers are pointing towards trification and this is not just in the transport sector but also in buildings and also in industry, and the fact that even steel, which is a laguard, might start to catch up.

Why do you think the electro state thesis is not yet one that is the trajectory China is taking.

I think that's the trajectory for everyone.

It's quite obvious.

It's just that it's not clearly stated as a policy end point.

But certainly China has to been moving much faster than just about everyone else.

We'll be back with more of my conversation with Louriy Mulwerta after this short break.

And hey, if you're enjoying this episode, please take a moment to rate and review the show on Apple Podcasts and Spotify.

Your feedback really matters and helps new listeners discover the show.

Thank you.

So far, we've looked at the good story, which is renewables are helping power emissions decline and things electrifying so that means emissions will decline in other sectors.

But when you look at the numbers, there are currently sectors where emissions are growing.

What are those.

The main sector with a clear expectation that coal consumption emissions will go up is the chemical sector.

China has this long standing program of building a coal to chemicals industry, which is basically petrochemicals industry using coal as the feedstock to produce synthetic couts, synthetic liquid fuels, and chemicals industry outputs.

And this is incredibly carbon intensive.

It's even more much more intensive than making the same stuff out of crude oil.

This is an area where a massive amount of capacity is being built to process goal into chemicals.

The utilization of that capacity has remained quite low because it's struggling with profitability.

The posymakers are quite clear that this is an energy security play or cityp White call planning for extreme scenarios, so basically making sure that China has the capacity to keep its economy working if maritime transportation of oil and gas is blocked as part of a major conflict with the US.

Given the macroeconomic situation right now, which even before Trump came to power, was the case where the Chinese economy was slowing down, plus the Chinese population has started to decline.

Is there some contribution to the speaking of emissions that is coming from these two facs.

You can always talk about the counterfactual, which is if we were still seeing seven percent ten percent GDP growth like two decades ago, then of course even the current massive clean energy additions would would fall way short of covering demand.

But overall, the slowdown of the economy is something that has been expected for a long time.

So slowing down to maybe five percent GDP growth in the first half of this decade and towards four percent in the second half, China does have a target or seaging pain maybe personally has a target of doubling GDP per capiture from twenty twenty to twenty thirty five, which means you have to maintain over four point five percent GDP growth for the remainder of the period.

That's very clearly the red line for the policy makers, and that's why they stuck with an around five percent GDP target for this year as well.

And what about China's population, given has been following by about a million people each year for the past three years, is that contributing to a decline in emissions.

Where that definitely comes in is the real estate and infrastructure sector.

So if you had a lot of population growth contributing to needing more real estate and more infrastructure and so on, then of course that would be a different situation.

And then if you look at the trade war that is ongoing right now, there is something that we can learn from the past, where in the first Trump administration, China responded to the tariffs that were deployed by the US by increasing its manufacturing capacity to try and offset the decline that it would have in exports to the US by sending those exports to other countries.

Do you expect China to have a similar trajectory given this time around the turps are even higher.

A big part of the response during the first Trump administration was, in fact domestic stiamulus to the construction sector, very much unannounced and only really visible after the fact.

This time, what Chinese policy makers are saying is that they want to stimulate consumption so household spending power, instead of relying on these kind of stimulus, which has been dubbed low quality by the sig administration.

And this also very much aligns with CI's overall economic guidelines of common prosperity, aiming for a large middle class, and so on.

So there is a happy development here that could take place where this in fact pushes long China's own ambitions for changing the structure of the economy.

If you're used to the environmentalist messaging of consumption is the root of all evil, it might sound a terrible idea to increase consumption, but the point here for emissions is that household consumption is in fact much less carbon intensive than the construction and manufacturing industries which have been driving growth in the past.

So if more of the spending power in the economy was directed to households, they would spend much more of that on services like healthcare or a range of other services.

And even the manufacturing that caters to households is much less energy intensive than the manufacturing that caters to the construction sector, for example.

And what about China's climate diplomacy Given the past decade, we've seen the US flip every time there's been a change in the president, but there have been moments where US and China have cooperated.

But now that the US is firmly the Trumpet administration not going to be part of climate diplomacy and maybe even play the role of spoiler.

How is China responding to this moment.

I think two things have changed.

If you think to Obama's announcement in twenty fourteen, where the two leaders announced their new climate targets together, so one of them is the entire political dynamic in both countries.

It's very hard to see that there would be any kind of political upside for seeing in the current atmosphere from announcing something like this together with a US president, because that would be just seen as caving and being weak.

So China has been very clear that their ambition is unchanging, is not influenced by pressure from others.

And the other thing that has really changed is that clean energy industry, including exports, has become such a key driver of China's economy that China has a much stronger self interest now in also keeping a global and transition going.

So just in the past few years, China has made a massive investment in manufacturing capacity for solar, for batteries for evs and so on, and if the global transition styled, that would mean that quite a bit of that capacity would go unused and cost financial distress.

That said, this hasn't really translated into multilateral diplomacy from China yet.

So China, for example, didn't put its weight behind the target of dripling renewables and doubling efficiency.

So this is where China still needs to get more comfortable with taking the initiative and in fact persuading other countries to do more.

And I think here things are really going to change.

Once a China's leader are secure in thinking that they've turned the ship on emissions, they're going to be a lot more comfortable because they don't have to be defensive about their emissions growth anymore.

If this is the peak, how quickly will we see a decline or will it be a slope plateau like it has been for coal consumption over the past decade.

There's certainly a risk of China getting stuck at pretty much current levels of emissions in the absence of setting ambitious emission reduction targets for twenty thirty five.

I think one key concern is that once the coal industry starts to see their demand go down in absolute terms, especially as they've been investing in new coal mines, new coal fired power plants recently, that could generate a lot of pushback, but at the same time, keeping emissions at a plateau would mean upsetting the growth ambitions of the cleaner engine industry, So there's going to be pushed from both sides.

But so the targets that China's going to set this year, first in its new Paris Commitment and then in the five year Plan that is due to be released next year, will be key in calibrating that level of ambition.

And finally, what do people in China think about the US right now, which is the world's largest producer of oil and gas, has a ton of fossil fuels still available for it to burn, but it is not really deploying electricity technologies which are more efficient and economically cheaper.

Instead, it is doubling down on fossil fuels, especially under this administration.

Do they see the US losing out on the future of energy, even as it might be currently the global energy superpower.

I was, in fact in Beijing when the US election results were coming in, and I can say that in a room full of Chinese people, I was the only one who was trying to check my phone under the table for the results.

So people weren't paying as much attention as Americans might expect, and also when under the Biden administration the US was starting to actually make an airport, I think the reaction from Chinese experts was one of skepticism, or at least one of wait and see, like see whether the US can actually pull this off, because there is a sense that the US is so far behind, especially in terms of manufacturing, and it just doesn't have the kind of ecosystem and the kind of uh, let's get it done spirit that China has.

So currently, I think Chinese experts and Chinese policymakers are very comfortable and secure in thinking that they have the lead in these markets and technology areas, and it would actually be really good to get some more competition.

So if there was more of a sense that others are at least making an effort to catch up and put up some competition, that would keep China moving faster.

Thank you, Laurie, thank you so much, and thank you for listening to zero.

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