3. The reactivity and resilience of climate policy to shocks
3.1 The fall 2021 energy crisis
3.1.1 A domestic setback
In late September, 2021, Jilin, Liaoning, and Heilongjiang provinces in China’s northeast abruptly reported power cuts, disrupting industry, commerce, and residential life alike. On paper, a lack of coal had driven electricity shortages. The central government, which oversees national coal production, was caught off-guard by provincial announcements. Local governments, which manage local energy demand and consumption, either didn’t know or didn’t tell Beijing what was coming.
Within a week, the southern industrial powerhouse provinces of Jiangsu, Guangdong, and Zhejiang also independently issued a flurry of aggressive power rationing measures. In each case, local reports said the cuts were driven by local issues – some referencing recent heat waves, some the increased cost of coal amid ongoing global economic recovery, some provincial targets to reduce industrial energy consumption. By mid-October, 20 provinces had instituted some form or other of power rationing in response to energy supply concerns.
At the time, what confounded observers – and evidently the central government – was that, while each locally indicated driver could have plausibly caused a local power crunch, none explained why none were foreseen despite the systems in place to manage power supply and demand – nor, more importantly, why by mid-October “local” issues had forced two-thirds of China’s provinces to issue their own power rationing measures.
State-affiliated reports from September 28 covered the initial outages with bylines like “Challenges emerge but China not facing an 'energy crisis.’”33 But from October onward, there was no question that, however localized power issues may have begun, China faced a full-blown national energy crisis.
Beijing was unprepared to respond to the crisis. This lack of preparation, evident in the central government’s delayed response and failure to identify effective short-term remedies, has had a clear and enduring impact on Beijing’s approach to energy security. Its impact is underscored by continual State Council and NDRC instructions on securing power supplies ever since.
3.1.2 Cracks in the foundation
Beijing’s long-standing approach to energy security could be fairly summarized as “more coal means greater energy security.” That approach was bolstered by the failures of the winter 2017–2018 coal-to-gas transition efforts in China’s northeast, which left thousands without power in freezing conditions in the dead of winter.
The ill-timed policy pushed officials to mandate homes switch to natural gas before gas supplies and the infrastructure capable of delivering it were capable of handling the cold snap that soon followed. As the cold set in, local officials reversed the transition policies, allowing coal to save the day – and indeed it did. That failure was also an early progenitor of today’s nearly weekly directives to avoid heavy-handed, “campaign-style” environmental policies.
However, the fall 2021 energy crisis cracked the credibility of the assumption that coal guarantees energy security. Where coal had previously saved provinces from ill-advised policy and implementation failures alike – the early coal-to-gas transition failure being a famous case in point – the 2021 energy crisis proved that cracks in China’s energy governance regime could undercut even coal’s ability to guarantee energy security.
While myriad factors played roles in the power crunch – heat waves, energy commodity costs, and energy policy targets included – China’s energy governance regime is designed to manage them all. Beijing invests heavily in ensuring energy resource stockpiles; managing commodity costs through pricing controls; and instructing local policymakers to ensure energy policy reforms do not disrupt livelihoods. Yet China’s energy governance regime, with coal as its guarantor, failed to keep the lights on – one of the Party’s most fundamental governance tasks.
3.1.3 Consequences
Ultimately, central-local coordination and associated governance issues undercut even coal’s ability to provide energy security and economic stability. The lesson for Beijing could have been that it is not just the energy source, but also the policy and governance ecosystem built around it, that provides – or fails to provide – energy security.
In principle, this lesson could have emboldened policy makers to directly address China’s core energy governance issues. Resetting traditional coal-centric policy to more explicitly incorporate energy supply diversification via renewable energy sources is in line with climate and economic goals and would boost energy security. But, instead, the months since fall 2021 have shown Beijing doubling down on coal, far exceeding expected coal capacity increases and production.
In 2022, in the face of short-term energy security pressures, Beijing – led by the NDRC, and supported by semi-regular State Council policy pronouncements – has ramped up coal procurement and provided the coal industry with various protective measures in the name of preventing power outages this summer and winter.
The net result of the fall 2021 power crunch – driven in part by exogenous shocks, but ultimately a failure of China’s energy governance regime – has been a doubling down on coal as a means to reduce energy security risks.34
The immediate consequences are clear:
- An effective cutoff of any decrease in coal this year
- An end to hopes that Beijing might accelerate its energy decarbonization efforts while economic challenges persist
But the real problem lies ahead: With the 14th FYP targets to be met by 2025, and 2022 effectively a lost year for energy decarbonization efforts, China has just lost one-third of its remaining time to meet its goals.
Should Beijing fail to secure its energy production and economic interests without increasing coal in 2023, officials across China’s vast bureaucracy may be pressured to find shortcuts to meeting 2025 energy and climate targets just before the buzzer – raising the risk of precisely the kinds of economic and social instability Beijing has relied on coal to avoid.
3.2 Russia’s invasion of Ukraine
3.2.1 An overseas crisis
Russia invaded Ukraine on February 24, 2022. Within days, governments and media across the West turned their eyes to China, watching for signs that Beijing would provide material economic support for its “most important strategic partner.”35
Indeed, China’s governmental and commercial actors alike had strong economic incentives to engage with Russia, particularly in coal, oil and gas: with the rest of Russia’s major energy trading partners rushing to the exits, Russia’s energy goods became massively undervalued for those willing to deal.
3.2.2 Strength in the foundations
What shocked many observers – and indeed, what other observers so deeply took for granted that they didn’t realize the facts were otherwise – China largely abstained from new Russian energy goods. Within days of Russia’s invasion, the NDRC “advised” domestic coal-fired power generators to avoid Russian coal. Accordingly, Chinese coal imports from Russia have plummeted since the invasion.36 Domestic coal production has filled the gap. While this hasn’t translated directly into more coal consumption, it has brought more production emissions into China’s borders.
Meanwhile, although Beijing largely remained quiet on the issue of oil and gas imports, China’s national oil companies decided in no uncertain terms to avoid any new Russian oil and gas deals as a matter of managing political risk. Deals already in place, which before the invasion were roughly in line with previous years, remained in place, but no new deals were drawn, despite the obvious financial incentives.37
Perhaps the most direct impact Russia’s invasion had on Beijing was to exacerbate the latter’s economic risk aversion – specifically in light of war-exacerbated commodity market volatility, which particularly afflicted coal, oil, gas, and key industrial metals. Commodity supply challenges, driven by outlandish market movements amid wartime uncertainty, have applied great pressure on industrial production, further rattling Beijing's sense of control over an already troubled economy.
3.2.3 Consequences
While indirect, commodity market pressures on industrial production have again incentivized officials to turn their attention from decarbonizing industry to pursuing all possible means of stabilizing it. Again, climate policy is ultimately economic policy – but it is long-term economic policy, unlike the tangible short-term issues China faces today. At the end of the day, the most important numbers are the dual carbon targets to peak emissions before 2030 and achieve net zero by 2060; other variables are subject to move based on the constraints of the day. Ukraine is an example of unexpected avenues of influence – and what they do and don’t change.
Nonetheless, it is vital to note that Beijing has not indicated any change in long-term climate plans in light of Russia’s invasion of Ukraine. The invasion's market consequences have expanded critical cracks between China's short-term energy security and long-term decarbonization aims – issues that Beijing was already reluctant to recognize, but which have only worsened.
Once again, the resilience of China’s long-term climate ambitions despite current affairs is evident, even as deep concerns abound about the diminishing time for officials to fulfill their targets.