by Darlene Estrada

April 23, 2021 – China has been cast as “a climate leader and villain”[1] because of the reality that it is both the world leader in clean energy development and the world’s top coal consuming country at present. But getting better understanding of China’s ironic situation means recognizing that behind both energy-related “roles” are pursuits for economic and environmental interests and a dilemma concerning the trajectory of the incumbent fossil fuel industry. Meanwhile, Southeast Asia could potentially reap benefits and draw lessons from closely watching China’s implementation of its energy plans.

One step forward, one step back

China leads the development of clean energy technologies as the producer of more than 70 percent of the world’s solar photovoltaic panels, a third of the world’s wind power, and half of the world’s electric vehicles.[2] China has also stepped up its climate action through pledges and commitments, one of which was the pledge from President Xi stating China’s goal of being carbon neutral by 2060. On the other hand, International Energy Agency reported China as “the world’s largest coal producer and importer as well as consumer of more than half of global coal” in its Coal 2020 Analysis.[3]  China National Coal Association noted that China’s coal consumption is even expected to increase in 2021.[4]

China’s contradicting roles represent a dilemma that its leadership is grappling with in terms of balancing economic and environmental interests. But one of the many hurdles it must face to transition to clean energy is to address transitionary disruptions on the incumbent fuel energy source by recalibrating the roles of its oil giants and the coal industry to remain relevant in a low-carbon future.

A rough path for oil and coal industries

China’s rapid economic growth in the last 40 years came with massive energy consumption, in which its oil and coal industries played an indispensable role.[5] However, given China’s planned trajectory of renewable energy transition, its national oil companies (NOCs) and coal industry will have to make huge adjustments and recalibrations to survive.

In previous decades, China’s approach to energy diplomacy is to forge links with resource-rich countries and to tap NOCs to operate in those countries to secure supplies while also ensuring that their corporate interest of gaining profit is protected.[6] NOCs eventually came to enjoy a high political status and bureaucratic ranking in China, giving them an opportunity to influence decisions on which partner states to engage and which markets to enter.[7] But the relevance of NOCs in China’s vision of becoming carbon-neutral has become uncertain. NOCs now face the challenge of gradually turning to renewable energy. Experts point out that Chinese NOCs need to face the problem of investing in assets that will allow the transportation of green-based energy and need to compete in China’s renewable energy market dominated by private manufacturers and state-owned power generators.[8]

Aside from oil, China’s coal sector is expected to undergo enormous adjustments. And yet in over 15 years, China’s coal sector has been restructured to increase energy efficiency. About 10,000 small local coal mines with outdated equipment and insufficient investment have been reduced through mergers and acquisitions that formed 10 large coal companies and around 4,000 coal mines.[9] At present, however, these adjustments to increase efficiency have been met with the launch of new major coal mining regions in Shanxi, Shaanxi, Inner Mongolia, and Xinjiang in 2021.[10] Moreover, China is looking to curb aid and investment in overseas coal projects. Officials are said to be seriously reviewing the climate effects of overseas projects and categorizing them based on their negative impacts and risks on the environment.[11] However, there remains no binding policy that will require high-risk projects to be banned, instead the plan is to have them under “strict supervision and regulation.”[12]

What these mean for Southeast Asia

Aside from cutting back on coal financing and reevaluation of overseas coal projects, China’s energy plans could be pivotal in Southeast Asia in three ways. First, Southeast Asia is rich in renewable energy sources and critical materials. In fact, Malaysia and Vietnam are rising as solar power hubs.[13]  Biomass potential was found in Thailand and geothermal potential in Philippines and Indonesia.[14] Southeast Asian governments have also planned to increase share of renewable energy in energy mix through targets setting. The challenge, however, is how these countries would take the opportunity to integrate themselves in global renewable energy supply chains.

Second, the Belt and Road Initiative (BRI), an initiative which all Southeast Asian countries have agreed to cooperate on, could be a powerful platform for China to promote and help Southeast Asia transition to clean energy through investments. According to Green BRI 2020 Report, for the first time, renewable energy investments (solar, wind, hydro) made up the majority of Chinese overseas energy investments – increasing their share from 38% in 2019 to 57% in 2020.[15] Including clean energy considerations in the BRI agenda works well not only for the improvement of the confidence of partner countries in the overall framework of BRI but also contribute to China’s commitment to climate action.

Lastly, Southeast Asian states may learn from the irony in China’s situation. As China transitions to renewable energy, Southeast Asia is given an opportunity to take note of both expected and unforeseen challenges and learn about how to deal with the winners and losers that this process has created. China’s experience shows that the path to renewable energy requires strong government support and willpower. If government emission targets and plans are not implemented accordingly, there is a tendency to offset the progress that renewable energy sector has made, and a carbon-neutral China will remain a distant prospect.

[1] Meidan, Michal. “China: Climate Leader and Villain.” In The Geopolitics of the Global Energy Transition, edited by Manfred Hafner and Simone Tagliapietra, 75–91. Lecture Notes in Energy. Cham: Springer International Publishing, 2020. https://doi.org/10.1007/978-3-030-39066-2_4.
[2] Hook, Leslie, Henry Sanderson. “How the Race for Renewable Energy Is Reshaping Global Politics.” Inside Climate News (blog), February 26, 2021. https://insideclimatenews.org/news/26022021/energy-transition-global-clean-energy-china-biden/.
[3] International Energy Agency. “Coal 2020 – Analysis.” IEA, December 2020. https://www.iea.org/reports/coal-2020.
[4] Reuters. “China’s Coal Consumption Seen Rising in 2021, Imports Steady.” Reuters, March 3, 2021. https://www.reuters.com/article/china-coal-idUSL3N2L12A9.
[5] Zhongying, Wang, and Kaare Sandholt. “Thoughts on China’s Energy Transition Outlook.” Energy Transitions 3, no. 1 (December 1, 2019): 59–72. https://doi.org/10.1007/s41825-019-00014-w.
[6] Chi, Zhang. “Why Domestic Dynamics Matter.” In The Domestic Dynamics of China’s Energy Diplomacy, 368. Series on Contemporary China, v. 38. 1793-0847. Singapore: World Scientific Publishing Co. Pte. Ltd, 2016. https://catalogue.nla.gov.au/Record/7052532.
[7] Chi, Zhang. “Why Domestic Dynamics Matter.” In The Domestic Dynamics of China’s Energy Diplomacy, 368. Series on Contemporary China, v. 38. 1793-0847. Singapore: World Scientific Publishing Co. Pte. Ltd, 2016. https://catalogue.nla.gov.au/Record/7052532.
[8] Chen, Aizhu, and Muyu Xu. “China’s Energy Giants Tiptoe into Renewables.” Reuters, September 3, 2020. https://www.reuters.com/article/us-china-oil-lowercarbon-idUSKBN25U1QG.
[9] Umbach, Frank, and Ka-ho Yu. “China’s Expanding Overseas Power Industry: New Strategic Opportunities, Commercial Risks, Climate Challenges and Geopolitical Implications.” European Centre for Energy and Resource Security, 2016. https://eucers.com/wp-content/uploads/2019/03/strategy-paper-11.pdf.
[10] Reuters Staff. “China’s Coal Consumption Seen Rising in 2021, Imports Steady.” Reuters, March 3, 2021. https://www.reuters.com/article/china-coal-idUSL3N2L12A9.
[11] Pike, Lili. “Japan and South Korea Have Started to Ditch Global Coal Projects. Will China Follow Suit?” Vox, December 10, 2020. https://www.vox.com/22151710/china-japan-south-korea-climate-change-coal-finance.
[12] Pike, Lili. “Japan and South Korea Have Started to Ditch Global Coal Projects. Will China Follow Suit?” Vox, December 10, 2020. https://www.vox.com/22151710/china-japan-south-korea-climate-change-coal-finance.
[13] Baker McKenzie. “Supply Chains Reimagined,” August 17, 2020. https://www.bakermckenzie.com/en/insight/publications/2020/08/supply-chains-reimagined.
[14] Khuong, Minh Phuong. “Renewable Energy in ASEAN.” Heinrich-Böll-Stiftung, July 31, 2017. https://th.boell.org/en/2017/07/31/renewable-energy-asean.
[15] Wang, Christoph Nedopil. “China Belt and Road Initiative (BRI) Investment Report 2020 – Green Belt and Road Initiative Center,” January 26, 2021. https://green-bri.org/china-belt-and-road-initiative-bri-investment-report-2020/.