How China is becoming the Saudi Arabia of renewables

China’s consumption of fossil fuels has been declining this year due to the rise of electric vehicle use and surging capacities in renewable energy sources. With capacity of renewables potentially growing faster than the likely growth in energy demand, China’s consumption of hydrocarbons is entering a path of secular decline. China may have already peaked its carbon emissions seven years ahead of the deadline for its Paris Agreement commitments. China’s petrol consumption increased by 0.32 per cent on the whole in the first half of 2024, year on year, but consumption actually fell in the latter four months. Meanwhile, diesel consumption declined by 3.52 per cent in the first half of the year. The trend would appear to be continuing – China saw a 3.1 per cent decline in crude imports during the first eight months of the year. One likely reason is the rapid increase in new-energy vehicles. The maintenance costs of these vehicles are about half that of cars with internal combustion engines, according to an analysis by non-profit organisation Consumer Reports. In China, the number of new-energy vehicles reached 20.4 million, or around 6 per cent of all vehicle ownership. China is on track to reach 10 million sales of such vehicles this year, according to the International Energy Agency. Hence, the automotive energy consumption is sharply shifting to electricity away from hydrocarbons. While total electricity production rose by 4.8 per cent in the first seven months, the share of coal-fired generation fell to a record low, according to an analysis by Carbon Brief. Coal usage is likely to decline even further this year. China’s coal production fell by 1.7 per cent in the first seven months. While natural gas consumption rose by 9.7 per cent in the first seven months, it is likely not enough to offset the decline in oil and coal. Surging solar, wind and hydrogen power is a key driver behind the decline in hydrocarbons. The solar power sector’s generating capacity increased by 55 per cent in 2023 while its output increased by 26.4 per cent in the first seven months of this year. With solar power output rising less than capacity, China has the potential to increase its output. Taken as a whole, China’s solar and wind power capacity increased by almost 300GW last year and is doing so again in this year. Meanwhile, hydro power generation increased by 16 per cent in the first five months this year compared to the same period last year. These developments will force a substantial reduction in electricity generated from fossil fuels. China imported 13.7 million barrels of crude per day last year, the biggest in the world. The increase in China’s solar capacity could decrease this demand by half a million barrels per day every year. If China speeds up its solar development, doubling into the 2030s, the drop would be much bigger. As new energy vehicles and solar power spread around the world, the demand for hydrocarbons is likely to decline outside China. The Global South could bypass fossil fuel-led economic development and jump to more economical renewable energy sources like solar and hydrogen. Many countries in the Global South import oil. This is a persistent outflow of hard currency. Renewable energy requires investment for two to three decades of energy supply. It makes economic development cheaper and easier. Rural areas that are not connected to energy networks could have their own independent energy source, leapfrogging into the 21st century. Economic development in the Global South will become disconnected from hydrocarbon demand. China could achieve energy independence in the 2030s. Its solar equipment exports to the Global South could cap their demand around the same time. Oil prices rose from US$25-50 a barrel in the 1990s to over US$100 in the 2010s due to rising Chinese demand. It could reverse in the next decade or two. Renewable energy is the greatest equaliser in the global economy. It makes energy independence available to any country that wants it. And it allows any country to become an energy supplier through manufacturing. China is now leading in this industry. Through scale and innovation, it has made renewable energy competitive or even cheaper than fossil fuels. This strategy has made China the Saudi Arabia of the 21st century. The rise of renewable energy alters the global balance of power. It favours the manufacturing economy and lessens the importance of a resource-based economy. As only a few lucky countries are rich in hydrocarbons, the rise of green energy is a great equaliser in global wealth distribution. Energy is the most important factor in the global economy. Cheaper and plentiful renewable energy can bring billions of people in the Global South into the modern economy. The rising productivity and purchasing power of so many will power the global economy and trade in the years to come. The volatility of oil prices has been a destabilising force in the global economy since the 1970s. Declining demand for oil will make the global economy more stable, which favours poor countries that have energy accounting for a bigger share of their economy. When oil price declines, it usually signals the global economy declining. The current episode signals much more. As renewable energy replaces hydrocarbons, the global economy will become more prosperous, equal and stable.

How China is becoming the Saudi Arabia of renewables

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}China’s declining demand for fossil fuels and increased clean-energy capacity could usher in a new shift in global wealth distribution

China’s declining demand for fossil fuels and increased clean-energy capacity could usher in a new shift in global wealth distribution