China’s Carbon Emissions Are Set to Decline Years Earlier Than Expected

China’s massive rollout of renewable energy is accelerating, its investments in the sector growing so large that international climate watchdogs now expect the country’s greenhouse-gas emissions to peak years earlier than anticipated—possibly as soon as this year.

China installed 217 gigawatts worth of solar power last year alone, a 55% increase, according to new government data. That is more than 500 million solar panels and well above the total installed solar capacity of the U.S. They appeared everywhere from the deserts of Inner Mongolia to the mountains of southwest China to rooftops across the country, including on the Great Hall of the People on the edge of Tiananmen Square.

Wind-energy installation additions were 76 gigawatts last year, more than the rest of the world combined. That amounted to more than 20,000 new turbines across the country, including the world’s largest, planted on towers in the sea off China’s east coast.

The low-carbon capacity additions, which also included hydropower and nuclear, were for the first time large enough that their power output could cover the entire annual increase in Chinese electricity demand, analysts say. The dynamic suggests that coal-fired generation—which accounts for 70% of overall emissions for the world’s biggest polluter—is set to decline in the years to come, according to the Paris-based International Energy Agency and Lauri Myllyvirta , the Helsinki-based lead analyst at the Centre for Research on Energy and Clean Air.

China’s expanding renewables footprint is shaping the global response to climate change. Its companies are the leading manufacturers of clean-energy technology, from solar panels and wind turbines to electric vehicles. That is stoking concerns in the rest of the industrialised world about depending on China for their energy supplies in the future.

At the same time, China’s deployment of renewables at home is breathing new life into international climate diplomacy . Its rapid emissions growth long provided fodder for critics who said Beijing wasn’t committed to fighting climate change or supporting the Paris accord , the landmark climate agreement that calls for governments to attempt to limit warming to 1.5 degrees Celsius over preindustrial temperatures. Now, analysts and officials say Beijing’s efforts are lending momentum to the Paris process, which requires governments to draft new emissions plans every five years.

“An early peak would have a lot of symbolic value and send a signal to the world that we’ve turned a corner,” said Jan Ivar Korsbakken, a senior researcher at the Oslo-based Center for International Climate and Environmental Research.

In 2020, Chinese leader Xi Jinping pledged that the country’s emissions would begin falling before 2030 and hit net zero before 2060, part of its plan prepared under the Paris accord. He also said China would have 1,200 gigawatts of total solar- and wind-power capacity by the end of this decade. The country is six years ahead of schedule: China reached 1,050 gigawatts of wind and solar capacity at the end of 2023, and the China Electricity Council forecast last month that capacity would top 1,300 gigawatts by the end of this year.

“China’s acceleration was extraordinary,” said Fatih Birol , the executive director of the Paris-based International Energy Agency.

Chinese authorities publish regular data on energy consumption and generation but not overall greenhouse-gas emissions. Transition Zero, a U.K.-based nonprofit that uses satellite images to monitor industrial activity and emissions in China, says the official data are “broadly aligned and consistent” with theirs.

Once the peak arrives, some analysts expect an emissions plateau to follow rather than a rapid fall in the following years. That is a problem, scientists say, because the world’s major emitters must sharply cut global emissions this decade—by 43% compared with 2019—to fulfill the Paris accord.

Climate Action Tracker, a scientific consortium that evaluates governments’ emissions plans, rates China’s current policies as “highly insufficient” to meet the 1.5 degrees Celsius goal . Its latest analysis, published in November, says China’s emissions should peak by 2025. If wind and solar installations can average 300 gigawatts a year—as they did last year—China’s emissions should fall significantly by the end of the decade, the consortium says. The actions and policies of the U.S., where emissions have been falling, were graded as “insufficient.”

Still, moving China’s timeline for an overall emissions peak forward could shave off around 0.3 to 0.4 degrees Celsius of projected global warming if emissions started to decline next decade, analysts say. Emissions plans submitted to date under the Paris accord would put the world on track to warm by 2.5 degrees Celsius this century, a United Nations Environment Program report said in November.

China is still building coal-fired power plants , fuelling criticism from Western officials that it is locking in carbon-dioxide emissions years into the future. Beijing has been telling Western officials that the new plants won’t be as polluting as they fear. They are replacing older, higher-emitting plants, and will run far below full capacity, used largely to maintain electric-grid stability as China generates more of its power from intermittent wind and solar. In November, China unveiled a system of capacity payments for coal-fired plants that will allow them to earn money even when they are running as backup power sources. Xi said in 2021 that China would begin to phase down its coal consumption starting in 2026.

The exact timing of China’s peak depends on factors such as economic growth and weather in the next few years, analysts say. Growth is expected to slow following China’s real-estate sector slump —unless Beijing undertakes a major new program of economic stimulus that would boost industrial emissions. Another spell of drought this summer would push the country’s coal plants to run harder to replace lost hydropower generation.

The most certain variable in the equation is the breakneck pace of China’s renewable-energy rollout, which analysts expect will continue to add 200 to 300 gigawatts of new wind and solar capacity a year. The investments in renewable energy have become a major driver of the Chinese economy. The country’s clean-energy spending totaled $890 billion last year, up 40%. Without that growth, investment in China would have been flat as the country reels from the slump in its real-estate sector, according to the Centre for Research on Energy and Clean Air.

The investments include clean-energy installations and the construction of enormous factories to produce solar panels, wind turbines, batteries and electric vehicles—turning the country into the leading manufacturer of clean tech. Its factories in those sectors now have plenty of unused capacity . The adoption of electric vehicles is happening so rapidly that analysts say peak gasoline demand in China was already reached last year.

At the United Nations COP28 climate conference in Dubai in November, Xie Zhenhua , then China’s climate envoy , said the government would calculate the year and absolute volume of the country’s emissions peak. He also said Beijing is drawing up its next emissions plan under the Paris accord.

“Our country will do as it’s said and strive to do even better,” he said. “I have faith.”

For years, global companies showcased their Chinese operations as a source of robust growth. A burgeoning middle class, a stream of people moving to cities, and the creation of new services to cater to them—along with the promise of the further opening of the world’s second-largest economy—drew companies eager to tap into the action.

Then Covid hit, isolating China from much of the world. Chinese leader Xi Jinping tightened control of the economy, and U.S.-China relations hit a nadir. After decades of rapid growth, China’s economy is stuck in a rut, with increasing concerns about what will drive the next phase of its growth.

Though Chinese officials have acknowledged the sputtering economy, they have been reluctant to take more than incremental steps to reverse the trend. Making matters worse, government crackdowns on internet companies and measures to burst the country’s property bubble left households and businesses scarred.

Lowered Expectations

Now, multinational companies are taking a hard look at their Chinese operations and tempering their outlooks. Marriott International narrowed its global revenue per available room growth rate to 3% to 4%, citing continued weakness in China and expectations that demand could weaken further in the third quarter. Paris-based Kering , home to brands Gucci and Saint Laurent, posted a 22% decline in sales in the Asia-Pacific region, excluding Japan, in the first half amid weaker demand in Greater China, which includes Hong Kong and Macau.

Pricing pressure and deflation were common themes in quarterly results. Starbucks , which helped build a coffee culture in China over the past 25 years, described it as one of its most notable international challenges as it posted a 14% decline in sales from that business. As Chinese consumers reconsidered whether to spend money on Starbucks lattes, competitors such as Luckin Coffee increased pressure on the Seattle company. Starbucks executives said in their quarterly earnings call that “unprecedented store expansion” by rivals and a price war hurt profits and caused “significant disruptions” to the operating environment.

Executive anxiety extends beyond consumer companies. Elevator maker Otis Worldwide saw new-equipment orders in China fall by double digits in the second quarter, forcing it to cut its outlook for growth out of Asia. CEO Judy Marks told analysts on a quarterly earnings call that prices in China were down roughly 10% year over year, and she doesn’t see the pricing pressure abating. The company is turning to productivity improvements and cost cutting to blunt the hit.

Add in the uncertainty created by deteriorating U.S.-China relations, and many investors are steering clear. The iShares MSCI China exchange-traded fund has lost half its value since March 2021. Recovery attempts have been short-lived. undefined undefined And now some of those concerns are creeping into the U.S. market. “A decade ago China exposure [for a global company] was a way to add revenue growth to our portfolio,” says Margaret Vitrano, co-manager of large-cap growth strategies at ClearBridge Investments in New York. Today, she notes, “we now want to manage the risk of the China exposure.”

Vitrano expects improvement in 2025, but cautions it will be slow. Uncertainty over who will win the U.S. presidential election and the prospect of higher tariffs pose additional risks for global companies.

Behind the Malaise

For now, China is inching along at roughly 5% economic growth—down from a peak of 14% in 2007 and an average of about 8% in the 10 years before the pandemic. Chinese consumers hit by job losses and continued declines in property values are rethinking spending habits. Businesses worried about policy uncertainty are reluctant to invest and hire.

The trouble goes beyond frugal consumers. Xi is changing the economy’s growth model, relying less on the infrastructure and real estate market that fueled earlier growth. That means investing aggressively in manufacturing and exports as China looks to become more self-reliant and guard against geopolitical tensions.

The shift is hurting western multinationals, with deflationary forces amid burgeoning production capacity. “We have seen the investment community mark down expectations for these companies because they will have to change tack with lower-cost products and services,” says Joseph Quinlan, head of market strategy for the chief investment office at Merrill and Bank of America Private Bank.

Another challenge for multinationals outside of China is stiffened competition as Chinese companies innovate and expand—often with the backing of the government. Local rivals are upping the ante across sectors by building on their knowledge of local consumer preferences and the ability to produce higher-quality products.

Some global multinationals are having a hard time keeping up with homegrown innovation. Auto makers including General Motors have seen sales tumble and struggled to turn profitable as Chinese car shoppers increasingly opt for electric vehicles from BYD or NIO that are similar in price to internal-combustion-engine cars from foreign auto makers.

“China’s electric-vehicle makers have by leaps and bounds surpassed the capabilities of foreign brands who have a tie to the profit pool of internal combustible engines that they don’t want to disrupt,” says Christine Phillpotts, a fund manager for Ariel Investments’ emerging markets strategies.

Chinese companies are often faster than global rivals to market with new products or tweaks. “The cycle can be half of what it is for a global multinational with subsidiaries that need to check with headquarters, do an analysis, and then refresh,” Phillpotts says.

For many companies and investors, next year remains a question mark. Ashland CEO Guillermo Novo said in an August call with analysts that the chemical company was seeing a “big change” in China, with activity slowing and competition on pricing becoming more aggressive. The company, he said, was still trying to grasp the repercussions as it has created uncertainty in its 2025 outlook.

Sticking Around

Few companies are giving up. Executives at big global consumer and retail companies show no signs of reducing investment, with most still describing China as a long-term growth market, says Dana Telsey, CEO of Telsey Advisory Group.

Starbucks executives described the long-term opportunity as “significant,” with higher growth and margin opportunities in the future as China’s population continues to move from rural to suburban areas. But they also noted that their approach is evolving and they are in the early stages of exploring strategic partnerships.

Walmart sold its stake in August in Chinese e-commerce giant JD.com for $3.6 billion after an eight-year noncompete agreement expired. Analysts expect it to pump the money into its own Sam’s Club and Walmart China operation, which have benefited from the trend toward trading down in China.

“The story isn’t over for the global companies,” Phillpotts says. “It just means the effort and investment will be greater to compete.”

Corrections & Amplifications

Joseph Quinlan is head of market strategy for the chief investment office at Merrill and Bank of America Private Bank. An earlier version of this article incorrectly used his old title.

China’s Carbon Emissions Are Set to Decline Years Earlier Than Expected

Multinationals like Starbucks and Marriott are taking a hard look at their Chinese operations—and tempering their outlooks.

Lowered Expectations

Behind the Malaise

Sticking Around