China will implement a new set of energy consumption benchmarks for the nation’s energy-intensive industries from next year, giving owners three years to comply or shut down

Undoubtedly, China has had to find ways to significantly decarbonise. The minimum efficiency standards appear to take an aim at steel and cement producers and aluminium smelters. Yujie Xue writes on the South China Morning Post website about latest developments.

China sets efficiency benchmarks for power-hungry industries to meet net-zero goal, hitting shares of steel and aluminium producers

China will implement a new set of energy consumption benchmarks for the nation’s power-hungry industries from next year, giving owners three years to comply or shut down in an effort to meet its climate-change goals.

The minimum efficiency standards appear to take an aim at steel and cement producers and aluminium smelters, among the top energy consumers and polluters. Shares of key players like aluminium smelter Chalco and Baoshan Iron & Steel tumbled, against a broadly upbeat market on Tuesday.

The National Development and Reform Commission (NDRC), China’s central economic planner, unveiled the baseline energy consumption levels for five high energy-consuming industries in a joint statement with five other central government departments on Monday.

They will take effect from January 1 for companies involved in fossil-fuel processing, chemical product manufacturing and non-metallic mineral products. The smelting and rolling processing of ferrous and non-ferrous metals are also included.

The move follows a sharp supply crunch and rationing last quarter that knocked factories out of production and darkened streets and homes in at latest 10 mainland provinces. China has also pledged to achieve peak carbon emission by 2030 and carbon neutrality by 2060 to stem global warming.

“The impact on energy-intensive industries such as steel, cement and chemical industries is greater,” said Wu Qi, executive director of the Wuxi Digital Economy Research Institute in eastern Jiangsu province. Electricity generators, especially thermal power plants, face little pressure as their efficiency is already at the internationally leading level, Wu added.

Aluminium Corporation of China, or Chalco, the nation’s second largest smelter, fell 1.7 per cent while the Hang Seng Index climbed 1.3 per cent. Yunnan Aluminium lost 3.4 per cent in Shenzhen and Baoshan Iron & Steel declined 2.8 per cent in Shanghai, while the broader CSI 300 Index logged a small gain.

China relied on coal to generate about 57 per cent of its annual electricity output in 2020, the China Energy Administration said in July. The so-called heavy industries consumed over 60 per cent of electricity output, according to government data.

As the world’s biggest crude steel producer and consumer, the sector is culpable for about 15 per cent of carbon emissions within the country and over 60 per cent of the emissions from global steel companies.

Beijing‘s greater emphasis on environmental protection will only raise the bars for steel mills as the top players have already been striving to meet ultra-low emission standards and to enhance energy consumption efficiency, according to Li Hongmei.

“It is hard to estimate how many will fail to meet, as all are given the equal opportunity and rectification period,” said Li, a senior analyst at consultancy Mysteel Global. “At the end of the day, it is about each steel mill’s business development strategy and their financial strength.”

China introduced the national emissions trading scheme (ETS) in July, a quota system regulating emissions among power companies. It will later include companies in steel, chemicals, petrochemicals, building materials, non-ferrous metals, paper and aviation sectors.

In September, the NDRC released a so-called “dual-control” plan, ordering regional governments to cap and ration electricity consumption and control emissions. The plan mainly focused on sectors producing yellow phosphorus, aluminium, industrial silicon and building materials.

In this week’s decision, the NDRC said new projects in planning or under construction stages in the five targeted industries should adopt and strive to meet the energy-efficiency benchmarks “as much as possible” when the standards kick in the new year.

Existing projects in the five targeted industries should be phased out in an orderly manner within three years if they cannot comply, according to the joint statement.

“Energy-intensive industries are the most crucial sectors of China’s energy consumption,” said Lin Boqiang, dean of the China Institute for Studies in Energy Policy at Xiamen University. “They determine China’s overall energy efficiency level and low-carbon transition.”

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