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China’s Energy Crisis & 30-60 Plan

China has committed to a “30-60 Decarbonisation Goal”. Under this plan, emissions will peak in 2030 and China will reach carbon neutrality by 2060. 2021 is the first year of a new five-year plan (the “14th five-year plan”), which aims to reduce energy consumption by 13.5%, with a reduction target of 3% in 2021 (Hill + Knowlton strategies).

Despite this commitment, energy demand surged in 2021. Coal prices have reached record highs. In response, China has released some of its state reserves (Reuters). The strain on the power grid is so severe that some areas are suffering from blackouts (BBC).

China’s National Development and Reform Commission (NDRC) issued code red warnings to nine provinces in August after these provinces increased their energy use in the first half of 2021. Ten other provinces were issued warnings for missing their energy targets (Argus Media). On September 21st, the NDRC dispatched teams to ensure energy supply measures had been implemented (Reuters). These measures include shutting down whole manufacturing parks and working on a reduced schedule of 2-3 days per week (BBC). This situation is expected to last until Spring of 2022, particularly given that the Winter Olympics are taking place in Beijing in February.

What does this mean for the chemical industry?

In short, nothing good.

The bulk chemical industry, as a traditional large energy consumer, is likely to feel a significant impact. This will include further failures fulfilling contracts on top of existing supply chain shortages (AgriBusiness Global).

Factories with high energy consumption or waste emissions will continue to be strictly controlled, even after the current energy crisis abates. The process of relocating high-energy consuming industries started years ago and strict controls, including limiting production, will continue.

If you are interested in learning more on this subject, I recommend reading the articles linked to throughout this post.