china’s housing market slump, power crisis lead to first drop in carbon emissions since covid-19 economic recovery

China’s carbon dioxide emissions fell for the first time in the third quarter since the economy recovered from the Covid-19 pandemic mainly because of the housing market slump and power crisis, a study shows.

Emissions of the greenhouse gas fell by around 0.5 per cent in the June to September quarter compared with a year earlier, according to a report published by the independent research group, Centre for Research on Energy and Clean Air (CREA), on climate website Carbon Brief on Thursday.

The decline in emissions from fossil fuels and cement production was a marked turnaround from late last year and early this year, when carbon emissions rose sharply as construction and heavy industrial activity led the economic recovery from the pandemic.

“Looking ahead, the drop in emissions could mark a turning point and an early peak in China’s emissions total, years ahead of its target to peak before 2030,” wrote Lauri Myllyvirta, analyst at CREA.

As one of the first countries to recover from the initial Covid-19 lockdowns, China’s carbon dioxide emissions in the fourth quarter of 2020 and the first quarter of 2021 saw the largest year-on-year increases in a decade, according to earlier reports by the Helsinki-based CREA.

China had approved a fiscal stimulus package of 6.35 trillion yuan (US$984 billion) in May last year – about 6.4 per cent of the gross domestic product in 2019 – to help the economy recover from the pandemic.

An analysis published in August by environmental group Greenpeace found that most of the stimulus was poured into carbon-heavy traditional infrastructure sectors, while only a small amount went to green and sustainable development related projects.

Chinese President Xi Jinping announced in September last year that the country will reach peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060. However, China has yet to release a timetable and road map to achieve these goals. It also did not sign up to the international pacts to phase out the use of coal this decade during the COP26 climate summit in Glasgow this month.

The decline in emissions in the July to September period was mainly because of the dramatic drop in demand for construction materials amid the housing market slump and the power crisis caused by a coal shortage, CREA said.

In August last year, the Chinese government started to tighten credit to the real estate sector, responding to Xi’s call for “high-quality economic growth”. The resulting decline in housing sales heavily affected upstream industries, resulting in steel and cement output, the two largest carbon emitting sectors in China after coal power, to fall rapidly from July, according to CREA.

The area of newly constructed homes in the third quarter was 378.59 million square metres, a decline of 16.9 per cent compared to a year earlier, according to data from the National Bureau of Statistics.

The recent power crisis in China, which started in September as a result of a number of factors, including a shortage in coal production, high coal prices and inability of power producers to raise electricity prices, also contributed to the quarterly emissions decline as industrial activities were affected.

Meanwhile, China’s low-carbon technology sectors have seen an acceleration under China’s 2060 carbon neutrality drive. Twenty-six gigawatts (GW) of solar and 16GW of wind power were installed in the first nine months of the year, up 37 per cent and 33 per cent respectively, from a year earlier, CREA said, citing data from the National Energy Administration, the energy regulator. The production of electric vehicles also increased 160 per cent year on year in the first 10 months of 2021.

However, if the Chinese government injects further stimulus to boost its economy, emissions could rebound once again before peaking later this decade, the report warned.

Exports have played a crucial role in driving China’s economy since mid-2020, but with China’s crackdown on the real estate sector and its carbon reduction push, that may lead to unintended consequences when exports suddenly lose steam.

A report published on Wednesday by Nomura, Japan’s biggest brokerage and investment bank, expected China’s GDP growth to drop despite the normalisation of coal and power supply.

“A significant slowdown in export growth may be a real game changer, causing a heavy blow to the economy and forcing Beijing to revise its policy stance in areas from property curbs to carbon emission reductions,” Nomura analysts wrote in the report.

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