How China Built the Energy System the World Now Needs
This piece of mine was published today by the World Economic Forum. I have re-published it here with permission.
The conflict that erupted at the end of February 2026 was, among other things, an energy shock. Nine weeks of disruption in and around the Strait of Hormuz pushed Brent to nearly $120 a barrel, sent liquefied natural gas (LNG) prices to multi-year highs, and forced governments to confront the fragility of supply chains they had spent the post-COVID years assuming were secure. The shock exposed which economies had built genuine resilience into their energy systems, and which had merely diversified their suppliers of imported hydrocarbons.
On paper, China should have been among the most exposed economies. Columbia’s Center on Global Energy Policy has noted that roughly 45-50% of its crude imports transit Hormuz, and nearly a third of its LNG comes from the Gulf. But China’s economy proved considerably more insulated than those numbers would predict. Goldman Sachs trimmed its 2026 growth forecast for the country by only 0.2 percentage points – the smallest downgrade in the Asia-Pacific region.
Part of that cushion was conventional: a strategic and commercial crude stockpile of some 1.2 billion barrels, enough to run the country for over 100 days with zero imports, and supply lines diversified toward Russia, Central Asia and other non-Gulf sources. But the deeper reason is that the marginal growth in energy demand over the last decade has been met not by more imported oil but by domestically generated electricity.
Transport electrification has converted what would have been gasoline demand into power demand. Rhodium Group estimates that China’s electric-vehicle fleet alone now displaces over 1 million barrels per day of oil demand, “equivalent to roughly the daily oil production of Oman.”. Industrial electrification is beginning to do the same in steel, cement and chemicals – the hard-to-abate sectors where progress has been slowest globally, but where Chinese firms have made measurable headway. The grid build-out, especially the network of ultra-high-voltage transmission lines that move electricity from the wind and solar resources of the west to the load centres of the east, enables domestically generated power to reach the places that need it. China’s structural exposure has been shrinking for years.
The Hormuz shock has also accelerated something that was already underway: a global reframing of the energy transition from a climate question into an energy-security question. But how did a single country come to occupy the position from which it could better absorb a shock of this magnitude than many other nations?
No one foresaw this moment. But the system that has absorbed it relatively well was the product of sustained planning and sustained pressure – of bets that Chinese policy-makers made deliberately and of responses to problems they had not chosen and could not have wished for. The compounding of the two, over a quarter-century, produced what the rest of the world now needs.
Chokepoint vulnerability and an emerging security strategy
China’s Five-Year Plans have included renewable energy development goals since the 10th Five-Year Plan (2001-2005). Since then, the plans have continued to play a crucial role in setting priorities for officials and enterprises. But it would be a mistake to overstate the role of contingency and improvisation: the Chinese position in the energy transition was also the product of a confluence of pressures, decisions and capacities that compounded over roughly a quarter-century, during which any number of different choices could have been made, and several of them very nearly were.
The catalysing pressures arrived in the early 2000s, and they were about energy security well before they were about climate. China’s oil import dependence, near zero in the early 1990s, crossed 40% around 2003 and kept climbing. The country was already importing through the Strait of Malacca, the Strait of Hormuz, and the South China Sea; Chinese strategic planners were beginning to articulate what came to be called the “Malacca dilemma“ – the recognition that an enormous and growing share of the country’s energy supply transited a chokepoint controlled by potentially hostile naval powers.
During the same period, electricity demand outpaced generation capacity. Brown-outs and load-shedding became routine in major coastal provinces in 2003 and 2004 as the coal transport infrastructure creaked under surging demand. The SARS outbreak compounded the sense that the system’s margins were too thin. Out of this period came a series of decisions whose consequences would not be fully visible for 15 years: a commitment to ultra-high-voltage transmission as a national grid backbone, the establishment of the National Energy Administration’s institutional predecessors, and the early framework for what would become a sustained policy of moving electricity from interior generation to coastal consumption.
The conclusion Chinese planners eventually drew from the chokepoint vulnerability was to reduce the dependency itself. The country could not realistically power its rapid economic growth and achieve hydrocarbon self-sufficiency the way the United States did through shale; its endowment was too thin and its consumption too large. What it could do was build the manufacturing base and the grid that would let domestically generated electricity displace imported oil and gas in transport and industry over time. The Chinese transition turned out to be a security strategy that was incidentally a climate strategy.
Beijing’s ‘airpocalypse’
The second pressure was air pollution, which became politically unignorable in the late 2000s and the early 2010s. Beijing’s airpocalypse of January 2013, when PM2.5 readings broke the upper limit of the US Embassy monitor, was the visible apex of a problem that had been building for years. The political response was real and consequential. Coal-fired industrial boilers were phased out in dense urban regions and replaced by electrified or gas-fired alternatives. Emission standards on power plants were tightened to levels that, by the late 2010s, exceeded those in force in US. Particulate concentrations in major cities have since fallen sharply – by 41% nationally between 2013 and 2022.
To be sure, the pollution problem is not solved. But the crisis did something else as well: it gave the public a stake in the energy transition that was immediate and tangible, in a way that long-horizon climate arguments rarely do. People in Chinese cities could feel, on their skin and in their lungs, what cleaner energy meant.
2008 financial crisis and ‘new infrastructure’ investment
The third pressure was the 2008 financial crisis and the 4 trillion yuan stimulus that followed. These measures are remembered in the West primarily for their excesses in real estate and heavy industry, but a significant share was directed into renewable energy capacity, grid infrastructure and what would later be called the “new infrastructure” categories. The investment pushed Chinese solar and wind manufacturing onto the steep part of its learning curve at exactly the moment the global market was contracting.
The energy evolution
The fourth pressure came from the leadership itself. In June 2014, Xi Jinping delivered a speech to the Central Financial and Economic Affairs Commission that introduced what came to be known as the “Energy Revolution” – a four-part formulation calling for revolutions in consumption, supply, technology, and institutions, with international cooperation as a fifth element. The speech matters less for any specific policy it announced than for what it signalled: that energy was now a top-leadership concern, rather than a sectoral matter handled by line ministries.
That framing has held. In September 2020, Xi announced at the United Nations General Assembly that China would peak its carbon emissions before 2030 and reach carbon neutrality before 2060. The 14th Five-Year Plan, released the following year, began the institutional work of translating that target into operational targets across ministries, provinces and state-owned enterprises, including the consequential shift from controlling energy consumption to controlling carbon emissions.
What looks in retrospect like a coherent trajectory was, in real time, a sequence of pressured responses to immediate problems – energy insecurity, air pollution, and post-crisis demand for stimulus. The system that resulted was the product of those alignments, not of perfect foresight.
The market that had to be made
Most cleantech in 2005, 2010, or even 2015 had no natural market. The cost curves for solar, wind and lithium-ion batteries were still descending from levels that made unsubsidized deployment uneconomic in most applications. Electric vehicles were an off-puttingly expensive niche product. The technologies existed, often in forms perfected by Western and Japanese firms, but the demand to absorb them at scale did not.
A market for clean technology had to be built – by policy, by procurement, by regulation that priced out the incumbent – before the technology could reach volumes that would bring costs down to the point where it could compete on its merits. This is what Western coverage of Chinese industrial policy most often misses. It is also what sets the Chinese approach to energy security apart from most other large economies. The conventional response to import dependence is to make the imports themselves more secure: diversify the suppliers, build strategic reserves, protect the sea lanes, secure oil supplies. China did all of that, but the larger bet was on the demand side. If the economy ran increasingly on electricity generated at home, the reliability of any given shipping lane would weigh less on it each year.
The tools were varied and, taken individually, unremarkable. Most had analogues elsewhere. What was distinctive in China was their accumulation and the willingness to apply them across multiple cleantech sectors at once.
EVs and the dual credit system
For electric vehicles, the most consequential tool was the dual-credit system introduced in 2017, which required automakers to produce and sell a rising share of new energy vehicles or buy credits from competitors who exceeded their quotas – a mechanism modelled directly on California’s Zero-Emission Vehicle programme. Tier-one cities reinforced the pull by tying license-plate access to EV ownership: In Beijing, where internal-combustion plates were rationed by lottery, EV buyers could obtain plates with significantly less wait time; in Shanghai, where plates were auctioned at prices around 90,000 yuan, EV buyers were exempted from the auction. Public charging infrastructure was rolled out by the Big Five state power generators under explicit central direction, with State Grid Corporation alone committing to install hundreds of thousands of charging points by the early 2020s – a public investment that closed the range-anxiety gap that had deterred private buyers from EVs through the early 2010s.
Solar and wind: construction of demand
For solar, the Golden Sun programme of 2009 and the feed-in tariff regime that followed in 2011 provided guaranteed offtake at administered prices, giving developers the revenue certainty needed to deploy at scale through the period when generation costs still exceeded grid parity.
For wind, the early concession-tendering rounds and the 2005 renewable energy law established mandatory grid-purchase obligations that converted intermittent generation into a viable commercial proposition.
Across all these instruments, the common feature was the construction of demand at administered terms long enough for the supply side to reach scale, after which the administered terms could be wound back as cost curves did the rest.
What the demand created was a supply side that, within a decade, became the most cost-disciplined and vertically integrated clean-technology manufacturing base in the world. The pattern was visible across sectors but clearest in batteries. CATL, founded in 2011 in Ningde, scaled from a battery supplier to a single domestic automaker into the dominant global producer of lithium-ion cells in under a decade, helped by an early partnership with BMW. BYD took a different route, using its battery-making heritage as a structural cost advantage that competitors could not replicate. By the early 2020s, these two firms together accounted for over half of global EV battery production.
The competition that produced this position was, by most accounts, brutal. Profit margins among Chinese cleantech firms have run consistently lower than those of their Western and Korean competitors. The same dynamic is now playing out in EVs, where domestic competition among more than a hundred EV brands is widely expected to produce a similar shakeout.
The grid story: supply side - but also demand
The spine of that system is ultra-high-voltage transmission. The technology, developed at scale almost nowhere else, lets electricity move at very high voltages and very low losses over continental distances. China made an early commitment to UHV in the mid-2000s and has since built a network that connects the wind and solar resources of the western and northern provinces – Inner Mongolia, Xinjiang, Gansu, Qinghai – to the load centres of the eastern coast. The engineering is unforgiving. The country’s longest UHV line, the 1,100-kilovolt Changji-to-Guquan link, runs more than 3,200 kilometres and can transmit 12 gigawatts – enough to power 50 million households – at loss rates that make transmission across such a distance economically viable.
Variable renewables present an integration problem that grids designed for dispatchable thermal generation handle poorly. Curtailment – generation produced but not absorbed by the grid – ran painfully high in the wind-rich north-west in the early 2010s, with rates above 30% in some provinces. The response combined transmission build-out, dispatch reform, and market mechanisms that priced curtailment into generators’ returns. The IEA reports that Chinese curtailment fell from 16% in 2012 to less than three per cent by 2022, enabled by what it calls “large-scale investment in grid infrastructure” averaging $75 billion per year. The integration problem is not solved, but the trajectory is one of an integration challenge being managed in real time rather than outpacing policy.
The demand side of the grid story has had less attention than the supply side, but the latter is structurally the more interesting half. Electrification has not been confined to passenger cars. China’s intercity rail network, the world’s largest, is more than 75% electrified. Fifty-four cities have built subway systems totaling nearly 11,000 kilometres, almost all of which were built since 2000. More than 400 million electric two-wheelers have replaced the two-stroke gasoline scooters that fueled urban air pollution across much of the developing world. Marginal energy demand in Chinese cities is met by electricity from a grid steadily shifting toward non-fossil sources, rather than by imported gasoline and diesel. Whether the system has reached the point of producing an absolute emissions decline, or only the slowing of their growth, is the question that now matters.
The trajectory now: have renewables grown fast enough to bend the emissions curve?
The course corrections have been real. A power crunch in 2021 slowed the pace at which coal was retired, and the oft-cited surge in new coal-power approvals in 2022 and 2023 reflected an explicit reprioritization of energy security.
Speaking at the Xiong’an headquarters of Huaneng Group in March 2026, Xi insisted that coal-fired power remained “the foundation of our energy supply” and would “continue to play a backstop role” even as the system pivoted toward renewables. This looks at first glance like a contradictory picture – China being simultaneously the world’s largest builder of renewables and the world’s largest builder of new coal capacity. Both reflect the same underlying strategy.
The more interesting question is whether the renewables line has now grown fast enough to bend the emissions curve. The data through early 2026 suggests it has, and that this plateau is different in kind from the ones before it.
China’s emissions have fallen four times in the past four decades, but every previous decline was the by-product of economic weakness: the industrial slump of 2015, the zero-COVID contraction of 2022. Demand fell, so emissions fell. What began in March 2024 is the opposite. Lauri Myllyvirta of the Centre for Research on Energy and Clean Air, whose quarterly analyses for Carbon Brief are the standard reference on Chinese emissions, reports that the country’s CO2 emissions have now been flat or falling for 21 months as of February 2026 – not because demand stalled, but because clean-power generation has been growing faster than demand. Myllyvirta’s February analysis found a result with no modern precedent: In 2025, coal-fired power generation in China fell for the first time in over half a century, even as the economy kept expanding.
Whether this is the peak is a different question. Emissions remain only slightly below the previous high, which means a single bad quarter for renewables – a dry year for hydropower, a slowdown in capacity additions, a surge in chemical-industry coal use – could push the headline emissions number to a new record. And the 15th Five-Year Plan, released in March 2026, has been criticized by Myllyvirta and others for setting a carbon-intensity target that, under a revised methodology, could permit absolute emissions to rise three to six per cent over the next five years.
But the plateau is nonetheless real. The system is now capable of producing an absolute emissions decline. Whether the policy framework will allow it to is the open question.
A replicable story for other countries?
The temptation is to draw the wrong lesson from this story: that other countries should copy the Chinese model. They cannot.
“China’s energy transition demonstrates the power of long-term planning,” says Espen Mehlum, Head of Energy at the World Economic Forum. “Guided by successive Five-Year Plans, the country has improved energy security, sustainability and affordability while reducing import dependence and local air pollution.
“In parallel, it has built globally leading capabilities in clean energy industries such as electric vehicles, batteries and solar manufacturing – progress reflected in its strong performance in the World Economic Forum’s Energy Transition Index.”
The Chinese trajectory was made possible by a specific institutional configuration: a state with the planning horizon to make 20-year infrastructure commitments, the fiscal capacity to absorb a decade of thin margins in strategic industries, the bureaucratic reach to align provincial incentives with national targets, and the political stability to weather repeated course corrections without abandoning the underlying direction. Few other nations possess this, and no liberal democracy is going to acquire it by importing a five-year plan.
What to build domestically and what to source
The right lesson is different. The energy transition demands certain capacities, and those capacities can be sourced through different institutional means. China sourced them through a particular form of state-directed capitalism. Norway and Costa Rica achieved high EV adoption without industrial policy at all – by using simpler tax and import mechanisms in countries small enough that domestic production was never the goal. California pioneered the credit system that China later adapted, and continues to lead US clean-energy policy through state-level regulation that the federal government has not matched. The European Union is pursuing a managed engagement model in which Chinese firms invest in European production under terms that include technology transfer. India is building its own clean-tech base by combining domestic incentives with selective sourcing from Chinese suppliers. Brazil is positioning itself as a destination for Chinese investment that brings manufacturing capacity rather than raw-material extraction.
Each of these is a recognizable response to the same structural facts: The cost of clean technology has fallen far enough to compete on merits, the supply chain runs largely through China, and the strategic question is what to build domestically and what to source.
The energy transition is no longer a climate question
The harder lesson, for countries that have spent the past decade treating the energy transition primarily as a climate question, is that it is now also a security question – unmistakably so after the Iran shock.
While the two framings can sometimes produce win-win outcomes, they can also produce different politics. A country that wants energy independence in 2026 can plausibly build toward it through electrification, but the path may run through Chinese supply chains in the medium term, producing dependency challenges. A country that frames the transition primarily as a contribution to global decarbonization tends to find its political coalitions narrower and its policy horizons shorter. Whether the shift towards security produces durable policy in the US, the EU and the major emerging economies is the question the rest of this decade will answer.
After Iran
The Chinese system that absorbed the Iran shock was not designed to absorb it. It was built, over a quarter-century, in response to pressures that were mostly local and mostly immediate: an oil-import dependency that had become strategically uncomfortable, an electricity grid that could not keep up with industrial demand, an air pollution crisis that had become politically unsustainable, a stimulus moment that needed somewhere to go, and a leadership that came to treat energy as a top-tier concern.
But ad hoc though China’s energy strategy may have been, the Iran situation revealed the value of a second kind of security the country had been accumulating. This is the security that comes from grids able to move power across the distances China spans, from factories that turn out panels, batteries, and transformers in the volumes the transition demands, and from the engineering depth to build all of it faster than politics can dictate alone. An economy with those capacities bends under an oil shock. An economy without them breaks. China didn’t set out to build any of this for a conflict in the Gulf. It was built by solving other problems over 25 years. 2026 was just the moment the rest of the world noticed what it had.
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