China’s carbon dioxide (CO2) emissions are set to fall in 2024 and could be facing structural decline, due to record growth in the installation of new low-carbon energy sources.
The new analysis for Carbon Brief, based on official figures and commercial data, shows China’s CO2 emissions continuing to rebound from the nation’s “zero-Covid” period, rising by an estimated 4.7% year-on-year in the third quarter of 2023.
The strongest growth was in oil demand and other sectors that had been affected by pandemic policies, until the lifting of zero-Covid controls at the end of 2022.
Other key findings from the analysis include:
- China has been seeing a boom in manufacturing, which has offset a contraction in demand for carbon-intensive steel and cement due to the ongoing real-estate slump.
- The emissions rebound in 2023 has been accompanied by record installations of low-carbon electricity generating capacity, particularly wind and solar.
- Hydro generation is set to rebound from record lows due to drought in 2022-23.
- China’s economic recovery from Covid has been muted. To date, it has not repeated previous rounds of major infrastructure expansion after economic shocks.
- There has been a surge of investment in manufacturing capacity, particularly for low-carbon technologies, including solar, electric vehicles and batteries.
- This is creating an increasingly important interest group in China, which could affect the country’s approach to domestic and international climate politics.
- On the other hand, coal power capacity continues to expand, setting the scene for a showdown between the country’s traditional and newly emerging interest groups.
Taken together, these factors all but guarantee a decline in China’s CO2 emissions in 2024.
If coal interests fail to stall the expansion of China’s wind and solar capacity, then low-carbon energy growth would be sufficient to cover rising electricity demand beyond 2024. This would push fossil fuel use – and emissions – into an extended period of structural decline.
- Emissions are set to fall in 2024
- Why emissions grew in Q3 of 2023
- Coal expansion threatens China’s international commitments for 2025
- Solar, wind and hydropower set to surge in 2024
- Continued clean-power growth can peak emissions in 2024
- Why did clean energy investments surge during and after Covid?
- What comes next for China’s emissions peak and decline
- Data sources
Emissions are set to fall in 2024
China’s CO2 emissions have seen explosive growth over recent decades, pausing only for brief periods due to cyclical shocks.
Over the past 20 years, its annual emissions from fossil fuels and cement have climbed quickly almost every year – as shown in the figure below – interrupted only by the economic slowdown of 2015-16 and the impact of zero-Covid restrictions in 2022.
While CO2 is rebounding in 2023 from zero-Covid lows (see: Why emissions grew in Q3 of 2023), there have also been record additions of low-carbon capacity, setting up a surge in electricity generation next year. (See: Solar, wind and hydropower set to surge in 2024.)
Combined with a rebound in hydro output following a series of droughts, these record additions are all but guaranteed to push fossil-fuel electricity generation and CO2 emissions into decline in 2024, as shown in the figure below.
Year-on-year change in China’s annual CO2 emissions from fossil fuels and cement, million tonnes. Emissions are estimated from National Bureau of Statistics data on production of different fuels and cement, China Customs data on imports and exports and WIND Information data on changes in inventories, applying IPCC default emissions factors and annual emissions factors per tonne of cement production until 2019. Monthly values are scaled to annual data on fuel consumption in annual Statistical Communiques and National Bureau of Statistics annual Yearbooks. Chart by Carbon Brief.
Moreover, with the power sector being China’s second-largest emitter and with other major sectors, such as cement and steel, already seeing CO2 falling, this drop in power-sector emissions could drive a sustained, structural emissions decline for the country as a whole.
This is because – for the first time – the rate of low-carbon energy expansion is now sufficient to not only meet, but exceed the average annual increase in China’s demand for electricity overall. (See: Continued clean power growth can peak emissions in 2024.)
If this pace is maintained, or accelerated, it would mean that China’s electricity generation from fossil fuels would enter a period of structural decline – which would also be a first.
Moreover, this structural decline could come about despite the new wave of coal plant permitting and construction in the country. (See: Coal expansion threatens China’s international commitments for 2025.)
In addition, record additions of low-carbon energy deployment have been accompanied by rapid expansion in related manufacturing capacity. (See: Why did clean energy investments surge during and after Covid?)
This could create tension with traditional interests in the country’s coal industry, yet it also boosts the economic and political case for China to continue supporting low-carbon growth, both at home and abroad. (See: What comes next for China’s emissions peak and decline.)
Why emissions grew in Q3 of 2023
China’s CO2 emissions continued to rebound in the third quarter of 2023, increasing an estimated 4.7% year-on-year, but slowing to 1% in September.
This follows rapid growth in the first and second quarters of the year, after the same periods in 2022 had seen emissions decline by record amounts.
China’s quarterly CO2 emissions from energy use and cement production are shown in the figure below, with the third quarter of each year highlighted in red.
China’s quarterly CO2 emissions from fossil fuels and cement, million tonnes of CO2. Emissions are estimated from National Bureau of Statistics data on production of different fuels and cement, China Customs data on imports and exports and WIND Information data on changes in inventories, applying IPCC default emissions factors and annual emissions factors per tonne of cement production until 2019. Monthly values are scaled to annual data on fuel consumption in annual Statistical Communiques and National Bureau of Statistics annual Yearbooks. Chart by Carbon Brief.
The reasons for the emissions rebound this year are predictable. Most significantly and obviously, oil demand has risen from zero-Covid lows, following almost three years of pandemic controls.
Oil consumption is now approaching the pre-Covid trendline and does not yet show any sign of abating, increasing by an estimated 19% year-on-year in the third quarter. This is shown by the large light blue bar at the top of the figure below.
Electricity demand also rebounded from Covid lows in sectors that had been affected by pandemic controls, making power-sector coal use the second-largest driver of rising emissions in the third quarter of the year (the lowest grey bar).
The increase in power-sector demand happened almost entirely in July, before hydropower generation began to rebound from historic lows caused by low rains in 2022 and early 2023.
Annual change in quarterly CO2 emissions broken down by sector and fuel, millions of tonnes. Emissions are estimated from National Bureau of Statistics data on production of different fuels and cement, China Customs data on imports and exports and WIND Information data on changes in inventories, applying IPCC default emissions factors and annual emissions factors per tonne of cement production until 2019. Chart by Carbon Brief.
Coal use outside the power sector fell (grey chunks), due to a major drop in building materials driven by the ongoing contraction of real-estate construction and construction of associated infrastructure. This is also reflected in the drop for cement emissions (red).
Other uses of coal increased, particularly the use of coking coal (black chunks). The increase in coal use for steelmaking was larger than the increase in steel output, indicating a shift from electric arc to coal-based steel production.
Investment growth – for example, investment in electrical machinery manufacturing grew 38% year-on-year and investment in railways grew 22% – has supported demand for energy-intensive commodities, despite an ongoing contraction in real estate, generally the main user of metals.
Gas use continued to fall (dark blue), reflecting a drop in demand and a shift from gas to electricity and coal due to high prices.
Coal expansion threatens China’s international commitments for 2025
The pattern of economic growth in China, both during and after the Covid-19 pandemic, was highly energy- and carbon-intensive. This has put China off track against the CO2 and energy intensity targets – aimed at reducing CO2 and energy use per unit of GDP – that it promised in its updated climate pledge (nationally determined contribution, NDC) in 2021.
This would mark a departure from previous progress, with China having exceeded its energy and CO2 intensity targets during the 11th (2006-2010) and 12th (2011-2015) five-year plan periods, as shown in the figure below.
The slowdown in progress on energy intensity began already at the end of the 13th five-year plan period (2016-2020), resulting in that target being missed.
China’s progress on reducing energy and CO2 intensity of GDP compared to five-year plan targets, converted into required annual rates of progress. All previous targets since the 11th five-year plan (2006–11) have been met, but now progress has fallen short on both targets for three consecutive years. Source: Calculated from National Bureau of Statistics annual data on energy and GDP; 2022 calculated based on preliminary information released by the NBS. Figures for the latest five-year plan are shown as reported and as corrected for coal quality. Chart by Carbon Brief.
The coming surge of low-carbon energy would put the country on track for the CO2 intensity target, if similar levels are added next year.
The energy intensity target, in contrast, will not be met on current trends. Only a sharp shift to consumption-driven growth – which the government says it prefers, but has found the required measures hard to implement – could allow this target to be hit.
Permitting of new coal power plants continued, with at least another 25GW given the go-ahead in the third quarter, based on a compilation of permits reported by Polaris Network.
The resurgence of coal-plant construction contradicts a policy pledge that China’s president Xi Jinping personally announced. Xi pledged to “strictly control new coal-fired power generation projects” in China in 2021–25.
This pledge was made in the Leaders Summit on Climate in April 2021 and consequently added to China’s NDC, just months before the current wave in coal power plant permitting and construction began.
The State Council Development Research Center recently projected that China’s coal power capacity should peak at 1,370GW in 2030, up from 1,141GW at the end of June.
As 136GW was already under construction at the end of June, another 99GW had already been permitted, and a further 25GW has been permitted since, realising this projected peak would mean stopping new permits immediately.
Alternatively, retirements of existing capacity would have to be accelerated significantly, or some already permitted projects would have to be cancelled or shelved.
Solar, wind and hydropower set to surge in 2024
While emissions have climbed in 2023, it has also seen a historic expansion of low-carbon energy installations. The most striking growth has been in solar power, where expected installations in 2023 – some 210 gigawatts (GW) – are twice the total installed capacity of solar power in the US and four times what China added in 2020.
The newly installed solar, wind, hydro and nuclear capacity added in 2023 alone will generate an estimated 423 terawatt hours (TWh) per year, equal to the total electricity consumption of France.
About half of the solar panels added this year will be installed on rooftops, largely driven by China’s “whole county solar” model, where a single auction is carried out to cover a targeted share of the rooftops in a county with solar panels in one fell swoop.
Under this model, the developer negotiates with building owners and arranges contracts with the grid, financing, procurement, contracting and installations. This model – which could be described as centralised development of distributed solar – has enabled rooftop solar deployment at a vast scale.
The other half of solar installations are set to be in large utility-scale developments, particularly in the gigawatt-scale “clean energy bases” in western and northern China.
All in all, 210GW of solar, 70GW of wind, 7GW hydro and 3GW of nuclear are expected to be added in China this year. This is shown in the table below, along with expected electricity generation assuming newly added capacity performs in line with the existing fleet.
Expected capacity additions in 2023 and added annual generation
| Source | GW | Average utilisation | TWh |
|---|---|---|---|
| Solar | 210 | 13.6% | 251 |
| Wind | 65 | 23.0% | 130 |
| Nuclear | 3 | 83.4% | 21 |
| Hydro | 7 | 36.7% | 21 |
| Total | 284 | 17.0% | 423 |
In addition to the electricity generated by this newly added capacity, China is likely to see a large year-on-year increase in output from its massive hydropower fleet in 2024.
The utilisation of this fleet plumbed historical lows from August 2022 until July 2023, as a result of record droughts and heatwaves in summer 2022, followed by low rainfall into 2023.
The year-on-year drop in power generation was compounded as hydropower operators were conserving water in the spring and early summer of 2023, building up the water levels in their reservoirs for the peak demand season in August.
(This behaviour is clear in CREA analysis of hydropower generation data and water levels at 13 major hydropower reservoirs across China, reported by Wind Financial Terminal, showing water levels approaching historical highs while output remained low until July.)
This was in stark contrast with 2022, when spring and early summer had good rains and hydropower was generating at very high rates.
In addition to the electricity generated by this newly added capacity, China is likely to see a large year-on-year increase in output from its massive hydropower fleet in 2024.
The utilisation of this fleet plumbed historical lows from August 2022 until July 2023, as a result of record droughts and heatwaves in summer 2022, followed by low rainfall into 2023.
The year-on-year drop in power generation was compounded as hydropower operators were conserving water in the spring and early summer of 2023, building up the water levels in their reservoirs for the peak demand season in August.
(This behaviour is clear in CREA analysis of hydropower generation data and water levels at 13 major hydropower reservoirs across China, reported by Wind Financial Terminal, showing water levels approaching historical highs while output remained low until July.)
This was in stark contrast with 2022, when spring and early summer had good rains and hydropower was generating at very high rates.
In China’s rigidly regulated power system, hydropower operators do not have an economic incentive to time their output to the peak demand season. However, after the electricity shortages of summer 2022, administrative intervention appears to have replaced economic incentives and compelled generators to ensure high reservoir levels.
Now water levels in reservoirs have climbed up to or above their seasonal averages, based on data from Wind Financial Terminal. Long-term weather forecasts point to above-average rains lasting until February, the end of the forecast period, consistent with predictions for the current El Nino.
If these forecasts hold out, hydropower utilisation will not only recover but come in above historical averages in 2024. Meanwhile, another 29GW of hydropower has been added from the beginning of 2022 to September 2023, marking a 7% increase in capacity.
The hydropower generation rebound had already begun in August-September and will continue through this year. However, electricity demand growth at the end of last year was very weak due to strict Covid lockdowns, so emissions are unlikely to fall year-on-year.
Total CO2 emissions fell 4% from the last quarter of 2020 to the last quarter of 2022, setting up a very low base of comparison for the last quarter of this year.
Continued clean-power growth can peak emissions in 2024
Given the low-carbon electricity capacity already installed this year – and the outlook for hydropower generation – a drop in power-sector emissions in 2024 is essentially locked in, barring a major acceleration in electricity demand growth.
From 2025 onwards, the development of power-sector emissions depends on whether low-carbon energy additions are maintained or accelerated.
Looking at the added annual generation from low-carbon energy installations in 2023, the total comes out to more than the average annual increase in China’s power demand, for the first time, marking a potential inflection point.
At this point, the growth of low-carbon electricity (columns in the chart below) would outweigh the overall growth of electricity demand (dots). As a result, the amount of electricity generated using fossil fuels – and the associated emissions – would decline.
Columns: Annual increase in expected electricity generation from new low-carbon installations, terawatt hours, broken down by source. Dots: Annual increase in electricity demand overall. Dashed line: Average increase in demand during 2010-2023. Figures for 2023 are forecast. Data sources: China Electricity Council (CEC) and Ember, with 2023 capacity additions from CEC and Bloomberg. Chart by Carbon Brief.
As long as low-carbon energy installations are maintained at the projected 2023 level, the growth in low-carbon power generation would enable China to peak and decline coal use in the power sector imminently, with 2023 remaining the peak year.
How will power-sector emissions develop if the 2023 level of low-carbon energy additions is maintained?
A simple projection – assuming that electricity demand follows its historical trend of rising 5% per year and hydropower utilisation returns to historical averages – points to a significant drop in fossil fuel-based (thermal) power generation in the spring and summer of 2024, shown by the bottom left segment in the chart below, and zero growth thereafter.
If China’s current and expected economic slowdown results in slower electricity demand growth – or non-fossil energy additions accelerate further – power generation from fossil fuels will continue to fall, rather than stabilise.
Under these assumptions, hydropower generation would see steep increases already in October 2023 – January 2024, but power generation from fossil fuels still climbs year-on-year, due to the low base set under the zero-Covid policy.
A return to average demand growth rates after the post-Covid rebound, (top left), continued strong growth in solar (centre right) and wind (centre left) output, combined with rebounding hydropower output (bottom right), would push fossil-fuel power generation down from February 2024 onwards (bottom left). This would mean fossil fuel-fired electricity generation falling 3% in 2024 and remaining at similarly reduced levels in 2025.
Past and projected future year-on-year changes in monthly electricity generation, %. Top left to bottom right: Overall electricity demand; nuclear; wind; solar; thermal (coal and gas); and hydro generation. Data sources: China Electricity Council (CEC) and Ember, with 2023 capacity additions from CEC and Bloomberg. Chart by Carbon Brief.
Moreover, rapid electrification has meant that almost all of the recent growth in China’s CO2 emissions has taken place in the power sector.
Therefore, when power-sector emissions peak, total emissions are likely to follow, as falling coal use outside the power sector balances out increases in oil and possibly gas demand, which are also mitigated by electrification.
Why did clean energy investments surge during and after Covid?
China’s output of solar cells is set to exceed 600GW this year, up from 375GW last year and enough to produce 500GW of solar panels. For comparison, only 240GW of panels were installed globally last year.
The output of batteries in China will reach 800 gigawatt hours (GWh), up from 550GWh last year and enough to power 20m electric vehicles (EVs).
Electric vehicle output exceeded 8m units over the 12 months to September, representing more than 30% of all vehicles produced in China. The share of EVs in all vehicles sold in China is also on track to reach 30% in 2023, while production for the calendar year is set to reach 9m vehicles.
This is only the beginning of the industry’s expansion plans. By 2025, solar-panel production capacity is expected to break 1,000GW (1 terawatt, TW), and battery production capacity to reach 3,000GWh.
What is causing this surge?
The announcement of the 2060 carbon neutrality target provided the political signal, but wider macroeconomic conditions have delivered low-carbon capacity growth far in excess of policymakers’ targets and expectations, with this year’s solar and wind installation target met by September and the market share of EVs already well ahead of the 20% target for 2025.
The clampdown on the highly leveraged real-estate sector, starting in 2020, led to a steep drop in the demand for land, commodities, labour and credit for apartments and associated infrastructure. This left a hole in the finances of local governments – which rely on land sales for a lot of their revenue – and hit economic growth rates.
Local governments were, thus, searching for alternative investment opportunities to drive economic growth. Yet, at the same time, their investment spending was under scrutiny due to debt concerns. China’s high-level environmental and industrial policy goals made cleantech one of the acceptable sectors for their investment.
At the same time, the government made it easier for private-sector companies to raise money on the financial markets and from banks, as part of measures to stimulate the economy during the pandemic.
The low-carbon energy sector, in contrast with the fossil fuel and traditional heavy industries, is largely made up of private companies. Access to credit had earlier been a major bottleneck for them in a financial system that has heavily favoured state-owned firms.
As a result, much of the bank lending and investment that previously went into real estate is now flowing to manufacturing – largely cleantech manufacturing – as well as to cleantech deployment.
Local government enthusiasm for attracting investments to their regions meant that they often also offered major direct or indirect subsidies. Reportedly, it is common for local governments to build an entire factory and associated infrastructure, with the private company going on to occupy the site only covering the cost of machinery and operations.
All of this happened at a time when falling costs driven by technological learning and subsidies resulted in many low-carbon energy technologies becoming economically competitive against fossil fuels.
China’s policymakers had favoured “green” investments previously, as in the 2009 stimulus package launched in response to the global financial crisis. Yet the sector had been too small to absorb the huge amount of credit mobilised as a part of China’s stimulus cycles. After experiencing extremely rapid growth since 2020, this has changed.
The construction of low-carbon energy manufacturing capacity, production of low-carbon energy equipment and construction of railways have been significant drivers of commodity demand this year, as the only areas of investment showing substantial growth.
This demand explains, among other things, why China’s steel output has continued to grow despite the ongoing contraction in real-estate construction.
Conversely, the precipitous drop in demand for commodities from the real estate and conventional infrastructure sectors explains why the breakneck expansion of low-carbon energy sectors – and their commodity demand – has not resulted in a spike in prices.
The unprecedented investment in low-carbon technology manufacturing supply chains also means that China has, in effect, placed a major economic and financial bet on the success of the global energy transition, which could affect its diplomatic positioning.
What comes next for China’s emissions peak and decline
Now that low-carbon energy expansion has reached the scale needed to start driving down China’s emissions, the most important question is: will its growth continue?
China’s low-carbon energy boom resulted from the confluence of numerous factors. There was – and is – clear political commitment and direction. The contraction of the real-estate market provided a push and an opportunity for the redirection of capital and investments into the renewable energy sector.
Technological learning and aggressive industrial policy improved quality and cut costs to the point where the market for low-carbon energy technologies started to expand rapidly.
It is also clear that the wave of manufacturing investment has resulted in significant overcapacity in the production of solar panels, batteries and EVs, among others, though the scale of this excess depends on the pace of the global energy transition.
This overcapacity is likely to be resolved – as in previous rounds of expansion – through consolidations and outright failures of individual players. Meanwhile, however, it will continue to depress the prices of low-carbon energy equipment.
Politically, the major challenge will only come when low-carbon energy begins to substantially cut into the demand for coal and coal-fired power.
This shift threatens the interests of the coal industry and local governments with a high exposure to the coal sector. These stakeholders could be expected to resist the transition, raising concerns about potential roadblocks.
When contraction in demand and capacity additions resulted in overcapacity in coal-fired power around 2015, coal power interests successfully argued that low-carbon energy deployment had been too fast.
As a result, the rate of low-carbon energy capacity additions slid down from 2015 until 2019, as seen in the figure above, making more space for excess coal capacity to generate power.
A similar balancing act could come into play once again, as coal and low-carbon generating capacity both continue to expand, competing to meet limited rises in demand.
The Chinese government and its advisers have argued that new coal power plants will not result in a surge in emissions, as they will be used for flexible operation at low utilisation.
China’s climate targets do not yet reflect this belief, however. Its combination of intensity and low-carbon deployment targets would allow emissions to increase by another 10-15% from 2022 levels and only peak at the end of this decade.
If the government wanted to more firmly cement the low utilisation of newly built coal plants, it could do so by moving towards an absolute cap on power-sector emissions under its emissions trading system – or by setting a limit on China’s total CO2 emissions.
As the government weighs these decisions, it is faced with a dramatically larger set of economic drivers and interests in the low-carbon energy sector, as compared with 2015.
These conditions could offer the motivation for policymakers to push a faster domestic transition away from fossil fuels. They also mean that China has an increasingly significant financial stake in the success of the low-carbon transition worldwide.
Data sources
Data for the analysis was compiled from the National Bureau of Statistics of China, National Energy Administration of China, China Electricity Council and China Customs official data releases, and from WIND Information, an industry data provider.
Power sector coal consumption was projected based on power generation, to avoid the issue with official coal consumption numbers affecting 2022–23 data. September 2023 data on apparent coal consumption was not available at the time of publication, so coal consumption in different sectors was projected based on the output of relevant industrial products – for example, coke for the consumption of coking coal; cement and glass for building materials industry. Coal consumption for heating was projected based on population-weighted average heating degree days calculated from NCEP gridded daily weather data.
When data was available from multiple sources, different sources were cross-referenced and official sources used when possible, adjusting total consumption to match the consumption growth and changes in the energy mix reported by the National Bureau of Statistics.
CO2 emissions estimates are based on National Bureau of Statistics default calorific values of fuels and IPCC default emissions factors. Cement CO2 emissions factor is based on 2018 data.
For oil consumption, apparent consumption is calculated from refinery throughput, with net exports of oil products subtracted.
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Analysis: China’s emissions set to fall in 2024 after record growth in clean energy
In 2026, the dangers of fossil fuel dependence have been laid bare like never before. The illegal invasion of Iran has brought pain and destruction to millions across the Middle East and triggered a global energy crisis impacting us all. Communities in the Pacific have been hit especially hard by rising fuel prices, and Australians have seen their cost-of-living woes deepen.
Such moments of crisis and upheaval can lead to positive transformation. But only when leaders act with courage and foresight.
There is no clearer statement of a government’s plans and priorities for the nation than its budget — how it plans to raise money, and what services, communities, and industries it will invest in.
As we count down the days to the 2026-27 Federal Budget, will the Albanese Government deliver a budget for our times? One that starts breaking the shackles of fossil fuels, accelerates the shift to clean energy, protects nature, and sees us work together with other countries towards a safer future for all? Or one that doubles down on coal and gas, locks in more climate chaos, and keeps us beholden to the whims of tyrants and billionaires.
Here’s what we think the moment demands, and what we’ll be looking out for when Treasurer Jim Chalmers steps up to the dispatch box on 12 May.
1. Stop fuelling the fire
2. Make big polluters pay
3. Support everyone to be part of the solution
4. Build the industries of the future
5. Build community resilience
6. Be a better neighbour
7. Protect nature
1. Stop fuelling the fire
In mid-April, Pacific governments and civil society met to redouble their efforts towards a Fossil Fuel Free Pacific. Moving beyond coal, oil and gas is fundamental to limiting warming to 1.5°C — a survival line for vulnerable communities and ecosystems. And as our Head of Pacific, Shiva Gounden, explained, it is “also a path of liberation that frees us from expensive, extractive and polluting fossil fuel imports and uplifts our communities”.
Pacific countries are at the forefront of growing global momentum towards a just transition away from fossil fuels, and it is way past time for Australia to get with the program. It is no longer a question of whether fossil fuel extraction will end, but whether that end will be appropriately managed and see communities supported through the transition, or whether it will be chaotic and disruptive.
So will this budget support the transition away from fossil fuels, or will it continue to prop up coal and gas?
When it comes to sensible moves the government can make right now, one stands out as a genuine low hanging fruit. Mining companies get a full rebate of the excise (or tax) that the rest of us pay on diesel fuel. This lowers their operating costs and acts as a large, ongoing subsidy on fossil fuel production — to the tune of $11 billion a year!
Greenpeace has long called for coal and gas companies to be removed from this outdated scheme, and for the billions in savings to be used to support the clean energy transition and to assist communities with adapting to the impacts of climate change. Will we see the government finally make this long overdue change, or will it once again cave to the fossil fuel lobby?
2. Make big polluters pay
While our communities continue to suffer the escalating costs of climate-fuelled disasters, our Government continues to support a massive expansion of Australia’s export gas industry. Gas is a dangerous fossil fuel, with every tonne of Australian gas adding to the global heating that endangers us all.
Moreover, companies like Santos and Woodside pay very little tax for the privilege of digging up and selling Australians’ natural endowment of fossil gas. Remarkably, the Government currently raises more tax from beer than from the Petroleum Resource Rent Tax (PRRT) — the main tax on gas profits.
Momentum has been building to replace or supplement the PRRT with a 25% tax on gas exports. This could raise up to $17 billion a year — funds that, like savings from removing the diesel tax rebate for coal and gas companies, could be spent on supporting the clean energy transition and assisting communities with adapting to worsening fires, floods, heatwaves and other impacts of climate change.
As politicians arrive in Canberra for budget week, they will be confronted by billboards calling for a fair tax on gas exports. The push now has the support of dozens of organisations and a growing number of politicians. Let’s hope the Treasurer seizes this rare window for reform.
3. Support everyone to be part of the solution
As the price of petrol and diesel rises, electric vehicles (EVs) are helping people cut fuel use and save money. However, while EV sales have jumped since the invasion of Iran sent fuel prices rising, they still only make up a fraction of total new car sales. This budget should help more Australians switch to electric vehicles and, even more importantly, enable more Australians to get around by bike, on foot, and on public transport. This means maintaining the EV discount, investing in public and active transport, and removing tax breaks for fuel-hungry utes and vans.
Millions of Australians already enjoy the cost-saving benefits of rooftop solar, batteries, and getting off gas. This budget should enable more households, and in particular those on lower incomes, to access these benefits. This means maintaining the Cheaper Home Batteries Program, and building on the Household Energy Upgrades Fund.
4. Build the industries of the future
If we’re to transition away from fossil fuels, we need to be building the clean industries of the future.
No state is more pivotal to Australia’s energy and industrial transformation than Western Australia. The state has unrivaled potential for renewable energy development and for replacing fossil fuel exports with clean exports like green iron. Such industries offer Western Australia the promise of a vibrant economic future, and for Australia to play an outsized positive role in the world’s efforts to reduce emissions.
However, realising this potential will require focussed support from the Federal Government. Among other measures, Greenpeace has recommended establishing the Australasian Green Iron Corporation as a joint venture between the Australian and Western Australian governments, a key trading partner, a major iron ore miner and steel makers. This would unite these central players around the complex task of building a large-scale green iron industry, and unleash Western Australia’s potential as a green industrial powerhouse.
5. Build community resilience
Believe it or not, our Government continues to spend far more on subsidising fossil fuel production — and on clearing up after climate-fuelled disasters — than it does on helping communities and industries reduce disaster costs through practical, proven methods for building their resilience.
Last year, the Government estimated that the cost of recovery from disasters like the devastating 2022 east coast floods on 2019-20 fires will rise to $13.5 billion. For contrast, the Government’s Disaster Ready Fund – the main national source of funding for disaster resilience – invests just $200 million a year in grants to support disaster preparedness and resilience building. This is despite the Government’s own National Emergency Management Agency (NEMA) estimating that for every dollar spent on disaster risk reduction, there is a $9.60 return on investment.
By redirecting funds currently spent on subsidising fossil fuel production, the Government can both stop incentivising climate destruction in the first place, and ensure that Australian communities and industries are better protected from worsening climate extremes.
No communities have more to lose from climate damage, or carry more knowledge of practical solutions, than Aboriginal and Torres Strait Islander peoples. The budget should include a dedicated First Nations climate adaptation fund, ensuring First Nations communities can develop solutions on their own terms, and access the support they need with adapting to extreme heat, coastal erosion and other escalating challenges.
6. Be a better neighbour
The global response to climate change depends on the adequate flow of support from developed economies like Australia to lower income nations with shifting to clean energy, adapting to the impacts of climate change, and addressing loss and damage.
Such support is vital to building trust and cooperation, reducing global emissions, and supporting regional and global security by enabling countries to transition away from fossil fuels and build greater resilience.
Despite its central leadership role in this year’s global climate negotiations, our Government is yet to announce its contribution to international climate finance for 2025-2030. Greenpeace recommends a commitment of $11 billion for this five year period, which is aligned with the global goal under the Paris Agreement to triple international climate finance from current levels.
This new commitment should include additional funding to address loss and damage from climate change and a substantial contribution to the Pacific Resilience Facility, ensuring support is accessible to countries and communities that need it most. It should also see Australia get firmly behind the vision of a Fossil Fuel Free Pacific.
7. Protect nature
There is no safe planet without protection of the ecosystems and biodiversity that sustain us and regulate our climate.
Last year the Parliament passed important and long overdue reforms to our national environment laws to ensure better protection for our forests and other critical ecosystems. However, the Government will need to provide sufficient funding to ensure the effective implementation of these reforms.
Greenpeace has recommended $500 million over four years to establish the National Environment Agency — the body responsible for enforcing and monitoring the new laws — and a further $50 million to Environment Information Australia for providing critical information and tools.
Further resourcing will also be required to fulfil the crucial goal of fully protecting 30% of Australian land and seas by 2030. This should include $1 billion towards ending deforestation by enabling farmers and loggers to retool away from destructive practices, $2 billion a year for restoring degraded lands, $5 billion for purchasing and creating new protected areas, and $200 million for expanding domestic and international marine protected areas.
Conclusion
This is not the first time that conflict overseas has triggered an energy crisis, or that a budget has been preceded by a summer of extreme weather disasters, highlighting the urgent need to phase out fossil fuels. What’s different in 2026 is the availability of solutions. Renewable energy is now cheaper and more accessible than ever before. Global momentum is firmly behind the transition away from fossil fuels. The Albanese Government, with its overwhelming majority, has the chance to set our nation up for the future, or keep us stranded in the past. Let’s hope it makes some smart choices.
The 2026 budget test: Will Australia break free from fossil fuels?
Anne Jellema is Executive Director of 350.org.
The war on Iran and Lebanon is a deeply unjust and devastating conflict, killing civilians at home, destroying lives, and at the same time sending shockwaves through the global economy. We, at 350.org, have calculated, drawing on price forecasts from the International Monetary Fund (IMF) and Goldman Sachs, just how much that volatility is costing us.
Even under the IMF’s baseline scenario – a de facto “best case” scenario with a near-term end to the war and related supply chain disruptions – oil and gas price spikes are projected to cost households and businesses globally more than $600 billion by the end of the year. Under the IMF’s “adverse scenario”, with prolonged conflict and sustained price pressures, we estimate those additional costs could exceed $1 trillion, even after accounting for reduced demand.
Which is why we urgently need a power shift. Governments are under growing pressure to respond to rising fuel and food costs and deepening energy poverty. And it’s becoming clearer to both voters and elected officials that fossil dependence is not only expensive and risky, but unnecessary.
People who can are voting with their wallets: sales of solar panels and electric vehicles are increasing sharply in many countries. But the working people who have nothing to spare, ironically, are the ones stuck with using oil and gas that is either exorbitantly expensive or simply impossible to get.
Drain on households and economies
In India, street food vendors can’t get cooking gas and in the Philippines, fishermen can’t afford to take their boats to sea. A quarter of British people say that rising energy tariffs will leave them completely unable to pay their bills. This is the moment for a global push to bring abundant and affordable clean energy to all.
In April, we released Out of Pocket, our new research report on how fossil fuels are draining households and economies. We were surprised by the scale of what we found. For decades, governments have reassured people that energy price spikes are unfortunate but unavoidable – the result of distant conflicts, market forces or geopolitical shocks beyond anyone’s control. But the numbers tell a different story.
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Santa Marta: Ministers grapple with practicalities of fossil fuel phase-out
Around 60 governments that want to make progress on transitioning away from coal, oil and gas are meeting in Colombia to work out how they can do it an equitable way -
Why the transition beyond fossil fuels depends on cities and collective action
Cities will help identify concrete pathways for an equitable shift to clean energy at the Santa Marta conference, with C40 members aiming to halve their fossil fuel use by 2030
What we are living through today is not an energy crisis. It is a fossil fuel crisis. In just the first 50 days of the Middle East conflict, soaring oil and gas prices have siphoned an estimated $158 billion–$166 billion from households and businesses worldwide. That is money extracted directly from people’s pockets and transferred, almost instantly, into fossil fuel company balance sheets. And this figure only captures the immediate impact of price spikes, not the permanent economic drain of fossil dependence. Fossil fuels don’t just cost us once, they cost us over and over again.
First, through our bills. Every time there is a war, an embargo or a supply disruption, fossil fuel prices surge. For ordinary people, this means higher costs for energy, transport and food. Many Global South countries have little or no fiscal space to buffer the shock; instead, workers and families pay the price.
Second, through our taxes. Governments around the world continue to pour vast sums of public money into fossil fuel subsidies. These are often justified as a way to protect the most vulnerable at the petrol pump or in their homes. But in reality, the benefits are overwhelmingly captured by wealthier households and corporations. The poorest 20% receive just a fraction of this support, while public finances are drained.
Third, through climate impacts. New research across more than 24,000 global locations gives a granular account of the true costs of extreme heat, sea level rise and falling agricultural yields. Using this data to update IMF modelling of the social cost of carbon, we found that fossil fuel impacts on health and livelihoods amount to over $9 trillion a year. This is the biggest subsidy of all, because these massive and mounting costs are not charged to Big Oil – they are paid for by governments and households, with the poorest shouldering the lion’s share.
Massive transfer of wealth to fossil fuel industry
Adding up direct subsidies, tax breaks and the unpaid bill for climate damages, the total transfer of wealth from the public to the fossil fuel industry amounts to $12 trillion even in a “normal” year without a global oil shock. That’s more than 50% higher than the IMF has previously estimated, and equivalent to a staggering $23 million a minute.
The fossil fuel industry has become extraordinarily adept at profiting from instability. When conflict drives up prices, companies do not lose, they gain. In the current crisis, oil producers and commodity traders are on track to secure tens of billions of dollars in additional windfall profits, even as households face rising bills and governments struggle to manage the fallout.
Fossil fuel crisis offers chance to speed up energy transition, ministers say
This growing disconnect is impossible to ignore. Investors are advised to buy into fossil fuel firms precisely because of their ability to generate profits in times of crisis. Meanwhile, ordinary people are told to tighten their belts.
In 2026, unlike during the oil shocks of the 1970s, clean energy is no longer a distant alternative. Now, even more than when gas prices spiked due to Russia’s invasion of Ukraine in 2022, renewables are often the cheapest option available. Solar and wind can be deployed quickly, at scale, and without the volatility that defines fossil fuel markets.
How to transition from dirty to clean energy
The solutions are clear. Governments must implement permanent windfall taxes on fossil fuel companies to ensure that extraordinary profits generated during crises are redirected to support households. These revenues can be used to reduce energy bills, invest in public services, and accelerate the rollout of clean energy.
Second, we must shift subsidies away from fossil fuels and towards renewable solutions, particularly those that can be deployed quickly and equitably, such as rooftop and community solar. This is not just about cutting emissions. It is about building a more stable, fair and resilient energy system.
Finally, we need binding plans to phase out fossil fuels altogether, replacing them with homegrown renewable energy that can shield economies from future shocks. Because what the current crisis has made clear is this: as long as we remain dependent on fossil fuels, we remain vulnerable – to conflict, to price volatility and to the escalating impacts of climate change.
The true price of fossil fuels is no longer hidden. It is visible in rising bills, strained public finances and communities pushed to the brink. And it is being paid, every day, by ordinary people around the world.
It’s time for the great power shift.
Full details on the methodology used for this report are available here.
The Great Power Shift is a new campaign by 350.org global campaign to pressure governments to bring down energy bills for good by ending fossil fuel dependence and investing in clean, affordable energy for all
The post What fossil fuels really cost us in a world at war appeared first on Climate Home News.
Computer models that use artificial intelligence (AI) cannot forecast record-breaking weather as well as traditional climate models, according to a new study.
It is well established that AI climate models have surpassed traditional, physics-based climate models for some aspects of weather forecasting.
However, new research published in Science Advances finds that AI models still “underperform” in forecasting record-breaking extreme weather events.
The authors tested how well both AI and traditional weather models could simulate thousands of record-breaking hot, cold and windy events that were recorded in 2018 and 2020.
They find that AI models underestimate both the frequency and intensity of record-breaking events.
A study author tells Carbon Brief that the analysis is a “warning shot” against replacing traditional models with AI models for weather forecasting “too quickly”.
AI weather forecasts
Extreme weather events, such as floods, heatwaves and storms, drive hundreds of billions of dollars in damages every year through the destruction of cropland, impacts on infrastructure and the loss of human life.
Many governments have developed early warning systems to prepare the general public and mobilise disaster response teams for imminent extreme weather events. These systems have been shown to minimise damages and save lives.
For decades, scientists have used numerical weather prediction models to simulate the weather days, or weeks, in advance.
These models rely on a series of complex equations that reproduce processes in the atmosphere and ocean. The equations are rooted in fundamental laws of physics, based on decades of research by climate scientists. As a result, these models are referred to as “physics-based” models.
However, AI-based climate models are gaining popularity as an alternative for weather forecasting.
Instead of using physics, these models use a statistical approach. Scientists present AI models with a large batch of historical weather data, known as training data, which teaches the model to recognise patterns and make predictions.
To produce a new forecast, the AI model draws on this bank of knowledge and follows the patterns that it knows.
There are many advantages to AI weather forecasts. For example, they use less computing power than physics-based models, because they do not have to run thousands of mathematical equations.
Furthermore, many AI models have been found to perform better than traditional physics-based models at weather forecasts.
However, these models also have drawbacks.
Study author Prof Sebastian Engelke, a professor at the research institute for statistics and information science at the University of Geneva, tells Carbon Brief that AI models “depend strongly on the training data” and are “relatively constrained to the range of this dataset”.
In other words, AI models struggle to simulate brand new weather patterns, instead tending forecast events of a similar strength to those seen before. As a result, it is unclear whether AI models can simulate unprecedented, record-breaking extreme events that, by definition, have never been seen before.
Record-breaking extremes
Extreme weather events are becoming more intense and frequent as the climate warms. Record-shattering extremes – those that break existing records by large margins – are also becoming more regular.
For example, during a 2021 heatwave in north-western US and Canada, local temperature records were broken by up to 5C. According to one study, the heatwave would have been “impossible” without human-caused climate change.
The new study explores how accurately AI and physics-based models can forecast such record-breaking extremes.
First, the authors identified every heat, cold and wind event in 2018 and 2020 that broke a record previously set between 1979 and 2017. (They chose these years due to data availability.) The authors use ERA5 reanalysis data to identify these records.
This produced a large sample size of record-breaking events. For the year 2020, the authors identified around 160,000 heat, 33,000 cold and 53,000 wind records, spread across different seasons and world regions.
For their traditional, physics-based model, the authors selected the High RESolution forecast model from the Integrated Forecasting System of the European Centre for Medium-Range Weather Forecasts. This is “widely considered as the leading physics-based numerical weather prediction model”, according to the paper.
They also selected three “leading” AI weather models – the GraphCast model from Google Deepmind, Pangu-Weather developed by Huawei Cloud and the Fuxi model, developed by a team from Shanghai.
The authors then assessed how accurately each model could forecast the extremes observed in the year 2020.
Dr Zhongwei Zhang is the lead author on the study and a researcher at Karlsruhe Institute of Technology. He tells Carbon Brief that many AI weather forecast models were built for “general weather conditions”, as they use all historical weather data to train the models. Meanwhile, forecasting extremes is considered a “secondary task” by the models.
The authors explored a range of different “lead times” – in other words, how far into the future the model is forecasting. For example, a lead time of two days could mean the model uses the weather conditions at midnight on 1 January to simulate weather conditions at midnight on 3 January.
The plot below shows how accurately the models forecasted all extreme events (left) and heat extremes (right) under different lead times. This is measured using “root mean square error” – a metric of how accurate a model is, where a lower value indicates lower error and higher accuracy.
The chart on the left shows how two of the AI models (blue and green) performed better than the physics-based model (black) when forecasting all weather across the year 2020.
However, the chart on the right illustrates how the physics-based model (black) performed better than all three AI models (blue, red and green) when it came to forecasting heat extremes.
The authors note that the performance gap between AI and physics-based models is widest for lower lead times, indicating that AI models have greater difficulty making predictions in the near future.
They find similar results for cold and wind records.
In addition, the authors find that AI models generally “underpredict” temperature during heat records and “overpredict” during cold records.
The study finds that the larger the margin that the record is broken by, the less well the AI model predicts the intensity of the event.
‘Warning shot’
Study author Prof Erich Fischer is a climate scientist at ETH Zurich and a Carbon Brief contributing editor. He tells Carbon Brief that the result is “not unexpected”.
He adds that the analysis is a “warning shot” against replacing traditional models with AI models for weather forecasting “too quickly”.
The analysis, he continues, is a “warning shot” against replacing traditional models with AI models for weather forecasting “too quickly”.
AI models are likely to continue to improve, but scientists should “not yet” fully replace traditional forecasting models with AI ones, according to Fischer.
He explains that accurate forecasts are “most needed” in the runup to potential record-breaking extremes, because they are the trigger for early warning systems that help minimise damages caused by extreme weather.
Leonardo Olivetti is a PhD student at Uppsala University, who has published work on AI weather forecasting and was not involved in the study.
He tells Carbon Brief that “many other studies” have identified issues with using AI models for “extremes”, but this paper is novel for its specific focus on extremes.
Olivetti notes that AI models are already used alongside physics-based models at “some of the major weather forecasting centres around the world”. However, the study results suggest “caution against relying too heavily on these [AI] models”, he says.
Prof Martin Schultz, a professor in computational earth system science at the University of Cologne who was not involved in the study, tells Carbon Brief that the results of the analysis are “very interesting, but not too surprising”.
He adds that the study “justifies the continued use of classical numerical weather models in operational forecasts, in spite of their tremendous computational costs”.
Advances in forecasting
The field of AI weather forecasting is evolving rapidly.
Olivetti notes that the three AI models tested in the study are an “older generation” of AI models. In the last two years, newer “probabilistic” forecast models have emerged that “claim to better capture extremes”, he explains.
The three AI models used in the analysis are “deterministic”, meaning that they only simulate one possible future outcome.
In contrast, study author Engelke tells Carbon Brief that probabilistic models “create several possible future states of the weather” and are therefore more likely to capture record-breaking extremes.
Engelke says it is “important” to evaluate the newer generation of models for their ability to forecast weather extremes.
He adds that this paper has set out a “protocol” for testing the ability of AI models to predict unprecedented extreme events, which he hopes other researchers will go on to use.
The study says that another “promising direction” for future research is to develop models that combine aspects of traditional, physics-based weather forecasts with AI models.
Engelke says this approach would be “best of both worlds”, as it would combine the ability of physics-based models to simulate record-breaking weather with the computational efficiency of AI models.
Dr Kyle Hilburn, a research scientist at Colorado State University, notes that the study does not address extreme rainfall, which he says “presents challenges for both modelling and observing”. This, he says, is an “important” area for future research.
The post Traditional models still ‘outperform AI’ for extreme weather forecasts appeared first on Carbon Brief.
Traditional models still ‘outperform AI’ for extreme weather forecasts
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