UK chancellor Jeremy Hunt failed to mention the term “climate change” at all when setting out the government’s spring budget – the first since it was confirmed that 2023 was Earth’s hottest year on record.
As expected, Hunt used his budget speech to announce that the government is freezing fuel duty on petrol and diesel for the 14th year in a row.
As of 2023, this policy had added up to 7% to UK emissions, according to previous Carbon Brief analysis.
The chancellor also announced a year-long extension to the windfall tax on oil-and-gas companies, but failed to commit to spending the money raised on new climate investments.
Hunt did not offer any new policies to help boost the rollout of key low-carbon technologies, such as electric vehicles (EVs) and heat pumps.
He also pledged no further changes to the government’s long-term regime of maximising oil and gas production.
Overall, despite some confirmation of further funding for supply chains, analysts described the budget as a “missed opportunity” for boosting low-carbon industries and accelerating the transition away from fossil fuels in the UK.
Alongside the budget, the government also confirmed key details of its sixth auction round for new renewable energy projects, including a pot worth just over £1bn.
With a UK general election on the horizon – and Labour enjoying a substantial lead in the polls – this budget is likely to be Hunt’s last as chancellor.
Below, Carbon Brief runs through the key announcements.
Fuel duty
The government has frozen fuel duty on petrol and diesel for the 14th year in a row.
This persistent policy amounts to a significant tax cut, as fuel duty has dropped considerably in real terms over the years rather than rising with inflation.
The freeze makes it cheaper to drive a car and reduces the incentive to use more fuel-efficient models. As of 2023, Carbon Brief calculated that fuel duty freezes had increased UK carbon dioxide (CO2) emissions by up to 7%.
Hunt has also opted to retain an extra 5p cut in duty, which was first introduced in 2022 to address rising fuel costs. This reduced the rate on petrol and diesel from 57.95p per litre to 52.95p.
In the 2022 spring statement, it was described as a temporary measure. The government stated the 5p cut would end on 23 March 2024 “as part of the government’s commitment to fiscal responsibility and ensuring trust and confidence in our national finances”.
However, Hunt announced that it will remain in place for another year. This is despite fuel prices now being comfortably lower than they were during the energy crisis.
These two measures have been a major drain on public finances.
Together, they will cost the Treasury £3.1bn in 2024-25, with a cumulative cost of around £90bn since 2010, according to official figures released by the Office for Budget Responsibility.
Analysis performed by the Social Market Foundation (SMF) in the run up to the spring budget places the cumulative figure far higher, at £130bn.
The thinktank adds that the cost of maintaining fuel duty freezes would rise to more than £200bn by 2030 – “enough to fund the entire NHS for a year”.
With the government under pressure from the right of the Conservative party and the right-leaning press to cut taxes, the fuel-duty freeze was trailed in the Times ahead of the budget as one of the “two main tax cuts” planned by the chancellor, along with a reduction in national insurance.
The Sun claimed responsibility for Hunt’s continued fuel duty freeze, due to the newspaper’s long-standing “Keep It Down” campaign, which it runs with the climate-sceptic lobbyist and Reform Party London mayoral candidate Howard Cox. A recent Sun editorial stated:
“Seven Tory chancellors have cursed us for it. To them it has ‘cost’ £90bn in tax they would love to have spent.”
Instead, the Sun points to the benefits for “British motorists”. Pro-motoring lobbyists have argued that a fuel-duty cut is a necessary bulwark against the “war on motorists” taking place in the UK. The government has absorbed this message, with prime minister Rishi Sunak announcing last year he was “slamming the brakes on the war on motorists”.
The government describes its fuel duty freeze as part of its efforts to “support people with the cost of living”.
The opposition Labour Party has also backed the fuel-duty freeze on these grounds. Last year, shadow chancellor Rachel Reeves threw her weight behind it to help the “many families and businesses reliant on their cars”.
Yet analysis by the SMF shows that, despite rhetoric that emphasises benefits for ordinary, hard-working people, fuel-duty cuts disproportionately benefit wealthier people. This is because they are more likely to own cars and the cars they own are more likely to be less fuel-efficient models, such as SUVs.
As a result, the thinktank says maintaining the 2022 fuel-duty cut will save the UK’s richest people around three times as much money as the nation’s poorest.
Moreover, analysis by the RAC Foundation at the end of 2023 found that the government’s cuts to fuel prices had not all been passed onto consumers. Instead, it concluded that fossil-fuel retailers had kept savings from lower wholesale costs for themselves, leaving drivers “paying 10p [per litre] more than they should be”.
Meanwhile, the cost of bus and coach fares has risen far more than the cost of running a car, as rail fares in England and Wales increased by 5% this year.
The SMF has proposed that investment in public transport would be a more effective way to save households money.
Others have suggested that such investments could also be a major driver of economic growth. For example, government advisors at the National Infrastructure Commission argued last year that the UK should invest £22bn in mass transit schemes outside London in the coming years.
Instead, the most significant public-transport policy the government has introduced in recent months has been cancelling the northern leg of the HS2 train line.
Air passenger duty
Hunt also announced an increase in air passenger duty on “non-economy” passengers as a revenue-raising measure to help pay for tax cuts elsewhere.
As a result, those flying business class, premium economy, first class or in private jets will pay a higher price for plane tickets.
This policy will raise between £110m and £140m annually from 2025 through to 2029, according to government figures.
The budget document explains that this is a measure to bring air passenger duty in line with high inflation and maintain its value in real terms.
Nevertheless, it emphasises that for the 70% of passengers flying economy, or on short-haul flights, “rates will remain frozen” in order to “keep the cost of flying down”.
In fact, in 2021 when Sunak was chancellor, the government cut air passenger duty in half for domestic flights, making air travel cheaper within the UK. Reversing this change would bring in an extra £69m to the Treasury, according to the Campaign for Better Transport.
Campaigners have proposed a more expansive “frequent flyer levy” in order to actively discourage flying and cut emissions from aviation, which accounts for around 3% of UK emissions.
According to New Economics Foundation modelling, this could have raised £4bn in revenues in 2022.
As it stands, the government has no explicit plans to reduce demand for air travel in the UK. This is despite such plans being flagged repeatedly by government climate advisors the Climate Change Committee (CCC) as a missing part of the UK’s strategy to reach net-zero.
Windfall tax
Hunt used his budget to extend the windfall tax on North Sea oil and gas companies by another year, bringing its scheduled end date to March 2029.
This was despite opposition from Scottish Conservatives, according to BBC News – and the energy secretary Claire Coutinho, according to Politico.
He told parliament this extension would raise £1.5bn. However, he did not say what this additional money would be spent on.
He added that the “energy profits levy”, as the windfall tax is known, would be abolished “should market prices fall to their historic norm for a sustained period of time”.
In a statement, Kate Mulvany, principal consultant at consultancy Cornwall Insight, said that the move “could be seen as positive for decarbonisation if the resulting profits are used to deliver the UK’s net-zero plan”, but added:
“Yet, without a solid transition strategy away from the UK’s oil and gas dependence and no assurance that tax revenues will directly support decarbonisation initiatives, the potential upheaval in investment could outweigh the benefits.”
Ahead of the budget, both the Times and Bloomberg reported that the tax extension was being described as one of the measures that could help fund Hunt’s 2p cut in national insurance.
Labour has also proposed extending the tax by a year, if elected to power, Politico reported. Additionally, Labour intends to raise the levy on oil-and-gas company profits from 75% to 78%. It has pledged to spend the money raised on low-carbon investments.
Oil-and-gas trade group Offshore Energies UK has called the Labour proposal “alarming” and claimed that it could lead to job losses in the sector. (See Carbon Brief’s factcheck of misleading claims surrounding North Sea oil and gas.)
Elsewhere in his budget speech, Hunt did not commit to any other changes on fossil-fuel investment policies.
This was to the dismay of many environmental groups and energy experts, who had urged the chancellor to commit to new measures to end reliance on oil and gas. In a statement, Esin Serin, policy fellow at the Grantham Research Institute on Climate Change and the Environment, said:
“The chancellor should be making more of the tax system to drive the transition away from fossil fuels.”
Clean technology
Hunt announced that the government is buying two nuclear sites from Hitachi for £160m, in a move reportedly aimed at quickly delivering nuclear expansion plans.
The sites are at Wylfa in Anglesey, Wales and Oldbury-on-Severn in South Gloucestershire. The decision follows a period of uncertainty for Wylfa, after the closure of the previous nuclear power plant at the site in 2015.
Hitachi had planned to build a new 2.9 gigawatt (GW) nuclear plant on the site for a reported £20bn. However, the Japanese conglomerate announced it was shelving the plans in 2019.
Additionally, Hunt announced that the government has moved onto the next stage in its competition to build “small modular reactors” (SMRs). There are now six companies that have been invited to submit their initial tender responses by June.
The chancellor confirmed a £120m increase in funding for the “green industries growth accelerator” (GIGA), a fund designed to support the expansion of ”strong and sustainable clean energy supply chains” in the UK. The increase was announced earlier this week.
This will bring the total amount in the fund to £1.1bn, according to the budget documents, up from £960m announced in the autumn statement in November.
GIGA is designed to support carbon capture, usage and storage (CCUS), engineered greenhouse gas removals (GGRs) and hydrogen, offshore wind and electricity networks, as well as civil nuclear power.
The fund will be split between these sectors, with around £390m earmarked for electricity networks and offshore wind supply chains, and around £390m earmarked for CCUS and hydrogen, the treasury’s note stated.
In January, the Department for Energy Security and Net Zero announced £300m will be used to fund the production of a type of nuclear fuel known as “high-assay low-enriched uranium” (HALEU). Currently, Russia is the only producer of HALEU, so the domestic production plan is designed to help end “Russia’s reign”, the government states, as well as to support the UK’s wider plans to deliver “up to” 24GW of nuclear power by 2050.
In a statement, trade association RenewableUK’s chief executive Dan McGrail said:
“The increase in GIGA funding to secure further private investment in green manufacturing jobs will enable us to supply more goods and services to projects here and abroad. It’s also good to see that nearly £400m of that funding will be used specifically to grow our offshore wind supply chain and electricity networks.”
Additionally, earlier this week the government trailed £360m for manufacturing projects and for research and development. This includes almost £73m in combined government and industry investment in the development of electric vehicle (EV) technology.
This will be supported by more than £36m of government funding awarded through the UK’s “advanced propulsion centre”, the Treasury notes, including four projects that are developing technologies for battery EVs.
Renewable auction budget
Alongside the budget, the government also confirmed key details of its sixth auction (AR6) round for new renewable energy projects, including a pot worth just over £1bn.
This follows last year’s fifth auction round, which failed to secure any new offshore wind projects for the first time.
The budget documents said the £1bn budget for AR6 is the “largest ever” and includes £800m specifically for offshore wind.
If winning projects bid at the maximum price for offshore wind announced last year of £73 per megawatt hour (MWh) in 2012 prices, then the £800m budget would only be sufficient to secure just 3GW of new capacity, Carbon Brief analysis shows.
However, consultancy LCP Delta said it could be sufficient to secure 4-6GW of new capacity, implying that it assumes winning projects will bid at prices around £50-60/MWh. In a statement, it added:
“This is certainly a welcome development given last year’s failed auction. However, it may not be enough to get the UK back on track with time running out to build the additional 23GW needed [to meet its 50GW target] by 2030.”
The government has a target of building 50GW of offshore wind by 2030. There is currently around 15GW in operation and another 14GW either under construction, awarded a contract or having already taken a final investment decision, according to trade association Energy UK.
This means another 21GW of new capacity would be needed to hit the 50GW by 2030 target, implying a need for at least 10GW in each of the next two auction rounds, according to industry body Energy UK.
In addition to the £800m pot for offshore wind, the government has confirmed the upcoming auction will include up to £105m for “pot two” technologies including onshore wind, solar, energy from waste with combined heat and power and others, as well as £120m for “pot three” technologies including floating offshore wind, geothermal, tidal stream, wave and others.
Electric cars
Ahead of the budget, an open letter by the motoring lobby group FairCharge called on the chancellor to end the higher rates of VAT on public electric car charging, when compared to home charging.
People who charge their EVs at home only pay 5% VAT on their bills, but the 38% of the population without driveways who would have to use public chargers pay the full VAT rate of 20%, presenting a “charging injustice”, the group told the Daily Mirror.
The Society of Motor Manufacturers and Traders also called for VAT on public EV charging points to be cut, to be in line with the VAT on home charging points.
Speaking to the Times, Mike Hawes, chief executive of the group, said that high VAT rates on public charging points were part of a “triple tax barrier” to more private ownership of EVs.
He also urged the chancellor to reverse proposed excise duty changes that treat upmarket electric cars as luxuries rather than essentials, increasing car taxes by up to £2,000, and to cut the 20% VAT that new car buyers have to pay on new EVs.
However, during the budget, Hunt did not mention any new measures to boost EVs.
The post UK spring budget 2024: Key climate and energy announcements appeared first on Carbon Brief.
Andy Burnham, the UK’s latest prime minister, has suggested reducing the amount the British government gives as climate finance grants and providing some of its climate finance through loans instead, in a move it anticipates will save £400 million.
The government plans to use the savings to fund a cap on bus fares in the UK, triggering accusations from the development sector that Burnham’s proposal “throws Global South countries under the bus”. One likely destination for these new loans is the Tropical Forest Forever Facility (TFFF).
Will new UK PM’s green measures at home cause climate finance pain overseas?
The TFFF is a new initiative designed to provide payments to countries that protect their rainforests by raising money from governments and private investors, channeling that money into riskier and therefore higher return assets, and using the returns it earns to fund forest protection. But there is a catch.
The UK has committed to provide around £6 billion in climate finance funded through aid (or official development assistance, ODA) over the next three years. If switching from grants to a loan to the TFFF reduces government spending, it will likely reduce the amount that counts as ODA as well.
In other words, the government can make the £400 million saving, or meet its £6 billion aid budget-funded climate finance commitment, but it probably cannot do both. The UK cannot have its cake and eat it.
How will it score as ODA?
Whether any loan to the TFFF scores as ODA depends on the OECD’s Development Assistance Committee (DAC) which is currently deliberating on this topic.
A plain reading of the DAC’s current reporting rules suggests that the TFFF would count as a multilateral organisation: the independent investment arm, the Tropical Forest Investment Fund, would ultimately be a global, official entity (with sovereign governments appointing the board and being sole equity holders), which pools capital from sponsor governments. This would mean that to count as ODA, any loan to it would have to charge less than 5% interest.
Tropical forest protection fund at risk after UK stalls on pledge
The current concept note suggests a return for sponsor capital equivalent to US borrowing costs of a similar duration: currently around 5.2%, which would make any such loans ineligible. The UK could choose to charge less, but if the UK charges less than it borrows (also above 5%), the difference will add to the deficit in future years. And ODA accounting is not binary: if the UK charges just under 5%, only a small fraction of the loan would count.
At the same time, the risk profile of TFFF is not the same as your average multilateral, and there is speculation that the DAC could allow higher interest loans to TFFF to partially count (by changing the ‘discount rate’ used to measure how concessional the loan is). The TFFF’s own modelling suggests that the risk of the UK losing money on the loan would be fairly limited: roughly a 1% chance of some capital impairment in the riskiest scenario. But some analysts doubt the accuracy of this model and view the risk as much greater.
Would it really save money?
If the risk really is higher, then it might justify counting more ODA on a loan to the TFFF, but it also undermines the arguments that this would create savings for the government. Loans generally don’t count towards the deficit because they create an asset. But that only works if the loan is expected to be fully repaid. If there is a material risk of losing money, then at least some of the transaction will also count towards the deficit.
One possibility is that the loan will be ‘partitioned’ into a financial asset (the part which is expected to be repaid and wouldn’t count towards the deficit) and a ‘capital transfer’ (the part not expected to be repaid). The greater the risk, the larger that second component, and the bigger the impact on the deficit.
This would be the ODA and public accounting rules working as intended. ODA is a measure of ‘donor effort’, usually taken to mean fiscal impact. If it counts as ODA, it should have an impact on the deficit. And the fiscal treatment itself is governed by numerous international accounting standards, a key purpose of which is preventing politically motivated obfuscation of how governments spend their money. If it costs money, there should be an impact on the deficit even if it is a loan. If it doesn’t, it shouldn’t count as ODA (even if there have been exceptions in the past).
UK halves Green Climate Fund contribution, as it spends more on security
Base funding on need, not accounting
We still know too little about the details to be sure how a loan to the TFFF (or a more exotic transaction) would count towards either ODA or the UK’s headline measures of debt and deficit. The key parameter for each is risk: the lower risk, the more likely it is that the transaction will save money, but the greater the chance that the government would have to spend more ODA elsewhere to meet its climate finance target.
If the UK believes in the TFFF business model and wants to preserve tropical forests, then it should invest. But this decision should not be driven by optimistic accounting tricks. The government cannot expect to reduce the real value of climate finance to partner countries by giving less in grant money, without this having an impact on commitments to spend that money.
The post UK’s budget juggling trick with rainforest loan for bus-fare cap needs transparency appeared first on Climate Home News.
UK’s budget juggling trick with rainforest loan for bus-fare cap needs transparency
Climate Change
Coal mine approval as Albanese meets Pacific leaders undermines Pacific partnership, as UN warns of 1.5C overshoot
SYDNEY, Thursday 3 September 2026 — Greenpeace Australia Pacific has branded the Albanese government’s approval of BHP’s coal mine extension in Central Queensland an affront to Pacific leaders and communities grappling with climate disasters, and a reckless move that undermines Australia’s partnership with the Pacific as the PM meets regional leaders at the Pacific Islands Forum.
The approval of BHP’s coal Saraji Mine Grevillea Pit Continuation Project, an extension of one of Australia’s largest coal mines, would allow mining to continue for another 30 years, locking in the production and export of polluting coal and fuelling dangerous extreme weather disasters and sea level rise in Australia and across the Pacific. It will be the 10th fossil fuel project approved during this term of government and the 37th new fossil fuel project approved since the Albanese government was elected in 2022.
The announcement comes as a UN report warns of dangerous climate overshoot, and just two months before Federal Climate and Energy Minister Chris Bowen is due to take the reins of UN climate negotiations at COP31 — a moment that will test the government’s climate credibility and bring global attention to Australia’s fossil fuel exports. It also comes as fracked gas from the Beetaloo Basin climate bomb started flowing.
Speaking from Palau, Dr Simon Bradshaw, COP31 Lead at Greenpeace Australia Pacific, said: “It is deeply insincere for Prime Minister Albanese to meet Pacific leaders here in Palau to discuss security, the energy crisis, and regional threats, while his government fast-tracks the biggest security threat to the Pacific, the climate crisis.
“As leaders meet, thousands remain missing or dead in the Nepal-Tibet floods. Parts of Australia are bracing for a heatwave that will see temperatures approach 40 degrees, just days out of winter, and a new report finds 2,000 kilometres of coral reefs along the WA coast experienced the worst coral bleaching on record.
“We are witnessing dangerous climate change driven by the production, export and burning of fossil fuels, wreaking havoc across the world. Continuing down the path of fossil fuels and approving new coal is an act of recklessness at a pivotal moment in the world’s energy transition and response to the climate crisis. Communities must not pay the price for fossil fuel greed.
“No more double talk. Australia must get squarely behind longstanding Pacific leadership on climate change, fight to protect the all-important goal of limiting warming to 1.5°C, and ensure that COP31 builds further momentum in the global transition away from fossil fuels.
“A pathway back to 1.5°C is possible. The Pacific Pre-COP and COP31 in Türkiye are critical moments for Australia to work with Pacific leaders to better align energy, climate and trade policies towards a prosperous shared future beyond fossil fuels.”
-ENDS-
Media contact
Kate O’Callaghan on 0406 231 892 or kate.ocallaghan@greenpeace.org
China’s carbon dioxide (CO2) emissions fell by 1% in the second quarter of 2026, as oil consumption plummeted amid the strait of Hormuz crisis.
The country’s use of oil fell by 9% overall and by 16% for transport, after the disruptions to supply from the Gulf through the strait.
This guest post is by:
Lauri Myllyvirta, lead analyst at the Centre for Research on Energy and Clean Air
China’s total CO2 emissions fell despite a continued rebound in coal-fired power generation.
This is the first time that reductions in oil consumption have been responsible for a fall in CO2 emissions overall – in all previous cases, coal consumption has been the main driver.
Other key findings for the second quarter of 2026 include:
- Electric vehicles (EVs) and public transport have become key factors in China’s oil demand, enabling transportation levels to increase even as fuel use fell sharply.
- The effect of EVs on oil consumption was almost twice as large as would be expected based on the increase in the number of EVs on the road alone, as the usage of existing EVs surged.
- Oil consumption displaced by EVs in China in the first half of 2026 exceeded the UK’s total oil consumption over a six-month period.
- These structural factors are not sufficient to account for the size of the fall in oil consumption, leaving behaviour changes as the other explanation.
- “Curtailment” of solar and wind output caused coal power to rise, despite strong hydro output, solar and wind capacity growth, as well as slower demand growth.
- Major increases in coal-power capacity and a power market that continues to favour coal limited the amount of coal generation displaced by new wind and solar capacity.
- Defying expectations of a boom, annual growth in coal use for chemicals production slowed down to 8%, from 15% in 2025 and 19% in the first quarter.
The second quarter of 2026 was a busy time for China’s government planners, with numerous energy-related five-year plan documents being released.
These plans list new measures to address solar and wind curtailment, as well as signalling a higher bar for the approval of new coal-power plants, but add few new quantitative targets.
After a 2% increase in the first quarter of 2026 and a 1% decline in the second, emissions are up marginally across the first half of the year, but they remain below their peak in 2023-24.
In addition, China is on track to add enough wind, solar, nuclear and hydropower this year to cover electricity demand growth, despite a slowdown in new capacity.
Given the structural pressures on oil demand, continued declines in real-estate construction and slower growth for coal-chemicals, China’s emissions could still fall this year. The emission trend remains a race between energy demand growth and clean-energy growth, both of which have slowed down this year.
Emissions still flat
There has now been a plateau in China’s CO2 emissions from fossil fuels and cement for more than two years, following a peak in March 2024.
Previous analysis for Carbon Brief described this as a “flat or falling” trend, which extended until the end of 2025. There was then a 2% increase in emissions year-on-year in the first quarter of 2026, resulting from a rise in the amount of “wasted” wind and solar power.
The latest analysis shows that this was followed by another decline in the second quarter of this year, when China’s emissions fell by 1%, as shown in the figure below.
For further details see: About the data.
Notably, China’s emissions fell in the second quarter despite an increase in coal use. For the first time ever, a drop in oil use was sufficient to drive a decline in emissions overall.
Oil use plummeted while coal grew
Within the overall 1% decline in China’s emissions in the second quarter of 2026, there were divergent trends when looking sector by sector and fuel by fuel.
The largest fall in CO2 emissions came from the consumption of petrol, diesel and jet fuel, with oil consumption in industry also falling, as shown in the figure below.
For further details see: About the data.
Crude oil processing volumes fell 11% in the second quarter, but some of the fall was absorbed by drawing down oil product inventories, with Sinopec sales down 9%.
In total, China cut back oil imports by 32% in the second quarter. The million–barrel question has been how much of this was enabled by genuine reductions in oil consumption and how much by the drawdown of the country’s vast oil stockpile.
Energy mix numbers reported by the National Bureau of Statistics indicate that oil consumption fell by 3% in the first half of the year and around 9% in the second quarter. This shows that reduced consumption played a substantial role, while still leaving 60% of the fall in imports to be covered by the swing from building stockpiles to using them.
The sector with the largest increase in emissions during the second quarter of the year was power, where coal use grew 2.4% while gas-fired generation fell 1.2%. This was despite strong growth in wind and solar capacity over the preceding year, a significant rebound in hydropower generation, a small increase in nuclear power output and a slowdown in electricity consumption growth.
The explanation for the rise in emissions was – similar to the first quarter of 2026 – an increased amount of solar and wind generation being “wasted” due to the power market and grid not being adapted to increasing shares of variable renewable generation.
In other sectors, there was a fall in cement production, driven by falling construction volumes, which accelerated to 9% in the second quarter, from 8% in the first quarter. Crude steel output fell by 1% and pig-iron production by 3% in the second quarter.
Growth of coal use for chemical production slowed down in the second quarter, both compared with the previous quarter and the last year.
The rate of utilisation of installed coal processing capacity was already high before the current oil shock, so there was no headroom for production to increase even though rising oil prices made coal-chemicals more profitable. Oil-based chemical production also kept growing, with ethylene output up 17% and primary plastics production flat.
Coal use for heating continued to increase, with the sector’s coal consumption in the second quarter dominated by industrial heat, as there is little need for space heating at this time of year. Growth has continued despite the prominent drive for “zero-carbon industrial parks”, demonstrating the importance of the initiative for tackling industrial coal use.
What drove the fall in oil consumption?
The dramatic fall in China’s demand for oil imports during the Hormuz crisis has been widely hailed as the most important price stabilising factor for the global oil market.
To understand the implications for China’s oil consumption and CO2 emissions going forward, it is important to unpack what enabled this reduction in imports.
A significant contribution comes from ongoing, structural reductions in transport oil demand driven by electrification. Sinopec had forecast 6% and 5% drops in diesel and petrol consumption this year, respectively, already before the start of the war on Iran. Actual sales fell 9% in the first half of the year.
Transportation levels show a slowdown in growth, but no outright decline. Cross-regional passenger trips were 0.1% higher year-on-year in the second quarter, while urban passenger trips were 2.9% higher. Commercial freight tonnage increased 2.4%.
The exception is air travel, where passenger numbers fell 7% in May-June, after 7% growth in the first quarter. However, this sector plays a minor role in overall transport oil consumption in China.
The stable or growing transportation levels show that the shift to electric vehicles, rail, public transport and other clean transportation, rather than a fall in mobility, played the key role in reducing oil consumption.
The rise in fuel prices that accompanied the Hormuz crisis only accelerated the structural shifts in transportation that were already underway.
Electric heavy-truck sales rose about 77% in the second quarter, year-on-year, with June sales more than doubling and the market share of electric trucks exceeding 45% of all new sales.
The total number of EVs on the road at the end of the quarter grew 33% year-on-year. Some 12.1m EVs were added, of which 8.1m were electric-only battery EVs.
EV usage saw even more of a shift. Charging volumes increased 60% in the second quarter, indicating that EVs already on the road were utilised much more than before, at the expense of petrol and diesel vehicles, with plug-in hybrid drivers likely favouring electricity over fuel.
One factor enabling EV utilisation to grow was the increased use of electric taxis. Intense competition in the sector has pushed prices down at the same time as the use of private petrol vehicles has become more expensive.
Stronger subway and rail use also made a contribution. Rail-passenger traffic increased 5% in the first half of the year.
The fall in diesel demand has been particularly pronounced in the construction and mining sectors. The heavy machinery in the sectors is well-suited for electrification, in addition to which construction levels are also falling.
Based on reported growth in charging volumes, EVs helped avoid an estimated 19m tonnes of oil consumption (Mtoe) in the second quarter, up 50% year-on-year.
This took the total amount of oil displaced by EVs to 36 Mtoe in the first half of the year, as shown in the figure below, well exceeding, say, the total oil consumption of the UK over six months. Notably, trucks are the fastest-growing source of oil displacement, with avoided fuel use up 90% year-on-year in the first half of 2026.
For further details see: About the data.
The increase in avoided oil consumption due to EVs is equal to 4.5% of China’s oil imports in the same period in 2025. If EV sales and charging volumes continue their growth at the same rates in the second half of the year, avoided oil consumption will reach 80 mn tonnes, equal to the consumption of Mexico.
Estimated emissions avoided are 35 MtCO2, or 1.3% of China’s total CO2 emissions in the second quarter, after taking into account emissions from power generation for vehicle charging.
While the amount of oil displaced by the shift to EVs is significant – and is rising fast – the year-on-year increase in displaced oil still only accounts for a third of the drop in China’s oil consumption in the first half of the year, with the fall in consumption only accounting for half of the drop in imports. The remaining reduction is due to the shift from building to drawing down stockpiles, slower growth in chemical industry output, as well as behavioral adaptations by consumers and operational adaptations by businesses.
Coal power continued to rise despite clean-capacity growth
China saw record increases in solar and wind capacity over the past year. In addition, hydropower generation increased 9% in the second quarter of the year, compared with the same period in 2025, and there was a small 2% increase in nuclear-power output.
At the same time, the rate of power demand growth slowed down from 5.9% in the second quarter of 2025 to 5.2% in the same period in 2026.
Yet, power-sector emissions increased 3.0% in the first half of 2026, after falling 3.2% in the first half of 2025. Power generation from fossil fuels rose because of an increase in the amount of potential solar and wind generation that was wasted, as well as exceptionally poor wind conditions. Without those factors, coal-fired power generation and power-sector emissions would also have fallen in 2026.
Wind-power capacity has continued strong growth in 2026, with capacity additions in both the first and the second quarter of the year comfortably exceeding those in any year other than the record-setting 2025.
Solar power additions have slowed sharply from the rates seen in 2025, even falling behind 2024. Yet, they are in line with 2023, when more than 200 gigawatts (GW) was added by year-end.
Nuclear power development continues at pace, with eight new reactors approved in July and five reactors with 4.5GW total capacity expected to enter commercial operation this year. This includes China’s second commercial small modular reactor, Linglong One, with new policies paving the way for further development.
Reactor commissioning will pick up further next year: the government has approved 10 new reactor projects every year since 2022 and those projects will begin to come online. Meanwhile, 3GW of conventional hydropower was added, with a total of 6GW of projects targeting operation in 2026.
Taken together, this clean-energy growth puts China on track to add enough non-fossil generating capacity in 2026 to cover electricity demand growth of up to 5%, despite the slowdown in solar.
Power demand grew 5.3% in the first six months of 2026 and the energy regulator projects 5-6% for the whole year. This means that the increase in power-sector emissions seen in the first half would be reversed, once the obstacles to solar and wind sending their output to the grid are addressed – and once wind conditions revert to average levels.
Moreover, total energy demand growth has slowed down much more sharply than electricity demand, making it more feasible for clean-power generation growth to significantly exceed the increase in total energy consumption and to drive down fossil-fuel consumption.
For further details see: About the data.
The key reason for solar and wind curtailment in China is that neither the power-grid operating model nor the electricity market model require – or encourage – the flexible operation of coal-power plants, hydropower plants and inter-provincial transmission lines.
This situation has been exacerbated by a wave of new coal-power plants entering operation, with newly added capacity reaching 30GW in the first half of 2026, the highest level since 2016. Another 25GW started construction, while less than 3GW was retired.
The electricity prices paid to coal-fired generators are fixed months in advance, as are the volumes of electricity that will be transmitted through long-distance power lines.
This removes the incentive for plants to adjust their output in response to conditions. This could include variations in solar and wind supply, or changes in power demand.
As a result, there is limited ability for the grid to absorb variable renewable power. Furthermore, coal plants are entitled to “capacity payments”, which require them to be available to generate, but do not reward them for operating flexibly.
One solution to integrate more solar and wind into the grid is increasing energy storage capacity. Battery storage capacity continued to grow, with 17GW added in the first half of 2026, bringing total installed capacity to 153GW. This represents a slowdown in storage additions, however, down from 23GW in the first half of 2025.
Outlook for China’s CO2 emissions
The key developments affecting the outlook for China’s emissions in the second quarter include the effects of the Hormuz oil-and-gas crisis, the release of a long list of sectoral five-year plans and a slowdown in energy consumption growth.
The rise in oil prices has caused a stronger shift in China’s transportation sector than anyone anticipated, with EV deployment and use accelerating from an already high base. This trend is unlikely to be reversed. It has also proven the value of electrification to China’s energy security strategy.
The government is targeting a slight acceleration in the pace of electrification, aiming for electricity to make up 35% of energy end-use by 2030, up from 30% in 2025. This is a larger increase than achieved over the past five years, when the share of electricity rose from 26.5% in 2020 to 30% by 2025. The transportation sector plays a significant role in this, with a target for EVs to make up 30% of the vehicle fleet, up from 12% in 2025, and 25% of commercial vehicles.
Electrification both reduces emissions immediately and sets different sectors up for deep decarbonisation as electricity is much easier to produce without CO2 emissions than fuels. Faster transport sector electrification lowers the outlook for oil demand, increases the role of the sector in peaking and reducing emissions, plus means that more of China’s clean energy growth ends up displacing oil.
While transport emissions fell, power-sector emissions continued to rebound for the second quarter in a row. The increased coal-fired power generation and emissions can be attributed to increased solar and wind curtailment. Curtailment has emerged as the key obstacle to both continued rapid solar and wind capacity growth and full utilisation of existing capacity.
Several sectoral five-year plans published in recent months have laid out measures to improve solar and wind utilisation.
Long-distance transmission will continue to expand, helping to move wind and solar generation from remote “energy bases” to centres of demand. There is also a growing emphasis on local consumption of clean power. The power sector five-year plan, published in August, promotes direct purchases of clean electricity, smart microgrids, zero-carbon industrial parks and closer coordination between renewable resources and AI computing infrastructure
Yet the same plan further loosened the limits on the amount of wind and solar that can be curtailed.
The limit for curtailment was 5%, until it was relaxed to 10% in 2024 in provinces with good wind and solar resources. The new plan allows the limit to be increased further to 15% for some provinces, while keeping it at 5% and 10% for others.
Looking at the 2025 data on reported curtailment, very few provinces had higher rates than 15% – only Tibet for wind and Qinghai and Tibet for solar.
Unless the most lenient limit is only applied to those two provinces, it means the plan would allow for higher levels of curtailment.
This is also true of the national average target of “around” 10% curtailment, given reported rates in 2025 were 94% and 95% for wind and solar, respectively.
Notably, monthly data on curtailment has not been published in recent months, raising the possibility that the indicator is being revised. Reported data has understated actual curtailment by a wide margin, compared to implied curtailment.
If the curtailment indicator is revised, such that it captures more of the actual curtailment, then this could make the headline targets stronger than they appear, in comparison to previously reported numbers.
The new five-year plans also lowered the overall level of ambition on coal use. Chinese president Xi Jinping announced in 2021 that China would “gradually reduce coal consumption during the 15th five-year period”, covering 2026-30. However, the target now is for coal consumption to “enter a plateau” during those five years.
The five-year plans call for “reasonably controlling coal-power capacity and generation”, signaling a higher bar for the approval for new coal-power projects, after the government’s active promotion of new coal power in recent years. This could also imply more retirements of older coal plants. However, there is 204GW of coal-power capacity under construction, even after the wave of new coal-power plants starting operation in 2025 and in the first half of 2026, making the implementation of the “reasonable control” more challenging.
It is the first time that the government has vowed to control “coal-power generation” and not just “generation growth”, as the energy regulator did in 2021, but the significance of that distinction is unclear.
The renewable energy five-year plan also broadens the concept of system reliability, which was a key justification for new coal power during the previous five years. Rather than relying primarily on coal-fired power for system stability, it increasingly looks to other options.
Alternatives include storage, flexible demand, EVs, “virtual power plants” and smarter system operation to provide balancing services. The plan also puts an emphasis on increasing the contribution of renewable energy to meeting demand peaks.
Therefore, while coal remains an important backup resource in the plan, reliability is no longer framed as something that can only be provided by coal.
The Chinese government has published numerous other sectoral five-year plans since its overarching plan came out in March. These include plans for the energy sector (“new-type energy system”), power system, renewable energy, carbon peaking, coal, climate-change mitigation, and the environment (“Beautiful China”). Some clear priorities emerge from these plans: electrification, electric vehicles, energy storage, offshore wind and “green”” fuels.
The energy plan also substantially increased ambition on the development of conventional hydropower, despite ecological and social risks and potential for tensions with neighbouring countries. The capacity additions will largely only materialise after 2030, however.
At the same time, energy consumption growth has slowed down markedly after the surge during and immediately after the “zero-Covid” period, making it more feasible for clean energy to meet all incremental demand.
If this trend continues, then total CO2 emissions will begin to fall even as power-sector emissions continue to plateau.
About the data
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, as well as from industry data provider WIND Information and from Sinopec, China’s largest oil refiner.
Electricity generation from wind and solar, along with thermal power breakdown by fuel, was calculated by multiplying power generating capacity at the end of each month by monthly utilisation, using data reported by China Electricity Council through Wind Financial Terminal.
Total generation from thermal power and generation from hydropower and nuclear power were taken from National Bureau of Statistics monthly releases.
Total primary energy consumption is converted to the electricity equivalent using the substitution method.
Monthly utilisation data was not available for biomass, so the annual average of 52% for 2023 was applied. Power-sector coal consumption was estimated based on power generation from coal and the average heat rate of coal-fired power plants during each month, to avoid the issue with official coal consumption numbers affecting recent data.
CO2 emissions estimates are based on National Bureau of Statistics default calorific values of fuels and emissions factors from China’s latest national greenhouse gas emissions inventory, for the year 2021. The CO2 emissions factor for cement is based on annual estimates up to 2024.
For oil, total oil consumption is calculated based on energy mix data for the first quarter and first half of the year released by the National Bureau of Statistics. Consumption of transport fuels – diesel, petrol and jet fuel – is estimated based on the sales growth reported by Sinopec for the first quarter and the first half of the year, with monthly disaggregation based on production minus net exports. The consumption of these three fuels is labeled as oil product consumption in transportation, as it is the dominant sector for their use. Apparent consumption of other oil products is calculated as the residual.
Estimated non-energy use of fossil fuels is subtracted from total chemical industry fossil fuel consumption, and process emissions are calculated based on fossil fuel consumption with carbon retained in products subtracted. Emissions from the incineration of plastics are based on a peer-reviewed estimate of plastics incineration in 2022, combined with growth rates in the overall power generation from waste-to-energy plants. Metals industry process emissions are calculated using industrial output data and IPCC default emission factors.
Oil consumption displaced by EVs is estimated using China Association of Automobile Manufacturers’ sales data, via Wind Financial Terminal. The data breaks down vehicle sales by type and powertrain: passenger cars, buses, vans, semis and trucks of different sizes, each split into battery-electric and plug-in hybrid, with assumptions about how far each vehicle type is driven per year and the fuel economy of the conventional vehicle it replaces.
Annual mileage and fuel-consumption assumptions are compiled from different sources, including the International Council on Clean Transportation. Each electric vehicle sold is credited with avoiding the fuel a comparable internal-combustion vehicle would have burned; plug-in hybrids are credited only with the portion of driving done on electricity (a utility factor of 64%).
The electricity and oil figures are calibrated to figures from China’s National Energy Administration, which put new-energy-vehicle charging at 142.3 TWh in 2025 and reported 56.9% year-on-year growth in the first half of 2026. The second half of 2026 is a projection: each vehicle segment’s actual second-half-2025 displacement is grown by its first-half-2026 year-on-year rate.
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