Corporate Net Zero pathways: Purchase of green power expected to takeoff in Shandong as provincial government cracks down on ‘two high’ projects

Two high industries are pressured to reduce their emissions

As China’s 3rd economy with a high share of the country’s industrial production, Shandong province accounted for more than 58 % of the total cumulative transaction amount of carbon emissions allowances in China up to the end of 2021. The recent “Measures for Alternative Carbon Emission Reduction of High Energy Consumption and High Emission Construction Projects in Shandong Province (Trial Implementation)” (山东省高耗能高排放建设项目碳排放减量替代办法(试行)) policy document requires all new construction and production expansion projects belonging to “two-high” industries to complete their ‘alternative carbon emission reduction plan and measures’ before being put into operation.

‘Alternative carbon emissions reduction’ refers to carbon emission offsets possible through a series of off-site and on-site measures including:

  • shutdown and conversion of the enterprises
  • elimination of backward production capacity and/or over-capacity
  • replacement of fossil fuel with renewable energy and clean energy
  • other methods

You should know

The Shandong government has selected 16 industries as “two-high” industries (high energy consumption and GHG emissions): refining, coking, coal-to-liquid fuel, basic chemical raw materials, fertilizers, tires, cement, lime, asphalt waterproof materials, flat glass, ceramics, iron and steel, ferroalloys, nonferrous metals, casting, coal power.

But their access to green power might be limited

On one hand, the new construction projects of “two-high” industries are in great need of green electricity as a way to reduce their emissions. On the other hand, the Shandong government has set barriers restricting them from using power generated by new renewable energy projects built during the 14th FYP.

Indeed, as mentioned in the ‘Circular on Resolutely Curbing the Blind Development of “Two-High” Projects and Promoting the High-Quality Allocation and Utilization of Energy Resources’ (《山东省人民政府办公厅关于坚决遏制“两高”项目盲目发展促进能源资源高质量配置利用有关事项的通知》), 50% of the new energy increments of offshore wind and nuclear power projects and 100% of that of other types of renewable energy during the 14th FYP will be reserved for Shandong cities’ power consumption. The rest of the new increments will be reserved by the provincial government. All energy increments reserved for cities must be used for the construction of non “two-high” projects.

It has not yet been clarified how Shandong is going to use the remaining 50% new offshore wind and nuclear power reserved by the provincial government. It is likely that new and operating “two-high” industries may have very limited access to the power generation of new renewable energy projects. The green electricity available for these power users may mostly come from the existing projects built in Shandong before the 14th FYP and from the inter-provincial trading.

So far, 5300 companies in Shandong are categorized in “two-high” industries. They represent over 80% of the power consumption of the province’s industrial sector, and more than 90% of the coal consumption in the province. In the first quarter of 2022, Shandong’s green electricity trading has exceeded 2 TWh. It is expected the yearly total will exceed 4 TWh.

(Shandong Department of Ecology and Environment, SGCC Shandong government)

Corporate Net Zero pathways: Purchase of green power expected to takeoff in Shandong as provincial government cracks down on ‘two high’ projects
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