The world’s largest emitter has stopped growing its emissions. China’s carbon dioxide output has been flat or falling since early 2024, sits below its 2023–24 peak, and is on course for a small decline this year. It has managed this while the economy still grows at around 5 per cent.
This was not supposed to happen until 2030. Beijing’s own target was to peak before the end of the decade. The peak appears to have arrived six years early, and almost nobody in the West has absorbed what it means.
It means the standard Western theory of climate action is in trouble. For thirty years the dominant answer has been to get the prices right. Put a price on carbon, make polluters pay for the damage they impose on everyone else, and let markets and consumers do the rest.
China did not do that. Its emissions trading scheme exists, but until this year the price was low and the coverage partial. Nor did Chinese households vote with their wallets for a cleaner planet. They bought electric cars because the cars were cheaper and better than the alternative.
What China did was treat clean energy as the next industrial base and build it. The numbers are hard to take in. China installed 315 gigawatts of solar in 2025 alone, more than most countries have built in their entire history. It makes roughly 80 per cent of the world’s solar panels and three-quarters of its batteries. More than half of the new cars sold in China are now electric.
The mechanism was industrial strategy, in the old-fashioned sense. State banks lent at scale and on patient terms. Provinces competed to host factories. Five-year plans turned national targets into binding obligations for every layer of the administrative state. Overcapacity was tolerated, and the resulting price wars bankrupted hundreds of producers while collapsing the cost of solar modules and batteries for the whole world.
The state absorbed losses in old industries rather than negotiating with them. Coal regions were compensated and redirected. Incumbent oil and power interests were not given a veto.
The pay-off is now visible in the national accounts. Clean energy contributes around a tenth of Chinese GDP and has become the largest single driver of growth. The so-called new three, solar, batteries and electric vehicles, replaced property as the engine of the economy.
The effect on oil is the most striking. In the first half of 2026, electric vehicles displaced more oil in China than the United Kingdom consumes in six months. In the second quarter, for the first time anywhere, a fall in oil use rather than coal drove a major economy’s emissions down. Structural peak oil demand in transport has been demonstrated, and it was demonstrated in Beijing.
The political economy lesson is simple. Decarbonisation at scale is an investment and industrial policy problem. Replacing the capital stock of an industrial economy takes trillions in patient capital, coordinated grid construction, and a political system able to override the industries being replaced.
Carbon pricing is a demand-side tool. It raises the cost of pollution and assumes the supply side will respond by building the alternative. In capitalist democracies the supply side is exactly where the veto players live. Utilities, carmakers and oil majors have had decades to learn how to slow a carbon price down, water it down, or exempt themselves from it.
Europe is the test case. The European Union runs the highest carbon price in the world, and its heavy industry is shrinking rather than transforming. Its solar panels, its batteries and increasingly its cars come from China. Carbon pricing without an industrial strategy does not produce a green economy. It produces deindustrialisation, and the emissions move offshore.
The objections are real. China approved a record volume of new coal plants in 2025. Its 2035 pledge, a cut of 7 to 10 per cent from a peak it has not yet defined, is weak. The data comes from a state with every incentive to flatter itself.
But the coal is increasingly backup capacity running at falling utilisation, and the direction of travel is fixed by the hardware already on the ground. Meanwhile the United States has walked out of the United Nations climate treaty altogether. One superpower has left the field. The other is the main reason global emissions might peak this decade.
The lesson is also not that authoritarianism works. Patient public capital, directed credit, planning across years rather than electoral cycles, and the political will to retire incumbent industries are tools Europe once used to build its postwar economies. They are tools of state capacity, and they are available to any democracy willing to pick them up again.
Europe has chosen not to. The EU will not import cheap Chinese clean tech, because that would hollow out what remains of its car and manufacturing base. It will not import Russian fossil fuels, for good reason. And it cannot change its own fiscal, monetary or industrial rules so that member states can build renewables themselves. Debt brakes, state aid rules and a central bank that treats public investment as inflation all stand in the way.
China decided the industrial base of this century would be electric, and then financed it. The EU has decided nothing. No imports, no self-reliance, no plan. Europe is the only major economy that has made the energy transition illegal under its own rules.
This post was edited with the help of Claude (Anthropic).
Leave a Reply