By Eugene Ellmen
Published in Sustainable Business & Finance
Executive Overview
By any objective measure, the People’s Republic of China stands as the undisputed global leader in the twenty-first-century energy transition. The scale of Beijing’s green industrial pivot is breathtaking. Last year alone, China manufactured a staggering 16 million electric, hybrid, and fuel-cell vehicles, completely eclipsing the next-largest producers—Germany and the United States—which managed roughly one million electric vehicles (EVs) each.
Concurrently, China dominates the renewable energy landscape. It accounts for approximately half of the entire planet’s newly installed wind, solar, and battery storage capacity. From massive desert solar arrays to sprawling offshore wind farms, China’s deployment of clean technology has broken global records year after year.
Yet, running parallel to this monumental green surge is a deeply confounding contradiction: China is simultaneously orchestrating the largest expansion of coal mining, coal-fired power plants, and coal-based chemical industries seen anywhere on Earth. To outside observers, it seems difficult to fathom why the world’s most prolific producer of renewable energy is aggressively underwriting the planet’s dirtiest fossil fuel.
"I think a lot of people are puzzling and really trying to understand what is happening in China," observes Heffa Schücking, founder of Urgewald, a Germany-based climate and environmental bank-watch NGO.
This paradox is not merely theoretical; it is reshaping global financial flows, driving up short-term carbon emissions, and complicating the global fight against climate change. While Western banks have largely retreated from fossil fuel financing, Chinese financial institutions are aggressively doubling down on coal. This deep dive examines the historical roots, economic motivations, geopolitical imperatives, and environmental consequences of China’s dual-track energy strategy.
Detailed Chronology: The Evolution of China’s Dual Energy Strategy
To understand how Beijing arrived at this historical crossroads, one must trace the timeline of energy policy, economic vulnerability, and industrial policy that has shaped China over the past decade.
2021–2022: The Catalyst of Crisis
The seeds of China’s current coal renaissance were planted during the severe nationwide power blackouts of 2021 and 2022. Crippling heat waves and historic droughts severely depleted the country’s hydroelectric reservoirs, while surging global fossil fuel prices caught domestic utility providers off guard. Factories were forced to shut down, cities faced rolling blackouts, and the specter of industrial paralysis shook Beijing’s leadership to its core.
According to Heffa Schücking, this period permanently altered China’s national security calculus. "In 2021 and 2022, there were big power outages in China, and there were extreme heat waves and drought, and some of the hydroelectric dams were not delivering," she notes. "That put energy security squarely on the map."
2022–2025: The Financial Surge
In the wake of these power crises, the Chinese government pivoted aggressively toward a "safety-first" energy policy. While greenlighting historic amounts of renewable capacity, Beijing also instructed state-backed financial institutions to ensure that domestic coal supplies and baseload power remained bulletproof.
According to data released by Urgewald, Chinese banks embarked on a massive coal-industry financing boom between 2022 and 2025. During this three-year window, domestic lenders supplied a staggering $289 billion to China’s domestic coal sector. This figure accounts for nearly two-thirds of the $467 billion funneled by all global banks into the worldwide coal industry over the same period.
By 2025, Chinese coal financing hit $75 billion annually—representing an 8% increase over 2022 levels and capturing roughly 60% of all bank flows to the global coal industry.
Early 2026: Emissions Rebound and "Wasted" Green Energy
The friction between China’s green ambitions and its coal expansion came to a head in early 2026. Climate analytics service Carbon Brief reported that China’s carbon dioxide emissions grew by 2% during the first three months of 2026. The primary driver? The heavy reliance on excess coal usage, compounded by the phenomenon of "wasted" clean energy.
Because China has built out both wind/solar and coal capacity simultaneously at a furious pace, its coal plants—which provide roughly 50% of the nation’s electricity—are running well below capacity, operating only about half the time. Meanwhile, renewable energy projects, which generate roughly 25% of the country’s power, are experiencing severe grid curtailments. Up to a quarter of wind and solar power generation is routinely curtailed, meaning turbines are deliberately slowed down or shut off because the grid cannot absorb the electricity, forcing utilities to rely on mandated coal baseload instead.
April 2026: The New Five-Year Plan
In April 2026, Beijing released its latest Five-Year Plan. While continuing its massive support for advanced technologies and clean energy, the plan notably stipulated that coal power capacity must officially peak by 2030. While this provides a long-term horizon for capping emissions, analysts warn that the sheer volume of coal infrastructure currently in the pipeline threatens to lock in high emissions for decades to come.
Supporting Context & Metrics: The Scale of the Paradox
The sheer scale of financial and physical assets mobilized in China’s energy sector defies simple categorization. The country is simultaneously breaking records in clean energy adoption and fossil fuel underwriting.
The Financial Footprint
While most major European and North American financial institutions have bowed to shareholder pressure and ESG mandates, reducing their exposure to the coal sector, Chinese banks have filled the vacuum. This financing encompasses direct corporate lending, project finance, and the underwriting of debt and equity.
Crucially, Chinese bank financing for coal is exclusively domestic. It is not being exported via the Belt and Road Initiative—where Beijing has largely phased out overseas coal plant financing—but is instead being deployed entirely within China’s borders. The capital is directed toward three main areas:
- Constructing new ultra-supercritical coal-fired power plants.
- Opening new coal mines and expanding existing extraction operations.
- Building out China’s fledgling coal-to-chemical industry.
Infrastructure Pipeline
The physical expansion of coal power in China is staggering. According to joint estimates by the Centre for Research on Energy and Clean Air (CREA) and Global Energy Monitor (GEM), approximately 274 gigawatts (GW) of new coal-fired power plant capacity is currently either permitted or actively under construction in China.
When this capacity comes online over the next few years, it will expand China’s already massive existing fleet of 1,245 GW by roughly 20%. Furthermore, Urgewald estimates that an additional 260 GW remains in various pre-construction planning stages. Should these planned projects materialize, China’s coal-fired power capacity will expand by yet another 20%, cementing a massive fossil-fuel footprint well into the mid-century.
Official Statements and Expert Analysis
The friction between government policy, financial flows, and environmental reality has generated intense debate among global energy analysts and climate watchdogs.
Heffa Schücking of Urgewald remains one of the most vocal critics of Beijing’s dual-track approach. In interviews and policy briefings, she emphasizes that China’s strategy is fundamentally counterproductive to global climate goals:
"China’s energy policies remain highly contradictory. Although the country’s electricity demand growth is almost exclusively met by the massive build-out of solar, wind and energy storage capacity, it keeps on building coal plants it doesn’t need and that obstruct the energy transition."
Schücking points out that while the growth in Chinese electricity demand is fully met by clean energy additions, the ongoing construction of coal plants serves as a structural roadblock. These plants create a sunk-cost trap, forcing grid operators to prioritize coal power to protect domestic financial investments at the expense of zero-carbon alternatives.
Climate analysts at CREA and GEM echo these concerns, noting that China’s preoccupation with absolute energy self-sufficiency has overridden its climate commitments. While Beijing ratified the Paris Agreement and pledged to peak carbon emissions before 2030, its domestic policies treat emissions reduction as a secondary benefit rather than a primary driver.
From Beijing’s perspective, however, energy policy is viewed through the unyielding lens of national security and economic stability.
First, national security in China extends far beyond electricity reliability. It is deeply tied to reducing vulnerability to imported oil. Recent geopolitical tensions and price volatility—exemplified by disruptions in the Strait of Hormuz and fallout from conflicts in the Middle East—have reinforced Beijing’s historical anxiety over energy chokepoints.
By aggressively scaling up its electric vehicle fleet (even though a significant portion of EV charging relies on a coal-heavy grid), China is executing a calculated macroeconomic maneuver: permanently weaning its transportation sector off imported oil. As energy analysts note, the rapid adoption of EVs is quietly dismantling oil’s strategic leverage over the Chinese economy.
Second, the coal industry serves as a crucial pillar of domestic economic development, particularly in northern industrial provinces such as Shanxi, Inner Mongolia, and Shaanxi. Millions of jobs, regional tax bases, and heavy industries rely directly on the coal ecosystem.
To protect these regions from economic shocks, the Chinese government utilizes aggressive market interventions. Grid operators are legally mandated to make capacity payments to coal-fired power companies—guaranteeing baseline revenues regardless of whether their electricity is actively dispatched to the grid. Additionally, the government is pouring capital into the coal-to-chemical sector, transforming coal into synthetic natural gas, olefins, and petrochemical feedstocks to reduce reliance on imported chemical imports.
Future Outlook: Can China Reconcile the Contradiction?
As China navigates the second half of the 2020s, the central question for the global climate community is whether the country’s green industrial juggernaut can successfully crowd out its fossil fuel legacy.
On one hand, the momentum behind clean energy is unstoppable. Solar and wind manufacturing costs have plummeted, and China’s domestic supply chain for batteries, EVs, and renewable components is miles ahead of any global competitor. The inclusion of a coal-power peak target by 2030 in the latest Five-Year Plan indicates that Beijing recognizes the finite lifespan of unabated fossil fuels.
On the other hand, the sheer weight of the current coal build-out—over 500 GW of combined permitted, under-construction, and planned capacity—poses a severe hazard. If these plants operate for decades, they risk locking in massive greenhouse gas emissions, exacerbating grid curtailment issues, and crowding out storage investments needed to build a truly flexible, smart grid.
Ultimately, China’s energy policy is guided not by abstract carbon reduction targets, but by a pragmatic, hyper-nationalist framework that prioritizes absolute energy security, domestic economic stability, and industrial independence above all else. Until Beijing is convinced that wind, solar, and battery storage alone can guarantee uninterrupted power during extreme climate events and geopolitical crises, the great coal contradiction will persist—casting a long, dark shadow over the nation’s otherwise blindingly bright green revolution.
