China: China's energy challenges, climate change, and what it means for data centers

Back in May 2021, Greenpeace said that China's data center emissions were to double, with its energy usage expected to nearly quadruple by 2035 (increasing by an estimated 289%). "Explosive growth" in digital infrastructure was identified as a major contributing factor to this. Considering the industry's projected growth, now, more than ever, it is essential that Chinese data centers and the wider tech industry become more energy efficient and green, however, with China recently experiencing record-breaking heatwaves and droughts, it has faced serious challenges in meeting its energy needs while pursuing its 2060 decarbonization plan. As a result, the country's clean energy model is now being questioned. While many argue that now is the time to speed up the clean energy transition, others say there should be more investment in coal.

China has been aggressively investing in renewables in recent years (securing 15% of its energy from renewables last year, beating the United States at 12%). Moreover, according to the Australia & New Zealand Banking Group, combining investment in renewable energy and power transmission, the country's total "green investment" could reach 2.6 trillion yuan in 2022. Yet, it still has a long way to go in its low carbon transition, and last year, it still obtained 85% of its energy from fossil fuels, primarily coal. Likewise, considering in Sichuan, renewable energy sources, such as hydropower, have the capacity to produce 85 percent of needed energy, consumption still reaches only 38 per cent due to restraints in storage capacity. 

Recent extreme weather conditions in China have also undoubtedly revealed the cracks in its renewable energy sources, with droughts causing serious disruptions to hydropower plants along the Yangtze River. This resulted in millions of citizens and businesses in the southwest being left without power. In response, Sichuan, which relies mostly on hydropower, opened its first national coal reserve, started up its coal-fired power plant, and Sichuan Coal Industry Group, its largest coal miner, more than doubled its thermal coal production. 

Fortunately, when it comes to the tech industry in China, officials have outlined in their five-year plan that the future growth of data centers will be more controlled, with Beijing, Shanghai and Guizhou banning the construction of new data centers with low energy efficiency. Subsequently, in order to maintain growth in the sector, there is a serious imperative for change, and those within the industry are beginning to recognize this, as well as the challenges that come with compliance. As a result, data center operators and investors in China have become more cautious when it comes to new deals.

At a recent forum on data centers in the APAC region, Johnny Shao, managing director for investments with Gaw Capital Partners mainland team, said that China's sustainability guidelines for data centers, which include certifying standards of design and construction and daily monitoring of operations to ensure compliance with consumption guidelines for power and water, are "quite harsh but doable." Adding: "Every single government wants to have more energy efficient data centres to be built in the country so I think this is something commonly shared by governments." Indeed, in recent years a number of Chinese tech firms such as Chindata and Tencent have made sustainability pledges and committed to transitioning to renewables for their energy usage, that said, there is still much room for improvement and the transition isn't happening quickly enough, and not at the scale required for impactful change.

Moreover, while the Chinese government's sustainability pledges in recent years have been promising, recent climatic events have left a big question mark around the country's green energy transition. As academics Guangyi Pan and Hao Yang have outlined, the energy crisis has seen Beijing "shift its political discourse and proclaim energy security as a more urgent national mission than the green energy transition." This shift comes despite significant progress, which had seen the growth of coal consumption gradually flattening from 2014. It appears that China is currently at a crossroads when it comes to its energy - and the path that it takes will have a significant environmental impact on a global scale, and help decide whether or not Paris Agreement climate targets are met. Only time will tell which route it chooses to take.