Key challenges facing China's strive for environmental targets in 2026

As China enters the new year, it is preparing to roll out its 15th five-year plan, covering the period from 2026 to 2030. Beijing is intensifying efforts to green its economy and has set its sights on two key climate objectives: achieving “carbon peaking,” meaning carbon dioxide emissions reach a maximum by 2030, and attaining “carbon neutrality,” where net emissions fall to zero by 2060.

Yet China’s environmental ambitions sit uneasily alongside its energy realities. Coal still accounts for about 51% of electricity generation as of mid-2025, underscoring the difficulty of rapidly transforming the country’s energy system. A recent article published by The Conversation outlines five major challenges that will shape China’s green transition as it moves into 2026:

Energy transmission and wastage

China’s power grid can handle only a limited share of electricity generated from solar and wind. When renewable output surges, it risks overwhelming the system, prompting grid operators to instruct producers to cut generation — a process known as “curtailement.” As a result, electricity generated in western regions often fails to reach eastern economic centres such as Beijing, Tianjin, Shandong, Jiangsu, Shanghai, Zhejiang, Fujian and Guangdong, where demand is highest.

To address this, the article states that China needs substantial investment in energy transmission and storage. The State Grid Corporation of China has announced plans to spend 650 billion yuan (around $92 billion) in 2025 to upgrade the network, with even larger investments likely in the years ahead.

The difficulty lies in sustaining these capital-intensive projects while the wider economy continues to feel the aftershocks of the 2021 property crisis.

Cutting coal without blackouts

Despite pledging to lead the world in green energy, China continues to expand coal capacity. In 2024 alone, it added enough new coal-fired power plants to generate twice the UK’s annual electricity consumption. This seeming contradiction reflects deep concerns about energy security.

Beijing is determined to avoid a repeat of the power shortages and blackouts seen between 2020 and 2022. Coal provides reliable, round-the-clock electricity that renewables cannot yet fully replace.

However, the publication notes that the ongoing expansion of coal capacity undermines China’s climate commitments and exposes tensions between President Xi Jinping’s dual carbon goals and the country’s immediate energy needs, raising questions about how far political ambition can be reconciled with economic reality.

Controlling overcapacity without hurting growth

China’s formidable manufacturing base, once a clear advantage, is increasingly becoming a challenge. Rapid growth in solar, wind and electric vehicle production has led to significant overcapacity across the clean-tech sector. Factories are producing more panels, turbines and batteries than the domestic market can absorb.

This surplus has triggered intense price competition, with firms selling below cost and eroding profits. Beijing now faces the delicate task of curbing overproduction without stifling growth in green industries. The issue is politically sensitive, as local governments rely on these sectors to create jobs — 7.4 million in 2023 — and generate significant revenue.

Trade tensions

China’s glut of low-cost clean technologies, including solar panels, electric vehicles (EVs) and batteries, has fuelled trade tensions overseas. In 2023 and 2024, the European Union launched investigations into allegations that Chinese subsidies were supporting EVs, wind turbines and solar panels. As a result, tariffs of up to 35.3% were imposed on Chinese EVs, though similar measures have not yet been applied to solar panels or wind turbines.

However, the EU’s Carbon Border Adjustment Mechanism (CBAM) is set to take effect on January 1, 2026. This mechanism imposes a carbon tax on imports produced using high-emission processes. While it does not directly target EVs or solar panels, it applies to carbon-intensive inputs such as steel and aluminium, which are often produced using coal-fired power.

This could erode the competitiveness of Chinese clean-tech products in the European market, potentially driving customers toward alternative suppliers.

Fulfilling green targets

While China’s local governments are formally tasked with implementing Beijing’s climate policies, many are expected to do so largely on their own. Provincial authorities generally have greater fiscal resources and technical capacity, but city-level governments within provinces often lack sufficient funding, making it difficult to turn green initiatives into reality.

The article notes that even when local officials are instructed to meet climate targets, their career prospects remain closely tied to traditional economic metrics such as GDP growth and investment.

This helps explain the continued enthusiasm for new coal-fired power projects. Such projects are framed not only as a safety net if renewables and grid infrastructure fall short of rising demand, but also as drivers of local employment, fixed-asset investment and fiscal revenue.

By Nazrin Sadigova