China’s Next Five-Year Plan Crucial to Staging Coal Exit: Report

A new report from the Centre for Research on Energy and Clean Air and Global Energy Monitor indicates China lacks a coherent coal exit strategy, with new coal projects reaching a decade high despite Beijing's efforts to reduce existing coal-fired power output and carbon emissions. This contradictory trend underscores the critical importance of China's next five-year plan in shaping its energy transition and has significant implications for global climate targets and energy market outlook.

Analysis

A recent report from the Centre for Research on Energy and Clean Air and Global Energy Monitor highlights a significant contradiction in China's energy policy, creating material uncertainty for energy markets and ESG-focused investors. Despite efforts that have led to reductions in existing coal-fired power output, the development of new coal projects has surged to a decade high in the first half of 2025. This dual-track approach indicates a lack of a coherent, unified strategy for exiting coal, suggesting that near-term energy security objectives may be taking precedence over long-term decarbonization goals. The report underscores that China's next five-year plan will be a pivotal document, as its contents will either resolve this policy ambiguity and accelerate the renewable transition or entrench coal's role in the country's energy mix, with profound implications for global climate targets.

Key Decisions for Investors

• Investors should closely scrutinize China's upcoming five-year plan for specific targets on coal capacity and renewable integration, as it will be the primary catalyst determining the long-term risk and return profile for assets across the energy spectrum.
• The persistence of new coal project approvals may present a tactical, short-to-medium term opportunity for firms in the coal supply chain, but this position carries significant long-term regulatory risk tied to future climate policy shifts.
• For portfolios with exposure to renewable energy, this report introduces a headwind, suggesting the pace and profitability of the clean energy transition in China could be moderated until a definitive coal phase-out strategy is implemented.