Industrial Policies and State-Owned Enterprises: The Foundations of China’s Path Towards Decarbonization

This article analyses the strategy of carbon neutralization pursued by the Chinese government over the past decade. It is argued that the crucial position of State-owned enterprises (soes) in China’s energy sector, combined with the adoption of selective industrial policies by the government, have been playing a paramount role in effectively restraining the consumption of fossil fuels, on the one hand, and fostering the advancement of domestic capabilities in the field of renewable energy, on the other. In particular, the public prominence in the ownership structure of coal and thermoelectric companies has provided the public sphere with the institutional capacity to accelerate the contraction of fossil fuel consumption in spite of the comparative advantage of coal price. On the other hand, the involvement of soes and the mobilization of public resources towards the renewable energy sector have contributed to effectively solving market externalities and supporting the growth of firms in low-carbon industries. This helped China set in motion a virtuous cycle of technology substitution of obsolete technologies for cleaner technologies, thus facilitating the transition to renewable energy. Overall, the analysis of the structural features underlying the progressive decoupling of carbon emissions from the use of energy resources suggests that China has been setting the preconditions for decreasing the costs of energy transformation, thereby balancing the policy goals of reducing environmental pollution and of securing economic growth in the long run