The “dual-control” policy on total energy consumption and energy intensity

(1) Concept Introduction

　　 Dual-control system for energy consumption This refers to the dual-control system for total energy consumption and energy intensity, under which total energy consumption and intensity targets are set at the administrative levels of provinces, autonomous regions, and municipalities directly under the central government, with oversight and assessment conducted on local governments at all levels. Energy-saving indicators have been incorporated into performance evaluation systems such as ecological civilization and green development, guiding a shift in development paradigms. For key energy-consuming entities, dual-control targets for energy consumption are broken down and assigned, and target responsibility assessments are carried out to encourage these entities to strengthen energy management. The Fifth Plenary Session of the 18th CPC Central Committee proposed implementing a “dual-control” initiative for both the total amount and intensity of energy consumption. With the implementation of the “dual-carbon” strategy, the dual-control policy has become a crucial lever for energy conservation and emission reduction, and its effectiveness continues to grow.

(2) Early Warning Mechanism

　　The National Development and Reform Commission has implemented a “red, yellow, green” warning mechanism for the dual-control assessment of energy consumption in provinces, municipalities, and autonomous regions. The specifics are as follows:

　　A red light indicates a Level-1 warning, signaling a very serious situation—specifically, regions that have failed to meet their dual-control progress targets and whose actual values exceed the target values by more than 10%.

　　The yellow light indicates a Level-2 alert, signaling a relatively serious situation—specifically, regions that have failed to meet their dual-control progress targets and whose actual values fall within 10% of the target values.

　　The green light indicates a Level-3 alert, meaning that regions have met their dual-control progress targets, and overall progress is going smoothly.

(3) After issuing a warning, local governments will take substantive measures.

　　The “dual control” mechanism for energy consumption is a stringent environmental regulation policy. Looking back at history, once local areas receive early warning signals regarding their performance evaluations, they invariably resort to administrative measures to exert control and strive to meet their annual targets. We believe that this trigger mechanism—“early warning—rectification—target compliance”—is becoming increasingly robust as the concept of “ecological civilization” and the “dual-carbon” goals continue to gain momentum.

According to the mid-August report released by the National Development and Reform Commission on the completion status of dual-control targets for energy consumption in various regions during the first half of 2021, Yunnan has triggered a red alert—indicating a serious level of warning—for both its target progress in reducing energy intensity and its target for controlling total energy consumption. The situation regarding Yunnan’s dual-control of energy consumption is extremely severe.

On September 11, the Yunnan Provincial Development and Reform Commission issued the “Notice on Firmly Carrying Out Work Related to the Dual Control of Energy Consumption” (hereinafter referred to as the “Dual Control Notice”). The “Dual Control Notice” sets forth specific emission reduction policies for high-energy-consuming industries, including the steel industry, cement industry, yellow phosphorus industry, green aluminum industry, industrial silicon industry, and coal-fired power industry.

The “Dual-Control Notice” requires, on the basis of ensuring the completion of the 2021 target for reducing crude steel production, to adjust the production schedules of steel enterprises across the province. Specifically, in September 2021, the scheduled production volume should be adjusted (with the adjustment ratio no less than 30% of the monthly assessment target). Cement production in September should be reduced by 80% compared to the August output. From September to December, the average monthly production of industrial silicon enterprises and yellow phosphorus production lines should not exceed 10% of the August output (representing a 90% reduction in output). Similarly, green aluminum enterprises’ average monthly production from September to December should not exceed their August output.

Yunnan Province is a major domestic production base for industrial silicon and hydropower-based aluminum. Under the backdrop of dual-control measures on energy consumption, industrial silicon and hydropower-based aluminum production will be further reduced from September to December. Consequently, the overall consumption of petroleum coke in the Yunnan region during the same period will also see a noticeable decline. Let’s take a closer look below:

According to the requirements of the “Dual-Control Notice,” if the average monthly output of primary aluminum from September to December does not exceed the August output, the hope of resuming production at previously curtailed capacities will once again be dashed. Moreover, the nearly 1 million tons of capacity that has yet to be commissioned will also likely fail to come online. In August, Yunnan Province’s primary aluminum output was approximately 240,000 tons; it is projected that from September to December, the province’s primary aluminum output will fall short of 1 million tons. Based on this projection, the total consumption of petroleum coke in Yunnan’s primary aluminum industry from September to December is estimated at around 500,000 tons, representing a month-on-month decline of roughly 16%.

Of course, beyond Yunnan, the electrolytic aluminum industry in regions such as Inner Mongolia, Guangxi, and Xinjiang has also experienced production cuts to varying degrees. Additionally, Qinghai, Ningxia, and Shaanxi have successively issued power restriction warnings. From September to December, China’s electrolytic aluminum industry will likely face further production cuts, which could in turn drive aluminum prices to new record highs. However, as the capacity utilization rate of electrolytic aluminum plants declines in the later period, demand for petroleum coke used in aluminum production is expected to drop significantly once the stocking-up phase comes to an end.

Currently, China's total capacity for metallurgical-grade silicon is approximately 5 million tons per year. Among this, the Yunnan region accounts for about 1.1 million tons per year, representing 22% of the nation's total capacity. According to the requirements of the "Dual-Control Notice," from September to December, the monthly average output of metallurgical-grade silicon enterprises must not exceed 10% of their August production level—meaning a reduction of 90% in output. In August, the total output of metallurgical-grade silicon in the Yunnan region was roughly 65,000 tons. Following the implementation of the policy, the total output of metallurgical-grade silicon in Yunnan from September to December is expected to drop to 26,000 tons, bringing the region's annual output below 280,000 tons for the entire year. Over the course of the year, the Yunnan region’s metallurgical-grade silicon industry will reduce its consumption of petroleum coke by approximately 200,000 tons, a year-on-year decrease of 45%. Specifically, from September to December, the region’s metallurgical-grade silicon industry will cut its petroleum coke usage by about 100,000 tons, representing an 85% year-on-year decline.

Under the backdrop of carbon neutrality, the supply and demand in high-energy-consuming industries are expected to remain tight in the long term. As two “high-energy-consumption, high-emission” sectors, electrolytic aluminum and metallic silicon will face certain constraints on future capacity expansion and production. Even the green aluminum industry will encounter limitations during periods of severe energy consumption challenges and scarce hydropower resources—particularly during dry seasons. Although the photovoltaic industry aligns with the country’s future energy consumption policies, the growth of upstream metallic silicon capacity is severely restricted, which to some extent will exacerbate the rise in metallic silicon prices. At the same time, this also introduces greater uncertainty regarding the future use of petroleum coke in both the electrolytic aluminum and metallic silicon sectors.