China: An Energy & Natural Resources (PRC Firms) Overview

China’s Energy Sector Steps into a New Legal Era of Green Transition and Market Reform

China’s energy sector is undergoing two parallel developments: the transition towards cleaner, lower-carbon energy and the deepening of market-oriented reform. Long driven by policy and administrative measures, these changes are now increasingly being written into law. The enactment of the Energy Law and the revision of the Mineral Resources Law mark a decisive shift. The former gives statutory force to the country’s energy-transition ambitions, while the latter signals a stronger move towards competitive, market-based allocation of mineral rights, particularly in upstream development. Together, they are redefining the regulatory landscape and giving rise to a new wave of legal and commercial disputes.

The structure of China’s energy sector

China’s abundance of coal, limited oil reserves and relatively scarce natural gas have long shaped its energy policy and continue to influence the pace and form of its energy transition. At the same time, the sector is moving towards a greener, lower-carbon model.

According to the National Bureau of Statistics, clean energy consumption accounted for 30.4% of China’s total energy use in 2025, reflecting steady growth in wind and solar power. This indicates that clean energy has become an increasingly important source of incremental supply within the country’s energy system.

Meanwhile, imports of coal and lignite, crude oil and natural gas declined by 30.2%, 8.3% and 12.5%, respectively, in 2025, reflecting both economic slowdown and structural adjustments in the energy sector. However, fossil fuels remain central to energy security. Coal, oil and gas continue to perform an essential role in ensuring stable supply.

Electricity consumption also reached historic highs last year, with wind and solar power together accounting for 80.2% of newly added capacity. According to the Statistical Communiqué on National Economic and Social Development (2025), China’s annual electricity consumption was more than twice that of the United States.

Meanwhile, the green electricity trading market has expanded rapidly. In 2025, the volume of green power trading increased by 38.3% year on year. Driven by the central government’s carbon reduction initiatives, which underpin the energy transition, both the carbon and green certificate markets have grown at a notable pace. These developments suggest that China’s top leadership remains committed to the strategic objective of controlling emissions and advancing energy transition.

The Energy Law and the Mineral Resources Law: energy transition and market-oriented reform

For many years, China lacked a unified energy law in codified statutory form. Despite the strategic importance of the energy sector, its legal framework remained fragmented across various legislations, regulations and policy measures. This changed with the passage of China’s first Energy Law on 8 November 2024, which came into effect in January 2025. Its significance lies both in the formal enactment of a long-anticipated legal framework and in what it indicates about the present stage of China’s energy governance. Having been involved in the relevant legislative process since 2004, the author has observed that the protracted timeline reflected not only constraints in legislative capacity, but also the inherent difficulty of codifying an industry long shaped by continuous policy adjustment and energy transition.

As the foundational and overarching law governing the sector, the promulgation and implementation of the Energy Law has declaratory legal significance in this regard. It incorporates into codified law national policy goals and signals a shift in regulatory focus from controlling total energy consumption to managing carbon emissions outcomes.

Article 1 of the Energy Law expressly provides that one of its legislative purposes is to “actively and prudently promote carbon peaking and carbon neutrality”. Article 5 states, for the first time in statutory form, that “the State shall establish a new mechanism for a comprehensive transition from dual control of total energy consumption and energy intensity to dual control of total carbon emissions and carbon intensity, and accelerate the establishment of a system for dual control of total carbon emissions and carbon intensity”.

The promulgation is also significant for deepening market-oriented reform in the energy sector, although such reform has already been underway for many years. As is well known, the industry was initially dominated by a government-led “planned economy” paradigm. As market-oriented reform has advanced, monopolies have gradually been dismantled and market access liberalised.

The author had the opportunity to participate in a research project on China’s oil and gas reform plan (see Fan Bi, Research on the Oil and Gas Reform Plan). Under that reform design, the upstream oil and gas sector was to be further opened in terms of market access. The current upstream structure reflects a dual-track paradigm. Many high-quality blocks remain concentrated in major state-owned enterprises, while certain unconventional resources and some existing block interests have been opened to other state-owned, private or foreign participants through bidding or co-operative arrangements.

In the upstream energy sector, the acquisition and transfer of mineral rights remains among the most important legal areas. The Mineral Resources Law, most recently revised on 8 November 2024, expressly reaffirms in Article 4 that mineral resources belong to the state. Article 5 provides that the exploration and mining of mineral resources require, respectively, the acquisition of exploration rights and mining rights in accordance with law. Notably, revised Article 17 formally confirms the competitive method of acquiring mineral rights, clearly indicating that the reform is oriented towards market-based competition. In this regard, the judicial interpretation issued by China’s Supreme People’s Court on 21 January 2026 is noteworthy, as it elaborates on the transfer of mineral rights and the protection of the rights of mineral-rights holders.

Developments and reform in the midstream sector

Market-oriented reform is also evident in the midstream sector. The establishment of the National Pipeline Corporation, which holds a natural monopoly in the natural gas midstream sector, has raised the question of how to ensure fair access within a market-oriented system. In this context, in 2025 the National Development and Reform Commission and the National Energy Administration successively issued a series of regulatory documents addressing infrastructure access and pricing, among other things, including the Guiding Opinions on Improving the Intra-Provincial Natural Gas Pipeline Transportation Pricing Mechanism to Promote High-Quality Industry Development, the Measures for the Supervision of Fair and Open Access to Oil and Gas Pipeline Network Facilities.

The power sector also saw a similar move. Reforms have focused on advancing pricing mechanisms, supporting the development of distributed generation and improving mechanisms for the local consumption of green electricity.

In parallel, carbon market development has accelerated. In 2025, the relevant authorities published the Work Plan for Expanding the National Carbon Emissions Trading Market to Cover the Steel, Cement and Aluminum Smelting Sectors and the white paper titled China’s Actions on Carbon Peaking and Carbon Neutrality. Together, these documents are intended to support the government’s “dual carbon” objectives and advance the green and low-carbon transition. The author has observed that the legal framework in these areas remain less developed. This gap underscores the need to strengthen legal research and legislative work in these fields.

Challenges in the energy sector and the growing demand for specialised legal services

The acceleration of transition and reform is generating new forms of legal and commercial disputes across the sector. The photovoltaic power sector provides a clear example. Capacity expansion in the sector has been accompanied by intense competition and significant price pressure. According to the National Energy Administration, newly installed capacity in the sector reached nearly 93 GW in May alone, intensifying short-term oversupply and price competition. Although regulatory and industry responses have been made to address these issues, disputes are likely to rise.

In the natural gas sector, structural changes have contributed to a growing number of contractual disputes. In the upstream sector, where actual reserves in certain coalbed methane blocks have exceeded earlier expectations, foreign contractors have increased their investment and sought extensions of production sharing contract (PSC) terms. Legal assistance in this area often focuses on the interpretation of PSC clauses and a proper understanding of the contractual purpose.

In the downstream natural gas sector, slower economic growth and weaker demand have contributed to an increase in take-or-pay disputes. A number of such cases have been submitted to domestic arbitral institutions or litigated before the courts. Yet judges, arbitrators and lawyers in China continue to differ in their understanding of the legal nature of take-or-pay clauses. Last year, in a take-or-pay case where the author served as presiding arbitrator, the tribunal upheld the claimant’s claim based on the contractual arrangements agreed by the parties.

Pricing disputes have also become more prominent. The coexistence of monopoly elements and competitive mechanisms along the oil and gas value chain complicates pricing structures, which are not yet standardised. In some long-term direct supply agreements, future prices cannot be determined under the contractual pricing formula, prompting parties to often turn to arbitration or litigation to resolve their disputes and ensure continued contractual performance.