China’s Oil Slump Cut CO2 Emissions Even as Coal Power Rose

China’s second-quarter emissions decline was unusual because it was driven primarily by falling oil use rather than lower coal consumption. A sharp reduction in transport fuel demand cut petroleum-related emissions enough to offset a rise in coal-fired power generation. The episode also shows how a supply shock can reinforce a longer-running shift: China’s fast-growing electric-vehicle fleet is reducing the amount of oil needed to move people and goods.

Why emissions fell while coal-fired generation increased

China’s total carbon dioxide emissions fell 1% year on year in Q2 2026. Oil consumption dropped 9%, with transport-sector oil use down 16%; crude processing declined 11%. Coal-fired generation, meanwhile, increased 2.4%.

The key is the relative scale of the changes across fuels. CREA’s analysis, reported by Reuters, estimated that lower oil use avoided roughly 35 million tonnes of CO2 during the quarter. That reduction was large enough to outweigh the additional emissions associated with higher coal generation and pull total emissions lower.

This is significant because oil has historically been less important than coal in China’s emissions story. It does not mean coal has ceased to matter: coal generation and wider industrial activity remain central determinants of China’s annual emissions path. Rather, it shows that lower transport-fuel use can now move the national emissions total.

Hormuz disruption raised prices—and China used its cushion

The disruption to oil exports through the Strait of Hormuz constrained supplies reaching Asian markets and lifted fuel prices. China reduced net crude imports by about 30% year on year in April through June, or around 3.5 million barrels per day; June imports reached their lowest level since October 2016. 1

That import drop was not simply a measure of lost demand. China had accumulated inventories when prices were lower, allowing it to draw on stored oil as imports became more difficult and expensive. It also had access to supply routes not dependent on Hormuz. 115

Underlying demand was weakening at the same time. Implied Q2 data cited by Columbia’s Center on Global Energy Policy showed gasoline demand down 5% year on year and diesel demand down 13%. 1 In that setting, high oil-product prices encouraged consumers and businesses to economize on fuel rather than absorb the full shock through additional imports.

EV adoption turned a supply shock into a faster demand shift

The import response was made easier by a structural change that predates the disruption: electrification of road transport. The International Energy Agency estimated that EVs displaced more than 1.5 million barrels per day of Chinese road-fuel demand in Q2 2026, up from about 600,000 barrels per day a year earlier. 9

Other estimates put EV-related displacement at about 1.4 million barrels per day during the first half of 2026. 10 The precise estimate varies by methodology, but the direction is clear: electrification has made a meaningful dent in gasoline and diesel demand.

Higher prices did not create that trend. They made alternatives—including electric cars, trucks, rail and electrified industrial equipment—more attractive relative to petroleum fuels. 8 That combination helps explain why China could lower purchases sharply during a supply disruption without an equivalent disruption to mobility or economic activity.

Why Sinopec sees 2025 as China’s oil-demand peak

Sinopec’s chairman has said it is very likely that China’s oil consumption peaked in 2025, earlier than previous expectations. 6 The rationale is concentrated in transport: gasoline, diesel and jet fuel were once the main engines of oil-demand growth, but electrification is rapidly eroding that role.

The Q2 decline should not be read as evidence that every part of oil demand is in permanent retreat. Petrochemical feedstocks and industrial uses can follow a different path from road fuels. Nor can a quarter shaped by a major supply disruption establish a long-term trend on its own.

Still, the scale of EV displacement means that China may need less additional crude even as vehicle ownership and freight activity grow. That makes a peak or plateau in total oil demand more plausible than it was only a few years ago. 79

A shortage now does not rule out a surplus later

The IEA’s August outlook describes a constrained 2026 market, not an immediate glut. It projected global oil demand would decline by 1.6 million barrels per day in 2026, while global supply would fall by a larger 4.3 million barrels per day to 102 million barrels per day, amid continuing disruption around Hormuz and production losses in the Middle East and Russia.

Those year-on-year changes alone do not calculate the market balance, because the starting relationship between supply and demand matters. But the IEA said supply had fallen below demand amid the disruption.

The medium-term risk is different. The IEA expects supply to rebound by 8.3 million barrels per day in 2027 if disrupted production returns. If that recovery occurs while Chinese transport-oil demand remains structurally weaker, the market could shift quickly toward excess supply. The outcome depends on the durability of EV-led demand reductions, the pace of recovery in Middle Eastern exports and production, and demand growth elsewhere.

What weaker Chinese demand means for exporters

For oil exporters, China’s changing demand profile makes the world’s biggest crude-import market less predictable. Producers that have relied on Chinese buying—including Gulf suppliers and West African exporters—could face more competition for refinery demand and less pricing power if available supply recovers faster than consumption.

This is a risk rather than a settled outcome. During an active Hormuz disruption, lost supply can keep the market tight even when demand is soft. But a durable decline in China’s transport-fuel consumption would reduce one of the oil market’s most important sources of incremental demand.

Does this put China closer to an emissions peak before 2030?

Lower oil use makes an earlier emissions peak more achievable, particularly when the reduction comes from a structural technology shift rather than a temporary fall in activity. Q2 2026 offers evidence that transport electrification is beginning to affect China’s overall emissions trajectory.

It is not confirmation that China has already reached a lasting national emissions peak. Emissions rose in the first quarter, leaving first-half levels marginally higher year on year, according to CREA data reported in September. Future outcomes will still depend heavily on coal use, electricity demand, weather, industrial production and the build-out of clean power.

The more durable conclusion is narrower: China’s oil demand is no longer a one-way growth story. As electric transport expands, it can reduce import exposure, soften the impact of oil-price shocks and contribute directly to lower emissions—even in periods when coal power rises.