Assessing China’s radical climate goals

Betting against Chinese progress when it comes to commitments on climate change has been a losing strategy for some time now. You may not think of the country as ‘green’ but, from a low base, it has been hitting the gas (so to speak) in accelerating efforts forward. This was most recently demonstrated by China’s radical ambition to be carbon net-neutral by 2060.

This is important. China is the world’s largest carbon emitter and its economy fast growing in scale. In 2019, for example, carbon pollution from China accounted for 27 percent of all greenhouse gas emissions globally. That surpasses the carbon pollution of all other developed nations combined, according to the Rhodium Group, so it is in China that the real balance of power for a more sustainable future is held – and this affects us all.

Progress at a price

Over the past handful of decades, due to ambitious economic reforms, China has achieved a miraculous boom in economic activity and pulled millions out of poverty. But these achievements have come at a cost. China’s progress has relied heavily on energy-intensive industry. This is in part inherited from the country’s pre-reform period, and partly due to its investment-led growth model. For example, its thirst for resources means China accounts for around half the global consumption of steel, copper, aluminum and cement.

China’s rise has also created increasing demand for energy, and this has largely been met with a carbon-intensive supply. Plentiful coal resources in China led to coal-based power generation becoming the primary means of energy supply. Even now the portion of coal in China’s energy mix is around one and a half times greater than that of the US in 1950. The consequence is that particles from coal-powered electricity generation have created serious health concerns across some of China’s most densely populated cities, putting quality of life at risk. In Beijing, for example, even while smoking rates have declined, there has been a substantial rise in lung cancer cases over the past decade.

This combination of an energy-intensive growth model and a carbon-intensive energy supply has created a considerable carbon footprint. According to the International Energy Agency, in the last 20 years CO2 emissions in China grew six times as fast as in the rest of the world, and China accounted for almost two thirds of the growth in global CO2 emissions. By the time Covid-19 struck, China had higher per-capita CO2 emissions than the European Union (EU), albeit still well below US per-capita levels.

The rubber has already hit the road

China is no shrinking violet when it comes to energy transition, however. The country has been implementing policies to manage the environmental impact of its economic development. Heavy industry has been forced to relocate far from city centers and required to meet higher environmental standards. In addition, many coal-fired power plants have been ordered to shut down entirely. In Beijing, for example, the city’s four coal-based power plants are all now closed.

China has also been pressing ahead with more sustainable means of energy production. In 2020 it built almost 100GW of windfarm capacity – almost three times the power required for all the homes across the UK – representing a 60 percent rise on the year before. That made it the greatest increase ever achieved by a country, and more than the whole world combined in 2019.

Solar has also been a key pillar in China’s sustainable expansion plans. The country already boasts the world’s largest solar power capacity, near double the installed capacity of the entire EU. Moreover, China is a key supplier of solar equipment, dominating production across the supply chain. For example, more than two thirds of polysilicon, solar cells and solar modules are produced in China.

Evolution to revolution

While tremendous progress has already been made, far more needs to be done – but policymakers based in Beijing are rising to the occasion.

In a speech to the UN in late 2020, Prime Minister Xi Jinping said China would strive to be carbon-neutral by 2060, a radical undertaking considering not only the country’s existing carbon footprint but also its legacy assets. In order to meet this challenging target, China will need to aggressively pursue a two-pronged plan of attack: it will have to reduce energy intensity and further improve its energy mix.

Energy-intensity reduction gains will primarily be driven by more stringent energy-efficiency standards and a rebalancing of the economy. Less than a decade ago, China was known to most as the ‘factory of the world’, dominating production of cheap goods and acting as an export powerhouse.

Increasingly, however, it is domestic consumption that is driving economic expansion in the country. Rising disposable incomes and an increasingly educated workforce have, for instance, opened up service sector opportunities – a far less carbon-intensive source of economic growth.

Beyond energy intensity initiatives, overhauling China’s energy infrastructure mix is another key undertaking required to meet the nation’s targets. A paper by the Oxford Institute of Energy Studies notes that fossil fuels such as coal, oil and gas would need to drop from around 80 percent of China’s energy mix in 2025 to 14 percent by 2060.

This has significant implications for the allocation of capital across the domestic energy market and will likely lead to further regulatory pressure on greenhouse gas emitters.

This is an extract of an article that was published in the Fall 2021 issue of IR Magazine. Click here to read the full article.