Interview: China’s Net Zero Targets

Interview: China’s Net Zero Targets

Yanev.png

Kevin Tu

Energy Review: China’s recent climate pledge of achieving ‘carbon neutrality’ by 2060 has come as a surprising move avowing the country’s climate leadership. What all would you foresee as the most critical challenges in achieving this target?

Kevin Tu: Speaking via video link to the United Nations General Assembly on 22 September 2020, Chinese president Xi Jinping announced that China aims to peak national carbon emissions before 2030 and achieve carbon neutrality before 2060. Considering that both the current and future Chinese administrations need to take president Xi’s climate neutrality pledge seriously, and given the significant amount of carbon emissions reduction implied by the above announcement, the equivalent of decarbonizing the entire French economy on an annual basis for 30 years consecutively, Chinese decision makers are in urgent need to address two critical challenges.

First of all, as the pledge is not a legally binding international commitment yet, and China’s climate commitment under the Paris Agreement was only marginally upgraded from peaking national carbon emissions around 2030 to before 2030, it is tempting for Beijing not to take immediate climate actions to peak its national carbon emissions sooner rather than later during the 14th Five Year Plan (FYP) period between 2021 and 2025. If so, the overall economic and social costs of achieving carbon neutrality in China are expected to be increasingly higher under a delayed peaking scenario. As a result, how to translate the 2060 carbon neutrality aspiration into tangible climate actions in the short-term is the stickiest issue that needs to be tackled by Chinese decision makers.

In addition, given the enormous size of the Chinese energy economy - the largest energy producer and consumer, the biggest power generator, the leading importer of coal, oil and natural gas in the world - achieving carbon neutrality before 2060 requires unprecedented deployment of clean energy technologies at scale, with some still technologically immature. Not surprisingly, another critical challenge is whether the Chinese government could nurture an appropriate regulatory and investment framework that encourages domestic innovations to transition the Chinese economy towards an increasingly knowledge-oriented one, protects intellectual property rights to encourage international cooperation while still maintaining cost competitiveness of the Chinese manufacturing industry.


ER: How does China’s climate commitment impact/change the course of its domestic coal-plant constructions that have been on the increase in recent years?

Kevin Tu: Coal is the most carbon-intensive fossil fuel and still account for 58% of China’s primary energy consumption in 2019. Coal-fired power plants, which burn about half of all coal used in the country, currently provide 52% capacity and 62% generation in the power mix. As coal-fired power plants in China alone represents more than 11% of global carbon emissions, the future of coal-fired power plants in China is a key climate policy challenge.

From a corporate bottom line perspective, enterprises are unlikely to make investment on coal-fired power plants when severe overcapacity has already undermined financial viability of such projects. Nevertheless, as China’s economic system is based on abundant and cheap capital being made available to the state-owned sector with relatively limited concern for economic viability. As long as the investment is broadly aligned with FYPs, approval of financially questionable projects is still politically possible at the local level, which largely explains why capacity addition of coal-fired power plants still stands at 29.9 GW in 2019 since China’s coal-fired power capacity at 1045 GW by the end of 2019 has not yet exceeded the 13th FYP target at 1100 GW.

Given the importance of FYPs to guide energy project approval, key Chinese power sector stakeholders have actively lobbied the central government to substantially increase China’s coal-fired power capacity by 2030. For instance, China Electricity Council has recommended that coal power capacity should peak at 1,300 GW in 2030, with State Grid Energy Research Institute promoting even higher capacity addition under its electrification scenario. Luckily, because of the unexpected carbon neutrality pledge made by the Chinese president, various Chinese government agencies and think tanks are in a hurry to adjust draft 14th FYP targets in the energy and climate arenas. So, no matter what will become the final 14th FYP target of installed coal-fired power capacity, it will be lower than would otherwise be the case.


ER: Considering China’s record of coal-based financing in other developing economies, what are the implications of this climate ambition on its overseas infrastructure and power projects?

Kevin Tu: Chinese climate policy would benefit from a concerted global effort, nevertheless, one noticeable omission in China’s recent carbon neutrality announcement concerns the country’s overseas investments, particularly in countries under the Belt and Road Initiative (BRI). While much of Chinese investment in BRI countries has gone to fossil projects, China has already started to invest more in renewables. Meanwhile, BRI investments are not only the responsibility of China, but also of the host countries, so greening the BRI requires a push from both sides – if not a global effort with constructive involvement of third-party countries. After the US presidential election, if the ongoing deglobalization trend could reverse, such an outcome might not only stabilize a rule-based international order but also be beneficial to greening China’s infrastructure investment in many parts of the world.


ER: In a recent report, you have termed China as a “hybrid superpower” with a massively expanding diplomatic outreach. On that note, how can China’s climate undertakings effectively lead other countries to carry out decarbonization efforts?

Kevin Tu: As the world’s largest energy consumer and producer, the Chinese energy economy is full of contradiction. Since the Chinese former paramount leader Deng Xiaoping opened up China’s inward-looking economy to the outside world in 1978, China experienced a remarkable economic expansion and surpassed the United States as the world’s largest economy in purchasing power parity in 2013. Even on a market exchange basis, China is bigger than the world’s third, fourth, and fifth largest economies combined (namely Japan, Germany, and the United Kingdom).

Nevertheless, despite China’s impressive economic gains, nearly one in three of the country’s population lives in a household without access to clean cooking technologies, the majority of whom rely on biomass with the attendant health impacts, including premature death. Because of the aforementioned contradiction and similar ones, China may be termed as the first “hybrid superpower” in the modern era. While the country is not a developed country yet, its status as a developing country nevertheless becomes increasingly debatable, especially from the perspective of advanced economies.

As a superpower with development challenges, China is well positioned to lead other developing countries by example in implementing a pathway that merges poverty eradication and economic growth with low carbon alternatives. It can also promote a low-carbon development approach in developing countries through a combination of foreign assistance, its choice of investments overseas and technology transfers. However, there is also the risk that China might explicitly or implicitly encourage other countries to follow a high carbon pathway, especially as its own development was built on a heavy reliance on coal. Not surprisingly, the developing country bloc is watching carefully whether China could successfully merge economic growth and poverty eradication with emissions reductions, and how it chooses to deploy its financial resources abroad.

Following the Trump administration’s announcement of withdrawing from Paris Agreement, the EU’s pledge of climate neutrality by 2050 briefly put Europe at the forefront of climate policy. But on September 22, China has followed suit with its own carbon neutrality ambition for 2060. And in October, Japan and South Korea both added climate neutrality pledges for 2050. While China’s recent carbon neutrality announcement has apparently made positive impacts in terms of moving climate agenda forward in the developed country bloc, it has arguably also set a higher standard for the developing country bloc. As a result, China’s unique status as a hybrid superpower allow Beijing play an important bridging role between developed and developing countries especially in area of the so called “common but differentiated responsibilities.”


ER: As a major climate policy tool, China is implementing a nationwide Emission Trading Scheme (ETS) initially covering gas- and coal-based plants. How successfully can the current benchmarks under the ETS aid the country’s shift towards energy-efficient low-carbon pathways?

Kevin Tu: In order to meet China’s international climate commitment of lowering national carbon intensity per unit GDP by 60-65% between 2005 and 2030, China approved seven carbon emissions trading pilot projects in Beijing, Tianjin, Shanghai, Chongqing, Hubei, Guangdong, and Shenzhen in 2011. These regions together represent about one quarter of China's GDP.

Then, in 2017, China decided to implement a national emissions trading system (ETS), with an original plan to focus on petrochemical, chemical, building materials, iron and steel, nonferrous metals, pulp and paper, power and aviation industries. Because of legitimate concern for measurement, reporting and verification (MRV), the sector coverage of the proposed nationwide ETS was soon narrowed to power sector only.

Set to start in 2020, the country-wide ETS will initially cover coal- and gas-fired power plants. If China decides to rely exclusively on the ETS for appropriate level of carbon pricing in support of its carbon neutrality aspiration, more dialogues with international stakeholders especially the EU can provide some valuable lessons when it comes to expanding ETS coverage beyond the power sector and to ensuring effective MRV of emissions. Nevertheless, given the difficulties associated with maintaining carbon prices of any ETS and implementing effective MRV, and considering its own national circumstances, China should also consider to examine the pros and cons of supplementing or replacing its nationwide ETS with a carbon tax during the 14th FYP period.


ER: Do you consider it is possible for renewables alone, in the first place, to bear the growth trajectory of the Chinese economy and power sector demands in the near future, considering the resilience and flexibility of the sector?

Kevin Tu: First of all, I am confident that renewables alone are sufficient to bear the growth trajectory of the Chinese power sector demand in the near future, with the caveat that the country needs to first overcome embedded weakness in the Chinese energy economy. While China ranks the first in the world in terms of installed wind and solar power capacity, the country trails behind the United States for power generation by variable renewables. According to the International Energy Agency, grid integration of variable renewables has six phases, depending on the overall share of variable renewables. Since wind and solar power accounts for just 8.6 % of national generation in 2019, China is only in the second phase, where variable renewables only have minor to moderate impact on system operation, and updated dispatching procedures and better utilization of transmission are sufficient to integrate variable renewables. Nevertheless, curtailment rates of wind and solar power in China were as high as 17% and 11% respectively in 2016. Though they have been lowered to 4% and 2% in 2019, part of the progress was unfortunately achieved by the central government’s restriction of permitting greenfield renewable projects in regions with high curtailment rates.

In sum, given the enormous potential of its renewable resources, serious overcapacity of coal-fired power plants, and relatively modest power demand growth in the years to come, renewables should become the centre of gravity of the Chinese power sector in the years to come.

By comparison, renewables alone are still insufficient to bear the growth trajectory of the entire Chinese energy economy. For example, though China alone accounts for near half of global electric vehicle fleet last year, the overwhelming share of new vehicles sold in the Chinese market is still fueled by oil instead of electricity. To make matters worse, heavy duty trucks, shipping and aviation are all difficult to be electrified. In other hard-to-abate sectors such as steel, cement and petrochemical, renewables alone are not expected to play any significant role in the near future. Having said these, to achieve carbon neutrality of the entire Chinese energy economy before 2060, hydrogen, especially renewable hydrogen, needs to play a much more important role over time than would otherwise be the case.

Kevin Tu is a senior advisor at Agora Energiewende, he is also an adjunct professor at the School of Environment of Beijing Normal University, and a non-resident fellow at the Center on Global Energy Policy of Columbia University and Institut français des relations internationals (Ifri).