China’s Long Road to Carbon Neutrality Will Reshape World Economy

China’s recent pledge to achieve carbon neutrality before 2060 has surprised the world. As the world’s largest carbon emitter and energy consumer, China’s yet-unknown pathway to carbon neutrality is certain to disrupt the globe’s energy economy from Dhahran to Queensland to Sand Hill Road and everywhere in between. BloombergNEF’s examined the arduous road ahead of China and the implications for the rest of the world in a recent Research Note previously available only to BNEF clients (at: web | the Terminal), but downloadable here now.

  • What happened: China’s President Xi Jinping announced during the United Nations General Assembly on 22 September that “We aim to have CO2 emissions peak before 2030 and achieve carbon neutrality before 2060.” This is China’s first long-term climate pledge beyond its Paris Agreement commitment of achieving peak carbon emissions by ‘around 2030’. And it’s the first time that the country has committed to achieving carbon neutrality. The announcement lacks many details such as how China will treat offsets, from within or outside of the country, how agriculture emissions will be accounted for, and if any sectors may receive exemptions.

  • The scale of the challenge: China is the world’s largest carbon emitter, accounting for 28.6% of global emission in 2018. Its primary sources of emissions are power and heat production, industry, and transport. China’s carbon emissions from the industrial sector peaked in 2012 and have been declining thanks to a combination of recycling, energy efficiency and coal-to-gas switching. The electricity and heat production as well as transport sectors have yet to reach peak emissions, however based on current trends of renewable power and electric vehicle (EV) deployment, they are set to reach peak emissions within the next 10 years. To reach carbon neutrality, China will have to accelerate deployment of existing technologies such as EVs and solar. It will also need to develop and deploy new technologies for carbon-free hydrogen production as well as carbon capture, utilization and storage (CCUS). And it will need to make its economy much more efficient.
  • What to watch for next: China typically lays out five-year plans, with its current longest energy plan covering the period until 2030. The earliest clear sign of China’s ambition will likely come in its submission to COP26. Announcing a carbon neutrality target is just the first step on a long road. From a policymaking perspective, there are several critical questions that will need to be addressed over the coming year or two. Like other countries that have embarked on this journey, China will have to clarify the scope of its net-zero target, and what is meant by ‘neutrality’. Is international aviation included, for example? To what extent can international offsets be used to achieve neutrality? Then, the government will need to put in place clear, numerical interim targets on the way to 2060. Without these, there will be no yardstick against which to measure its trajectory and the efficacy of its policies. These targets should ideally be divided into sectoral targets, specifying what reductions are to be achieved in the power, transport, buildings, industry and agriculture/land use sectors. This will allow near-term policymaking exercises, such as the all-important 14th Five Year Plan, to introduce specific measures compatible with the plans. Ultimately, it is these specific measures that will guide the world’s largest emitter as it begins its controlled glide towards carbon neutrality over the next four decades.

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