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China: Energy Transition Roadpath Needs More Signposts

Copyright © 2021 Energy Intelligence Group
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It will soon be a year since President Xi Jinping broadcast China’s plans to peak its carbon emissions before 2030, and become carbon neutral by 2060. But little, if any, details have emerged of the path that will allow what is today the world’s single largest carbon emitter to go to net-zero in under 40 years. The lack of clear signposts, in particular for nuclear power which lacks targets beyond 2025, together with reports of additional domestic coal power plants and coal mine expansion approvals, make observers jittery. Without China at the forefront of the battle to reduce carbon emissions, the war against climate change will likely be lost. And given that climate change is a rare area of possible cooperation, a failure to deliver would also further erode the increasingly fraught relationship between the West and China. Even so, the absence of a master plan may not be a major stumbling block at this stage: Since Xi's green revolution announcement last year, cities, state companies and provinces have tried to outdo each other in the race to cap carbon emissions to please the Chinese leadership. Shanghai, for instance, plans to cap its carbon emissions by 2025, five years ahead of the target. The world's top steelmaker, state-owned Baowu, in January announced it was targeting peak carbon emissions in 2023, two years ahead of a separate (and earlier) 2025 deadline set by Beijing for the sector. State utilities are likewise eyeing 2023 and 2025 carbon peaking timetables. Still, the detailed 2021-25 energy and other sectoral plans are keenly awaited as environmentalists argue that China needs to start capping its carbon emissions during this 14th economic plan to give a head start to meet its 2060 target. An overarching plan, the 1+N framework, will be released soon, China’s Special Climate Envoy Xie Zhenhua said last month. The framework will oversee sectoral and industrial plans, which are in the making. The latest five-year draft plan unveiled by Beijing earlier this year would see Chinese nuclear capacity expand from the current 51 GW to 70 GW by 2025 -- under 4 GW per year -- and gives no guidance on targets beyond that (NIW Mar.19'21). China’s nuclear industry has ambitious longer-term goals, but for the moment it's not clear those goals are shared by Beijing's State Council and other key decision-makers. China’s launch of its emissions trading scheme (ETS) last month marked a significant step toward displaying the country’s green commitments. The first batch of Chinese emitters drafted into the national ETS comprises 2,225 power generation companies collectively emitting more than 4 billion tons of carbon dioxide a year -- instantly almost doubling the proportion of global emissions covered under trading schemes worldwide. Volumes and settlement prices are low so far, preventing comparisons with the more mature European carbon market. But gradual increases in prices and volumes can be expected as the Chinese ETS expands to include more industries. Refining, petrochemicals and manufacturing of iron and steel could be next in line for inclusion in the national ETS, Energy Intelligence understands. One area where China is emerging as a clear leader is electric vehicles (EVs). Cumulative EV sales for the first seven months in 2021 -- at over 1.4 million units -- have already surpassed the full-year figure for any previous year, according to the China Association of Automobile Manufacturers. At this rate, the country could well exceed Beijing’s target for a 20% EV sales penetration by 2025 and start eroding domestic gasoline sales. The trend is also setting the stage for exponential growth as the Chinese market approaches critical mass, helping to unlock economies of scale and aid the rollout of critical infrastructure. Where Will Nuclear Fit? Cheap, widely available in China and an important source of jobs, coal is expected to account for 56% of the energy mix this year, down only slightly from last year's 56.8%. To become carbon neutral by 2060, China will need to wean itself off its coal addiction. But approvals of new coal plants this year and increased mining capacity as China struggled with electricity shortages serve as a timely reminder that this will not be easy, especially in the short-term as post-pandemic economic recovery is prioritized. “Environmental issues are increasingly important in the Chinese government’s agenda but social stability and energy security are also top priorities,” political risk consultancy Verisk Maplecroft Principal Analyst Kaho Yu tells Energy Intelligence. The government will strongly support renewables but it will also maintain a certain level of fossil fuels, partly through promoting clean coal and carbon capture and storage, he adds. Xi wants the share of non-fossil fuels -- that is, renewables, hydropower and nuclear -- in China’s energy mix to rise to 25% by 2030 from about 15% in 2020. Of the remaining 75%, gas is expected to increase its share until 2030 the most, and to exceed the 15% target in the mix set earlier. Solar and wind are in the limelight, with targets to increase their power capacity to more than 1,200 GW by 2030, up from an estimated 480 GW this year. But nuclear projects are also advancing. China's modest 2021-25 target of increasing nuclear capacity to 70 GW can be achieved just by completing current projects under construction. But more domestic newbuilds may be on the way. Beijing discreetly approved four VVER-1200s and a small modular reactor (SMR) this spring (NIW Apr.23'21). China’s prestigious Tsinghua University last November released a roadpath to carbon neutrality, widely seen as a must-read for state officials as they complete the 2021-25 detailed energy plan and prepare midterm and longer term plans. The Tsinghua study forecasts coal consumption to drop 95% from 2025-60, with non-fossil fuel contributing 84% of China’s primary energy consumption by 2060. This would require massive wind and solar developments but also a sevenfold increase in nuclear capacity by 2060. That's a heavy lift for nuclear. JPMorgan estimates it would require adding 8-9 GW per year in new nuclear capacity during 2025-60, which is twice as much per year as under the current plan, leaving China’s nuclear capacity at 350-385 GW by 2060, Energy Intelligence estimates. Similarly bullish, energy consultancy Wood Mackenzie said this week that by 2050 China will account for nearly half the world’s 685 GW in nuclear capacity expected under a scenario in which temperatures rise by 2°C. The jump in China’s nuclear plants would come as global capacity rises 88% from 2020 to hit 685 GW under that same scenario, Woodmac estimates. Whether China’s nuclear industry takes a back seat to renewables, or whether it is merely awaiting a clearer mandate from Beijing, remains to be seen (NIW Oct.23'20). Maryelle Demongeot, Singapore

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