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China's Hidden Climate Signposts

Copyright © 2021 Energy Intelligence Group
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China has yet to unveil policy details to meet ambitious climate pledges announced nearly a year ago. That lack of clear signposts, together with reports of additional domestic coal power plants and coal mines expansions being approved, is making observers jittery about China's ability to hit targets that call for peaking its carbon emissions before 2030, and becoming carbon neutral by 2060 (EC Jan.8'21 ). But where China applies itself, progress can be swift. Sometimes that rapid change is headline grabbing, as with its electric vehicle (EV) rollout. Sometimes it gets less attention than it deserves, as with recent moves by some cities and some big state-run companies in the oil and heavy industry sectors to meet earlier deadlines for peak emissions.

Without China -- the world’s single largest carbon emitter -- at the forefront of the battle to reduce carbon emissions, the war against climate change will likely be lost. And with climate change a rare area of possible cooperation, a failure to deliver would also further erode the increasingly fraught relationship between the West and China.

However, the absence of a master plan may not be a major stumbling block at this stage: Since President Xi Jinping’s green revolution announcement last year, cities, state companies and provinces have tried to outdo each other in the race to limit carbon emissions to please the Chinese leadership.

Shanghai, for instance, plans to cap its carbon emissions by 2025, five years ahead of the official government target. State-run oil companies PetroChina and Sinopec also plan to peak their carbon emissions ahead of the national plan, as does heavy industry. 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 2025 deadline set earlier by Beijing for the sector. State utilities are likewise eyeing 2023 and 2025 carbon peaking timetables (WEO May7'21 ).

Nonetheless, the detailed 2021-25 energy and other full sectoral plans are keenly awaited as environmentalists argue that China needs to start capping its carbon emissions during this 14th economic plan, in order to get the head start it needs to meet its 2060 target. An overarching plan, the 1+N framework, will be released soon, China’s special climate envoy Xie Zhenhua said in July. The framework will oversee detailed sectoral and industrial plans that are in the making.

“The 14th five-year plan and the detailed carbon peak plans have been filed to central government and are expected to be released this September,” a Chinese government senior refining analyst told Energy Intelligence.

China’s launch of its Energy Trading Scheme (ETS) this summer 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 all 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 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 20% EV sales penetration by 2025 and start eroding domestic gasoline sales. The trend is 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.

Chinese EVs are also on the brink of taking the world by storm, with 39,000 EVs exported in July, a more than 800% increase from a year ago. As with other Chinese exports such as solar panels, Chinese EVs could start dominating the global EV market, making Chinese EV technology the world standard and eventually hitting oil demand for transportation worldwide.

Competing Priorities

Cheap, widely available inside China, and an important source of jobs, coal is expected to account for 56% of the energy mix this year, down slightly from 56.8% last year. To become carbon neutral by 2060, China will need to wean itself off its coal addiction. But the approval of new coal plants this year and growth in mining capacity as China struggled with electricity shortages served as timely reminders that this will not be easy, especially in the short term while post-Covid-19 economic recovery remains a priority.
“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 and nuclear -- in China’s energy mix to rise to 25% by 2030 from about 15% in 2020. Gas could exceed its earlier targeted share of 15% of the energy mix by 2030. But how fast, and at what level, China’s gas share peaks after 2030 will depend in part on how reliable and stable renewables-led power generation proves to be.

The dominance of state companies in the oil, gas and coal sectors may make the road to cleaner fuels bumpy. Xi “wants the state sector to be a core leader but it is the least innovative sector," Philip Andrews-Speed at the Energy Studies Institute, National University of Singapore, told Energy Intelligence. The Chinese private sector kicked off the development of solar and batteries technologies.

Besides greening its domestic economy, China is expected to export its new green credentials instead of outdated coal power plants through the Belt and Road Initiative, its economic foreign policy. And there are signs that China is putting the brake on coal-related investment proposals. If China wants to be a full-fledged leader against climate change, it will have to be one not just at home, but also abroad.

Maryelle Demongeot is the deputy bureau chief for Energy Intelligence’s Singapore bureau. Kimfeng Wong is a reporter at Energy Intelligence, based in Singapore. Dawn Lee is a reporter at Energy Intelligence, based in Beijing.

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