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Asia’s recent net-zero carbon pledges not a green wave: analysts

15 December 2020 Amena Saiyid

Recent net-zero carbon pledges by China, Japan and South Korea should not be viewed as a green wave until these countries are able to wean themselves off coal and oil, analysts told IHS Markit.

China, Japan and South Korea satisfy at least half of their energy demands through coal, which is responsible for most of their greenhouse gas emissions.

Achieving net-zero carbon levels at least by 2050 (in line with the 2015 Paris Accord on climate change) means reducing carbon dioxide emissions as low as possible, while balancing any remaining emissions with an equivalent amount of carbon removal, Kelly Levin, senior associate with the World Resources Institute's global climate program, said in an interview with IHS Markit.

Analysts, though lauding the net-zero carbon pledges, question how these countries plan to meet their goals given their reliance on fossil fuels. They argue that if South Korea, China and Japan are serious about meeting their pledges then they have to stop financing coal-fired power plant construction within their own borders and across Asia.

"I applaud these goals, but I want to see an implementable plan for the next 10-15 years for reducing carbon emissions. I have not seen that yet," said Henry Lee, director of the Harvard Kennedy School of Government's Environment and Natural Resources Program.

China, Japan and South Korea are expected to publish plans in 2021 spelling out the measures they will be taking in the next decade or so to boost the share of renewables and limit dependence on coal-fired and nuclear generation.

Decarbonizing the economy

To meet net-zero carbon goals, the countries have to aggressively decarbonize their power and industrial sectors of coal and oil, and their transportation sector of gasoline and diesel, said Steven Knell, IHS Markit research and analysis director, who specializes in low carbon-transitions.

It also means improving the energy efficiency of industries, modernizing the grid, expanding renewables generation and investing in hydrogen and carbon capture technologies, he said.

Despite its net zero carbon pledge, China is still heavily involved in overseas financing of coal-fired generation across South Asia, Southeast Asia and Africa.

Between 2000 and 2017, China invested $115 billion in an estimated 462 power plant projects. Nearly half of that financing was geared toward expanding and building coal-fired generation, according to a recent study by Princeton University's Center for Policy Research on Energy and the Environment.

Japan in July announced it would tighten rules for overseas financing of coal-fired capacity, but stopped short of banning such support. Across the South China Sea, state-run Korea Electric Power Corp. in late October agreed to stop financing coal-fired power plants and to convert those plants already in the pipeline to LNG, including the 630-MW Thabametsi plant in South Africa and the 1,000-MW Sual 2 project in the Philippines.

Moving ahead on coal build

Despite their net-zero carbon pledges, all three nations are pushing ahead with new coal-fired power plant construction.

To Melissa Brown, energy finance studies director for the nonprofit Institute for Energy Economics and Financial Analysis, all signs point to the end of the fossil fuel generation. But she said, Japan, South Korea and China are indulging in their one last fossil fuel binge "before they get ready to drink a toast to their sobriety."

By the end of 2020, China is expected to be building 87.86 GW, while Japan and South Korea are each adding about 5.73 GW out of a total of 191 GW of new coal-fired generation in the Asia Pacific region, according to the IHS Markit's Asia Pacific power pipeline tracker for the third quarter of 2020.

Together, the three will be responsible for bringing about 52% of new coal-fired capacity online in the Asia Pacific region in 2020.

China's 'Herculean task'

IHS Markit's own analysts believe China faces "a Herculean task" of decarbonizing its economy even as the country's appetite for energy continues to grow.

"It is an unrealistic goal, but not impossible" for China, Knell added.

As the world's largest emitter of greenhouse gases, China's commitment will require it to pull out all the stops to reduce its coal appetite, which as of 2019 stood at 3.3 billion metric tons.

Currently, IHS Markit data reports 60% of coal consumed in China is used to generate electricity and about 22% is used to meet direct industrial demand for steam and heat.

China emitted an estimated 10 billion mt of carbon emissions in 2019, twice as much as the second-largest emitter, the United States. Coal, which dominates energy use in the power generation and industrial sectors, accounts for 64% of China's current carbon emissions, with the transportation sector, which is dominated by oil products, representing another 12%.

And China has committed to capping its coal-fired capacity at 1,100 GW by 2020. However, Ranping Song, WRI's developing country climate action manager, points to China's continued addition of new coal-fired capacity as evidence of the country's reluctance to let go of coal.

Xizhou Zhou, who leads IHS Markit's global power and renewables practice, is of the view that China's coal consumption is plateauing.

In a 4 November opinion article, Zhou argued that the addition of new coal-fired capacity, which is equipped with state-of-the-art pollution controls, has been more than offset by retirements of 119 GW of mostly old and inefficient coal-fired power plants during the past decade.

Although the new coal-fired capacity in many instances is replacing the older plants, Zhou said the newbuild also is being installed to match the intermittent wind and solar loads.

Replacing coal capacity

While reducing coal consumption in power generation and industrial processes is key to achieving carbon neutrality, the real difficulty lies in whether China can replace the sheer mass of coal capacity that will be retired after the 30- to 40-year lifespans of the plants are reached.

IHS Markit estimates that by the end of 2045 China could retire as much as 660 GW, "which is enough to power the European Union today."

In practical terms, this means China needs to find zero-carbon sources, such as hydrogen and renewables, to meet energy demand in the next decade.

Analysts point out that more than one-third of the world's wind and solar projects currently operating are in China, but critics note that China also has the most coal-fired capacity installed at 1,005 GW, which is five times more than the U.S. and India.

China not only has taken the global lead in making the most wind turbines and solar modules, but also has managed to make them cost-effective.

"For Chinese companies, entering the renewable energy industry is smart economics: demand for wind turbines, solar panels, and batteries is rising worldwide, and they want to be the ones to meet it," according to an IHS Markit report.

The bottom line is "If China is serious, it has to reform its electric sector," in particular by modernizing its grid, Lee said.

Currently the electricity system is heavily weighted toward grid companies in the north and south of China that favor coal-fired generation, and until very recently resisted hooking up renewables, he added.

Lee said China is still relying on regulations dating back to the 1990s that favored fossil fuel generation.

Still other analysts say Beijing can achieve this by making industrial processes more energy efficient, using more low-carbon emitting natural gas in the next decade, pushing more stringent standards for renewables, and investing in renewables other than wind and solar.

IEEFA's Brown said China also has to drastically restructure its energy economy so that all parts of the country can benefit equally from the push toward a clean energy economy. The majority of China's coal mines and related jobs are concentrated in the north and northeast, while the bulk of renewables activity has been in the south.

Coal, nuclear powerremain a problem for Japan

Japan, the world's fifth-largest emitter of greenhouse gases at 1.2 billion mt in 2019, also needs an updated long-term energy plan to reach its net-zero goals. IHS Markit analysts, however, doubt the country will even reach the targets set in 2015 to limit power sector's carbon emissions by 2030.

The 2015 plan limited nuclear energy to 20-22% of power generation by 2030, coal to 26%, LNG to 27% and oil to 3%, while growing renewables' share to 22-24%.

IHS Markit analysts say Japan won't meet its nuclear target because of strong public opposition, and its plan to shutter most of its existing coal-fired fleet has no timeline and hinges upon the impact the closures would have on regional demand and power costs.

Japan would have to restart 27 of its 58 nuclear plants to maintain the segment's share at 20%, but that seems doubtful given only nine have managed to restart so far following the Fukushima disaster in 2011.

Looking ahead though, IHS Markit analysts estimate nuclear's generation share in Japan will drop to 14% in 2030 and renewables, mostly solar and wind, would fill the gap without any corresponding increase in coal, gas or oil's slice of the pie.

Boosting renewables not enough for South Korea

South Korea also faces a problem in meeting its net-zero pledge by mid-century because of its heavy reliance on coal-fired generation.

About 41% of South Korea's 679 million mt of 2019 GHG emissions came from the power sector, notably coal-fired generation, according to IHS Markit research.

"The net-zero target is certainly a challenging one given South Korea's high reliance on coal, which accounted for 40% of total electricity in 2019," Vince Heo, associate director in IHS Markit's Global Power, Energy and Futures team in Seoul, who authored the research.

While the country's most recent draft energy plan envisages the shuttering of 10 coal-fired plants by 2022 and another 20 by 2034, South Korea also has about eight coal-fired plants under construction with a combined capacity of 7.5 GW, which are all due to come online before 2025.

Unless the government intervenes, Heo said these new plants, though they are equipped with state-of-the-art pollution controls, will still be operational beyond 2050.

A bill awaiting action in South Korea's parliament would compensate companies for withdrawing their proposals to build coal-fired plants, but Heo is skeptical whether this bill is likely to move given the burden it would place on an already strained federal budget.

South Korea's ninth and most recent draft energy plan seeks to boost renewables' share of installed capacity, mainly through wind and solar additions, to 33.7% in 2030 from 13% in 2019. This increase in renewables is in line with President Moon Jae-In's recent net-zero carbon pledge and a campaign promise to wean the country off its fossil fuel addiction. Moon, however, has been unsuccessful in canceling plans already in place to build coal-fired capacity.

IHS Markit's third quarter 2020 power pipeline tracker for the Asia Pacific region shows that Japan and South Korea are expected to add more offshore wind plants this year.

Japan and South Korea hold over 40% of the share of clean energy in the pipeline for 2020 under IHS Markit's Clean Power Index, which is calculated as a ratio of new clean power capacity over total pipeline capacity.

Posted 15 December 2020 by Amena Saiyid, Senior Climate & Energy Research Analyst, IHS Markit

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