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In a recent announcement to the United Nations, Chinese
President Xi Jinping committed China to a carbon-neutral future, to
be achieved by 2060. This is the first time that China has pledged
a carbon emissions target in absolute terms and is a historic
announcement that is bound to effect major changes to its energy
sector, with global implications.
It will require China to execute a nationwide transformation
over the next 40 years, one that is perhaps even more dramatic than
over the past four decades. If done right, it would not just create
a new energy system, but a new economy.
China is taking on the Herculean task of decarbonization
when energy demand is still growing.
Unlike many other regions that committed to similar targets
(such as Europe and Canada), China's per capita energy consumption
remains relatively low—roughly 40% below that of Germany and
67% below that of the United States and is still growing. New
investment in carbon-free energy will need to not only replace
existing fossil resources but also meet incremental demand.
Reducing coal use and decarbonizing the transport sector
will be vital to achieving the goal.
Power generation and industrial sectors' energy use are
dominated by coal, accounting for 64% of China's current carbon
emissions, with the transport sector, which is dominated by oil
products, representing another 12% (see below).
Figure 1: China's carbon emissions by source and
sector
Renewable energy, electrification, carbon capture, and
low-carbon hydrogen will be contributing factors to drastically
reduce carbon emissions in key emitting sectors, and the pace of
technological improvement must accelerate significantly so that
they can scale up to meet the carbon neutral challenge. We provide
detailed analysis on these key technologies in our
Global Clean Energy Technology Service.
Interestingly, the age profile of the majority of China's
coal-fired power fleet actually fits President Xi's timeline quite
well. Most of China's existing coal plants were built before 2015 -
about 1,000 GW (more than enough to power all of Europe today).
Assuming a 30-year technical life, all of these plants will be
retired before 2045.
How do we replace 1,000 GW of baseload coal-fired power
supply with carbon neutral resources in a 20-year period,
especially at a time when demand will likely still be growing? Can
conventional hydro and nuclear power play a role? Or will
renewables and energy storage technologies mature quickly enough
that they can scale up to meet this demand challenge? We explore
this in more depth in our
Asia-Pacific Regional Integrated Energy Service.
Figure 2: How to replace 1,000 GW of coal-fired power?
For the industrial sector that relies on coal to produce heat
and steam in their production processes, the campaign to switch
from coal to natural gas the past few years has already helped
reduce coal consumption, but with carbon neutrality, even natural
gas will have to be minimized. For processes that require gaseous
or liquid forms of energy, then, biofuels, hydrogen and other
renewable gases will be needed.
This is why many Chinese companies are actively pursuing
hydrogen energy today.
And there's another important end use for hydrogen, and that is
the transport sector. China is a leader in electric vehicles today,
but hydrogen fuel cell technology is attracting more and more
attention, especially when it comes to heavy duty transport needs.
We have gathered a community in our
Hydrogen and Renewable Gas Forum to further explore this.
Carbon removal as well as transaction mechanisms will be
needed to address sectors that are the hardest to
decarbonize. Carbon capture and storage and nature-based
solutions such as emissions offset through forestry projects can
still allow for some fossil fuel consumption in certain
energy-consuming sectors that are extremely difficult to
decarbonize.
The target will require accelerating technological
advancements and radically creative policy formulation, presenting
a colossal challenge to many companies but also immense
opportunities. The IHS Markit Accelerated Carbon Capture
and Storage scenario envisions China's energy-related carbon
emissions dropping rapidly to just 72 million metric tons in 2050,
very close to achieving the net carbon neutrality goal. There are
many other pathways that can take China to a net zero emissions
future, which we explore in depth in our
Climate and Energy Scenarios Service, but whichever pathway,
all this means an entirely transformed energy landscape, with
players vying for a spot in a new economy - some may perish while
others, including brand new ones, will flourish.
Another four decades of transformation?
Forty years ago, China's economy was 1/30 of its size today, and
electricity consumption was 1/25 of today's level—met by just a
few coal plants or hydro projects in each province; most households
were still burning wood and coal briquettes for cooking and
heating; roads were filled with bicycles, and passenger vehicles
were rare sightings.
Over the past four decades, China went through such a thorough
transformation that few back in 1980 would recognize it today.
Perhaps it is with this spirit that China will look 40 years ahead
and boldly chart out yet another transformed future.
Xizhou Zhou is a Vice President and Global Managing
Director of power and renewables at IHS Markit. Jenny Nguyen Yang is a Senior Director for Asian
gas markets at IHS Markit.
