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Analysis on China's new carbon neutrality pledge.

From Zhou Xizhou, IHS Markit on Global Power and Renewables.

China became the world’s largest Greenhouse Gas (GHG) emitter in 2005 and by 2019 was releasing over twice much CO2 equivalent as the US (2nd largest). The September announcement of President Xi Jinping committing China to a carbon-neutral future by 2060, a historic announcement with global implications for climate change and energy markets. It will require China to execute a nationwide transformation over the next 40 years, that is perhaps even more dramatic than over the past four decades. If done right, it would create a new energy system, and a new economy.

  • China will take on the Herculean task of decarbonization when energy demand is still growing.
  • 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; the transport sector, dominated by oil products, represents another 11%.
  • 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.

China sets the stage for four decades of transformation

On 22 September 2020, in a speech at the General Debate of the 75th session of the UN General Assembly, Chinese President Xi Jinping announced that China will strive to achieve net carbon neutrality by 2060. In the same speech, President Xi also confirmed the goal for China to achieve peaking carbon emissions by 2030, as previously included in the Paris Agreement.

This marks the first time that China has pledged a carbon emissions target in absolute (as opposed to intensity) terms. The announcement is historic given that China is the largest carbon emitter globally with an estimated 10.0 billion metric tons of carbon emissions in 2019, twice as much as the second-largest emitter, the United States. The pledge relates to net, as opposed to gross, emissions. This means that the national energy-related and non-energy carbon emissions are expected to decline to very low levels but will not be eliminated completely.

A net carbon emissions position can rely on a variety of measures to bring China’s national carbon emissions into balance before 2060. Those measures include

  • Reductions in energy-related emissions through demand-side efficiency improvements and supply-side
  • diversification away from fossil fuels
  • Emission removal technologies, like carbon capture and storage (CCS)
  • Reductions in non-energy emissions through steps including improved emission absorption and retention in agriculture or forestry
  • Transaction mechanisms, including purchasing international emission credits In comparison, the net-zero pledges made by the European Union, Japan, and other governments in 2019 are based on a vision of a balance between total greenhouse gas (GHG) emissions and GHG removal by sinks, as set out in the Paris Agreement.

The announcement only sets a high level and non-binding target but will undoubtedly bring enormous changes to China’s energy sector. Despite the long-term nature of the target, we expect key ministries, companies, and local governments to make carbon neutrality a key element of their plans and strategies, especially at a time when discussions are ongoing for the upcoming 14th Five-Year Plan [FYP] (2021–25).

For further information on how China’s carbon pledge sets up new paradigm for environment, economy, & energy, listen to Experts Xizhou Zhou, IHS Markit Vice President of Power and Renewables.

Do you have questions on the power and renewables outlook? Ask Xizhou Zhou a question or get on-demand consultation services.

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