The Pathway to China’s Carbon Neutral Goal

By: Yayun Lai

On the 18th meeting of the Comprehensively Deepening Reform Committee, Chinese leader Xi Jinping once again highlighted the comprehensive and articulate implementation of the new development philosophy, urging to formulate a clear plan to achieve the goal of peaking carbon emissions by 2030.

It has been five months since China’s climate goal was first announced on the United Nations General Assembly in 2020 where Xi’s pledged the nation’s new target to peak emission by 2030 and reach the “carbon neutrality” goal by 2060. The pledge aligns China with the EU’s earlier commitment to reach the same goal by 2050 and is recognized as imperative in the global efforts to meet the Paris Agreement goal of holding the global temperature increase to well below 2 °C.

A Prospective Green Growth and a Challenge to All

Sustainable green growth is fueled by green technology. Industry policies in favor of renewable will facilitate green technology innovations which creates a spillover effect lowering the cost of renewable energy continuedly. Recent research by BTJRC also strengthens the notion that aggressive climate action doesn’t necessitate a compromise on economic growth. The anticipated plunging price of renewable energy could reshape China’s power system, smooth the adoption of new technology and create new job opportunities under the change of consumption patterns.

Still, even with promising economic growth lying ahead, the actual practice of green policy can be challenging and require collective efforts across the whole nation.

According to BCG’s analysis, to achieve carbon neutrality by 2060, China needs to target carbon reduction of 75% to 85% by 2050. Yet the economy’s reliance on coal remains an enormous challenge and is blocking China’s pathway to zero-carbon goal.

“Enterprises should have a proactive role in transformation.” Jiang Kejuan, a scholar at Energy Research Institute National Development and Reform Commission, pointed out that the nature of future competition is determined by innovative technology. However, China’s enterprises have lagged behind some international corporations in developed countries in possession of low-carbon technologies.

Besides, a couple of European countries have implemented carbon taxes in the hope of reducing greenhouse gas emissions through effective carbon pricing. Such tax reforms, to some extent, have disadvantaged Chinese companies in international trade, shifting deals to lower-cost exporters. With the changing business environment, Chinese enterprises are urged to take timing responses leveraging China’s leading position in manufacturing and competence in renewable power technologies.

Challenges in the Electricity Sector

By 2020, the coal plant has accounted for circa 50% of China’s electricity generation. A 1% average annual decline should be expected in the following 40 years to keep the proportion well below 10% by 2060, making way for new renewable plants. While this goal becomes feasible as the cost of electricity in China from new solar and wind plants plunged 82% and 33% respectively over the past decade, special attention should be put on power reliability. Solar and wind power is partly subjected to weather conditions. Some scholars have argued for a rethink of grid management and a more efficient approach involves optimizing a mix of flexible supply- and demand-side resources to ensure system reliability.

Another issue concerns the development of Carbon Capture and Storage (CCS) which includes the process of capturing, transporting, and depositing carbon dioxide. Despite the gradual transition to solar- and wind-powered energy systems in the future, China will still cling to a less extent to sectors using fossil fuels.

As a result, the technological advancement of CCS is of vital importance to reduce the overall greenhouse gas emission. However, the price of CCS is still uncompetitive compared to renewable energy, together with the uncertainty in corresponding policies, the technologies have long been deprioritized and underinvested.

Chinese Tech Companies Are Catching up to Reach Carbon Neutral

The tech firms are by nature innovation-intensive which also gives them an edge on leading climate actions using frontier innovative technology. Global tech leaders have committed to combat climate change. Microsoft is leading the way to be carbon negative by 2030 followed by Amazon with the same mission by 2040. Last year, Google announced that its carbon footprint has been offset to zero.

On 12th January 2020, Chinese tech giant Tencent also claimed its ambition to reach carbon neutral in response to the nation’s commitment. In recent years, Tencent has already implemented AI and cloud computing in its data center and headquarter to reduce carbon emission. “The coronavirus outbreak has drawn attention to our relationship with nature. As a tech enterprise, we should consider more the company’s impact on the environment such as climate and water.” Said Ma Huateng, CEO of Tencent.

Financial Institutions Shoulder the Responsibility Through Disclosure of Information and Green Finance

Information disclosure on ESG (Environmental, Social and Governance) risks not only helps financial institutions construct their risk management process, but also prevents them from future regulatory risk with ever more stringent regulations and standards.

Improved climate-related financial disclosure is also a crucial determinant for investors to value a company. A researcher at Tsinghua university estimated that investment in related fields could total 90 trillion to 100 trillion yuan over the next 30 years to meet the national goal. Led by public funding and favorable policies, investors from private sectors can be attracted from traditional industries to emerging markets where the return on investment will contribute to carbon emission. Green investors who follow the principles for responsible investment are giving more weight to the environmental and social impact of companies, and they would appreciate an informative disclosure in the decision-making process.

China’s promising green goal has been in the global spotlight. There are no shortcuts to a comprehensive and sustainable transformation. Prominent progress only comes after solidarity among sectors, harnessing technology advances and conquering unavoidable inertia.

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