China’s net zero future

China’s net zero goals, as laid down in its recently published Five Year Plan, are achievable but hinge on assertive sectoral and local climate leadership, argues Hu Min, Co-Founder, Innovative Green Development Program. By Hu Min, Co-Founder, Innovative Green Development Program | March 15, 2021

As the world’s largest greenhouse gas (GHG) emitter, China’s climate actions are critical to the planet’s net-zero future. The pledge made by President Xi in September 2020 to the UN General Assembly to have CO₂ emissions peak before 2030 and achieve carbon neutrality before 2060 was an important commitment made from the top. The challenge now, however, is how to turn these goals into reality through domestic policies.

China’s 14th Five-Year Plan (2021-2025) for National Economic and Social Development and the Long-Range Objectives Toward 2035 (14^th FYP), a document of over 140 pages, is the most critical blueprint for bending China’s emissions curve in the next 10 years (toward the 2030 peaking goal). This is also the most critical time window for the world to avoid catastrophic climate change. The 14^th FYP sets legally binding targets to reduce carbon emissions per unit of GDP by 18% in the next five years, calls for the implementation of supplementary regional absolute carbon caps and locking-in efforts to achieve carbon neutrality by 2060, and in general calls for the adoption of policies and measures with higher impact.

It is likely that the 14^th FYP will ensure CO₂ emissions peak before 2030; indeed it is expected that emissions would likely plateau by 2025 with enhanced policies. When it comes to determining whether the 14^th FYP is ambitious enough to reach the long-term 2060 goal, however, while the national-level targets are important, of equal or greater importance will be the sectoral and local government actions that will be triggered by the plan.

Industrial strategy and policy

Earlier this year, China’s State Council issued the Guideline to Accelerate The Development of a Green and Low-Carbon Circular Economic Development System. This policy document describes actions in six areas: industrial production, logistics, infrastructure, consumption, innovation, and enabling policies. It states that “…by 2035, energy and resource utilization efficiency in key industries and for key products is expected to reach an internationally-advanced level.”  With China’s industrial sector accounting for over 65% of the total carbon emissions in 2019, more aggressive decarbonization of this sector would help capture a large portion of China’s mitigation potential. In the transport sector, last October the Ministry of Industry and Information Technology issued its New-Energy Vehicles Development Roadmap 2021-2035, which aims to improve the NEV share of all sold vehicles to around 50% by 2035, with the other 50% being eco-friendly.

Overperformance on clean energy goals

China has committed itself to raising its non-fossil fuel share of primary energy to 20% by 2025 and 25% by 2030, and increase the total installed capacity of solar and wind to 1200 GW by 2030. China is the leading renewable energy technology producer and exporter, and also has the largest fleet of wind and solar plants. China also has a history of overperforming on its renewable energy development goals. The statistics show that China once again exceeded its renewable energy development goal last year. The total installed capacity of wind and solar power reached over 530GW by the end of 2020. To improve clean energy penetration, the National Energy Administration’s (NEA) has proposed to increase provincial grids’ minimum purchase of non-fossil fuel power to 40% by 2030 from 28.2% in 2020. This is likely to help China achieve its 2030 renewable energy development goals three to five years ahead of schedule.

A new report indicates that “years of innovation have transformed the economics of clean energy and other clean technologies in China”.  With plummeting clean technology costs, it is cheaper to decarbonize the grid than use fossil fuels, but successful decarbonization hinges on effective policies including a well-designed price on carbon, clean energy standards, and green finance.

Provincial and city action

China’s provincial governments are in the process of developing regional five-year plans and, as required by the Ministry of Environment and Ecology (MEE), will also develop action plans to peak CO₂ emissions. Wang Jinnan, a senior advisor to MEE and also a representative of the National People’s Congress (NPC), suggested that local governments should not plan for the 14th FYP on the track of ‘high carbon’.” Currently, a third of provinces are planning to set quantitative early CO₂ peak commitments. In addition, almost half of China’s provinces have commissioned policy research on, or developed, carbon neutrality action plans.

Since 2010, China’s central government has carried out 87 low carbon pilots, comprised of 81 cities and six provinces. Over 60 of these pilots have committed to peak carbon emissions before 2025. Shanghai has committed to peaking by 2025 and Beijing has stated it will maintain a steady carbon emissions decline after peaking in the 2021-2025 time period. If local governments put forward more ambitious targets for their absolute carbon caps and early peaking dates in their new five-year plans, China as a whole will have a far better chance of achieving an early carbon emissions peak.

Financial regulation

The People’s Bank of China (PBOC), China’s financial policy regulator, has also made carbon neutrality a priority in 2021. In a finance conference in Singapore, through video,  PBOC’s governor Yi Gang made public his plan to improve green finance. The plan includes measures such as improving the green finance standards system, removing fossil fuel-related projects from the green bonds catalogue and adding climate-friendly projects, mandatory environmental information disclosure, and integrating climate change into the risk management system. At the local level, PBOC has designated six provinces and nine cities as green finance pilots. Shenzhen, one of the pilots, has requested mandatory environmental risk disclosure for all financial institutions.

In the international arena, meanwhile, China continues to show green finance leadership. EU and China co-chair the international task force on sustainable finance, which centers its agenda around harmonizing sustainable finance taxonomies. Recently, the US and China resumed and rebranded the G20 sustainable finance study group that they co-chair. 

State-owned enterprises shifting towards net-zero

A number of China’s SOEs are energy giants. China National Energy (CNE) is the largest coal producer and coal-fired power generator in the world. BAOWU Iron and Steel became the top producer after reaching 100M tons of product in 2020. The top power companies, the so-called Big Five, account for half of China’s total installed power capacity.

Promising new actions are happening among these SOEs. Three out of the Big Five have committed to peak before 2025 or to reduce coal consumption. BAOWU Iron and Steel committed to peak carbon emissions in 2023. State Grid released its Action Plan Towards Carbon Neutrality on March 1, the first of its kind among SOEs. Many several other big coal and oil SOEs, including  CNE, CNOOC (China National Offshore Oil Corporation), and Sinopec have all kicked off research to develop carbon neutrality action plans. However, short-term efforts from these energy giants are still needed to significantly reduce coal use to achieve long term net zero goal.

We have already observed a large number of promises made by sectoral and local governments, spurred by President Xi’s pledge, and should expect to see other enhanced actions come out of industrial regulators and local governments in the coming months. It is these operational plans, taken together, that will ultimately define China’s long-term emissions trajectory.