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Home > Publications > Expert Opinion
Jiang Kejun
Nov 13, 2020
Introduction
 
China's 2060 carbon neutrality goal is only a direction and a banner. It needs to significantly transform the energy structure, basic research and development of low-carbon technologies, and commercial applications of innovative technologies in the next few decades... and enterprises will occupy the core of these changes' status.
 
On September 22, 2020, Chinese President Xi Jinping delivered an important speech at the 75th session of the United Nations General Assembly. In his remarks, President Xi announced that China will enhance its nationally determined contributions, adopt more robust policies and measures, and strive to peak carbon dioxide emissions before 2030 and achieve carbon neutrality before 2060. This significant declaration has provided direction and guidance for China's efforts in addressing climate change and pursuing green and low-carbon development.
 
Under this goal, various industries and enterprises in China are compelled to accelerate their deep transformation by adjusting their energy structure, developing decarbonization technologies, promoting electrification, and implementing other measures. This proactive response aims to support the nation's journey toward carbon neutrality.
 
The commitment made by President Xi has signaled China's determination to take concrete actions in combating climate change and transitioning to a low-carbon economy. It has also set the stage for increased efforts and cooperation among industries, businesses, and government entities to achieve the ambitious targets of peaking emissions and achieving carbon neutrality.
 
In-depth Energy Transformation under the Targets of Carbon Realizing carbon neutrality before 2060 requires a deep transformation of my country's energy and economy
 
According to our research, to achieve carbon neutrality by 2060, China's energy system needs to undergo a significant transformation in its energy structure by 2055, with non-fossil energy accounting for over 75%, including renewable energy contributing more than 50%. This poses a major challenge for energy supply enterprises. China has nearly ten energy central enterprises and hundreds of state-owned large-scale enterprises engaged primarily in coal, oil, and natural gas businesses. The carbon neutrality target will have a tremendous impact on these enterprises, and it also means that they need to respond quickly and pragmatically to promote energy transition.
 
Meanwhile, under the scenario of achieving carbon neutrality, certain industrial sectors will also experience more pronounced impacts. Some difficult-to-decarbonize sectors in the industrial field will require developing and adopting new production processes to achieve emission reduction. For example, hydrogen is an excellent reducing agent and a component of many chemical and petrochemical products. Therefore, hydrogen can play a crucial role in promoting deep decarbonization in the industrial sector. Currently, industries ,where hydrogen can be applied include steel, synthetic ammonia, benzene, methanol, ethylene, and others. Hydrogen can be produced from renewable energy sources and nuclear power. Existing technology requires 5 kWh of electricity to electrolyze 1 cubic meter of hydrogen. Still, this can be reduced to 2.8 kWh, while the cost of electrolysis equipment will significantly decrease. When the cost of photovoltaic power generation falls below 0.15 CNY/kWh, the cost of producing these chemical products through hydrogen production via electrolysis can compete with existing production methods. It is expected that such low costs of photovoltaic power generation will be seen in solar-rich regions by 2025.
 
According to the research using the Integrated Policy Assessment for China (IPAC) model, the future industrial layout will be determined by the prices of renewable energy and nuclear power. Industries will shift to regions with cheap renewable energy and nuclear power. Renewable energy in Qinghai, Gansu, Ningxia, and Xinjiang will be affordable, while Hebei's Zhangjiakou and eastern Inner Mongolia have superior renewable energy resources and proximity to consumption centers. The southeastern coastal areas have significant potential for developing low-cost nuclear power. In the future, basic petrochemical and metal smelting industries will relocate to these regions, which will also drive the relocation of related downstream industries.
 
To achieve carbon neutrality, it is also necessary to promote extensive electrification in various end-use sectors. For example, heavy trucks, large ships, non-electrifiable trains, and large aircraft in the transportation sector need to adopt hydrogen fuel cells or hydrogen fuel as their propulsion. The building sector should be primarily electrified, and general boilers and kilns in the industrial sector should also be electrified.
 
In summary, achieving carbon neutrality will significantly transform the energy and industrial, and transportation sectors. These transformations need to be realized through enterprise transitions, and they must be completed within the next three decades. Therefore, many companies will face enormous challenges and must start preparing immediately.
 
It is not just about emissions reduction but also about technological and economic competition.
 
The low-carbon transition requires many innovative technologies, and the future of businesses depends on these innovations. Compared to many large enterprises internationally, we need to catch up, as companies in developed countries such as Europe and the United States have already acquired advanced low-carbon technologies. Over 100 large companies worldwide have announced their commitment to achieving net-zero emissions by 2050, including BP, Shell, Rio Tinto, BMW, Toyota, DSM, Walmart, Amazon, Rolls-Royce, and HSBC. Many zero-carbon-related technologies have already been developed and deployed in companies in developed countries, or they have been included in research and development plans.
 
In December 2019, the European Union (EU) adopted the European Green Deal, which sets a clear goal of achieving greenhouse gas neutrality by 2050. In January 2020, the EU announced the Sustainable Europe Investment Plan, aiming to mobilize 1 trillion euros in financing for climate neutrality. In May 2020, the EU proposed the establishment of a 750 billion euro fund to revive the European economy, with 25% specifically allocated for climate action. In July 2020, after difficult negotiations, the EU's recovery plan reached a total of 1.82 trillion euros, with 30% of the investments dedicated to climate change-related projects, all of which must be aligned with the goal of carbon neutrality by 2050. This means that approximately 600 billion euros will be directly invested in climate change-related projects, and the burden of these investments will primarily fall on European companies
 
Future carbon dioxide emissions reduction is not just a matter of emission reduction itself but a competition of technology and economy among countries. This can be seen from the recent trend of countries and regions striving to increase their emission reduction targets. In December 2019, the European Union proposed the goal of greenhouse gas neutrality by 2050. In May 2020, the EU raised its target for 2030 from 40% to 55%. In September 2020, China announced its aim to achieve carbon neutrality by 2060. In October 2020, the EU increased its proposed 2030 emission reduction target from 55% to 60%. In the same month, Japan and South Korea also announced their carbon neutrality goals for 2050. The EU's target of a 60% reduction by 2030 puts pressure on others. Still, it also indicates that the EU will undertake significant technological research and application related to zero-carbon solutions before 2030.
 
Enterprises should take the initiative to transform and win market opportunities. The carbon neutrality target announced by President Xi Jinping has provided a clear direction for low-carbon transformation for Chinese enterprises. Chinese companies must promptly establish carbon reduction targets consistent with the national carbon neutrality goal and strategically plan their technological research and development and corporate transformation pathways. This will allow them to seize opportunities in the new economic transition, avoid falling behind, and prevent potential elimination from the market.
 
Chinese enterprises have a solid foundation for transformation. We have the world's leading manufacturing industry, advanced zero-carbon energy technologies, a thriving desire for innovation, and the capability to achieve carbon neutrality as long as the goals are clear. Previously, we needed a clear and long-term carbon reduction target, but President Xi Jinping's recent proposal to strive for carbon neutrality before 2060 is a timely and significant target setting. It provides a clear roadmap for developing numerous industries and enterprises in our country.
 
According to our research, China can achieve net-zero carbon dioxide emissions around 2050. The development of renewable energy, nuclear power, and the power grid in our country can support such a transformation. Additionally, technological advancements in the industrial, transportation, and construction sectors can enable a high proportion of electrification by 2050 and bring about process innovations in hard-to-abate industries, resulting in near-zero emissions. Even in industries affected by coal and oil, losses can be avoided with clear and immediate transition pathways, and a harmonious transition can be achieved. Numerous enterprises are central in these transformations and need well-designed pathways and strategies to navigate the changes.
 
It is important to emphasize that our enterprises should undergo proactive rather than passive transformation. The European Union has proposed implementing the carbon border taxes starting in 2022, and many EU companies have already begun incorporating carbon taxes in their cost calculations for imported products. Some of our export-oriented enterprises have already lost orders this year, resulting in several billion yuan estimated losses. To regain these orders, affected companies established zero-carbon product divisions, aiming to quickly provide zero-carbon products and re-enter the European market. This represents a reactive transformation that may entail some losses. By preparing in advance, Chinese enterprises can be more proactive and capture a larger share of the international market. In 2014, during discussions on environmental tax legislation, the possibility of imposing a carbon tax and drafting a carbon border adjustment tax (carbon border tax) was considered. If Chinese enterprises strive to achieve zero carbon emissions, we can compete with companies from other countries and gain a competitive edge in the global market.
 
Several pathways can be created to support Chinese enterprises in achieving the national carbon neutrality goals. Firstly, companies can achieve zero emissions in their production processes by purchasing zero-carbon energy. China's green certificate system provides a channel for this purpose. Especially now that the cost of renewable energy electricity has become lower than that of coal-fired electricity, the cost of purchasing zero-carbon electricity will significantly decrease for enterprises. Secondly, for non-electric energy consumption, efforts should be made to promote electrification in enterprises where feasible while also innovating processes in areas where electricity substitution is challenging -- for example, using hydrogen as a reducing agent in metal smelting or as a raw material. These processes can be applied in industries such as steelmaking, ammonia synthesis, benzene production, methanol production, ethylene production, and more.
 
During the 14th Five-Year Plan period, China can launch carbon pioneer enterprises, aiming to have more than 200 large-scale companies set the goal of achieving carbon neutrality by 2050, thereby contributing to the realization of China's carbon neutrality target before 2060. This initiative will establish a group of benchmarks and showcase the future direction and transformation methods for other enterprises, encouraging more companies to join the ranks of carbon pioneer enterprises.