The report “An Energy Sector Roadmap to Carbon Neutrality in China” has been prepared by the International Energy Agency. This report examines the technology challenges and opportunities that the new phase of the clean energy transition will bring for China’s development, with a focus on long-term needs. The technology innovations required in the Chinese context are a key in-depth focus area. The report concludes with a series of policy considerations to inform China’s energy debate. REGlobal presents an extract from this report.
Energy Use and Emission Trends
Changes in the structure of the Chinese economy towards lighter industry and services, combined with efforts to enhance energy efficiency through tighter regulations have helped to substantially slow the rate of growth in energy demand in recent years. Those regulations include the Top 100/1000/10000 programme – an energy conservation initiative covering enterprises that started in 2006 and expanded under the 13th FYP (2016-2020) – and minimum energy performance standards. Primary energy demand rose on average by more than 8% per year between 2000 and 2010, slowing to 3.4% in the five years to 2015 and just over 3% over 2015-2020. As a result of continued rapid GDP growth, the fall in energy intensity of GDP (energy demand per monetary unit of GDP in PPP terms) accelerated in the 2010s, from an average of 2% in 2000-2010 to over 3% per year between 2010 and 2020.
Despite impressive growth in renewables since 2000, China remains heavily dependent on fossil fuels, which met around 85% of the country’s total primary energy needs in 2020 – coal alone for about 60% and oil for about a fifth. China is by far the largest coal-consuming country in the world, the 3 billion tonnes of coal equivalent it burned in 2020 making up more than 50% of the world market. China’s coal consumption historically increased in parallel with its industrialisation, most rapidly from 2002 to 2013, when coal contributed 77% of the overall increase in the country’s primary energy demand. Cement, chemicals and steel plants alone accounted for half of this increase, 30% of it (or 15% of the total increase in coal demand) indirectly through the use of electricity (generated primarily in coal-fired power plants). Coal use has been broadly flat from 2013 to 2018 as a result of efficiency improvements and policy limits on coal use expansion, but coal demand increased again in 2019 and 2020 and in early 2021.
China currently has 1,080 GW of installed coal-fired power capacity – more than half of global coal capacity – and nearly 250 GW at various stages of development . Of the 88 GW of capacity that has been officially approved, 37 GW was authorised in 2020 – three-times more than in 2019. Demand for oil and natural gas has also grown considerably since 2000. Oil use has risen at an annual average rate of 5%, complementing the use of coal in heavy industries and meeting rapidly rising demand for personal transport and freight. Gas demand has risen briskly since 2015 with strong policy support, particularly for power generation, industrial uses, and residential and commercial space and water heating. Despite significant domestic production of oil and gas, China relies heavily on imports, which met over 70% of its consumption of oil and 45% of gas in 2020.
Despite the continued dominance of fossil fuels, the use of modern low-carbon fuel and technologies, including nuclear, hydropower, bioenergy and other renewables, has grown considerably over the last decade, their share of total primary energy demand rising from 9% in 2011 to 14% in 2020. Renewables- based electricity and nuclear power made up more than 9% of total primary energy demand in 2020. Hydropower has accounted for 35% of total renewable capacity additions since 2000. Two plants – the Three Gorges and the Xiluodu Dam – contributed the bulk of the increase in hydropower capacity and output.
Another 60% of renewable capacity additions since 2000 has come from solar photovoltaic (PV) and wind power. Installed capacity of the two sources combined reached about 540 GW in 2020, more than half of which is onshore wind turbines. Total installed capacity of utility-scale solar PV stands at 180 GW today, with rooftop panels and offshore wind capacity accounting for about 90 GW. Most of those solar PV panels were manufactured in China, which has become the world’s leading producer, helping to bring down costs globally.
Nuclear power has also increased markedly, with 48 reactors commissioned between 2000 and 2020, taking the total to 51 and boosting the share of nuclear in primary energy demand from 0.4% to 2.7% and the share of power generation from 1.2% to over 5%. Renewables including hydro plus nuclear power accounted for about 30% of power generation in 2020, compared with only 18% in 2000. Their expansion helped drive down the carbon intensity of electricity generation to 610 g CO2/kWh in 2020 from 650 g CO2/kWh five years before and close to 900 g CO2/kWh in 2000.
China is the world’s largest emitter of greenhouse gases (GHGs), accounting for around a quarter of global emissions. Its emissions totalled about 13 Gt CO2-eq in 2020, equating to 9 t CO2 per capita – 45% higher than in the rest of the world. CO2 emissions from fuel combustion and industrial processes, referred to hereafter as energy sector CO2 emissions, reached more than 11 Gt in 2020 and made up almost 90% of China’s total GHG emissions, compared with under 60% for the rest of the world, reflecting its emissions-intensive energy mix and a large heavy industry sector. About 70% of China’s energy-related emissions in 2020 came from coal, 12% from oil, 6% from natural gas, and about 11% from process emissions. Coal-fired power and heat generation plants alone were responsible for more than 45% of China’s entire emissions and 15% of total global emissions.
Although CO2 emissions have grown substantially over the last two decades, they have not risen as fast as GDP. This was mostly due to gradual, structural economic shifts towards sectors with lower emissions intensity combined with policy action to curb the growth in energy demand and promote low-carbon fuels. The carbon intensity of GDP (emissions per unit of GDP in PPP terms) dropped from a peak of nearly 810 g CO2 in 2005 to 450 g CO2 in 2020.
Carbon Neutrality Target
At the United Nations General Assembly in September 2020, China’s president announced that the country aims to have CO2 emissions peak before 2030 and to achieve carbon neutrality before 2060. This represents a significant stepping- up of the country’s climate ambitions. Previously, China’s nationally determined contribution (NDC) under the 2015 Paris Agreement aimed to achieve a peak in CO2 emissions by “around 2030 and making best efforts to peak early” but did not set a long-term target or goal.
China has since made several announcements of supplementary climate targets and stronger action to accelerate the energy transition in support of the new carbon neutrality target. At the UN Climate Ambition Summit in December 2020, the Chinese government declared that it would: enhance the NDC targets for 2030, including reducing its CO2 emissions per unit of GDP by more than 65% from the 2005 level (compared with a previous target of 60-65% and an announced reduction of over 48% in 2020); increase the share of non-fossil fuels in primary energy consumption to around 25% (up from around 20% in the current NDC and 16% in 2020 based on official data); and increase the forest stock by 6 bcm above 2005 levels (up from the previous target of 4.5 bcm, which was achieved in 2018). A new target of expanding the total installed capacity of wind and solar power to more than 1,200 GW (compared with 535 GW in 2020) was also announced. In March 2021, the ninth meeting of the Central Committee for Financial and Economic Affairs called for building a new power system with solar PV and wind as the main energy sources. In addition, on Earth Day in April 2021 China’s president announced that “China will strictly control coal-fired power generation projects and strictly limit the increase in coal consumption over the 14th FYP period (2021-2025) and phase it down in the 15th FYP period (2026-2030)”.
China’s new climate policy differs in several ways from the previous one, not least in its much greater ambition. It sets out a clear timeline for the country’s path to carbon neutrality, shifting the key policy question from “whether and when” to “how”. And it goes beyond the previous focus on carbon intensity measured by emissions per unit of GDP. The government has since clarified the scope of the carbon neutrality target. China’s Special Climate Envoy noted in a speech in July 2021 that the China’s peak target concerns energy-related CO2 emissions, while the carbon neutrality target has a wider scope, covering economy-wide GHG emissions, including non-CO2 GHGs such as methane and hydrofluorocarbons.
In May 2021 the central government established a “leadership group on carbon peak and carbon neutrality”, chaired by the executive vice-premier and comprising heads of key national level ministries and agencies to co-ordinate cross- government efforts to achieve the climate goals. The group is developing what it calls a “1+N” policy framework for carbon peak and carbon neutrality, with “1” referring to top level overall guideline and “N” referring to policy packages for key action areas. The carbon peak and neutrality 1+N” policy framework will focus on transformation and innovation in ten areas: changing the energy mix; modernising industry; improving the efficiency of resource use; promoting energy efficiency; building a low-carbon transport system; promoting clean energy technological innovation; developing green finance; introducing supporting economic policies; improving carbon pricing mechanisms and implementing nature-based solutions.
Evolution of energy and climate policies
China’s first national programme on climate change was released in 2007, setting out various targets for 2010 and supporting measures. New targets, including a 17% reduction in carbon intensity (CO2 emissions per CNY of GDP), were included in the 12th FYP (2011-2015), accompanied by a work plan on limiting the growth of GHG emissions. The National Plan on Climate Change, released in 2014, provided a basis for negotiating the Paris Agreement and the subsequent preparation of China’s first NDC, which was submitted in June 2015. The targets in the NDC were incorporated into the 13th FYP (2016-2020).
The 2005 Renewable Energy Law was the first major law to encourage renewables and requires power grid operators to purchase output from registered renewable energy producers and offers financial incentives, including preferential electricity tariffs for renewable power and discounted lending and tax preferences. The law established a national fund to foster renewable energy development. Feed-in tariffs for renewable energy were introduced in 2006 and strengthened in 2009-2011, and have proved highly successful in boosting renewables capacity, notably wind and solar PV, as well as the development of a domestic turbine and PV panel manufacturing industry which have driven costs down. The cap on coal use introduced in the 13th FYP period (2016-2020) provided strong guidance and certainty for the transition to renewables and other clean energy sources.
The 14th FYP (2021-2025) represents a key milestone on the path to carbon neutrality. The plan was released in March 2021, about five months after the announcement of the new 2030 and 2060 climate targets. As with previous plans, it states a binding target to reduce energy intensity, in the current plan by 13.5%, and a target for reducing carbon intensity by 18%. The carbon-intensity target is the same as in the previous FYP, which was slightly exceeded. Unlike previous plans, no explicit GDP growth target for the five-year period was set, though a target of over 6% was set for 2021.
The 14th FYP identifies new energy sources and new vehicle technologies as strategic emerging industries. It stresses the need to step up energy market reforms, pursue investment in low-carbon energy and ensure energy security. It also outlines the main energy infrastructure developments to be completed and launched over the five-year period. For the electricity system these include an increase in hydropower capacity, deployment of smart grid technology, strengthening the transmission system and storage capacity to facilitate the integration of more variable renewables capacity and network connections to remote regions. Other energy infrastructure developments include oil and gas exploration and production, energy storage and transportation.
A Pathway to Carbon Neutrality
There is no single pathway for energy sector emissions consistent with the goal of China of achieving a peak in CO2 emissions before 2030 and carbon neutrality before 2060. There are many paths to both outcomes, involving different rates of change and different aspects of the transformation of the energy system, and many uncertainties surrounding all of them. Innovation and the speed at which new technologies enter the market and are adopted – key underlying drivers of the clean energy transition and the focus of the present roadmap particularly in the long term – are especially uncertain. The required trajectory of energy sector emissions also depends on emissions from outside the energy sector, as well as emissions of other carbon-containing greenhouse gases (GHG) and air pollutants. Net zero CO2 emissions for the energy sector mean that any remaining emissions in sectors where abatement is technically difficult or very costly would need to be fully offset by negative emissions through carbon removal technologies.
The significant gap in energy sector CO2 emissions between the Stated Policies Scenario (STEPS) and the Announced Pledges Scenario (APS) that opens up especially after 2030 represents the size of the challenge China faces in achieving carbon neutrality through the accelerated deployment of clean energy technologies. In the STEPS, emissions resume their upward trajectory after a decrease in the growth rate in 2020 due to the macroeconomic impacts of the Covid-19 outbreak, reaching a broad plateau in the second half of the current decade with a peak before 2030 before starting a gentle decline and maintaining that trend through to 2060. Emissions reach 6 Gt in 2060, more than 35% below their 2020 level. In the APS, emissions follow a similar path to 2030, but fall much more rapidly thereafter, reaching net zero in 2060. Cumulative emissions over 2021-2060 in the STEPS, at around 400 Gt, are roughly 80% higher than those in the APS.
CO2 emissions from fossil fuel combustion alone reach around 450 Mt by 2060 in the APS. They are entirely offset by negative emissions produced by bioenergy in conjunction with carbon capture and storage (BECCS). The APS falls within the range of scenarios and emissions pathways produced by national institutions for China’s clean energy transition.
As in the rest of the world, no single technology can deliver the emissions reductions required for reaching net zero emissions in China. Decarbonising the entire energy sector requires the deployment of a wide range of technologies, tailored to the needs of individual parts of the energy sector and to China’s circumstances. The clean energy transition to 2030 can build on a range of available technologies as well as proven policies, with the biggest contributions to emissions reductions in the APS initially coming from gains in energy efficiency, particularly in industrial processes, space heating and cooling, and road vehicles. Energy efficiency alone contributes around a quarter of the CO2 emissions reductions in 2030 in the APS. This share drops in the long run once best available technologies dominate the market, but it still accounts for around 12% of the total emissions reductions in 2060. Renewable electricity, mainly wind and solar PV, accounts for a third of total emissions reductions in 2030. The contribution of renewables rises further to almost 40% in 2060 as such energy sources become dominant in electricity generation stocks.
For the long-term transition to carbon neutrality by 2060, however, there are four additional technology opportunities that emerge in the transition over the projection horizon in the APS:
- Electrification of end-use sectors: The rising share of electricity in total energy use in all sectors accounts for 13% of cumulative CO2 emissions savings over 2021-2060.
- Carbon capture, utilisation and storage: The role of CCUS changes over the projection period. The initial focus is on addressing emissions from young existing assets in the power sector and heavy industry by retrofitting carbon capture equipment. Later, the removal of CO2 from the atmosphere comes into play, offsetting emissions in sectors where emissions are hard to abate. CCUS accounts for 8% of the total cumulative emissions savings to 2060.
- Low-carbon hydrogen and hydrogen-derived fuels: The use of hydrogen and ammonia and synthetic hydrocarbon derived from hydrogen increases over time across different sectors, contributing more than 3% of cumulative emissions savings by 2060.
- Sustainable bioenergy: Biomass and fuels derived from biomass feedstock, including gaseous and liquid biofuels, play an important role in curbing emissions, especially in the near term and in road and air transport. It contributes almost 7% of cumulative emissions savings to 2060.
These four technology areas are generally at an earlier stage of development and deployment than renewables, nuclear power and technologies for increasing the energy efficiency of using fossil fuels. Their contributions to curbing emissions will depend on accelerating innovation and commercialisation. In the absence of relevant policies to support these technologies, such change is unlikely to be achievable. Finally, behavioural changes, such as energy conservation and switching to less energy-intensive modes of transport, and avoided demand through a more efficient use of materials, are also important abatement levers in China, accounting jointly for 12% of total emissions reductions in 2060.
The complete report can be accessed here