China’s route to carbon neutrality: Perspectives and the role of renewables

EXECUTIVE SUMMARY
In September 2020, Chinese President Xi Jinping announced at the 75th Session of the United Nations General Assembly that China would aim for a peak in its carbon dioxide (CO2) emissions before 2030 and to achieve carbon neutrality by 2060. The implications of these announcements will be profound and will require changes in almost every aspect of how the country consumes energy and produces goods. Forty years is a short period to complete such a major transformation, and although many building blocks exist, many of the details of how to deliver such a change remain unclear. Substantial analysis, careful planning and co-ordinated effort will be needed in the next few years to shape the path to 2060.

China’s scale and the need to balance economic development with emission reductions present a challenge in its transition to net zero. Over the past decade, the country has been top ranked in global energy production and consumption. China’s energy-related CO2 emissions have been trending upward to reach 28% of the global total in 2019, according to emission data from the International Energy Agency. At the same time, China has been a key driver of the growth in renewable energy generation capacity, accounting for 34-53% of the global annual growth over the period 2013 to 2021 (IRENA, 2022a).

IRENA’s technology-focused analysis
This paper provides some initial insights based on the technology-focused work of the International Renewable Energy Agency (IRENA) with countries around the world, as well as on IRENA analysis of global and regional energy transitions. The paper draws on multiple IRENA reports on power sector flexibility, hydrogen and the sustainable use of biomass. It also draws specifically on IRENA’s Innovation Landscape for a Renewable-Powered Future report (IRENA, 2019a) and supporting briefs, on the Reaching Zero with Renewables report (IRENA, 2020a) and on IRENA’s global roadmap – the World Energy Transitions Outlook (WETO) (IRENA, 2021a; IRENA, 2022b) – which is focused on a scenario consistent with limiting global temperature rise to below 1.5 degrees Celsius (°C), by eliminating global CO2 emissions between now and 2050.

Scaling up the production and use of hydrogen and synthetic fuels
Hydrogen has several attractive features for the energy transition. It can offer a solution for types of energy demand that are hard to electrify directly. At the global level, hydrogen and the direct use of renewables can meet around 50% of the final energy uses that may not be suitable for direct electrification. Transport of hydrogen through pipelines would be much more cost efficient in comparison with electricity transmission over power grid networks per unit of energy. In addition, hydrogen produced from renewable electricity via the electrolysis process can contribute to the integration of more variable renewable energy in the power sector by providing an additional source of flexibility, and can also provide seasonal storage complementing short-term storage (e.g. batteries).

Supporting cities as champions of low-carbon living
Over the past few decades, China has urbanised dramatically and in an impressive manner given the size of its population. City dwellers now make up 60% of the population, which creates challenges for energy supply and use (CNBS, 2021). Industry accounted for around 71% of the country’s urban final energy consumption in 2018, while buildings accounted for around 19% and transport for 10% (SGCERI, 2019).

Continuing progress in light-duty transport and broadening to heavy-duty and long-haul modes
Falling costs and rising shares of renewable energy in China’s power mix open the door for transforming the transport sector so it is mostly centred around direct and indirect electrification. The technological options that can accelerate such a transformation include the direct use of clean, preferably renewable, electricity (for rail and road transport, including heavy-duty road freight transport); the use of green or blue e-fuels, such as hydrogen, ammonia and other e-fuels (particularly for shipping and some heavy-duty road freight transport); and the use of biofuels (particularly for aviation). Among these options, electrification of transport is generally viewed as the most promising, particularly for light vehicles, thanks to the continued decline in the generation cost of electricity from renewable energy sources.

Laying the groundwork for industrial sectors to achieve net zero emissions
How to achieve net zero emissions in the industrial sectors is a global challenge that has barely begun to be tackled. This is because it will require fundamental changes in the production, consumption, and recycling and disposal of products, and industrial sectors are diverse. China is the world’s largest producer of several key energy-intensive commodities, so its actions and leadership will be critical.

CHINA’S CARBON DIOXIDE EMISSION GOALS IN THE GLOBAL CONTEXT

At the 75th Session of the United Nations General Assembly in 2020, China announced that it aimed to achieve a peak in its carbon dioxide (CO2) emissions before 2030, and to achieve carbon neutrality by 2060. In December 2020, China further detailed that, as part of its Nationally Determined Contribution under the Paris Agreement, it aimed to reduce the carbon intensity of its gross domestic product (GDP) more than 65% by 2030, while increasing the share of non-fossil fuels in primary energy consumption to around 25% and the forest stock volume by 6 billion cubic metres, from 2005 levels respectively. In addition, China will scale up its total installed power generation capacity from solar and wind to more
than 1 200 gigawatts (GW). The implications of these announcements will be profound and will require changes in almost every aspect of how the country consumes energy and produces goods. Forty years is a short period to complete such a major transformation, and while many building blocks exist, many of the details of how to deliver such a change remain unclear. Substantial analysis and co-ordinated effort will be needed in the next few years to shape the path to 2060.

Global context
Many major economies – including all members of the Group of Seven (G7) plus the European Union (EU) – have made political or policy commitments to achieving net zero CO2 emissions by mid-century. The EU has legislated for a goal of net zero by 2050, and five European countries (Denmark, France, Germany, Hungary, Luxembourg, Spain, Sweden and the United Kingdom) have already passed national legislation, while more countries have declared net zero policy goals. Notably, as part of its net zero plans, the EU has adopted a new Carbon Border Adjustment Mechanism, which has big implications for global markets.

SHAPING A STRATEGY FOR THE 2020s AND BEYOND

China has set a clear goal for its carbon emissions to peak before 2030. However, bringing forward the timeline to 2025 would greatly assist with the country’s subsequent trajectory to net zero, making later implementation plans more manageable. It is critical to use the 2020s as a decade of planning, preparation and learning to gather evidence, make choices and address the enabling conditions necessary to put China on the path to a new modern energy system. Doing so will require a fundamental rethinking of traditional concepts of energy supply and security and should draw on the lessons from domestic energy system development to date as well as on international experiences with energy transition. The International Renewable Energy Agency (IRENA) is working closely with multiple governments as they begin to develop carbon neutrality plans. While all countries are still in the early learning stages, some common elements are emerging that, with some adaptation to local circumstances, are of relevance to China.

Developing and delivering an integrated long-term energy plan
Effective and integrated energy planning is fundamental for a successful energy transition. Long-term energy scenarios are a powerful tool for planning and policy making, which can provide a strategic framework guiding the development of both China’s Five-Year Energy Plans and longer-term strategies. Energy planning and policy issues are different for the short, medium, and long terms, but near-term plans must be aligned with the long-term strategy. A 10-year time horizon to 2030 (by when China aims to peak its emissions), for example, needs to capture structural change and the deployment of emerging technologies, as well as system inertia that results from existing capital stock. However, a 2050 or 2060 time horizon (by when China aims to reach net zero emissions) needs to explore innovations and normative long-term policy objectives, such as deep decarbonisation.

Maintaining energy efficiency improvements as a priority
Maximising energy and resource efficiency and minimising the energy and resource intensity of economic activities is usually the most cost-effective initial strategy to reduce carbon emissions
and pollution; it also improves energy security. Energy and materials efficiency and a continued reduction in energy intensity has featured prominently in previous Chinese energy plans and
should continue to be a major focus in the 2020s and beyond. In IRENA’s 1.5°C Scenario, energy efficiency and demand reduction account for around 25% of the global emission reductions needed to reach zero. In this scenario, the rate of improvements in energy intensity needs to increase to 3% per year (IRENA, 2021a), up from 1.2% in 2019 and previous years. China has made great progress in this regard over the last three decades, having reduced its energy intensity 70% between 1990 and 2018, an improvement that exceeds the global average (IEA, 2020a). Further reductions will be needed, however.

Emerging innovations for the integration of variable renewable electricity
These changes can be enabled by the adoption of systemic innovations – an approach to facilitate the diffusion of innovative technologies with improved enabling environments such as business models, market structures, new regulations and overall system operations (Figure 1). Thus, the flexibility in the energy system could be improved, while more variable renewable electricity can be integrated in the power mix. IRENA’s report Innovation Landscape for a Renewable-Powered Future (IRENA, 2019a), and its accompanying briefs, identified 30 flexibility options that can be combined into comprehensive solutions, taking into account national and regional power system specifics.

Increasing the electrification of end-use sectors
China’s goal of carbon peaking and neutrality requires fundamental changes in how the country both produces and consumes energy, and this will be no more evident than in final demand. There is a pressing need to determine how to best link rapidly expanding clean energy supplies with demand, and it is increasingly clear that the electrification of end-use sectors should be the first choice to make this possible.

Electrification in China
In China, the combination of electrification and renewables is already starting to transform sectors such as light-duty road transport and buildings and is expected to contribute to substantial reduction of carbon emissions from the use of fossil fuel energy sources. In the last decades, electrification in those two sectors means that the overall rate of electrification in China is outpacing that of other major regions (Figure 2). Transport is an especially bright spot

in this regard: while Norway is the world champion in electric vehicle market growth, China has moved fast in accelerating adoption, representing around half of global passenger electric car sales and nearly 100% of global electric bus sales. China can continue to expand its world-leading experience in urban mobility electrification in cities like Shenzhen and Beijing – where entire bus fleets are shifting to electricity – to other rapidly growing urban areas. While increasing the pace of electrification will be critical, a key message from the work of IRENA and State Grid is the need to avoid un-co-ordinated electrification, which could threaten to increase system peaks and cause issues for transmission and distribution networks. Smart electrification enabled by good planning and digitalisation will be a necessity to reduce peak loads, thus minimising the need for investments in enhancing grid options
or adding more generation capacity. Increasing the flexibility of the loads to better match the outputs of variable renewables would help to increase the use of variable renewable electricity in the power mix and allow other sectors to use renewable electricity. This can be achieved through, for example, load shifting, smart technologies, and the production and storage of green hydrogen.

Scaling up the production and use of hydrogen and synthetic fuels
Hydrogen can offer a solution for types of energy demand that are hard to directly electrify. Alongside the direct use of renewables discussed above, it can address some of the roughly 50% of final energy use that may not be suitable for direct electrification due to technological, logistical or economic factors (IRENA, 2020d). Current global hydrogen production is around 120 million tonnes (Mt) (14 EJ) annually, of which 33 Mt is produced in China, and it is almost entirely fossil-based. Looking forward, hydrogen and its derivatives will be able to provide 12% of global final energy use by 2050, as shown in
IRENA’s 1.5°C Scenario. An estimated two-thirds of this would be produced using renewable electricity, i.e. green hydrogen. Producing this will require dedicating 27% of the generation capacity in 2050 to green hydrogen production, or 21 000 TWh of electricity demand by 2050 (IRENA, 2021a). China’s use of hydrogen can grow up to four times by 2050, with the bulk of the growth driven by the industrial sector.

China has excellent wind resources in the northern provinces that can reach capacity factors of above 50%, as well as excellent solar resources in the Tibet-Qinghai plateau in the western provinces. This can potentially lead to electricity prices of around USD 30 per megawatt hour (MWh) in the near term at these locations and a more widespread cost of USD 20 per MWh by2030These low costs would allow green hydrogen to become the most competitive pathway for hydrogen production. Green hydrogen can already be produced at costs competitive with blue hydrogen today, using low-cost renewable electricity, i.e. around USD 20 per MWh. If rapid scale-up takes place in the next decade, green hydrogen is expected to start becoming competitive with blue hydrogen by 2030 in a wide range of countries (Figure 3).

Green hydrogen applications
Hydrogen can be ten times cheaper to transport than electricity, so green hydrogen could also provide a way to connect the renewable resources in China’s northern and western provinces with the industrial and urban areas located in the country’s east and south-east. In addition, green hydrogen can contribute to integrating more renewables in the power sector by providing additional flexibility and can provide seasonal storage complementing short-term storage (e.g. batteries).

Supporting cities as champions of low-carbon living
China’s urbanisation over the past half century has been remarkably rapid and practically unique in scale. City dwellers now make up 60% of China’s population of 1.4 billion (State Council, 2020), and the country’s 14th Five-Year Plan projected that the share of permanent urban residents would reach 65% by 2025. Yet the migration that helped bring millions out of poverty has sharply increased urban energy consumption. It has also degraded the environment in and around cities. The resulting challenges have brought China to a crossroads in energy and environmental security. Cities, and their surrounding areas, represent around 85% of China’s energy demand, and the country is contemplating how it can sustain continued urbanisation for another three decades, with a further 255 million city dwellers set to be added (UN, 2018). This calls for a long-term energy transformation at the city level.

Continuing progress in light-duty transport and broadening to heavy-duty and long-haul modes
Falling costs and rising shares of renewable energy in China’s electricity supply system open the door for transforming the transport sector, mostly centred around direct and indirect electrification. Rail transport is already largely powered with electricity, and while the preferable path to lowering CO2 emissions is relatively clear for light-duty road transport, the optimal approach is less certain for heavy-duty road freight transport, shipping and aviation. Reducing emissions from transport can be achieved through behavioural changes, urban planning and improved fuel efficiencies. Yet these instruments can hardly yield the results of a full decarbonisation of the sector. To transform the sector to carbon neutrality, the technological options that can accelerate such transformation include the direct use of
clean, preferably renewable, electricity (for rail and road transport, including heavy-duty road freight transport); the use of green or blue e-fuels, such as hydrogen, ammonia and other e-fuels (particularly for shipping and some heavy-duty road freight transport); and the use of biofuels (particularly for aviation).

Laying the groundwork for industrial sectors to achieve net zero emissions
The industrial sectors have been a critical element in powering the global economy. Contributing around 28% of global carbon emissions, they are also a major emitter. The use of fossil fuels as the key energy source in industry is only part of this emission contribution. Emissions also come from industrial production processes and from the life cycle of products. This makes achieving the net zero goal for industrial sectors both challenging and important. The four most energy-intensive industry sub-sectors – iron and steel, chemicals and petrochemicals, cement and lime, and aluminium – emit around 75% of the total emissions from the entire industrial sector (IRENA, 2020a).

China dominates the production of some energy-intensive industrial products
The dominance of industrial manufacturing in China makes achieving net zero emissions in the sector uniquely challenging for the country, compared to other large economies. China’s industrial sector accounts for 60% of gross final energy use (for both energy and non-energy uses), and two-thirds of industry energy demand is met by coal (with another quarter met by electricity). This results in around 4 Gt of energy-related CO2 emissions and 2 Gt of process-related CO2 emissions, together accounting for just under two-thirds of China’s CO2 emissions (Grant and Larsen, 2020; Liu et al., 2019). Within the industrial sector, emissions from energy-intensive industries such as iron and steel, aluminium, chemicals and petrochemicals, and cement and lime account for the lion’s share and are not expected
to decline significantly during 2020-2050 without stronger policies in place, according to IRENA’s analysis (Figure 4).

Continuing to support technology RD&D and broader systemic innovation
Since 2013, China has increased its investment in clean energy research, development and deployment (RD&D) and has become the second largest public sector investor in this area behind the United States (although the EU and its members collectively invest more). China is an active member of the Mission Innovation initiative, co-leading a number of international collaborations on RD&D; at the United Nations climate talks in Paris in 2015, alongside other Mission Innovation members, it committed to doubling its RD&D investments within five years. Chinese public sector RD&D expenditure increased from USD 3.6 billion in 2016 to USD 6.1 billion in 2018, although investments dropped back to USD 5.5 billion in 2019 (MI, 2020).

CONCLUSIONS AND AREAS FOR FURTHER WORK
China’s announcement that it is aiming for a peak in CO2 emissions before 2030 and to achieve carbon neutrality by 2060 has profound implications for how the country will consume energy and produce goods. Delivering on those objectives in just 40 years is a huge undertaking, and while many of the building blocks exist, many uncertainties on the optimal path remain. Substantial analysis and co-ordinated effort will be needed in the next few years to shape a robust path to 2060. It will be critical therefore to use the 2020s as a decade of planning, preparation and learning to gather evidence, make choices and address the enabling conditions necessary to build a new modern energy system for China.

Source:IRENA

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