China's road to net zero: reshape the country and the world (2024)

Article tagsEconomyEnergyForecastingAsiaCountry Analysis

  • The power sector’s measured decarbonisation means that coal consumption will peak as soon as 2026, and decline steadily thereafter. The fast-paced installation of renewables entails sustained demand for relevant commodity inputs, with geopolitical implications as competition over them intensifies.
  • Electrification of China’s road transport will gradually but materially alter the global oil market. Chinese production and exports of electric vehicles will exacerbate existing global tensions around industrial policy and unfair subsidies.
  • Energy- and emission-intensive industries such as steel and cement will be under significant decarbonisation pressure. EIU advises companies to watch out for the development of market-based policy tools like emission trading, which will be an indicator of the government overcoming its long-standing institutional inertia.

Since September2020, when China’s president, XiJinping, made the pledge to reach netzero by 2060, the country’s ministries and locales have been mobilised to devise decarbonisation roadmaps for their jurisdictions. Pragmatic progress across power, transport and industrial sectors is having ripple effects across global trade and geopolitics.

China's road to net zero: reshape the country and the world (6)
China's road to net zero: reshape the country and the world (7)

Balancing transition and stability of the electricity mix

The power sector—China’s largest emitter due to its dependence on coal—is undergoing a transformation. We forecast coal consumption to peak as soon as2026, although it will fall only slowly after, to the benefit of coal exporters like Australia.Coal power, as the most economically and politically viable reserve option (for example, peak load), remains indispensable in the short term. More environmentally friendly solutions are either tooimport-dependent (natural gas)and expensive (battery storage), or take too long to build (pumped hydro). Official support for coal-fired generation has, in fact, seen an uptick in response to energy security concerns from the Russia-Ukraine war todomestic power outages,reflecting China’s pragmatism toward climate change mitigation.

China's road to net zero: reshape the country and the world (8)

Great leap forward in transport

The transport sector’s greenhouse gas emissions will probably peak in the2030s.China’s transport-related carbon footprint perhead was small to begin with, owing to the country’s vast high-speed railway network. It has since become the preferred mode of long-distance transport among the public, over air and road.

Road transport accounts for the vast majority of emissions in the sector. The fleet is undergoing gradual electrification, which will materially alter the global oil market in the coming years.New energy vehicles (NEVs, a term reserved for pure electrics, plug-in hybrids and fuel cells), after billions of renminbi worth of government subsidies, are increasingly competitive against conventional vehicles in the Chinese market; by early 2023 they had taken about 30% of market share (sales). We expect regulators to be under growing pressure to set a timeline for phasing out fossil-fuel cars, which it has not done so far.

We expect Chinese production and exports of electric vehicles to exacerbate existing global tensions around industrial policy and unfair subsidies.Exports of made‑in‑China NEVs—including non‑Tesla Chinese brands—have skyrocketed in recent years. German, American and Japanese car manufacturers, who have a strong presence in China and enjoy a high market share globally, risk losing out to their Chinese competitors in the decades ahead.

China's road to net zero: reshape the country and the world (9)

Decarbonising industries: from exuberance to pragmatism

Emitting about one‑third of China’s greenhouse gas emissions, China’s vast industrial sector has a tougher decarbonisation path ahead.As the world’s largest manufacturing base, the country has high emissions levels naturally. After an arguably overzealous decarbonisation push (which causedheavy disruptions), industry officials have resorted to more pragmatic roadmaps.

We expect decarbonisation pressure to be placed on the most energy- and emission-intensive goods such as steel, cement, chemicals and aluminium (as opposed to manufacturing as a whole), especially commodified productsthat are not considered instrumental to China’s high-quality growth pathway.China is often the largest producer of these products globally; therefore, the most straightforward pathway to lower emissions is to cut production—a common theme in emission-reduction roadmaps issued so far. On the other hand, the diminishing role of property in the economy is also reducing demand for cement and steel. The campaign to cut energy-intensive production capacity, in place since 2015, will continue the wave of industry consolidation led by large state-owned enterprises (SOEs), and push smaller and inefficient firms out of the market.Businesses should take into account the future rise of China’s producer prices as a result of these developments. They will also reshape global trade of industrial commodities in the coming years.

China's road to net zero: reshape the country and the world (10)

Energy efficiency improvements and process innovation, which are vital to achieving netzero in the long term, will be increasingly attractive investment opportunities, although they are currently driven by government directives (both of China and theWest). MajorSOEs, such as the world’s largest steel producer, Baowu, are financing research and development of new technologies. Export-oriented firms are facing pressure from theEU, which will implement theCarbon Border Adjustment Mechanismby2027 (import duties based on a product’s carbon footprint).

Watch out for better policy predictability and market-based tools

In the near term, institutional inertia and conflicting priorities are hindering further progress and causing considerable policy uncertainty.Many emission-intensive sectors are state-owned, and the government has long resorted to top-down, often unpredictable, directives to drive decarbonisation. Some classic examples are production halts ahead of major political events, and state-driven consolidation in the industrial sector. However, the example with the most impactis arguably the distorted power market.

The government has resisted power market reform out of concerns that liberalisation can lead to instability in the system, and that fluctuating prices may affect consumer and business sentiment. However, the ebb and flow of reform have, in fact, given rise to these risks.State power companies have not relinquished control over generation planning, power transmission, marketing electricity and pricing mechanisms. As such, electricity prices fail to signal energy suppliers to accelerate green investment, or to encourage consumers to improve energy efficiency and undergo restructuring if necessary. Decentralised power systems remain uncommon in China, and instead the government poured billions into clean energy bases in China’s renewables‑rich west, as well as long-distance power transmission networks that connect them to the energy-hungry east. Many lines remain under‑utilised and may never become economical.

China's road to net zero: reshape the country and the world (11)

A more efficient decarbonisation pathway will depend on market-based tools, and their growth will be the strongest signal that the government is tackling long‑standing institutional bottlenecks. For now, the much-hyped emission trading scheme (ETS) remains in the infant stage.ETS is a complex policy tool that requires years of recalibration—more than adecade in the case of theEU. The Chinese ETS currently covers only coal and gas power, with plans to expand into heavy industries and aviation postponed owing to the economic downturn. The power sector’s unique ETS design prioritises improving the efficiency of China’s coal power fleet (which was already high to begin with) over a full transition away from coal to renewables. Regulators are gradually addressing problems that also occurred in other jurisdictions, like oversupply of credits and data quality.

The analysis and forecasts featured in this piece can be found in EIU’sCountry Analysisservice. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, helping organisations identify prospective opportunities and potential risks.

Article tagsEconomyEnergyForecastingAsiaCountry Analysis

China's road to net zero: reshape the country and the world (2024)


What is China's path to net zero? ›

China's net-zero transition pathway

derive more than 80% of its energy from non-fossil fuels by 2060. This will require coal, oil and gas consumption to peak by 2025, 2030 and 2035 respectively, energy efficiency to continue to improve until 2035, and carbon capture, utilisation and storage to scale up.

What is the 2060 plan for China? ›

To become carbon neutral by 2060, as mandated by President Xi Jinping, China will have to build eight to 10 times more wind and solar power installations than existed in 2022. Reaching carbon neutrality will also require major construction of transmission lines.

What is the net zero law in China? ›

China, the world's largest producer of greenhouse gases accounting for 27% of global emissions, made a surprise pledge at the 75th UN General Assembly to achieve carbon neutrality by 2060, boosting hopes for a pathway to global net-zero.

How is China contributing to climate change? ›

China is the world's largest coal producer, mining 4.56bn tonnes of coal in 2022. It is also the world's biggest coal importer. It imported 293m tonnes in 2022 – mainly for thermal power generation – from countries including Indonesia, Australia and Russia.

Which country is closest to net zero? ›

The countries closest to achieving net zero
  • Bhutan. ...
  • The Comoros. ...
  • Gabon. ...
  • Guyana. ...
  • Madagascar. ...
  • Niue. ...
  • Panama. ...
  • Suriname. Suriname borders fellow net-zero nation Guyana, which is no coincidence: they're both covered in forests that enable them to be carbon sinks.
Nov 21, 2023

Can the US reach net zero? ›

Achieving net-zero across the entire U.S. economy requires contributions from all sectors, including: efficiency, clean power, and electrification; reducing methane and other non-CO2 gases; and enhancing natural and technological CO2 removal.

Why is net zero impossible? ›

Net Zero isn't possible, because as a mathematical fact, civilizations produce waste. And, there is zero-waste, in this case, and in many others, which are produced by the Earth itself. This isn't meant to bore you with science.

What is the difference between net zero and carbon-neutral? ›

When carbon-neutral refers to balancing out the total amount of carbon emissions, net-zero carbon means no carbon was emitted from the get-go, so no carbon needs to be captured or offset. For example, a company's building running entirely on solar, and using zero fossil fuels can label its energy as “zero carbon.”

Is China the biggest polluter in the world? ›

China was the biggest emitter of carbon dioxide (CO₂) emissions in 2022, accounting for nearly 31 percent of the global emissions. The world's top five largest polluters were responsible for roughly 60 percent of global CO₂ emissions in 2022.

Which country pollutes the most? ›

China was the largest climate polluter, making up nearly 30% of global emissions. top 20 global climate polluters — dominated by China, India, the United States and the European Union — were responsible for 83% of emissions in 2022.

Why is China building islands? ›

In late 2013, the PRC embarked on very large scale reclamations at seven locations in order to strengthen territorial claims to the region demarcated by the nine-dash line. The artificial islands were created by dredging sand onto reefs which were then concreted to make permanent structures.

What is China's path to carbon neutrality? ›

Carbon neutrality demands a rapid and profound transformation of the energy sector. Reaching a peak in China's CO2 emissions before 2030 relies on progress in three key areas: energy efficiency, renewables and reducing coal use.

What is the path to net zero strategy? ›

A successful net-zero transition will require achieving not one objective but four interdependent ones: emissions reduction, affordability, reliability, and industrial competitiveness. A poorly executed transition could make energy, materials, and other products less affordable, compromising economic empowerment.

What is Taiwan 2050 net zero pathway? ›

Taiwan's 2050 net-zero emissions pathway is based on the 4 major transition strategies of “Energy Transition”, “Industrial Transition”, “Lifestyle Transition”, and “Social Transition”, as well as the 2 governance foundations of “Technology R&D” and “Climate Legislation”, and is supplemented by "12 Key Strategies".

How does China block the Internet? ›

Methods used to block websites and pages include DNS spoofing, blocking access to IP addresses, analyzing and filtering URLs, packet inspection, and resetting connections. The government blocks website content and monitors Internet access.

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