Q&A: How China can meet its carbon reduction targets - Part 1

"China may experience multiple carbon emission peaks, and there is no need to forcibly shut down factories due to emission fluctuations, which will hurt the normal operation of the economy. "

In September, China's Ministry of Industry and Information Technology announced that the government will support 51 pilot cities to explore green finance to facilitate the green transition. According to China Central Television, the ministry also released detailed arrangements of China's Implementation Plan for Industrial Carbon Peaking, a further step to fulfill the "dual carbon" commitment it brought up two years ago [China plans to reach peak carbon use by 2030 and become carbon neutral by 2060] .

But there are still questions about what it takes for China to realize its "dual carbon" goals and the opportunities that come with them, so here's a decoding piece. The original piece of The ten obstacles China must overcome to meet its carbon reduction targets 求解“双碳”之路的十个难题 | 新增长故事 is released on Sept. 20 on the WeChat account of Southern Weekly 南方周末, a Chinese weekly newspaper based in Guangzhou. The Green Research Center of the newspaper invited several green energy experts to answer 10 questions in four sections about China's sustainable future.

Due to the substack length limit, GRR divided the article into two parts. Today’s piece is about the first two sections including the first four questions and answers, covering the foundation of the "dual carbon" targets, the current global competition in the green industry, the coordination of different regions in China, and the role green energy plays in bridging the gaps between regions.

The translation hasn’t been reviewed by the media which conducted the interview or the interviewees, so it should only serve as a reference, not as an official translation of the original text. The highlights are by Ginger River.

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Judging from international experience, is it too early for China to put forward the "dual carbon" goals? Given the different degrees of development across China, should we let regions reach the goal in different batches? With a resource endowment that is "rich in coal, low in oil, and rare in gas," how can China strike a balance between "dual carbon" aspirations and energy security? Will the "dual carbon" goals push up the living cost?

Therefore, focusing on the topic of "carbon," we invited professionals to share their opinions on 10 popular questions related to aspects such as the international environment, local approaches, energy transformation, technological innovation as well as people's well-being and employment.

Interviewees are ranked in alphabetical order by pinyin of their last name.

Chai Qimin 柴麒敏, Director of International Cooperation Department in National Center for Climate Change Strategy and International Cooperation (NCSC).

Lin Boqiang 林伯强, Dean of China Institute for Studies in Energy Policy, School of Management at Xiamen University.

Pan Jiahua 潘家华, Member of China National Expert Panel on Climate Change, Member of Chinese Academy of Social Sciences (CASS).

Yuan Jiahai 袁家海, Professor of Management Science with School of Economics and Management of North China Electric Power University, Deputy Director of Beijing Key Laboratory of New Energy and Low-Carbon Development (Think tank) of North China Electric Power University.

Zhang Jiutian 张九天, Executive Director of the China Green Development Collaborative Innovation Center of Beijing Normal University, Director of the Carbon Neutralization Professional Committee of the China Society for Sustainable Development.

Zhou Dadi 周大地, Member of China National Expert Panel on Climate Change, Former Director of the Energy Research Institute of National Development and Reform Commission (NDRC).

Sophia Zou 邹娟, Partner at Bain & Company, Head of China Sustainability and Energy Transformation practices.

Section 1: "Dual carbon" goals from a macroeconomic perspective

Globally, developed countries peaked in carbon dioxide emissions mainly after the economy grew to a certain extent when the market demand declined, and so did the growth of carbon dioxide emissions. Their per capita GDP generally reached 20,000 to 25,000 U.S. dollars at the carbon emission peak. For example, the per capita GDP topped 60,000 U.S. dollars for the United States at the peak, 40,000 to 50,000 U.S. dollars for several countries in the EU, and over 30,000 U.S. dollars for both Japan and South Korea. In comparison, China's per capita GDP in 2021 just reached 12,000 U.S. dollars. Why did China bring up the "dual carbon" goals early at this stage?

The EU is to adopt a carbon tax, also known as the carbon border adjustment mechanism (CBAM) or "carbon barrier." The CBAM will initially apply to five sectors including electricity generation, iron and steel, cement, aluminum, and fertilizer. It also sets a transitional phase. After the transition period, the EU will decide whether to expand the scope of CBAM. What is CBAM's impact on China?

Question 1: Globally, most developed countries peaked carbon dioxide emissions naturally. Does China have any preconditions supporting its "dual carbon" goals?

Pan Jiahua: Developed nations such as European countries and the United States achieved carbon dioxide emission peaks even before the United Nations started climate change negotiations. On the whole, however, developed countries' carbon emissions fluctuated at a high level for quite a long time. There were multiple peaks rather than one single emission peak. For example, carbon emissions of the US reached a high level in the late 1980s, but emissions didn't turn downwards until after 2005. It means that China may also experience multiple carbon emission peaks, and there is no need to forcibly shut down factories due to emission fluctuations, hurting the normal operation of the economy. But we should try our best to flatten the peak and shorten the period of high emissions.

However, China put forward the "dual carbon" goals based on a time period rather than a point in time. In 2010, "low-carbon economy" “低碳经济” didn't appear in government documents because China's industrialization and urbanization were advancing rapidly, and the energy structure was dominated by coal, so it was a luxury to talk about low carbon. While in 2020, the primary motivation for bringing up "carbon neutrality" mainly resulted from China's disruptive technological breakthroughs.

Existing technologies fall into two categories. The first is improved technology 改良性技术, which can enhance energy efficiency, such as improvements in coal-to-power technology, progressing from subcritical, supercritical to ultra-supercritical technology, reducing carbon emissions of generating one kWh of electricity from 450g to 270g. The second is disruptive technology 颠覆性技术. For example, the cost of photovoltaic power generation has fallen by nearly 90 percent in 10 years.

In addition to hard technology, soft technology such as regulation and guidance is equally important. China came up with concepts like man and nature living in harmony, the construction of eco-civilization and improving atmospheric conditions long ago. These concepts require us to bring down coal consumption which causes the highest carbon emissions. Moreover, China has become a developing country at the middle or upper level and is the world's second-largest economy. Zero carbon development is an opportunity and it helps resolve climate risks. Carbon peaking belongs to the Paris Agreement that requires countries to join forces. As a responsible country, China is thus on the way to peak carbon dioxide emissions, and international consensus has also become an external force to drive China to this end.

Achieving the "dual carbon" goals requires a systemic change with multiple goals and constraints in the economy and society. So China must coordinate development and emission reductions, carbon reduction and [energy] safety, the whole and part, short-term and longer-term considerations, abandonment and establishment, government and market, domestic and international situations, and other factors.

Zhang Jiutian: Carbon peaking and carbon neutrality is now a global consensus. Countries that have already made commitments to carbon neutrality produce more than two-thirds of the world's carbon dioxide emissions. Besides, the technology and industrial innovation for carbon peaking and carbon neutrality are the high ground for global competition in the future. Countries across the world are actively exploring industrial opportunities surfacing in the process of global carbon neutrality.

The "dual carbon" targets can boost China's economic upgrading and facilitate the country's high-quality development. For example, China's internal combustion engine technology and fuel vehicles are weak compared with some European countries, the US, Japan, and South Korea, occupying only a small share of the global market. However, under the "dual carbon" goals, China refocuses on low-carbon automobiles, electrification becomes an important direction, thus technologies like lithium batteries for electric vehicles have been growing and earned a lot of reputation. As technologies such as 5G and artificial intelligence are being integrated into electric vehicles, there will be richer application scenarios [for electric vehicles]. China should take advantage of this window and develop technologies with independent intellectual property rights, and export low-carbon technologies and new energy vehicles to wherever they are needed.

Nowadays, low carbon is an increasingly important factor in international trade rules, and it may play a key role or even become a game-changer for international trade in the future. However, low-carbon factors should be included in trade rules in a way consistent with WTO rules, otherwise new trade barriers may be raised.

Question 2: Global competition in the green industry is intensifying, particularly in the fields of hydrogen energy, energy storage, new energy vehicles, and smart grids. The EU has established the CBAM. Will the "carbon barrier" have an impact on the international trade and economic development of developing countries in the future?

Sophia Zou: CBAM will indeed have an impact on international trade, especially for big exporters of high-carbon products. Moreover, small economies with limited bargaining power in international policy negotiations may also be exposed to risks.

In our expectation, the price of carbon emission allowances will keep ticking up in the late "14th Five-Year Plan" period. For example, EU's emissions trading price is expected to rise to 100 to 200 yuan (about 14.05 to 28.10 U.S. dollars) per ton. As a result, some multinational enterprises in the EU may re-evaluate the overall costs of building factories overseas, and adjust the distribution of factories and businesses, which will affect Chinese enterprises through the industrial chain and supply chain. Developing countries thus need to speed up transformation, support the development of low-carbon technologies and digital economy, and keep close tabs on the impact of "carbon barriers," such as carbon tariffs, on economic development and international trade. Developing countries should shield themselves from the impact to ensure stable growth.

Section 2. Regional differences in reaching the "dual carbon" goals

China's resource endowments and stages of development vary widely from region to region. Most regions are on the road to carbon peaking, and some have openly announced to take the lead in carbon peaking. For example, Beijing announced that carbon emissions will decrease steadily during the "14th Five-Year Plan" period. Shanghai clearly stated the goal of achieving carbon peaking by 2025. Jiangsu, Fujian, Guangdong, Tianjin, Hainan, Qinghai and Tibet also announced plans to reach carbon peaking before the national deadline. Under the "3060" goal [carbon peaking by 2030, carbon neutrality by 2060], how will the regions achieve the goals in stages and develop in a coordinated manner?

Question 3: As the regions vary greatly in China, what are the differences in their respective roadmap to the "dual carbon" goals? Is there a one-size-fits-all indicator system?

Chai Qimin: Local governments often set goals based on historical indicators, but the carbon neutrality goal should take into account the development of the four decades to come, which involves every aspect of economic and social development. Whatever indicator system governments choose, there exist drawbacks, which would not be fair to some regions. Therefore, China must come up with new ways instead of choosing the simple one-size-fits-all method.

For local governments, setting the "dual carbon" goals shall not be equal to doing the math. At present, some local governments just simply calculate the data and predict the future economic and energy consumption growth rates, and then roughly consider the energy structure. Their rough calculations are generally inaccurate. Since 2010, many pilot cities in China have officially put forward the goals of carbon peaking by 2020 or 2025, but now it now seems that they are making adjustments in light of the new situation. So we all should learn from past experience.

When local governments break down and implement the goal, they need to combine the top-down method and the bottom-up method. For the top-down method, we must ensure a coordinated national response, which is in accordance with the action plan for carbon dioxide peaking before 2030 issued by the State Council. The plan generally divides China into three parts: the first is regions where carbon emissions are stable. The second is regions that rely relatively less on heavy industries and possess advantages in energy structure. And the third is regions that rely more on heavy industries, regions where coal is the dominating energy source, and resource-based regions. And the plan asks three types of regions to reach carbon peaking one by one.

For the bottom-up approach, local governments should uphold systems thinking, consider other economic and social development tasks other than carbon emission control and reduction, make decisions based on multiple goals, and implement policies in a targeted manner. For example, after reaching the poverty alleviation goal, governments may relax the control of carbon dioxide emissions to enhance development. Transformation may lead to social problems such as an increase in production costs for enterprises and unemployment, so fair policies should be in place to provide some support. And in the short- and medium-term, there might be problems like an imbalance between supply and demand, for which governments need to take precautions and response measures.

In conclusion, change will result in an adjustment of interests, and we should make new relations of production match new productivity. The central government and local governments need to maintain sufficient communication and coordination because the top-level planning focuses on macro problems shared by places, but it may not take into account specific conditions of local areas, while local governments sometimes focus on micro problems without seeing the big picture.

In addition to the breakdown and realization of goals, it is also necessary to employ incentive and constraint policies flexibly, such as fiscal subsidies, tax relief, monetary support instruments and market mechanisms, to reduce the cost and risks of society-wide emission reductions. In the economic cycle with great downward pressure, it is necessary to give more incentives and be cautious about imposing constraints. Even if we want to put a brake on something, don't jam on the brake.

Question 4: In reaching the "dual carbon" goals, how can we promote the coordinated development of regional economies and narrow the gap?

Pan Jiahua: China spends about 2 trillion yuan to import about 700 million tons of crude oil every year. The money equals about 2 percent of China's GDP and 10 percent of the fiscal revenue. To realize a zero-carbon economy, we must get rid of our dependence on fossil energy, which is the main background of putting forward the "dual carbon" goals.

Fossil energy is fixed in certain places, and you can only exploit oil or coal there. But the production and consumption of zero-carbon energy are different. Zero-carbon energy exists wherever there is wind or light. As every household has access to light, each can harness the sunlight to generate electricity for self-consumption and become a zero-carbon unit or zero-carbon economy. Moreover, there is a long industrial chain for wind power, solar power, and hydroelectric storage, and the rate of capital accumulation is relatively low. So there will be a lot of new jobs for the general public, promoting economic growth and social progress.

From the perspective of regional economic development, regional coordination is the only way to achieve carbon neutrality. Megacities like Beijing and Shanghai have no space for renewable energy. They have no problem in achieving carbon peaking, but are unable to achieve carbon neutrality. In comparison, China's northwest and southwest regions are rich in hydropower and biomass energy.

In brief, the western region undertakes the dual function of industrial transfer and west-to-east power transmission 西电东送 in China's regional coordinated and low-carbon development. It is necessary to enlarge and underline its role. The northwest region can be positioned as a base for renewable energy-based electricity and a smart heavy industrial base. The southwest region rich in hydropower can serve as an energy-intensive information industry base and a peak regulation base for renewable energy-based electricity. Near-zero carbon cities shall be built by regions step by step. We can actively promote building cities powered by 100 percent renewable energy in the western region, and pilot the construction of 100 percent new energy cities in the east and central regions. We shall adopt and improve "a near-zero city program based on nature". In the context of population transfer to metropolises and urban clusters, we must abandon the traditional "integrated and centralized" cities and industrial distribution patterns, and make it easier to build near-zero carbon cities.

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Due to the size limit, GRR will deliver Part II of this article later. Part II will cover energy security against the backdrop of the "dual carbon" goals and the impact of the "dual carbon" goals on the general public.

Stay tuned!

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