Delivering carbon neutrality in China

At the UN General Assembly in September 2020, President Xi Jinping announced that China will target carbon neutrality by 2060. This represents a significant commitment of long-term ambition and priorities. This will be translated into concrete policy actions to place the low-carbon transition as a central feature in China’s planning and development strategy.

Investors are increasingly supportive of policy actions to reach net zero and ready to contribute capital and collaborate with policymakers to design and implement policies that facilitate investment flows at scale. PRI has published a roadmap of climate policies for China to contribute towards policy discussions and to support policy engagement of responsible investors.

The policy brief builds on research by Vivid Economics as part of PRI’s Inevitable Policy Response (IPR) project. It provides recommendations addressing the overall climate ambition and key sectors for decarbonisation, including power, road transport, buildings, and industry. The policy brief also considers the role investors could play in the transition.

China is the world’s largest emitter of CO₂ emissions. In order to achieve the new goal of carbon neutrality by 2060, China will need to increase the scope and ambition of climate policies and emissions reduction targets across key sectors of the economy. Together, these recommendations represent a set of near-term actions to help set China on a pathway to carbon neutrality in a way that is economically and technologically achievable, and ultimately beneficial in helping to deliver sustainable development.

Key policy recommendations

 

Overall climate ambition

• Carry out and publish an assessment and impact analysis of climate change on the Chinese economy, society and pathways to meet the target of carbon neutrality by 2060. This will include setting interim targets and developing a comprehensive set of policies to deliver on those goals.
• Enhance the effectiveness and coverage of the Emissions Trading Scheme (ETS) by setting the GHG emissions caps at levels consistent with a pathway towards net zero, and at least ten years ahead to ensure that the ETS provides a forward-looking price signal.
• Introduce a mechanism to correct for surplus allowances and announce the timeframe for coverage of the power sector plus seven additional sectors - petrochemicals, chemicals, building materials, steel, nonferrous metals, paper, and domestic aviation.

Zero carbon power

• Develop and implement a plan for zero or near-zero carbon electricity that is aligned with the 2060 goal for carbon neutrality, including interim targets for 2025 and 2030.
• Announce an end to approvals of all new unabated coal power plants.
• Set a medium-term target to phase out all unabated coal power generation that is consistent with the 2060 carbon neutrality goal and includes interim targets for 2025 and 2030.
• Develop and implement an enabling regime to unlock investment in energy storage, demand response and high voltage transmission between regional electricity markets.
• Build on recent progress with electricity market reforms and implement economic dispatch across regional power markets.

 Industry

• Strengthen mandatory energy efficiency targets for industrial plants in the fourteenth five-year plan, widening coverage beyond the 30,000 businesses covered in thirteenth five-year plan.
• Develop and implement strategies for low-carbon steel, chemicals, and cement. Set objectives to decarbonise energy intensive industries, and provide a roadmap to shift to electric, hydrogen, and carbon capture and storage production technologies to meet this objective on a timeline aligned with Paris Agreement goals.

Road transport

• Announce an end to the sale of fossil fuel cars and vans by 2040 and set out a long- term policy regime to deliver 100% zero emission vehicles by this date.
• Develop and implement a comprehensive heavy road transport decarbonisation strategy, including: setting clear targets for emissions reductions and providing a programme of RD&D and demonstration projects for low-carbon trucks.

 

Buildings

• For new buildings: publish a comprehensive thermal efficiency plan, including setting new thermal efficiency standards for the period to 2025; a commitment to strengthening standards every five years; extension of new building thermal efficiency standards to rural buildings.
• For existing buildings: set a target to retrofit all residential, commercial and public buildings by 2050; and develop policy mechanisms (investment subsidies, owner obligations) to achieve the target and interim targets to track progress.

What is the role of investors?

Building on the 2060 carbon neutrality announcement, in October 2020, five key Chinese government bodies^[1] published new guidance to promote climate investment and finance. This sets out aims including development of new standards and regulations, encouraging private and international capital for climate finance, and strengthening international collaboration on climate finance. These steps will help investors to manage climate-related financial risks and contribute to China’s low-carbon transition.

Large amounts of investment are necessary to facilitate the transition, particularly in the key areas that have been emphasised in this briefing with rising demand for private capital. Investors will have opportunities to finance and invest in firms across all the priority sectors. For example, in the renewables supply chain investment opportunities include the developers and installers of renewables and the manufacturers of equipment in renewable technologies. Investors can finance industrial investment in energy efficiency measures; and investors can provide financing through loans and investment to households and businesses to invest in energy efficiency improvements to buildings, heating, and energy management systems.

PRI is engaging with policymakers to support urgent action on climate change policies. It is vital for investors to speak out to urge f accelerated climate action and engage to support policies that are necessary, sufficient and effective in delivering the required investment flows and emissions reduction outcomes. Delivering carbon neutrality in China provides a roadmap to inform this engagement.

 

 

This blog is written by PRI staff members and guest contributors. Our goal is to contribute to the broader debate around topical issues and to help showcase some of our research and other work that we undertake in support of our signatories.

Please note that although you can expect to find some posts here that broadly accord with the PRI’s official views, the blog authors write in their individual capacity and there is no “house view”. Nor do the views and opinions expressed on this blog constitute financial or other professional advice.

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