The next Five-Year Plan will accelerated energy t…

原創 Laszlo Varro 中國投資參考

In this context, the statement by President Xi Jinping to the United Nations General Assembly in September that China would strive to be carbon neutral by 2060 should not be seen as a technical change in the details of energy and environmental policy. Rather, it potentially represents the biggest climate undertaking ever made by any country.

Achieving this goal of net-zero emissions would represent a milestone in modern Chinese history comparable to 1949. To do so, would require China to quickly embark on an ambitious multi-decade effort to transform its economy, as it did after 1978. Net zero would have to serve as a guiding principle for policymaking that is comprehensively embedded into structural reforms, investment policies and innovation priorities.

China has already made impressive progress on reducing local air pollution to 「make skies blue again.」 But achieving a net-zero CO2 emissions is far more difficult than simply reducing particulate or sulphur dioxide emissions. It would require a lasting nationwide transformation of the entire economy over the next 40 years, a structural change comparable in ambition to the reforms that extensively overhauled the country’s economy starting in the late 1970s.

The 14th Five-Year Plan

This ambitious journey should start with the Chinese government’s 14th Five-Year Plan, which is under preparation now and will shape the Chinese economy in the 2020s. A marathon cannot be won only by sprinting at the end. Given the size of the Chinese energy system and the amount of low-carbon energy it will need by mid-century, a rapidly accelerated deployment of already available tools like renewable electricity and energy efficient technologies is essential. This would not only create environmental benefits but could strengthen the economic recovery from the coronavirus shock. If this deployment were to take place at a speed and scale consistent with efforts to limit the global temperature rise to 2, then China’s CO2 emissions would not simply peak by 2030 – they would decline by an amount greater than the current emissions of India.

The new Five-Year Plan should aim to reduce greenhouse gas emissions while maintaining sustained economic development. To do this, it will need to strive to develop sectors with a low carbon intensity such as digital technologies and other high-tech industries. It will also have to promote a switch to low-carbon growth models by encouraging innovation and the expansion of the services sector. It should deal with emissions from existing energy-intensive assets, control the development of energy-intensive and heavy chemical industries, and optimize the structure of industrial investment. And it would need to set the conditions to continue scaling up investment and innovation in clean energy technologies. Overall, the new Five-Year Plan should serve as a credible framework for a substantially enhanced Nationally Determined Contribution by China for the implementation of the Paris Agreement that goes significantly beyond China’s original 2015 submission.

Bring down energy intensity

Low-carbon energy sources are not simple like-for-like replacements for fossil fuels throughout the economy. A credible decarbonisation pathway must achieve a step change in the energy intensity of the economy to maintain prosperity while easing the strains around the necessary deployment of low-carbon energy supplies. In the IEA World Energy Outlook’s Sustainable Development Scenario, which is consistent with President Xi’s 2060 zero-carbon ambition, China’s final energy consumption by mid-century ends up lower than it is today, despite the Chinese economy almost tripling in size. To achieve this in the next three decades, the energy intensity improvement of the Chinese economy will need to reaccelerate almost to the rate observed during the 1980s and 1990s economic restructuring.

In the Chinese context, this will require progress on two related priorities. First, the broad reforms aimed at rebalancing the Chinese economy and encouraging the growth of the services and high-tech sectors need to continue. By mid-century, the services sector should reach 80% of China’s GDP. This might require tackling incentives in the finance sector and enabling better financing of service enterprises, especially the ones that have been hit by the fallout from the coronavirus epidemic. Regional policy needs to encourage clean growth and retraining of workers in the provinces where conventional heavy industries are concentrated.

Second, China should apply a stringent set of standards and regulations on energy efficiency for buildings, appliances and equipment, and scale up the financing of energy efficiency investment. A strong energy efficiency policy of this kind can support employment in the construction sector and enhance the competitiveness of Chinese appliance manufacturers. For both vehicles and electric motors, China has best-in-class standards, and its energy service companies are highly active, especially in industry. Nevertheless, these efforts need to be further intensified, with innovations in advanced technologies being developed and deployed to upgrade and modernize the industry.

Transform the power sector

The electricity sector, currently the single largest source of China’s CO2 emissions, is the decisive area of efforts to tackle climate change. It is also the platform for the most rapidly developing and scalable low-carbon technologies, such as wind and solar. Moreover, electrification offers a promising option to replace fossil fuels in many areas of transport and heating. A consistent, system-level effort is needed for China’s energy transition to benefit from the opportunities of the transformation of the electricity. For example, if an electric car charges on electricity generated by coal power – often the case in China today – the climate impact is worse than driving a conventional petrol-powered car.

First and foremost, clean power generation sources need to scale up considerably faster. Wind and solar will have to do a lot of the heavy lifting, with deployment significantly exceeding the 2018 peak year-after-year. But China’s successful programme of building nuclear power plants can also make a major contribution. There is a strong investment appetite for renewables in China. But clear long-term guidance and policy support are needed to leverage it, and the regulatory issues behind the weakness in renewable investment of the past two years should be addressed. Given China’s strong position in clean energy technology value chains, this is also a big driver for economic growth and job creation. The job-creation rate of wind power, solar energy and energy efficiency is between 1.5 and 3 times that of traditional energy industries.

With ever-growing variable renewable production, the power system will need to mobilize flexibility. China’s large hydropower capacity and its newly constructed gas turbines will continue play an instrumental role in this. There is large potential for making demand more flexible and utilizing the growing fleet of electric cars with smarter, more flexible charging.

One unrealized opportunity so far is the country’s very capable large information technology companies, which are currently less active in the clean energy sphere than their US counterparts. International experience suggests that transparent and competitive markets supported by carbon pricing are effective in guiding the power sector, and in unlocking new business models and flexibility sources. China has started to implement market reforms in the electricity sector. Such reforms would be beneficial even for a conventional energy system, but China’s announced ambition for its energy transition greatly increases their importance.

China will have to make strategic decisions on its massive coal power plant fleet. If Chinese coal plants emit as much CO2 as they would under continued high utilization, the transition will fail. In fact, beyond 2040 – well within the lifetime of China’s young fleet – there is practically no carbon budget for unabated coal generation. The next Five-Year Plan should set a clear cap on coal capacity and unabated coal use consistent with the long-term transition objective.

The least efficient, most polluting plants would need to shut down. Others would be repurposed for flexible operation, supporting growing renewable production while maintaining electricity security. More recently designed plants are usually capable of this, or their flexibility can be increased at a minor cost. Last but not least, part of the coal fleet can be turned into a low-carbon backbone by being retrofitted with carbon capture technologies.

Carbon capture, utilisation and storage (CCUS) technologies are a good fit for China’s core strengths. CCUS retrofits are chemical engineering projects, well suited for the skills of Chinese industry. A CO2 pipeline system will have to be built, and depleted oil and gas reservoirs will need to be converted into storage facilities. Both those tasks fit naturally with the activities of the Chinese oil majors. Due to geographical and geological reasons, a lot of the investment would be in Northeast China, a region facing economic challenges that would benefit from greater capital inflows.

Accelerate innovation for hard-to-abate sectors

China’s industrial sector churns out materials and products that are in demand domestically and around the world. As the 「workshop of the world,」 Chinese factories alone consume almost as much energy as the European Union’s entire economy. A lot of this industrial capital stock is recent and could continue to operate for decades. All the goods and materials the factories produce are then transported, with Chinese trucks representing 4% of total global oil demand. Out of the top ten container ports in the world, five are along China’s southeast coastline between Shanghai and Guangzhou. Industry often requires high temperature heat where the replacement of fossil fuels is difficult. In some cases, significant process emissions are added to fossil fuel use. In long-distance transport, cost and weight considerations make oil the dominant fuel.

There is no doubt that electrification will be extended to light vehicles and even to some extent to heat and industry as well. Hydrogen offers an opportunity to indirectly extend electricity’s reach, and it can be produced by increasingly abundant renewables, including in Western China. Hydrogen can power trucks, replace coal in steel mills, and serve as a building block for some primary chemicals. While the basic scientific principles are well understood, most of these technologies are at the demonstration or prototype stage. China already has important R&D programs and pilot projects in these fields, which should continue and accelerate. There is a need for China to develop a national hydrogen strategy to guide the sustainable development of the burgeoning hydrogen industry. China is uniquely positioned to bridge the 「valley of death」 between R&D and mass deployment, given its investment capability and policy institutions.

In addition to its contribution to the electricity sector, CCUS is perhaps even more important for Chinese industry. Industrial CCUS applications are often cost efficient and will enable deep emission cuts from China’s modern industrial facilities. While energy system analysis clearly shows that China has by far the largest potential role for CCUS – given its large industrial sector and young facilities – its current deployment policies need to become dramatically more ambitious. Of more than 40 CCUS projects in development around the world, only 4 are in China. CCUS development is strongly policy dependent, and China will need to put in place an appropriate investment framework. Investment in both CCUS and hydrogen can play a major role in a sustainability oriented economic recovery effort.

A dedicated IEA report will investigate China’s potential for CCUS and hydrogen and advise on the regulatory and infrastructure aspects of kick-starting these key technologies.

There is still considerable uncertainty about the exact technology pathways: how far direct electrification can be pushed and to what extent facilities should use CCUS or convert to hydrogen. These are not purely technical questions. The Chinese government will need to reflect on the social and regional implications and choose a pathway best suited to the context.

A Chinese energy transition has a great potential to help the rest of the world move faster as well. It is Chinese mass manufacturing that turned solar panels from a Western European luxury to the cheapest clean energy source that is transforming Africa’s energy prospects. China has the potential to repeat this for carbon capture, hydrogen and a broad range of new industrial processes.

Develop the infrastructure for a clean energy system

A Chinese energy transition strategy will need to take into account the geographical challenges of resource and population distribution. The highly populated, industrialized eastern coastal provinces have some of the highest densities of energy use in the world. It is difficult to envisage them being self-sufficient based purely on low-carbon energy, although nuclear power and offshore wind will certainly help. Still, China will need to plan to produce large proportions of its clean energy in western parts of the country and then transport it to its eastern urban centres in the form of electricity or hydrogen.

The ongoing programme of direct current transmission rollout will play a major role. In addition, new pipeline systems for both hydrogen and CO2 will be needed. Electric vehicle charging stations will have to be rolled out, integrated digitally and connected to a reinforced distribution grid. The Chinese high-speed train network replaces much more oil than all the electric cars in the world combined. But transport demand within the country has grown so rapidly that even the massive new rail network has only served so far to slow down the growth of the domestic aviation industry. Within cities, public transport, shared mobility services and urban design that favours walking and cycling will all play a role. The journey towards a zero-carbon society is a major task in terms of infrastructure and should be integrated into planning and investment decisions.

Conclusions

Given its recent industrialization, the fleet of coal plants, steel mills and cement factories in China are young. And due to the high share of industry and construction in the Chinese economy, the reliance on hard-to-abate sectors is significantly higher than the global average. On the other hand, China is the biggest investor in low-carbon energy sources and has strong technological capabilities. Its industrial value chains already support major wind, solar, nuclear and electricity storage industries. It has an unparalleled ability to develop new infrastructure and industrial systems, and it has been scaling up its innovation capabilities. While the barriers are real, China can muster exceptional resources to tackle them.

Due to the scale of the Chinese energy system, a credible 2060 zero-carbon pathway involves a strong effort in the 2020s, which will need to become a decade of dedicated action and accelerated progress. The 14th Five-Year Plan under development should decisively steer the country’s economic structure, energy use and clean energy deployment towards the zero-carbon goal and should form the foundation of a much more ambitious Chinese NDC commitment for 2030.

China’s aim to reach net zero should also be integrated into its investment priorities for international economic and energy engagement. Given its manufacturing skills and financing capabilities, China can play a proactive role in helping clean energy transitions in partner countries. Put another way, China should avoid international investments that would be inconsistent with its own domestic clean-energy ambitions.

Humanity stands at a crossroads in its efforts to tackle climate change. By putting clean energy investment into the heart of their economic recovery efforts, governments can ensure that 2020 is not just a temporary recession-driven dip in emissions, but the start of a rapid structural decline. An accelerated Chinese energy transition incorporated into the next Five-Year Plan can create a critical inflection point in China and help international efforts for a more robust global transition.

編輯 | Zhang Mei

設計 | Demi

本文刊於《中國投資》2020年11月號

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《中國投資》雜誌創辦自1985年，由國家發改委主管，國家發改委投資研究所、中國國際工程諮詢有限公司主辦，是我國投資領域唯一的中央級刊物，業界最早專注於投資領域趨勢報導的核心期刊。創刊三十多年以來，雜誌以全球視角看中國投資，涵蓋宏觀經濟、行業分析和企業投資案例，同時以全球市場為坐標，聚焦特定國家、地區和重大國際趨勢，目前已經成為世界各國政府官員、各類投資機構、專家學者、企業家以及記者媒體的專業對話平臺。

《中國投資》雜誌每期覆蓋包括上市公司在內的200多家央企國企和10000多家中國民營企業、1000多家中央與地方政府決策部門和機構、1000多家行業協會和商會、300多家主要金融機構等，是了解宏觀經濟環境、行業趨勢前景和企業投資案例的重要參考。

China Investment, founded in 1985, is a monthly under the supervision of National Development and Reform Commission (NDRC) China’s macro-economic management agency, It’s jointly operated by Investment Research Institute under NDRC, China International Engineering Consulting Corporation. Enjoying an exclusive position under the central government, China Investment is the core journal which started the earliest among similar magazines to focus on the investment trend. Over the past 30-plus years, China Investment has been in line with theglobal market as its fundamental coordinate with a strategic focus on specific countries and regional markets and those major international propensities. China Investment is a key dialogue platform for officials from different countries, investment agencies, experts and scholars, business people and journalists.

原標題：《The next Five-Year Plan will accelerated energy transition》

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