By Nandini Sarma
President Xi Jinping made a major announcement in his address to the United Nations General Assembly in September of this year. He committed China to a target to achieve net-zero carbon emissions by 2060. This is a significant announcement, given that China is the largest emitter of carbon dioxide and one of the largest consumers of coal. The communique on the 14th five-year plan (2021-2025) underscored the importance of sustainable and healthy growth. But what does this ambitious goal mean for China in terms of challenges and opportunities?
The challenge is enormous. The aim of carbon neutrality by 2060 would need drastic reduction in the use of fossil fuels in industry, transportation and electricity generation. This would mean that coal consumption would have to be eliminated by 2060, or offset the emissions produced by methods such as planting trees or carbon storage. Coal is a major source of energy generation accounting for 60% of total energy generation. The following graph shows a comparison of the coal consumption by China and by the rest of the world.
An energy transition to cleaner fuels would require huge investments. A study by Tsinghua University’s Institute of Energy, Environment and Economy estimate investments to the tune of US$ 15 trillion would be required in cleaner energy in the coming years.  The goal of carbon neutrality also raises questions about the viability of the planned investments in coal projects and the risk of stranded assets. Further, in the wake of the slowdown on account of the pandemic, there has been increased lobbying from producers to increase investments in coal production. Investment in fossil fuels has been three times that of planned investment on low carbon energies.
As per a study, to meet the Paris agreement goals, China would need to reduce thermal power capacity by 2030 rather than add to it. In addition to not building any new coal plants, China would have to implement a range of policies to achieve its target of net zero by 2060. This would include subsidies to accelerate absorption of newer technologies, scale up investments in power grids, energy battery storage and regulation of the market. China would also have to build nuclear power plants to replace coal-fired plants but this is an issue that requires gaining confidence of the public on safety issues. These measures require considerable political will. The US-China trade war and with Washington pulling out of the Paris agreement, there is far lesser international pressure on climate issues. This may explain the transfer of the climate change portfolio from the politically powerful National Development and Reform Commission to the newly established Ministry of Ecology and Environment. But it is also in China’s interest to adopt cleaner fuels and Beijing does want to position itself as a superpower that leads by example. The actual implementation of the net zero carbon target would depend on the finer details of the 14th five year plan that would come out in the coming months.
Besides coal investments domestically, China is the largest investor in coal projects internationally. China has spent billions in coal-fired plants and more are in the pipeline, especially through its Belt and Road Initiative (BRI). Shifting dirty fuel abroad is not a long term solution for climate change. What does the domestic goal of net zero mean for its overseas investments?
China has very early on identified the market opportunities in clean energy technologies. The economies of scale achieved by China has led to drastic fall in prices, for instance for photovoltaic cells and wind turbine systems. China is the largest producer of electric cars and buses. It also dominates lithium-ion battery supply chain and chemical refining. The following chart shows the share of China’s production in the global supply chains, across various levels of the supply chain, as of 2019. As seen in the graph, China’s share in global supply of refining stands at 80% and for lithium-ion battery cells at 73%.
The blueprint for the 14th five year plan also emphasises China’s goal to make major breakthroughs in key technologies and become a global leader. The current dominance of China in new clean technologies is on account of its long term policies and investments in critical sectors that will gain more prominence in the future. Even the US and Europe are having to play catch-up and are trying to create their own industries that will rival the Chinese giants.
Implication for India
As a developing country, China has long argued for differentiated responsibilities that precludes sharing the same burden as developed countries. But, Beijing has recognised the economic and political benefits of pursuing climate-friendly goals and has set more ambitious climate goals. This will definitely put pressure on India to review its own commitments. With similar goals of being a super power and increasing its influence in the global arena, can India afford to stay behind on its climate ambitions?
China already dominates critical technology supply chains. India is heavily dependent on China for imports of battery systems, solar cells and other critical technologies. Reducing dependence on Chinese imports will not be easy and it will require identifying key sectors in the supply chain where India can invest and reduce its dependence on imports. Collaborations with other countries would also be beneficial. India would require careful planning to indigenise the manufacturing and attain the PM’s goal of “atmanirbharta”.