China needs to recalibrate policy, develop technology to meet 2060 net-zero goal: IHS Markit

China must recalibrate its energy transition policies to accelerate decarbonization work and develop new technologies if it is to meet its net-zero carbon goal in 2060, according to an IHS Markit analyst.

China's zero-carbon plan for 2060 is an extremely challenging long-term target that will require the country to find new policy solutions and deploy the right technology in the next five to 10 years, said Lara Dong, research and analysis senior director, power, at IHS Markit in Beijing.

"Before 2030, the key focus of the policies was to align the efforts from all aspects and to gain momentum for decarbonization. […] if you think about China's previous carbon commitment, the country is set on a decarbonization trajectory, but that trajectory wouldn't take China to achieve its 2060 goal. The most important point is not about whether what's happening now will lead to 2060 zero carbon emissions. It's about recognizing policy change, starting with the top leadership, and whether a change in trajectory will eventually lead to zero carbon in four decades or more," she said.

US renewables advocate organization RMI (formerly known as the Rocky Mountain Institute) listed a number of technical solutions in its report, "China zero-carbon electricity growth in the 2020s: A vital step toward carbon neutrality," which it said would resolve future challenges related to various levels of renewable power penetration.

"The technical perspective also seems optimistic. The listed technical solutions are largely existing technologies, whose capability in resolving future challenges with variable [levels of] renewable power penetration remains questionable," Dong said.

Lauri Myllyvirta, lead analyst at the Centre for Research on Energy and Clean Air (CREA), a global research organization headquartered in Finland, told IHS Markit deployment of technology on a massive scale - rather than technical advances - is what is needed to reduce the majority of China's emissions.

"Likely the main policy challenge is managing the effects of the transition on regional economies that are currently heavily dependent on fossil fuels. This will require policy and political innovation if not technical innovation," he said.

14th five-year plan

China is expected to release its 14th five-year plan at a legislative session in March 2021, which will outline specific targets for coal and renewables in the energy sector. The five-year plan is high-level guidance about how the Chinese government will guide the economy.

"At each level - national, provincial and enterprise - they have to plan how to achieve the carbon peak before 2030. The zero-carbon pledge is a commitment made by top leadership. The most effective way for China to make things happen is [through] the top-down approach. Once the leadership makes that happen, it will cascade to all government agencies and state-owned companies," Dong said.

Myllyvirta said he expects to see the most important targets in the energy five-year plan, usually released around March, but it is likely to be delayed to allow updates required by the climate pledges.

Along with the overarching five-year plan and the energy five-year plan, the national carbon dioxide peaking action plan and the 2035 infrastructure plan, which are in the process of being prepared by China's Ministry of Ecology and Environment (MEE) and the State Council of the People's Republic of China, respectively, will be the most relevant documents for the country's implementation of its 2060 pledge, he added.

China is also in the process of drafting a new energy law and updating its electricity law, but administrative measures, rather than broad legal or market frameworks, will remain central to China's policymaking, Myllyvirta said.

"An inspection group that comes directly under the Communist Party Central Committee carried out an unprecedented inspection of the National Energy Administration (NEA) which called the agency out for failing to prioritize the low-carbon transition in these processes, so we can expect further emphasis and revisions [to the laws]," he said.

The inspections have targeted local governments and firms in the past. This is the first time that a central government agency was targeted.

Updated 2030 targets

China made its first climate commitment in 2009, with a number of targets for 2020. In 2010, it revised its targets and committed to reaching peak carbon emissions by 2030. On 20 September 2020, President Xi Jinping announced China's new target of becoming carbon neutral by 2060 to the UN General Assembly.

On 12 December 2020, Xi announced updated 2030 carbon targets at the Climate Ambition Summit, representing a part of China's new Intended Nationally Determined Commitment (INDC). These include reducing carbon emissions per unit of GDP by over 65% compared with the 2005 level; increasing the role of sources of energy that are not fossil fuels in primary energy consumption to around 25%; increasing the forest stock volume by 6 billion cubic meters from the 2005 level; and increasing wind and solar power generation capacity to at least 1,200 GW.

"For China, most of the updated 2030 targets represent an incremental tightening from those stated five years ago in Paris, especially compared with Xi's 2060 carbon neutrality pledge made in September [2020]," according to an IHS Markit report, titled "China's new 2030 commitments: Beyond peak emissions," published on 15 December 2020.

What is also striking about China's updated 2030 targets is the inclusion of specific installed capacity targets for renewable power, IHS' Dong and Bing Han, senior research analyst, said. But they also noted that the targets for wind and solar are not exceptionally "aggressive." China is expected to add more than 70 GW of wind and solar capacity each year in the next decade on a path to generation capacity of more than 1,200 GW by 2030, according to the latest IHS Markit outlook.

"The increasing penetration of renewables will be accompanied by a reduction of coal-fired power capacity, as well as the growth of hydro, nuclear, and battery storage to maintain the capacity adequacy and reliability of power supply," the IHS Markit report said.

Heading in emissions-intensive direction

It has become increasingly clear in the past months that the trends in mainland China have been heading in a very emissions-intensive direction, with major investments mobilized into fossil fuel infrastructure, said Myllyvirta. This would seem to undermine the credibility of the long-term emissions pledges. But he also pointed out some recent positive developments, including the unprecedented inspection of the NEA with heavy criticism on its failure to rein in coal power, as an indication that the leadership is serious about changing direction.

China's short- to medium-term policies are likely to focus on the areas and industrial sectors that are designated as peaking early, said Myllyvirta. This will include provincial capitals and, possibly, "key economic regions" that generate large shares of China's industrial output.

National Emissions Trading Scheme

On 5 January, China's Ministry of Ecology and Environment published the first national carbon trading regulation and announced the commencement of the first compliance cycle of the China National Emissions Trading Scheme (ETS), which covers the power generation sector only.

"The initial impact by national carbon market will be limited, because of the ample free carbon emission allowance. But with the establishment of the market infrastructure and functional market mechanism, we expect gradual tightening of emission allowance, expansion of industry coverage and stricter market rules. In the future, the national ETS will become a key policy tool that the policymakers can leverage on to achieve the nation's climate commitments," Dong said.