China Races to Net Zero: Zooming in on Some Biggest Opportunity Wins

The latest announcements from Chinese President Xi Jinping on the country's stronger 2030 climate actions and clarity on long-term commitment to achieve carbon neutrality goal before 2060 sent a shocking wave within the country. Climate observers, professionals and clean-tech industries are cheering up and spirit-high, somewhat relieved, while local governments and fossil-fuel-reliant industries feel unprecedented pressures. Some observers are quoting 99% people and players in the state of "shock".

The "shock" has been, and still is being digested since September 22 when the carbon neutrality goal was announced. And the Climate Ambition Summit a couple of days ago provides a further enhanced clarity of the country's commitment to ratchet up its short-term climate actions through NDCs to the Paris Agreement. The ratchet ups include carbon intensity target is now more than 65% by 2030, from original 60-65%, non-fossil fuel in the primary energy structure at 25% rather than 20% by 2030, and forest stock at 6 bn cubic meters rather than 4.5 bn cubic meters by 2030. And for renewable energy deployment, China is to increase its solar and wind energy stock to 1,200 GW by 2030, from its current 4.1 GW level.

Now China has put together a more specific and clear trajectory or pathway between now and mid-century to shift from a fossil-fuel-based economy to a clean-energy-based and climate resilient new economy. Many China climate observers are praising the much elevated action plan and goals of commitment, while continuing to identify inadequacies. The biggest inadequacy or uncertainty or inconsistency so far remains around coal.

In reality, the country continues to invest in coal-power capacity. The official narrative or rationality lies in the cleanest coal-fired power plants on Earth today, or something called extremely low emission plants. The deeper concerns are both energy security - China's increasing reliance on global oil and gas market poses a major risk to national security, and social and just impacts - the coal industry employs about 3 million workers, plus hundreds millions more in fossil-fuel-related industries. And a third driver is to mitigate disruption of a large existing stocks of fossil-fuel infrastructure which is facing a biggest risk of stranded-asset today. If the government does not provide the cushion required, SOEs will face some of the greatest challenges in an ambitious world of carbon neutrality.

How China delivers its commitments is the question of the day. From domestic perspective, we know that all the committed items will be integrated into the five-year planning system. The 14th Five-Year is being put together now and expected to be the most significant vehicle to drive the radical decarbonization - to peak total emissions before 2030 and then achieve neutrality before 2060. There exists adequate confidence which is built up over the last decade when China has made the case that an integrated national development strategy, with clarity of goals and objectives, as well as policy incentives to guide investment in clean energy technology, industrialization of those clean technologies, and broad deployment of those products and services. The outcomes are self-evident that the world largest developing country with the most population could accelerate its transition in line with climate resiliency.

Today, more than ever, we have the know-how's of most of the critical pieces of radical decarbonization, which forms the backbone of the shift of our infrastructure and industry, and of our economy. Driven by the third industrialization technologies, we are redesigning a grand new general-purpose operating system with a converged ubiquitous IoT of communication technology, renewable energy and transportation/mobility technology so that we will be able to have all the other pieces of the puzzle, such as buildings, material flows among others to plug in such a new infrastructure to achieve fundamental systemic change. Then we know that finance will follow, not only from risk management perspective, but more importantly, from returns perspective.

China has made the case of accelerated scaling of renewable energy, with demonstrated global leadership and contribution, by decreasing the costs of solar and wind energy to the parity level, so that rest of the world can join the leagues as well. China leads deployment of electrification of transportation. Today, 98% of electric buses running on streets are in China; majority of electric trucks sold are in China - 6,000 in 2019; half of the electric cars globally are running on roads in China; let alone the high-speed rails, as well as light-rail systems among cities.

Currently the country commits to have 20% of new sales of cars will be NEVs by 2025; public fleets entirely electrified by 2035; and NEVs will become mainstream by 2035. With the latest up-ratcheted commitments, we can be sure that those targets will go up, not down.

China has also fixated on investing in New Infrastructure as a core strategic focus of post-COVID recovery plan. The scheme focuses on enhancing its technology capability and infrastructure of the third industrial revolution that lays a further solid foundation for the radical decarbonization, especially to capture some of the biggest systemic transformation opportunities.

Cities house about 60% of Chinese population today, which continues to increase, fast. Cities consume 60% plus energy. Cities concentrates most of the infrastructure to accommodate the demand of residents from energy, water, and materials perspective. They offer a biggest opportunity of systemic transformation.

With national targets set now for radical decarbonization, all provinces and cities are mandated to put together their own action plans aligned with national goals. Their plans, incredible, become the most important reference for national government to allocate resources to support regional development, assess local leaders' performance, and incentivize local leadership.

Industrial parks or clusters offer another most significant opportunity of decarbonization. In China, industries consume 70% energy and emit three quarters of carbon, and more than 70% industries are clustered in industrial parks or zones. While individual industrial facilities are mandated to deliver their own targets, industrial parks or clusters provide the infrastructure to capture systemic change benefits.

This is a historic tipping point in China. As the largest developing economy, China does not have a luxury of peaking its emissions over a period of 50+ years and then halve its emissions, nor does it have the chance of achieving net zero from the halved emissions. Rather, this is more like a cliff-like steep radical decarbonization pathway. The country is getting very close to peaking now and between peaking and net zero, China cannot follow a more incremental pathway like most OECD countries. Instead, it has to figure out how to "carve" out stairs down the cliff and experience much more "shock" and "disruption" than any other countries in order to deliver its commitments. That is why China's commitments are more honorable than any other countries' so far.

While the country has adopted a "duel circularity" strategy taking into consideration of a more complicated geopolitical dynamic, we know that collaboration becomes every more significant and we have to work together to address the existential threats to our humanity. On one side I am very excited about China stepping up to its leadership role in radical decarbonization; but on the other, I have not seen emergence of "big wisdom" and willingness of working together yet. There remains a risk that we just cannot go beyond narrow-minded tactics of coercion, cajole, containment, and compition, especially from US when dealing with China. When we seem all encouraged to see the return of US back to the Paris Agreement, I hope that US plays a constructive role rather than using climate change as an agenda to build up US alliance to target China for its own narrow-minded domestic political agenda.

We will all be doomed if that happens.