China faces major challenges on decarbonization pledge – ANZ Research

16 Jun 2021

China faces major challenges in reaching its carbon neutrality pledge by 2060, which in the short term is likely to have a destabilizing impact, including a significant shift in consumption patterns and trade flows, according to a report by ANZ Research Wednesday.

“The hurdles China faces in cutting carbon emissions are high. It is the world’s largest contributing country to carbon dioxide (CO2) emissions. International experience suggests developed economies usually take an average of 50–60 years to achieve carbon neutrality after they reached peak emissions,” said the report, co-authored by Daniel Hynes & Soni Kumari.

But plans will be felt almost immediately, with China’s most recent Five-Year Plan setting a binding target of reducing carbon emissions per unit of GDP by 18% between 2021 and 2025.

“Changing China’s energy mix is the most feasible way to reshape its carbon emissions path as the energy sector is the largest carbon emitter. However, the associated policies will have a wider impact for the commodity complex,” said the report.

Energy consumption

China’s energy needs continue to soar, with coal and oil imports up to 304 million mt and 542million mt in 2020, compared with 2 million mt and 70 million mt, respectively, in 2000.

ANZ’s analysis shows that under a 1.5 degree Celsius maximum temperature change scenario, China will have to substantially reduce its overall energy imports by 95% over 30 years in order to meet emissions targets.

Coal accounts for 63% of power generation and 57% of China’s primary energy mix, but natural gas accounts for just 7.8%, compared with the global average of 24.2%, noted the report.

China will strictly control coal consumption in the next five years and aims to have 20% of its energy needs met by non-fossil fuel sources by 2025.

“Over the long run, ANZ Research estimates suggest China needs to increase its use of non-fossil energy to 80% of its total energy consumption and reduce its coal reliance for power generation to below 5% in order to reach the target of carbon neutrality by 2060.”

ANZ noted China’s decarbonization program is already playing out in LNG markets, with imports up 24.5% in the first five months of the year, amid ongoing restrictions on coal production in China.

However, China’s short-term energy policy has been impacted by the warm dry spring reducing hydroelectric power, with power shortages already reported in some regions, including the key Guangdong province.