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Do as We Say, Not as We Did

LGM, BMO Global Asset Management’s emerging markets equity manager, provides an overview of China’s current carbon emissions, and summarises its efforts and ambitions to reduce its dependency on fossil fuels.

Climate change could scarcely be higher up the global news agenda; devastation from wildfires, deaths from air pollution, and the impact of water scarcity on the global food chain have shocked governments and citizens around the world into action. The number of days in a year when temperatures exceeded 50C has doubled since the 1980s. According to Dr Friederike Otto of the Environmental Change Institute at the University of Oxford, “the increase can be 100% attributed to the burning of fossil fuels”.

And yet, agreeing the steps towards decarbonisation is a complex and diplomatically sensitive task. Nowhere more so than with China: on the one hand, causing more CO2 pollution than any other country; on the other hand, a factory for the world.

Much of China’s carbon output is an almost inevitable consequence of an industrialisation process that has reduced production costs for businesses and raised living standards for billions of consumers. And it hasn’t been lost on China that the West enjoyed the benefits of centuries of industrialisation with hardly a thought for environmental concerns. Indeed, if we look globally at cumulative emissions since 1750, China is well behind the US and EU, despite having a larger population than both combined. Striking a balance between China’s ongoing economic development and its central role in reducing global carbon emissions is one of the great challenges of tackling climate change.

Five-Year Plans and Carbon Neutrality

Last year, President Xi Jinping pledged that China will be carbon neutral by 2060 and that emissions will peak before 2030. Shortly after, China’s 14th Five-Year Plan (covering the period 2021–25) set out key targets for tackling climate change, including cutting carbon intensity by 18% and increasing non-fossil energy usage by 20%. These steps are hugely important; China is the largest consumer of electricity in the world and is predicted to account for 39% of electricity demand growth by 2040. If it hits these targets, China alone could lower global warming by 0.2 to 0.3 degrees Celsius.

China: CO2 Emissions in a Global Context

China produced 28% of the world’s CO2 emissions in 2019 and was responsible for 60% of CO2 emissions growth between 2000 and 2019. Due to its huge population, China’s per capita carbon emissions are below the US, roughly in line with Europe. This is despite being the world’s biggest carbon emitter.

China’s Carbon Emissions Targets

China committed to peak its CO2 emissions “around 2030” in 2009 and first laid out carbon emission reduction targets in its 2011 Five-Year Plan. In the most recent plan, the target is to reduce CO2 intensity (carbon emission per unit of GDP) by 18%, and to reduce energy intensity (energy consumption per unit of GDP) by 13.5% between 2021 and 2025. More detailed targets for specific industrial sectors were also given:

  • Power
    • Installed wind and solar generation capacity to reach more than 1,200 gigawatts (currently 535 gigawatts)
    • The proportion of coal-fired power to fall from 55% today to 26% in 2035 and 8% in 2060
  •  Petrochemical
    • Domestic coal production to be capped at 4.1b tonnes by 2025
    • National coal consumption to be capped at 4.2b tonnes by 2025
    • PetroChina intends carbon emissions to peak by 2025 and to achieve carbon neutrality by 2050
  • Transportation
    • Electric vehicles to make up 20% of new vehicle sales by 2025 and subsidies extended into 2022, although at a reduced level
  • Steel and non-ferrous metals
    • Carbon emission reduction target of 30% for the steel industry by 2030
    • Low carbon emission electric arc furnaces will be increased from 10% of total steelmaking to 15–20%
  • Building
    • Promote the use of low carbon technology in construction, and promote green buildings generally

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