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Breakingviews - China’s green goal could lead to a virtuous circle

LONDON (Reuters Breakingviews) - Xi Jinping has set himself a taxing exam question. Having committed to neutralise China’s carbon dioxide emissions before 2060, the country’s president needs to find a dramatically different way to power a $14 trillion economy that currently relies overwhelmingly on carbon-heavy fossil fuels. A potential solution could help not only the People’s Republic, but other countries wrestling with the same problem.

Chinese President Xi Jinping walks at the Presidential Palace in Naypyitaw, Myanmar January 17, 2020.

Global decarbonisation needs Chinese backing. To have a good chance of limiting global warming to less than 1.5 degrees Celsius, the planet cannot afford to emit more than 350 gigatonnes of carbon dioxide. Around 33 gigatonnes enters the atmosphere annually. China accounts for 28% of that, making it comfortably the largest emitter.

There are plenty of reasons to be sceptical about Xi’s pledge. China’s target for reaching “net zero”, where carbon emissions are reduced to nothing or offset, is a decade later than the European Union’s. Xi has yet to elaborate on what he means by the term. And despite encouraging talk of a “green revolution”, his move may be partly about embarrassing the United States, which lacks a “net zero” deadline.

Still, assume for a moment that China’s leadership is serious. The People’s Republic currently uses 88 exajoules of energy a year. That’s a fifth of the planet’s total consumption and the equivalent of 2.1 billion tonnes of oil. To make things worse, fossil fuels constitute two-thirds of that total. Oil drives most of China’s 360 million motor vehicles, gas and coal heat its homes, and coal powers two-thirds of domestic electricity generation. Only a quarter of the energy China uses is turned into electricity.

Xi’s best bet is to increase electricity production. Wind turbines and solar panels can do this without producing any carbon dioxide. But another important benefit of using electricity is that it can perform the same tasks with less energy. Norway’s Equinor says electric engines are three to four times more efficient than internal combustion engines. Heat pumps that use electric motors to harness thermal energy from the ground to heat houses are three to four times more efficient than gas boilers. And LED lights use a fiftieth of the energy of a kerosene lamp.

The Energy Transitions Commission, a think tank chaired by former UK financial regulator Adair Turner, has crunched the numbers on where such a switch might lead. As well as the greater efficiencies afforded by electrification, productivity-enhancing measures such as a major programme to better insulate buildings could mean that China might only need 64 exajoules to power its economy by 2050, roughly a quarter less than it uses today. In this scenario Chinese electricity generation would jump from 24 exajoules – a quarter of current global electricity supply - to 54 exajoules, with wind and solar providing the majority.

Given that Beijing is still building new coal-fired power stations, such a dramatic switch would mean a big bill. The ETC estimates a full decarbonisation programme by 2050 – 10 years earlier than Xi’s timetable – could cost the equivalent of 1% of Chinese gross domestic product per year. If the Chinese economy grows 5% a year over that period, that would add up to almost $10 trillion, or $330 billion every year.

The mass installation of panels and turbines is actually the easy part. New wind and solar generating capacity is already more cost-effective than fossil fuels. But as it isn’t always reliably windy and sunny, spare electricity would need to be stored. That requires large-scale batteries.

Meanwhile, heavy industrial tasks like making cement and steel are almost impossible to electrify. Companies working on ways to remove carbon from these processes require heavy subsidies. The same goes for using renewable energy to electrolyse water, and then burning the hydrogen produced as a zero-carbon fuel when making steel.

The ETC’s analysis may also be too optimistic. The International Energy Agency, for example, estimates Chinese energy use will still be at 83 exajoules by 2040, even in a scenario where the world takes climate change relatively seriously. If the world carries on as before, China’s annual domestic usage would reach 120 exajoules.

That said, even $10 trillion is manageable for an economy like China’s, where savings and investment are still equivalent to 40% of GDP. And if Xi is serious about eradicating carbon emissions, the full heft of China’s state-directed economy could focus on challenges like lowering the cost of hydrogen production. If this gets cheaper, the benefits will also accrue to other countries around the globe wrestling with a similar problem. The same effort could lower the cost of storing power. In that scenario, Xi’s decarbonisation deadline could be the beginning of a virtuous circle.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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