China has committed to a CO2 emissions peak before 2030 and carbon neutrality before 2060. It’s 14th 5-year plan will be released in March, followed by sector-oriented plans. For the first time it will include a dedicated plan addressing climate change. Dolf Gielen, Yong Chen and Paul Durrant at IRENA start by laying out China’s energy mix for scrutiny, then dive into its industrial sector which accounts for 60% of gross final energy use. Success here will clearly influence and impact its total emissions strategy. China’s energy is dominated by coal (58% of primary energy use in 2019), followed by oil (19%). Notably, natural gas’s share has risen from 4% in 2010 to 8%. IRENA’s assessment concludes China must reduce annual industrial emissions by one third (= 1.5Gt CO2) by 2050. To do that means accelerating renewable power generation and electrification. It means focussing on renewable gases (green hydrogen), biofuels, hydrogen based synfuels for specific sectors, renewables-based ammonia and methanol, and CCS deployment. China should enable competitive markets that integrate the new technologies, operational practices and business models. We’ll find out to what extent China steers towards such a pathway in March. It’s global dominance of a wide range of industrial production means success in decarbonising this sector has consequences for all of us.
*** Register for our free online event “China: Carbon Neutral by 2060 -THE ROLE OF GAS”, held on the mornings of February 3rd and 4th. It’s the second of our three workshops, funded by the EU. The purpose is to understand and uncover the significant opportunities China’s transition creates for European policy makers, businesses and analysts. You can register and see all the details here. The conference comprises four sessions across two mornings: “Achieving Security of Supply”; “Coal phase-out: Can gas help in the energy transition?”; “Gas Market Design”; “Renewable Gases”.
China’s President Xi Jinping announced on 22 September 2020 at the General Debate of the 75th Session of the United Nations (UN) General Assembly that China will aim to have carbon dioxide (CO2) emissions peak before 2030 and achieve carbon neutrality before 2060. Less than three months later at the UN Climate Summit, President Xi set a 2030 target for solar PV and wind to total 1,200GW and for the share of non-fossil fuels in the primary energy mix to increase to 25% by 2030, replacing the previous 20% target, as part of the Chinese new NDC commitments.
These announcements have huge implications for China and the world. To deliver that ambition, China needs to define clear strategic goals for many sectors of the economy and must develop long-term energy plans to provide the overarching framework for guiding policy making in China’s upcoming and future five-year plans.
China’s per capita emissions exceed Europe’s
China is the world’s largest emitter of CO2 emissions responsible for around 28% of global emissions, so its mitigation actions will make a significant contribution to achieving the Paris climate objectives. China’s energy-related CO2 emissions accounted for 10 Gt in 2018, with additional emissions from industrial processes. 7.7 Gt emissions were from coal use, 1.4 Gt from oil, 0.4 Gt from natural gas and 2 Gt from industrial process emissions. China’s per capita emissions (around 7 t/capita/yr), exceed those of Europe.
China’s energy is dominated by coal, accounting for around 58% of primary energy use in 2019. Oil accounts for much of the remainder (19%), with the natural gas share in 2019 totaling 8%, up from 4% in 2010.
Total coal consumption including industrial processes has stabilised in recent years at around 4 Gt coal equivalent. The short-term outlook is mixed and will be mainly influenced by demand from both the electricity and industry sectors. Data from the Centre for Research on Energy and Clean Air show that coal demand in China increased by 7% in the metals sector and by 11% in the chemicals sector in 2019 through October and its use to produce cement and glass have also increased.
China’s power mix
China had 1,051 GW of coal power generation capacity at the end of 2019. Around 52.2% of its total generation capacity of 2,010 GW power generation is coal based while 39.5% is renewables based, the remainder coming from oil, gas and nuclear.
A transition to renewable power will be the keystone for the energy transition in China, with solar and wind capacity aiming to tripling between 2019 and 2030 – the new target recently set by President Xi. Renewable power deployment however needs to accelerate to both allow replacement of existing coal based generation and to meet growing electricity demand. (A study by State Grid Corporation China and IRENA concludes that electricity can rise to more than half of China’s final energy use by 2050.)
China’s manufacturing activity
The energy consumption of Industry sectors accounts for 60% of gross final energy use (for both energy and non-energy use), with a proportional share of emissions. However, the emissions reduction in the industry sector has received very little policy attention to date.
In 2019, China’s industrial and construction sectors’ output (measured on a value-added basis) grew by about 5.7%. Within industry, output of non-metallic mineral product manufacturing (mostly cement) grew by 8.9%, while iron and steel output grew by 9.9%. By mass, cement production increased by 6.8% year-on-year, returning to 2017 levels after an 8.4% drop in 2018. Similarly, steel production increased 7.3% year-on-year. As a result of this increased industrial activity, non-combustion process-related CO2 emissions increased by 5.6%. In 2020 the government stimulus package has further boosted the output of these sectors and the related CO2 emissions, which creates additional challenges for the fulfilment of the climate pledges.
China is the world’s largest producer of a range of energy intensive commodities including:
- Cement: China accounted for more than half of the cement produced in 2019. China’s cement production was 2.33 Gt and its clinker output also reached an historic record high of 1.52 Gt. (The clinker-cement ratio was therefore 0.65, one of the lowest in the world, which is important since clinker production is a major source of emissions from cement production.)
- Iron & Steel: China’s crude steel production reached 996 Mt in 2019, 53.3% of global production whilst the consumption of ferrous scrap amounted to 216 Mt in 2019 which is a comparatively low recycling rate but can be attributed to limited scrap availability in the economy. Basic Oxygen Furnaces (BOF) accounted for most of the primary steel produced (89.6%) for steel production with the remaining 10.4% produced from scrap in Electric Arc Furnaces (EAF). The current average steel scrap/crude steel ratio in Chinese BOF mills was estimated to be 20.2%, accounting for 112.7 Mt steel scrap consumption. Chinese EAF production amounted to 103.2 Mt.
- Aluminium: China produced 35.8 Mt primary aluminium in 2019 (56% of world production) and 71.3 Mt alumina feedstock for alumina smelters. On AC basis electricity consumption was 13,531 kWh/t – this high energy efficiency can be attributed to the young age of the capital stock.
- Ammonia & Methanol: In the chemicals sector, China produced 47.5 Mt ammonia from 70 Mt production capacity in 2019. This equals around 26% of world production. The goal is to limit excessive ammonia fertiliser use but new markets may emerge longer term such as ammonia for shipping. Around 80% of Chinese ammonia production is coal based. China accounted for around 56 Mt of methanol in 2019, nearly 60% of world consumption. Methanol has become an important intermediary for olefins production as well as a road fuel additive and its role is projected to increase further.
- Other Chemicals: China has a smaller role in other petrochemicals, but this is changing rapidly. China holds 38% of synthetic resin demand, 71% of synthetic fibre demand and 25% of global synthetic rubber demand in 2019. It is still a net importer of olefins but is aiming for self-sufficiency in the coming years. Production capacity of ethylene has reached 25Mt/yr in 2018 (Lyu, 2019) and current plans suggest total ethylene capacity will increase by 27 Mtpa (million tonnes per annum) by 2030, which would make China the largest producer worldwide. Coal has been playing a growing role in the production of chemicals. In 2019, the total ethylene capacity from Coal-to-Olefins and Methanol-to-Olefins units reached 5.2 Mtpa, accounting for 21% of China’s total ethylene capacity (though these coal-based production units are not competitive in the current environment with low oil prices.) Even chemicals like polyester (PET polyethyleneterephthalate) are beginning to be made from coal, as new processes that use coal to obtain ethylene glycol (a raw material for making polyester fibre and packaging resin) have gained traction in China.
China’s energy intensive industries are important therefore not just for China’s energy use but is also of key importance for global decarbonisation. It’s the combination of significant volumes and the coal intensity of production that makes China’s actions critical for the success of a global industrial energy transformation.
Strategies to reduce future emissions
Looking ahead, the immediate-term pathway industrial production will follow in China is not currently clear, despite the long-term vision of transforming the industrial sector to high-tech less energy-intensive industries that will be powered by low-carbon energy sources. Most analyses suggest that metals and cement production will decline while petrochemical production will increase. Such a development would be in line with a general shift of economic activity towards the service sector. The key question however is how fast this transition will occur.
IRENA analysis of a global pathway consistent with the Paris agreement’s below-2-degrees goal suggests for the period from 2020 to 2050 a reduction from around 4.5 Gt to 3 Gt of CO2 emissions per annum in China for the industrial sectors discussed above. That assessment assumes a halving of the carbon intensity of electricity. The emissions from the chemical and petrochemical sectors would more than double while the other industry sectors combined would halve their emissions (figure 3, above).
Far greater efforts will still be needed
The effect is significant but not enough to fully decarbonise the economy by 2060. Therefore, additional measures will be needed that include actions to:
- Maximise energy efficiency and minimise carbon intensity of economic activities; accelerate the growth of the service sector; and promote a circular economy, in line with the new 14th five-year plan.
- Stop new coal power plant construction and start to phase out existing plants; and further accelerate deployment of renewable power generation. (Coal power needs to be phased out well before 2060.)
- Create new electricity demand flexibility in the industrial sectors that can facilitate the operation of power systems with high VRE shares. (This will require a mix of new technologies, adaptations of market design and regulations, operational practices and business models. This is a precondition for the phaseout of coal power.)
- Decarbonise end use sectors through electrification, biofuels and green hydrogen use, as well as deployment of hydrogen based synfuels for specific sectors; develop renewables-based ammonia and methanol production.
- Deploy CCS for industry, starting with commercial scale demonstration projects in iron making and cement clinker production. It should be noted that some Chinese sources see only a limited role for CCS in decarbonisation.
- Consider import of green commodities such as direct reduced iron pellets and bioplastics
The next 5-year plan will be historic
China has a long tradition of five-year plans, and the 14th five-year plan will be released in March 2021, followed by the sector-oriented plans.
This year, China will launch a dedicated five-year plan on addressing climate change – the first time in history – in addition to the 14th five-year plan on energy. This 14th five-year plan is special, due to the issuance of a 15-year mid-term plan that was also approved last year. The long-term perspective to mid-century is still not clear at this moment but is evolving with further studies; a plan for the energy transition between now and 2060 for China is needed.
In a climate context, countries are requested to develop long-term, low-emission and development paths for 2050 in the context of the UNFCCC Paris Agreement. Those climate and energy plans need to be aligned with each other. And national plans need to coordinate with province and city level transition plans in order to assure consistency and to assure a balanced socio-economic development which is essential for widespread acceptance. IRENA continues to work with the Chinese government to explore and develop long-term pathways for deep decarbonisation within the country.
The 4th International Forum on Energy Transition expected to be held in 2021 in Shuzhou, co-hosted by the Chinese National Energy Administration, IRENA and the Government of Jiangzhou province will be a key opportunity to showcase the building blocks of China’s long term energy transition towards a carbon-neutral 2060.