Here are the highlights of our 2-day 4-session workshop “CHINA: Carbon Neutral by 2060 – Innovation”, compiled by Sara Stefanini. It’s a quick and efficient way for readers to see the main points made by our expert panellists. Held at the end of May, it was the fourth of our EU-China workshops since the first was held in November 2020, produced for the EU China Energy Cooperation Platform (ECECP). As always, leading speakers from the EU, major companies, think tanks and academics took part, with live audience Q&A at the end of each session. Commercial participants came from Shell, Total Energies, Scania, Air Liquide, Schneider Electric, Danfoss and more. The first session is the plenary, followed by Renewables, Grid Balancing and Storage, and Co-operating in China. To access the full videos, full summaries and all the presentation slides, click here.
Day 1: Tonic for the Transition (opening session)
Head of Section, Foreign Policy Instrument, Delegation of the European Union to China
Policy Fellow at the Grantham Research Institute on Climate Change and the Environment, London School of Economics
VP, Head of TotalEnergies R&D for Asia and National Chair for Energy Working Group at the EU Chamber of Commerce in China
Energy & Climate Analyst, Co-Founder at Carboneer
China’s energy transition
- China’s energy demand growth poses two challenges: transitioning from coal to renewables, and meeting additional energy demand with renewables.
- Renewables are becoming competitive economically. Wind and solar power are becoming ever cheaper, energy storage costs are falling and network management is improving.
- China is still building more coal-fired power plants to meet its domestic electricity demand, raising the risk of stranded assets.
- There is a limit on the share of renewables the grid can absorb, because when renewable power increases, balancing mechanisms such as storage or generation from other sources, including coal, need to increase to provide flexibility.
- China has released guidance saying it will not build new coal power plants simply for electricity generation, which means that in the short-term China needs more coal power plants, but they are to support the future integration of renewables into the grid.
CCUS and carbon removal prospects
- CCS and CCU (i.e. carbon capture) are both carbon neutral at best but will play important roles for industries where there is little or no easy low-carbon substitute.
- Carbon removal (as opposed to just carbon capture) is carbon-negative, it’s a nascent and complex market with different technological and nature-based solutions.
- Even with renewables growth, carbon storage capacity needs to grow from today’s 14 billion tonnes to 5.6 gigatonnes per year. With carbon removal, we need to remove five to 15 gigatonnes of carbon from the atmosphere every year.
- The U.S. is a CCS and CCU frontrunner because it has a lot of infrastructure in place – more than 8,000 km of CO2 pipelines, especially for using CO2 in enhanced oil recovery. Europeans are catching up.
- In China, becoming carbon neutral by 2060 will require CCS in the power sector too, even if renewables are being built out at the current pace.
- China has several CCS and CCU demonstration and R&D projects underway across different sectors and types of technology.
- The EU is looking to develop a Europe-wide carbon transport system to connect countries to storage sites.
- Green hydrogen and energy storage are crucial for expanding renewables and creating a safe and reliable grid.
- Market integration is crucial. Europe’s integrated market allows a buyer in Germany to bid for power from France, etc. China isn’t there yet.
- There will be three major trends in the energy transition: low-carbon, electrification and the digital revolution.
- EVs-to-grid, where EVs provide energy storage for balancing the grid.
- Long-term energy storage, such as retrofitting coal power plants into storage facilities.
- Liquid air energy storage, which liquefies the air to store energy, is promising.
- Emissions Trading System: emission reductions in sectors that are in the EU ETS are higher than sectors that are not in the ETS, because they have to pay a price for their emissions.
Government policies and goals
- China’s 2060 carbon neutrality goal shows that the government has linked climate action with the country’s sustainable development strategy, framed within the concept of ecological civilisation.
- In China, Covid, the power crunch, and Ukraine have pushed the government to think more about energy security.
- An emissions trading system is a political instrument, and therefore prone to produce failure because politicians have different ideas of what it should do.
- China can learn from how the EU integrated industry sectors into its ETS.
- One of the big drivers for integrating industries into the Chinese ETS is the European carbon border adjustment mechanism (CBAM).
Technology innovation, cooperation and clear government policies are needed to push both China and the European Union towards their targets for net zero emissions by 2060 and 2050, respectively.
The two major energy markets, and emitters, are approaching the challenge from different starting points.
Europe’s electricity market is already well integrated, allowing for higher renewable energy integration even without huge power storage capacity. The EU Emissions Trading System has seen ups and downs, with policy interventions driving price swings and uncertainty, but it has fundamentally driven emission reductions in the industries that trade on the market.
The EU’s carbon border adjustment mechanism, along with the RepowerEU package of policies proposed in response to the war in Ukraine, will serve to further reduce fossil fuel use in the bloc, and especially reliance on Russian oil and gas.
The development of carbon capture storage and use facilities is beginning to pick up in Europe too, although still in its early stages. The EU is now looking at developing a bloc-wide transport system that would allow CO2 emissions captured in one country to be piped to and stored in another.
China is starting from further behind, with a power sector dominated by coal, growing power demand and a less integrated national power market that limits the amount of renewables that can be integrated into the grid.
Innovation will be crucial to China’s energy transition, including carbon capture for industrial sectors and power plants and the expansion of the country’s new national carbon market to industries. Digitalisation, green hydrogen, electric vehicles and long-term energy storage will also be needed in China to increase renewables use and meet growing energy demand while reducing fossil fuel use.
Day 1: Renewables
CEO, Scania China
Centre for Research on Energy and Clean Air
Business Development and Sales Manager, Novozymes
Public Affairs Director, Power-to-X, Air Liquide
- In December 2020, China announced it would bring installed wind and solar capacity to over 1,200 GW by 2030.
- It aims to add at least 570 GW of wind and solar power between 2021 and 2025, more than doubling its current installed capacity.
- This will put China on track to meet its 1,200 GW target in 2026 (four years earlier than planned).
- China is developing giant clean energy bases with gigawatt-scale wind and solar parks.
- Achieving carbon neutrality before 2060 requires an annual renewables installation of 100-200 GW, so further growth will be needed after 2025.
- Hydrogen and power-to-x can absorb the intermittency of renewables and provide transport energy across China, strengthening energy supply security.
- China’s power generation accounts for 50 percent or more of CO2 emissions. Hydrogen converted to ammonia can help decarbonise coal power plants.
- Solar and wind alone won’t be able to sustain China’s energy demand, they will need storage and other technologies such as hydrogen and biofuels.
- Hydrogen will play a key role in making use of the renewables that we can’t manage in terms of intermittency, and can’t manage in terms of seasonality.
Transport and heavy industry technologies
- Cutting Scope 3 emissions from heavy duty transport requires improved fuel efficiency, increased utilisation of products so that fewer engines transport more, and create low-carbon fuels.
- Scania has just launched one of the most fuel-efficient diesel engines for trucking, reducing fuel by 8 percent.
- China should revise its trucking standards to allow for fewer engines to pull more goods.
- In China, Scania is developing biogas out of sludge. It’s a renewable fuel and the technology is well developed in Scandinavia.
- If the E10 fuel regulation is implemented in China, Novozymes’ biofuels will help reduce CO2 emissions by 37 million tonnes – the annual emissions from roughly 15 million vehicles.
- Air Liquide plans to invest more than €8 billion in developing hydrogen by 2035.
- Air Liquide is producing about 420 tonnes per day of hydrogen in China.
- For heavy transport, well-to-wheel analysis suggests battery technology is more cost effective than hydrogen – as long as trucks can be charged within about 45 minutes.
The role of coal
- Coal power provides flexibility and backup services to the wind and solar energy.
- In 2021 wind and solar installations accounted for 27 percent of the mix, but only generated 12 percent of electricity. Coal power accounted for 46.7 percent of installations and generated 60 percent of electricity.
- Biomethane and biogas could be important in China because it imports natural gas, which is expensive.
Policy needs and challenges
- Local governments still have incentives to build more new coal power plants to improve local energy security and boost local GDP.
- Western China has more renewable energy resources, but eastern China has more demand.
- Western power producers want to send power east during low demand times, but eastern buyers want it during their peak hours.
- The central government should avoid giving provinces an excuse or reason to build new coal plants as support for big wind and solar projects.
- The NDRC should cancel local government rights to permit the construction of new coal-fired power plants.
- The key is system innovation to create cross-functional systems involving society, governance bodies, and other stakeholders.
- Policy is crucial to support investment in new business models and ensure they can compete with old. It seems like China is developing everything everywhere and creating waste in the process.
- Stable policy, stable finance for R&D and a free electricity market.
China is driving a renewable energy boom, yet the dual priorities of cutting emissions and ensuring energy supply risks keeping coal dominant in the long-term – unless other technologies step in to fill the gap.
Low- and zero-carbon technologies such as green hydrogen, power-to-x, biofuels and biogas offer the potential to decarbonise hard-to-abate sectors such as heavy duty transport and steel, can offer energy storage for intermittent renewables, and can help reduce air pollution and waste.
Hydrogen, for example, could help bridge an east-west divide that risks pushing Chinese provinces to develop new coal-fired power plants for their own energy supply security. The problem is that western China has more renewable energy resources, while eastern China has the bigger demand hubs. Hydrogen can store the clean power and be transported over long distances.
Biogas, meanwhile, offers a low-tech solution to produce renewable gas, make use of wastewater and food waste, and reduce methane emissions.
The key for China is to take a centralised and systemic approach to this transition, rather than allowing different provinces and developers to take diverging routes. The government needs to incentivise fossil fuel power plants, especially coal, to become backup suppliers for renewables, and stop provinces from building new coal plants that risk becoming stranded assets.
Day 2: Grid Balancing & Storage
Counsellor for Energy and Climate Action, EU Delegation to China
CEO, Elestor B.V.
Senior Advisor on European Energy
Project Director, Sino-German Energy Transition Project at GiZ
- Under existing time-of-use power prices, the returns for urban customers in China of adopting PV and energy storage together is already economic.
- Flow batteries consist of large tanks and membrane stacks and can be used for long duration.
- Flow batteries have been developed to work with large-scale PV and wind parks and produce hydrogen while charging.
- Flow batteries use bromine, which comes from seawater, is very cheap and virtually unlimited.
- Flow batteries can replace fossil fuel power plants and be used as bi-directional power plants.
- The US Energy Information Administration estimates the market for long-duration power storage will increase by 10TWh by 2040, Mckinsey expects 140TWh by 2040, Elestore estimates 500TWh by 2050.
- Elestore has found that a fully decarbonised electricity supply is possible, with today’s reliability, and would require overbuild of 50 percent on the generation side and would need a couple of days of storage capacity.
- Seaport terminals offer the ideal environment and infrastructure to build really large flow batteries.
- Pumped hydro has been the leading storage solution so far, but it needs certain geographies. It works well in China.
- Vehicle-to-grid is a highly secondary solution to grid flexibility.
- Different smart charging scenarios appear to be very similar – whether you’re maximising the absorption of renewable energy or flattening out the load or charging only when the net load is favourable.
- In Europe, vehicle-to-grid could be worthwhile even if a tiny proportion of consumers use an aggregator service to do it.
- In China, a grid company could offer incentives for smart charging, but the lack of a wholesale market, spot market and real-time power prices is an obstacle.
- This is neither the most economical nor the fastest way of boosting flexibility, both for China and the world.
Electric vehicle benefits
- China started adopting EVs because of air pollution, and is expected to see major improvements in Beijing by 2030 even if coal power remains dominant.
- The improvement in lifecycle emissions of EV adoption in China grows over time, but these vehicles are already far superior to combustion engines, even in the most coal-dominant regions.
The energy transition
- Based on forecasts of PV, wind and storage, the overall cost of a clean power system in Europe isn’t expected to be much higher than we pay today – 10, 15, 20 percent additional costs, pre-pandemic.
- Based on today’s energy prices in Europe, a fully decarbonised system would cost not even half the price.
- Flexibility remains an issue. Batteries are a good option for flexibility intraday or one day to the next, but there is no practical solution for seasonal storage.
- A renewable energy system requires an overbuild.
- The best way of using this excess generation capacity is to produce green hydrogen and store it in existing gas infrastructure.
- When there is little generation, some of the existing gas-fired power plants can burn green hydrogen and produce electricity.
- Grid balancing requires strong EU policy support.
The clean energy transition will require greater flexibility – and that calls for energy storage solutions.
A power system based on renewable energy is possible, but it comes with much greater intermittency than fossil fuel power, over days and seasons, depending on the location. Different types of technologies will be needed for different applications and different markets.
The exponential growth of electric vehicles, both in China and the European Union, offers a number of climate action benefits. In China, the shift to electric vehicles is already reducing air pollution, including in cities where coal-fired power remains dominant, and air quality will continue to improve over time.
In the longer term, electric vehicles could also offer a smaller option for improving flexibility, by feeding power into the grid when they’re not being used. This could only involve a tiny portion of passenger cars – or only commercial vehicles such as school buses and food delivery trucks – but it would still benefit the market.
Flow batteries, consisting of large tanks and membrane stacks, are an emerging technology that could offer long-duration energy storage and replace fossil fuel power plants. Excess power generated from the batteries could be turned into hydrogen and transported.
Crucial to these technologies growing, however, is policy support, including a clear roadmap for developers and subsidies to encourage the uptick.
Day 2: Co-operating in China
GM of Corporate Alliance and Digital Ecosystem, Schneider Electric
China Country Manager, Shell Offshore Wind
Vice President, Danfoss China
Clean and efficiency energy solutions
- The offshore wind in market Europe has been heated since the mid-2000s.
- In China, offshore wind has taken off in the last five or six years. Last year China installed roughly 17GW of offshore wind farms, while the rest of the world only installed roughly 3GW.
- China’s wind is usually much slower than in the North Sea in Europe, but there are typhoons in the south. The seabed conditions in China are favourable.
- Floating offshore wind is a new cutting-edge technology where a European major like Shell can stand out from Chinese rivals.
- Climate and geographic conditions for floating offshore wind are different in China and Europe, which needs location-specific assessment and optimised development plan.
- A recent study suggests China’s floating offshore wind potential is around 500-600 GW, representing a multi-billion-dollar market.
- In Benxi, China’s steel capital, an effort to tackle air pollution by introducing a balancing system using surplus heat from the steel plant helped improve air quality and boosted energy efficiency by 40 percent.
- Data centres offer opportunities in China, as digitalisation grows. They can use renewable energy and supply their surplus to heat nearby communities.
- Surplus heat from wastewater treatment could also be used for industries and for district energy.
Level playing field in China
- Getting to know and working with the local ecosystem, from startups to majors, is key for Europeans working in China.
- Disruptive innovation often comes from startups, on the edge. Multinationals need to work with them early, to secure early entry in the market and understand the market pulse.
- Chinese officials want to see real-life examples and test cases from other countries, to be convinced of projects from multinationals.
- Shell and other Europeans bring the experience of power purchase agreements, which can make up for the intermittency of renewables and ensure they support the grid.
- China’s power market liberalisation is helping set up agreements like this, which banks see as lower risk.
Differences between Europe and China
- Europe’s approach to large infrastructure projects is to plan and assess risk thoroughly.
- China’s approach is ‘let’s get started, learn by doing and make adjustments as we go’.
- China’s rules and policies are designed primarily based on local businesses and conditions.
- In general China has a higher context culture than Europe.
- China’s rules and regulations are sometimes more implicit. This can be perceived as lack of clarity and transparency. This can be improved by having more and open dialogues.
China is a huge and growing market for new clean energy technologies, as the country works to reach climate neutrality by 2060 while developing new sectors such as digitalisation.
This creates opportunities and space for European majors to bring their innovation and expertise to China, to develop technologies such as floating offshore wind or district heating and energy services connected to data centres and wastewater treatment facilities.
Natural, economic, political, cultural and market conditions are different in China – it is important for multinational companies to learn, adapt and work with Chinese businesses, cities, experts and policymakers so as to thrive in this market.
Understanding these differences, and being able to demonstrate real-world examples of how their innovation works – such as a data centre supplying heat to Danish households – as well as estimates of the opportunities offered, can help international companies bring added value to China’s endeavours.
Summary compiled by Sara Stefanini
ECECP is funded by the European Union