Wood Mackenzie’s latest report reveals that China’s march towards carbon neutrality by 2060 can complement both energy security and economic goals.
Faced with a fractured global trading system, China’s leadership has responded with ‘dual circulation’, an economic manifesto focusing on more secure supply chains, growing the domestic market, and improving export competitiveness. At the same time, pressured by global climate change movement and escalating domestic pollution woes, the country announced its carbon neutrality goal by 2060 in September last year.
Wood Mackenzie research director Miaoru Huang said: “When President Xi Jinping announced the country’s carbon neutrality goal, he was not simply saying that China would adjust its energy mix to reduce emissions. He was giving notice of the complete transformation of its economy and how it produces, transports, and consumes energy.
“This transformation or ‘dual circulation’ is the pivot point to China’s balancing act on its climate change goals, energy security concerns and economic ambitions.”
Wood Mackenzie senior economist Yanting Zhou said: “Carbon neutrality aligns closely with the ‘dual circulation’ goals of increased capital efficiency and greater self-reliance through dominance of clean-energy resources and the technologies that will also drive large-scale domestic manufacturing. It aims to ensure that the energy transition is stamped ‘Made in China’.”
On its current trajectory (not accounting for carbon neutrality), China’s oil-import dependency would exceed 80% by 2030, while half of its natural gas supply would be imported. However, the pursuit of carbon neutrality halves China’s oil demand by 2040 compared with Wood Mackenzie’s base case, with demand almost eliminated by 2050.
For China to meet its carbon-neutral goal, it will need a 75% increase in electricity demand, compared to Wood Mackenzie’s base case, to replace fossil fuels. That equates to a staggering US$6.4 trillion investment in new power generation capacity. Nuclear power will have a role to play but growth will primarily come from solar, wind and storage.
For China, building the production capacity is the easy part. The country is already the world’s largest manufacturer of wind turbines and dominates global solar module production, with around two-thirds of photovoltaic panels produced domestically. In addition, Chinese manufacturers own significant capacity overseas.
China also leads the supply and processing of most of the raw materials needed for batteries and other zero-carbon technologies. Three-quarters of global lithium-ion battery production, half of the world’s electric vehicles and almost 70% of all solar panels are made in China.
Zhou said: “The difficult part is ensuring a secure and competitive supply of raw materials for this growth. This includes the five essential metals - copper, aluminium, nickel, cobalt and lithium. Most notably, China’s dependence on foreign miners for its copper supply is a major concern. This has fuelled the country’s determination to seek greater control of other raw materials.”
Essential for electricity transmission, wiring and wind turbines, the country’s domestic and overseas equity production of mined copper is just 16% of what it needs, leaving it net short of 7.5 million tonnes a year at current demand levels. Despite a decade of Chinese investment in overseas copper assets, western mining majors continue to dominate.
Zhou added: “If China can replicate its current global market share in battery and solar-panel production across the entire future value chain of clean energy, it would transform global energy supply, trade and industry.
“As more countries and corporates jump onto the net-zero bandwagon, concerns over China’s potential dominance are rising. If meeting expensive climate goals can only be achieved by buying materials and technology from China, how can governments around the world reconcile this with the promise of economic revival that comes with green deals and a clean-energy revolution?”
Huang said: “China is changing the world. A decade of state-directed investment has already put China at the front of the grid when it comes to the critical resources and technologies essential to zero-carbon electricity and mobility. And, just as the rest of the globe will need China to help it decarbonise, so China will need others to support its transition.”
In the race to lead clean energy, China has first-mover advantage. Through continuous innovation, investment and cooperation, all countries can prosper.