China to raise hydrogen share to 16%, CCUS capacity by 2060: Shell

China needs to raise hydrogen's share in final energy consumption to 16% from negligible levels today, as well as increase carbon capture, utilization, and storage (CCUS) capacity 400 times, and reach a carbon price of Yuan 1,300/mtCO2e ($204.88/mtCO2e) by 2060 to meet its net zero goals, Shell China said in a report Jan. 17.

The report, entitled "Achieving a carbon-neutral energy system in China by 2060", provides a roadmap to meet a 1.5 degree Celsius global warming target and China's net zero 2060 pledge. While it's "economically and technically possible for China to achieve its ambitions," the window for success is quickly closing, Shell said in a statement.

Shell expects electricity's share in China's final energy consumption to rise to almost 60% in 2060, from 23% today, with sectors such as buildings (residential and commercial), light industry and passenger road transport largely electrified.

Besides electrifying end-use sectors, further demand growth for electricity will be driven by green hydrogen produced from electrolysis. Shell projected an exponential increase in China's hydrogen demand, starting in the 2030s and reaching more than 17 EJ/year (580 million mt/year of coal equivalent) by 2060, from almost nothing today.

Shell said hydrogen will be primarily used in China's heavy industry, agricultural machinery, heavy-duty road transport, short-haul aviation and shipping, and more than 85% of it will be green hydrogen produced through electrolysis powered by renewable and nuclear electricity. Hydrogen produced from coal and gas in 2060 will be relatively limited and fitted with CCUS, it added.

Accommodating such transformational changes will require an electricity system that is almost four times the size it is today, the report said.

As electricity demand increases, the share of renewables will also rise. Shell expects China to substantially increase solar and wind generation to 80% by 2060 from 10% today, surpassing coal to become the largest sources of electricity as early as 2034.

Higher carbon price needed

Shell's roadmap also sets ambitious milestones for other low-carbon technologies like bioenergy and CCUS. A level playing field needs to be created for all types of low-carbon technologies, through steadily increasing carbon prices, the report said.

Shell projected that China's demand for liquid biofuels and solid biomass will rise from around 2 EJ/year today to almost 17 EJ/year in 2060, adding that biofuels, together with hydrogen, play a crucial role to decarbonize the two hardest-to-abate transportation sectors, aviation and shipping.

Shell also said China's CCUS capacity will need to increase more than 400 times in the next four decades. The report highlighted that the main challenge lies in creating conditions to support substantial investments in large-scale CCUS, particularly for industrial decarbonization.

As the carbon price ramps up this decade, it will drive the reallocation of resources across the economy -- especially capital -- towards lower-carbon technologies and infrastructure.

Shell expects the carbon price to reach Yuan 300/mtCO2 (approx. $47.28/mtCO2e) in the run-up to 2030, and ramp up more quickly in subsequent decades, eventually reaching Yuan 1,300/mtCO2 ($204.88/mtCO2e) by 2060.

The carbon price projected by Shell included both explicit carbon tax/price and implicit regulatory costs, the report said.

China only started its nationwide compliance emission trading scheme in July 2021, and the current carbon emission allowance price remains relatively low compared with other compliance markets worldwide.

The daily average price of a China Emission Allowance was at Yuan 58.48/mtCO2e ($9.22 /mtCO2e) on Jan. 17. The European emission allowance price was at Eur74.01/mtCO2e ($84.39/mtCO2e) on Jan. 17, according to S&P Global Platts assessments.

On Jan 17, Chinese President Xi Jinping said at in a speech at the World Economic Forum that China plans to follow up its recently announced "Action Plan for Carbon Dioxide Peaking Before 2030" with implementation plans for specific sectors such as energy, industry and construction.

"Carbon peak and carbon neutrality cannot be realized overnight. Through solid and steady steps, China will pursue an orderly phase-down of traditional energy in the course of finding reliable substitution in new energy," Xi said.