Singapore — China's unexpected stance on climate change at the United Nations General Assembly on Sept. 22 could signal a turning point for the coal and petroleum industries, and puts the country's next five-year economic plan starting 2021 firmly in focus for major policy announcements impacting energy markets.
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"We aim to have CO2 emissions peak before 2030 and achieve carbon neutrality before 2060," President Xi Jinping said in his UN speech.
While the speech lacked details, this was China's first formal announcement of a long-term plan toward lowering carbon emissions after several developed countries had already outlined strategies for net-zero emissions by 2050.
Given China's position as one of the largest energy markets, a major energy policy change will have consequences for not just fossil fuels like oil, gas and coal, but also for renewables, energy transition initiatives like hydrogen and electric vehicles, and carbon markets.
For oil and natural gas, this could mean China's giant national oil companies are given a government mandate to divert resources toward decarbonization, which would change the landscape for petroleum markets permanently and complement the shift being driven almost entirely by oil majors.
China is expected to initially set peak carbon emission targets for cities and highly populated and industrialized coastal regions in the coming 14th five-year-plan, which would be the logical next step from setting country level targets, according to a Beijing-based climate expert, who declined to be named.
Another Beijing-based energy expert expected hydrogen to play a significant role for China to meet its 2060 climate target and said a more detailed road map on renewable energy development is almost certain in the 14th five-year-plan.
Industry experts also said China would step up the development of its carbon market, to help meet targets using market-oriented mechanisms.
"The Paris Agreement on climate change charts the course for the world to transition to green and low-carbon development. It outlines the minimum steps to be taken to protect the Earth, our shared homeland, and all countries must take decisive steps to honor this Agreement," Xi said. "China will scale up its Intended Nationally Determined Contributions by adopting more vigorous policies and measures."
FOCUS ON ECONOMIC PLAN
"This is certainly an unexpected and ambitious announcement, and we will have to wait for publication of the plans to achieve this goal," Philip Andrews-Speed, Senior Principal Fellow at the Energy Studies Institute, National University of Singapore, said.
"However, if I look at the components of the economic recovery plan I do not see that it is notably green or low carbon. Even much of the 'new infrastructure' strategy is either not new or is not strongly low carbon," he said.
Andrews-Speed said more importantly recent developments in the energy sector do not bode well for longer term trends, of particular concern being the continued expansion of coal-fired power generation capacity and a call for greater energy self-sufficiency (which includes support for coal liquefaction).
"The only way around this that I can see is carbon capture and storage/use. It is reasonable to assume that the next 40 years will see the commercialisation of CCS/U technology. The challenge will be to scale it up to manage the vast scale of China's carbon emitting industries," he said.
Wood Mackenzie's Asia Pacific vice chair Gavin Thompson also said big questions remain, such as China's definition of 'carbon neutrality' and the lack of a roadmap.
"But China's upcoming 14th five-year plan has the potential to be the most important document in global energy market history," he said. The government will draft the 14th five-year-plan in October during the fifth plenary session of the 19th CPC Central Committee. It will be approved in March 2021 during the fourth session of the 13th National People's Congress.
"The impact on global energy and commodity markets and seaborne trade is significant in our Accelerated Energy Transition Scenario. Major commodity exporters' strategies are reset too to align with China's ambitions," Wood Mackenzie's Asia Pacific head of markets and transitions Prakash Sharma said.
China's CO2 commitments matter more than any other country given that it accounts for over 25% of global greenhouse gas emissions, Neil Beveridge, senior analyst with Bernstein Research said in a note on Sept. 21.
He said "for China to reach net zero an unprecedented shift in the energy mix would need to take place" as fossil fuels currently account for 85% of the energy mix, which is 10% higher than the EU but the same as the US, and to reach net zero, China will need to lower this share to 25%.
"The mix of oil and coal would decline to 10% with natural gas rising to 14%," Beveridge said, adding that China's share of fossil fuels has declined from 95% to 85% over the past 20 years, but the absolute demand has continued to grow given the growth in primary energy demand.
Beveridge said the share of renewable energy will have to increase from 15% of the energy mix to 75% with solar (1%) and wind energy (3%) becoming the largest components at 22% and 17%, respectively, and hydrogen could grow from virtually zero to 11% by 2050.