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$5 trillion required for China to hit carbon neutrality

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Wood Mackenzie’s latest analysis shows that more than $5 trillion of investment will be required in order for China to hit its carbon neutrality path by 2060.

The hefty bill is the total amount needed for additional power generating capacity to meet the rise in electrification by 2050.

“It is definitely a colossal task for a country using 90% hydrocarbons in its energy mix and annually producing more than 10 billion tonnes of CO2-e, and in addition, accounting for 28% of global total emissions.

“In our Accelerated Energy Transition (AET-2) scenario, China’s emissions peak immediately and enter a period of rapid decline, reaching net-zero slightly after 2050. This is achieved by widescale electrification of transport, heating and industry as well as deployment of carbon capture use and storage (CCUS).”

Prakash Sharma, Wood Mackenzie Asia Pacific head of markets and transition.

For China to meet its goal, Wood Mackenzie estimates that solar, wind and storage capacity would have to grow 11-fold to 5.040 gigawatts (GW) by 2050 compared to the 2020 level.

Coal-fired power output is halved while the gas stops at the same pace as in 2019. Total power generation rose almost 2.5 times to 18,835 terawatt-hours (TWh) by 2050 relative to current levels.

“The most challenging part of the shift is not the investment or magnitude of renewable capacity additions but the social transition that comes with it. Halving coal capacity will result in loss of coal mining jobs, affecting provinces that depend on its revenues and employment generation.

“We expect the government to retrofit coal-fired power plants with CCS to retain coal mining activity in key provinces. This approach aligns with China’s strategy to optimize domestic coal resources to improve energy security.”

Prakash Sharma, Wood Mackenzie Asia Pacific head of markets and transition.

One major challenge to China’s carbon-neutral target is the shortage of scalable low-carbon alternatives in the transport and industrial sectors. Last year, China’s carbon emissions from these two industries amounted to 5.7 billion tonnes, approximately as high as overall emissions in the United States and the United Kingdom combined.

As a result, these industries would need government subsidies and/or the decarbonization of carbon prices. In the AET-2 case, Wood Mackenzie expects China’s carbon price support to hit $109 per ton by 2030. China is expected to become a hub for energy innovation to decarbonize difficult sectors.

Under the scenario, China’s road transport needs to be completely electrified. Total new stock of electric vehicles is projected to exceed 325 million units by 2050, compared to 4 million units today. As a result, oil demand is collapsing, dropping below 7 million barrels per day by 2050, mainly from petrochemicals or the export of refined products.

Industry sub-sectors such as steel, cement, refining and chemicals will require hydrogen and CCS as mainstream fuel and feedstock supply choices to fix emissions. As a result, by 2050, hydrogen demand could rise five-fold to approximately 150 million tonnes, evenly divided between green hydrogen (electricity-based) and blue hydrogen (coal-based or gas-based) combined with CCS.

“Given China’s large heavy industry and machinery sector, it is crucial that China masters the use of CCS and forest sinks to offset the remaining emissions. Without it, China’s pledge to become carbon-neutral is nearly impossible.”

Prakash Sharma, Wood Mackenzie Asia Pacific head of markets and transition.
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