By Zhu Xingshan, CNPC

China’s aim to strive for carbon neutrality by 2060 will propel energy and economy transitions. But given Chinese economy in relatively rapid development stage, the nation – to reach the target mentioned above – has to cut carbon emissions by around 300 million tons annually within next 35 years, even if it halts the rise of carbon emissions in 2025. Hence tightening carbon constrained policies and emission reduction measures, like expanding scope of climate policies and emission reduction.

Ways to realize carbon neutrality

   To meet criteria agreed in the Paris Agreement, Tsinghua University analyzes that culminating emissions of carbon prior to 2030 is necessary, and then the emissions will have to plummet in the subsequent two decades to net zero in 2050. Major measures to cut carbon emissions include strengthening resource saving, improving energy efficiency, reducing energy consumption, decreasing proportion of fossil energy (via more widely using electric energy, biomass energy, hydrogen energy, thermal energy, etc.) and adopting a cleaner, lower-carbon energy structure.

   Decarbonization will be conducted first in industries with low or negative costs of emission reduction. The electric power sector – carbon emissions of which will plunge from peak, in 2030 or so, to near-nothing in 2050 – currently is the source of 43% of carbon emissions from the energy field, and the industrial sector is the source of 40%, according to analysis of CNPC Economics & Technology Research Institute. Carbon emissions of the industrial and transportation sectors will peak both before 2025, and tumbled to below 1 billion tons in 2060, when the construction sector, capping carbon emissions in around 2030, will achieve a complete decarbonization.

Figure 1  China’s energy-related carbon emissions in different sectors

Six impacts of carbon neutrality on China’s energy industry and related policies

   First, achieving carbon neutrality by 2060 will urge the Chinese government to make stricter low-carbon development targets in the 14th Five-Year Plan period, and meanwhile reevaluate nuclear power. In addition, consumption of coal will be curbed in some regions or industries, and innovation in energy storage, CCS and CCUS technologies will accelerate.
   Second, transition from high-carbon energy to low-carbon energy will speed up, with non-fossil energy and clean energy (e.g. natural gas) being recommended. Energy production and consumption will greatly change, mainly spurred by decreasing coal proportion, accelerating electrification, increasing consumption of clean energy, etc.
   Third, a number of low-carbon energy technologies will develop more rapidly in the next decade, like high-efficiency photovoltaic module and solid state electrochemical cell (both in initial stage of industrialization); fuel cell and perovskite battery (in stage of industrialization preparation); green hydrogen and derivative technology, zero-carbon energy chemical coupling system, CCUS, etc.
   Fourth, the government will guide investors on investing more in green development projects via establishing green finance and trading systems. Financial products related to carbon emission rights will be developed, establishment of carbon emission rights trading market will be promoted and international cooperation on green finance will deepen.
   Fifth, carbon neutrality will impact energy plans significantly. Seen from regions, carbon emissions of core regions (e.g. Beijing-Tianjin-Hebei Region, Guangdong-Hong Kong-Macao Region, Yangtze River Delta, etc.) have to peak during the 14th Five-Year Plan period to help the nation’s peak by 2030. Coal, power grid, oil and gas enterprises all need to make changes based on the carbon neutrality target.
   Finally, international energy cooperation will mainly involve green, low-carbon projects in the 14th Five-Year Plan period or in a longer term.

Oil and gas enterprises’ strategies adapting to low-carbon transition

   While making development plans (short-term or for 2035 and 2060) – which are in line with the nation’s carbon neutrality goal, focus on natural gas and aim to gradually expand to more low-carbon or no-carbon businesses – oil and gas firms should think about how to contend with the possibility that nation may ban the sale of fuel vehicles (no later than 2040 experts predict), given that NEVs have become one of core strategic emerging industries in China.
   Oil and gas enterprises should analyze growth trends of alternative energies and make related solutions like expanding businesses to recharging and energy storage, as these substitutes (e.g. wind power, PV, hydrogen energy, etc.) develop rapidly. Further, investing more in international new energy and environmental projects is wise, as increasingly more investors will withdraw from the fossil energy industry.
   Oil and gas companies need to establish own carbon pricing and tool systems to reduce risks from high-carbon projects, found carbon asset management department, and pay more attention to carbon removal technologies like CCUS and CCS, which will help enterprises promote low-carbon development.