Distracted by Ukraine and intransigent political opposition, the U.S. and Australia are falling farther behind.
The world’s petrostates — Russia, Saudi Arabia, the United States and Australia — are basking in the unexpected profitability of their fossil fuel exports, raising concerns over global energy security. That alarms climate activists who believe the Ukrainian petro-war is a significant distraction, disruption and excuse and is de-accelerating global cooperation and ambition towards decarbonization.
That is, except for China. Without the distraction of Ukraine, China is consolidating its global climate leadership as it seeks to meet President Xi Jinping’s promise to “strive to peak carbon dioxide emissions by 2030,” and strive to achieve carbon neutrality by 2060.
How serious is China? Very. It is appointing thousands of “climate judges” to environmental courts and training prosecutors to bring tens of thousands of cases to them, even if it means suing the government.
China already leads the world in renewables manufacturing and is making rapid technological gains in electrolyzers and green hydrogen, grid transmission, decarbonization of steel and aluminum, plus the rampant global uptake of electric vehicles.
Now it wants to “Electrify everything.” That is the latest buzzword around global energy markets. Electrification is driving uptake in everything from ground heat pumps, rooftop solar, batteries of wheels (also called electric vehicles), smart grids incorporating AI-controlled two-way electricity flows, induction cooking, utility-scale batteries, PHS and green hydrogen, not to forget energy efficiency and buildings’ energy ratings schemes.
- Solar. Last month, Bloomberg NEF lift its forecast for China’s 2022 solar installs to 101 gigawatts (GW), a 50% increase on the world-leading record of 69GW that China installed in 2021, triple that of the U.S. at just 24GW, and almost equal to the entire operating electricity capacity in Spain.
- Wind. China became the world leader in offshore wind in 2021, with cumulative installs of 26GW –– half the global total of 54GW.
- Pumped hydro storage (PHS): China has set a really ambitious target for 120GW of pumped hydro storage by 2030, quadrupling the current installed base of 32GW –– which itself is already the largest capacity of any nation in the world.
- EVs. China’s electric vehicle installs in 2021 surged 154% year-on-year to 3.3 million new registrations, by far the largest investment in transport decarbonization globally. EV leader BYD this past month announced it has entirely ceased production of internal combustion engine passenger vehicles, committing 100% to electric.
- Batteries: China’s technology leadership in battery manufacturing is evident to all with CATL set to commission Germany’s first lithium-ion battery manufacturing facility later this year, with the production capacity of a staggering 8 gigawatt-hours on the back of a 1.8 billion euros project investment. And CATL this past month has announced one of the largest Chinese green investments in Indonesia ever, a US$6bn partnership with Antam and Indonesian Battery Corporation to focus on nickel mining and processing, battery materials, battery manufacturing and battery recycling. CATL holds a 38% global EV battery market share, and last week reported an exceptional 260% growth in 2021 revenues and record profits.
- Hydrogen. Most are not aware that four months ago, China Ningxia Baofeng Energy Group’s 150 megawatts (MW) opened the world’s largest green hydrogen plant –– a facility seven times larger than the then-largest green hydrogen plant (at 20MW, owned by Air Liquide in Quebec, Canada).
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China should also note the landmark memorandum of understanding last month between Fortescue Metals Group of Australia with E.ON of Germany for the supply of 28 million tonnes per annum of green ammonia by 2030 (starting at 200,000t as soon as 2024). Aimed at permanently replacing one-third of all of Germany’s current methane gas imports from Russia, this proposed US$40 billion investment initiative will accelerate the technology development underpinning the accelerating global uptake of green hydrogen. Fortescue is pursuing the development of a string of GW scale green ammonia plants supported by renewable energy projects to deliver on this audacious decarbonization plan.
- Carbon markets. While the European Union continues to make strong progress on decarbonization with its FIT for 55 (targeting at least a 55% emissions reduction by 2030) as the clear interim step toward carbon neutrality by 2050. Carbon pricing in the EU emissions trading scheme (ETS) price reached nearly 100 euros earlier this year, a tenfold price increase in just the last two years. But over in the East, China’s national ETS has been building strong momentum since its launch in July 2021, and this scheme will play an increasingly material role in pricing carbon emissions as China moves towards peak emissions before 2030.
- Greening financial systems. According to a new report from the Institute for Energy Economics and Financial Analysis (IEEFA), the People’s Bank of China (PBOC) has been quietly greening China’s financial system. The PBOC’s actions to steer credit into decarbonization efforts are novel compared to other central banks globally. A key measure is the introduction of a facility –– its Carbon Emissions Reduction Facility (CERF) –– providing discounted central bank credit to banks lending to enterprises engaged in carbon emission reduction.
China’s remaining fossil challenges
Despite remarkable progress in renewables, phasing out existing fossil fuel use and production remains China’s biggest challenge in the face of still robust domestic economic growth. To the surprise of many, Xi announced at the United Nations last fall a commitment to “not build new coal-fired power projects abroad,” he told the United Nations General Assembly. It is the biggest producer of coal domestically, and the largest financier of coal-fired power plants abroad.
Since September 2021, the Bank of China has pledged to cease financing new coal mining and power plants abroad as well, China will also not fund new coal projects as part of its global development undertaking, known as the Belt and Road Initiative.
What should China do?
It is imperative that China both reinvigorate and green the ambitious aid to developing nations in order to counter rampant fossil fuel import inflation. Developing nations will also benefit from leveraging China’s world-leading supply chains, manufacturing capacity and technologies to drive deflationary renewable energy uptake.
Even more challenging will be greening China’s steel manufacturing, which accounts for more than half the world’s steel manufacturing capacity. Its powerful steel industry was successful in delaying by five years an audacious draft policy for peak steel sector emissions by 2025 followed by a 30% reduction by 2030. That is a rare setback for Xi.
It is imperative that China both reinvigorate and green the ambitious aid to developing nations in order to counter rampant fossil fuel import inflation.
Contrat that to SSAB of Sweden’s HYBRIT technology development for zero-emissions steel that was brought forward by 15 years to 2030. ArcelorMittal has also announced a 40% emissions reduction in its steel operations in France by 2030 with a €1.7 billion investment program.
Now is the time for China to work with its key global supply chain partners to develop renewable energy-powered green iron (direct reduced iron or DRI), invest in accelerated scrap recycling efforts and electric arc furnaces and pilot green hydrogen substitution for increasingly expensive imported fossil fuels.
At the very least this will enhance China’s energy security and energy independence, and soft power initiatives in much of the developing world. Decarbonization will also continue to deliver on the strong internal concerns about air quality and health improvements.
And for China, it is a moment it has waited for centuries to achieve. If Britain, the United States and Europe ushered in the Industrial Age, it is becoming increasingly clear that China and other Asian economies are building the industries of the future making this the Asian century.