Managing Director & Partner
Related Expertise: Climate Change and Sustainability, Public Sector, Metals and Mining Industry
There was good news for China and for the global fight against climate change in September, when President Xi Jinping committed his country to achieving carbon neutrality by 2060 at the UN General Assembly. President Xi’s pledge aligns China with a global target of limiting global warming to 1.5°C over this period.
For China, the new goal reflects several ambitions. Following through will put it in a leadership position among major countries. China’s decarbonization initiatives provide major opportunities to accelerate technology innovation and industrial upgrading, further strengthening its economy. And the health, quality of life, and well-being of its people are strongly linked with reducing emissions and pollution, securing greater crop yields, avoiding natural disasters, and increasing energy independence.
For the world, since China is the single biggest annual carbon emitter, its commitment moves the international community closer to achieving the Paris Agreement goal of holding global warming to below 2°C (something that would be all but impossible if it were to continue business as usual). In addition, China is setting an example for others. In the weeks following the announcement, Japan and Korea committed to net zero greenhouse gas (GHG) goals, putting additional pressure on other large carbon emitters to follow suit.
But is China’s new target achievable? Reaching carbon neutrality requires massive reductions in emissions in the country’s relatively carbon-heavy economy and means eliminating many more metric tons of CO2 than many other countries.
We believe that it is, and we base our belief on an in-depth simulation of China’s climate change pathways that relied on unprecedented access to local emission data and experts. We also believe it has economically attractive and socially viable avenues to achieve its decarbonization goals. Here are the details.
During the period when the Chinese government was updating its climate agenda, BCG worked closely with China’s Energy Research Institute under the National Development and Reform Commission—the most authoritative government think tank on climate topics—on a new analysis of the country’s emissions. Thanks to this collaboration, BCG had access to local emission data and experts, from which we were able to build our simulation of China’s climate change pathways. We also engaged leading research institutes and stakeholder companies during the work on this study.
We modeled how China can achieve a 1.5°C target, in line with President Xi’s announcement. As a backup, we also modeled how to achieve a 2°C target, a considerably less ambitious goal. For each of the scenarios, we identified a package of technological, regulatory, and other levers and quantify their impact and required investment. We focus primarily on the 1.5°C goal in this article and the accompanying slideshow.
A Clear and Present Challenge
A few things are clear about China’s new ambition. First, to achieve carbon neutrality by 2060, it needs to mount a concerted effort throughout its economy. It must adopt, starting immediately, a 1.5°C pathway to carbon reduction of 75% to 85% by 2050. (See Slide 1 in the slideshow.) By itself, this is an enormous challenge. The country’s emissions growth has been relatively stable since 2013 (after years of rising at about an 8% annual rate), but under business as usual, it will only reduce carbon emissions by a little more than 10% by 2050.
The rest of the world needs China to succeed, since it accounts for more than 20% of annual global emissions. If it were to continue on its current course, a 1.5°C global target would require a reduction of 95% to 115% by 2050 by the rest of the world, putting global targets out of reach. Given China’s role as a global center of manufacturing and innovation, getting on the 1.5% pathway quickly will help enable other countries to more easily reach carbon neutrality.
Third, China can reap tangible economic benefits from an aggressive climate change program. We estimate that a program to achieve the 1.5°C target would contribute 2% to 3% to the country’s GDP, reduce demand for fossil fuels by about 80%, and lower its emissions by 75% to 85% between now and 2050.
The Major Drivers of Carbon Emissions
The root causes of China’s carbon emissions are its economic and industrial structure, reliance on nonrenewable energy sources, lack of energy efficiency, and rapidly growing energy demand.
The country’s economic structure is still highly energy intensive. (See Slides 2, 3, and 4.) Its emissions per unit of GDP are among the highest in the world (about 1 metric ton of CO2e (carbon dioxide equivalent) for each $1,000 of GDP in 2019 compared with a global average of about 0.4 metric tons of CO2e for each $1,000 of GDP in 2016, the last year in which global figures are available). China’s heavy industries, such as steel and cement manufacturing, account for about 50% of global production and 17% of its total carbon emissions.
Coal accounts for almost 60% of China’s energy mix, down from 80% in 1990 and 70% in 2000 and 2010, but still more than double the global average. Reducing reliance on coal power will be a major challenge in its climate change efforts because of its price advantages and the relatively young age of its coal-fired plants. China also continues to commission new coal plants (17 projects received permits in the first half of 2020), which will make achieving its emissions goals more difficult.
While China has achieved cutting-edge energy efficiency in some industries, it lags developed countries in many others. For example, it consumes almost 30% more energy per ton of cement produced than some developed countries because of lower scale of production, frequent stoppages caused by overcapacity, and low manufacturing efficiency. Only about 30% of the country’s cement production lines had reached leading international efficiency levels in 2019; the industry had a 70% utilization rate in 2018 and is much more fragmented than in developed nations.
Although its economic growth has slowed, China has urbanized rapidly over the last ten years. Its urban residential areas are about 1.5 times larger than they were a decade ago, and annual passenger car sales are almost twice as high. Urban construction and transportation have continued to fuel both demand for energy and carbon emissions.
It should also be remembered that China is a manufacturing and innovation powerhouse and, through its new ambition, it is putting itself on a path to be a major supplier for other countries seeking to reach net zero GHG emissions. China is already a leader in battery cells, for example, and if it plays its cards smartly, it can position itself as a technology provider for decarbonization around the world. Indeed, the country is already cooperating with the EU in several climate-related areas, including clean energy, decarbonization technology, green transportation, and carbon trading.
It Takes a National Effort
To achieve carbon neutrality by 2060, China needs to follow the 1.5°C pathway and begin the effort today, with energy leading the way. Fossil-fuel-generated energy needs to be limited to 25% to 30% of total energy and about 20% in electricity generation by 2050. Energy can spearhead carbon reduction efforts by moving to zero-carbon sources such as renewables and nuclear power.
We analyzed more than 50 emissions-reducing initiatives in four sectors—energy, industry, transport, buildings, and agriculture and LULUCF (land use, land use change, and forestry). (See Slide 5.) We quantified the abatement cost and impact of each. The results of our analysis can be seen in the slideshow below.
The Main Transformation Levers for Each Sector
Under the 1.5°C pathway, each of China’s principal emitting sectors will need to reduce their emissions by between 65% and 105% by 2050, meaning that some industries will have to achieve levels close to zero as much as ten years ahead of others. This will require decisive policy support and industry reform, as well as the implementation of effective carbon reduction levers to push sector upgrades, company transformation, and public awareness and support. To achieve true carbon neutrality by 2060, China will need to further reduce emissions using such removal measures as carbon capture and storage (CCS) and carbon sinks. Ten pilot projects had been implemented in China by 2019, but the scale is small; their collective capturing ability is less than 0.01% of current total carbon emissions in China.
Here are the main levers for each sector that we see as required, as well as the last-mile steps necessary to achieve carbon neutrality by 2060.
Energy. Achieving the required reductions means a major transition to the use of nuclear power and renewables for electricity, which needs to be supported by grid flexibility, energy system reform, and carbon pricing. (See Slides 6 and 7.) CCS technology is needed in coal plants where it has not already been implemented at scale. This will be no easy feat, given potential social concerns over large-scale nuclear power, competition for land, intermittency management for renewables, and decarbonization for fossil fuels. Nuclear power will ultimately comprise one-third of the total energy mix for power generation. It will also be necessary to explore decarbonization in energy product manufacturing, broaden the adoption and efficacy of CCS technology, and pursue CCS penetration of more than 90%.
Industry. Industry must advance decarbonization in electricity and heat generation and process innovation to achieve fundamental transformation beyond device upgrade and capacity swapping. Accurate monitoring and energy management services must be enhanced. Last-mile measures include aiming for 100% adoption of CCS technology in in-house power generation and heat production and improving decarbonization by innovating and optimizing industrial processes.
Transport. There must be a switch from gas to electric vehicles, which must be supported by public policy, continued battery improvement, and scaling up the charging infrastructure. The commercialization of hydrogen fuel is essential for clearing up the remaining emissions. The last mile will involve phasing out internal combustion engine vehicles on a large scale, leaving only a small number of fuel-efficient vehicles (less than 10%). It will also be necessary to encourage the rapid commercialization of sustainable aviation fuels (including green hydrogen), targeting more than 50% penetration in the long run.
Buildings. Buildings must strengthen energy efficiency innovation and decarbonization in heat supply. Complete carbon neutrality requires heat pump expansion and electrification of cooking appliances that is supported by enhanced grid capability and public acceptance.
Agriculture and LULUCF. Agriculture needs to undergo a transition from emissions contributor to carbon sink. Biogas projects and fertilization industry reform are key levers to promote sustainable agriculture. Further emissions reduction must be achieved through waste incineration treatment and carbon sink capability improvement. To go the last mile, the sector must aim for at least 80% incineration in waste treatment and continue to explore the potential of carbon sinks in carbon removal.
Expensive—and Worth It
As noted in the slideshow, the total cost of the effort will be substantial—90 trillion to 100 trillion RMB (or about $13.5 trillion to $15 trillion) through 2050 to reach the 1.5°C target, or the equivalent of about 2% of China’s cumulative GDP from 2020–2050. (See Slide 8.) But this expenditure is well within the country’s economic capability, and the investments will have a material benefit for GDP, contributing 2% to 3% over the first half of the century. The development of the green economy could directly increase employment in the medium and long term. According to our calculations, green technology investments will account for more than 2% of China’s GDP by 2050. The International Renewable Energy Agency (IRENA) estimates that, even under the 2°C scenario, green industries such as renewable energy, green construction, transport, and waste disposal would boost China’s employment by about 0.3%. Far from hindering economic growth, decarbonization would in fact stimulate the economy.
Moreover, the savings in lives and money from reducing deaths from pollution (one of China’s biggest environmental challenges) and averting the impact of the rising number and severity of natural disasters, such as floods, would also be substantial. Our plan would improve China’s energy security by reducing its fossil fuel consumption and lowering its dependence on nonrenewable and imported energy while furthering the competitiveness and resilience of China’s green energy exports.
China’s new goals are ambitious. Realizing them, which our analysis indicates will be a major but achievable challenge, would mean creating a green and sustainable living environment, with clear air and clean water, for a billion people—and offering inspiration for others around the world to take act with similar ambition. It’s an undertaking that deserves encouragement and support.
The authors are grateful to Jens Burchardt, Yukun Guo, Gongyi Liu, April Sun, and Sander Van Damme for their assistance.