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China, industrialisation and climate change: Do as we say, not as we did

Will China succeed with its plans to transition to carbon neutrality by 2060?
October 2021

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China, Industrialisation and Climate Change: Do as We Say, Not as We Did

Climate change could scarcely be higher up the global news agenda; devastation from wildfires, deaths from air pollution, and the impact of water scarcity on the global food chain have shocked governments and citizens around the world into action. The number of days in a year when temperatures exceeded 50C has doubled since the 1980s. According to Dr Friederike Otto of the Environmental Change Institute at the University of Oxford, “the increase can be 100% attributed to the burning of fossil fuels”.i

And yet, agreeing the steps towards decarbonisation is a complex and diplomatically sensitive task. Nowhere more so than with China: on the one hand, causing more CO2 pollution than any other country; on the other hand, a factory for the world.

Much of China’s carbon output is an almost inevitable consequence of an industrialisation process that has reduced production costs for businesses and raised living standards for billions of consumers. And it hasn’t been lost on China that the West enjoyed the benefits of centuries of industrialisation with hardly a thought for environmental concerns. Indeed, if we look globally at cumulative emissions since 1750, China is well behind the US and EU, despite having a larger population than both combined.

Striking a balance between China’s ongoing economic development and its central role in reducing global carbon emissions is one of the great challenges of tackling climate change.

In this article, the first of a two-part series, we give an overview of China’s current carbon emissions, and summarise its efforts and ambitions to reduce its dependency on fossil fuels.

Five-Year Plans and Carbon Neutrality

Last year, President Xi Jinping pledged that China will be carbon neutral by 2060 and that emissions will peak before 2030. Shortly after, China’s 14th Five-Year Plan (covering the period 2021–25) set out key targets for tackling climate change, including cutting carbon intensity by 18% and increasing non-fossil energy usage by 20%. These steps are hugely important; China is the largest consumer of electricity in the world and is predicted to account for 39% of electricity demand growth by 2040.ii If it hits these targets, China alone could lower global warming by 0.2 to 0.3 degrees Celsius.

China: CO2 Emissions in a Global Context

Annual CO2 emissions (billion tonnes)

China produced 28% of the world’s CO2 emissions in 2019 and was responsible for 60% of CO2 emissions growth between 2000 and 2019.

Per capita emissions (billion tonnes)

Due to its huge population, China’s per capita carbon emissions are below the US, roughly in line with Europe. This is despite being the world’s biggest carbon emitter.

GHG emissions by source (billion tonnes)

Electricity and heating account for the greatest share of China’s carbon output, while transport emissions are below the world average.

CO2 emissions by source (billion tonnes)

China is heavily reliant on coal and other fossil fuels for its energy needs. It has become a net importer of coal.

Source: Our world in data

China’s Carbon Emissions Targets

China committed to peak its CO2 emissions “around 2030” in 2009 and first laid out carbon emission reduction targets in its 2011 Five-Year Plan. In the most recent plan, the target is to reduce CO2 intensity (carbon emission per unit of GDP) by 18%, and to reduce energy intensity (energy consumption per unit of GDP) by 13.5% between 2021 and 2025. More detailed targets for specific industrial sectors were also given:

  • Power
    • Installed wind and solar generation capacity to reach more than 1,200 gigawatts (currently 535 gigawatts)iii
    • The proportion of coal-fired power to fall from 55% today to 26% in 2035 and 8% in 2060
  •  Petrochemical
    • Domestic coal production to be capped at 4.1b tonnes by 2025
    • National coal consumption to be capped at 4.2b tonnes by 2025
    • PetroChina intends carbon emissions to peak by 2025 and to achieve carbon neutrality by 2050
  • Transportation
    • Electric vehicles to make up 20% of new vehicle sales by 2025 and subsidies extended into 2022, although at a reduced level
  • Steel and non-ferrous metals
    • Carbon emission reduction target of 30% for the steel industry by 2030
    • Low carbon emission electric arc furnaces will be increased from 10% of total steelmaking to 15–20%
  • Building
    • Promote the use of low carbon technology in construction, and promote green buildings generally

Are China’s Targets Aggressive Enough?

Country
Timeline
Status
Carbon Intensity CO2 tonnes per capita
Proportion of world cumulative emissions since 1750
China
2060
Policy Document
6.86
13.3%
European Union
2050
Proposed Legislation
7.04
17.4%
United Kingdom
2050
Law
5.82
4.7%
Japan
2050
Policy Document
9.31
3.9%
United States
2050
Policy Document
16.16
24.8%

Source: Our world in data

The short timeframe for China to achieve carbon neutrality is challenging. Emissions in the EU peaked in 1990, giving it 50 years to hit its 2050 zero target, compared to China’s 30 years. And that’s before considering China’s stronger economic growth prospects and the extra industrial output that implies. However, as a recent International Panel of Climate Change (IPCC) report made clear, there is a need for urgent action. Human-induced climate change is already affecting many global weather and climate extremes, and unless there are immediate, rapid, and large-scale reductions in greenhouse gas emissions, restricting temperature increases to 1.5°C or even 2°C will be impossible.

Frankly, we expected more aggressive targets from China, especially considering both its key role in achieving global carbon reduction targets and the technological and industrial resources it has at hand. We look forward to hearing more detailed plans at the forthcoming UN Climate Change Conference (COP 26) in October.

Will China Achieve its Carbon Neutral Ambition?

China’s track record of overdelivering on its Five-Year Plans leaves us optimistic. The government is not subject to the short election cycles that can lead governments to set over-ambitious goals. Furthermore, temperatures in China are expected to increase by more than the global average, leading to a greater probability of droughts, floods and heatwaves. Acting now is in China’s interest.v

Other strategic benefits from achieving the carbon neutral target include:

Risk warnings

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

Use our handy glossary to look up any technical terms you are unfamiliar with.

  • Increased energy security – self-reliance is high on the agenda; most of China’s energy comes from fossil fuels, and in recent years imports have been rising.
  • Maintain top spot as a leader in clean technology – it is unlikely that China wants to give up its position as the world’s top manufacturer of electric cars, wind turbines and solar modules.
  • Improve air quality – this is a key concern for China’s citizens, with air pollution causing an estimated 500,000 premature deaths in China each year.
  • Diplomacy – the Chinese government is likely to see the potential value of demonstrating leadership on the global stage.

China’s CO2 intensity reduction targets vs. actual

A Fine Balancing Act

While there are benefits to carbon neutrality other than environmental, careful management is needed to minimise the economic pain. Despite the huge rise in average annual income, millions in China still earn less than $5.50 a day; attempts to tackle income inequality will need to be balanced with emissions reductions. China is a vast country with a variety of regional differences to do with development, economic policy and climate change; decarbonisation, for example, will be harder in regions reliant on heavy industry and coal power.

The most recent Five-Year Plan directly emphasises the importance of climate change. Where the Chinese government leads, the rest of the country will follow; in a survey by Danish green-energy company Ørsted, over 90% of Chinese respondents agreed that it is important to create a world powered by renewable energy. And the Chinese government appears to be well attuned to popular opinion when addressing climate change: the recent Chair’s Summary of the 5th Ministerial on Climate Action – an official government source – said, “citizens and especially youth are demanding greater urgency.”vii

As the largest CO2 emitter, becoming carbon neutral is a huge undertaking for China, but necessary if the world is to successfully tackle climate change. Thankfully, China has tended to deliver on previous energy efficiency and emissions reduction targets, indicating a longstanding commitment to sustainable growth.

In the second part of this two-part series, we look at how China might achieve its net zero ambitions and what the emissions and energy targets mean for our portfolios.

ii Carbontracker.org – Reach for the sun

vi China’s Ministry of Ecology and Environment

vii China’s Ministry of Ecology and Environment

Risk warnings

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

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