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Cost of decarbonisation: China needs $21 trillion of investment to reach net

China has pledged to seriously decarbonising its economic activities, committing to reach peak carbon emissions in 2030 and carbon neutrality in 2060 – but getting there will be costly.

Zhang Shaogang, the vice president of China’s national foreign trade and investment promotion agency — the China Council for Promotion of International Trade (CCPIT) — said China’s decarbonisation efforts will require $21.3 trillion in investment by 2060.

“Carbon neutrality will need huge investment for research and development, as 60% of the carbon neutral technology now still stays in the conceptual stage,” he told a forum at the China International Fair for Trade in Services in Beijing last week.

The investment will be needed to adopt new technology and build facilities for a lower carbon future, while investment will be needed to retool existing fossil fuel sites with carbon capture and storage facilities.

The bulk of the country’s power utilities are fired by coal and retrofitting them with renewables is considered both time consuming and costly.

While those switching to low-carbon schemes could suffer a short term increase in cost, placing them at an economic disadvantage, it is considered to be worthwhile for long term gains as China looks to reel in its emissions beyond 2030.

Funding carbon neutral goal

In addition to government funding, Zhang said much of the investment will come from financial institutions and what he calls social capital in which carbon trading will play a key role.

In June China Development Bank (CDB) decided to set aside 500 billion yuan ($78 billion) in loans to finance green energy projects over the next five years, with 100 billion yuan earmarked for borrowing this year.

Zhang also sees managing CO2 emissions through national trading a viable tool to help the government deliver on its carbon reduction targets.

In early July, China launched a national carbon trading mechanism,15 years after the European Union launched the world’s first international carbon trading market.

China’s national emissions trading scheme (ETS) is already the largest in the world, despite the first phase only targeting carbon emissions from the power sector.

The more than 2000 power generation companies participating in the first phase of China’s ETS emit about 4 billion tonnes of CO2 per annum, or roughly 40% of China’s annual carbon emissions.

However, the low price of carbon on China’s ETS has raised questions on the scheme’s ability to incentivise power generators to reduce their emissions.

On the scheme’s launch, trading in Shanghai opened at a price of 48 yuan ($7.40) per tonne of carbon dioxide equivalent, and recent data shows the average price has only increased slightly. In comparison, carbon prices in Europe currently average about €55 ($65) per tonne of CO2e.

However, Zhang claims China’s potential carbon trading market could eventually bloom to 300 billion yuan as the world largest energy consumer attempts to achieve the world’s most intensive cut of carbon emissions and achieve carbon neutrality in a relatively short period of time.

Forging its own path

Zhang added that China should create its own path for carbon neutrality that fits its own national conditions.

China is one of the world’s largest carbon-emitting countries, with CO2 emissions of 10 billion tonnes per annum now accounting for 30% of the world’s total. Industry, energy, construction and transport currently account for 90% of the country’s total carbon emissions.

Fossil fuels accounted for 84.3% of China’s total consumption mix last year and the country is on a mission to make renewable energy the backbone of its energy supply.

It is aiming for renewables to gradually replace coal in the energy mix, which is expected to account for only 43% of energy consumption by 2035, with oil and gas filling 32% of the mix and renewables 25%.

Read More: Cost of decarbonisation: China needs $21 trillion of investment to reach net

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