China’s top 5 ‘must haves’ from COP26

In May, Alok Sharma, president of the upcoming COP26 conference, called on China to pursue its climate change commitments "with more urgency” and announce a detailed roadmap for achieving these targets ahead of the event in November. This makes perfect sense: as the world’s largest carbon emitter, it is no exaggeration to say that a successful outcome for COP26 will to a significant extent hinge on China’s willingness to commit to positive action on decarbonisation.

But therein lies the rub. When President Xi Jinping surprised the world in September 2020 by announcing that China aims to be carbon neutral by 2060, this huge ambition came without any detail on how it would be achieved. Those, including myself, who anticipated that the publication of the country’s 14^th five-year plan earlier this year would provide answers were left disappointed. With COP26 rapidly approaching, China’s special envoy on climate change, Xie Zhenhua, recently announced that Beijing would release more details of its climate strategy “very soon”. The clock is ticking.

But China’s preparations for COP26 won’t simply be about how it will reduce emissions. Beijing’s COP26 preparations will certainly include details on how it plans to tackle climate change – on its terms – but will also seek to give China as much flexibility as possible in how this is achieved. And just as China will continue to push the physical and financial burden of decarbonisation onto developed countries, it will simultaneously look to emerge from COP26 as a global leader in decarbonisation. This will be supported by huge investment in virtually all clean-energy supply chains and technologies. China’s delegation will be travelling to Glasgow with very clear objectives.

With much at stake at the world’s most important talks on climate change since Paris in 2015, here’s our take on China’s top 5 ‘must haves’ from COP26.

Committing to peak emissions by 2030 and carbon neutrality by 2060 – with a plan

While many have stressed that COP26 needs to go beyond just agreeing new targets for carbon emissions, a formal submission of its Nationally Determined Contributions (NDCs) by China alongside a detailed roadmap for implementation ahead of the meeting in November remains a critical step. This will formally bind China to its earlier ambitions of reaching peak carbon by 2030 at the latest and achieving carbon neutrality by 2060. Beijing now appears ready to take this step.

This means details. We should expect much more on how this will be achieved, with key targets for all of China’s provinces and sectors of the economy. Wood Mackenzie’s Accelerated Energy Transition scenario (AET-2), which analyses how the world might limit the average rise in global temperatures to 2 °C by the end of this century compared with pre-industrial times,shows how China can embark upon a pathway to become carbon neutral by 2060. This will require little short of the complete transformation of how energy is produced and delivered in China by deploying cutting-edge technologies and with strong policy support. Electrification is critical, while China will need to invest massively in CCUS and green hydrogen to decarbonise sectors including industry and transportation.

China will want flexibility on achieving climate targets

China has been clear from the outset that it will chart its own course towards net zero. And why not? China has consistently met its stated targets, including renewable energy deployment and carbon intensity reduction goals. As a developing country, China’s leadership has stressed that it is developed nations that must do more, while it requires flexibility in meeting long-term targets. President Xi’s announcement of a 2060 target rather than the mid-century timeline for limiting global warming to ‘well below 2 degrees’ set by the 2015 Paris Agreement illustrates this.

This is relevant to China’s near-term targets also. To achieve peak carbon by 2030, China is investing heavily in both renewables and the electrification of transport. But it is also clear that given both concerns over energy security and recent power shortages that coal-fired power still has the green light to expand. The 14^th five-year plan provided continued support for coal, and the prospect of a ban on new coal-fired plants looks unlikely before 2025 at the earliest. The twin goals of energy security and economic growth will drive China’s push for flexibility in meeting targets in Glasgow this November.

China will come onboard with carbon pricing, but will oppose carbon border taxes

China is now ramping up the pace of its climate change mitigation policies to meet its carbon goals. A key part of this was the launch of the Emissions Trading System (ETS) in July and other policies targeting energy-intensive industries.

Admittedly, the ETS has limitations at present. It only covers the power sector, which accounts for around 40% of China’s carbon emissions, and there is no specific timing for extending this to other carbon-intensive industries. In addition, the current carbon price is too low – trading at an average price of only US$7.7/tCO₂e at present – and as such only accounting for 0.5-0.7% of annual generation costs for a typical coal-fired plant. Our AET-2 scenario indicates that China’s carbon price support needs to reach US$109/tCO₂e by 2030. There’s a long way to go, which will be balanced with ensuring economic growth.

But don’t let good get in the way of perfect: China has been vocally supportive of Article 6 of the Paris Accord, which targets a global carbon market, and we can expect this to continue at COP26. However, what is very clear is that China is no fan of unilateralism on carbon pricing and opposes developments such as the EU’s carbon border adjustment mechanism. As the EU’s largest trading partner and the world’s biggest carbon emitter, it’s not difficult to see why.

Read more: COP26 briefing: Make or break for global emissions trading​

Placing the financial cost of decarbonisation on the doorstep of developed nations

Largest carbon emitter or not, China’s position has long been that the primary responsibility to reduce global emissions rests with rich countries: you broke it, you fix it. This stance is not without justification but also comes with potential economic benefits to China.

China dominates the supply and processing of most of the raw materials needed for batteries and other zero-carbon technologies. Three-quarters of global lithium-ion battery production, half of the world’s EVs and almost 70% of all solar panels are made in China. This has not happened by accident. By heaping pressure on developed nations to more urgently address climate change, both at home and through increased financial support to poorer countries, Beijing is banking on much of the economic benefits likely flowing back to China.

China will continue to position itself as the global leader on climate change at COP26

The timing of China’s 2060 carbon neutrality target announced in September last year was pure realpolitik. With the Trump administration hanging a ‘situation vacant’ sign over global leadership on tackling climate change, China saw an opportunity to fill the role.

At COP26, China will continue its step-up in climate change leadership, but will face a far different US president. With the Biden administration pursuing a radically different approach to its predecessor, China will need to work harder to build a genuine leadership position. This should encourage bolder policies on carbon and technology, as without these, China’s reputation and global standing could be eroded by US ambition.

APAC Energy Buzz is a weekly blog by Wood Mackenzie Asia Pacific Vice Chair, Gavin Thompson. In his blog, Gavin shares the sights and sounds of what’s trending in the region and what’s weighing on business leaders’ minds.