China’s phenomenal growth has been fuelled by hydrocarbons and built with metals. China relies on coal, oil and natural gas for more than 80% of its energy mix and consumes around half of the world’s copper and iron-ore output. Consequently, it is by far the world’s biggest carbon emitter, with much of its capital stock both energy and carbon intensive. 

As with most developed economies, China is increasingly dependent on the rest of the world for its energy (other than coal) and metals. Today, China imports around 75% of its oil, 80% of its iron ore and 85% of its copper supply. Despite massive overseas investment since the early 2000s, direct Chinese ownership of these commodities remains a fraction of its needs. Coming late to the party put the country at a major disadvantage. 

China is now correcting this. When President Xi Jinping announced the country’s goal of carbon neutrality by 2060 last September, he wasn’t simply indicating that China would adjust its energy mix to reduce emissions, he was giving notice of the complete transformation of its economy and how it produces, transports and consumes energy. For Beijing, energy independence and decarbonisation are inseparable: by winning the clean-energy race, China can cast off the shackles of its reliance on others and dominate the resources and technologies the world needs to decarbonise. 

This isn’t future gazing. China is innovating, not replicating. Decisive government and private-sector efforts have put it well ahead of the game in virtually all clean-energy supply chains and technologies. Electrification is hitting its stride, underpinned by colossal investment in renewable generation. 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 electric vehicles (EVs) and almost 70% of all solar panels are made in China. 

This is a major headache for much of the developed world. With climate change topping political agendas, politicians in the United States, Europe and elsewhere are selling expensive green revolutions on promises of economic revival and job creation. This will be hard to reconcile if most of the benefits are seen flowing to China.

Yet many of the technology and infrastructure ecosystems the world will need to achieve carbon neutrality are not well understood today. China is not a leader in carbon capture or green hydrogen. Future innovation in energy efficiency and the circular economy has the potential to transform the world’s demand for natural resources. Meanwhile, emerging technologies – such as next-generation electrofuels, polymeric energy storage and cobalt-free, high-energy-density batteries – could dramatically alter the clean-energy landscape. 
 
In the race to lead clean energy, China has first-mover advantage. But tackling climate change is not a zero-sum game. A green arms race risks protectionism and overcapacity, slowing the pace of progress. Achieving carbon neutrality means rethinking what is possible, not repeating the mistakes of the past. Through continuous innovation, investment and cooperation, all countries can prosper.

Horizon 2060: China’s blueprint for energy independence and carbon neutrality

In its June 2020 Guiding Opinions document, China’s top economic agency, the National Development and Reform Commission, publicly linked the goals of carbon emissions reductions and energy independence. The upcoming 14th five-year plan will codify China’s ambition. It is no exaggeration to say that as the blueprint for China’s carbon-neutral future it is the most important energy-market document in history. It will shift the global balance of power.

Support for domestic hydrocarbon production will not disappear, but the plan will undoubtedly offer enhanced policies for renewables, EVs and greater energy efficiency. It will also begin the process of steering China away from its reliance on carbon-intensive industries and towards services and technology, combined with a focus on more efficient capital allocation and innovation. This is critical. To meet China’s goal, the plan must not only lay the foundation for the enormous levels of investment needed for decarbonisation, but it must also chart a radically different course for China’s development, one that is more independent, efficient and circular.

Gavin Thompson, Vice Chair APAC Energy   l   Huang Miaoru, Director, APAC Gas & LNG Research   l   Zhou Yanting, Senior Economist

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