China’s carbon neutral ‘transformation’ could cost US$6.4 trillion, but plan has ‘Achilles’ heel’

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China will need to spend US$6.4 trillion to build the new green power generation capacity needed to meet its goal of reaching carbon neutrality in 2060, but may fall short on the supply of key raw materials required, according to energy analysts Wood Mackenzie.

Solar, wind, storage and nuclear power projects are set to take centre stage to produce enough electricity to accommodate an estimated 75 per cent increase in demand and to replace lost energy from slashing fossil fuel sources by 2060, the “Tectonic shift: China’s world-changing push for energy independence” report from Wood Mackenzie said.

In addition to its carbon neutrality goal, China has pledged to reduce its carbon dioxide emissions by “at least” 65 per cent from 2005 levels by 2030.

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While China pushes ahead with its plans – it is already the world’s largest manufacturer of wind turbines and dominates global solar module production – it will have challenges in securing certain supplies of critical raw materials, mainly copper, aluminium, nickel, cobalt and lithium, the report added.

Most notably, China’s dependence on foreign miners for its copper supply is a major concern. This has fuelled the country’s determination to seek greater control of other raw materials

Yanting Zhou

“Most notably, China’s dependence on foreign miners for its copper supply is a major concern. This has fuelled the country’s determination to seek greater control of other raw materials,” said Wood Mackenzie senior economist Yanting Zhou, one of the report’s authors.

Copper is China’s “Achilles’ heel” in its quest to create green energy, the report added, as it is essential for electricity transmission, wiring and wind turbines, but China controls only 16 per cent of global mining of the raw material.

China will need another 7.5 million tonnes of copper every year based on current levels of usage, but it has yet to secure more supply despite a decade of investments in overseas copper mines, the report said.

China is also the world’s leading producer of electric vehicles batteries.

This achievement will help the nation accelerate the electrification of the nation’s transport network, which is critical to decarbonisation, but it will be competing with other countries for key raw materials for electric vehicles and their batteries, such as lithium, nickel and cobalt.

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Last month, US President Joe Biden signed an executive order to review the American supply chains for semiconductors, pharmaceuticals, car batteries and rare earth elements that are crucial to the technology and defence sectors in an effort to reduce reliance on overseas producers. This could create greater competition of key raw materials.

Above all, China’s dual circulation strategy – which focuses on domestic demand to drive future economic growth and development – is its blueprint to achieving its carbon neutral goal by overhauling its current hydrocarbons and metals-dependent economy, the Wood Mackenzie report said.

It will do this by driving its domestic economy to build more green energy projects and manufacture more green products while steering its economy’s reliance away from carbon-intensive industries.

“When President Xi Jinping announced the country’s carbon neutrality goal, he was not simply saying that China would adjust its energy mix to reduce emissions,” Wood Mackenzie research director Miaoru Huang said.

“He was giving notice of the complete transformation of its economy and how it produces, transports and consumes energy. This transformation or ‘dual circulation’ is the pivot point to China’s balancing act on its climate change goals, energy security concerns and economic ambitions.”

The scale of China’s challenge will require the help of others, from green hydrogen production to carbon offsetting. Australia’s cooperation, for instance, looks critical

Wood Mackenzie

By achieving carbon neutrality, China will also become energy independent, as it currently relies heavily on hydrocarbon imports. By becoming independent, it would also achieve its dual circulation economic manifesto of having more secure supply chains.

But that does not mean there is no room for China and other countries to help each other achieve decarbonisation even though competition for raw materials may raise new geopolitical tensions, the report said.

“Not all action needs to be about countering China. Addressing climate change is a global challenge that can be better addressed by collaborating with China in areas such as carbon pricing and joint investment in resources and technology,” the report advised.

“China will need partners to help it decarbonise. The scale of China’s challenge will require the help of others, from green hydrogen production to carbon offsetting. Australia’s cooperation, for instance, looks critical.”

In a report in October, Wood Mackenzie said China’s goal of reaching carbon neutrality by 2060 would require investments of more than US$5 trillion.

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