Guidebook to Carbon Neutrality in China : Macro and Industry Trends Under New Constraints

This Open Access publication focuses on China’s goal of achieving peak carbon emissions in 2030 and carbon neutrality by 2060. The book is the first to systematically build a framework combining a top-down and bottom-up analysis of this acute topic. What does carbon neutrality mean for economics in China? Might it imply stagflation or is it an opportunity to maximize the potential of green manufacturing? The book offers a comprehensive analysis of how the pursuit of carbon neutrality may influence the development of China's economy, and the country's biggest industries, while foreseeing the likely changes in people's lifestyles. In total, the book constructs a comprehensive path for China's carbon neutrality drive from the perspective of the green premium. This effort lays the foundation for a discussion of the country's emissions reduction plan. The book goes further, calculating the investment required for different sectors to achieve carbon neutrality, andillustrating the roles of carbon pricing and green finance in this undertaking. The book’s information comes from a network of primary sources, including experts in the field and noted academics, to depict potential low-carbon roadmaps and green transitions in major industries. Emphasized is green development in sectors that will be critical to civilization, including in technology, energy, manufacturing, transportation, and urban planning, which are backed by in-depth discussions and analyses. Accessible and academically rigorous, the work is anchored in the economics of carbon neutrality, extends to potential policy implications and identifies investment opportunities. This valuable reference will attract readers interested in public policy, economics, finance, and investors who seek to better understand China's prospects in the low-carbon economy of the near future. Foreword Peak Volume of Carbon Emissions: Careful Estimation is Essential Forming a Carbon Market and Determining Carbon Price Priority and Structural Optimization The Use of the CGE Model Emphasis on Green Governance Preface: Economics of Carbon Neutrality: Some Thoughts on the Coming Transformations Cost-Effectiveness Analysis with a Clear Objective Correcting Externality: What Carbon Prices Can and Cannot Do? Green Premium: A More Practical Tool for Analysis Technological Advances and Social Governance Green Finance: Correct Versus Incorrect Perceptions New Landscape in International Cooperation and Competition Stagflation or New Opportunity: Thoughts About Market Economy in Reality Acknowledgments Contents 1 Exploring the Road to Carbon Neutrality 1.1 Seeking a Peak: 9.9–10.8bn Tonnes of Net Carbon Emissions 1.2 Structural Path: Analysis Based on Green Premium 1.3 Four Scenarios: General Equilibrium Analysis Under CGE Model 1.3.1 Model Data 1.3.2 Scenario Assumptions 1.3.3 BAU Scenario 1.3.4 Carbon Tax Scenario (M1) 1.3.5 Carbon Trading Scenario (M2) 1.3.6 Carbon Tax + Carbon Trading + Technological Progress Scenario (M3) 1.3.7 Sensitivity Analysis of Technology Curve 1.3.8 Sensitivity Analysis of Carbon Tax 1.4 Road to Carbon Neutrality = Technology + Carbon Pricing + Social Governance 2 Balancing Efficiency and Fairness: Kaldor-Hicks Improvement? 2.1 Three Approaches to Achieving Carbon Neutrality: Innovation is the Key 2.1.1 Carbon Neutrality Cannot Be Achieved Through “zero-sum game” 2.1.2 Approach 1: Raising Carbon Price to Internalize External Costs 2.1.3 Approach 2: Accelerating Innovation to Fundamentally Alter Mode of Production 2.1.4 Multiple Barriers to Eco-Innovation 2.1.5 Innovation-Related Policy Suggestions 2.1.6 Approach 3: Improving the Social Governance System and Encouraging Emission Reduction Among the General Public 2.2 Issues Related to Fairness 2.2.1 Distribution of Income 2.2.2 How to Share the Cost of Emission Reduction Among Industries and Regions? 3 The Capacity of Carbon Pricing Mechanism 3.1 Unified Carbon Price: Social Cost or Net Social Cost? 3.2 Green Premium and the Choice of Carbon Pricing Mechanisms 3.2.1 Pigou Versus Coase: Similarities and Differences Between Carbon Tax and Carbon Market 3.2.2 Carbon Pricing from the Perspective of Green Premium: Carbon Market to Be the Mainstay, with Carbon Tax as a Complement 3.2.3 Establishing a Carbon Market Trading Mechanism with Auctions and Futures at the Core 3.3 What Carbon Market Can and Cannot Do: Regional Transfer of Pollutants Under Carbon Trading 3.3.1 Social Governance: A Policy Instrument to Lower Green Premium in Addition to Carbon Pricing 3.3.2 Mandatory Policies Can Be Used to Regulate Waste of Financial Resources as Seen in Bitcoin Mining 3.3.3 Advocacy Policies as Necessary Move to Control Waste of Resources in the Real Economy 4 Green Finance: Clarifying Functions and Capacity 4.1 Green Finance: Serving or Guiding the Real Economy? 4.2 Green Finance in China 4.3 How Much Investment is Needed to Achieve Carbon Neutrality? 4.3.1 Bottom-up Analysis of China’s Demand for Green Investment 4.3.2 Aggregate Investment Demand and Structural Features 4.4 New Targets Bring in New Challenges. What Are the Weaknesses in China’s Green Finance? 4.4.1 Mismatch Between Supply and Demand in Green Investment 4.4.2 Lack of Widely Accepted Green Standards 4.4.3 Defects in Green-Information Disclosure System 4.4.4 Weak Guidance from Financial Institutions 4.5 Turning Challenges into Opportunities: How to Address the Weaknesses in China’s Green Finance? 4.5.1 Setting a Unified Green Standard in China 4.5.2 Establishing a Binding Green-Information Disclosure Mechanism 4.5.3 Improving Incentive Policy to Boost the Overall Development of Green Financial Market 4.5.4 Strengthening Education of Green Concept; Financial Institutions Offering Both Services and Guidance 4.5.5 Incorporating Environmental Risks into Prudential Regulations 5 Green Technology: From Quantity to Quality 5.1 Technological Breakthrough and Carbon Neutrality 5.1.1 Why Do We Need a Technological Breakthrough? 5.1.2 What Can Become Carbon Neutral by Technological Advances and What Cannot? 5.1.3 What Are the Technological Routes for the Carbon Neutrality Initiative? What Are the Constraints? 5.2 Cost is a Touchstone for the Development of Technology 5.2.1 What Kind of Technologies Are Capable of Reaching Emission Peak and Carbon-Neutral as Planned? What Are the Differences in the Choices of Various Technological Routes? 5.2.2 Three Measures to Reduce the Cost of Developing Energy Technologies 5.3 Existing and Potential Technologies for Net Zero Carbon Emissions and Carbon Neutrality Initiatives 5.3.1 Technologies to Help Cut CO2 Emissions Focus on Reducing Energy Consumption and Shifting to Energy Technologies that Produce Lower CO2 Emissions 5.3.2 Carbon-Neutral Technologies: Technologies that Help Achieve Zero-Carbon and Negative-Carbon Emissions 5.4 “Photovoltaic + Energy Storage”, Hydrogen Energy, and Carbon Capture Becoming the Main Technological Routes 5.4.1 The Main and Auxiliary Technological Routes for the Carbon Neutrality Initiative 5.4.2 The Main Technological Route for the Carbon Neutrality Initiative in the Power Industry 5.5 Policy Suggestions: Enhancing Technology R&D Protection; Supporting the Industrialization of New Technologies 5.5.1 Technologies that May Develop More Rapidly Than Expected 5.5.2 Technologies that May Develop More Slowly Than Expected 6 Green Energy: A New Chapter in China 6.1 Overview of China’s Current Energy Structure 6.1.1 Energy Sector Produces Nearly 90% of Carbon Emissions in China; Building Green Energy Supply System is Top Priority 6.1.2 Total Energy Demand May Increase Under Steady Economic Growth Despite Decline in Energy Consumption Per Unit of GDP 6.1.3 Carbon Emissions Reduction is Difficult to Achieve Under Current Energy Structure; The Country Needs Stronger Top-Down Planning and Policy Support 6.2 Start from More Feasible Methods to Achieve Energy Transition Through More Economical Ways 6.3 Lowering Costs to Raise Non-fossil Fuels’ Proportion in Power Generation 6.3.1 Calculation of Green Premiums in Power Sector 6.3.2 Power Generation: Non-fossil Energy’s Lower Costs Per kWh Fuels Transition to Cleaner Energy Mix 6.3.3 Absorption: Complementary Multi-energy System Minimizes Absorption Costs 6.4 Non-power Sector: Electrification, Hydrogen Power and Carbon Capture Fuel Energy Transition 6.4.1 China’s Electrification Rate Will Likely Reach 70%; The Remaining 30% Demand Requires Non-electric Power and Other Energy Resources Supported by New Technologies to Achieve Carbon Neutrality 6.4.2 Non-power Sector: Hydrogen Power and Carbon Capture is Feasible Technology Solution to Carbon Neutrality 6.4.3 Other Energy Resources Adopted Carbon Capture and Hydrogen Power to Meet 22% and 8% Energy Demand in 2060 6.4.4 Costs and Green Premiums of Non-power Carbon Neutrality Solutions 6.5 Policy Recommendation: Power System Reform Accelerates Non-fossil Energy Absorption and Helps the Development of Hydrogen Power 6.5.1 Policy Recommendation for the Power Sector: Stabilize New Energy Absorption 6.5.2 Policy Recommendation for Non-power Sector: Building Supporting System for Carbon Reduction; Establishing Reward and Penalty System to Fuel Clean Energy Development 7 Green Manufacturing: Carbon Emissions Reduction Roadmap of Carbon Intensive Sectors 7.1 Cost of Zero Emissions: Analyzing the Carbon Neutrality Roadmaps of Manufacturing Industries from Perspective of Green Premiums 7.2 Steel Industry: Mature Emission Reduction Path with Electric Arc Furnace Gradually Demonstrating Advantages 7.2.1 Industry Green Premium: Cost for the Steel Industry to Achieve Carbon Neutrality at the Current Stage 7.2.2 Technology Roadmaps for Carbon Emissions Reduction in the Steel Industry 7.2.3 Lowering the Green Premium: Will the Steel Industry Achieve Carbon Peak and Carbon Neutrality as Planned? 7.3 Cement Industry: Achieving Carbon Neutrality is Difficult. Demand and Cost of Carbon Capture are the Key 7.3.1 Industry Green Premium: Cost of Achieving Carbon Neutrality at Current Stage for Cement Industry 7.3.2 Technology Roadmaps for Carbon Emissions Reduction in the Cement Industry 7.3.3 Lowering the Green Premium: Feasible Paths to Carbon Peak and Carbon Neutrality in the Cement Industry 7.4 Aluminum Industry: The Decarbonization of Electricity is the Key to Carbon Neutrality 7.4.1 Industry Green Premium: Cost for the Aluminum Industry to Achieve Carbon Neutrality at the Current Stage 7.4.2 Technology Roadmap for Carbon Emissions Reduction in the Aluminum Industry 7.4.3 Lowering the Green Premium: A Feasible Path for Carbon Peak and Carbon Neutrality in the Aluminum Industry 7.5 Chemical Industry: When Carbon Negative Becomes Possible 7.5.1 Industry Carbon Emission: Cost for the Chemical Industry to Achieve Carbon Neutrality at the Current Stage 7.5.2 Technology Roadmaps for Carbon Emissions Reduction in the Chemical Industry 7.5.3 Policy Guidance and System Building for Emissions Reduction are Crucial for the Chemical Industry 7.5.4 Lowering the Green Premium: A Feasible Path for Carbon Peak and Carbon Neutrality in the Chemical Industry 7.6 General Manufacturing Industry: Achieving Carbon Peak; Using Clean Energy to Achieve Carbon Neutrality 7.6.1 Industry Green Premium: Cost for the General Manufacturing to Achieve Carbon Neutrality at the Current Stage 7.6.2 Technology Roadmap for Carbon Emissions Reduction in General Manufacturing Industries 7.6.3 Lowering the Green Premium: The Feasible Pathway to Achieving Carbon Neutrality in the General Manufacturing Industry 8 Green Transportation: A Challenging Road to Carbon Neutrality 8.1 How Far Away is Green Transportation? 8.1.1 Sources of Carbon Emissions in the Transportation Industry 8.1.2 Current Amount of Global Carbon Emissions from Transportation 8.1.3 Have Carbon Emissions from Transportation Peaked in EU and US? What Experiences Can China Draw upon? 8.2 The Difficulties for Chinese Transportation Industry to Achieve Carbon Neutrality Measured by the “Green Premium” 8.2.1 Carbon Emissions from Transportation Rise Notably in China 8.2.2 The High “Green Premium” Indicates Decarbonization in the Transportation Industry Is Costly and Challenging, and Requires a Combination of Technological Innovation and Favorable Policies 8.3 Viable Options for China to Achieve Green Transportation 8.3.1 Carbon Emissions from the Transportation Industry: Emission Peak in 2030; Carbon Neutrality in 2060 Seems Unlikely Under a Neutral Assumption that Emissions in 2060 Equal 23% of the Level in 2019 8.3.2 The PV-Based Transport Sector: PV Ownership to Rise at First and then Decline; Zero Carbon Emissions to Be Achieved in 2060 8.3.3 Carbon Emissions from CV-Based Transport Sector: Rising Applications of New Energy, Digitalization Technology and Changing Transport Structure to help this sector achieve carbon neutrality in 2060 8.3.4 The Aviation Sector: Emissions in 2060 to Double from 2019; Achieving Carbon Neutrality is the Most Challenging for All Modes of Transport 8.3.5 Marine Transportation: Carbon Emissions in 2060 to Be 38% of the Emissions in 2019 8.3.6 Railway Transport: Zero Carbon Emissions in 2060 Via Electrification-Based Decarbonization 8.4 Forecasts for the Use of LIB and Hydrogen Fuel Cell Technologies 8.4.1 LIB to Promote Electrification in PV-Based Transport and Certain Public Transportation Sectors 8.4.2 Hydrogen Fuel Cells to Enable Zero-Carbon Emissions from HDT-Based Transportation 8.5 Supportive Policies to Help the Transportation Sector Achieve Carbon Neutrality 8.5.1 Policy Suggestions on Industrial Development—PV and CV: Shifting the Focus of Policies Towards Market Orientation and Innovation 8.5.2 Policy Suggestions on Industry Development—Airlines: Focusing on Development of Biomass and Hydrogen Energy 8.5.3 Policy Suggestions on Technological Advances—LIB: Zero Emissions Throughout the Lifecycle Requires Coordination Between Companies and Governments 8.5.4 Policy Recommendations—Fuel Cells: It is Necessary to Promote Industrialized Applications of Fuel Cells Via Policies 8.6 Reassessing the Effectiveness of Our Green Transportation Solutions Based on the “Green Premium” 8.6.1 The “Green Premium” to Decline Considerably, but Unlikely to Plunge to Zero in 2060 8.7 Outlook for Green Transportation: A Combination of Autonomous Vehicles, Super High-Speed Trains and Supersonic Aircraft 8.7.1 Autonomous Driving: It Changes More Than Travel 8.7.2 Can Hyperloop Trains be Realized? 8.7.3 Commercialization of Supersonic Aircraft Likely to Be in Sight 9 Living Green: New Chapter of Consumption and Social Governance 9.1 Living Green Needs Efforts of All Stakeholders 9.1.1 Low-Carbon Lifestyle is of Great Significance as Households Are Responsible for 40% of Total Carbon Emissions 9.1.2 Social Governance Requires Efforts from Households, Companies, and Government 9.2 Green Lifestyle: What Can Households Do to Help Achieve Carbon Peak? 9.2.1 Eating Green 9.2.2 Reduction in Food Waste 9.2.3 Green Home 9.2.4 Support for Environmental Protection 9.3 Green Business Model: What Can Consumer Goods Companies Do to Help Achieve Carbon Peak? 9.3.1 Product Innovation 9.3.2 Efficiency Improvement and Energy Consumption Reduction 9.3.3 Environmental Protection and Emission Reduction 9.3.4 Recycling 9.3.5 Sharing Economy 9.3.6 Environmental, Social, and Governance (ESG) Development 9.4 Policy Formulation and Social Governance: Comparing China with Other Countries to Identify Future Directions 9.4.1 Home Appliances: Energy Efficiency Standards, Energy-Saving Subsidies and Recycling Systems Need to Be Improved 9.4.2 Furniture: Promote Sustainable Use of Forest Resources 9.4.3 Packaging: Overseas Experience and the Overcoming of Difficulties 9.4.4 Catering: Promote “Clear Your Plate” Campaign and Organic Food Waste Reusing 9.5 Quantitative Calculations: A Green Lifestyle Is of Great Significance 9.5.1 Electricity Saving and Use of Clean Energy 9.5.2 Reduction in Food Waste 9.5.3 Changes in Dietary Structure 9.5.4 Recycling of Express Delivery Packaging 9.5.5 Shared Power Bank Help Reduce Purchase Demand 10 Green City: Towards Low-Carbon Urban Planning and Governance 10.1 Problems and Challenges Facing China in Its Green City Vision 10.2 Urban Spatial Planning: Building Cities with Sufficient Housing Supply and Evenly Distributing Residences and Workplaces 10.2.1 Evenly Distributing City Resources to Reduce Commuting Distances 10.2.2 Designing a Reasonable Housing System, and Matching Housing Supply with Demand to Reduce Carbon Emissions 10.2.3 Using Land Efficiently to promote High-Quality Growth 10.3 Urban Transportation: Wider Use of AFVs to Reduce Carbon Emissions from Urban Transportation 10.3.1 Electrification of Urban Buses, Taxis, and Ride-Hailing Vehicles to Complete in 2030 10.3.2 Switching to Low-Carbon Modes of Transportation Before 2030 10.4 Urban Construction: New Ideas, New Materials, and New Technologies Drive Reduction in Carbon Emissions 10.4.1 Overview: Building Sector as a Whole Accounted for 36% of National Carbon Emissions 10.4.2 Carbon Emissions from Construction: Reducing Overall Construction Volume and Enhancing Construction Efficiency 10.4.3 Carbon Emission from Building Management: Passive House Technology and Comprehensive Energy Conservation Solutions to Reduce Carbon Emissions from Building Management 10.5 Urban Maintenance: Reduce Energy Consumption by Public Service Facilities, and Improve Resource Recycling Efficiency 10.5.1 Conserving Energy and Reducing Emissions by Using Technology to Reduce Carbon Emissions from Public Utilities 10.5.2 Resource Recycling to Help Build Low-Carbon Cities 11 Digital Economy Goes Green: Taking Over Energy-Efficiency Management 11.1 Digitalization to Help Cities Improve Energy Efficiency and Reduce Carbon Emissions 11.1.1 CVIS Projects: Enhancing Vehicle Allocation Efficiency and Reducing Fuel Consumption 11.1.2 Smart Airport: Optimizing Aircraft Taxiing Distance with AI-Enabled Precision Calculation 11.1.3 Smart Logistics: Internet Platform-Based Logistics Companies to Help Reduce the Empty Running Ratio 11.2 Industrial Internet Empowers Enterprise Production to Achieve Cost Reduction and Efficiency Increase 11.2.1 Industrial Internet: Enhancing Energy Efficiency Through Monitoring and Managing Energy Consumption Data 11.2.2 Application of Big Data Technologies Brings Accurate Energy-Saving and Efficiency-Improving Solutions in Power and Water Sectors 11.3 AI and Other New Technologies Help the Technology Industry Reduce Energy Consumption and Enhance Energy Efficiency 11.3.1 How AI Technologies Help Companies Reduce CO2 Emissions 11.3.2 Improving Equipment, Station Locations, and Networks to Help 5G Jointly Built and Shared Base Stations to Reduce Energy Consumption 11.3.3 Software and Hardware Technologies: The Trend of Upgrading Base Structures of Telecom Infrastructure 11.3.4 Data Centers: Cloud Computing and Advanced Refrigeration Technologies Help Improve Power Usage Effectiveness (PUE) 11.4 What Are the Challenges Ahead? 12 Green Investment: New Trend, New Direction 12.1 How Will Following the Principles of Carbon Neutrality and Sustainable Development Affect Potential Investment Returns? 12.1.1 Existing Framework for Building Sustainable Investment Portfolios and Its Potential Challenges 12.1.2 How Will the Real Investment Returns Be Affected by Following the Principles of Carbon Neutrality and Sustainable Development? 12.2 How Will Addressing Climate Change and Following the Principles of Carbon Neutrality Affect Industrial Structures? 12.2.1 Increasing Use of Clean and Renewable Energy 12.2.2 Mounting Financial Risks to Industries with Large Carbon Footprints 12.2.3 Resource Recycling Amid Transformation Towards a Circular Economy 12.2.4 The Positive Role of Advanced Technologies in “Green Energy” Use and Conservation 12.2.5 Low-Carbon Consumption 12.2.6 Reshaping of Regional Economies 12.2.7 Impact of Carbon Neutrality on Each Industry, Based on Views of CICC Sector Analysts 12.3 How to Capture Investment Opportunities from Carbon Neutrality and Guard Against Risks? 12.3.1 Investment Opportunities and Risks from the Carbon Neutrality Investment Theme 12.3.2 Summary of Existing Carbon Neutrality Indices 13 Tackling Climate Change: Global Cooperation and China’s Commitment 13.1 Building Fair and Effective Global Climate Governance System 13.1.1 History of International Cooperation in Addressing Climate Issues 13.1.2 Discussion on Fair and Effective Governance Model 13.2 Spillover Effects of Global Climate Governance—International Trade and Climate Finance 13.2.1 International Trade: Embodied Carbon and BTA 13.2.2 Global Climate Finance: Realities and Challenges 13.3 China’s Commitment to Global Climate Cooperation 13.3.1 From Participant to Leader: China’s Active Involvement in Global Climate Cooperation 13.3.2 China is Promoting Global Response to Climate Change Along with Europe and the US 13.3.3 Climate Cooperation and Building a Green Belt and Road This Open Access publication focuses on China’s goal of achieving peak carbon emissions in 2030 and carbon neutrality by 2060. The book is the first to systematically build a framework combining a top-down and bottom-up analysis of this acute topic.What does carbon neutrality mean for economics in China? Might it imply stagflation or is it an opportunity to maximize the potential of green manufacturing?The book offers a comprehensive analysis of how the pursuit of carbon neutrality may influence the development of China's economy, and the country's biggest industries, while foreseeing the likely changes in people's lifestyles.In total, the book constructs a comprehensive path for China's carbon neutrality drive from the perspective of the green premium. This effort lays the foundation for a discussion of the country's emissions reduction plan.The book goes further, calculating the investment required for different sectors to achieve carbon neutrality, and illustrating the roles of carbon pricing and green finance in this undertaking.The book’s information comes from a network of primary sources, including experts in the field and noted academics, to depict potential low-carbon roadmaps and green transitions in major industries.Emphasized is green development in sectors that will be critical to civilization, including in technology, energy, manufacturing, transportation, and urban planning, which are backed by in-depth discussions and analyses.Accessible and academically rigorous, the work is anchored in the economics of carbon neutrality, extends to potential policy implications and identifies investment opportunities.This valuable reference will attract readers interested in public policy, economics, finance, and investors who seek to better understand China's prospects in the low-carbon economy of the near future.