Chang Jian | Digitalization is an important way to achieve carbon neutrality
Recently, the "Tsinghua University PBCSF Chief Economist Forum – 2021 Global Economic and Policy Outlook," hosted by Tsinghua University's PBCSF, co-hosted by JD.com, and organized by the Center for International Finance and Economics Research (CIFER) and the Center for Financial and Development Research (CFD) of Tsinghua University's National Institute of Financial Research, was broadcast live on 27 platforms, attracting attention from nearly 100 media outlets and garnering over ten million viewers. Professor Ju Jiandong, Ziguang Chair Professor of Tsinghua University's PBCSF and Director of the Center for International Finance and Economics Research (CIFER), served as the forum's moderator.
The fourth roundtable discussion was moderated by Ma Jun, President of the Beijing Institute of Green Finance and Sustainable Development. Guests attending the roundtable included Huang Haizhou, Managing Director of CICC; Sun Mingchun, Chief Economist of Haitong International; Chang Jian, Chief Economist of Barclays China; and Lu Zhengwei, Chief Economist of Industrial Bank. The chief economists engaged in in-depth discussions on the theme of "Carbon Neutrality and the Macroeconomy." Following President Xi's announcement of carbon peaking and carbon neutrality, enthusiasm has been high across all sectors, with many local governments, ministries, financial institutions, and enterprises developing carbon neutrality plans. However, some local governments and enterprises are also concerned that excessive efforts might negatively impact economic growth and business development. How will the carbon neutrality transition affect the economy? The economists shared their perspectives.
Chang Jian
In his speech, Chang Jian, Chief Economist for China at Barclays, shared research frameworks and specific technological pathways for US and European companies to achieve carbon neutrality, emphasizing that digitalization is a crucial means to achieve this goal. Chang believes that China faces a short timeframe and significant pressure in its carbon neutrality transition. The low-carbon transition will bring cost-push shocks, creating a dilemma for monetary policy (inflation and output move in opposite directions).
Chang Jian's speech
The following is the full text of the speech (not reviewed by the guest):
Chang Jian: Professor Ma and CICC have done a lot of research on the impact of carbon neutrality on the economy, including the overall path forward. So when I was preparing for the forum, I specifically looked at the relevant research from the Barclays research team. Last month, nearly 40 industry analysts worldwide co-authored a report on the global energy transition to carbon neutrality. I've compiled some materials these past few days and would like to share them with everyone, so I'll take some time to introduce them.
We have over 40 analysts from the US and Europe, covering more than a dozen industries and over 180 pages of research reports on 190 companies. Due to compliance requirements, I have extracted some macro-level conclusions from these reports, hoping they will provide some reference for the audience in understanding this issue.
This report focuses on opportunities on the path to decarbonization, primarily addressing the role investors and businesses can play in the carbon neutrality process. However, it also includes some relevant macroeconomic conclusions. The report's macroeconomic aspects mainly concern the evolution of energy demand over the next 30 years, given that most countries, including China, aim for carbon neutrality by 2060, while most others aim for 2050. Several key conclusions emerge: low-carbon alternative energy sources will rise from the current 15% of the global energy mix to 70%, with clean energy, hydrogen, and bioenergy being crucial solutions. Fossil fuels, according to current estimates and a consensus, cannot be completely eliminated; therefore, we believe carbon capture and storage will remain vital in the future, despite numerous technological and cost considerations.
Furthermore, the traditional energy sector, encompassing not only new energy sources but also energy conservation and environmental protection, will play a crucial role in this process and deserves our close attention. Our team's analytical framework utilizes three 3D scenarios, which I will briefly introduce shortly.
The first scenario assumes that carbon neutrality can be achieved by 2050.
The second scenario assumes very stringent policy measures to reduce emissions. Europe would continue to be a leader in the carbon neutrality process, but Asian countries might not be willing to sacrifice economic growth.
In the third scenario, based on various trade wars and the considerations of different countries, climate response may reach a stalemate, making it completely impossible to achieve the goal of carbon neutrality.
We have many important parameters, indicators, and results, which I will omit from the discussion.
The situation in China may be somewhat different. Let's take a look at global energy demand. The transportation, industrial, and construction sectors each account for roughly 30% of global energy demand. From which sectors does this energy come? First, oil accounts for one-third (33%), natural gas for one-quarter, then coal. China differs from the rest of the world in this respect. Nuclear energy accounts for only 4%, hydrogen for 7%, and wind, solar, and other renewable energy sources account for less than 5%.
This chart presents the main conclusions. The first bar on the left shows the share of several major energy sources in 2019. The second column shows that to achieve carbon neutrality by 2050, globally, oil demand will decline significantly (dark blue at the bottom), natural gas will remain stable, coal will almost disappear, and compared to 2019, the remaining nuclear and hydrogen energy sources, while important, will still have a relatively low share. The share of renewable energy needs to be greatly increased. Different energy combinations can be seen in the other two scenarios.
We'd still like to share something. In the process of moving towards carbon neutrality, our research team believes there are five key pillars that all need to be addressed.
First, we must reduce energy consumption per unit.
Second, clean energy (electrification).
Third, hydrogen energy and bioenergy.
Fourth, very complex technologies for carbon sequestration (CCUS or CCS), carbon capture, utilization and storage.
Fifth, nature-based solutions. This is something the EU has been promoting and advocating for in recent years.
The next page will show you the three main pathways for reducing carbon dioxide emissions. The pie chart above shows that capture and storage (CFS) is crucial, requiring a 17% contribution. While this is very difficult and technologically advanced—far beyond our current capabilities—it's necessary to achieve 17% to reach carbon neutrality and net-zero emissions by 2050; this is a global estimate. Nature-based solutions, such as tree planting and low-carbon agriculture, also need to contribute 25%. As for energy, focusing more on improving energy efficiency, reducing emissions, and decreasing fossil fuel use, even with our best efforts, we will only contribute less than two-thirds of carbon emissions. I'll briefly summarize the main conclusions.
First, reducing unit energy consumption can be achieved through two main methods: one is reducing energy consumption through the circular economy; the other is improving efficiency. Regarding efficiency improvement, digitalization is particularly important. We believe digitalization is a driving force for future development, especially for industrial enterprises and the manufacturing sector. Our research also supports this. This graph shows unit energy consumption; under a carbon neutrality scenario, the reduction in unit energy consumption over the past few decades has been negligible. Our task is extremely challenging; unit energy consumption needs to be reduced by at least 50% to achieve carbon neutrality. After studying this, I feel that China's carbon peak and the challenges ahead to 2060 are still very significant. Hopefully, this graph will offer some insights for our own development, showing the progress of digitalization across different industries. The dark blue areas are related to industry. Our research shows that industrial enterprises that accelerate their digital transformation have experienced increased efficiency, reduced costs, and increased profits. We estimate that a 10% increase in labor productivity is equivalent to a 3% reduction in energy demand. In this area, industrial enterprises are essentially at the lower end of the digitalization spectrum, and compared to the IT, media, and financial industries, there is still considerable room for growth. This field also offers valuable lessons for China's next steps.
Second, electrification. I mainly want to show you the macro-level results of our research. The green lines represent the carbon-neutral scenario, where electricity's share of energy will double compared to the past century, currently at around 15%, and is projected to grow to 50% in the future. China does indeed have some late-mover advantages in this area. The chart below also shows that Asian countries, because their development in many sectors is not yet saturated, are better able to utilize electricity, such as China's electric vehicles. Therefore, we have an advantage over developed countries in this regard. A technical issue is that the source of electricity, energy supply, is crucial. After the central government proposed the goals of carbon neutrality and carbon peaking, the power industry was the first to be impacted. We believe that coal may initially be replaced to some extent by natural gas, but around 2030 or 2040, when renewable energy reaches a certain scale and capacity, it will quickly replace coal and natural gas. This is also one of our visions and requirements. We believe that wind and solar energy will experience accelerated growth, with an annual growth rate of 10%-18% over the next thirty years.
Regarding hydrogen energy, I'm not an expert, but I'll mainly share my conclusions. In both scenarios of carbon neutrality and relatively rapid carbon reduction, we believe hydrogen energy will see an approximately eightfold increase. It could reduce greenhouse gas emissions by 15%, although its proportion may not be that large, its role is still very significant. Bioenergy and biofuels are a more controversial topic, and I'll mainly share some conclusions. In the best-case scenario, carbon neutrality is the second one. The leftmost bar shows the situation in 2019, representing the proportion of oil and other biofuels. Achieving carbon neutrality requires significant development. Finally, there's carbon sequestration technology. I've reviewed our research, and this has been mentioned, but it's still a relatively new field in China, facing many challenges in terms of cost and technology. However, our research emphasizes its crucial role in achieving carbon neutrality. It should contribute at least 20% to reducing carbon emissions, making it an area worthy of attention.
That's all for today. Thank you everyone!
Roundtable (IV) Carbon Neutrality and Macroeconomics: Group photo of attendees
On April 10, 2021, the "Tsinghua University PBC School of Finance Chief Economist Forum," which had been suspended for two years, officially returned online. This year's forum consisted of keynote speeches and roundtable discussions, conducted online and streamed live across the entire network, ensuring smooth exchange of views and intellectual stimulation. The forum invited over twenty prominent guests to gather online for in-depth discussions on topics such as the global economic outlook, China's macroeconomic and policy outlook, money and credit in the post-pandemic era, and carbon neutrality and the macroeconomy.
