Fu Sha | "Dual carbon" is a systematic project that requires adaptive changes in the entire producti
It's a great pleasure to have this opportunity to share with you. The Energy Foundation has long supported China's low-carbon transition and the development of sustainable energy. We've also conducted extensive research, and from our experience, we've indeed found that "carbon peaking and carbon neutrality" represent a systemic transformation for China's entire socio-economic landscape.
The so-called systemic change means that achieving "carbon peak and carbon neutrality" is difficult to do overnight.This is why we say we shouldn't try to reduce carbon emissions through campaigns. In other words, many things need to be done gradually at different times, rather than expecting to achieve "carbon peak and carbon neutrality" tomorrow. That's impossible, and that's my first point.
Secondly, all aspects of production and consumption must undergo corresponding adaptation changes.leatherThis means that many gradual development approaches may be unsuitable, and a longer-term perspective is needed. For example, when considering an industry, including subsequent bank loans, it may be difficult to assess its profitability within one or two years. This requires looking at the entire project's lifespan, especially for projects with longer cycles. Therefore, it's necessary to focus on the returns and potential risks throughout the entire project's lifespan, or at least the fixed asset iteration period. Thus, we need to consider this from a long-term perspective, combining long-term, medium-term, and near-term considerations.
We believe that many of the current debates in society stem from these two points. On the one hand, some people may be overly radical, while on the other hand, others are overly concerned with current difficulties. Therefore, a crucial point now is how to balance the relationship between the two.
What does "carbon neutrality" really mean for the transformation of the entire socio-economic system or energy system?Or rather,What changes do we need to make to achieve carbon neutrality?
The first is sustainable energy consumption.We need to further improve energy efficiency, optimize energy planning, and change our production and lifestyles. The concept of sustainable energy consumption is to reduce energy dependence or lower energy consumption levels while achieving a high standard of living as much as possible.
Building upon this foundation, two crucial aspects are the electrification of end-use sectors and the decarbonization of the power sector. Electrification in end-use sectors includes familiar examples such as electric vehicles, building heating systems, geothermal heat pumps, and industrial heat pumps. If electrification is not coupled with the decarbonization of the power system, the electricity still comes from coal, and this electrification might actually increase emissions. Therefore, from this perspective, it must be coupled with the decarbonization of the power system, which is what we now refer to as building a new power system primarily based on new energy sources. If there are any remaining coal-fired power units, we may need to couple them with CCS (Carbon Dioxide, Carbon Separation and Recycling).
Within the industrial system, we find that some processes are difficult to electrify, forcing us to use low-carbon fuels. What are low-carbon fuels? Examples include biomass fuels or hydrogen chloride. Hydrogen chloride, or even synthetic fuels based on hydrogen, are produced from renewable energy sources and then synthesized into fuels like synthetic oils and kerosene. These are used to address the electrification challenges currently faced by aircraft and ships. Furthermore, many industrial applications use these energy sources as raw materials, not fuels, or for extremely high-temperature applications. These processes are currently difficult to electrify, and low-carbon fuels are essential to address this.
In addition, there will inevitably be some residual emissions. What to do then? We'll use those [materials called...]negative carbonorcarbon remainsThese measures include the most familiar ones: afforestation for carbon sequestration, which can help us absorb some of the carbon. There's also biomass-coupled CCS (carbon dioxide, carbon sequestration, and storage), which generates electricity from biomass and then buries the emitted carbon. Because biomass itself is carbon-rich, burying it results in carbon negative emissions. Therefore, these carbon negative technologies may inevitably help us achieve carbon neutrality.
Therefore, from the perspective of the entire chain,We've found that some technologies are already commercialized or nearing commercialization; the challenge lies in further improving efficiency and reducing costs.For example, technologies like wind and solar power, and electric vehicles, are still in the early stages of commercialization or even earlier. For instance, the fuel cell or hydrogen-based chemical industry, which currently receives a lot of attention, still has areas that need improvement in terms of production costs and processes.
Currently, technologies such as capturing carbon from the air and storing it in burial sites are still in the very early stages of laboratory research and have not yet shown commercial viability.The corresponding policy tools needed for these types of technologies are also different.。
For technologies that are close to or have already been commercialized, the government may need to help create a market and address some of the pain points. For example, issues like grid connection for renewable energy, charging infrastructure for electric vehicles, and safety concerns may require more market development and the establishment of relevant standards.
For example, there are some technologies in the early stages of commercialization. There are different types of these, some of which may belong to capital-intensive industries, such as hydrogen energy and chemical industry. The country needs to play a significant role in this, including some development finance, such as state-owned enterprises. For example, Sinopec may be transforming into hydrogen energy and chlorine-hydrogen industry. Because of its capital-intensive nature, it is difficult for innovative enterprises to enter the market.
Other areas are driven by the digital economy to promote green transformation, such as sensors and digital solutions. These require innovation from the market itself. From a funding perspective, venture capital and equity investment need the capital market to play a greater role in investment and financing. Therefore,Different stages of technological development and the different characteristics of the technology itself may determine the need for different policy tools and different financial instruments.
We recently conducted a study analyzing the technological needs for achieving carbon neutrality in China, the competitive landscape of the industrial chains of some key technologies in China, and the needs for subsequent innovation policies and financial support tools.
Besides different industries, sectors, and technologies, in factDifferent regions face different challenges, opportunities, and key initiatives in their low-carbon transition.We have systematically reviewed the carbon emission status, energy resource endowment, industrial structure, and economic development status of 31 provinces across China, and categorized them accordingly. Our initial categorization considers the province's fossil fuel resource endowment (abundance or scarcity), its renewable energy resources (abundance or scarcity), and its economic development stage (whether it's a mature economy like the Yangtze River Delta or the Pearl River Delta, or a relatively underdeveloped economy like many western provinces). We also consider the degree of dependence on heavy chemical industries within the overall economy.
Based on the above indicators, we can essentially create a four-dimensional quadrant. For example, Shanxi and Inner Mongolia are typical provinces. Both are major coal-producing provinces, with annual output around 1 billion tons. While Shanxi's renewable energy resources are not bad, their advantage is not as pronounced as Inner Mongolia's. Or, compared to Shanxi's coal resources—its coal ranking among the top two in the country—its renewable energy resources are relatively weak. Therefore, if the transition to carbon neutrality is to be pursued, Inner Mongolia can still serve as an energy base, but its energy output needs to shift from coal to renewable energy. For Shanxi, the problem is more complex. It requires us to find a new driver of economic growth from multiple dimensions. According to our assessment, its renewable energy resources can largely meet its own needs, but if it wants to rely heavily on renewable energy exports to generate revenue, countries like Qinghai and Inner Mongolia have a greater advantage.
Therefore, from this perspective, Shanxi's transformation path may differ from Inner Mongolia's. Inner Mongolia can focus on renewable energy, including developing industries based on renewable energy resources, such as hydrogen-based industries. For Shanxi, a multi-faceted evaluation is needed. For example, can existing coal-fired power plants and their coal chemical infrastructure be transformed into hydrogen-based chemicals? This is because some of its existing capacity and pipelines can be utilized. While the cost of hydrogen production may not be low, its central location in China allows it to serve as a hub, as long-distance hydrogen transportation presents challenges. From this perspective, Shanxi could act as a transit point. Given its transportation advantages, developing hydrogen chemical industry is a potential solution. We are currently collaborating with McKinsey on this analysis, and the report is expected to be released in November. We hope to share it with you later.
The situation is quite different for the eastern provinces and cities, such as Guangdong, Zhejiang, and Jiangsu. These are energy hubs with enormous energy demands, but their renewable energy resources are very limited. The six eastern provinces currently consume approximately 40% of the nation's electricity, while their renewable energy potential is only 15%, at most less than 20%. Therefore, even if these provinces fully utilize their resources, it may not be enough. Furthermore, their resources are relatively poor. For example, in Qinghai, which also has solar power, the solar energy utilization rate is only around 2,000 hours, and in particularly good areas it can approach 3,000 hours. For the eastern provinces, it might only be 800 hours, less than 1,000 hours, and the costs are also significantly higher.
Therefore, from this perspective, it may be unavoidable to rely on external power transmission, requiring ultra-high-voltage pipelines for this purpose. In this case, regarding its future energy industry and economic development, will it abandon many energy-intensive or power-intensive industries? It may focus more on innovative technological solutions, including developing related service industries. This could be a possible trend in China's industrial layout under carbon neutrality. This is just an example; different regions may face different paths or transformation directions under carbon neutrality in the future.
at last,How finance can support the achievement of carbon neutrality depends on the different roles finance plays for different types of technologies at different stages of development.Two more points to mention here. I think there will be winners and losers in any transformation process. From a financial perspective, on the one hand, it is necessary to leverage funds to support new investment opportunities and new industrial opportunities, to better cultivate the development of these green and low-carbon industries, and to bring investment opportunities to fruition.
In addition to the efforts of the financial sector itself, regulatory action is also needed to drive progress.Because regulation impacts the entire financial sector—for example, performance evaluation methods—whether it considers support for green and low-carbon practices as a standard for evaluating the performance of banks and financial institutions, and whether it links this to macroeconomic policies, such as relending rates, could have a significant stimulating effect on financial institutions. From a regulatory perspective, clearer guidelines, including those on information disclosure, carbon accounting, and performance evaluation, could greatly promote financial institutions' support for green and low-carbon industries.
On the other hand, in addition to focusing on these green industries, we also need to pay attention to those industries that are not yet green, and how to transform those high-energy-consuming or high-carbon-emission industries. Transformation finance is a very important aspect, namely, how to help these companies achieve asset restructuring, replacement, transformation, and exit. This certainly cannot be a one-size-fits-all approach, so how to better support transformation and development through finance will likely require further discussion.