Top seven investment areas crucial for China’s zero-carbon transition

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A new report released by the Rocky Mountain Institute has identified seven key investment areas vital for China to achieve its transition to zero-carbon emissions.

The report, Zero-Carbon Investing: Opportunities from China’s Carbon-Neutrality Goal, issued in partnership with the Investment Association of China, states that the market size of the seven areas will reach nearly 15 trillion yuan (¥) ($2.32 trillion) by 2050.

In addition, stakeholders within the seven areas are expected to leverage about ¥70 trillion ($10.8 trillion) in infrastructure investment directly or indirectly through 2050.

The seven key investment areas include:

1. Resource recycling

Resource recycling in three key areas will create a ¥2.8 trillion ($430 billion) market by 2050 and achieve 40 billion tons of carbon emissions reduction between 2020 and 2050, meaning over 30% carbon reduction contribution for the zero-carbon transition.

The three areas are products recycling in energy-intensive industries (steel, cement, aluminum, and plastics), waste as an energy source (straw, forestry waste, domestic waste, and animal manure), and recycling of EV batteries for energy storage.

By 2050, the market size of used EV batteries for energy storage in the power system will reach at least ¥114.5 billion ($17.73 billion) and as such battery recycling will not only benefit the economy but also help ensure sustainability of the environment.

Drivers behind the large market potential of EV battery recycling will include the rising demand for energy storage, a growing supply of retired EV batteries, a favorable policy environment and a positive market atmosphere.

2. Energy efficiency

Energy efficiency is expected to play a key role in helping China reach its net-zero targets. Despite China being successful in leveraging energy efficiency to decarbonise its energy industry and in ensuring the reliability of its grid networks, there is still a lot of work that needs to be done to ensure the sector is fully taken advantage of.

Between 2006 and 2016, China’s total investment in energy efficiency reached ¥3.2 trillion ($500 billion), with a compound annual growth rate of 44.1%.

The development of new policies encouraging innovation and the development of new standards are some of the actions required.

Industrial energy efficiency is a top priority for overall energy efficiency improvement in China.

Rocky Mountain Institute has urged the Chinese government and energy efficiency stakeholders to focus on four main areas to ensure the sector is fully tapped:

  • The improvement of energy efficiency of general equipment;
  • The cascade utilisation of residual heat and pressure;
  • Process and system optimisation based on digital and intelligent technologies;
  • The application of energy-saving technology for specific industrial processes.

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3. Digital technologies

The digital transformation based on information and communication technologies is transforming every sector of the global economy and will act as an accelerator for energy systems’ optimisation. The study states that achieving China’s zero-carbon energy transition by 2050 will require deep electrification and nearly 75% will come from renewable sources.

Digitalisation is expected to help China further enhance its energy management. The application of IoT in energy management is anticipated to approximately reduce the energy consumption of industrial/manufacturing equipment by 0%–15%.

The use of artificial intelligence-based machine learning in factory data centers can reduce cooling system energy consumption by 40% and increase overall system energy efficiency by 15%.

4. Demand-side electrification

The report has urged China to electrify buildings’ heating and cooking following 100% electrification of cooling, lighting and household appliances.

Electrifying heating and cooking will present a huge new market and carbon emissions reduction potential.

5. Zero-carbon power generation

The electricity sector accounts for about 40% of total carbon dioxide emissions society-wide, mostly due to
the combustion of fossil fuels in thermal power plants. Therefore, decarbonisation of power generation is of
great importance for the emissions reduction of the entire economy.

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According to an analysis by the Energy Transitions Commission, nearly 65% of China’s total power generation will come from wind and solar by 2050, 10% from nuclear, 14% from hydropower, 10% from biomass, and 4% from natural gas plants retrofitted with carbon capture, usage, and storage.

Rocky Mountain Institute estimates that by 2050, if China moves ahead with decarbonising its power generation to meet net-zero targets, the total emissions reduction of the power system will reach 33 billion tons compared with a business-as-usual scenario. The renewables market size will reach ¥4.5 trillion ($700 billion) per annum.

6. Energy storage

Energy storage, which is referred to as the guardian of high-penetration renewable energy systems, will form the basis of China decarbonising its power generation fleet to meet net-zero goals.

In 2050, China’s battery energy storage capacity will reach 510GW and the market size will reach ¥1.6 trillion (US$250 billion), according to the report. Energy storage is expected to contribute one-third of the carbon emissions reductions from the power system between 2020 and 2050.

By the end of 2019, China installed 1.7GW of battery storage capacity, a 59% increase from 2018 installations and is expected to install 510GW by 2050.

Distributed energy storage is expected to be gradually applied at scale under the trend of Internet of Energy (IoE).

7. Hydrogen

China’s hydrogen demand is expected to increase from the current 25 million tons per year to 81 million tons per year in 2050. Using only green hydrogen would decrease carbon dioxide emissions by more than 20 billion tons within the next three decades for the zero-carbon energy transition.

The future market potential of hydrogen is huge, and the sales of hydrogen alone would bring an annual
market value of ¥630 billion (US$98 billion) in 2050.

By leveraging hydrogen, China is expected to decarbonise if not all then most of its heavy carbon-emitting sectors including manufacturing, transportation and power generation industries.

Jie Zhang, vice president and secretary general of the Energy Investment Professional Committee of Investment Association of China (IAC), said: “To achieve China’s carbon-peaking and carbon-neutrality targets, the zero-carbon economy will be a high priority for investment in the next four decades. We believe that the insights from this research are able to deepen the market’s understanding of the zero-carbon concept, raise awareness of green development, and set the tone to accelerate the energy transition in China.”

These areas of focus are expected to generate 30 million new jobs and will account for 80% of all carbon emissions reduction.

The launch of the report follows China pledging to achieve CO2 emissions peaking by 2030, and carbon neutrality by 2060.

The whitepaper is available for download.