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首页文档碳中和资料研究报告解读中国能源转型（英文版））--北大能源研究院

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DECODING CHINA’S ENERGY
TRANSITION
By Dr. Xavier Chen, Ms. Changhua Wu, Dr. Yongping Zhai
With Preface by Dr. Fatih Birol, Executive Director, International Energy Agency
March 2023
DISCLAIMER:
All views and opinions expressed in this report and its components are strictly those of its authors.
In no way do they represent those of the Pekin University or the PKU Energy Institute or the Beijing
Energy Club.
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DECODINGCHINA’SENERGYTRANSITIONByDr.XavierChen,Ms.ChanghuaWu,Dr.YongpingZhaiWithPrefacebyDr.FatihBirol,ExecutiveDirector,InternationalEnergyAgencyMarch2023DISCLAIMER:Allviewsandopinionsexpressedinthisreportanditscomponentsarestrictlythoseofitsauthors.InnowaydotheyrepresentthoseofthePekinUniversityorthePKUEnergyInstituteortheBeijingEnergyClub.TABLEOFCONTENTSPrefacebyFatihBirol,ExecutiveDirector,InternationalEnergyAgency������������������������������������������������������������������ixPrefacebyChengyuFu,ExecutiveViceChairman,BeijingEnergyClub�������������������������������������������������������������������xiForewordbyLeiYang,VicePresident,InstituteofEnergy,PekinUniversity�����������������������������������������������������������xiiiForewordbyXavierChen,President,BeijingEnergyClub�������������������������������������������������������������������������������������xvChanghuaWu:MakingtheComplexitiesSimplerandEasiertoUnderstand����������������������������������������������������������xviYongpingZhai:CertaintyAmongUncertainties������������������������������������������������������������������������������������������������xviiChapter1:DecarbonizationStrategies������������������������������������������������������������������������������������������������������11.1ReduceFootprints,EnhanceHandprintsandExpandBlueprints��������������������������������������������������������21.2"CoalasBallastStone":ChinaRechartsItsDecarbonizationCourse�������������������������������������������������61.3Re-Energizing:the14thFYPforBuildinga“ModernEnergySystem”���������������������������������������������������81.4LowCarbonEconomyorLowEmissionEconomy?�������������������������������������������������������������������������131.5CAEChartsChina’sRoutestoCarbonNeutrality����������������������������������������������������������������������������151.6AClimateAdaptiveandResilientSocietyby2035�������������������������������������������������������������������������171.7Building“OneNationallyUnifiedBigMarketplace"������������������������������������������������������������������������221.8ChineseNOCs'NettingZeroCommitments����������������������������������������������������������������������������������26Chapter2:Macro-economictrendsandinternationallandscape����������������������������������������������������������������������312.1ChinaonANewJourney:CCPCongressSetsNewToneonEnergyTransition���������������������������������322.2PeakingOil:Yes,China’sOilDemandPeaked�������������������������������������������������������������������������������342.3RCEP:AMuch-EnlargedBattlefieldforCleanEnergyRevolution����������������������������������������������������382.4TheUkraineWarandImplicationsforChina'sEnergySecurityandTransition����������������������������������412.5US-ChinaSuspensiononClimateCooperation:restoringtrustinatrust-deficitworld����������������������44Chapter3:TechnologyandInnovationRoadmaps��������������������������������������������������������������������������������������493.1EnergyTechnology:whereandwhatdoesChinawanttoinnovate?�������������������������������������������������503.2Cutting-edgedisruptivelow-carbontechnologies:whattoexpectfromChina?��������������������������������53Chapter4:GreenDevelopmentBlueprints�����������������������������������������������������������������������������������������������574.1ScalingGreenFinance:ChinaShapesUpItsOwnTaxonomy����������������������������������������������������������584.2GreeningEnergy:ChinaVowstoBuildModernSystemsbyImprovingMechanisms�������������������������604.3GreeningIndustries:ChinaGearsupItsCleanReindustrialization��������������������������������������������������634.4Integrated,SmartandGreen:China’sblueprintfornewmobilityinfrastructure��������������������������������674.5GreeningandTransformingtheBuildings������������������������������������������������������������������������������������704.6GreeningConsumption:ChinaPushesConsumerBehaviorChangeonAllFronts������������������������������744.7TheFutureofGreenPowerMarketInstruments���������������������������������������������������������������������������784.8ZeroWasteSociety：ChinaPlanstoTurn100CitiesWaste-Freeby2025���������������������������������������81Chapter5:RenewablestoNewHeights��������������������������������������������������������������������������������������������������855.1PoweringRenewablestoNewHeights�����������������������������������������������������������������������������������������865.2Renewablesinthe14thFYP:GallopinginthePost-ParityEra����������������������������������������������������������895.3RPAQ:China’sScrew-DrivertoExpandRenewableEnergyConsumption����������������������������������������925.4Bioenergy:RepositionedforTacklingNon-EnergySustainabilityProblems��������������������������������������965.5China’sDominanceinSolarPVSupplyChain:QuoVadis?������������������������������������������������������������100Chapter6:PowerSectorTransition������������������������������������������������������������������������������������������������������1036.1Cananew“body”fitinanold“skin”?�����������������������������������������������������������������������������������������1046.2Breakingupamonopolygiant?Unlikely!������������������������������������������������������������������������������������1076.3Thecriticalityofdistributionreform�������������������������������������������������������������������������������������������110Chapter7:ElectricVehicles:BoomsandBottlenecks����������������������������������������������������������������������������������1157.1HowChinaLeapfrogsinGreenMobility?��������������������������������������������������������������������������������������1167.2DebottlenecktheChargingInfrastructure������������������������������������������������������������������������������������1197.3DebottlenecktheGlobalLithiumSupply�������������������������������������������������������������������������������������122Chapter8:FuelsandMinerals������������������������������������������������������������������������������������������������������������1278.1EnergySaving:theChinesewayofharnessingthe“firstfuel”��������������������������������������������������������1288.2NaturalGas:TransitionFuelorMajorFuel?���������������������������������������������������������������������������������1318.3NuclearEnergyIn-betweenPromiseandPerplexity���������������������������������������������������������������������1348.4CriticalorStrategicMinerals:whatmattersmostforChina?��������������������������������������������������������1378.5HydrogeninChina:hopeorhype?��������������������������������������������������������������������������������������������1408.6Hydrogen:China’sBlueprintFocusesonCapacityBuildingandDemonstrativeApplications������������1438.7EnergyStorage:ChinaDecidestoWalkonTwoLegs�������������������������������������������������������������������1478.8Re-Electrification:ChinaRampsupElectrifyingEverything����������������������������������������������������������150Chapter9:EmergingSubjects������������������������������������������������������������������������������������������������������������1559.1TransformingEnergySystemwith5GMobileCommunicationTechnologies������������������������������������1569.2AligningwithGlobalStandardstoAccelerateDecarbonization�����������������������������������������������������1599.3BatteryRecycling:MiningtheAboveGroundMinerals������������������������������������������������������������������1619.4TheEnergyDemandRepercussionsofAdvancedDigitalization����������������������������������������������������1669.5NewWaveofPowerShortagesLikelytoPushforMoreFossil-firedPower�������������������������������������1709.6MakingChina’sRuralEnergyGreatAgain!���������������������������������������������������������������������������������1739.7ChinaETS:whatnextafterfirstcompliancecycle?���������������������������������������������������������������������1759.8CCSorCCUS:whatChinaprefers?�������������������������������������������������������������������������������������������1799.9ESG:MandatedDisclosureforGreaterAccountability����������������������������������������������������������������1839.10TacklingMethaneEmissions���������������������������������������������������������������������������������������������������186The2022YearEnder�����������������������������������������������������������������������������������������������������������������������189InsightChinaEditorialTeam���������������������������������������������������������������������������������������������������������������191FurtherContact�����������������������������������������������������������������������������������������������������������������������������193INSTITUTEOFENERGY,PEKINGUNIVERSITY▏vii©PhotoonPixabayPREFACEIfyouwantmetonameonepersonwhoknowsbestChina’senergysectoranditscomplexities,itismyformercolleagueanddearfriendXavierChen.FromtheanglesoftheIEA,BP,Equinor,ENN,IGUandADB–alltheorganizationswhereheserved,hestudiedChina’senergysectoratdepth.ThroughtheBeijingEnergyClubhefoundedin2008,hebroughttogetherthebestmindsofChina’senergyindustrytodiscusschallengesfacingChinaandtheworld,tobrainstormsolutionsandtotakeactions.Chinaplaysthemostcriticalroleinglobalnet-zerotransition,it’sveryimportantfortherestoftheworldtounderstandwhatChinaisdoing.Early2022,XaviershowedmesomesamplesofhisInsightChinareports,IsaidthesewereexactlywhatIneedtoread.AndIhavebeenreadingthemduringthecourseofthepastyearwhentheyweresharedbyXavier.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏ixNowinthisvolume,Xavierandhisfellowcol-leaguesbringusmorethan50suchsuccinctandinsightfulreports.Together,theyprovideahighlycomprehensiveanddetailedpictureofwhat’sgoingonintheworld’slargestenergymarket,greatlyimprovingthetransparencyonthegrandtransitionChinaisundertaking.IhopeyouwillenjoyreadingthemasIdid.FatihBirolExecutiveDirectorInternationalEnergyAgencyPREFACEChinaisverybig,sobigthatforthosewholiveinsidelikemyself,canhardlymeasuretheenormityofitsglobalimpact.Chinaisalsocomplexandcomplicated.Itsenergytransitionwhichinvolvestechnol-ogy,economy,infrastructure,society,international,andmanyotherdimensions,isevenmorecomplexandcomplicated,muchmorecomplicatedthanastraightlinefromtoday’ssituationtoanet-zerofuture.ItisforthisreasonthatIhighlycommandXavier,ChanghuaandYongpingforhavingdoneameaningfulandinvaluablework:makingbigandcomplexsubjectseasilyunderstandable.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏xiThereportstheyproducedoverthepastyeararenotonlyhelpfulfortheglobalcommunitytobetterunderstandChina’senergytransitionprocess,theyarealsoextremelyvaluableforustobetterunderstandthetransitionprocessweareundertaking,andwhatkindofreformsneededtoaccelerateit.Ithereforewholeheartedlysalutetheirnobleeffortsandwarmlycongratulatethepublicationofthisreport.ChengyuFuExecutiveViceChairmanBeijingEnergyClubFOREWORDChinaistheworld’slargestenergyconsumerandCO2emittertoday.Atthesametime,Chinaisoneofthemostvibrantmarketsinlowcarbontechnologyinnovation,holdingthegloballeadershipnotonlyinmanufacturingsolar,windandbatteryequipment,butalsointheirmarketdeployment.Assuch,Chinahasauniquepositionintheglobalnet-zerotransitiontoachievetheParisAgreement1.5Ctarget.GiventheChinesecommitmentstopeakingemissionsbefore2030andnettingzerobefore2060,theworld'slargestdevelopingeconomywillundergoprofoundchangesinthecomingdecades.Tilltheendof2022,Chinesepolicymakersatnationalandlo-callevelshavedeliveredatotalof75policydocuments,enshrinedinwhatispopularlycalled“1+N”carbonneutralitypolicyframework,mostlythroughthecycleofthe14thFive-Yearplanning(2021-2025)andthe2035Vision.AtthePKUEnergyInstitute,weconductin-depthstudiestoadvisegovernmentofficialsandcompaniesondecarbonizationstrategies.WealsohostmanyactivitiestofostercollaborationandexchangesbetweenChinaandtheworld.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏xiiiDr.XavierChenisthefirstenergyexpertappointedasaseniorresearchfellowatourinstitutefollowingourestablishmentin2020.WeareverypleasedthatDr.Chen,togetherwithtwootherrenownedexperts-ChanghuaWuandYongpingZhai,spenttheentireyearof2022toproducethesehighlyinsightfulandindependentreportsonChina’senergytransition.TheytogethertellaholisticChinastoryofenergytransition.IamsurethattheirpublicationwillimprovetheinternationalunderstandingofChina’sdecarbonizationefforts,andourinstitutewillbeveryhappytohostmorediscussionsandexchangeswithallinterestedparties.LeiYangVicePresidentInstituteofEnergy,PekinUniversityFOREWORDChina’simportanceforglobalenergytransitioniswell-understood.However,fortherestoftheworld,high-qualityinformationandanalysisonChina’senergytransitionisveryscarce.Almostallthecountry’spolicydocumentsareinChinese,andevenwhenprofessionallytranslated,theyareoftenhardtounderstandwithoutin-depthknowledgeoftheofficialjargons.Andnewpolicydirectionishardtodetectwithouttheabilitytocompareapolicyannouncementtoitspreviousversionsandseeingwhat’saddedwhat’sremoved.WhenIwasheadofStatoil(nowEquinor)China,oneofmybrandservicestotheheadquarterswastoprovidearegularChinaupdateinformingHQcolleaguesandrelevantbusinesseswhat’shappinginChinaandwhattheyimplyforthecompany.Ilabelledthosereports“InsightChina”,theywereshort,conciseandcrisp,andtheywereverymuchappreciatedbytheCEOandothercolleagues.EldarSaetre,thethenCEO,saidhereadeveryreportIsent.Thatwasabigcompliment.ERR能研微讯微信公众号：Energy-report欢迎申请加入ERR能研微讯开发的能源研究微信群，请提供单位姓名（或学校姓名），申请添加智库掌门人（下面二维码）微信，智库掌门人会进行进群审核，已在能源研究群的人员请勿申请；群组禁止不通过智库掌门人拉人进群。ERR能研微讯聚焦世界能源行业热点资讯，发布最新能源研究报告，提供能源行业咨询。本订阅号原创内容包含能源行业最新动态、趋势、深度调查、科技发现等内容，同时为读者带来国内外高端能源报告主要内容的提炼、摘要、翻译、编辑和综述，内容版权遵循CreativeCommons协议。知识星球提供能源行业最新资讯、政策、前沿分析、报告（日均更新15条+，十年plus能源行业分析师主理）提供能源投资研究报告（日均更新8~12篇，覆盖数十家券商研究所）二维码矩阵资报告号：ERR能研微讯订阅号二维码（左）丨行业咨询、情报、专家合作：ERR能研君（右)视频、图表号、研究成果：能研智库订阅号二维码（左）丨ERR能研微讯头条号、西瓜视频（右)能研智库视频号（左）丨能研智库抖音号（右)INSTITUTEOFENERGY,PEKINGUNIVERSITY▏xvBorrowingthatexperience,wedecidedtofilltheinformationgapbetweenChinaandtherestoftheworldbydrawingontheexpertiseclusteredaroundtheBeijingEnergyClub.AnInsightChinaeditorialteamwasconvened,composedofmemberswhoarenotonlyhighlyexperiencedinChina’senergyandclimatesector,butalsohavecompetentinternationalcareerwithprovencapabilitytocommunicatecomplexissuestoaglobalaudience.ChanghuaWuandYongpingZhaiaretheproofofthat.WestartedtowriteInsightChinareports,eachfocusingononesubjectthatisofsignificancetoChina’senergytransition,onafrequencyofonereportperweek.WecallthemThePulsereports,tofeelthepulseandgrasptherhythmofthetransition.Inthepagesthatfollow,youwillfind52pulsereportswehaveproducedduring2022.Ineachofthem,wetriedourbesttobeevidence-based,sharplyfocused,andasinformativeaspossible.Energytransitiontopicsarecomplicated,evenmoresowhenwritteninChinese,butwetriedtomakethemeasier-to-understand.Ourambitionwasfora3-pagertoofferyouthesameusefulinformationasreadinga100-pagereport.Thesearenotresearchreportswithdetailedreferences.Theyareexecutivebriefings.Theyshowyouhowthegovernment’sambitiousplansareanchoredornotingroundedreality,whattoolsdoesthecentralgovernmentusetodriveuptheshareofrenewables,whetherthestrongenthusiasmyouhearfromChineselocalauthoritiesrepresentshopesorhypes.Theywillshowyouhowcomplextheenergytransitionprocessis,butalsohowthiscomplexitycanbereadandunderstoodinsimpleways.Thereportswerewrittenatdifferenttimesoftheyear.Ifweputtheminchronologicalorder,weareafraidthatyoumightgetlost.Toeaseyourreadingexperience,wehavegroupedtheminto9chapters.Shouldyoufindthemofvalue,pleasejoinmeinthankingmytwocolleaguesoftheeditorialboard–ChanghuaandYongping,bothhaveworkedtirelesslywithmetoensurethequalityofthesereports.Manyothersprovidedinvaluableinputs,buttheyprefertoremainanonymous.Iremainwhollyresponsibleforanyinaccuraciesormistakesyoumayfind.XavierChenPresident,BeijingEnergyClubXaw�✓CleltMAKINGTHECOMPLEXITIESSIMPLERANDEASIERTOUNDERSTANDWeliveinaneraofpoly-crises,butit’salsoapivotalmomentwhenracingagainsttimetofightcli-matechangehasbecometheplayofthedayamongleadingeconomies.China’spioneeringendeavorsandprogresseshavemadeaconvincingcasethatintegratedandunitednationalvision,strategy,andfrontarekeytoscalingthedeploymentofgreen,clean,andsmartsolutions.WithambitiousgoalsandtargetssetthroughtheFive-YearPlanningcycle,thecountryhasdemonstratedhowpolicyincentives,whenwell-designed,coulddrivetechnologyinnovation,buildcompetitivesupplychain,enhanceindustrializationofcleantechnology,andachievethescaleatapacetomatchupwiththeneedtodecarbonizetheeconomy,infrastructure,goods,andservices.Thisisarathercomplexandoverwhelmingsystemchange.Itrequiresanewwayofnarrationtoinformandengageabroaderaudience,particularlythoseoutsideChina.Thus,thethreeofus-Xavier,Yongping,andmyself-decidedtotakeonatasktohelpaninternationalaudienceofleaderstograspthecomplexities.Theoutcomeisthisproductinyourhand.Thispublication,toalargeextent,showcasesorevidencesthedepth,width,andcomprehensivenessofChinesepolicymakersinconsideringandadvancingenergytransition.Whenandifeffectivelyandfullydeployedanden-forced,theyareexpectedtosetChinaonapathwayforwardtoleadglobalcleanenergyrevolution.Ittakesthebestknowledge,expertise,andsynergyofthreeofustointerpretordecodetheperplexingrealitythroughthefollowingpages.Wehavedoneourutmostefforttouseaformatofroughlyathree-pagerforeachtopicandcommunicateouranalysesclearlyandconcisely.Ifyoufinditrelevantanduseful,thenIwouldfeelrelievedandrewarded.Andofcourse,IwillalwayswelcomeyourfeedbackandinputandbedelightedtoexplorehowwecanjoinhandsonthisjourneytocontributetoChina’scleanenergytransformation.Thisone-yearjourneywithmytwocolleagueshasbeenafascinatingandinspiringexperience.BothXavierandYongpinghavebeenmymentorsanddearcolleaguesinmyprofessionaldevelopment.Igreatlyappreciateandwilltreasurethispartnershipforever.ChanghuaWuCEO,FutureInnovationCenterAsiaDirector,OfficeofJeremyRifkinCERTAINTYAMONGUNCERTAINTIESTheyear2022wasmyfirstfullyearofworkinginChinaafter37yearsoverseasexperienceinseveralcountriesinEurope,AfricaandAsia,mylastpositionwasChiefofEnergySectorGroup,AsianDevelopmentBank.So,althoughbeingaChinesenationalworkingintheenergyfield,Ihadbeenforaverylongtimeoutsideroratbestadistantobserveronwhat’shappeningintheenergysectorinChina.WhenIreturnedbackinChinaandstartedmynewjobasSeniorAdvisoroncarbonneutralityforTencentGroup,IfeltstronglythatIneededtomakeupmissedlessonsonkeyissues,challengesandpotentialsintheenergyspaceinChina.Indeed,therearemanymythsandmisconceptionsthatneedtobedecoded.Assuch,IwassohappytoseeDrXavierChenandMsChanghuaWu,whotooktheinitiativeandworkedveryhardtoproducetheweeklyinsightsonenergyissuesinChina.Bothofthemarehighlyrespectedenergyexperts,andalsomylongtimefriends.IstillhadavividfondmemoryofayoungandenergeticXavierinmid-1980s,whenwerebothPh.DstudentsatInstituteofEnergyPolicyandEconomics,Grenoble,France.SincethenXavierhashadanadmirableprofessionalpathinsomeofthemostprestigiousenergyorganizationsandcompanies,andinparticular,thefoundingPresidentoftheinfluentialBeijingEnergyClub.And,Changhua,it’salwaysapleasuretoseehermoreoftenonvariousTVchannels,highlyimpressedandinspiredbyherclearassessmentandsharpviewsontheworldcurrentenergyandclimateevents.Iappreciatethechancegiventomeasamemberoftheeditorialteam,thoughmyrolehasbeenessentiallyafirstreaderandreviewertoseeifthemythsarefullydecoded.ReadingXavierandChanghua’swork,it’sbeenahugelearningexperienceeveryweekthroughout2022,soIcannowsayIamnolongerastrangerinenergyspaceinChina.Theenergyworldisexperiencingaturbulenterafullyofuncertainties,butonethinghasnotchangedandwillnotchange:thatisChina’sroleasthebiggestenergyproducerconsumerintheworld,andinrecentyears,oneofthemostimportantinvestorsandinnovatorsinrenewableenergyandotherlowcarbontechnologies.IamsurethattheinternationalreaderswillfindthisbookveryusefultobetterunderstandChinaandfurtherexpandthecooperationwithChina.YongpingZhaiFormerChief,EnergySectorGroup,AsianDevelopmentBankSeniorAdvisoronCarbonNeutrality,Tencent1DECARBONIZATIONSTRATEGIESINSTITUTEOFENERGY,PEKINGUNIVERSITY▏21.1REDUCEFOOTPRINTS,ENHANCEHANDPRINTSANDEXPANDBLUEPRINTSasimplewayofunderstandingChina’sgreentransitionplanInsightChina,January28,2022China’sambitiousplansofgreentransitionarehardforoutsiderstograsp.Usuallydescriptiveandexpansive,itsFive-YearplansareverymuchChinese-centeredintermsofwayofthinkingandnarration.Inthemeantime,Englishmediacoveragetendstobe“selective”andinterpretativewith“ideological”biasesandgeopoliticalinterpretations.Wetryheretosketchthelandscapeoftheplannedtransitionbyusingfootprints,handprintsandblueprints,atleasttryingtodosome“justice”tothesteadfastendeavorChinahasbeendedicatedtoaddressingthechallengesofecologicalredlines.1.1.1ReducingFootprints:FourprioritiesaresetinChina'scurrentplanstoreduceitsecologicalfootprints:1)carbonemissions;2)energyconsumptionandotherresourcesuse;3)lossofnature;and4)pollutionandwastes.Toillustratetheprogressinginthefive-yearplantrajectory,Table1-1summarizessomeprioritytargets.©PhotoonPxHere3▏INSTITUTEOFENERGY,PEKINGUNIVERSITYTable1-1:KeyTargetstoReduceFootprintsinFive-YearPlansIndicator2016-2020(actualdelivery)2021-20252030carbonemissionsreduction•carbonintensitydown48.1%over2005level•carbonintensitydown18.2%from2015level•carbonintensitydown18%over2020level•GDPcarbonintensitydownatleast65%over2005level•peakcarbonemissionsbeforeenergyconsumptionreduction•energyintensityperunitGDPdown15%over2015level•totalenergyconsumptioncontrolledunder5billiontonsofcoalequivalent•energyintensityperunitGDPdown13.5%over2020level•peakingcoalconsumption•morerestrictivetargetsoftotalenergyconsumptionforsuchsectorsasironandsteel,metallurgical,buildingmaterials,amongthehigh-energyconsumingindustrialsectorspollutionreduction•cityPM2.5ambientconcentration:28.8%downover2015level;•daysofgoodairquality:5.8%growthover2015level;•COD,NH3-N,SO2,NOxtotalemissionsdown,respectively,10%,10%,15%and15%,over2015levels;•VOCtotalemissions:10%downover2015level•CODandNH3-Hreductionat8%,SO2andNOxreductionat10%,below2020levelResourcesconsumptionreduction(water)•wateruseperunitofGDP:28%downfrom2015level•wateruseperunitGDP:16%from2020levelSources:authorcompilationfrom14thFive-Yearplans,andrelatednationalpolicydocuments.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏4Thesetargetsaretobeachievedthroughspecificprogramsinvolvinggreenupgradingofkeyindustries,industrialparks,urbanandruralareas,transportandlogistics,publicbuildings,etc.1.1.2EnhancingHandprints:Threefocalprioritiestoenhancehandprintsinclude:1)dramaticallyincreasingnon-fossilfuels;2)protectingnatureandbiodiversity;and3)mainstreamingthecirculareconomy.Table1-2:KeyTargetstoEnhanceHandprintsinFive-YearPlansIndicator2016-2020(actualdelivery)2021-20252030increasingnon-fossilfuels•non-fossilfuelsinprimaryenergymix:15.9%•non-fossilfuelsinprimaryenergymix:20%•non-fossilfuelsinprimaryenergysupply:25%•installedsolarandwindcapacityreaching1,200GWprotectingnatureandbiodiversity•naturereserves:18%oftotalland•forestcoverage:23.2%•forestrystock:1.3billioncubicmeterabove2005level.•forestcoverage(%):24.1•buildingmorewastewaterandmunicipalwastetreatmentcapabilitieswithspecifictargets.•25%oflanddesignatedasprotectedtoenrichecologicalfunctionsandtoprotectintegrity;•forestcoverage(%):25.1%•foreststock:6billioncubicmeterabove2005level.mainstreamingcirculareconomy•somemajorresources'recyclingoutput:26%above2015level•resourcesrecyclingandreuseindustrialoutputvaluereachingRMB5trillion•majorresources'recyclingoutput(%):20%growthover2020levelSources:compiledfromtheNational14thFive-YearPlan,sector14thFive-Yearplans,andotherrelatednationalpolicydocuments.5▏INSTITUTEOFENERGY,PEKINGUNIVERSITY1.1.3ExpandingBlueprints:Whilelocalpollution,climatechangeandresourcedeletionremainpriorityconstraintstoaddress,asdemonstratedinfootprintandhandprinttargets,itsblueprintszoominonsystemictransformationinregions,industries,andinfrastructure,enabledbyR&D,technology,finance,expertiseandtalents,aswellasinstitutionsandgovernance.Thisisclearlyreflectedinitsnationaldesignofpolicyincentivesthatcutacrossregionandindustry,whilebeingfurtherenhancedbylocalgovernments’moreambitiouscommitmentsofactions.Atoppriorityistonetoutcarbonemissions–peakingemissionsbefore2030andachievingcarbonneutralitybefore2060.Todeliverthe“duo”goal,Chinahasinitiat-edastrategyof“1+N”,aspopularlyknowninthesociety.Ithasbecomealeadingthreadofpolicysystemthataimstopullallthepiecesofthepuzzletogether,verticallyandhorizontally,notonlyforthecurrentdecadebutalsofordecadestocome.The“1”referstothe“Opinion”orthe“overarching”pol-icyguidanceonhowtodeliverthetime-boundcappingandnettingoutcarbonemissions,issuedbytheCCPCentralCommitteeandtheStateCouncil,onOctober24thof2021,oneweekbeforetheGlasgowCOP26.Theguidancesetsthe“tone”thatputsdecarbonizationandnaturepositiveatthecoreofnationalpolicy-makingforaunitedandwell-coordinatedfrontofactions.Itenlistsallthepossibleactionsneededtomakelowcarbontransitioninallmajorsectors,incentivizedbylawsandregulations,emissiontrading,andgreenfinancing.Inshort,it’san“all-of-the-above”frameworkthataimstoleaveoutnoareanorexcludeanytechnologyoption.The“N”encompassesalltheactionplansandroadmapsforspecificindustryandregion,aswellasthesupportingandenablingtoolsandinstruments.Thefirstofthe“N”waspublishedthesameday–24thOctober2021-bytheStateCouncil-the“ImplementationPlantoAchievingEmissionsPeakingBefore2030”.Toachievepeaking,Chinaplanstoclusteractionsaroundtenfocusedlevers–energysupply,energyefficiency,industry,buildings,transport,circulareconomy,scienceandtechnologyinnovation,carbonsink,all-citizensandall-regions,withtheobjectiveofbendingtheemissioncurvebefore2030.Thosesector-specificplansarebeingreleased,e.g.the14thFYPforenergysavingandemissionreductionwasmadepubliconthe24thJanuary2022.GivenChina’straditionofrelyingonnationalgovernmentplansasguidanceor“thebible”,anditsimpressivetrackrecordindeliveringthesettargets,the“duo”decarbonizationgoalwillserveasthelighthouse,incorporatedintoall“sub-plans”,byministries,provincesandstate-ownedentities.Animportantnotetomakehereisthatinthepast,Chinahasoftengonefarbeyondandoverachieveditsplannedobjectives.Furthermore,intheeyesandmindsofChinesepolicymakers,environmentalandclimateprotectiongoalsserveabiggerpurposeofhigherqualitygrowthwithindustrialandinfrastructurerevamping.Itssuccesscanbemeasured,ononeside,bydecarbonizationandimprovedecologicalintegrity(reducedfootprintsandenhancedhandprint),andontheother,bygrowthofnewandgreenereconomy,competitivenessofindustrialproductsandservices,expansionofnewinfrastructureandgrowthofnewindustriesandservices(expandingblueprints).Theoutcomesarereflectedin“weightloss”oftraditionalindustriesthatareenergy-andpollu-tion-heavy,whilethose“strategicemergingindustries”and“newinfrastructure”aregainingweight.Buildingamoresustainableandcompetitiveeconomythroughintegratedthinkingoffootprints,handprints,andblueprints.ThisishowweunderstandtheChineseeffort.Doesn’tthissoundfamiliarinyourpartoftheworld?INSTITUTEOFENERGY,PEKINGUNIVERSITY▏61.2"COALASBALLASTSTONE":CHINARECHARTSITSDECARBONIZATIONCOURSEInsightChina,January10,2022●“Onecan’twinthe(carbonneutrality)warinjustonebattle”;●“(Our)carbonneutralitystrategymustbebasedonChina’sbasicnationalconditionswherecoalisthemainfuel”;●“Phasingoutoftraditionalfossilfuelsshouldbepacedwiththeavailabilityofreliablerenewablealternatives”;●“Avoidsimplisticdownwarddecompositionofnationaltarget,establishincentivemechanisms(toallowmarketplayitsfullswings)”.ThesearesomeofthemostpowerfulstatementsfromtheCommuniquéoftheyear-endnationaleconomicpolicymeetingon8-10December2021,whichsetsChina’spolicydirectionfor2022andonward,wherecoalisreinstatedasthe"ballaststone"ofChina'senergysystem.TheytogetherredefineChina’scarbonneutralitynarrativeandrechartitsdecarbonisationcourse.1.2.1TheContext:Sucharedefinitiontakesplaceagainstthefollowingcontext:●Macro-economically,Chinaisfacingdownwardpressureinthreeaspects:contractingdemand,supplyshocksandmuchweakergrowthpro-spectiveinthedomesticmarket,whileexternalenvironmentbecomesincreasinglycomplexanduncertain;●Energymarket:China–atraditionallycoal-richcountry,experiencedcoalshortagesin2021whichledtowidespreadpowercutsandrationing,whileinternationally,energyshort-agesinTexasearlierintheyear,gasandpowerpricesurgesinEurope,andthetighteningoftheglobalLNGmarketmadeChina’spolicymakersacutelyawareoftheneedtostrengthenenergysecuritybeforeembarkingontomoreaggressivedecarbonization;●Decarbonisation-wise:followingPresidentXi’sSeptember2020announcementoftheduogoalsofpeakingemissionsbefore2030andachievingcarbonneutralitybefore2060,andurgedbythecentralgovernmenttoachievethe“duotargets”withtheeffortof“clawingironwithamark”(抓铁留痕),bothlocalauthoritiesandstate-ownedentitiesracedtoannouncetheirowntargets.Somelocalauthoritiesevenresortedtocuttingthepowersupplyorshuttingdownfactoriestoavoidtheexcessoftheirenergyconsumptionquota,gravelydisruptingeconomicandsocialactivities.Theredefinitionfollowsanearliercallbythecentralgovernmentto“establishfirstbeforebreaking”（先立后破）-i.e.makingrenewableenergyavailable,accessibleandreliablefirstbeforeclosingthecoal-firedpowergeneration.1.2.2TheConditionalitiesforasuccessfultransition:WebelieveChina’sredefinednarrativeisneitherawithdrawalnoraweakenedcommitmenttotheParisagreementortheGlasgowClimatePact,butareflectionofmarketrealismandpolicypragmatism,whichisconsistentwithitsmacro-economicpolicies.Facedwithdeterioratingexternalenvironmentanddomesticlackofnewgrowthengines,ChinesepolicymakersinJuly2018proposedthe“6stabilities”(6稳)7▏INSTITUTEOFENERGY,PEKINGUNIVERSITYascornerstonesofmacro-economicpolicies,whichwererestatedas“6securities”(6保)inearly2020.The“6stabilities”involveemployment,financialsystem,externaltrade,FDI,domesticinvestmentandgrowthprospect,whilethe“6securities”involvejobs,basiclivelihoods,marketparticipants,foodandenergy,supplychainandgrassrootsoperations.“StabilityandSecurity”arenowofficiallystatedastoppolicyprioritiesofthecountry’s14thFive-YearDevelopmentProgram(2021-2025).Theredefinednarrativereflectsthemarketrealismwhichbegsanswerstosuchquestionsaswhetherandhowmuchthesocietyispreparedtoacceptsocialandeconomicdisruptionsassacrificestofightclimatechange.Afteroveroneyearofdancingwithtwostepsforwardonestepback,China’spolicymakersseemtohavecometothelevelofsophisticationinwhichcarbonneutralityactsasanobjectivefunctioninoperationalre-searchthatissubjecttoasetofconstraintsorboundaryconditions,including:1.Sustainedeconomicgrowth,nowsetat5%andabovefor2022,aimingtomaintainandcreatejobsandemploymentopportunities;2.Secureandstableenergysupply;3.Secureandstablefoodsupply;4.Secureandstablecarbon-basedmaterialsupply;5.Securityoffinancialsystems;6.Lowestsocialcosts,especiallyhowtopreventtheriskofwastingthecurrentenergyinfra-structure,valuedat$86trillionglobally;and,7.Controllinginflation,guaranteeingpeoplewithadequateemployment,personalfreedom,andsocialjustice.Theseconditions,ifnotadequatelyandeffectivelyaddressed,risktoderailthe"train"ofdecarbonization.China'snewdecarbonizationnarrativealsoapproachestheenergysystemmoreholistically.Energysystemsaredesignednotonlytopowertheeconomicactivitiesbydeliveringenergyservices-electricity,heat,andmobility,theyalsoproducechemicalandpetrochemicalmaterialswhichareindispensabletotheexistenceandwell-functioningofhumansociety.1.2.3The"CriticalDozen"toWatch:Throughtheredefinednarrative,weseeanewpathwayofcleanenergytransitionbeingdrawninChina,bywhichfossilfuelsincludingcoal,willcontinuetoplaytheirroleduringthetransition,buttheircleanandefficientuseswillbeemphasized,soaretherenewableenergyabsorptioncapabilitiesofthecurrentfossilfuel-basedenergysystem.Underthisnewnarrative,whattrendswillhold?Weproposethefollowing“criticaldozen”towatchonChina’scarbonneutralitypathway:1.Duality:Balancingtransitionthatintegratesthe"duality"ofenergysystem–theenergy(power,heatandmobility)aspectandthematerialsdimensionintotransitionplans,abandoningtheideathatfutureenergysystemcanbebuiltcompletelywithoutcarbon;2.Pace:Managingtransitionriskbypacingtherhythmofcoalphase-downbasedontheavail-ableandreliablequantityofrenewablepowergeneration;3.Divisionandspecialisation:Enhancingtech-nologyinnovationofoilandgasindustrywhileabandoningtheexpectationorfantasyforalloilandgascompaniestobecomerenewablepowergenerators;4.Energysaving:Innovatingbusinessmodelsofenergyconservationthatwouldpushhighener-INSTITUTEOFENERGY,PEKINGUNIVERSITY▏8gy-consumingandcarbon-emissioncompaniesto"proactively"seeksolutionsfromESCOs,withmuchreducedtransactioncosts;5.Heat,storageandhydrogen:Strengtheningtheplanningforheatingservicestomoreeffectivelytapintoallkindsofheatsourcesanddevelopingend-useapplicationsofenergystorageandhydrogen;6.CO2utilisation:EmphasizingtheUaspectofCCUSthatturnsCO2intoresourcesinsteadofwastethroughcarbon-richagriculture,fossilizingCO2,andconvertingCO2tofuelsandchemicalproducts;7.Innovation:Gearingupinnovationatallfrontsbyencouragingandincentivizingalltechnol-ogiestodemonstratetheirpotentials,aswellasbusinessmodelinnovationandregulatoryinnovation;8.“Twohands”:Improvinggovernment'scapabilitytoeffectivelycombinethepowerofthe"visiblehand"andthe"invisiblehand",withtheformercreatingthedemandforcarbonreductionandthelattermobilisingmarketforcestomeetthatdemand;9.Criticalminerals:Strengtheningthesupplychainofenergytransitionmineralsbyincreas-ingdomesticmining,processing,productionandmanufacturingwhileoptimizingthevaluechainthroughtradeandinvestment;10.R&D:InvestinginR&Dofstrategiclong-shottechnologies,includinginparticular,carboncaptureandrecyclingtechnologies,energystorage,low-costhydrogenproduction,andhigh-densitypowergenerationtechnologies,asafewexamples;11.Regulation:Reformingthecurrentpoliciesofthe"dualenergyconsumptioncontrol"tofocusmoreoncarbonemissionsreduction,andre-examiningtheenablinginfrastructureforfastandscalerenewableenergydevelopment;and,12.Resilience:Refurbishing,renovating,andreinforcingclimateadaptationandresilienceoftheenergysystems.IftheGlasgowCOP26couldbecalledawatershedoftheglobalclimateagenda,turningambitionintorealityprovesamuchmoredauntingbutmust-delivertask.China'space,tocertainextent,defineshowsuccessfulwewillbeinhalvingemissionsby2030andnettingzerocarbonemissionsby2050.1.3RE-ENERGIZING:THE14THFYPFORBUILDINGA“MODERNENERGYSYSTEM”InsightChina,March30,2022Seeminglylongawaited,buthereitis,finally.OnMarch22,theNDRCandtheNEAjointlyreleasedthe14thFive-YearPlanfor“ModernEnergySystem”Development(hereafterreferredasthePlan).Astheblueprinttore-energizetheworld’slargestenergysystem,thePlanisexpectedtohavesignificantimpactsonChinaandmajorrepercussionstothecourseofglobaldecarbonization.ThisInsightChinareportdistillsitsessenceandsharesourperspectiveonitsaspirationsandchallenges.1.3.1ModernEnergySystem:HowdoesChinadefinea“modernenergysystem”?ThePlanfocusesonfourqualificatives:green,lowcarbon,secureandhighlyefficient,inadditiontoaccessibility.Atthecoreofitstandsenergysecurityastheredbottomlineandgreenlowcarbontransitionastheobjective.“Secure,GreenandModern”iswhattheChinesepolicymakersaspirefortheirfutureenergysystemtobe.9▏INSTITUTEOFENERGY,PEKINGUNIVERSITYTheyearof2035isselectedasthetargetyearwhensuchamodernenergysystemshallbeprimarilybuilt,inalignmentwiththecountry’soverallmodernizationambitionandtimeline.Betweennowandthen,thePlanclarifiestheinterimmilestonesfor2025andcallsforeffortstore-powerandreshapethecountry’senergyinfrastructuretofilltheshortfallsinsecurity,greennessandmodernity,whilemaintainingthealreadyachieveduniversalaccessibility.1.3.22025targets:LikeallotherFYPs,thisPlanprovidesasetofnumericaltargetsfor2025,asenlistedinTable1-3.Allthe2025targetsaresethigherthanthosefor2020,exceptforenergyandCO2intensityofGDP.ItimpliesthatChinawillcontinuetoundergoarapidexpansionofitsenergysystemwhilesignificantchangescanbeexpectedinenergystructure,energysystemflexibilityandresilience.Equallysignificantiswhat’snotonthelistwhencomparingwiththepreviousFive-YearPlan.Wehavefound6crucialelementsshifted:1.Totalenergyconsumptionisnolongeracontroltarget.The13thFYPsetanupperlimitofnomorethan5,000milliontonscoal-equivalent(mtce).Neithertotalenergyconsumptionnortotalelectricityconsumptionisnowgivenacapinthe14thFYP.Thisindicatesafundamentalshiftinthecountry’spolicymaking.2.Energyself-sufficiencyrateisnolongeratarget,indicatingChinaisbetterpreparedtoembracetheinternationalenergymarket.3.DomesticenergyproductionVolumeisreplacedbydomesticenergyproductionCapability,indicatingpreferencegiventothecountry’sabilitytorespondtochangesininternationalenergymarketwithitsownmeans.4.Specificsharesofgasandcoalintotalenergymixandshareofcoal-firedpowerintotalpowergenerationarenomorelisted,givingwaytototalenergysupplycapabilityandpowergenerationcapability.Thisindicatesapolicypreferencetoenergydeliveredoveritscarrier,nomatterwhetheritiscoalorgas.5.Averagecoal-firedpowerefficiencyisnolongeratarget,giventhelimitedroomforimprovement,butalsoleavingroomforpossibleefficiencylossduetoflexibilityconversionofcoal-firedpowerplantstoaccommodatemoreintermittentrenewables.6.And,inpowersector,transmissionlossisnolongerlistedasatarget.Instead,flexibilityinthegenerationfleetanddemandsideresponsearemuchvaluedandgivenspecifictargets.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏10Table1-3:NumericalTargetsforChina’s14thFYPfor“ModernEnergySystem”DevelopmentIndicator2020Actual2025TargetOverallEnergyConsumption4,980mtceNocapElectricityConsumption7,520TWhNoCapEnergySecurityDomesticenergyproductioncapacity4,080mtce4,600mtceDomesticoilproduction195mt200mtDomesticgasproduction192.5bcm230bcmInstalledpowergenerationcapacity2,200GW3,000GWOilandgaspipelinelength175,000km210,000kmShareofflexiblepowergenerationsources(e.g.peakingplants,batteries)6%24%Demand-sideresponsecapacity/peakpowerload<3%3-5%Gasstorage4.5%ofconsumptionor14.7bcm13%ofconsumptionor55-50bcmPumpedhydro32GW62GWinoperation,60GWunderconstructionGreenandLowCarbonEnergyIntensityofGDP-13.2%over2015level-13.5%over2020levelCO2intensityofGDP-18.8%over2015level-18%over2020levelNon-fossilfuelshareofenergy15.9%20%Non-fossilfuelshareofpower30%39%HydroPower(includingpumpedhydro)370GW380GWNuclearpower54GW70GWEVshareintotalcarsales5%20%ModernizationEnd-useelectrification26.5%30%R&Dexpenditure7%annualgrowthMajortechnologybreakthroughs50Note:Conversionbetweentonsofcoalequivalent(tce)andtonsofoilequivalent(toe)is1toe=1.43tce.Forthesakeofeasyreading,wecontinuetousetheChineseunit(tce)aslistedinthePlan.11▏INSTITUTEOFENERGY,PEKINGUNIVERSITY1.3.3Keytasksandpriorities:Todelivera“secure,green,modernandaccessible”energysystem,thePlanhighlightedfollowingkeytasks:Energysecurity:●Improveenergysupplysovereigntybyovercomingshortfallsindomesticproduction,diversificationofimportsourcesandamuch-strengthenedoilandgasreserves.Domesticproductioncapacitytoreach4,600mtceby2025,from4,080mtcein2020;●Increasedomesticproductioncapabilityby1)continuouslyexpandingnewcleanenergysuppliesincludingwind,solar,hydroandnuclear;2)stabilizeexistingcoalproductionandcoal-firedpowertofullyleveragetheirsupportingroleinenergytransition,releasenewandadvancedcoalproductioncapabilitiesandincreaseoilandgasproduction.●Improvetheenergysupplychainby1)expandingcross-regionalpowertransmissionandoilandgastransportationcapabilities;2)increasingsupplyflexibilitybybuildingcoalreserves,andexpandingundergroundgasstorageandLNGreceivingterminals.●Strengththeresilienceoftheenergysystem,particularlythepowersystemvis-à-visnaturaldisasters,cyber-attacksandextremeclimateevents.Greentransition:●Acceleratewindandsolardevelopment,“actively,securelyandorderly”developnuclearpower,exploithydroandotherrenewableenergyresources“accordingtolocalconditions”toachievethe20%targetofnon-fossilfuelsintotalenergyconsumptionandthe39%targetofnon-fossilfuelsinpowermix.●Promotethedevelopmentofa“newpowersys-tem”thatwouldenablehigh-levelpenetrationofrenewables.●Acceleratetheconstructionoflong-distancetransmissionoflarge-scalerenewablepluscoalpowerfromthewesttotheeastviatheultra-highvoltage(UHV,800kvDCand1000kvAC)powertransmissionlines.●Reducecarbonemissionsfrombothenergyindustrysupplychainandend-usesectors(industrial,transportandbuildings);Modernization:●Innovationiscalledupontoaccelerate,notonlyinenergyscienceandtechnology,butalsoinenergygovernanceandinnewbusinessmodelsforemergingenergyservicecompanies,smartmicro-grids,energystorageandhydrogenenergy.●Digitalizationisconsideredacorefeatureofamodernenergysystem,integratingmodernICTtechnologieswithadvancedenergytech-nologies,newmaterialsandnewmanufacturingtechnologies.Demonstrationofsmartcity,smartparkandsmartdistrict,smartenergyinfrastructureaswellassmartenergyplatformsisverymuchcalledfor.●Amodernenergymarketforelectricityandgasisconsideredanintegralpartofa“modernenergysystem”,withthePlancallingforacceleratedreforminthepowermarkettoallowmarkettransactionofflexiblepowerresources,greencertificate,DSR(demandsideresponse),andthemarketdeterminationofalltheenergyandenergy-relatedserviceprices.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏12RegionalBalanceandAccessibility:●GivenChina’svastlandscape,thePlanspendsanentirechapteroncross-regionaloptimiza-tionfromanationalperspective.●Italsospends,forthefirsttime,afewsectionsonruralenergydevelopment.Allvillagescov-eredbyeithertheStateGridorSouthGridsnowhave100%accesstoelectricity,andruralpowersupplyreliabilityisveryhigh(99.8%).Theykeychallengesareto1)upgradetheruralenergyinfrastructure,mainlythepowerdistributionnetwork;2)turnruralareasasmajorsourcesofenergysupply;and,3)convertruralagriculturalresiduesintoenergyproductionforbothenergyandenvironmentalbenefits.Internationalcooperationisverymuchcalledfor,notonlyinoilandgas,butmoreonlowcarbontechnologies,andonglobalenergygovernance.1.3.4Dilemma:returntothetraditiontobuildamodernenergysystem?TheshiftofpolicydirectioninthePlanisveryconsistentwithourearlieranalysis(i.e.“Coalcentered:Chinarechartsitsdecarbonizationcourse”of10thJanuary2022).Ithassignificantrepercussionstothecountry’senergysecurityandcarbonemissions.Firstly,ithasrelaxedincentivesonenergysaving,giventhereisnomorecapontotalenergydemand.TheenergyintensityofGDPisnowsettodecreaseby13.5%between2020and2025.China’stotalenergydemandwas4,980mtcein2020.WithanaverageannualGDPgrowthrateat5.5%,China’stotalenergyconsumptionby2025wouldgrowby13%(550mtce),toatotalof5,630mtce.Tomeetthissurgeindemand,thePlancallsfordomesticproductioncapacitytoreach4,600mtce,whichis520mtcemorefromthe4,080mtcein2020.Thisposesanunattainablechallenge.Wheretolocatethisadditional520mtceproductioncapacity?Addition-aloilproductioncapacityisverymuchconstrained(only5mtpaisexpected,whichisequivalentto7mtce);gasproductionisexpectedtoincreaseonlyby37.5bcm(from192.5bcmto230bcm),equivalentto46mtce;andoilandgastogethercanonlyadd53mtce.Theadditionofhydro(10GW,assuming5000hoursayear)andnuclear(16GW,8000hoursayear)willadd178TWhor22mtceintermsofenergyconsumptionequivalent.Andtherest445mtceperyearofadditionalenergyproductioncapacitywillhavetocomeeitherfromsolarandwind,orcoal.Ifmerelybywindandsolar,andassumingtheyrun2,000hoursayearinfullload(theaveragewas1,580hoursin2021),itwillrequire1,200GWofadditionalinstalledcapacityoverafive-yearhorizonor360GWeveryyear(Chinaadded100GWofwindandsolarin2021),whichseemshighlyunlikely.Therefore,amassivereturntocoalisinevitableinordertomeetthedomesticproductioncapacitytargetorChinawillfallshortofthisdomesticproductioncapacitytargetandrelymoreonoilandgasimports.Secondly,China’sCO2emissionisexpectedtogrowby7.2%or720milliontonsmoreby2025–almostthreetimesFrance’stotalannualemission(250mtin2020).Thisnumberisderivedfromthe2020Chineseemissionsof10billiontons(9.89btaccordingtoBPstatistics),aGDPgrowthof5.5%over2020-2025,andthePlan’stargetofreducingCO2intensityofGDPby18%.AlthoughthisisstillinlinewiththeChinesecommitmentofpeakingbefore2030(sincenospecificlevelofpeakinghasbeenmadeclearyet),thegrowthremainsalarming.Andthirdly,thePlancontinuesthetraditionalplanningphilosophyofcentralizedsupplyexpansion,soconse-quently,inadequateattentionispaidtoenergysavinganddistributeddevelopmentanduseofrenewables.Forinstance,theconceptof“DistrictEnergy”isacase-13▏INSTITUTEOFENERGY,PEKINGUNIVERSITYmadeeffectivetooltodeveloplocallyavailableenergyresourcestoefficientlymeetthedemandwithminimalenvironmentalfootprints.ItwaswellproveninDenmarkandwidelypromotedbytheUnitedNationsEnvironmen-talProgram.ButwhatappearsinthePlanis“regionalenergy”,whichusethesameChinesevocabularyas“DistrictEnergy”butfocusesonatotallydifferentissue:cross-regionenergyflowsinsideChina.Despitetherhetoricofencouraginglocalusesofrenewables,preferencesareobviouslygiventolong-distancetrans-missionbyUHVpowerlinesofbulksupplyofcentralizedrenewablespluscoal-firedpower.HereappearsamajorshortfallonthepartofChina’scentralplanners.Theterm“decentralization”hasbeenlessunderstood,letalonegivingadequateattentionorcapturingthedueopportunitiesoffered.Shoulda“secure,green,modernandaccessible”energysystembeacentralizedordecentralizedone?Orhowtobalanceandoptimizethetwomodestomaximizethebenefitsforbothenergysecurityandclimateprotection?ItispreciselytheanswertothesequestionsthatmakethedifferencebetweenChinaandthewestintermoftheirvisionsforthefutureenergysystem.1.4LOWCARBONECONOMYORLOWEMISSIONECONOMY?InsightChina,March12,2022WehavefiveInsightChinareports(seeChapter4)coveringChina’sblueprintsofgreentransitioninenergy,industry,mobility,buildings,andconsumption.Theseblueprintsrepresentanationwidesharedbutintegratedstrategytolowerecologicalfootprints.Carefulreadersmayhavenoticedadelicatebutobvious“semantical”discrepancywhencomparingthespecifictermof“greentransition”inChinesegovernmentpolicypapersandthatintheWest:it’snotonlyaboutreducingCO2emissions,butcoveringamuchwiderscope,involvingalllocalpollutants,andmainstreamingcirculareconomy.IsChinatryingtobuildaWestern-style“lowcarboneconomy”ordoesChinahaveadifferentagenda?Onlywhenthisquestionisclearlyansweredwillwe(andourreaders)beabletocapturethenatureofChina’stransitionandwhattoexpectnext.Thisreportisareflectivestepwetaketoofferamorephilosophical,butfundamentallyimportant,interpreta-tion:Chinaaimstobuilda“lowemission”economy,notjusta“lowcarbon”one.1.4.1LowCarbonEconomyvsLowEmissionEconomyTheterm“LowCarbonEconomy”firstappearedinUKDepartmentofTradeandIndustry’spolicypaper,“Ourenergyfuture–creatingalowcarboneconomy”,pub-lishedinFebruary2003.Itgained“popularity”in2007acrossChina,wheretheterm“ditan”orlowcarbon,wasintroducedandembraced,andlaterofficiallyadoptedinthegovernmentpolicydocumentofcommitmentsubmittedtotheCopenhagenCOP15in2009,instepwithglobalcommunity.Suchaterm,ifappliedàlalettreasthecornerstonedefiningChina’senergytransitionagenda,couldbemisleadingasitdoesnotreflectthecountry’sbasicconditions.Webelievetheterm“lowemission”bettersuitsChina’scircumstancesforthefollowingreasons:●“Lowemission”isbroaderthan“LowCarbon”.ThelatterimpliestheneedtoreduceCO2asthemaingreenhousegas,aswellasallotherGHGs,whereastheformerincludesnotonlythoseGHGs,butalsoalllocalairpollution,waterpollutionandsolidwastedisposal.SeeTable1-4.●Theterm“lowcarbon”focusesontheglobalclimatemitigation,arightlysotoppriorityofINSTITUTEOFENERGY,PEKINGUNIVERSITY▏14developednationsthathavesuccessfullypassedthelocalpollutioncurve,whereas“lowemis-sion”correctlyreflectsthe“duochallenges”developingnations,includingChina,facetoday–climatechangeandlocalpollution.●Communicationshallbe“science-based”.Carbonisafundamentalelementofnatureuponwhichhumansocietiesarebuilt.Itisnotthe“carbon”elementpersebuttherunawayCO2emissionsthatneedtobelowered.Itisthereforeanemissionissue.●Theterm“lowemission”fitsthetraditionaltermof“energysavingandemissionreduction”whichChinahasbeenusinginitspolicydocumentsincethe1990s,wellbeforetheterm“lowcarbon”wasintroduced.Italsofitsintothe“zerowaste”or“circulareconomy”conceptthatmaximisestheefficiencyofmaterialuseacrossthelifecyclethroughreduction,re-use,recycleandrestoration.●Theterm“lowemission”isalsoeasier-to-un-derstandand“visual”forthepublicsinceeveryoneis“familiar”withtheemissionsfromcoal-burningandknowswhytheyshallbereduced;butnotthe“invisible”carbonemissions.Withoutthesubscriptionofmasspopulation,anyfashionableconceptbyscholarsorpolicymakerscanbehardlytranslatedintoactions.Table1-4:PollutantsforAbatementinLowCarbonEconomyvsLowEmissionEconomyLowCarbonEconomyLowEmissionEconomyMan-madegreenhousegases,namely:•Carbondioxide(CO2)•Methane(CH4)•Nitrousoxide(N2O)•Industrialgases:○Hydrofluorocarbons(HFCs)○Perfluorocarbons(PFCs)○Sulfurhexafluoride(SF6)•Man-madeGHGsasperleftcolumn.•Localairpollutants:○Particlematters(PM10,PM2.5)○Ammonianitrogen(NH3-N)○Sulfurdioxide(SO2)○Nitrogenoxides(NOx)○Volatileorganiccomponents(VOC)•Waterpollutants:chemicaloxidedemand(COD);•Industrialwastedischarges;•Municipalwastedischarges15▏INSTITUTEOFENERGY,PEKINGUNIVERSITYInsummary,webelievewhatChinaaimstobuildisa“zeroemission”economy,coveringamuchbroaderscopethana“zerocarbon”economy.1.4.2PolicyImplicationsNotjustascholasticdiscussion,thisdistinctionhaspro-foundpolicyimplicationsforChina’senergytransition.●“ZeroCarbon”economyrequiresthatwegetridofallcarbon-basedfossilfuels,while“ZeroEmission”stillvaluestheroleoffossilfuelssolongaswecangetridoftheemissionsassociatedwiththeirproduction,conversion,andfinaluses.Thisisparticularlyimportantfornaturalgas.Inthe“lowcarbon”economy,naturalgasisconsidereda“transitionfuel”thatshallbeultimatelyeliminated,whereasin“lowemission”economyitprovestobeavalued“companionfuel”ofintermittentrenewables.●“ZeroCarbon”promotesnon-fossilfuelsasthesaviorofaclimate-endangeredworldcallingforimmediately“phasingout”offossilfuels,while“ZeroEmission”appreciatesimportanceoffossilfuelsduringthetransition,withapaced“phasedown”offossilfuelsinstepwiththereadinessofnon-fossilones,toensureenergysecurityduringthetransition.●“ZeroCarbon”treatsCO2asthemostundesiredelement,tryingtoburyitthroughCCS,while“ZeroEmission”valuesCO2asaresource,tryingtorecycleitthroughCO2conversionandutilization(CCU)technologies.IfChina’searlyembraceoftheterm“lowcarbon”partlyreflectsitsendeavorto“speak”acommonlanguagewiththeWest,wehavewitnessedit’sreturningtotheessenceof“lowemissions”.Indeed,wecanseethatthegovern-menthasspentsignificanteffortstonuancetheterm“lowcarbon”,veryoftenbyaddingaprecedingword“green”,asdemonstratedinallthesectoralgreentransitionblueprints,coveredinourfiveInsightChinareports,aswellasour“Chinarechartsitsdecarbonizationcourse”report.Thus,itisthe“lowemission”or“zeroemission”weshoulduseasthecorrectlenstointerpretChina’splansandactionsofenergyandeconomictransition.1.5CAECHARTSCHINA’SROUTESTOCARBONNEUTRALITYInsightChina,April20,2022ChineseAcademyofEngineering(CAE)isChina’smostauthoritativeadvisorybodyontechnologicalandengi-neeringmatters.Establishedin1994,theCAEgathersChina’sbestbrainsintechnologicalandengineeringfieldsasacollectivethink-tanktoadvisegovernmentagenciesandcompaniesonmajornationalstrategicandtechnologicaloptions.SuchanimportantbodywillnotremainsilentonChina’sbiggeststrategicissue–carbonpeakingbefore2030andneutralityby2060.OnMarch31st,theCAErevealeditsmainconclusionsandrecommendationsofamajoradvi-soryprojecttitled“China’sStrategiesandRoutestoCarbonPeakingandNeutrality”.ThisInsightChinareportsharesthe“highlights”ofthefindingsbeforethefullCAEreportisreleased.1.5.1NumericalMilestones:TheCAEstudyconcludedwiththefollowingquantitativemilestones:●By2027:toachieveCO2emissionspeakingat12.2billiontonsfromatotalof10btin2020.●By2045:toproduce80%ofpowerfromnon-fossilsources,against30%in2020;and,INSTITUTEOFENERGY,PEKINGUNIVERSITY▏16●By2060:toachievecarbonneutrality,with2.6billiontonsofCO2equivalentGHGsemissionsfromhardtoabatesectors,whichwillbeoffsetbyvarietyofcarbonsinkmeans.1.5.2Eightstrategies:CAEdriveshome8nation-widestrategicprioritiesthatshallbedeployedsimultaneously:1.Prioritizingenergyconservation:toupholdtheconceptofenergyconservationasthefirstenergysource,andcontinuouslyimprovetheefficiencyofenergyuseinthewholesociety.2.ReinforcingEnergySecurity:tomakegooduseoffossilenergysourcesforemergencies,properlyhandleinstabilityriskofnewenergysupplies,andreduceandpreventtheriskofexternalover-dependenceofoilandgasandcriticalminerals.3.Energysubstitution:toreplacetraditionalenergysourceswithnewonesgraduallyandinasafeandreliablemanner,andcontinuouslyincreasetheproportionofnon-fossilenergysources.4.Re-electrification:tofocusonthereplace-mentoffossilfuelswithelectricalenergyanddevelopmentofelectricity-basedrawmaterialandfuelproductiontechnologies,andvigorouslyupgradethelevelofelectrificationofkeysectors.5.Resourcerecycling:toaccelerateupgrading,retrofittingandtransformationoftraditionalindustriesandbusinessprocessreengineering,andrealizemulti-levelrecyclingandreuseofresources.6.Carbonsink:toupholdcombinationandintegrationofecologicalcarbonsinksandartificialcarbonuses,enhanceecosystems’carbonsequestrationcapacityandpromoteresearchanddevelopmentofcarbonremovaltechnologies.7.Digitalization:topromotedigitalizationofcarbonreductionandmanagementactivitiesandhelptransformproductionandconsumptiontobecomegreen.8.Internationalcooperation:todeepenandstrengtheninternationalcooperationinallaboveareas.1.5.3Sevenroutes:TheCAEresearchchartsthefollowing7routestopursue:1.Enhancingthequalityandefficiencyofeconomicdevelopmentandusingindustrialstructuraloptimizationandupgradingasanimportantmeanstodecoupleeconomicgrowthwithcarbonemissions.2.Buildingaclean,low-carbon,secureandefficientenergysystemasthekeyandbasistoachievepeakingandneutrality.3.Acceleratingtheconstructionofanewpowersystemwithrenewablesasthemain-stay,andsafelyandsteadilyachievingnetzeroemissionsfromthepowersector.4.Promotingorderlyattainmentofemissionspeakingandprogressiveneutralityofin-dustrialsectors,supportedbyelectrificationanddeepdecarbonizationtechnologies.5.Achievinglow-carbontransitionintrans-portthroughhigh-proportionelectrification.6.Focusingonbreakthroughsinkeygreenbuildingtechnologiestoachievezerocarbon17▏INSTITUTEOFENERGY,PEKINGUNIVERSITYemissionsfromelectricityandheatuseinbuildings.7.And,planningforcarbonremovaltech-nologiestobridgethe"lastmile"tocarbonneutrality.1.5.4Threerecommendations:TheCAEhasformulatedthefollowingthreebroadlinerecommendationstotheChinesegovernment:1.Maintainthenation’sstrategicdetermina-tionandfocus,deliverbetterco-ordinationand,onthepremiseofensuringtheorderlyoperationoftheeconomyandsociety,andthesecurityofenergyandresourcesupply,adheretothenational"one-game-of-chess"strategyandachievecarbonneutralityinanorderlyandgradualmanner.2.Strengthenscientificandtechnologicalinnovationbyprovidingstrongimpetusandsupportforachievingcarbonneutrality,especially,bydeliveringmajorbreakthroughsinkeytechnologies.3.Andestablishandimprovethesystems,mechanismsandpolicyparameterstoen-suretheimplementationofadoptedmeasures,inthemeanwhilespeedinguptheestablishmentofasystemfortotalcarbonemissioncontrol,acceleratingtheconstructionofamechanismtoplan,promoteandassesstheintegratedreductionoflocalpollutionandcarbon,andcontinuouslyimprovingthesupportingandsupervisionsystems.TheCAE’sconclusionsandrecommendationsaresignifi-cantandimpactfulduetoitsinstitutionaland“statutory”settings.DifferentfromtheChineseAcademyofScienc-es(CAS),whichiscountry’sbiggestresearchinstitutionwith13regionalbranches,over100researchinstitutes,4universitiesandover400high-techcompanies,theCAEisonlyanadvisorybodywithoutaheavy-loadedstructure,it’slife-longmembership(920Chinesemembersand93foreignermembersasofJanuary2020)representsthehighesthonorinscienceandengineeringofthenation.TheCAEstudyhelpsclearsomeremaining“murkiness”and“suspicion”onthetablesincetheChinesegovernmentannouncedits2030/2060targets.ItaddsconfidencetonotonlyChina’sowndecarbonizationandcleanenergytransition,butalsoglobalendeavorandprogresstowardskeeping1.5Cgoalalive.ThisnewCAEresearchtookone-yearcollectiveworkthathadinvolved40CAEmembers,morethan300non-memberexpertsandadozenotherresearchentities.1.6ACLIMATEADAPTIVEANDRESILIENTSOCIETYBY2035InsightChina,No.33,July21,2022Withonefifthofworld’spopulationandaquarterofwhichsufferingeachyearfromtheimpactsofextremeweathereventsthatcostthecountrynearly2.5%ofitsGDP,Chinaisoneofthemostvulnerablecountriestoclimatechange.Dataandevidenceshowthatoverthelastfivedecades,Chinahasexperiencedamuch-acceleratedwarming,at0.26degreeCelsiuseverytenyears,fasterthantheglobalaverageof0.15degreeCelsius.Theimpactshavebeenextensivebothsocio-economicallyandecologically,challengingthecountry’sexistingresponsecapabilityorclimateresilience.TheNationalClimateAdaptationStrategy2035(theStrategy),releasedinmid-June,ledbyMinistryofEcologyandEnvironment,jointlyby16othernationalministries,emergesasapivotalmove.ItreflectsnewINSTITUTEOFENERGY,PEKINGUNIVERSITY▏18understandingofadaptivityonthepartofthepolicymakers,aswellastheirbest-eversystemicre-thinkingofhowtostrengthenthenation’sabilitytoadapttoawarmingworld.ThisInsightreportpullstogetheranoverviewofChina’sclimateadaptationprioritieswiththeobjectiveofbuildinganadaptiveandresilientsociety.1.6.1AdaptationequallyimportantasmitigationChinareleaseditsfirstNationalClimateAdaptationStrategyin2013,andthenthe2014-2020NationalPlanofResponsestoClimateChange,whichliterallyupliftedadaptationtothesamelevelofmitigationina“hand-in-hand”manner.Since2016,thepolicymakershavedevelopedandannouncedsector-focusedadaptationactionplans,spanningfromcityandforestrytometeorology,agriculture,waterresources,oceans,infrastructure,urbanandruraldevelopmentandecologyandenvironment.Andyet,alltheeffortsprovedpiecemealandcouldnotmatchthedirereal-lifechallenges.Anewstrategyisrequired,ononeside,tobeproactive,preventive,andprotective;andontheother,toembraceanintegrated,systematic,coordinated,eco-regionalandwhole-societyparticipatoryapproach.1.6.2NewstrategicprioritiesTheStrategycallsforanintegratedthinkingonclimateadaptationwith4features:1.Monitoring,forecasting,earlywarning,andriskmanagementisgivenanabsolutetoppriority–suchasthroughanintegratedground-air-spacenetworkandsystem,enabledbyadvancedtechnology.2.Adaptivityandresilienceisexaminedandconsideredfromdimensionsofbothecosystemsandsocio-economicsystems–thatemphasizenature-basedsolutions.3.Eco-regionalandeconomicregionalperspectiveandcapacityinadaptationareemphasizedwhenplanninglanduse.–through8eco-regionsand5economicstrategicregions.4.AndintergovernmentalcoordinationbecomeskeytodelivertheStrategy,withensuredsup-portbyfunding,technology,capacitybuildingandinternationalcooperation.Itcallsonstrengtheningfourpillarsofcapabilitiesinbuildinganadaptativeandresilientsocietyby2035,asillustratedinTable1-5.19▏INSTITUTEOFENERGY,PEKINGUNIVERSITYTable1-5:KeyCapabilityPillarsinBuildingaClimateResilientSocietyCapabilitypillarPriorityfocusesCapabilityinclimatechangemonitoring,earlywarningandriskmanagement1.Betterclimateobservationnetwork2.Strengthenmonitoring,forecastingandearlywarning3.Enhanceimpactandrisksassessment4.StrengthendisasterpreventionandreductionCapabilityinnaturalecosystems’climateadaptivity1.Waterresources2.Landecosystems3.OceansandcoastalbeltsCapabilityinsocio-economicsystems’climateadaptivity1.Agricultureandfoodsecurity2.Healthandpublicsanitation3.Infrastructureandkeyengineeringprojects4.Citiesandhumanlivingenvironment5.SensitivesecondaryandtertiaryindustriesincludingenergyEcoregionalcapabilityofclimateadaptivity1.Structureclimate-adaptivelandspace2.Enhanceclimateadaptiveregionalactions3.Elevatestrategicallysignificantregions’climateresilience1.6.3Zoominonecosystems’adaptivityOneofthehighlightsoftheStrategyis,forthefirsttime,climatechangeimpactonNatureis“officially”recognizedandintegratedintoanationalstrategyandplanandisputatthesamelevelofsignificanceassocio-economicadaptation.AsillustratedinTable1-6,theStrategyputsanemphasisonintegratedprotectionandsystemicapproaches--toalignadaptivityandresilienceworktofocusonmountains,water,forests,farmlands,lakes,grassland,anddeserts.Waterisputatthecoreofthenationalstrategyofresiliencethroughaprincipleof“fourdefinedbywater”(orinChi-nese“四水四定”)–thatdecisionsonwheretolocateacity,landuseplan,people’ssettlement,andeconomicactivityshallbemadeinaccordancewiththecarryingcapacityofwaterresources(orinChinese“以水定城、以水定地、以水定人、以水定产”).Suchprinciplesfixatedecision-makingonwatersavingandconservation.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏20Table1-6:ElevatingEcosystems’ClimateAdaptivityandResilienceIllustrationCategory/time20252035Waterresources:•Structurewaterresourcesandflooding-droughtsmartmonitoringsystem•Advancewaterresourcessavingandintegratedutilization•Enhancemandatorywaterresourcesconstraints•Implementstatekeywaternetworkprojects•Improvewatershedfloodingcontrolengineeringprojectsandfloodingriskpreventionandcontrol•Acceleratefloodingdiversionandstorageinfrastructureconstruction•Strengthenmajorriversandmajorlakesecologicalconservation•Totalwaterconsumptionnationwide:lessthan640billioncubicmeters•Wateruseintensityper10,000RMByuanGDPreduction:16%over2020level•Scalewatersupplycoverage:55%ofruralpopulation•Ruraltapwatercoverage:88%•Keyriversandlakesbasicecologicalrunoffreachingstandards:90%andhigher•Waterandsoilconservationnationwide:73%andhigher•Totalwaterconsumptionnationwide:lessthan700billioncubicmeters•Watersavingandrecycling/reuse:atinternationallyadvancedlevel•Effectiveprotectionforwaterecosystems,waterandsoilconservation,runoffofriversandlakes,andinplace,beautifulandhealthywaterecosystemsLandecosystems:•Buildlandecosystemsintegratedmonitoringsystems•Establishlandecosystemsprotectionandoversightsystems•Enforcinglawsandregulations•Strengthenremediationofdegradedlandmass•Elevatedisasterearlywarning•Protectbiodiversity•Forestcoverage:26%•Vegetationcoverageofgrassland:60%•Wetlandprotection:60%•Remediabledesertedlandtreated:75%Oceanandcoastalregions:•Improveoceandisastersobservation,earlywarningandassessmentsystems•Elevatedisasterpreventionandresiliencecapacityincoastalregions•Strengthencoastalecologicalremediation•Sustaintoimproveoceanenvironmentalquality•Coastlineremediation:400kilometerslong•Landnaturalcoastlinepreservation:nolessthan35%•Near-coastgoodwaterquality:79%•Remediatedcoastalwetlands:50,000hectares•Coastalsheltertrunkforestbeltreachingstandards:nolessthan98%•Coastlineremediation:1,200kilometerslong•Muchimprovedoceanecologicalandenvironmentalquality21▏INSTITUTEOFENERGY,PEKINGUNIVERSITY1.6.4EcoregionalfocusesEcoregionsaretheuniquebioticsubregionswithintheprinciplebiogeographicregions1orbioregionsoftheplanet.TheStrategycallsforamoreholisticecoregionalapproachinbuildingaclimateresilientsociety.Thiscanbereflectedintheimportanceattachedtodiverseclimateandnaturalenvironmentstoensureeffectivenessofadaptationandintegrityoftheecosystems.Eightecoregionsarespecifiedinstructuringregionalclimateadaptivity,including1)NortheastChina;2)NorthChina;3)EastChina;4)CentralChina;5)SouthChina;6)NorthwestChina;7)SouthwestChina;and8)theQinghai-TibetanPlateau.TheStrategymakesitsutmostefforttoembedresilienceandadaptivityintolandusesandshapeup“OneMap”inlanduseplanningsothat“redlines”forpermanentagriculturallandandcultivatedland,ecology,andurbandevelopmentberespected.1.6.5ReinforcingadaptivityinstrategicallysignificanteconomicregionsInthemeanwhile,theStrategyhasalsosetpriorityactionsforthefivestrategicallysignificanteconomicregionstoadvanceclimateadaptivity.Thosearethere-gionswheremostoftheChinesepopulationresidesandwhereclimateresilientinfrastructures–bothhardwareandsoftware,aswellasnature-basedsolutions–haveacrucialroletoplaytoprotectpeopleandnature.Theyare:1.TheBeijing-Tianjin-HebeiRegion:wherewaterscarcityhaslongbeenamajorgrowthcon-strainingfactorandit’snowplannedtobuildoutaninternationallyadvancedclimateadaptiveandhabitableurbanclusters.2.TheYangtzeEconomicBelt:whereremediation,regenerationandrecoveryofnatureiskeyalongtheYangtzeRiverwatershed.1TheEarth'seightbiogeographicalregionsareAustralasian,Afrotropic,Nearctic,Oceanian.Antarctic,Indomalayan,Neotropic,andPalearctic.3.TheGuangdong-HongKong-MacauBigBayArea:wheresealevelrisehasbecomeamajorchallenge,aswellastyphoonsandotheroceanicdisasters–theyposerisingriskstopublichealth,infrastructure,andlocalecosystems.4.TheYangtzeDeltaIntegratedRegion–whereisexpectedtoleadthetransitiontowardsclimatesmartandadaptivesociety.5.TheYellowRiverWatershedRegion–wherewatersavingandcontrolofwaterconsumption,integratedprotection,andsystemicapproaches,andcoordinatedregionalandecoregionalactionsareamongsomeoftoppriorities.1.6.6FinancingadaptivityandresilienceEmbeddingthe5economicregionswellinthe8ecore-gionsremainsadauntingtasktodeploy,which,toalargeextend,willdefinehowwellandeffectivelytheStrategybeimplementedandgoalsdelivered.Todosowouldrequirebothpublicandprivatefundinginplacetoinvestinthetransitionofclimateadaptivesocietyby2035.TheStrategy,undoubtedly,helpssecurenationalbudgetandpublicfinanceforclimateresilience,whilepolicyisexpectedtoincentivizeprivatecapitaltoflowintoadap-tivity.WhilegreenisalreadydesignatedasthecoloroffinanceinChinaunderthenational“duocarbontargets”tonetoutemissions,adaptivityfinance,laggingwaybehind,istocatchupquicklyunderthenewStrategy.Twotrendsareemergingwithdifferentdegreesofcertainty.Oneisthatbanks,securities,funds,andothercommercialfinancialproductsareexpectedtoshiftatscaletowardsinvestinginclimateadaptationprojects,butitremainshighlyuncertainhowmoneywillgetre-warded.TheotheristhatdisasterinsuranceorbroadlyclimateriskinsurancearesettoplayamoremainstreamINSTITUTEOFENERGY,PEKINGUNIVERSITY▏22roleinbuildingaclimateresilientsociety.Thiswillbeasurething,isn’tit?1.7BUILDING“ONENATIONALLYUNIFIEDBIGMARKETPLACE"InsightChina,May20,2022About2,240yearsago,inAD221,therulerofQinannexedallhissixneighboringkingdomsandproclaimedhimselfthefirstemperoroftheQindynasty,nowcalledChina.Tobuildastrongandunifiedbigempire,oneofhismostsignificantandlastingendeavorswasnotjustdestroyingallthedefensebarriersoftheconqueredkingdoms,buttounifythecalligraphs,roadwidths,carttracks,weightandvolumemeasurements,currenciesaswellasmarketrules.Morethantwomillennialater,in2022,canoneimaginethatasimilaractionisbeingundertakenintheMiddleKingdom?Well,everyoneknowsChinaisaverylargemarketforeverythingwithits1.4billionpopulation,butfewmayknowthattheChinesemarketisactuallynotaunifiedone.Thereexistwhatwecall“horizontalbarriers”,wherebyeachofits31provincessetstheirownrulestoprotectlocalmanufacturingandvestedin-terestsagainstgoodsandservicesfromotherprovinces,and“verticalcompartmentations”wherebycriticalinfrastructuressuchasgas,water,heatingandpoweraremanagedbydifferentgovernmentagencies,preventingcompaniesoperatinginonecompartmentfromenteringintoanother,therebyimpedingmarketefficiency.AsChinanowadaysfocusesmoreondomesticmarkettopursueeconomicgrowth,duetoboththepandemicandthedecouplingwiththewest,itspolicymakershaveturnedtheirattentiontoremovedomestictradeblockagestoensureanunimpededflowofproductsandserviceinsidethisbigmarketplace.Thisisthepurposeofthe“OpiniononAcceleratingtheConstructionofaNationallyUnifiedBigMarketplace”(theOpinion),releasedonMarch25,bytheCentralCommitteeandtheStateCouncil.ThisInsightChinareportshedssomelightonitsimplicationsandpotentialrepercussionstothecountry’scleanenergytransition.1.7.1BuildingaunifiednationalmarketplaceforefficiencyandefficacyWiththeobjectiveofbuilding"onenationallyunifiedbigmarketplace",theOpinioncallsto:1.Advancehighlyefficient,fluidandopendomesticmarketbybreakingdownallartificialorsystematicentry-exitbarriersthatinhibitthecross-provincialandcross-industryflowofproductsandservices;2.Simplifyrulesandregulationstobuildacommercialmarketenvironmentthatisstable,fair,transparentandpredictable;3.Furtherreducecostsofmarkettradingandtransactions,particularlythelogisticscosts;4.PromoteS&Tinnovationandindustrialupgrad-ing;and,5.Cultivatenewcompetitiveadvantagestoparticipateininternationalcompetitionandcooperation.Thefollowingsixpriorityareasareidentifiedforaction:1.Strengthenunificationofbasicmarketsystemsandrules,suchaspropertyrightsprotection,marketentrance,faircompetition,andsocialcredits;2.Advanceinter-connectivityofhigh-standardmarketfacilities,suchasmodernlogisticsnetwork,marketinformationexchangechan-nels,andtradingplatforms'optimizationandupgrading;23▏INSTITUTEOFENERGY,PEKINGUNIVERSITY3.Buildaunifiedfactorsandresourcesmarket,includinglandandlabor,capital,technologyanddata,energy,andecologyandenvironment.Table1-7belowshowsthefocusedactionsinthefiveprioritymarketsforfactorsandresources.4.Advanceunificationofhigh-performancegoodsandservicemarket,suchasqualityassurancesystem,standardsandmetering/measurementsystems,andconsumptionservicequality;5.Advancefairandunifiedmarketsupervisionandoversight,includingsoundrules,strength-enedenforcement,andelevatedcapacityonallfronts;and,6.Furtherregulateimpropermarketdomina-tions,bystrengtheninganti-monopoly,dealingblowstoimpropercompetitionbehaviors,tearingdownlocalprotectionandregionalbarriers,abolishingrulesthatblocklegalandfairmarketentranceandexit,andcontinuingclearanceofexistingrulesandactsofbiddingandprocurementthatgoagainstconstructionofaunitedmarketplace.Table1-7:FivePriorityMarketsofFactorsandResourcesPrioritymarketsFocusedactionsaunifiedurban-rurallandandlabormarket•Unifyplanningandmanagementoflanduse,bothnewlyincreasedandin-stock•Bettercross-regiontradingmechanismbycouplingincreaseanddecreaseofurban-ruralconstruction-purposelandsavingquotaandsupplementedarablelandquota•Unifyaregulatedhumanresourcesmarketsystemandpromotecross-regionflowoflaborandtalents•Linkcross-regionfiscaltransferpolicywithsizeofnewlyaddedurbanlanduseandruralpopulationurbanizationaunifiedcapitalmarket•Unifyregistrationofmovablepropertyandrightguaranteeanddevelopmovablepropertyfinancing•Unifyoversightstandardandbetterentrancemanagementtostrengthenkeyfinancialinfrastructureconstructionandsupervision•Innovateandpilotnewsystemsandbusinessesinselectedregionalequitymarketsthatareoperatedsafelyandwell-regulated,withbetterriskmanagementcapability•Connectbondmarketinfrastructureforfreeflows•Developsupplychainfinancingandprovidedirectpassagetooperatingentities•Buildsolidsecuritybottomlinetopreventandcontrolfinancialsystemrisks•Prevent"virtualization"ofrealeconomy•Setcapital"greenandredlights"topreventexpansionwithoutorderINSTITUTEOFENERGY,PEKINGUNIVERSITY▏24PrioritymarketsFocusedactionsaunifiedtechnologyanddatamarket•Establishandimprovenationaltechnologytradingmarket,betterIPRvaluationandtradingmechanisms,andpromotecross-regioninter-connectivity•Encouragecross-regiontechnologyinformationinteractionandsharingofkeyR&Dinfrastructureandequipmentandfacilities•Establishbasicsystemsandstandardregulationforsounddatasecurity,rightsprotection.cross-borderdatatransfermanagement.tradingcirculation,opennessandsharingandsecuritycertificationaunifiedenergymarket•Preconditionedoneffectiveguaranteeofsecuredenergysupply,orderlyadvanceconstructionofnationalenergymarket,inlinkagewiththeduodecarbonizationtarget•Basedonunifiedplanningandoptimizeddistribution,improveoilandgasfuturessystembyregulatingandstandardizingconstructionoftradingcentersandtransactions•Promoteinterconnectivityofoilandgaspipelinesandopenthemtomarketplayersfairly•Steadilypromotenaturalgasmarketizationreformandspeedupestablishmentofunifiedsystemfornaturalgasenergymeasurement,valuationandpricing•Improveamulti-layeredandunifiedelectricitymarket,studyandrolloutstructuringnationalelectricitytradingcenter•Furtherthefunctionofthenationalcoaltradingcenterandpromoteimprovementofanationallyunifiedcoaltradingmarketaunifiedecologyandenvironmentmarket•Builtuponthepublicresourcestradingplatforms,establishunifiednationaltradingmarketofcarbonemissionsrightsandwateruserights,guidedbyunifiedsectorstandardsandtradingsupervisionmechanism•Promotemarkettradingofpollutionlevyandenergyuserights•Promotesystemconstructionforgreenproductscertificationandlabels,aswellasgreenproductionandgreenconsumption25▏INSTITUTEOFENERGY,PEKINGUNIVERSITY1.7.2AdvancecleanenergytransitionconditionedonenergysecurityTheOpinionishighlyorientedtowardssecurityriskmanagementandresilienceenhancementinthebackdropofincreasingsystemshocksfromgeopoliticalcomplexityandescalatingconflictthreats,supplychaindisruptions,energy,andfoodsecurityrisks,continuedpublichealththreats,aswellasintensifyingclimatechangeimpacts.ThismindsetisstronglyandclearlystatedintheOpinionwhencleanenergytransitionisconcerned.Indeed,asspecifiedintheOpinion,"effectiveguaranteeofsecuredenergysupply"isa"fundamentaltask"and"precondition"thatpreludesalltheothermovesandalsoamandatetodeliver.Domestically,Chinaisrampingupproductionoffossilfuels,especiallycoal,andensuringthatthepowersectorhassufficientcapacityandflexibil-itytoguardagainstshocksasitdecarbonizes.The"dual"decarbonizationgoalsorcleanenergytransitiontargetswillbelinkedwiththenationalenergymarketwhenthepreconditionsaremet.ThisechoeswhatPresidentXiJinpinghasremarkedthat-decarbon-ization"shouldbeneithertoofastnortooslow;rather,itshouldprogresssteadily",indicatingthatChinamustnotdismantleitsexistingenergysourcesbeforenew,cleanersourcesarefullybuiltout.Underthiscontext,weseetheOpiniongivinganewpushfortheunificationofrulesformarketmechanismssuchasgreenpowerpurchaseacrossprovinces,tradingofChinacertifiedemissionreduction(CCER)andgreencertificate,etc.Buttheseimprovementsremainminorcomparedtothegrandambitionofbuildinganationallyunifiedenergymarket.1.7.3Challengesinbuildinga“unifiedbigenergymarketplace”GivenChina’senergyindustryisdominatedbystate-ownednationalcompanies,itexperiencesless“hori-zontalbarriers”bylocalprotectionismthan“verticalcompartmentation”.However,theOpinionproposesnosolutiontothecompartmentationproblemswhichinvolvethemoreanddeeperdifficultiesofgovernance.Instead,itchoosestofocusitsattentionontradingplatforms,namely:●Standardizetheconstructionofoilandgastradingcenters,optimizetheexistingexchangesanddeliveryports;●Buildamulti-layerbutunifiedpowertradingmarketsystem,andestablishanationalpowertradingcenteratappropriatetime;●Fullyplaytheroleofexistingnationalcoaltradingcenterinbuildingaunifiednationalcoalmarketplace;and,●Buildnationallyunifiedtradingmarketsforcarbonemissions,forwateruserights,pollutantdischargerightsandenergyuserights,withunifiedstandardsandtradingrules.Operationalexperiencesofmanyofthesetradingplatformshaveshownlaggingeffectivenessinresourceallocationandpricesetting,mainlyduetotheconflictsbetweenmarketinstrumentsandcommand-and-controlmentalityoftheChineseeconomy.Oneunifiednationalbigenergymarketplacecanbebuiltwiththecommand-and-controlapproachundercontinuingstatemonopoliesinpower,oilandgastrans-missionanddistribution,andyetthiswon’tbeefficientnordesirable.Butalas,thisisverylikelytohappen,asincumbentmonopolisticcompanieswillusethisnewdirectivetostrengthentheirpositions.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏261.8CHINESENOCs'NETTINGZEROCOMMITMENTSInsightChina,September22,2022Chinahasthreeintegratednationaloilcompanies(NOC):CNPC,SinopecandCNOOC(the“BigThree”).Eachhasapubliclylistedentity,respectivelyasPetroChina,Sin-opecLtdandCNOOCLtd,andeachofwhichownsthemajoritystakeofitsmothercompany’soperatingassets.In2020,thoselistedentitieshadacombinedScope1andScope2GHGemissionsof347mt(milliontons)ofCO2equivalent,whichisbiggerthantheentireUKemissions(329mtCO2ein2020).Asstate-ownedcompanies,thoseNOCsaremandatedtohelpensurethecountry’soilandgassupplysecurity,whileleadingtheeffortsofdecarbonization.ThisInsightreportaimstoshedlightonwhatthosecompanieshavecommittedtoadvancingcarbonneutrali-tyandwhatchallengestheyface.1.8.1EmissionsBeforetheParisCOP21,ChineseNOCsweremandatedtodiscloseenvironmentalinformationandtheywerereportingenergysavingandpollutionreductionaspartoftheirCSR(corporatesocialresponsibility)or“sus-tainability”reports.GHGemissionswereaddedtothescopeofreportingafterChinesegovernmentofficiateditsNDCsundertheDec2015ParisAgreement.CNOOCwasthe1stChineseNOCtoreportitsGHGemissionsin2016,followedbySinopecayearlaterandCNPC/PetroChinain2019.Table1-8summarizestheirtime-bounddataofemissions.Forcomparison,thelargestIOC-Exxon’sScope1&2GHGemissionsin2019was120mt,whileShell–thesecondbiggest,was80mt,bothfarbelowSinopecorPetroChina.Table1-8:GHGEmissionsofChineseNOCsMilliontonsofCO2equivalent20162017201820192020CNOOCLtd.Scope16.7357.7367.3458.5979.123Scope20.3600.0930.1350.1860.222Scope1+27.0957.8297.4808.7839.345PetroChinaScope1132.17127.57Scope241.9139.87Scope1+2174.08167.4427▏INSTITUTEOFENERGY,PEKINGUNIVERSITYMilliontonsofCO2equivalentSinopecCorp.Scope1123.05128.57125.68128.58Scope239.6142.9545.0142.36Scope1+2162.66171.52170.69170.94Source:CompanyreportsandERICADOWNS1.8.2CommitmentsInSeptember2020,PresidentXiannouncedChina’sgoalsofpeakingemissionsbefore2030andachievingcarbonneutralitybefore2060.ChineseNOCshavesuccessivelyannouncedtheirrespectivepeakingandneutralitytimetables(Table1-9).BothSinopecandCNPCpublishedtheirtargetsinMarch2021,whileCNOOConlymadeitstargetpublicinJune2022.Table1-9:ChineseNOCs’CarbonNeutralityObjectivesandStrategiesCompanyObjectiveStrategiesandactionsSinopec•Net-zeroby2050;•Becomingaworld-leadingcleanenergyandchemicalcompany.•BecomingChina’s1sthydrogencompany.•Building1,000hydrogenrefuelingstationsby2025;•Reducingmethaneintensityby50%by2025;•BuildingonemtpasizedemoCCUSprojectby2025;•ConvertingexistingpetrolstationsintoEVcharging,hydrogenrefuelling,gasrefillingandserviceprovidinghubs.•Investinginnewenergy,newmaterials,newtechnologiesandnewbusinessestocreatenewengineofgrowth.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏28CompanyObjectiveStrategiesandactionsCNPC•Peakingby2025;•Oil,gasandnewbusinesseachonethirdby2035;•Net-zeroby2050;•Changingfromanoilandgascompanytoanintegratedenergysupplier.•Increasingtheshareofgasintotalproductionto55%by2025;•Investinginrenewablesincludinggeothermal,windandsolar;•Strengtheningenergysavingandgreenelectricitysubstitutioninownoperations;•InvestingincarbonsinkandCCUS,achievingacarbonremovalcapabilityof10mtpaby2030,24mtpaby2040and34mtpaby2050;•Enhancingdigitalization;•RestructuringthecompanytogivenewenergythesamestatusasE&P.CNOOC•Peakingby2028;•Net-zeroby2050,whennon-fossilfuelsoutputwillbebiggerthanoilandgasoutput.•Becomeaworld-classproviderofcleanenergyproductsandservices.•ReduceCO2intensityby10-18%below2020levelby2025;•Newenergybusinessinvestmenttoaccountfor5-10%oftotalCapexby2025;•Three-stepapproach:cleanenergysubstitution,lowcarbonleap-froggingandgreendevelopment;•Sixareasofactions:1)stabilizeoilandincreasegasoutput;2)improveenergyefficiency;3)acceleratecleanenergysubstitution;4)businessupgradingandtransformation;5)greendevelopment;and6)innovation.1.8.3ChallengesAsshowninTable1-9,allthreeChineseNOCshavecommittedtonettingoutcarbonemissionsby2050,uptotenyearsaheadofthecountry’starget(before2060).Eachwilltellyoutheactivitiestheydointheirrespectivesustainabilityreports.However,manychallengesmustbeaddressed.Thefirstisabilityandexpertiseinrenewableenergy.Allthe“BigThree”haveallannouncedambitioustargetsforrenewables,butquestionsaboundabouttheirabilityandcapabilitytodeliverthetargets,asChineseNOCsaremuchlessexperiencedthantheirinternationalpeersindevelopingsolarandwindprojects.Thesecondisthemandatedandexpectedmultitasking.UnlikeoilcompaniesinWesterncountries,ChineseNOCsbearmultipleobligationsandexpectationsofbeingastateeconomicandindustrialtool,amarketplayerand29▏INSTITUTEOFENERGY,PEKINGUNIVERSITYalistedcompany.Theirmultipleresponsibilitiesrangefromimplementingthewillofthestateandensuringthesecurityofoilandgassupplytoparticipatinginmarketcompetitionandcreatingvalueforshareholders,whileholdingauniquepositioninChina's"socialistmarketeconomy".AndrecentenergycrisesinEuropehavereinforcedtheChineseNOCs’roleasenergysecurityproviderofthecountry.Andthethirdisgovernance.AsthebackboneofChina’sstate-ownedeconomy,thetopexecutivesofthoseNOCs(abovethelevelofdeputygeneralmanager)areappoint-edbytheCPCParty.Thebossesaretreatedasofficialsatvice-ministeriallevel.Also,ChineseNOCscarrymanygovernmentfunctionsandtheiroperatingmodelretainsthecharacteristicsofnationalministries.Thebiggestpressureonthemcomesfromthegovernment,andthebiggestincentiveforthoseatthehelmremainspolitical.Asaresult,ChineseNOCsandtheirCEOsbehaveratherdistinctlyfromtheirinternationalpeers.Theirnet-ting-zerocommitmentsshouldbeunderstoodwithinthecountry’soveralldecarbonizationplaninwhichthosecompaniesplaytheirduepart,ratherthanindependentlydecidedbytheirboards.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏30©PhotoonPxHere2MACRO-ECONOMICTRENDSANDINTERNATIONALLANDSCAPEINSTITUTEOFENERGY,PEKINGUNIVERSITY▏322.1CHINAONANEWJOURNEY:CCPCONGRESSSETSNEWTONEONENERGYTRANSITIONInsightChina,October24,2022Overthelastweekend,theChineseCommunistParty(CCP)concludedits20thNationalCongress,whenXiJinpingunsurprisinglysecuredhis3rdterm.TheParty’sCongress,twice-per-decade,isthemostsignificantpoliticaleventinChina.Itnotonly“elects”andpresentsthenewleadership,butalsodrawstheblueprintforthecountry’seconomicandsocialdevelop-ment.Itsetsthetoneandstepsfortheenergytransitionoftheworld’ssecondlargesteconomy.ThisInsightreportprovidesasummaryofthisblueprintandanalysesitsimplicationsforenergytransition,basedonthe72-pagereportXisubmittedtotheCongressontheopeningday(theReport).2.1.1ModernizationintheChinesewayXi’sreportcoversmanysubjectsrangingfrompoliticaltoeconomic,social,andmilitarysecurity,aswellastechnology,industryandecologicalandenvironmentalsustainability.Theoverarchingambitionistopursuethecountry’smodernizationintheChineseway.AccordingtoXi,Chinahasachievedthefirststepoferadicatingabsolutepovertyandbuildingawell-offsocietyunderhisleadershipinthelastdecade.Thenextmissionistobuilda“modernizedcountry”by2035anda“rich,strong,democratic,civilized,harmoniousandbeautifulmodernizedpowerfulcountry”bymidofthecentury.HowtounderstandtheChineseway?TheReporthigh-lightsthefollowingaspectstoachieveitsmodernization:1.Strongunityaroundonesinglepartyandonesingleleader;2.SocialismwithChinesecharacteristics,withfocusonstate-ledeconomyandself-reliancebutbalancedwithopeningtotheexternalworld;3.Amoreegalitariansocietythatispeople-cen-tered,forpeople,reliantonpeopleandensuringpeopletosharethefruitsofeconomicdevelop-ment;4.Continuedreformandopeningupwhileover-comingthesystematicbarriersthatholdbackprogress;and5.Thespiritofafighter,daringtofaceproblemsandchallengesandgetthemsolved.2.1.2SecurityasthefoundationTheword“security”isrepeated89timesinthereport.ItshowshowimportantandimperativeitisonthemindoftheCCPleadershipwhendrawingthecountry’sblueprintforthecomingdecades.Itreferstoathree-dimensionalsystemthatcoversnotonlythetraditionalnationalsecurity,butalsopoliticalsecurity,regimesecurity,ideo-logicalsecurity,homelandsecurity,economicsecurity,foodsecurity,energysecurity,andkeysupplychainse-curity.Italsoencompassessecurityinsuchwide-rangingareasasmilitary,scienceandtechnology,culturalandsocial,financial,majorinfrastructure,cyber-space,data,bioscience,resources,space,andoceansectors.Butthosedifferentaspectsofsecurityarenottreatedasequal.Accordingtothereport,“peoplesecurity”istheultimateobjective,whilepoliticalsecurityisfundamental,economicsecurityasthefoundation,andsecurityinmilitary,technology,culture,andsocietyastheguarantor.Thereportvowstopromoteinternationalsecurityandtocoordinateexternalsecurityandinternalsecurity,homelandsecurityandnationalsecurity,traditionalsecurityandnon-traditionalsecurity,andChina’ssecurityandglobalcommonsecurity,inaholisticmanner.33▏INSTITUTEOFENERGY,PEKINGUNIVERSITYTheabilitytocounterforeignsanctions,interventions,sabotages,subversionsand“arms-length”interferencesisalsoconsideredimportanttothenewlydefinedsecuritysystem.Otherkeyelementsoftheblueprintinclude“commonprosperity”whichmarkshaltingamottoofthe“DengXiaopingera”whencapablepeoplewereencouragedtogetrichfirst.Theemphasisonhigh-qualitygrowthimpliesthataslowergrowthinthecomingyearswouldbeacceptable.2.1.3EnergysecuritybyallmeansOneofthe15chaptersoftheReportisdedicatedtogreendevelopment,whichdefinesthecolorofChinesemodernization.Itcallsforawell-coordinatedplanninginindustrialstructuralre-adjustments,pollutionreduction,ecologicalprotectionandclimateresponse,inachievingitsmodernizationthatisecologicallysound,environmentallyfriendly,lessresource-intensive,greenandlow-carbon.TheReportcallstoprogresspeakingcarbonemissionsactivelyandsteadilyandachievingcarbonneutrality,butitalsoinsiststhatthisshouldbedoneinaplannedandphasedmannerandbasedonChina’sconditionsofresourceendowment.Itstressesabasicrulethatanewsystemshallbebuiltandfullyoperationalbeforeknockingdowntheexistingone.Energysecurityishigh-lightedaskeyandfundamentalwhendecarbonizingthecountry’senergysystem,withallmeasurestobetakentostrengthenit,includingcleanandefficientutilizationofcoal,anddomesticexplorationofoilandgasresources.2.1.4Buildinga“NewEnergySystem”What’snewisthecalltobuilda“NewEnergySystem”whichappearsthefirsttimeinanofficialCCPorthecountry’spolicydocument.Asareminder,theCCPcalledtobuilda“NewPowerSystemwithrenewablesasthemainstay”inMarch2021,whichattractedalotofattention.Theenergysector’s14thFive-YearPlan,publishedinMarch2022,isentitled“ModernEnergySystem”DevelopmentPlan.Andyet,justasitwasthecaseinMarch2021,theCCPdidnotgiveanycleardefinitionofwhatholdsasthe“NewEnergySystem”,leavingroomforinterpretationsandpossibleconfusion.It’swellunderstoodthatenergyismuchbiggerthanpower.Thus,buildinganewenergysystemhasbecomeaclearcallandinstructionthatXigivestohisbureaucratstohaveabiggerambition,andthe“newness”mustbecompatibletotheoverallphilosophyofthenewXiEra.2.1.5EnergytransitionimplicationsTheReportcouldalsobereadasChina’snationalresiliencestrategyagainstthebackdropofglobal“choppywaters”and“stormyweathers”,whereXiandhiscolleaguesseeanincreasinglymoretreacherousglobalgeopoliticalcontentionthatthreatensChina’ssecurityandstability.AndenergysecurityisoneofthecorepillarstostaveoffthecrisesinthenextfiveyearsofXi’sthirdterm.Asstated,Chinawillmakeavailableallresourcesatitsdisposaltostrengththebaseofenergysecurity,whichwillincludecoal,oilandgas.Moreeffortswillbespentonenhancingtheresilienceoftheenergysystemvis-à-visextremeclimateeventsandgeopoliticalevents.Inthemeanwhile,Chinaremainssteadfasttoacceleraterenewables,nuclearandhydro-powerdevelopmenttobuildanewenergysystemthatisgreenandlowcarbon.Andemissionstradingisexpectedtoplayamuchbiggerrolethatalignsthenation-widecross-sectorendeavortodrivedownemissions.AttheCongress,theCCPalsoamendeditsCharterbyaddingtwosentencesamongothers.Oneis“Greenmountainsaremountainsofgoldandsilver”,andtheother,“Chinawillenforcethemostrestrictivelawsandregulationstoprotecttheenvironmentandecosystems”.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏34Theformerimpliesafundamentalshifttowardsanewplanetary-viewthatvaluesnatureandembracesna-ture-basedsolutions,andthelatterimpliesthattheCCPisdeterminedtoadvancecleanenergytransitionandfightclimatechangethrougheffectivelawenforcementandwithaccountability.Nowthenewtoneisset,butuncertaintiesloomlarge:howwillthenewleadershipstoptheeconomicdownfall?AndwhenwillChinaandUSresumeclimatedialogueandcooperationinthenewgeopoliticallandscape?2.2PEAKINGOIL:YES,CHINA’SOILDEMANDPEAKEDInsightChina,December27,2022Inhisexclusiveinterviewatthe12thUnitedArabEmirate(UAE)EnergyForumonJanuary12thof2022,XavierChen,PresidentoftheBeijingEnergyClubandCEOofCNInnovation,arguedthatChineseoildemand“isreachingaplateauandmayhavebeenalreadypeakedatround15.5millionbarrelsperday(mbd)”.Headvisedthat“weshouldrevisethehypothesisthatChineseoildemandwillcontinuetoriseandfollowthetrendinthelastdecade”.Hisargumentisbasedontheworseningdomesticmacro-economicprospect,deterioratinginternationalgeopolitics,andnewenergyvehiclesubstitution.Attheyearend,wewouldliketodedicatethisfinalInsightreportoftheyeartotheChineseoilmarket,byzoominginonDr.Chen’sargumentandexamininghowthetrendimpactsChina’senergytransition.2.2.1Therisingdemand:historicaldataCommensuratewithitsrapideconomicexpansion,China’soildemandmorethantripledduringthedecadeof2000-2021asshowninFigure2-1.Theaverageannualgrowthrateis5.9%.Growthslowedslightlyin2020duetotheCovid-19lockdowns,butquicklyreboundedin2021.Figure2-1:China’sOilDemand2000-20214.6559.36015.5220.0002.0004.0006.0008.00010.00012.00014.00016.00018.0002000200120022003200420052006200720082009201020112012201320142015201620172018201920202021millionbarrelsperdaySource:BPStatisticalReviewofWorldEnergy,202235▏INSTITUTEOFENERGY,PEKINGUNIVERSITY2.2.2ReexaminingtheargumentsofpeakingoildemandSucharobusttrendconstitutedoneofthemostimport-antfundamentalsoftheglobaloilmarketsincetheturnofthenewcentury.Toalargeextent,ithadprovidedasheltertotheglobaloilindustryduringthethreemarketstorms–in2009,2014and2020,andhelpeditsquickrecovery.Willsuchdynamicsholdthough?Toanswerthisquestion,let’stakeacloserlookatDr.Chen’sthreearguments.Thefirstissubstitutionbyelectricvehicles.Let’sinves-tigateboththesignificanceofEVgrowthinChina’stotalfleetanditsimpactonoilconsumption.Fromthefleetperspective,bytheendofSeptember2022,Chinahadatotalof412millionvehiclesonroad,76.5%ofwhichor315millionwerepassengercars.In2021,atotalof21.75millionnewcarsweresoldandregisteredforroadcirculation,3.3millionofwhichwereEVS.Bytheendof2021,Chinahadatotalof7.8millionEVsonroad.HowdoestheEVgrowthimpactoilconsumption?Figure2-2showsChina’s2021mixofoilconsumptionwheretransportaccountedfor47%ofthetotal,andthepassengercarsaccountedfor44%ofthetotaltransportoiluse,or21%ofthecountry’stotal.Figure2-2:China’sOilConsumptionMix2021(Total:720mtor14.4mbd)Construction9%Agricultural4%Residential4%Industry9%Others7%ChemicalFeedstock20%Transport47%Trucks35%Passengercars44%Aviation11%Shipping8%Others2%Source:SinopecEVsmainlyreplacegasoline-fueledpassengercars.Ef-fortsarealsobeingmadetoreplaceheavydutyvehicleswithbattery-swaps,buttheirquantityisstilllimited.Evenifwitha40%EVpenetrationrateby2030asthegovernmentaimsat,Chinawillhave60millionEVsbythen,butaccountingonlyfor16%ofthetotalpassengercarfleet,thusbarelyimpacting3%ofthecountry’stotaloilconsumption.Furthermore,asourearlierreportsINSTITUTEOFENERGY,PEKINGUNIVERSITY▏36onChineseEVmarkethaveshown,EVsalesgrowthmightnotgoasfastasexpected,giventhebottlenecksindevelopmentofchargingpilesandtheconstraintsingloballithiumsupply.Thesecondistheaccelerateddeteriorationofgeopoli-tics,especiallycenteredaroundUSandChina,theworldtwolargesteconomiesandcarbonemitters.Theyearof2022experiencedamuch-accelerateddeteri-orationofUS-Chinarelations.TheBidenAdministrationhasliterallyelevateditscontentionanddecouplingwithChinaonallfronts,includingeconomic,trade,technol-ogyandinvestment,andcontinuestoprovokeChinaontheTaiwanissue.TheimpactsonChina’seconomyaresignificant,bothshort-termandlonger-term.Imme-diately,thetradebetweenthetwocountriesdropped,especiallyhigh-techproductsandservices;andinalongerrun,adrasticreductionofUSinvestmentinChinaandtheUStechnologybansonChinaaresettowreckahavocforChineseeconomicagenda.Inthemeanwhile,theUSInflationReductionActseemsattractivetomanyChineseprivatecompaniesthataspiretoinvestintheUS,thusdeprivingordrainingtheinvestmentpotentialChinawouldotherwisehavehad.ArecentarticlebyRhodiumGroupdismissedtheofficialChineseFDIstatistics,attributingtheclaimedriseinrecentyearsmainlytothe“roundtrip”moneyofChinesespeculatorspullinginmoneyfromoverseastobenefitfromChina’shighinterestratesandremittheprofitback.QuotedfromfDFMarketsbytheFinancialTimes,thevalueofnewlyannouncedgreenfieldFDIprojectsinChinastartedtodeclinefromprevioustrendlinesin2020,thenstabilizedin2021beforefallingtoitslowestlevelinalmost20yearsin1H2022.Therecorded1Hto-talwas$6billion,whichisonlyafractionoftheaverage$69billionayearChinareceivedduring2015and2019.Tomakethecaseworse,theRussia-Ukrainewarhascausedhighinflationinmanypartsoftheworld,eco-nomicrecessionandhighenergypricesinEurope,anddrasticdeclineofconsumerpurchasingpower.Statisticsshowthat,inNovember2022,China’stotalexportsdropped8.7%,totalimportsdropped10.6%,andtheUSordersforChinesemanufacturedgoodsdropped40%.GiventhattheUShasbeenChina’slargesttradepartner,theUScontainmentpoliciesarepushingChinatowardsothernon-USalliancecountriesorregionsinSoutheastAsia,CentralAsia,MiddleEast,AfricaandLatinAmeri-ca,andyet,theseregionstogetherdon’tmakeupthegapleftinChina’sexternaltradewiththeUS.Andthethirdistheshiftingdomesticmacro-economicprospects.ThreeenginesusedtodriveChina’sgrowth:foreigntrade,domesticconsumption,andinfrastructureinvestment.Giventhatforeigntradeislosingsteam,whataboutthetwo?Ondomesticconsumption,threeyearsofCovid-9havelargelydepletedthepocketsandshrunktheassetsizeofChina’smiddle-class,makingthemmuchmorecautiousinspending.AccordingtotheNationalBureauofStatis-tics,China’sconsumerconfidenceindexdroppedto86.8inthemostrecentsurvey,arecordlowsince2009.Stockmarketselling-offs,decliningpropertytransactions,anddropintotalretailvolumes(-5.9%inNovember2022)havecloudedconsumers’outlook.Thishashappenedagainstabackdropof600millionChinesepeoplewithamonthlyincomebelowRMB1,000(US$145),orlessthan$5perdayin2020aspointedoutbytheChinesePremierLiKeqiang.Theirabilitytocon-sumeisverylimited.Realestateusedtoplayabigroleinhouseholdspendingandlocalgovernments’revenues,butnotanymore.Manybigreal-estatecompanies(suchasEvergrandeGroup)areinheavydebtdefault;andordinarypeoplecannotaffordexpensivehousepricesinbigcities,especiallywhenunemploymentamongyoungpeopleisashighas20%.Infrastructureinvestmenthasbeensaturatedtoo.China’stotalhighwaylengthtodayistwicethatofthe37▏INSTITUTEOFENERGY,PEKINGUNIVERSITYUS,andthetotallengthofChinesehigh-speedtrainrailwaysis10timesthatofJapan.Discouragingly,thoseinvestmentshavenotyetgeneratedtheexpectedreturn.Moreinvestmentininfrastructure,ononeside,wouldfurtherdrainthestate’spurseandcompromisestate’scapabilitytoimproveitspeople’slivelihood,andontheother,couldalsomakethedebtsituationworse.Beitdomesticconsumptionorinfrastructureinvest-ment,localgovernmentsusedtoplayasignificantrole,butthisengineisalsolosingmomentum.China’scoastalprovincesandcitiesusedtohavebudgetsurplustosupportotherlessdevelopedinlandregions,buttheyarealltrappedinseveredeficitthisyear.Inthefirsteightmonthsof2022,China's31provincesreportedagapbetweenpublicrevenueandexpenditurethattotals6.74trillionyuan($948billion).It’sthebiggesteversince2012forsimilarperiod,butonlyafractionofthetotallocalgovernments’debt,estimatednowatbetweenUS$6-7trillion.China’smostrestrictive“zero-COVID”policyinthelastthreeyearsandthemostrecentpolicyU-turndealtthecountrydoubleblows.Whilethe“zero-COVID”policyhascausedsupplychaindisruptionsandbankruptcyofmillionsofsmallandmediumsizedcompanies,leadingtomanyirreversibleeconomicandsocialdamages,thelackofpreparednessonthehealthinfrastructurefortheabruptpolicyshiftthisearlythismonthisimposingunprecedentedpainsonanalreadyfragileeconomyandsociety.Thegovernmenthasseta5.5%targetforGDPgrowththisyear,butitwillprobablydeliveragrowtharoundorbelow3%.Recognizingtheurgencytogiveanewboosttothenationaleconomy,thegovernmentissued,on14thDecember,the“StrategicOutlinestoExpandDomesticConsumption2022-2035”,literallyputting“alleggsinonebasket”,butwithoutbeingconcreteenoughtogiveconsumersandinvestorstherequiredconfidencethatwouldturnthedoomytidearound.OurOctober24theditionofInsightChinastatesthattheprioritiesofthenewCCPleadershiparesecurityandstability.Economicgrowthisanabsoluteprerequisite,thusitisalsotheCCP’saspirationtohalttheeconomicdownfallandrecoverChina’sgloriousyearsofstronggrowth.Butwhathappenedoverthelastthreeyearshasincreasedenduringfearsamongmarketparticipants.ForeigncompaniesareleavingChinaduetounwarnedandrepeatedseveresupplychaindisruptions.Privatecompaniesarereluctanttoinvestduetopastcrackdownsinthenameof“commonprosperity”.Furthermore,anageingpopulationisdrainingthe“populationdividend”thatmadeChinatheworld’shubofmanufacturing.2.2.3AssessingoildemandinaVUGAworldTheaboveanalysisconcurswithDr.Chen’sargumentthatChina’soildemandhadalreadyplateauedin2021,expectedtofluctuatearound15.5mbdinthecomingyears.Timingwise,thisisalsobroadlyinlinewiththeearlierforecastsbyChina’stwolargestoilcompanies–CNPCandSinopec.In2020,CNPC’sEconomicandDevelopmentResearchInstitutesaidChina’soildemandtopeakin2025,whileSinopec’sEconomicandDevelopmentResearchInstitutesaidthatChina’sdieseloildemandhasalreadypeakedin2015anditsgasolinedemandwillpeakin2025.Thedevelopmentoverthepasttwoandhalfyearshassignifi-cantlyadvancedthepeakingtime.For2022,Chineseoildemandisexpectedtodecreasebyaround2%.Inaworldtornbypolycrisesandcharacterizedasvulnerable,uncertain,complex,andambiguous(VUCA),makingprognosticsofthemacro-economicfuturealwaysprovesrisky.ButweareafraidthattheVUCAuncertain-ties,amplifiedbytheabove-mentionedtwotraps,willonlyaddpessimismtoChina’sgrowthprospects,therebyfurtherenhancingourassumptionofChina’speakinginoildemand.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏38Willpetrochemicalsaddenoughvolumetobringthecountry’stotaloildemandtoanewhigh?Well,byend2022,Chinawillhave20mbdofrefinerycapacity,and2mbdmorecapacityisexpectedoverthenextfiveyears.However,domesticoilconsumptionwillnotexpandbecauseofnewrefiningcapacitieswhicharemoregearedtowardpetrochemicals.Giventhatrefinerieshavetoproducecertainshareofoilproductsastheiroutput,stagnationindomesticoilproductdemandwilleitherdecreasetheaveragerunrateofrefineries,closingtheinefficientonesontheway,orincreaseChineseexportsofbothoilandpetrochemicalproducts.OvercapacityofChineserefinerymeritsanotherin-depthresearch.Onemayrefertothepeakingofcoaldemand,whichwasbelievedtohaveoccurredin2014butreboundedinrecentyearswithoutreachingthepeakyet,tocautionthatoildemandmayfollowthesamecourse.Hellas,wedon’tsofortwosimplereasons:coalislargelyproduceddomestically,itsdemandismainlydrivenbyfastgrowingpowerdemand,bothwillnotbethecaseforoil.Despitedemandpeaking,Chinaremainstheworld’s2ndbiggestoilconsumerbutthelargestimporter.TomeetitsexistingdemandinthebackdropofrapidlydepletingproductioncapacityremainsabigchallengeforoilproducersbothwithinandoutsideChina.Fromtheperspectiveofenergytransition,peakingoilisgoodnews,butreducingtoday’svolumeandreplacingitwithalternativesremainadauntingtask.2.3RCEP:AMUCH-ENLARGEDBATTLEFIELDFORCLEANENERGYREVOLUTIONInsightChina,January5,2022Animportantmilestonemayhavegoneun-noticedbytheenergycommunityoutsideAsia:theentryintoforce,on1stJanuary2022,oftheRegionalComprehensiveEconomicPartnershiporRCEP.Inaworldstillstrugglingforeconomicrecoveryfromthepandemic,withfracturedinternationalorderandrisingtradeprotectionism,RCEPbecomesabeaconofhopeandarolemodelofmultilateralism,particularlyatatimewhentheWTOisstillinparalysis.ForChina,webelieveitrepresentsamuch-enlargedbattlefieldforcleanenergyrevolution,inadditiontootherstrategicgainsfromthisworld’slargestfreetradeagreement.2.3.1WhatisRCEP?RCEPisthefreetradeagreementbetween15countriesincluding10memberstatesofASEAN(AssociationofSouthEastAsianNations),China,Japan,Korea,AustraliaandNewZealand.Together,theyrepresent2.3billionpeople(30.2%ofworldpopulation),US$28.5trillionGDP(33.6%ofworld’stotal)andUS$10.7trilliontradevolume(30.3%ofglobaltotal)in2020,eachofthethreeindicators(population,GDPandtradevolume)biggerthanthe11-countryCPTPP(ComprehensiveandProgressiveTrans-PacificPartnershipAgreement),theUS-Mexico-Canadafree-tradezoneortheEuropeancommonmarket.Thus,RCEPistheworld’slargestfreetradezone.Throughthebilateralcommitmentmechanismbetweenmembercountries,theRCEPalsorepresentsthefirstbilateraltradeagreementbetweenChina,Japan,andKorea.RCEPwasinitiatedbyASEANin2012withtheobjectiveofunifyingtradeandinvestmentrulesandimprovinggoodsandpeoplemovementbetweenASEANanditssixregionalpartners:China,Japan,Korea,India,AustraliaandNewZealand.After8yearsofnegotiation,allcoun-triesexceptIndiahavereachedagreement,whichwassignedon15November2020bytheirtradeministers.Indiaoptedtoleavein2019forfearofitsdomesticindustrylosingcompetitiveness.Theagreementrequires39▏INSTITUTEOFENERGY,PEKINGUNIVERSITYtheratificationbysimplemajorityofASEANnationsandoverhalfofnon-ASEANcountries,andby2ndNovember2021,whentheASEANSecretariatreceivedtheinstru-mentsofratification/acceptanceby6ASEANcountries(Singapore,Brunei,Thailand,Laos,Cambodia,Vietnam)and4non-ASEANnations(China,Japan,NewZealandandAustralia).ByRCEPprovision,itenteredintoforce60daysaftertherequirementwasmet.TheRCEPrequiresall15membercountriestocommittoloweringtariffs,openingmarketsandreducingstandardbarriers.Intermsoftariffs,theagreementprovidesforaone-to-oneapproachtotheliberalisationofbilateraltradeingoodsbetweenthe15countries,witheachmembercountrymakingascheduleoftariffreductionsforimportsofgoodsfromothermembercountriesforeachofthe20yearsfollowingtheentryintoforceoftheagreement.Somegoods(namelycoalandoilproducts)willbesubjecttozerotariffsimmediatelyaftertheagreemententersintoforce,whileotherswillbegraduallyreducedinthefuture,anditisexpectedthatthecoverageofzerotariffgoodsintheregionwillreach90%within10years,i.e.fasterthanthetreatyprovision.Intermsofinvestment,theagreementcallsformost-favored-nationtreatment,abanonperformancerequirementsforinvestingcompanies,acommitmenttonon-regressioninliberalisation,andtheadoptionofanegative-list(areanotlistedisregardedaspermitted).Theagreementalsoharmonisesthepreviouslyunevenrulesoforiginandfacilitatescross-borderinvestmentactivitiesbyallowingthetemporaryentryofmanpower,akeyfactorofproduction.BarrierstoTearDown:Twoprovisionswillsignificantlyboostthetradeflowsbetweenmembercountries.Firstisharmonizationofrulesoforigintoqualifyforlowertariffsthatwillreducetransactioncostsandeasesupply-chainmanagementacrosstheregion.RCEPre-quiresonly40%ofaproduct’scontentstooriginatewith-inthebloctoqualifyforduty-freetreatment,comparedwiththe50%to60%floorsfortheUS-Mexico-Canadaagreement.Thismakesiteasierforcompaniestosetupsupplychainsspanningmultiplecountries,makingitmucheasiertomanufactureandsellgoodsintheregion.Firmscanbuildandsellacrosstheregionwithjustonecertificateoforiginwithoutwastingtimeinjugglingdifferentformsandrules.Thesecondisdramaticallyloweredtariffs.AccordingtotheJapanesegovernment,tariffswillbeeliminatedon86%ofindustrialgoodsexportedfromJapantoChina,upfrom8%currently.Thatincludestheeliminationoflevieson87%ofauto-partsexpertsworthnearly$45billionannually.Some92%ofJapaneseindustrialprod-uctswillbeexportedtoSouthKoreadutyfree,comparedwith19%currently.StrategicGainsforAll:TheagreementfulfillsASEAN’soriginaldesiretounifiestradeandinvestmentruleswithits5majorregionalpartners,allowsJapan,Korea,AustraliaandNewZea-landtohavegreateraccesstotheChineseandASEANmarkets.ForChina,webelievetheRCEPrepresentsamajorstra-tegicgaininbolsteringitsresiliencetotradetensions.ChinacouldwellusetheRCEPtocountertheUSefforttoisolateChinafromglobalandregionaleconomicnetworks.ItenhancesChina’sregionalconnectivityandlubricatestheflowsoffinanceandinvestment,goodsandmaterials.Interestingenough,ChinahasalsoappliedformembershipintheCPTPP.2.3.2Amuch-enlargedbattlefieldforcleanenergyrevolutionAnotherstrategicgainforChinaistheopportunitytooptimizetheindustrialvaluechainthroughanexpanded"WorldFactory".Currently,the15membernationsshowINSTITUTEOFENERGY,PEKINGUNIVERSITY▏40industrialcomplementaritywithJapanandSouthKoreaintheupperendofthevaluechain,AustraliaandNewZealandasmajorsuppliersofrawmaterials,Chinainmanufacturing,andASEANcountriesinlabor-intensiveprocessing.Thiswillallowcompanies,includingtheChinesecleanenergymanufacturerstorepositionandoptimisetheirindustrialcapabilitiestobettermeetthedemandoftheregion.Figure2-3:China’spositionincleanenergytechnologyvaluechainsSource:JaneNakano,TheGeopoliticsofCriticalMineralsSupplyChain.CentreforStrategicandInternationalStudies,March2021.AllRCEPnationshavecommittedtocarbonneutralitybyaroundmid-century.Allwillneedcleanenergytech-nologiesandinnovationstoachievethecarbonneutralitygoals,andChinadominatesthecleanenergytechnologysupplychains(Figure2-3).Withmuchlowertariffs,originalityrequirementsandgrowingintegrationofESGprinciplesintradeandinvestment,webelievetheRCEPwillrepresentamuch-enlargedbattlefieldforChinatoextenditscleanenergyrevolutiontothefree-tradeblock.41▏INSTITUTEOFENERGY,PEKINGUNIVERSITY2.4THEUKRAINEWARANDIMPLICATIONSFORCHINA'SENERGYSECURITYANDTRANSITIONInsightChina,March14,2022AlthoughgeographicallydistantfromUkraine,ChinaisnotsparedfromtheRussia-launchedwar.Chinasharesa4,300-km-longborderlinewithRussiaandChinahasthebiggestportionofitsenergy(oil,gas,coal,andpower)importedfromthenorthernneighbor.SoaringoilandgaspricesimpactChinagravelysinceitistheworld’sbiggestimporterofbothoilandgas,letalonethesecond-aryeffectsoftheeconomic,financialandtradesanctionsimposedbytheWestonRussia–withwhomChinamaintainsa“comprehensivestrategicpartnership”.ThisInsightChinareporttriestoassesstheimplicationsofthewarforChina’senergysecurityandlowcarbontransition.2.4.1Russia’sRoleinChina’sEnergySecurityIn2021,Chinaimported512.98milliontonsofoil(or10.26millionbarrelsperday)and145milliontonsofgas(78milliontonsofwhichwasLNG),accountingrespectivelythree-quartersofChina'soildemandand43%ofitsnaturalgasconsumption.Sincethestartofthewar,crudeoilpricehasrisenbyaround$20/bbl,andAsia-Pacific’sJKMspotLNGpricespikebyaround$10/mmbtu,meaningthatimportsofthesetwoliquidsalonewould,theoretically,addUS$300millionperday(orUS$110billionperyear)toChina’senergyimportbill.WhatneedstobeclarifiedisthatmostofChina’sLNGimportsareunderlong-termcontracts,wherepricefluctuationsarenotashighasspotprices.LiketheEU,China'senergysupplyreliesheavilyonRussia.In2021,RussiawasChina'slargestsourceofenergyimports(Table2-1),withthefollowingdetails.Table2-1:ChineseEnergyImportsfromRussiain2021Oil83.6milliontonsCoal57milliontonsGas(pipeline+LNG)16.8billioncubicmetersElectricity4TWh1.Oil:Chinaaccountsfor15.4%ofRussia'stotalcrudeoilexports.China'sbuyingofRussiancrudeoilaveraged1.59millionbarrelsperday,or15.5%ofitstotalimports,onlysecondtoSaudiArabia.Russianoilprovides10%ofChina'sdemand.AndChinareceivedabout40%ofthisimportviathe4,070-km-longEastSiberiaPacificOceanpipeline.2.Naturalgas:RussiaisChina'sNo.3gassupplier,accountingfor10.5%ofChina'stotalimportand6.7%ofRussiannaturalgasexports.RussianexportstoChinatotaled16.8billioncu-bicmeters(bcm),meetingroughly5%ofChina'sINSTITUTEOFENERGY,PEKINGUNIVERSITY▏42demand.ThePowerofSiberia1pipelinehasbeenpumpingnaturalgasfromRussiatoChinasince2019aspartofa30-year,$400billiondeal,withthePowerofSiberia2pipeline,ortheSoyuzVostokPipelineviaMongoliawhichisstillinthedesignphase,todoublethegasexportsstartingroughlyin2031,addingupto50billioncubicmetersofRussiannaturalgaseachyeartoChina.3.Coal:Chinaimportedanestimatedtotalof56.7milliontonsofcoalfromRussia,about17.6%ofitstotalimportsofthefuel,onlysecondtoIndonesia.NearlyaquarterofRussiancoalexportswenttoChina.4.Electricity:RussiaisChina'slargestelectricityexporter,reaching4TWh.AllthreeRussia-Chi-natransmissionlinescandeliverupto7TWhofelectricalpowerperyear.ThetradebetweenChinaandRussiain2021buckedthetrendbyjumping35%YoYto$147billion.About30%ofRussiantotalexportstoChinaisenergy,whichisthemajordriverforgrowth.ItisimportanttonotethattheRussia-Chinaenergyrelationshipisverymuchofatradingnature,andamajorpartofthetradeisthrough“loanforoil”or“loanforgas”programs,bywhichChinaprovidesaloantoaRussiancompany,againstitsfuturedeliveryofoilorgasatmarketpricesatthetimeofdelivery.MajorportionoftheloanswasusedtobuildoilandgaspipelinesforexporttoChina.GivenEuropeandeterminationtoreduceRussiangasim-ports,acriticalquestioniswhethertheRussiangascanbedivestedtoChina.Well,puttingasidethequestionofpoliticalwillingness,technicalcapabilitydoesnotexisttoconnecttheEuropeandedicatedfieldstotheChinesemarket.Oildiversioncapabilityviapipelineswillalsobelimited,giventhattheESPOpipelineisalreadyoperat-inginfullcapacity,anddiversionviaKazakhstanneedstimetorevamptheRussia-Kazakhstanoilpipeline.Anysignificantdiversionwillhavetobesea-based.OilandgasupstreaminvestmentbyChinesecompaniesissomewhatlimited,involvingonlythreeprojects:1)TheYamalLNGproject,whereCNPChas20%stakeandChina’sSilkroadFundhas9.9%,alongwithNovatek(50.1%)andTotalEnergies(20%);2)TheUdmurtneftoilfieldinCentralRussiawhereSinopechas47%share;and3)theVCNGgasfieldinEasternSiberia,wheretheBeijingGasGrouphas20%share.LowlevelofChineseparticipationinRussia’soilandgasupstreambusinessesispartlyduetoRussia’sunwillingnesstoopenprofitableblockstoChinesecompaniesandpartlyduetomanyChinesenationaloilandgascompanies’lackofcapabilitytonavigatethroughtheMoscowcomplexities.2.4.2EnergyTransition:the"damningindictmentoffailedclimateleadership",collectivelyThedrasticandhorrificdestructionfromthewarhasovertakeneverythingandbecometheoverwhelmingfocaltopicglobally,whileclimatechangecontinuestointensify.Energysecurityimperativeispushingmanycountriestoreviewandreconsidertheirenergypolicy.TheEUwantstodownsizeRussiangassupplyby2/3byendoftheyear.CoalisbacktotheenergymixinmanyEUcountriessuchasGermanyandFrance,aswellasChinaandUS.Thisreturntocoaloccursinthebackdropofrecord-highGHGemissionsin2021.OnMarch8,theInternationalEnergyAgency(IEA)sentastarkreminderofthelikelyconsequencesoffurtherdependenceoncoal,oilandgas.Itreportedaglobal6%riseofenergy-relatedCO2emissionsto36.3billiontonsin2021,theirhighest-everlevel.Theincreaseofemissionshasoutweighedthedeclineseenduringthelockdownsof2020.43▏INSTITUTEOFENERGY,PEKINGUNIVERSITYEarlier,onFebruary28,themostrecentIPCCreportonclimateimpactswarnsthatthehuman-causedclimatecrisisisdrivinga"dangerousandwidespreaddisruptioninnature"andimpactingbillionsoflivesacrosstheglobe,emergenciesthatcanonlyberedressedbyimme-diateandsweepingactionthatworldleadershavethusfarfailedtotake.AndtheUNSecretary-GeneralAntonioGuterres'immediatecommentsentaspinalshiverbycallingit"anatlasofhumansufferingandadamningindictmentoffailedclimateleadership".2.4.3PolicyImplicationsforChinaWillChinafollowtheEUapproachto“reset”itsfos-sil-fueldependenceonRussia?Wedon’tthinkso.Settingasidethepoliticalwill,therelackscrediblealternativestotheRussiansupplyintheneededquantity.ButtwomajormovesChinahasalreadytakenwillshedlightsonadifferentfuture.2.4.3.1PrioritizingenergysecurityWellbeforethewarbrokeout,wehavealreadyseentherewrittenChina’sdecarbonizationnarrativeafterthenationwidepowershortagestrikein2021.Thiswasanalyzedinour“Coal-Centered”:Chinarechartsitsdecarbonizationcourse”on10thJanuary2022.Morerecently,triggeredbytheenergysecurityconcernsovertheUkrainewar,thegovernmentissuedorderstoprioritizethesecurityandflexibilityofitsenergyandcommoditiessupply,Specifically,itputsemphasison:1)increasingdomesticproductioncapacityandoutput;2)strengtheningstrategicreserves;3)securingsupplyandstabilizingprices;and4)safeguardingtheenergydemandbottom-lineofpeople'slivelihoods,whilestabi-lizingimports,pricesandexpectationsandforecasts.PresidentXiJinpingwasquotedattherecentlyconclud-ed"TwoAnnualSessions"(NationalPeople'sCongressandCPPCC)inBeijingassayingthat"wecannotthrowawayourmeansoflivingfirst,onlytofindthatournewlivelihoodhasyettoarrive."Hehasalsobeenpopularlyquotedinsuchasayingthatdescribestheimportanceofenergysecurity,whichisto"holdtheenergybowlinourownhands".Coalisdefinitely"back"tothe"mainstay"ofChina'senergymixshort-term.Chinaisaddingnewcoal-firedpowerplantsatanalarmingpace.InFebruary,theNationalDevelopmentandReformCommissionapprovedinvestmentsinUS$3billioncoalminesasthegovernmentseekstoavoidarepeatofthepowershort-agethatdealtaheavyblowtoitseconomyintheautumn2021.In2021,China'scoalconsumptionhad"reachedanewhigh",amountingto2.93billiontons.2.4.3.2AddingmomentumtoinvestincleanpowersystemIn2021,renewableenergyincludinghydromadeup25.5%ofChina’spowermix,up1.2percentagepointsYoY.It’sinstalledrenewableenergygenerationcapacityexceeded1,000GW.Consistentwiththephilosophyof“establishingalter-nativesfirstbeforedemolishingtheexistingcoal-firedplants”,furtheraccelerationofnon-fossilfuelenergydevelopmentisexpectedfor2022andbeyond.Whathasbeenaccomplishedsofarhasbecomethebaselineorlaunchingpadforthenextroundofcleanenergytransitionasanimportantstrategicmovetoenhancethecountry'senergyresilience.For2022,Chinaisexpectedtoadd180GWofnewpowergenerationcapacityfromnon-fossilfuelsources,drivingtotalnon-fossilfuelcapacityto1,300GW,accordingtoarecentreportbytheChinaElectricityCouncil.Thatequatestohalfoftheforecastoftotalinstalledpowergenerationcapacityof2,600GWbytheendoftheyear.Andthiswillbethefirsttimeeverrecorded.By2025,thecountry's14thFive-YearPlanhasseta18%reductiontargetforCO2intensityand13.5%energyintensityreductiontarget.Amajorgoalistoachievecap-pingcoaluse,thoughnobarissetforspecifictonnagesINSTITUTEOFENERGY,PEKINGUNIVERSITY▏44whencapped.Andnon-fossilenergyconsumptionistoreachanewtargetof20%,risingfrom15.8%bytheendof2020.Andby2030,thegovernmenthascommittedtobringtotalwindandsolarcapacitytoatleast1,200GW(theofficiallyannouncedtargetbutprovestooconservative)andnon-fossilfuelconsumptionrisesto25%.​​Recently,thenationalgovernmenthasapprovedtwo"batches"ofprojects-thefirstof97GWandthesecondof455GWofrenewableenergycapacitytobeinstalled,mostlylargewindandsolarpowerplants,particularlyindesertandbarrenareas.2.4.4AnImplicationforEurope?Peaceistheprerequisiteconditionforhumanitytoworktogetheradvancingcleanenergytransitionandfightingclimatechange.TheRussia-UkraineWarhasshatteredthepeaceandshakentheneededfoundation,withfaroutreachingconsequencesongeopolitics,energy,economics,finance,tradeandinvestment,etc.Inthenew“ironcurtain”fallingbetweenRussiaandtheWest,weseeagrowingsenseamongnationsforself-defenseandautonomy,whereenergysecurityisbacktothetopagenda.AsstatedintheVersaillesDeclarationof11March,theUkrainewarconstitutesatectonicshiftinEuropeanhistory.TheEUleadersvowedtodefendEuropeansecu-rityandsovereigntybybolsteringdefensecapabilities,reducingenergydependencies;andbuildingamorerobusteconomicbasethroughreductionofstrategicde-pendenciesforcriticalrawmaterials,semi-conductors,food,health,anddigitalinfrastructure.And,followingtheIEA’sten-pointrecommendationsforEuropetoreduceitsgasdependencyonRussia,EUleadersadoptedaneleven-pointactionplantodeliverthegoalofreducingenergydependencies.GiventhetightglobalLNGmarket,diversifyingEuro-peangassupplyawayfromRussiabutmoretowardsLNGsupplyfromtheMiddleEastandtheUSwilldrivefurtheruptheLNGprices.ButwebelievethatotherviableoptionsdoexistforEuropetoreducesimulta-neouslybothexternalenergydependencyandcarbonemission.ThecoreistoadvancetheEuropeanGreenDeal,byenablingandempoweringeachindividualandeveryhome,company,andcommunitytoembracecleanenergysolutions.Inthatlandscape,China’sadvancedmanufacturingcapabilitiesinsolar,windandbatterybecomeanaturalfitforthepurpose.Andveryimportantly,weforeseefromtheUkrainewar,theemergenceandconvergenceofamuchstrongerEU-Chinacooperationinadvancingthesharedgreenandsecuredenergytransition.2.5US-CHINASUSPENSIONONCLIMATECOOPERATION:RESTORINGTRUSTINATRUST-DEFICITWORLDInsightChina,September3,2022Thispastweek,from28Augustto1stSeptember,thousandsofenergyindustryleadersmetinStavangerforthebiennialONSConferenceandExhibition,underthethemeof“TRUST”.Oneofthebiggestdebateswascenteredaroundhowtopursuecooperationinaneraoftrustdeficitwhenclimatesecuritythreatenshumanity’ssurvivalandfuture.Frompoliticalleadersandroyalties-NorwegianCrownPrinceandPrimeMinister,UkrainianPresidentZelensky(online),BelgiumPrimeMinister,toenergyindustryprofessionalsandleaders-ElonMusk,IEAExecutiveDirector,energycompanyCEOs,allbelievetrustisessentialtoadvancebilateralcooperation,government-academia-industrycross-fertilization,andmultilateralwelfaregovernance.45▏INSTITUTEOFENERGY,PEKINGUNIVERSITYCNInnovationCEO,XavierChen,sharedthepodiumwithatopUSenergyexpert,attheopeningdayon“Co-existenceintheEnergyMarket”.Naturally,theUS-Chinatrustcrisisinclimatecooperationwasbroughtup,andXavierChenusedtheancientChinesestoryof“AxeThief”tometaphoricallydescribetheUS-Chinasaga.“Afamercouldnotfindhisaxeandsuspectedthathisneighbor’ssonhadstolenit.Hewatchedhimfarandclose.Everymoveandeverythingtheyoungboydidreflectedexactlyhowanaxethiefwouldhavebehaved.Butwhenhefinallyfoundtheaxehehadforgotteninhisownbackyard,helookedattheyoungboyagain.Nownothinghedidremindedthefarmerofanaxethiefanylonger.”ThisInsightChinareportexplorestheissuefurtheranddiscussesclimatecooperationinaworldoftrustdeficit.2.5.1TheDistrust:InaretaliativeresponsetotheUSHouseSpeakerNancyPelosi’srecentvisittoTaiwan,ChinesegovernmentannouncedonAugust5,2022,acomprehensivesuspen-sionofcooperationwiththeUS,andthelastitemonthelistofeightisclimatechange.Thiswasfollowedbybothsidespointingfingerstoeachother,causingwiderworriesoftic-for-tacescalationsoftensions.Itprovesdemoralizinganddevastatingwhentheworld’stwolargesteconomiesandemittersturnagainsteachother,atatimeofintensifyingclimatecrisisthatharmsandthreatenslives,healthandlivelihoodsofbillionsofpeoplewellbeyondtheUSandChina.Amajorreckoningisthatacountry’sforeignpolicytotheotherdefinesandunderscoresbilateralclimatecooperation.Aswehavelearnedsofar,“champion”thelatterwithoutatrustfulandcooperativeforeignpolicyasitsfoundationprovesmorelipservicesthandeeds.2.5.2ForeignpolicyvsclimatecooperationWearguestronglythatbilateralclimatecooperationdoesnotexistinvacuum,norcanitsurviveinan“oasissurroundedbyencroachingdeserts”.Rather,itisnurturedandunderscoredbyacountry’sforeignpolicytotheother,guidedbythepoliticalvisionofglobalgovernance.Thecontrastevidenceisreflectedby:●The“US-ChinaJointAnnouncementonClimateChange”,Beijing,November12,2014:afteryearsofabsencefrominternationalclimateprocess,theObamaadministrationmadeastrategicdecisiontoannouncetheUSintendednationallydeterminedcontribution(INDC)totheParisAgreement,jointlywithChina.●Andthe“US-ChinaJointGlasgowDeclarationonEnhancingClimateActioninthe2020s”,November10,2021,that“unified”anarrativeleadinguptoCOP26.PresidentObamahassaid,“TherelationshipbetweentheUSandChinaisthemostimportantbilateralrela-tionshipofthe21stcentury.”Thisstrategicvision,whichechoedtheChineseone,hadsetthefoundationforaUSChinapolicythatprovedconstructiveandproductive.Itisamutuallysharedvision.Backthen,BidenservedasObama’sVicePresident,soheisan“insider”.Buthehasabandonedthatlegacy,instead,hehascarriedonaconfrontationalChinapolicyofhisrivalpredecessor–PresidentTrumpwhoframedChinaasthebiggestnationalsecuritythreatandstrategicrivalry–theideal“axethief”ifyoulike,andhisadministrationhasexecuteda“systematically-designed”communicationstrategytoincriminateanddemonizeChina.Whathasbeenunfoldingisescalatingcontentionsonallfronts–technology,trade,market,investmentandsupplychaindisruptions,andaccelerateddecouplingwhichdebilitatesanysubstantialclimatecooperation.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏46ThetwocountriesafterBidentookofficerampedupcommunicationonclimatechange,afterafewyears’sta-tusofbeingabackburner.Butithasbeen“downgraded”toclimateenvoylevelandlimitedtotalksand“continueddiscussions.”Acloserlookatthejointagreementsalsoexposesthedifferentiationintermsofwhat’sincludedandhowbilateralcooperationisstated.The2014announcementpositivelyrecognizesthat“theUSandChinaaretwooftheworld’slargestinvestorsincleanenergyandalreadyhavearobustprogramofenergytechnologycooper-ation”,whichwillbefurtherelevatedandenhanced,rangingfromUS-ChinaClimateChangeWorkingGroup,US-ChinaCleanEnergyResearchCentertoLaunchingaclimate-smart/low-carboncitiesinitiatives.Prettymuchallpossiblecleanenergytechnologiesarecoveredinbilateralcooperation.Bycontrast,the2021declarationfallsshortonsubstanceandcommitmentinmostcasesandtippingaroundwordingcarefully.“Intendtocooperate”setsthetoneandlevelofcommitmenttocooperation.Whilewereadalaundrylistofenergypolicy,sectorfocusandsometechnicalsolutions,itemphasizes“respectiveacceleratedactions”andcooperationinmultilateralprocesses,includingUNFCCC.The“goldenera”ofObamaandHuJintaosetthestageforthesuccessfuloutcomeoftheParisAgreementatCOP21.WealsoadmitthattheGlasgowdeclarationatleastreducedtheriskofcollapsingofCOP26.Butthebesterahasgone.Andthisraisesthequestionofwhatliesahead?2.5.3AlignmentvsdecouplingWecelebratethefirstUSclimatelegislationcomingintoeffect.Ononeside,wefeelinspiredtoseemoresharedcommongroundbythetwocountriesindrivingaccelera-tionofcleanenergytransitionanddecarbonizationfromtheperspectivesofpolicy,technology,infrastructure,andindustry.Andontheother,wearedeeplyconcernedwiththepaceandscopeofdecouplingbetweenthetwoeconomies.TheUSprogressesinlegislationin2021,representedbytheInfrastructureAct,theCHIPsandScienceAct,andmostrecentlytheInflationReductionAct,havedemonstratedsomefar-reachingshiftinpolicy.Whendecarbonizationisconcerned,wehaveobservedtheUSadoptinganewwayofmanagingtheeconomytowardsunprecedentedalignmentwiththeonethatChinahasbeenpractisinginthelastdecade,suchas:●Roleofgovernment:Thelegislationsrepresenttheeraofpassive,hands-offgovernmentisover,andtorevolveclimatechangereliesheavilyongovernmenttopushandpullinordertoachievedeploymentandacceleratemarketscaling.●Necessityofindustrialpolicy:Animportantroleofgovernmentisputaneffectiveindustrialpolicyinplacebyapplyingawidearrayoftoolsandtacticstohelpdomesticindustriestakeoff,grow,andreachcommercialscale.●Andtoolsofindustrialpolicy:Atoolboxofdifferentapproachesthatactinconcertwillhelppushtechnologiestogrowandreachcom-mercialscale,includingdemonstrationproject,supply-pushpolicies,demand-pullpolicies,andprotectivepolicies.Chinacontinuestoimproveitsindustrialpolicyofacleanenergyrevolution.TheInsightChinareportssincelastFallhavedoneaseriesofanalysisofChina’sintegratedpolicyplanning,targetsandincentivestoachievecarbonneutrality,rangingfromcleanpowersystemtransformation,cleanandsmartmobilityandac-celerationofrenewableenergydeploymenttoemergingstrategicindustriesandgreenfinance.47▏INSTITUTEOFENERGY,PEKINGUNIVERSITYIt'snosurprisethatWashington’sconsuminganxietyoverChina’srisehasplayedamajorcatalyticroletoinspireandprogresspolicymaking.Whilecompetitionisgiven,ourconcernsresideinhowtheUShasbeenaggressivelypursuingitsdecouplingwithChinaandwhatrepercussionsitwillhaveforglobalwelfares,themostimportantofwhichisclimatesecurity.What’sfrustratingisthatUSandChinaareliterallystuckinfourtypesofwar–trade/economicwar,technologywar,financial/capitalwar,andgeopoliticalwar,whichareallspiralingup.AndBiden’s“strategicambiguity”towardsChinahascreatedmoreharmthanbenefitifanyatall.2.5.4RestoringTrustamidsthigh-levelconflictIndexAccordingtoRayDalio,founderofBridgewaterAssociatesandregularwriterof“TheChangingWorldOrder”commentaries,theconflictindexbetweenthetwocountrieshasnowreachedadangerouslyhighlevelof1.2,higherthantheCubamissilecrisisinthe1960sandclosetotheUK-Germanyindexof1.3beforeWWI.Howtobreakthedangerousdeadlock?Webelievethatthetwosuperpowersstandmoreoncommongroundofco-existenceandco-benefits.Climatechangeis,arguably,theglobalchallengethatholdsboththeUSandChinaundeniablyaccountable.Theyrequirebothtocooperateforthewelfareoftheentirehumanity.Iftheyfailandwon’teventalktoeachother,theworldshallbedevastedintheprospectoffreefalloftheglobalwelfaregovernance,wellbeyondclimatechange.Undeniably,wearedeeplyconcernedthatthelackoftrustwillleadtheUSandChinatotripovertheedgeofthecliffandfallintotheinfamous“ThucydidesTrap”,whenanincumbentpowerandanemergingpowerfallintoaviciouscycleofrivalry.ThetensioncontinuestoheighteneventodaywhentheUSannounced$1.1billionarmssaletoTaiwantoboostitsairdefense.ThedawnonthehorizonistheproposedtwoheadsofstatesmeetingthisFallwhenBidenandXicouldsitdowntorestoreaminimumleveloftrustthroughan“ice-breaking”face-to-faceconversationattheG20SummitinIndonesia.Fingerscrossed.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏48©PhotobyPaulBrennanonPixabay3TECHNOLOGYANDINNOVATIONROADMAPSINSTITUTEOFENERGY,PEKINGUNIVERSITY▏503.1ENERGYTECHNOLOGY:WHEREANDWHATDOESCHINAWANTTOINNOVATE?InsightChina,April18,2022China’stechnologicalstrengthsincleanenergytransi-tionareproveninthelastdecade.Fromrenewablestoenergystorage,Chinahasbuiltanddemonstrateditsleadershipinmanufacturingandapplicationsofnewtechnologies,whilecontributingtodrivedowntheircostsandacceleratescalingoftheirdeployment,bothdomesticallyandglobally.Suchcapabilityisalsoreflect-edinfossil-basedpowergenerationwheretechnologyinnovationplaysakeyroleinreducingemissionsandcapturingefficiencygains,enabledbydigitalization,anddrivenbymostrestrictiveregulationsandstandards.Giventheabove,thedirectionChinawantstosteeritsenergytechnologyinnovationwillnotonlymatterforChinatoachieveitscarbonneutralitygoals,butalsohavemuchlargerglobalimpacts.ThisreportpresentstheChineseprioritiesinenergytechnologyinnovation,onthebasisofthe14thFYPforEnergyTechnologyInnovation(thePlan),jointlyreleasedbytheNEA(NationalEnergyAdministration)andtheMOST(MinistryofScienceandTechnology)onthe2ndApril2022.3.1.1TheTechnologyShortboardsDoesChinahaveshortfallsinenergytechnologyinnova-tion?Absolutely,andplenty.ThePlanhasidentifiedthefollowingthreemajorgapsthatneedtobebridged:1.Heavydependencyonimportsinkeytechnologyequipment,aswellassomecriticalcomponents,specializedsoftware,andimportantbasematerials;2.Lackofclearcompetitiveadvantageinoriginality,game-changingandforward-lookingtechnologieseveninthoseChineseadvantagedindustriessuchassolar,windandbatteries;and,3.“Looseandweak”innovationecosystemamongindustry,academia,andresearchcircleswherepoliciesandmechanismsfallwellbehindtheneedtoachievemajortechnologybreakthroughs,toturntheR&Dresultsintomarket-readyproducts,andto“tolerate”failuresinR&Dprocess.ThePlansetsoutdetailedstrategyandactionsofhowtheworld’slargestmanufacturerwilladdressthoseclearlyidentifiedshortfalls.3.1.2TheStrategicGoals:ThePlanhaslaidoutthecountry’sstrategicfocusestofurtherinnovatetechnologiesthatwill“overcomethecountry’scurrentshortboards,consolidateitslongboards,achieverealimpactviaconcreteprojectsandformsynergiesforcollaborativeinnovation”.Theobjectiveisfixatedonachievingmajorbreak-throughsinkeytechnologyequipmentandshapingupobviousadvantagesinabatchofspecificenergytechnologiesthatarerisingquicklyandwithcontinuedemergenceofnewbusinessesandnewmodels.Inthemeantime,theenergytechnologyinnovationecosphereisfurtherstrengthened,andtechnologyinnovationstronglysupportsandguidesenergyindustry’shigh-qualitygrowth.Thestrategyisclusteredaroundfivepriorities:continueinnovationinrenewables,re-constructionofthepowersystem,safeandefficientnuclearpower,cleanandefficientuseoffossilfuels,andaccelerateddigitalization.51▏INSTITUTEOFENERGY,PEKINGUNIVERSITY3.1.3FiveTaskClustersforInnovation:Accordingly,thePlanhaslaidoutfivetaskclustersforinnovation:1.Advancedrenewablepowergenerationandcomprehensiveutilization,whichlists17keytasks.Itstressesthefocusonlargescaleandhighpenetrationofrenewables,andalsoon“higherefficiency,lowercostandmorereliable”renewablesincludinghydro,wind,solar,biomass,geothermal,oceanenergies.Hydrogenisincludedinthiscluster.2.Newpowersystemanditssupportivetechnologies,whichputs12keytasksonthelist.Thefocusisongridconnectiontech-nologiesforbothlarge-scalerenewablesanddistributedrenewables,aswellassmartandgeneration-grid-loadinteractivegrids.Energystoragetechnologiesareincludedheretoo.3.Safeandhighlyefficientnuclearpowertechnologies,whichcovers11keytaskstoimprovethecompetitivenessofcurrentlyappli-cabletechnologies,optimizethe3rdgenerationtechnologiesthroughstandardization,andstrengtheninnovationinstrategictechnologiesincludingsmallmodularreactors(SMR),(Super)HighTemperatureGasCooledReactors,andMoltensaltreactors.4.Fossilfuel“greening”technologies,whichspecifies37proposedkeytasks,coveringconventionalandunconventionaloilandgasexploration,transport,refininganddistribution;cleanandefficientutilizationofcoalincludingCCUS,anddevelopmentofgasturbinetechnolo-gies.5.Digitalizationtechnologies,whichcontains16proposedkeytasks,coveringcommontechnologiesinbroadanddeepapplicationofdigitaltechnologiesintraditionalcoal,oilandgas,powerplantsandgridsthatdefineanewphaseofintegrateddevelopmentof“energyandIoT”.Foreachtaskoftheaboveclusters,aroadmapisdrawnwithdetailsonwhentoachievethosedefinedbreakthroughs,todemonstratetheirapplicationsandtodeploytheprovensolutions,aswellasoverallexpec-tationsduringthe2021-2025period.Table3-1providesoneofthe95roadmapsusingsmallmodularreactorsasanillustrativeexample.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏52Table3-1:ExampleofTechnologyInnovationRoadmap:smallmodularnuclearreactors202120252030SmallsmartmodularEPRtechnologies:Smallheatsupplyreactors:Floatingreactors:Mobilereactors:Expecteddeliveries:2023:achievebreakthroughinkeyheatsupplyreactorsincludingnewheatexchangersdriversforcontrolrods2025:completealltechnicalandsafetystandardsforSMRandrelatedsystemsDemonstrationBreakthroughDeployment3.1.4EightEcosystem-BuildingMeasures:Toenableinnovationinallaboveclusters,thePlanhaslistedthefollowingeightecosystem-buildingmeasures:1.Collaborativeinnovation:allgovernmentagenciesinvolvedarecalledupontoworktogetherwithcleardivisionofwork.Todeliveraclearlydefinedobjective,aleadingentityisselectedthroughacompetitivebiddingprocess,allotherentitiesarethenmobilisedtomaketheirrespectivecontributions.2.Innovationplatforms:anationalR&Decosys-temiscalledforwithnationalkeylaboratories,nationalengineeringcenters,nationalenergyR&Dinnovationplatforms,andallrelevantin-novationcentreshostedbymajorcorporations.3.Demonstrativeapplications:demoprojectsorzoneswillbesetuponthebasisofclearlyidentifiedkeytasks,andparticularattentionwillbegiventothe“first”applicationofanyinnovativetechnology,embracedbystrongertoleranceforpossiblefailures.4.Corporations’role:Companiesarecalledupontobethemainentityforinnovation,withstate-ownedenergycorporationsastheleaderinfillingintheshortboardgapsandinoriginalinnovation,withclosecollaborationwithprivatecompanies.Insomehighlyspecializedareas,privatecompaniesareallowedtotaketheleadershiproleinstate-assignedtasks.5.Technologicalstandards:newstandardsarecalledfortofacilitatetheindustrializationandmarketdeploymentofnewinnovativetechnologies,soisinternationalharmonizationofthosestandards.6.Fundingsupport:allthekeytaskslistedinthePlanwillbeeligibleforstate-allocatedfunding,andallrelevantentitiesarecalledfortocontributetheirpartinadditiontothepublicfunding.53▏INSTITUTEOFENERGY,PEKINGUNIVERSITY7.Internationalcollaboration:companies,uni-versitiesandresearchinstitutionsbecomeleadentitiestodevelopinternationallycollaborativeprojectswithoverseaspartners.8.Talentincubation:universitiesareencouragedtoprovidetheneededtalentsforenergyinno-vation;peopleareencouragedtomovebetweenresearchentitiesandcompanies;andincentivesarecalledfortorewardinnovatorsbasedontheirachievements.3.1.5GapsandChallenges:Althoughimpressiveasitcanbeinitsambitionsandsubstances,thePlanfocusesexcessivelyonthesupplyside,withnoorlittleattentiontodemand-sideenergyefficiency,whichisanimportantpartoftheenergysystem.TheEU’sStrategicEnergyTechnologyPlan,asareference,attachesgreatimportancetoenergyefficiency,whereastheChineseoneisverymuchsupply-side-driven.ThesecondshortcomingofthePlanisitsneglectofemergingthreatstotheenergysystem,particularlythevulnerabilitiesinducedbyclimatechangeandcybersecurityattacks.Resilienceoftheenergysystemisverymuchahottopic,highlightedbyanumberofinter-nationalorganisations’studies,suchastheIEA’s“PowerSystemsinTransition–challengesandopportunitiesforelectricitysecurity”.ThisissueissomehowabsentinthePlan.And,thethirdmismatch,whichisverycriticaltoinnovation,isthatthePlancallsforstate-ownedcom-paniestoplaythedominatingroleinenergytechnologyinnovation,whereashistoryhasshownhowslowmovingthesestate-ownedgiantscouldbeininnovation.ThefactisthatmostofChina’srenewableenergyinnovationsareledbyprivatecompaniessofar.IfChinacontinuestocountonacentralizedsystemwithhighexpectationsonstate-ownedgiantstoleadinnovation,insteadofeffectivelymobilizingthewholesociety’sinnovativecapabilitiesandpotential,theultimateconsequencewillseehowtheambitiousplanbecompromisedbythiskindofstate-dominatedmentalityforinnovation.3.2CUTTING-EDGEDISRUPTIVELOW-CARBONTECHNOLOGIES:WHATTOEXPECTFROMCHINA?InsightChina,September12,2022InourInsightreportofApril18,2022,wesharedwhere,what,andhowChinawantstoinnovateitsenergytechnologies,clusteredaroundfiveinnovationprioritiesandeightinnovationeco-systems.Nowwewouldliketonarrowthescopedowntolowcarbontechnologiesandseektoanswerthetitlequestionbasedonarecentlypublishedblueprint-the“ScienceandTechnologyActionPlan(2022-2030)forAchievingCarbonPeakingandCarbonNeutrality”(TheActionPlan).Itwasjointlyreleasedon18thAugustbytheMinistryofScienceandTechnologyandeightotherrelevantministries.3.2.1ObjectivesWiththebeliefthatscienceandtechnologyisthe“1stmotivepower”toachievecarbonneutrality,theActionPlansetsthefollowingtime-boundobjectivesthatwilllaythefoundationanddefinethepathwaytoachievecarbonneutralitybefore2060:●By2025,achievemajorbreakthroughsinkeyindustriesandcoretechnologicalareas,tosupportthe14thFYPtargetsofreducingcarbonintensityofGDPby18%andenergyintensityby13.5%.●By2030,achievebreakthroughsinsomecutting-edgedisruptivetechnologies,shapeupaseriesofhighlyimpactfullowcarbonINSTITUTEOFENERGY,PEKINGUNIVERSITY▏54technologicalsolutionsanddeliver50demon-strationprojectswithdifferenttechnologies,tosupportthecountry’sNDCtargetof65%carbonintensityreductionbelow2005levelundertheParisAgreement.3.2.2ActionareasTheActionPlanlistedthefollowing11areas2:1.Greenandlowcarbonenergytechnologies:50categoriesoftechnologiesarelisted,coveringcleancoalconversionandutilization,renewablepowergeneration,nuclearpower,smartgrid,energystorage,non-powerrenew-ablesutilization,hydrogenandenergysaving.2.Industrialprocessreengineering:30cate-goriesoftechnologiesareidentifiedcoveringloworzerocarbon(LZC)steel,LZCcement,LZCchemicals,LZCnon-ferrous,andresourcerecyclingandheavy-machineryreengineering.Integrationofdigitaltechnologies(bigdata,AIand5G)isconsideredanimportantelementinprocessreengineering.3.Buildings:13categoriesoftechnologiesareidentified,coveringdirectcurrent(DC)solarenergyandstoragepowerdistribution,highlyefficientelectrificationofbuildingenergyuses,heatandpowersynergies,andinnovativelowcarbonbuildingmaterials.4.Transport:7categoriesoftechnologiesareidentified,coveringnewenergydriventransportequipmentandgreentransportationsystem.5.Negativecarbonandnon-CO2GHGreduction:24categoriesoftechnologiesareidentified,coveringCCUS,ecologicalcarbonsinks(bothgreenandblue),methane,NOx,andcarbonsinkaccountingandmonitoring.2BuildingandtransportweregroupedtogetherasonesectorintheActionPlan,butwechoosetoseparatetheminthelistduetotheirrespectivesignificance.6.Cutting-edgedisruptivetechnologies:7categories.Seebelowinaseparatesection.7.Demonstrativeprojects:build50demonstrativeprojectsinthe5areaslistedabove.Inaddition,buildintegratedsolutiondemonstrationsinindustrialparks,cities,socialdistricts,agriculturalzones,etc.;andbasedonthosedemos,developtechnicalstandardsforLZCtechnologiesandtheirapplications.8.Carbonneutralitydecision-supportingsystem:5soft-technologycategoriesarelisted,includingtechnologyroadmaps,carbonemissionMRV,ScopeI,IIandIIIstandardsandaccounting,digitallyenableddecision-supportsystem,andtechnologyevaluationsystem.9.Innovationeco-system:createsynergiesbetweeninnovativeprojects,innovationcenters/clustersandtherequiredtalents,withpublicfundsgearedtowardsmajorprojects,whichwillbeawardedthroughbiddingbyleadingscientists.10.Companysupport:supportstart-upcompanieswithincubationplatforms,labelcompanieswith“low-carbon”,“zero-carbon”or“negative-car-bon”categoriestodirectsocialfundingtothosecompanies,organizetechnologycompetitions,andprovideIPsupport,etc.11.Andinternationalcooperation:strengthencooperationwithexistinginternationalorganizations,explorethepossibilitiesofjointtechnologyR&Dcentersandcross-countrytechnologytransferagencieswithinterestedcountriesandparties,andconveneinternationalforaaroundLZCcarbontechnologiesandinnovations.55▏INSTITUTEOFENERGY,PEKINGUNIVERSITY3.2.3Cutting-edgedisruptivetechnologiesWhatarethecutting-edgedisruptivelowcarbontech-nologiesinwhichChinaplanstoachievebreakthroughs?Well,theActionPlancontainsatextboxthatprovidestheinsight,whichweliterallytranslateintoEnglishasshowninthetextboxbelow.3.2.4WhatdoesitimplyforChinaandtheworld?Thedetailsofthelistaboveofferimportantcluestowherespecifictechnologiescouldreside.Andweour-selveshavebeenfollowingquiteafewgame-changers.TheActionPlanfurtherstrengthensourbeliefthatChinaisnotonlytheworld’sbiggestcarbonemitterbutalsooneofthebiggestinnovatorsinthedecarbonizationspace,andnotonlyprovidestheworldwithcheaperandhigh-qualityrenewablesequipmentbutalsoplaysamajorpartoffuturelowcarbonsolutions.IfChinaweretoreachthestatedgoalofachievingtheseriesoftechnologybreakthroughsandbuildingthe50high-impactdemoprojectsby2030,thecountrywillbeBOX1Cutting-edgeDisruptiveLowCarbonTechnologies1.Newhigh-efficiencyphotovoltaiccelltechnologies.Researchonnewphotovoltaicconversiontechnologiesthatcanbreakthetheoreticalefficiencylimitofsingle-junctionphotovoltaiccells,includingcelltechnologiesbasedonnewmaterialsandstructuressuchashigh-efficiencythin-filmcellsandlaminatedcells.2.Newnuclearpowergenerationtechnolo-gies.Researchonnewnuclearpowergenerationtechnologiessuchasthe4thgenerationreactorsandnuclearfusionreactors.3.Newgreenhydrogenenergytechnologies.Researchongreenhydrogenproductiontechnologiesbasedonbiosynthesisanddirectsolar-drivenhydrogenproduction.4.Frontierenergystoragetechnologies.Re-searchonsolid-statelithium-ionandsodium-ionbatteries,etc.,whicharemorecost-effectiveandsafer,withlongerlifeandmoreenergyefficient,andnotconstrainedbyresources.5.Multifunctionalandefficientpowerconversiontechnologies.Researchonnewwaysofconvertingelectricityintoheat,lightorsyntheticfuelandchemicals,withthepurposeofmoreefficientlyconvertingandstoringrenewableelectricity,aswellasdiversifyingitsuses.6.High-valueCO2conversionandutilizationtechnologies.Researchonbio-engineeringCO2conversionsystembasedonlight-enzymeandelectro-enzymesynergy,bacteria/enzymeandinorganic/organicmaterials,toproduceproductssuchasstarch,lacticacidandethyleneglycol.Researchontheuseofwater,CO2andnitrogenasrawmaterialstodirectlyandefficientlyproducegreenandrenewablefuelssuchasmethanol.7.DirectAirCapture(DAC)technologies.Researchanddevelopmentofhigh-efficiencyandlow-costdirectairbornecarbondioxidecapturetechnologies.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏56destinedtoredefinehowitwilldeliverits2060carbonneutralitytarget,andthespill-overoftheseachieve-mentswillalsomakeirrelevantmanyofthesolutionscurrentlyadoptedinotherpartsoftheworld.However,wealsoseethisbrightprospectovershadowedbymanychallengesahead.Thebiggestisitslackofventure-capitalculturethatcanbringinnovationsfromideastomarketdeployment.Thedeterioratingmacro-environmentanddiminishingavailabilityofprivatecapitalwill,unfortunately,dramaticallyshrinkourexpectations.Andthismightbewheresomemajoropportunitiesgather.OneistoconnectfundingvaluechainfortechnologyinnovationbetweenChinaandtheWest,astheChinesefundsprefermarket-readytechnologiesandwesternfundsaremoreexperiencedinincubatingstart-upinnovators.Thepotentialoflinkingtechnologymarketsremainssignificant.Chinaoffersthebiggestdemandmarketforwesternready-to-markettechnologieswhichChinesefundsarewillingtofinancewhereaswesternfundscouldfindawaytoidentifyandfinancesomeoftherealgame-changingChinesestart-ups.Besides,Chinadoesprovideabigtalentpoolwhereinnovationisconcerned.©PhotoonPxHere4GREENDEVELOPMENTBLUEPRINTSINSTITUTEOFENERGY,PEKINGUNIVERSITY▏584.1SCALINGGREENFINANCE:CHINASHAPESUPITSOWNTAXONOMYInsightChina,February10,2022On2February2022,theEUCommissionsaiditincludednaturalgas(undersomeconditions)andnuclearpowerinits“TaxonomyComplementaryClimateDelegatedAct”.AlthoughtheproposedActstillawaitstheapprovalofboththeEuropeanParliamentandtheCouncilbeforeitbecomeseffective,theinclusionofthesetwofuelswashailedbyChineseenergyandclimateprofessionalsasapositivesignofEUreturningtorationalityandpragmatism.WhatdoestheChinesegreentaxonomycover?WhatroledoesitplayinshapingChina’sfinancialflows,andwhatchallengeslieaheadforChinatoeffectivelyusethetaxonomyasapolicytooltoachieveits“duo”carbonpeakingandcarbonneutralitygoals?Thisreportinvestigatesthesecriticalquestions.4.1.1DefiningChina’sGreenTaxonomy:Greentaxonomyplaysacrucialroleinscalingupsustainableinvestmentthatismostneededforlowcarbontransition.EU,ofcourse,leadsthedefinitionandadvancementofgreentaxonomy.Withspecificationsofregulation,policyframework,technicalstandards,andinstitutionsandgovernance,EUtaxonomyrepresentsanarchitectureorasystemthat“pushesandpulls”theflowoffinancialcapitaltodeliverthegoalsandtargetssetintheEUGreenDeal,whileenforcingclarityandtransparencytoprevent“greenwash”.AsshownintheEUcase,greentaxonomynotonlyprovidescompanies,investors,andpolicymakerswithappropriatedefinitionsforwhicheconomicactivitiescanbeconsideredenvironmentallysustainable,butalsocreatessecurityforinvestorswhilehelpingcompaniestobecomemoreclimate-friendly,mitigatemarketfragmentationandshiftinvestmentswheretheyaremostneeded.LearningfromtheEUpractice.China’staxonomyisbeingdeployedasanimportantinstrumenttomeetthecountry’sambitiontodecarbonizeitsenergyandeconomyandachieveharmonywithnature.The2021ChinaGreenBondEndorsedProjectCatalogue(theCatalogue)isthefirstjointendeavorbythePeople'sBankofChina(PBoC),theNationalDevelopmentandReformCommission(NDRC)andtheChinaSecuritiesRegulatoryCommission(CSRC)-thethreekeyregulationauthorities-todefineataxonomyandprovideuniformregulationforChina'sgreenbondmarket.Publishedon21April2021,TheCatalogueclassifiesprojectsintothefollowingsixkeyareas,eachincludesafewspecificsectorswithadetaileddescriptionofprograms:1.energyconservation,pollutionpreventionandcontrol,resourceconservationandrecycling;2.cleanproduction,includinggreenagriculture;3.cleanenergy,whichincludesallkindsofrenew-ables,butalsonuclear,naturalgas,hydrogen,energystorage,andCCUS;4.ecologicalprotectionandrestoration;5.sustainableinfrastructure;6.greenservices,includingcarbontrading.Inaddition,somerapidgrowthactivitiesinrecentyearsarealsoaddedtothelist,includinggreenagriculture,sustainablebuildings,unconventionalwaterresourcesutilization,amongothers.Andveryimportanttonoteisthat“cleancoal”(e.g.ultra-super-criticalcoal-firedpower)isremovedfromtheCatalogue.Thoughspecificallyservingthepurposeofgreenbondsissuance,theCatalogueofferssomeperspectiveofpolicyprioritiesinChinaandalsoinsightofatarget-basedapproachtotaxonomy.59▏INSTITUTEOFENERGY,PEKINGUNIVERSITY4.1.2UnleashingCapitalFlowtoScale:Increasingclarityofdefinitionoftaxonomyhelpsscalingfinanceandinvestmentatunprecedentedpace.And,theyearof2021haswitnessedsomelandmarkprogressinChina'sendeavortogreenitsfinance.Afewmilestonesarehighlightedhere:●ThePBoCissuedthecountry'sfirst$13.4billionbatchoflow-costloanstofinancialinstitutionstopromotegreenprojectsandcorporateeffortstocutcarbonemissions,throughitsfirstcarbonemissionreductionfacility,focusingoncleanenergy,energyconservationandenvironmentalprotection,andcarbonreductiontechnologies.●TheissuanceofChinesegreenbondsreachedanewhighin2021,surpassingitspreviousrecordof$56.18billionin2019.●Chinaseesfour-foldsurgeinissuanceofESGwealthmanagementproductsin2021,comparedto2020.●Chinesebankshaveissuedmorethan$1.7trillionofgreencreditbytheendof2020.●ChinaConstructionBankhelpedfinancethegov-ernment-backedNationalGreenDevelopmentFund,whichlaunchedin2020havingraised$12.6billionforenvironmentalprotectionin11provincesandcitiesalongtheYangtzeRiver.●Chinaofficiallykickedoffon-linenationalcar-bontradingonJuly16,whenspotcarboncredittradingcouldcoveramarketof4billiontonsofCO2emissionseveryyear,andotherindustrialsectorsarescheduledtocomeonboardin2022-2023,suchassteel,petrochemicalsandchemicals,non-ferrousmetals,buildingmateri-alsandfinancialinstitutions,Thismarket-basedinstrumentisexpectedtocontributeandscalethecountry’scarbonfinancing.●Fromregulatoryperspective,bigprogresswasmadetowardsmandatoryenvironmentalinformationdisclosure,firstforpubliclylistedcompaniesandcompaniesthatissuegreenbondsin2022,andthenforallcompaniesby2025.4.1.3ReformingFinancialSystemandAccountabilitytoFitforPurpose:Today,finance,bothpublicandprivate,ismandated,atleast“onpaper”,totakeonamissiontoeffectivelysupportandenablethedeliveryofhigh-qualitygrowth.Buttwomajorbarriersstandinthewaythatshallbeclearedthesoonestpossible.Oneisthe“disconnects”inafinancialsystemthathasbeencalleduponforahighorderoftransition;andtheotheris“credibility”,orinadequacyofit,thatcouldjeopardizetheaccountabilityofthetaxonomyandsacrificethepotentialtomobilizecapitalflowstoscale.Threein-depthreformsareurgentlyneededforthefinancialsectorinthetransition:1.Connectingthedotsandintegratingmonetarypolicy,oversight,mandateddisclosure,rating,sectorself-discipline,andproductinnovationtoregulateandguidethefinancialcapitalflowstowardsgreengrowthgoals;2.Enhancingthefinancialsystem'sclimateresilienceandcapabilitytomanageclimateandenvironmentalrisks;and,3.Contributingtopricingcarbonthroughcarbontrading,carbonfuturesandotherfinancialproducts.Transparencyandaccountabilityarecrucialtoreducerisksofandstrengthenreturnsoninvestmentandfinance.WhileChinaismovingaggressivelyondisclo-sure,hugegapsremain.Forinstance,1)standards,stillINSTITUTEOFENERGY,PEKINGUNIVERSITY▏60progressing,fallshortofdemandtoeffectivelyintegratecarbonneutralityandnature-positivetargetsintosustainablefinanceinalignmentwithitstaxonomy;and2)capabilityoffinancialinstitutionsandcompanieslag,bothstrategicallyandfromtheperspectiveofexpertiseandtalents.4.1.4BridgingtheGaps:Todeliverthegoalsandtargetsofgreentransitionrequiresastrongtaxonomyarchitecturedeployed,thatmobilizesthemaximumfinancialcapitalflowsfromallpossiblesourcesneeded,bothdomesticallyandglobally,whileembeddingnet-zerocarbonandharmonywithnatureintoeverypolicyandinvestmentdecision.Theestimatedfinancedemands,atupperend,areallattheleveloftrilliondollarseveryyear.Oneestimateindicates,overtheperiod2014-2030,between$320billionto$1trillionperyearwouldbeneededtoaddressclimateandenvironmentalchallengesinChina.Tobridgetheremaininggaps,domestically,Chinashallcontinuetogearupeffortstoalignthreefundamentalelementsofthetaxonomy:●Clarityandcertaintyoftime-boundpolicytargets,literally,theprerequisitethatdefinestheecologicalredlines;●Policyincentivesthatpushandpullinvestmentsalignedwiththesetandendorsedtargets;and,●Transparency,enabledbygoodgovernance,toassureaccountability.Againstabackdropoftremendousgeopoliticalcom-plexityanduncertainty,Chinahastofurtherstrengthenitsstepsfortransparencyandaccountabilityinorderto“playthegame”inalevelplayingfield,atleastwithEUandsomeothernations.Thepurposeisclearandfocused–toleverageorbetterpositionitselftoattractglobalfinancialresourcesandcapitalflowstowardsitsambitiousgoalsoftransition.4.2GREENINGENERGY:CHINAVOWSTOBUILDMODERNSYSTEMSBYIMPROVINGMECHANISMSInsightChina,February19,2022Aspartofthe“1+N”policyframeworktoachievethe2030/2060duocarbongoals,andinjunctionwiththe14thFive-Yearplanning,Chinahaspublishedanumberofpolicydocuments,eachfocusingongreenandlowcarbondevelopmentofoneparticularsector,suchasenergy,industry,building,transport,urbanandruralareas,andconsumption,respectively.OurInsightChinabringstoyouaserialofreportsthatanalyzethoseplansonebyone,in-depth.Thisreportcoversthe“OpiniononImprovingBodiesandMechanismsandPolicyMeasuresRelatedtoGreenandLowCarbonTransitionoftheEnergySector”(theOpinion),whichwasjointlyreleasedbytheNationalDevelopmentandReformCommission(NDRC)andtheNationalEnergyAdministration(NEA)onFebruary10.ItisanillustrationofhowBeijing’spolicymastermindintendstoreshapeChina’senergylandscapeviaaclean,green,andsmartenergyrevolution.4.2.1MechanismsThetitleofthe“Opinion”containsatermcalled“TizhiJizhi”(体制机制).ItisonethemostrepeatedkeywordsinmanyChineseofficialdocuments,whichprovesnoteasytocaptureitsessence,evenforsomeold“Chinahands”.Literallytranslated,itmeans“bodyandmecha-nism”.Fromthepolicymakers’perspective,foranythingtowork,youneedtwocoreelementsinplace.Oneisthe“body”,oranorganizationalsettingorarchitecture,whichiscalled“Tizhi”(体制).Itisoftensetandgiven.Theotheristhemechanismsthatdefinetheinteraction/coordinationamongdifferentpartsofthe“body”or61▏INSTITUTEOFENERGY,PEKINGUNIVERSITYorganization,whichisreferredtoas“Jizhi”(机制).Therefore,“bodyandmechanism”,together,referto“theorganizationalsettingorarchitectureofanindustryandthewaydifferentcomponentsoftheorganizationinteractwitheachother”.Theydeterminetheopera-tionalefficiencyandefficacyofanindustryinachievingthesettargets.TheyalsoroughlyechothewesterntermofinstitutionsandgovernanceintheChinesesocialandpoliticalsettings.4.2.2SystemsAnothertermfrequentlyappearinginChineseofficialdocumentsissystem(s),or“Tixi”(体系)inChinese,whichappeared40timesintheOpinion.Theworditselfisoftenusedintwotypical“scenarios”.Oneisthecaseswhereadesirableoutcomeisreferredto,suchasbuildinganew,reliable,andsustainablepowersystem,thetermheresitsinitstraditionalmeaningof“system”withallitscomponentsinit.Andtheotherlieswherepolicyandmeasuresareconcerned,thetermismorecorrectlyreferringto“anintegratedset”oftoolsandinstruments.Forthepolicymakers,nosingletoolorpolicywillbesufficientlypowerfultosteerthechangeortransition.Allchangesoftenrequireanintegratedandcoherentsetofpoliciesandmeasureswhich,once“fit”intotherightmecha-nisms,willdrivetheneededshift.Table4-1showssomeofthekeymechanismsandsystemstoimproveortobuildanewinordertosteerthegrandtransitionofChina’senergysector,asstatedintheOpinion.©PhotobyGonzDDLonUnsplashINSTITUTEOFENERGY,PEKINGUNIVERSITY▏62Table4-1:MechanismsandSystemsProposedforImprovementsforChina’sGreenEnergyTransitionMechanismstoimproveorbuildanew1.Mechanismtocollaborativelypromotetheimplementationofnationalenergystrategiesandplans;2.Mechanismtomonitorandappraisegreenandlowcarbonenergytransition;3.Mechanismforinter-agencycoordinationongreenandlowcarbonenergytransition;4.Mechanismtopromotegreenenergyconsumption;5.Mechanismforcleanandlowcarbonenergyresourcesurveyandinformationsharing;6.Mechanismtoinnovativelydevelopanduseruralrenewableenergies;7.Mechanismtomanagelandandspacerequiredforrenewableenergydevelopment;8.Mechanismfortheconstructionandoperationofnewtypeofpowersystem;9.Marketmechanismsuitableforthenewtypeofpowersystem;10.Mechanismfordemandsideresponseinpowersector;11.Mechanismfordistrictcomprehensiveenergyservices;12.Mechanismforcleanandefficientdevelopmentandutilizationoffossilfuels;13.Mechanismforenergyforecastandenergyemergencyalert;14.Mechanismforcollaborativeinnovationalongthecleanenergyvaluechain;15.Mechanismoffiscalandfinancialsupportforgreenenergytransition;16.Mechanismtosupportdiversifiedinvestmentintogreenenergytransition;17.Mechanismforinternationalcollaborationongreenenergytransition;18.Mechanismforgovernancerelativetogreenenergytransition.Systemstoimproveorbuildanew1.Anenergysupplysystemwithcleanandlowcarbonenergyasthemainsource;2.Apowergridsystemsuitablebothfordeeplocalutilizationandforlongdistancetransmissionofrenewableenergies;3.Afail-safeenergysupplysystemduringenergytransition;4.Asecureandresilientpoweroperationsystem;5.Anenergysupplysecurityandemergencyresponsesystem;6.Atechnologicalinnovationsystemtosupportgreenandlowcarbonenergytransition;7.Asystemforcollaborativeinnovationonmajorlowcarbonenergytechnologies;8.Anopen,fair,andeffectivelycompetitiveenergymarketsystem;9.Anenergylawandstandardizationsystem.63▏INSTITUTEOFENERGY,PEKINGUNIVERSITY4.2.3PoliciesTheOpinionalsoincludesanumberofpolicies,includ-ing:●Policiestosupportgreenenergyconsumptioninindustrialsector;●Policiestosupportgreenenergyconsumptioninbuildings,cleanheatinginparticular;●Policiesforcleanenergysubstitutionintrans-port;●Policiesforcleandevelopmentandutilizationofcoal;●Policiesforcleanandefficiencytransitionofcoal-firedpower;and,●Policiesoffinancialsupportforcleanandlowcarbonenergytransition.4.2.4ChallengesSimilartomostofthecentralgovernment’spolicypapers,thisgreenenergytransitionblueprintremainshighlyindicativeanddirectional.ItexpressestheNDRC/NEA’sdesiretobuildamandatednew,green,andlowcarbonenergysystem,throughimprovedmechanisms,butlacksconcretenessintheproposedmechanismsorpolicies.Thiswillchallengethedeploymentandimple-mentationatlowerlevelofstatehierarchy,nationwide.AsdemonstratedintheOpinion,theNDRC/NEAstronglyfeeltheinadequacyand“outdatedness”ofexistingenergygovernanceforthehighlyexpectedgreenandlowcarbontransformation.But,giventhattheyare“powerless”inchangingtheorganizationalsetting,theycanonlyaspiretoreformthe“mechanisms”thatholdallthepartsofthesectortogether.–theterm“mechanism”ismentioned66timesinthe9-pageOpinionpaper.Andyet,ifthefundamentalorganizationalsettingoftheenergysector,orinstitutionsandgovernance,remains“untouched”,suchasthestatemonopolyofthepowergrids,deliveryissettofallshortofambition.As“bodyandmechanism”alwaysgohandinhand,onecannothelpbutwonderwhetheralltheproposedimprovementsinmechanismwouldbesufficienttodeliverthedesiredsignpostsandoutcomeoftransition.Moreclosely,howthe“goodintensions”oftheOpinionwillbereflectedinthe14thFive-yearplanforenergydevelopmentremainstobeseen,sinceitisnotpublishedyet,eventhoughwealreadystandinthe2ndyearofthe5-yearplanningcycle.4.3GREENINGINDUSTRIES:CHINAGEARSUPITSCLEANREINDUSTRIALIZATIONInsightChina,February25,2022Industrycontributesabout40%ofChina'sGDP,con-sumes66%ofitstotalenergybutemitsmorethanthreequartersofitstotalGHGs.It'ssafetosaythatChina'sduocarbongoalswillbeuntenablewithoutafundamen-talshiftofitsindustries.Inthe"1+N"climatepolicyframework,industry-specifictargetsandroadmapsholdmanycrucial‘N"keystothepuzzle.OnDecember3,2021,Chinaofficiallyreleasedits14thFive-YearPlanofGreenIndustrialDevelopment(thePlan),aimingtofurtherelevateitsdecade-longendeavorofgreeningitsindustries.Builtuponprogressesmade,thePlanspecifiesnewmilestonesfor2025,notonlyofcarbonemissionsreduction,butalsoofmanyother“greening”indicators.ThisInsightChinareporttouchestheessenceofthePlan.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏644.3.1Highlights:Improvingenergyandresourcesefficiencyisgivenasanabsoluteimmediatepriority.Inthemeanwhile,thePlanemphasizessuchcoreguidingprinciplesastechnologyinnovation(materialscience,digitalization,anddesign),market-orientation,andsystemicadvancementtonur-turethegrowthengineofindustrialgreendevelopment,strengthenenterprises'roleinleadingthemarketplace,andcoordinatethetransitionacrossregionsandsectors.Quantitativetargetsaresetfor2025asshowninTable4-2.Table4-2:KeyTargetsoftheGreeningIndustryPlanfor2025CategoryIndicator2025TargetAdditionalNotecarbonemissionsreductionreductionofemissionperunitaddedindustrialoutputover2020level1.-18%progressesmadeintotalcarbonemissionscontrolinsuchkeysectorsasironandsteel,non-ferrousmetalsandbuildingmaterialspollutantsreductionreductionofemissionsperunitindustrialoutputofkeysectorsover2020level2.-10%sustainedenhancementofmanagementandcontrolcapabilityfromsourcesofhazardousmaterials,andmajorimprovementincleanerproductionenergyefficiencyimprovementreductionofenergyuseperunitaddedindustrialoutputofindustriesatscale,over2020level3.-13.5%energyconsumptionperunitofindustrialoutputsuchascrudesteel,cement,ethyleneandotherkeyindustrialproductstoreachworldleadinglevelimprovementofresourcesuses•utilizationrateofindustrialsolidwastesofcommodities•totalquantityofthemajorrecycledresources•reductionofwateruseperunitofaddedindustrialoutputover2020level4.57%5.milliontons6.-16%keyindustries'ratesofresourceproductioncontinuetogrowgreenmanufacturingsystemgreenandenvironmentalprotectionindustry'sindustrialoutput7.RMBtrillionyuan(about$1.7trillion)greenmanufacturingsystemsofkeysectorsandregionsarebasicallyshaped,withcomprehensiveindustrialgreenandlowcarbonstandardssystem,morethan10,000kindsofgreenproductsonthemarket,andagroupofstandardsandtechnicalpublicserviceplatformsinplace65▏INSTITUTEOFENERGY,PEKINGUNIVERSITY4.3.2Priorityindustriesanddecarbonizationroutes:Fourindustries(Ironandsteel,petrochemicalsandchemicals,non-ferrousmetalsandbuildingmaterials)wereidentifiedaskeypriorityindustries,giventheir3The17high-energyuseindustrialsectorsaresteel;cement;coking;moderncoalchemicals;plateglass;non-ferrousmetalrefinery;buildingandsanitaryceramics;oilrefinery;ethylene;P-xylene;syntheticammonia;calciumcarbide;causticsoda;sodaash;ammoniumphosphate;yellowphosphorus;andferroalloy.weightinthecountry’stotalemissions(Table4-3).Howcantheseindustriesachievedecarbonization?Well,thePlanalsoprovideseightstandardroutes.Table4-3:HighlightsofDecarbonizingPriorityIndustriespriorityFocushighlightsindustries,measuredbypercentageofChina’stotalcarbonemissions1.Ironandsteel:15%2.Petrochemicalsandchemicals:12%3.Non-ferrousmetals:4.7%4.Buildingmaterials:9%oftotalemissionsin2020(from15largestcementcompanies)8“routes”todecarbonization1.Improveenergyefficiencyofexistingcoalandotherfossilfuelsuse;2.Increaseuseofrenewableenergy;3.Acceleratehydrogentechnologyinnovationandbuildingoutinfrastructuretodiversityapplicationsofhydrogen;4.Supportenterprisesinspeedingupfuelswitching;5.Renovatefossil-fuel-burningboilersandkilnsandreplacewithcleanandlow-carbonenergy;6.Achievecarbonreductionthroughindustrialproductionprocessesandsubstitutesofrawmaterials;7.Promoteproducts'life-cyclecarbonreductionbyadoptinggreenandlowcarbonmaterials;and,8.Explorelow-costCCUSsolutionsandpathways.Furthermore,toguideandregulatetheimplementationofthePlan,onFebruary11,2022,theNationalDevel-opmentandReformCommission(NDRC),MinistryofIndustryandInformationTechnology(MIIT),MinistryofEcologyandEnvironment(MEE),andNationalEnergyAdministration,jointlyreleasedthe2022Im-plementationGuidelinesonRetrofittingandUpgradingofHigh-EnergyUseSectorswithKeyFocusestoSaveEnergyandReduceCarbonEmissions.Theguidelinescovering17industries3withmoreprescriptions.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏664.3.3Restructuringindustrythroughanintegratednarrative:IfwedefineChina'scontemporaryindustrializationthatkick-startedintheearly1980s,thelasttwodecadesofthe20thcenturyexperiencedtheworld'smostpopulouscountry'sopeningupandreformandstandingatthe"receivingend"oftheoutdatedtechnologies,industrialprocessesandfacilitiestransferredfromwesterndevel-opednations.Thoseindustries,mostlyfossil-fuel-based,hadprovenhigh-energyandhigh-resourcedependentandheavypollutionandcarbonintensive.Andyet,by2000,thecountrymanagedtoachieveitsfirsteconomicgrowthgoalofquadruplingitsGDPoverthe1980level.Thepinchandpainbecamestrongerandincreasingly"unbearable",intothenewcenturywhenpollution,climatechangeandresourcedepletionbecamethemajorgrowthconstraints.Chinabecametheworld'ssecondlargestemitternexttotheUSinhistoricsenseandthelargestemitterintermsofcurrentannualemissions.Andastheworld'sfactory,itsresourcesweredepletedfast.Tofeedandfuelthemanufacturingengine,Chinabecameincreasinglyresource-dependentonimports,whichalsocomplicatedthesupplychainsanditsnationalsecurity.Whileonitsjourneytoachievethesecondquadruplegrowthgoalby2020overthe2000level,Chinausheredinanewphaseofindustrialtransformationaroundtheseconddecadeofthe21stcentury.Theagendaisclearlycarved.Ridingonthewaveofthethird/newindustri-alization-convergingcommunicationtechnology(AI,IoT,cloudcomputing,digitaltwins),renewableenergytechnologyandcleanmobilityandlogistics,Chinesepolicymakersweredeterminedtoactonaunitedfrontwithanintegratednationalindustrialpolicytoadvancethetransition.Twonationalprogramshighlightthestrategicmoves.Oneisthenationalschemeofpromotingstrategicemergingindustries,launchedin2012,thatfocusesonnewenergy,newmaterials,newenergyvehicles,greenandsmartshipping,environmentalprotection,high-endequipment,andenergyelectronics;andtheotheristhenationalactionguidelinesonChinaMake2025strategy,kickedoffin2015.Manufacturingispositionedasthemainbodyofitsnationaleconomy,thefoundationandvehiclesforprosperity.AndChinaaimstostandinthegloballeadershipleagueinadvancedmanufacturing.The"magic"seemstobeworking.Bytheendof2020(orendofthe13thFive-YearPlan),ChinahadmadeitscaseofleadingglobalEVbatterymanufacturingandcharginginfrastructuredeployment,andprovided71%ofglobalsupplyofsolarpanels,justasafewillustrativeexamples.Lotsofproductioncapacity,oftenalreadyshowingovercapacity,areretired,orphasedoutmuchearlierthandesignedlifespan,suchassteel,electrolyticaluminum,andcement,aswellascoal-firedpowergenerators.Technologyadvancementsareelevatingenergyandresourcesefficiency.Allthesefurtherhelpsshiftingtheindustrialstructuretowardsclean,green,andsmart.Andveryimportantly,agreenmanufacturingsystemorecosystemhasstartedtoemerge,aschampionedby2,121greenfactories,171greenindustrialparks,189greensupplychaincompanies,andnearly20,000greenproductsonthemarket.ThenewPlanembodiesageared-upendeavortocontinuetogreenitsindustries.4.3.4Competingaglobalgametoresetnewindustryrules:Standardsarekey,bothtodefine"green"andtoguidethegreening"longmarch".Againstthebackdropofclearlysettargetsfor2025,2030and2035indecarbonization,domesticallyandglobally,throughtheParisAgreementandtheGlasgowClimatePact,industries,oldandnew,areidentifyingtechnologyneedsandgaps;policymakersarezoominginonpolicyincentivestofurtherenhanceandelevateindustrialrestructuring;andregulatorsaresteppingupeffortsinstandardsetting.67▏INSTITUTEOFENERGY,PEKINGUNIVERSITYAsillustratedbythePlan,someprioritystandardimprovementsinclude:●Evaluationstandardsystems:greenproducts,greenfactory,greenindustrialpark,andgreensupplychain;●Sectorstandardsofsomekeyindustriesandequipment:lowcarbon,energysaving,watersavingandintegratedresourceuse;●Localstandards,groupstandardsandenter-prisestandards:encouragedtoexceedexistingnationallevels;●Greenandlowcarbonstandards'creditgather-ingandenhancementmechanisms;●Assessmentoftechnicallevelsofkeystandardsandevaluationofstandards'implementationoutcomes;●Internationalizationofstandardsinsuchkeyindustriesasgreendesign,productcarbonfootprints,greenmanufacturing,newenergy,andnewenergyvehicles.Thefinalpointisveryimportantforthecurrentmoment.It'sliterallyamomenttoresetglobalindustrialandtraderules.TheEUhasbeenprogressingitsregulationonthecarbonborderadjustmentmechanism.TheUSregulatorshavealsobeencontemplatingasimilarconceptinthetradepolicy.Chinatodayhasitsbiggestsenseofurgency,pressureandincentivetoputitsownacttogetherandjointhecompetitionandpartnershipwithothermajoreconomies,developedanddevel-oping.Collectively,theywillsetanewgenerationofinternationalstandardstoregulateanddirectthecleanindustrialization.4.4INTEGRATED,SMARTANDGREEN:CHINA’SBLUEPRINTFORNEWMOBILITYINFRASTRUCTUREInsightChina,March4,2022InJanuary2022,Chinapublishedtwoblueprintsformobilitydevelopment.The14thFive-YearPlanofIntegratedModernTransportationHubSystemschartsthecoursetodevelopa3-dimensionalnationaltransportationinfrastructuresystem,coveringroad,rail,air,river,maritime,aswellasinter-cityandinside-citymobilityby2025;andthe14thFive-YearPlanofGreenTransportationPlanfocusesonhowtoturnthesystemgreener,acrossallregionsandsegments.Specifictargetsareset,oftenquantitative,asillustratedinTable4-4.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏68Table4-4:GreenTransportationTargetsfor2025CategoryIndicator2025Carbonreduction,vehicles1.CO2emissionpervehiclerunningover2020level-5%Carbonreduction,shipandboat2.CO2emissionpership/boatinoperationover2020level-3.5%Pollutionreduction:shipandboat3.NOxtotalemissionover2020level-7%Newenergyvehicle(electricorhydrogen)4.Newenergyvehiclespercentagein:○Nation-widecitypublictransportation○taxifleet(includingonlinecarhailing)○urbanlogisticdeliveryvehicles○newurbanpublicandlogisticvehiclefleet○internationalcontainerhubtruckfleet72%35%20%80%60%Portelectrification5.IncreaseofonshoreelectricityuseatportsandoffshoreservicezonesalongtheYangtzeEconomicBeltover2020level100%Infrastructureintegration6.Containerrai-waterwaycombinedtransportationannualgrowthrate15%Urbantransport7.Numberofcitieswithpopulationmorethan1million,thatprovidemorethan70%greentransportation(publictransport,cyclingandwalking)60ThetwoPlansputtogetheralsoshowcasethemostcomprehensive,inclusiveandstrategicthinkingofChinesepolicymakerswhoviewmobilitythroughthelensofamajoreconomictransformation.Theobjectivesareclearlyset.By2025,China'stransportationandmobilitysystemsareexpectedtohavemade"substan-tial"breakthroughsinintegration,smartnessandgreen,whilecapabilityinservices,operations,efficiencyandflexibilitydramaticallyimprovedtotheworldleadinglevel.4.4.1ATransformativeVisionCombiningDigital,NewEnergyandMobilityForChina,transportationisoneofthethreeinteractiveoperatingsystemsoftheeconomy.Togetherwithan69▏INSTITUTEOFENERGY,PEKINGUNIVERSITYinformationandtelecommunicationmedium(thatmanageseconomicactivityandsociallife)andapowersource(thatmoveseconomicactivityandsociallife),thethreemakeupageneral-purposetechnologyplatform,orasociety-wideinfrastructure,thatenablestheeconomicandsocialsystemstooperateasawhole.4Newtelecommunication(e.g.5G),cleanenergy(e.g.renewables),andmobilityinfrastructure(e.g.EVchargingstations)definehowthecommitmentsofpeopleandplanetpositivewillbeachieved.Theyalsochangesociety'stemporal/spatialorientation,businessmodels,governingpatterns,builtenvironments,habitats,andevennarrativeideology.ThisissignificantforChinainadvancingsimultaneouslyeconomictransformationandcleanenergytransitionwhilehonoringitscommitmentstoitspeopleandtheworldinthecontextofUNSustain-ableDevelopmentGoals.Alivingcaseofactionisalreadymade.Chinalauncheditsnational"newinfrastructure"schemein2020.Toalargeextent,itembodieshowdeeplysuchanarrativehasbeenembracedandadoptedinthecountry.Theschemeputssevenprioritiesontheagendatoguidepolicyincentivestoinvestintransformingitsinfrastructure-5Gstationconstruction,super-high-voltagepowertransmissiongrids,inter-cityhigh-speedrailsandurbanrailtransportation,newenergyvehiclechargingpiles,bigdatacenters,AIandindustrialIoT.Thus,itisnolongersurprisingwhyChina,asdemonstratedbyrecords,hasbeenmovingforwardanintegratedstrategywithaunitedfronttolaydownasol-idfundamentalinfrastructuretoaccommodatethe"plug-ins"ofalltheotherpiecesintheeconomicandsocialsystemssothattheycouldactinsynctoacceleratethetransformation.4ThisisthebasicframeworkJeremyRifkinarticulatedinhisbest-sellerTheThirdIndustrialRevolution:HowLateralPowerIsTransformingEnergy,theEconomy,andtheWorld,publishedin2011.Thepremiseofthebookisthatfundamentaleconomicchangeoccurswhennewcommunicationtechnologiesconvergewithnewenergyregimes,mainly,renewableenergy,andnewmobilitysolutions,suchasEVs.Chinesepolicymakershavestudiedtheframeworkinsideoutandadoptedthethinkingintothecountry'stransformation.4.4.2EnhancingtheConnectivity:GriddingandWebbingThePlansdrawablueprintofanationwidetranspor-tationsystem,aphysicalanddigitalinfrastructurethatconnectsallthepossibledotsandroutes,andfacilitatesefficientmovementofgoods,servicesandpeople,whilereducingcosts.Theyputemphasisonhowtoimprove,upgrade,greenanddecarbonizethecountry'stransportationsystem,enabledbyemergingtechnologies,inthenextfiveyears.Theyalsolayoutwaysandactionstobuildandstrength-enthephysicalinfrastructure,enhancethefunctionalityofthemobilitynetworkstofitforpurpose,notably,protectingtheclimateandnature,anduplifttechnologyinnovationinthetransportationindustry.Threehighlightsmayprovidesome"flavor"or"visuals"ofhowthePlansarchitecturesolutionstoclearsomeidentifiedbottlenecks.Firstis"GriddingandWebbing"todefineandshapethebackboneandconnectivityofitsmodernizedmobilityinfrastructure.Forinstance,builtuponitscurrent8"vertical"(north-south)and8"horizontal"(east-west)high-speedrailwaysthatcover95%ofChinesecitieswithmorethanonemillionpopulation,Chinaisexpandinginter-cityhigh-speedrails-atorabove250kmperhour-tocovermorethan95%ofcitieswithapopulationofmorethanhalfamillion.Inthemeantime,thehighwaysystemacrossthecountrywillbeimprovedandcompletedwith7radiatinghighwaysfromBeijing,11north-southhighways,18east-westhighways,andothersupportinghighwaysoveritsterritorythatconnectinlandcitiesandregionswiththeeasterncoastalmoreadvancedregions.Second,communicationtechnologyisthebrainthatoversees,coordinates,andmanagesthemobilityandeconomicorganisms.EnabledbythefeasibilityofINSTITUTEOFENERGY,PEKINGUNIVERSITY▏70sensors'ubiquity,"universal"mobiledevices,aswellasreal-timeandfullsatellitecoverage,thedeepest-everconvergencebecomespossibleforthetransportationsystemtoembraceadvancedtechnologiessuchas5G,IoT,bigdata,cloudcomputing,andAI.Theoutcomeisanunprecedentedlevelofinterconnectivity,efficiencyandefficacy,andsafetyandsecurityofthetransporta-tionsysteminoperation.And,Chinahasmadeanimpressivemarchonelectrifi-cationofmobilityandcharginginfrastructure.Thenewplanistoacceleratefurtherscalingtoachievealmost“universality”ofchargingpilesandswapfacilities.By2025,thechargingcapacityshallsupportatleast20millionelectricvehiclesinthecountry.Asfarasvehiclesareconcerned,buses,trucks,passengercars,taxifleet,postalanddeliveryvehicles,trashandwastecollectionvehicles,andgovernmentvehicles,younameit,areallbecomingnew-energy-fueled,i.e.electric.4.4.3RemainingPuzzlestoSolve:Trade-offs?Whensuchtrendshold,somestudiesforeseeadramaticdeclineofdieselfuel,gasoline,andkeroseneconsump-tioninChina'stransportationsectorinthisdecade.Anditisexpectedtocontributetoanearlierpeakingofoil,nolaterthan2030.WhileeffortsandplannedactionsareclearlystatedinthePlanstocontributetothedecarbonizationandpollu-tionreduction,twoquestionsbegclarityinanswers.Oneistheecologicalandenvironmentalfootprintsfromthebuildingoutofthetransportationinfrastructure-land,freshwater,coastalandoceanecosystems,andbiodiversity,namely,howtobuildandoperateeverythingwithinashrinkingecologicalredline.Simpleenvironmentalimpactassessmentwon'tbeanadequatewayout.Howshallthisberightfullynarrated?AndtheotherisclimateresiliencenowheretobeseeninthePlans.China,likemostothernationsaroundtheworld,hasbeensufferingtremendouslossanddamagefromextremeweathereventsandnaturaldisasters,suchasflooding,storms,erosion,andlandslides.Theyoftendestroyinfrastructure,disruptmobility,andendangerlivesandlivelihoods.Whilebeingsmartisalwayshelpfulbutitalonewillbelargelyinsufficient,plannersshallpaymoreattentiontoclimateimpactsandresilienceintheirplanning,notonlytoenhanceresilienceofexistinginfrastructure,buttoavoidmajorlossesanddamagesinnewprojects.4.5GREENINGANDTRANSFORMINGTHEBUILDINGSInsightChina,March4,2022ThebuildingsectorisamajoreconomicpillarforChina,spanningthebroadest-everindustriallandscape.Foralongtime,nearlyone-fifthofthecountry'sannualGDPcomesfromtherealestateindustry,thoughtheratiohasstartedtodecline.Itemployednearly54millionpeoplebytheendof2020.Itisalsooneofthelargestsourcesofcarbonemissions:onethirdofChina'senergyisconsumedtopowerconstructionandoperationofbuildings,andnearlyhalf(48%)ofthecountry'stotalcarbonemissionscomefromthelifecycleofbuildings.Toachievetheduotargetsofpeakingtheemissionandzeroingoutcarbon,transform-ingthesectoroffersoneofthebiggestopportunities.Thegoalsareclearlysetandthepathwaychosen.OnJanuary19,theMinistryofHousing,andUrbanandRuralDevelopment(MHURD)officiallyreleasedthe14thFive-YearPlanofConstructionandBuildingSector(thePlan).Iteyesontwo"historic,pivotalmoments"totransformthesector.ThefirstisitsunprecedentedconvergencewithadvancedmanufacturingandnewgenerationofICT/communicationtechnology;andthesecondisthepivotfromlarge-scalenewconstructiontoparallelimportanceattachedtobothupliftthequality71▏INSTITUTEOFENERGY,PEKINGUNIVERSITYofexistingbuildingstockandadjustthestructureofthenewlyaddedstock.4.5.1GoalsThePlanis"benchmarked"againsttheChinaVision2035.TheVisionpaintsablueprintofahigh-quali-ty-centereddevelopmentsystemicframeworkthat,ononehand,guidesandregulatessoundmarketoperationmechanismsandsafetyassurance,aswellasoptimizedsectorstructure,andontheother,isenabledbytheconvergingnewindustrialization,digitalizationandin-telligencethattransformshowbuildingsareconstructedandoperated.Table4-5:Fivegoalsandprioritiesofthe14thFive-YearPlanforBuildingsGoalExampletargetfurtherconsolidatedandstabilizedeconomicpillar1.sectorvalueaddtoGDP:abouteveryyear2.strengthenedneweconomicpillar:newproducts,services,andbusinessmodelsfromdeepest-everintegrationofnewICTtechnologyandbuildingindustrymuchmodernizedindustryvaluechain1.prefabricatedbuildingsratioinallnewlybuilt:above30%2.policyframeworkandindustrialsysteminplacethatsupportadvancedmanufacturingandindustrializedconstructiongreenandlow-carbonproduction1.controlofon-siteconstructionwastesinnewlybuiltconstruction:lessthantonsper10,squaremeters2.policy,technology,andimplementationsysteminplaceforgreenbuildingsandconstruction,aswellasformingmarketmechanismfordisposalandreuseofwastesimprovedconstructionandbuildingmarketmechanism1.amendingtheLawofConstructionandBuildings,andenhancingsectormanagementmechanisms,suchasindustrialcertificationandprofessionalaccreditation2.morethanmillionprofessionalsaccreditedatandabovemid-levelstrengthenedengineeringqualityandsafety1.preventionandcontrolofmajorsafetyaccidents2.improvedemergencyresponsetodisastersINSTITUTEOFENERGY,PEKINGUNIVERSITY▏724.5.2DecarbonizingvaluechainsAssectorallyexpansive,geographicallyandclimati-callydiverse,andtechnicallycomplexasitcanbe,thebuildingssectorcoversaratherlongvaluechain.Tode-carbonizeitreliesonenactmentofmandates,incentives,legislation,andstandards.WhilethePlanitselfactsastheguidingandintegratordocument,theChinesepolicymakershavetakenaholisticvalue-chainandlife-cycleapproach.1.Drawingtheupstreamboundarytosaveenergyandreducecarbonemissionsinmaterialsproduction:OnJanuary22,theNationalDevelopmentandReformCommission(NDRC),MinistryofIndustryandInformationTechnolo-gy(MIIT),MinistryofEcologyandEnvironment(MEE),andNationalEnergyAdministration(NEA)jointlyreleasedthe2022ImplementationGuidelinesofRetrofittingandUpgradingtoSaveEnergyandReduceCarbonEmissionsofHigh-EnergyConsumingIndustries(theGuidelines).Itcovers17industrialsectors,manyofwhicharebuilding-andappliances-related.SpecificsaregivenintheGuidelines.(Wewillpublishaseparatepaperdeep-divingintoaframeworkofenergyefficiency.)Table4-6:HighlightsoftheGuidelinesforHigh-energyConsumingIndustriescategoryfocus17industrialsectorssteel;cement;coking;moderncoalchemicals;plateglass;non-ferrousmetalrefinery;buildingandsanitaryceramics;oilrefinery;ethylene;P-xylene;syntheticammonia;calciumcarbide;causticsoda;sodaash;ammoniumphosphate;yellowphosphorus;ferroalloy4keytasks1.guideretrofitandupgrade2.strengthentechnologicalbreakthroughs3.promoteclusteredandintegrateddevelopment4.speedupphase-outofoutdatedcapacity2.Mandatingenergyconservation,renewableenergyuseinbuildings:OnOctober13of2021,theMHURDissuedNationalStandardsforEnergyConservationandRenewableEnergyUseinBuildings.MandatoryandtobeeffectiveonApril1of2022,theclausesrepresentChina'sfirstcompulsorynationalstandardscoveringcarbonemissionsfrombuildings.73▏INSTITUTEOFENERGY,PEKINGUNIVERSITYTable4-7:AnOverviewoftheCarbonStandardsforBuildingsFocushighlightsScopeapplytodesign,construction,receiptandinspection,operation,andmanagementofsystemsforenergyconservationandrenewableenergyuseinbuildingsthatarenewlyconstructed,extendedorremodeled,ormodifiedforimprovedenergyefficiencyrequirementsforcalculationofcarbonemissionsfrombuildingsafeasibilityreport,constructionplanandinitialdesignplanmustincludeananalysisreportofenergyconsumption,renewableenergyuseandcarbonemissionsofthebuildingrequirementsforrenewableenergyuseclearstandardsandrequirementsforrenewableenergysystem,includingsolarenergysystems,airsourceheatpumpandgroundsourcepumps,aredefinedstricterstandards1.energyefficiencyofbuildings:thedesignenergyconsumptionofregularnewhousesandpublicbuildingswillbeloweredby30and20percentrespectively,fromcurrentstandardsimplementedsince20162.energyconsumptionofnewhouses:theenergyuselimitswillbeloweredby20to30percentfromthecurrentstandardsdependingontheclimateoftheregion3.carbonemissions:thecarbonemissionslimitsfornewhousesandpublicbuildingswillbeloweredby40percentandonaveragebymorethan7kgCO2/squaremeterperannumfromthecurrentstandardsimplementedsince2016.AccordingtotheStandardforBuildingCarbonEmissionCalculation(GB/T51366-2019).thecalculationofcarbonemissionsintheoperationalphasefactorsinairconditioningequipment,waterheaters,lightingequipment,elevators,renewableenergyandcarbonabsorp-tionbycarbonsinksystems.Andrelevantman-datoryclausesinexistingconstruction-relatednationalstandardswillbereplacedwhenthenewstandardstakeeffect.3.Connectingwithgreenconsumptionandembeddingcircularityinthevaluechain:Twoadditionalinterventions-greenconsumptionandcirculareconomy(constructionwastes)-arealsodeeplyembeddedinthesector'stransformationplans,andsomeanalysesofwhichhavealreadybeensharedinsomeofourpreviousInsightChinareports,andmanymoretocome.Tofurtherhighlighthowsignificantthesectorhasbeen"treated"orpositionedinnationalsmart,greenandcleantransition,belowaresomekeyrelevantpolicydocumentsinthe14thFive-Yearplanningsystem:●Circulareconomicdevelopmentplan,July7,2021●Greenindustrialdevelopmentplan,December3,2021●Smartmanufacturingdevelopmentplan,December28,2021INSTITUTEOFENERGY,PEKINGUNIVERSITY▏74●ImplementationPlantoPromoteGreenConsumption,January21,2022●WorkplantoBuild100Waste-FreeCities,December17,20214.5.3RollingoutNodalIoTbuildingsWithallthepiecesaddingup,a"futuristicvision"andarealityhasemerged.Buildingsarenolongerpassivewalled-offprivatespaces,rather,potentiallyactivelyengagednodalentitiessharingtheirrenewableenergies,energyefficiencies,energystorage,electricmobility,andawiderangeofothereconomicandsocialactivitieswithoneanotheratthediscretionoftheiroccupants.Andveryimportantly,thecountry'scurrentendeavorofdecarbonizingeverybuilding,asalltheplanshavegearedtowards,offersthegreenphysicalfoundationforthelaying-onofthedigitalinfrastructuretomaximizethebenefitsofpeopleandplanetpositive.Inthatvision,millionsofexistingbuildingswillbeundergoingacompleteretrofittosealinteriors,minimizeenergyloss,optimizeefficiency,andbuttressstructurestoberesilienttoclimate-relateddisruptions.Renewableenergyinstallationsinbothnewlybuiltandretrofittingareturningbuildingsfrompowerconsumerstocleanpowergenerators.Fossil-fuelheatingisreplacedbyelectricalheatingpoweredbygreenenergyacrosstheresidential,commercial,industrial,andinstitutionalbuildingstock.Inshort,thebuildingsectortransformationisdestinedtobefundamentalandprofound.Involvingthelargestphysicalinfrastructureofanycountry,itwillhaveitsperplexitiesandcomplexities,butitalsorepresentsthebiggestopportunity.5ThePlanisreleasedbyNDRC,togetherwiththeMinistryofIndustryandInformationTechnology,MinistryofHousing,andUrbanandRuralDevelopment,MinistryofCommerce,NationalGeneralAdministrationofMarketSupervision,NationalAdministrationBureau,andCentralCommittee’sDirectAdministrationBureau.4.6GREENINGCONSUMPTION:CHINAPUSHESCONSUMERBEHAVIORCHANGEONALLFRONTSInsightChina,March10,2022Consumptionisalwaysthe"lastmile"tobridgeinavaluechain-forinvestorstocashoutprofits,andforpolicymakerstodelivergoalsandtargets.Thisalsoprovesthe"trickiest"nodetointerfereduetothecomplexityofhowpurchasingdecisionsaremade,particularlywhenindi-vidualconsumersareconcerned.Andyet,herecomestheunprecedenteddeterminationandcommitmentoftheChinesepolicymakersto“gettheirfeetwet”bydirectlyguidinganddemandingwhatconsumersshallbuyandhowtheyshallconsumeproductsandservices.Thegoalseemsclearlyset-toconnectallthedotsandadvanceaclean,green,circularandsmarttransition,specifically,buildingupandenhancingsystemicinfrastructureandmechanismstoenableconsumingless,reducingwastesandlosses,savingenergy,anddecreasingcarbonemissions.AsarticulatedbytheImplementationPlantoPromoteGreenConsumption(thePlan),releasedonJanuary18,greenconsumptionisnow"officially"mainstreamedandembeddedinthepolicylandscapeasacrucialpartofthetransition.TheNationalDevelopmentandReformCommission(NDRC),jointlywithsixothernationalministriesandagencies5,aimsto"unleashthemaximumpotentialandcontributionofconsumptiontoaccelerateprogresstowardsdecarbonizationandgreeneconomy”.4.6.1GoalsTwotime-boundsignpostsaresetbythePlan.By2025,itaimstoachievethatgreenconsumptionisdeeplyrootedinsocietyandthegreenconsumptionlifestylebecomesubiquitous.Andthiscanbeevidencedby1)75▏INSTITUTEOFENERGY,PEKINGUNIVERSITYhaltingandreversingextravaganceandwaste;2)dramat-icallyincreasingmarketshareofgreenandlow-carbonproductsandservices;3)demonstratingvisibleprogressingreeningconsumptioninsomekeysectors;and4)puttinginplacetheconsumption-enablinginfrastructureandsystemofgreen,low-carbon,andcirculardevelop-ment.And,by2030,thepolicymakersexpectthatgreenconsumptionwillbecomethepublic’sself-consciouschoice,orthemainstreamculturalnorm,whilegreenandlow-carbonproductsdominatetheChinesemarket.Inthemeanwhile,keysectorshavetotallyembracedgreenconsumption.Andasoundlandscapeofpolicyincentives,mechanisms,systems,andgovernanceisinplacetosupportandbealignedwithgreenconsumption.4.6.2CanvassinggreenconsumptionThisisan"on-all-fronts"endeavor,withthe“visiblehand”allovertheplace.ThePlancoversthelandscapeofthebasicneedsofanindividualconsumer,orthekeysectorsoffood,clothing,living,mobility,power,appliances,tourism,aswellaspublicinstitutions.Itemphasizestheimportanceofthewholevalue-chainthinkingandconnectivityofallpartsinit,includingproduction,circulation,consumption,recycling,andreuse.Thepolicymakersarealsopositionedtoprovideall-dimensionalsupport,suchasincentives,technology,services,fiscalandfinance,pricing,credit,oversight,andgovernance.Thetabledhighlightsbelowofferasenseofthescopeofthegovernment'sendeavortopullthepiecestogethertodeliverahighlyambitiousgoaltogreentheconsumption.interventionpointsfocaltargetsfood1.Agriculturalproductsandfood:standardizationofproduction,storage,transportandprocessing;reducingwastesandupliftingproductivityinprocessing;promotingorganicfoods;aswellasrationalandmoderateinfoodpurchasing,storage,cooking,orderingandeatingout2.Anti-foodwastes:restaurantdiningindustrystandardizationandcompliancewithregulations;newmodelslike“farm-to-centralkitchen”;compliancewithanti-foodwasteregulations;oversightoveranti-foodwastesinfoodproductioncompanies,whendiningatschools’,government’sandinstitutions’cantines,anddiningatreceptions,meetingsandtrainingsessions;“CleanthePlate”ubiquitous;aswellaskitchenfoodwasterecyclinganddisposal3.R&DandtechnicalsupportplatformtostrengthengreenfoodconsumptionINSTITUTEOFENERGY,PEKINGUNIVERSITY▏76interventionpointsfocaltargetsclothing1.Valuechain-promotedeploymentofgreenfibermanufacturing,high-efficientandenergy-savingdyingandprinting,equipment,andtechnologytorecycleusedfiber,increaseduseofgreenfiberssuchasrecycledchemicalfibers,andclothingincompliancewithgreenandlow-carbonrequirements2.Procurementofgreenandlowcarbonlabeleduniformsbyschools,companiesandinstitutions,andgovernmentagencies3.Rationalandmoderateconsumptionwhenpurchasingclothing4.Reuseandrecycle:standardizingdonationofusedclothing;usedclothingcollectionstationstoenhancerecycleandreuse;pilotsofintegratedutilizationofusedandwastedtextileproductsandclothingliving1.Greenandlow-carbonbuildings,bothnewlybuiltandretrofitting,urbanandrural;greeningbuildingmaterials,newlymanufacturedandrecycled,aswellasinteriors2.Cleanheatingrenovationinlinewithclimaticlocations;encouraginguseofenergy-savinglightingandcookingstoves,andwater-savingtoilets;promotinguseofindoortemperatureandlightnesscontrolappliances3.Ruralcleanheatingandelectrification,aswellasuseofrenewableenergyinruralareasmobility1.Newenergyvehicles(NEVs),alltypesofvehiclesforvariouspurposes,suchaspassengercars,buses,trucks,postvehicles,etc.2.Newinfrastructure,suchaschargingpiels,newenergystorageandhydrogenfilling3.Publictransportation,railtransportation,cycling,sharedcycling,andpedestrianwalkingappliancesandproducts1.Householdappliancesandfurnishing:energysaving,environmentallyfriendly,smartproducts2.Greenandlow-carbonproductssalesandtrade(importandexport)3.Greenpackagingandpackagingrecycleandreuse,inparticularplasticspower1.Greenpowerconsumption-connectinggreenpowermarketplace,greenpowercertificates,andcarbontradingschemes2.Leadershipfromleadingcompanies,state-ownedandMNCs,inpurchasinggreenpower,anddevelopedregionsshallleadtoscalegreenpowerconsumption3.Mandatoryconstraintsoverhighenergy-consumingenterprisesforgreenpowerconsumption4.Gridcompaniesprovidetechnicalandadministrativesupportandguidanceforincreasedgreenpowerusers,includinghouseholds77▏INSTITUTEOFENERGY,PEKINGUNIVERSITYinterventionpointsfocaltargetseventsandtourism1.Largeeventsandexhibitions:materials,lighting,wastes,pollutionpreventionandcontrol2.Transportationhubsatairports,terminals,ports:convenienttransfer,bicycle-designated,pedestrian-walkingfriendly,andpublictransport3.Tourismdestinations’design,operationandservice:green,energysaving,resourcesandenvironmentalimpact,circulareconomy4.Ruralvillagetourism:protectarableland,forestland,wetland,aswellascarbonsinkpublicinstitutions1.LeadershipinpurchasingNEVsandbuildingcharinginfrastructureaspriority2.Greenofficeandgreenprocurement3.Forcefulenforcementandcompliancewithanti-wasteregulations4.6.3ConsolidatingthefoundationandincentivizingactionsImmediately,achallengehasemergedandaseriesofquestionsbegforanswers.Howisgreenconsumptiondefined?Whatstandardsareinplacetoregulate,guideandmeasurethetransition?DoesChinahavesufficientlegislationandgovernancetoassurethecredibilityandaccountabilityofalltheactionstakenaslistedinthetableabove?ThePlanhasidentifiedfourprioritiesascrucialnextstepstobuildasolidfoundationandclaritytogreenconsumptionatscaleandsystemically:1.LegislationandPolicy:Amendingatleasttworelevantlaws-theBiddingLawandtheGovernmentProcurementLaw,whileimprovinggreenprocurementpolicies;2.StandardsandAccreditations:Labeling,certificationandstandardsassomeofthemajorinstrumentstohelpbuildupmarketvisibilityofgreenproductsandservices;andgreendesign,life-cycleanalysis,andgreenmanufacturingstandardstosupportacceleratedscaling;3.Statistics,OversightandAssessment:Statisticframework,datagathering,monitoring,analysisandforecastingasthe"commonpractices"thatshallbeclusteredaroundgreenconsumption;and,4.DisclosureandTransparency:Anationallyunifiedinformation/dataplatformtobeinplacetoreportanddiscloseprogresses,andalsotoreleaseperiodicproductinventoriesandpurchaseguidancetoensureaccountabilityandboostconsumers'confidenceinmakinginformeddecisions,conveniently.Like"businessasusual",thepolicymakershavedecidedtostrengthenthegovernment'spushandpulltoincentiv-izeacceleratedmarketplacescaling,suchas1.fiscalpolicy,includingtaxcredits,localsub-sidieswhere-everappropriate,andsubsidizedinterest;2.financialsupport,suchasfinancialinstitu-tions'servicestocompaniesandindividuals,expansionofissuanceofgreenbonds,andINSTITUTEOFENERGY,PEKINGUNIVERSITY▏78speciallydesignatedfundsandinsuranceproducts;3.pricingpolicy,suchastiered,floatinganddifferentiatingpricesofwater,electricityandgas,aswellasfeesorleviestodifferentiatesuchcostsasgarbagecollectionanddisposal,publictransportparking,trafficjams,amongothers;4.market-orientedincentives,suchasgreencreditssystem,trade-inofusedproductsfornewones,anddepositssystem;and,5.clearandenforceableliabilitythatholdsviolatorsoflawsandregulationsaccountable.4.6.4CampaigningandmobilizingpublicmovementThePlan,undoubtedly,representsanother"aim-high"onthepartofthepolicymakerstoclosetheloopsandadvancethecleanandgreentransition.Andyet,existinginadequaciesandgapsininstitutionsandgovernancewon'taccommodatedeliveryof“overnight”outcomes.Bridginggapstakestime.And,veryimportanttonotehere,greeningconsumption,ultimately,isaquestionofculture,notmaterialsandtechnology.Howeverefficient,howeverregenerative,howeveruseful,materialsandtechnologyalonewon’teverundoallthenegativeeffectsfromhowweconsumetoday.Thus,asweseeinthePlan,theaspirationofthe“visiblehand”todriveculturalandsocietalchange.Andweseetremendousimportanceattachedtoelevatingcampaign-stylemovementsthatwillraiseawareness,advocatebehaviorchange,pilotvariousprojectsandprograms,andincreasepublicityandvisibilityofbothpolicyandbestpractices,inparallelwithpolicymakersandregulators'endeavortoremovebarriersandclosethecracksandbuilduptheinfrastructureandmecha-nismstoshoreupgreeningofconsumption.MahatmaGandhiofIndiaoncesaid,“TheEarthcanmeeteveryone’sneed,butnoteveryone’sgreed”.NowinChina,wewillseehowthegovernmentisbothvisibleandinvisiblehandstocontrolthe“greedy”partofconsumptionbytheworld’smostpopulousnation–anexperimentwithoutprecedent.4.7THEFUTUREOFGREENPOWERMARKETINSTRUMENTSInsightChina,November23,2022Chinausedtolavishlysubsidizerenewableenergydevel-opment,normally20yearsatfixedtariffforsolarandwindprojectsand15yearsforbiomasspowerprojects.Andyettwofactspushedthegovernmenttoadoptmoremarket-basedinstrumentsinsteadofsubsidies:●HighlevelofsubsidiesquicklydrainedtheFinanceMinistry’spocket,wherearrearsofsubsidypaymentoverpassedRMB100billion(about$14billion)bytheend2017;and●Dramaticdeclineofcostofrenewablepowersources.ThisInsightreportreviewstwotypesofmarketinstru-ments–thegreencertificateandgreenpowerpurchase,andexaminestheirlinkstootherinstrumentssuchasthemandatoryrenewablepowerabsorptionquota(RPAQ)andthenationalemissionstradingscheme(ETS).4.7.1GreenCertificate:Greencertificate(GC)wasthefirstmarket-basedinstrumentChinaintroducedin2017.Itwasintendedtoencouragerenewableenergydevelopmentwhilere-ducingtheburdenofpublicsubsidies.ItisissuedbytheNationalEnergyAdministration(NEA)totherenewablepowergenerationcompaniesthatmeetcertainrequiredconditions.79▏INSTITUTEOFENERGY,PEKINGUNIVERSITYOneGCcorrespondsto1MWhofpowergeneration.It’sgivenauniquedigitalcodethatdescribeswherethispowerisgenerated.Itwasinitiallyreservedonlyforonshorewindandlarge-scalesolarprojectsthatareen-titledtogovernmentsubsidies.In2019,itwasextendedtonon-subsidizedprojects.A2020NDRCregulationfurtherstipulatesthatwhentheirsubsidyentitlementperiodisover,allrenewables’projectscanreceiveGCsandparticipateintrading.Thus,aGCcanbeissuedeitherfromarenewableprojectstillundergovernmentsubsidyoroutsidethesubsidyscheme.Thecertificatewasinitiallydesignedforvoluntarypurchasesbyindividualsorinstitutionswhowanttosupportrenewableenergydevelopment.Later,itisturnedintopartoftherenewableenergyconsumptionquota.AnditcanbeboughtfromadesignatedGCpur-chaseplatform.Forrenewablepowergenerators,oncetheysoldtheircertificates,thecorrespondingvolumeofpowerwillnomorebeeligibleforstatesubsidies.Theresulthasbeendisappointing.Chinaissuedatotalof34.21millionGCsfromprojectsunderthesubsidyscheme,butonly79thousandor0.23%werepurchased.Forprojectsoutofthesubsidyscheme,about11.4millionGCswereissued,only1.97millionor17.3%werepurchased.Reasonsforthisunder-performancearesimple.Firstly,thepriceofaGC,averagingatRMB50(about$7),isfarbelowthecostofsubsidy,whichvariesbetweenRMB167.8(about$23.6)–269.5(about$38)perMWhforanonshorewindproject.Powergeneratorsunderthesubsi-dyschemethereforeprefertoawaitthesubsidypaymentratherthansellthecertificatesandlosethesubsidy.Butforbuyers,priceforaGCunderthesubsidyschemeisfartooexpensive.Andsecondly,thelinkstomandatorymechanismssuchastherenewableenergyconsumptionquotaandtheETSarenotyetestablished.AsthereisnoanactiveGCtradingmarket,thebuyerscannotresellthecertificates.Thedirerealityisthatthemarketcannotachievescalebymerelycountingonvolunteerstopayagreenpremium.4.7.2GreenpowerpurchaseAmajorgapindesigningtheGCliesinthefactthatabuyerofthecertificatedoesnotneedtoconsumethegreenpower.Rather,itbetsonabuyer’swillingnesstosupportrenewablepowergeneration.Toovercomethis,theNDRClaunchedanewschemeinAugust2021-“greenpowerpurchase”.ItauthorizesboththeStateGridandtheSouthernGridtostarttrialoperationoftheschemeinBeijingandGuangzhourespectively.Theschemetargetsconsumerswhoarewillingtopaya“greenpremium”forrenewablepower.Itallowsconsumerstobuyeitherdirectlyfromrenewablepowergeneratorsorfromthegridcompanies.ForeachMWhgreenpowerpurchased,theconsumerwillgetaGCforfree.Thus,theschemecombinestheGCwithactualconsumption.Onthelaunchdayof7September2021,atotalof259entitiesfrom17provincesparticipated,signingatotalof7.93TWhofmid-andlong-term(3-5years)greenpowerpurchasecontractswithagreenpremiumrangingfromRMB30to50/MWh(about$4.2-$7/MWh).Thetradingvolumeisexpectedtorampupquickly.AccordingtoChinaElectricityCouncil,thetotalvolumeofgreenpowerconsumptionwasonly0.63TWhin2021,buttheyear2022isexpectedtoseeatradingvolumereach10TWh.Themainbuyersarethosecompaniesthathavecommittedto100%greenelectricitybyacertaindate,andtheChinesebranchesofinternationalcompaniesorexport-drivenChinesecompanies.UntilSeptember2022,i.e.oneyearaftertheschemelaunch,someChinesehigh-techcompaniessuchasAlibabaandTencenthavepurchasedatotalof7.3TWhofgreenelectricity.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏80Amajorhurdleingreenpowertradingishowtodeterminethelevelofpremiumtheconsumeriswillingtopay.Theregulationleavesthebuyerandthesellertonegotiate.Italsoallowsthebuyertolaunchacompeti-tivebiddingtoselectthebestseller.Ina25-yearlong-termgreenpowerpurchaseagreementwithaChineserenewabledeveloper,BASF–theGermanpetrochemicalgiant,usedLCOE(levelizedcostofenergy)oftheprojectasthepricingbasis.Othermainhurdlesforfurtherexpansioninclude:1)barriersincross-provincepurchaseswhenconsumersintheeastcoastwanttobuydirectlyfromrenewablepowergeneratorsinthewestdrought-riddenanddecer-tifiedregions;2)constraintstoexpandthepoolofbuyerswhenavastnumberof“normal”companiescouldnotjoinsincetheycouldnotpassonhighelectricitypricestoend-customers;and3)lackofeffectivelinkagetoothermechanismssuchasrenewableconsumptionquotaandnationalETS.4.7.3Betterinter-linksforstrongergrowthIsolatedindesignandoperation,neithergreencertifi-catenorgreenpowerpurchasewillplayasignificantroleinChina’spowersectortransition.However,iftheyworkinsynergywithotherinstruments,administrativeormarket-based,theymayplayapivotalroleinaccelerat-ingthegreenandcleantransition.Thefirstlinkliesbetweengreenpowerpurchaseandgreencertificate.Today,noteveryMWhofthegreenpowerpurchasedhasbeengivenaGC,asthelattermustbeissuedbytheNEAfollowingcertainapplicationandverificationprocedures.ByJuly2022,foratotalgreenpowerconsumptionof7TWh,only1.08TWhhastheGC,orabout15.4%.OnceeachoneMWhofgreenpowerconsumptionisgivenaGC,oratrueunificationofthetwoisachieved,theyneedtobelinkedtothefollowingschemes:●The“energyduocontrol”mechanism:thisisthemechanismbywhicheachadministrativearea(provinceandbelow)isgivenanenergyconsumptionquotaandanenergyintensitytargetforagiventime.Newlyaddedrenewableenergycapacity,alongwithfossilfuelsusedasfeedstock,havebeenexemptedfromtheenergyconsumptionquotaaccounting.Greenpowerconsumptionwillbeboostedifallisexemptedfromtheenergyconsumptionaccounting.●RPAQorrenewablepowerabsorptionquota:thisisa“mandated”obligationforalocaladministrationandallmarketparticipantswithinitsjurisdictiontoabsorbcertainpercentageofrenewablesintheirtotalpowerconsumption(seeInsightChinaNo.029/2022).GreencertificateneedstobecountedaspartoftheRPAQforpowerconsumers.●CCERorChinesecertifiedemissionreduction:afteryearsofpause,ChinajustresumedtheCCERqualificationandissuance.QuantitativeequivalenceorconversionneedsbeestablishedbetweenCCERandGCforgreenpowertobeconsideredasthemainsourceofCCER.●ETSornationalemissiontradingscheme:oncetheamountofcarbonreductionisdeter-minedforeachGC,itcanbefullyintegratedintotheETS,eitherdirectlyasemissionreductionorasoffset.●ESGorenvironmental,socialandgovernance:growingChinesecompanieshavestartedESGreporting.Makinggreenpowerconsumptionaspartoftheirenvironmentalcommitmentwillundoubtedlyboostthegreenpowermarket.81▏INSTITUTEOFENERGY,PEKINGUNIVERSITYGreenpowerpromotionprovesasystematiceffort.Itsbrightfuturecanbecomerealityonlywhenallthelinksoutlinedaboveareeffectivelyestablished.4.8ZEROWASTESOCIETY：CHINAPLANSTOTURN100CITIESWASTE-FREEBY2025InsightChina,March21,2022Aspartofwhatwecallthe“lowemissioneconomy”,Chinaaimstobuilda“ZeroWaste”societywithminimalsolidwastegeneration,andmaximumrecycleandre-use.Theplanistoturn100cities"waste-free"by2025,andthenexpandittoallothercitiesacrossthecountry.Andwhendeployed,it'sexpectedtohelpmitigateclimatechangeandotherpollutantsfromkeywaste-generatingsectors,includingindustry,agriculture,construction,andhousehold.IssuedjointlybytheMinistryofEcologyandEnvironment(MEE)and17othernationalministriesandagencies,the14thFive-YearWorkPlanontheConstructionofZero-WasteCities(theWorkPlan)guidesandincentivizescitiestoinvestininfrastructuretocapturethebenefitsofacirculareconomy.Someas-sessmentsindicatethatatotalof25%ofChina'scarbonreduction(intheframeworkof2030-2060duotargets)canbeattributedtoafulldeploymentofanintegratedcirculareconomy.AndChinaaimstogrowtheoutputofacirculareconomytoRMB5trillion(about$790billion)by2025.Chinesecitiesarenowhometo64%ofits1.4billionpopulation,whichisexpectedtogrowto80%by2035.Urbanpopulationandoperationofurbansystemscon-sumethemajorityofenergyandotherresources,emitmostofGHGs(80%),generatelargequantitiesofwastes,pollutetheair,waterandsoilwhichinturnthreatenthehealthofcitydwellersandecosystems.4.8.1UnifyingMetricstoRatePerformanceandScaleSolutions:TheWorkPlanisrollingoutaproposedmetricstounifymeasurementsandratingamongcities.It'scomposedofthreeTiersofindicators-5indicatorsforTierI,18forTierII,and58forTierIIIasoutlinedinTable4-8.Itreflectsthein-depthdesignthinkingofhowthepolicymakersplantodriveamorefundamentalandsystemicchange.Table4-8:TheProposedIndicatorFramework(2021)NumberTierI(5Indica-tors)TierII(18Indicators)TierIII(58indicators)1solidwastesreductionfromsource•industrialsourcereduction•agriculturalsourcereduction•constructionsource•householdsource•intensity:generalindustrialsolidwastegenerationperunitGDP•ratio:numberofcleanerproductioncompanies•ratio:numberofgreen-factorycompanies•rate:establishedgreenmining•intensityreduction:CO2emissionsofkeyindustrialenterprises•quantity:householdtrashcollectedandtransportedawayINSTITUTEOFENERGY,PEKINGUNIVERSITY▏82NumberTierI(5Indica-tors)TierII(18Indicators)TierIII(58indicators)2solidwastesutilizedasresources•industrialwaste•agriculturalwaste•constructionwaste•household•rate:generalindustrialwasteutilized•rate:dangerousindustrialwasteutilized•rate:animaldropsandsewageutilized•rate:constructionwasteutilized•rate:householdtrashrecycledandutilized•rate:increaseofrecyclingofrecyclables3solidwastesfinaldisposal•hazardouswastes•generalindustrialsolidwastestorageandhandling•agricultural•household•decrease:industrialhazardouswasteslandfill•decrease:generalindustrialwastestorage•rate:numberofpilingofbulkindustrialwastes(includingtailmines)•ratio:householdtrashincineration•rate:urbansewageandsludgeturnednon-hazardous4guaranteesandcapacity•governance•marketsystem•technicalsystem•oversightsystem•localregulations,policyincentivesandactionplans•coordinationmechanismamongdifferentagencies•totalinvestmentinzero-wastecityprojects•numberofenterprisesthathaveintegratedthetargetsintoenvironmentalcreditassessment•greenloanbalance•greenbondsstock•rate:productsingovernmentprocurements•data-enabledoversight5publicsatisfactionpublicsatisfaction•rate:publiccommunication,education,training•participationfromgovernment,business,non-governmentalenvironmentalorganizationsandthepublic•publicsatisfaction83▏INSTITUTEOFENERGY,PEKINGUNIVERSITY4.8.2SizingtheChallenges:Chinakickedoffthenewdecadewithfallingshorttomeetsomeofits2016-2020(13thFive-yearPlan)targetsinimprovedtrashhandlingcapacity.AccordingtotheNationalDevelopmentandReformCommission(NDRC),urbanwastehandlingcapacityreached1.27milliontonsadayin2021,up63%comparedwith2015,butsomeplaceswerestrugglingtokeepupwiththegrowingvolumesoftrash.Forinstance,halfofChinesecitieshadnotbuiltwasteincinerationplants,andmanycitiesincentralandwesternregionshadfailedtomeettargetsontreatinghazardouswastes.Thenationalgovernmentfirstlauncheditspilotsin2019when11citieswereselectedtoleadthescheme,joinedlaterby5specialregionsandthenmorecitiesvolun-tarily.Intheend,atotalof46citiesareonboardthatdeploymeasuresincludingbettersortingofsolidwaste,improvementsinurbanplanning,andtheconstructionofnewtreatmentfacilities.Whilegreendevelopmentmethodsandlifestyleschangesareencouraged,theyhavemanagedtominimizelandfillvolumesandreducetheenvironmentalimpactoftrash,atvariouslevels.Chinabannedimportsofforeignwastein2017andhasbeensteadilyrestrictingsingle-useplasticsandnon-recyclablepackagingwaste.Andyet,dealingwiththegrowingvolumeofwastehasemergedasoneofthebiggestchallengesfacingChina'sregulators,witharisingurbanpopulationconsumingincreasingamountsofconsumergoodsandmostmajorcitiessurroundedbyringsoflandfill.AndChinatodayfacesasolidwastetreatmentbacklogofupto70billiontons.4.8.3SeizingtheOpportunity:By2025,Chinahassetmoreambitiousgoalstoclosetheloops,enabledbyinnovativetechnologiesandfurtherstrengthenedinstitutionsandgovernance,especiallyatcitylevel,aimingto:●Reuse60%ofitsurbanhouseholdwaste,upfrom50%in2020;●Raiseincinerationlevelstoabout65%,upfrom45%in2020;●Utilize60%ofnewlygeneratedbulksolidwastes,upfrom56%in2020,whilereducingtheexistingstocks;●Reuse60%ofconstructionwastes.upfrom50%in2020;and,●Maintainingagriculturalwasteutilizationat86%andabove.Measuredbyweight,targetsofsomespecificitems'utilizationarealsosetby2025:●Usedpaper:60milliontons;●Strapsteel:320milliontons;and,●Recyclednonferrousmetals:20milliontons,ofwhich4milliontonsofrecycledcopper,11.5milliontonsofaluminumand2.9milliontonsoflead,respectively.The100waste-freecitiesprogramhastakenonamissiontohelpdeliverthoseclearlysettime-boundtargetsandmaximizetheco-benefits-protectingtheen-vironment,reducingwastesofresources,andenhancingthefoundationforgreentransition.4.8.4WhatHasBeenLearned?Azero-wastecityisaboutrehaulandredesignoftheexistingurbansystems-infrastructure,industrialsupplychain,productionandconsumption,institutionsandgovernance,andalsopeople'sbehaviorchange,tofitforpurpose.Earlierpilotschemeshavetaughtusmanythings.First,citiesofferthebestandmoreeffectiveenablingsystemicinfrastructure,bothsoftandhard,thatconnectsallthepossibledotsandclosestheloop(s),especiallyinthelastmile,sothatbarriersandblocksareclearedfortransition.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏84Second,donotexpect"quickwins"sincedauntingdifficultiesstandinthewaythatneedtobeovercome.Thatiswhyprogresshasbeenmadeinthoseearlierpilotsbutwithmixedoutcomesduetothecomplexity.Forinstance,onlySuzhoupresentsawell-establishedmodelofclosedloopsnowadvocatedtoscale,whilemostotherscontinuetofacedeadlockstobreak.Third,scalingthepilotsto100citiesandmoreoffersanimportantpartofthesolutiontothechallengeofmateri-als/mineralsandindustrialsupplychain,inthecontextofanincreasinglymorecomplexgeopoliticallandscapeandalsotheconstrainingenvironmentalfootprints.Oneexampleisco-associatedoreofblackmetals,nonferrousmetals,andrareandpreciousmetals.Chinaisrichinsuchresources,easilyaccessible,frommining.Andthemainstreamrecyclingorcirculareconomyisplayingabigroletosupportthecountry'scleanenergyrevolutionanddecarbonization.Andfourth,theclarityofgoals,targets,andplan,supportedbyfeasibletechnologiesandinfrastructure,determinesthefitofzero-wastecitiesandthebroadercirculareconomyinChina'sgreenfinancetaxonomyandtheirattractivenesstofinanceandinvestmentforacceleratedtransition.©PhotobySvenBrandsmaonUnsplash5RENEWABLESTONEWHEIGHTSINSTITUTEOFENERGY,PEKINGUNIVERSITY▏865.1POWERINGRENEWABLESTONEWHEIGHTSInsightChina,June1,2022Withatotalof636GWofsolarandwindpowercapacityinstalledattheendof2021,Chinahasbeentheleaderinglobalrenewableenergydevelopment.Thankstotheeconomyofscaleinbothdomesticandinternationalmarkets,dramaticcostreductionwasachievedbytheChinesemanufacturers,enablinganon-gridparitywiththetraditionalfossilfuelpowerinChinaandelsewhere.Figure5-1:CumulativeInstalledWindTurbineandSolarPVCapacityinChina0100,000200,000300,000400,000500,000600,000700,000123456789101211SolarphotovoltaicWindMWSource:InternationalRenewableEnergyAgencyAsrenewablescontinuetogrowandChinaisexpectedtoaddover100GWofsolarcapacitythisyear,constraintshavealsobecomeveryapparentinpowergrid’scapacitytoabsorbanincreasingshareofintermittentrenew-ables,inavailabilityoflandresources,andinpoliciesandregulationsthatwouldsupportanewbusinessmodeltosubstitutethetraditionalone.Ifnotbeingsquarelyaddressed,thoseconstraintscouldjeopardizethefuturedevelopmentofChina’srenewables.Thepolicymakersarefullyawareofhowimperativeitis,anddecidedtofocusontacklingthem,“eye-to-eye”,withanew“ActionPlanforHighQualityRenewableEnergyDevelopment,”(theActionPlan)releasedbytheStateCouncilonMay30th.ThisInsightChinareportprovidesthefollowingeight“Newness”asahigh-levelsummaryoftheActionPlan:5.1.1NewpatternofrenewableenergyexploitationTheActionsPlancallsfor:●Acceleratetheconstructionoflarge-scalewindandsolarpowergenerationbasesinthedesert,Gobi,otherbarrenland,andwastelandleftbehindcoalmining.Theseprojectswillbesup-portedbyadvancedcoal-firedpowerprojectstoprovidestablepoweroutputfortransmissionwithultra-highvoltagegridlinestothepowerconsumingregions;87▏INSTITUTEOFENERGY,PEKINGUNIVERSITY●PromotethedevelopmentofdistributedwindandrooftopsolarPVinruralareastoformnewenergycooperativesasnewruralenergydevelopmententities,inasimilarmannerasruralagriculturalcooperatives,makingruralareasnotonlyassourceoffoodsupplybutalsosourceofcleanenergysupply;and,●PromotetheapplicationofsolarPVandwindtechnologiesinindustrialestatesandindustrialparksintheformofgreenenergymicrogridsandpromotesolarPVandsolarheatinginallbuildings,includingachieving50%PVcoverageinallnewpublicbuildingsby2025.5.1.2NewPatternofRenewableEnergyConsumption●Startdirectsaleofrenewablepowertoindus-trialcustomersasawaytoincreasetheshareofelectricityinend-useenergyconsumption;●Launchgreenelectricitytradingpilot;●Improvegreenelectricitycertificates,andpro-motetradingofsuchcertificateswitheffectiveconnectiontothecarbonemissiontradingscheme;and,●Encourageconsumerstopurchasemanufac-turedproductspoweredbygreenelectricity.5.1.3NewTypeofPowerSystemtoAccommodateGrowingShareofRenewables●Bringpowergridintofullplayasplatformandhubforrenewableenergyconnectionandabsorption;●Upgradepowerdistributionsystemcapabilitytoabsorbdistributedpowersourcesbyturningitsmarterandmoreinteractive,andexperimentwithrenewable-basedDCpowerdistributionsystem;●Increasetheflexibilityofthepowersystem,suchasincoal-firedpowerplantretrofittingandupgrading,hydropowerexpansion,pumpedhy-droandothernewtypesofenergystorage,solarthermalpoweranddemand-sideresponses;and,●Createanewtypeofpowersystemthatcouldbeabletoaccommodategraduallyincreasingquan-tityofrenewables,byestablishingnewmarket,newoperationmode,newtechnologysystem,newbusinessmodelsandnewgovernancesystem.5.1.4NewBreakthroughsinRegulatoryReform●Increasetherenewableenergyprojectapprovalefficiencybycreatinga“greenfast-trackapprovalsystem”forcollectiveapprovalofrenewableenergyprojects;●Waivetherequirementforregulatoryapprovalofwindpowerprojectsandintegratedandinteractiverenewable-grid-storageprojects;and,●Simplifythegrid-connectionprocedurebyproving“one-stop”serviceplatform.5.1.5NewMomentumforRenewableEnergyTechnologyUpgrading●EstablishnationalrenewableenergylaboratoriesandR&Dplatformswithcol-laborativeinputsfromindustry,academiaandresearchcommunities;●IncreaseR&Dinputsforadvancedgame-changingrenewableenergytechnolo-gies;●Searchforsolutionstomajortechnologicalchallengesthroughbothbiddingandcompetitionschemes;INSTITUTEOFENERGY,PEKINGUNIVERSITY▏88●Continuetoachievebreakthroughsinhigh-efficiencysolarcell,windturbines,keybasicmaterials,andkeycomponentsoftherenewableenergyindustry;●Promotecreationofnewvaluechainintherecyclingofsolarpanelsandwindturbines;●Promotetheintegrationofelectronicindustrywithrenewableenergyindustrytocollectivelyensurethesiliconsupplychainsecurity;and,●ParticipateinternationalstandardizationworkandpromoteglobalrecognitionofChinesestandards.5.1.6NewMarketMechanismsforRenewableEnergyDevelopment●Supportdirectsales,vialong-termpowerpurchaseagreement,betweenrenewableenergydevelopersandend-useconsumers,withgridcompanieshavingthewheelingobligations;●Encouragerenewableenergyprojectstopartic-ipatethroughCFD(contractfordifference)inelectricityspot-tradingmarkets;●Includerenewableenergyprojectsinthepilotsof“RealEstateInvestmentTrust”(REIT)toincreasethescopeoffinancialsupportforrenewableenergydevelopment;and,●IncludeCERsfromrenewableprojectsinthecarbonoffsetpoolofnationalETS.5.1.7NewWaysofEvidencingFinancialandFiscalSupport●Considerthoserenewableprojectswithpublicgoodnatureastargetsforsupportbylocalgovernments’debts;●Strengthenthesupportofgreenbondsandgreencreditsforrenewableprojectdevelop-ment,undertheconditionthatrisksareman-ageable,andunderthesameriskmanagementcondition,●Allowbankstoprovideloanstorenewableprojectdevelopersagainsttheirunpaidover-duesubsidiesfromthegovernment.5.1.8NewPublicServicePlatforms●Establishadatabaseforexploitablerenewableresourcesacrossthecountryandmakeitaccessiblebyall;●Establishasharingmechanismforwinddata;●Improvethecomprehensiveservicesystemfordisasterpreventionandmitigationofrenewableprojects;●Acceleratetheestablishmentofrenewableequipmentstandardsandcertificationsystem;and,●Buildanationalrenewableequipmentqualitycontrolandkeyproducttestingplatforms.TheseeightNewnessreflectthepolicymakers’goodintentiontodebottleneckthecountry’srenewableenergydevelopment.Inourview,themostimportantwillbethe3rdone-howtobuildanewtypeofpowersystemthatwouldgraduallyaccommodateanincreasingshareofrenewables.Thisraisesaninterestingquestion:shouldthepowersystemchangerapidlytoaccommodatetherapidincreaseinrenewables,orshouldtherenewabledevelopmentpacewiththe“newtypeofpowersystem”construction?Theformerisunlikely,giventhatthestate-ownedmonopolynatureofChina’spowergrid,onemightfear89▏INSTITUTEOFENERGY,PEKINGUNIVERSITYthatthelatterwillbethecase,meaningthatrenewableswillcontinuetofighthardwiththeincumbentpowermonopolies.5.2RENEWABLESINTHE14THFYP:GALLOPINGINTHEPOST-PARITYERAInsightChina,June9,2022China’sprogressinrenewableshasbeenadmirable.Withrenewablesat1042GWaccountingfor42%ofitstotalinstalledpowergenerationcapacityin2021,China’sranksnumberonegloballyinannualadditionofhydropowerfor17consecutiveyears,inwindpowerfor12,insolarPVfor7andinbiomasspowerfor4consecutiveyears.RenewablesaremovingatafasterpacefromtheedgetothecenterstageofChina’senergy/powersystem,leadingthecountry’stransitiontowardsdecarbonization.However,adecade-longsteadfastscalinghasledtoare-alitythatmuchofthelower-hangingfruitshavealreadybeenharvested.Furtherdevelopmentwillrequireexist-inghurdlesbeclearedandnewbreakthroughsachievedonanumberoffronts,asoutlinedinourpreviousInsightChinareport–PoweringRenewablestoNewHeights,forrenewablestogallopinthepost-parityera.Italsodemandsamuchclosercollaborationamonggovernmentagenciesthatinvolveresourceassessment,landandseasurfaceutilization,meteorologicalservice,ecologicalprotection,financialandfiscalsupport,amongothers.That’swhyChinadecidedtopublishamostcomprehen-sive-ever14thFYPforRenewableEnergyDevelopment(theFYP),onJune1st,notconventionallybytheNDRC/NEA,butjointlyby9ministriesoragencies6,thatwillsyncandpropelthenewphaseofscalingrenewable6Nineministries/agenciesincludeNDRC,NEA,MinistryofFinance,MinistryofUrbanandRuralConstruction,MinistryofAgriculturalandRuralAffairs,NationalMeteorologicalAgency,NationalForestandGrasslandAgency.energy,andturnitamajorfuelinthecountry’senergymix.ThisInsightChinareportprovidesasummaryofkeyelementsoftheFYP.5.2.1Targets:China’sNDCcommitmentundertheParisAgreementwas,by2030,tohave25%shareofitstotalenergyconsumptiongeneratedfromnon-fossilfuels,i.e.renewablesplusnuclear,inwhich1,200GWwillbeinstalledwindandsolarcapacity.Bytheendof2021,thecountryhadalreadyreached636GWofsolarandwindcapacity.Withsolarandwindinstallationgrowingover100GWperyear,theconfidenceofovershootingthe2030targetisveryhigh.Themajorissuethereforeisnotinstalledcapacitybuttheenergyvolumegeneratedfromrenewables.Tomeetthe2030targetof25%ofnon-fossilfuelconsumptionvolume,theEnergy14thFYPhasseta2025targetof20%totalenergyconsumptionfromnon-fossilfuels.Todeliverythosetargetswhiletakingintoconsiderationresourceavailability,economicfeasibilityandprojectreadiness,theFYPhasspecifiedasetofquantitativetargetsasshowninTable5-1.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏90Table5-1:TargetsforRenewableEnergyDevelopment2021-2025IndicatorTargetsTotalrenewableenergyconsumption•onebilliontce(tonsofcoalequivalent)in2025(upfrom680milliontcein2020);•renewableenergy:>50%ofincrementalenergydemand,2020-2025Renewablepowergeneration•330TWhperyearin2025(upfrom221TWhin2020);•Renewablepower>50%ofincrementalelectricitydemandduring2020-2025.•doublethewindandsolarpowergeneration,2020-2025.Renewablepowerabsorptionquota1.33%nation-wideofrenewables/totalelectricitydemandin2025(upfrom28.8%in2020);2.18%nation-wideofnon-hydrorenewables/totalelectricitydemandin2025(upfrom11.4%in2020).Non-powerrenewableenergyproduction3.60milliontceby2025(includingsolarheat,geothermal,biomassheatandbiofuels).Asnoticed,alltargetsinvolveproductionorconsump-tionvolume,eitherinkWhorintonsofcoalequivalent(tce),noneaboutinstalledcapacity.Amongthem,twosetsoftargetsmeritparticularattention:1.Renewablesaresettotakemorethan50%shareinbothincrementalenergydemandandincrementalelectricitydemandduring2021-2025;and,2.Renewablespowerabsorptionquotawasintroduced,forthefirsttime,duringanofficialFYP.Thisisthe“mandated”obligationforalocaladministrationtoconsumerenewableswithinitsjurisdiction.Suchatop-downcom-mand-and-controltoolisexpectedtopushlocalauthoritiestoabsorbmorerenewablesintheirpowerconsumptionportfolio.WewillexplainthismechanisminanotherInsightChinareport.5.2.2Supplyside:scaleupproductionNowthatrenewablesarealreadyatpowerparitywithcoalandnosubsidyisrequired,theFYPcallsforscalingupproductionfrombothlarge-scaleproductionbasesanddistributedsources:●Buildlarge-scale(>10GW)renewableproductionbases:◎Acceleratetheconstructionofwindandsolarpowergenerationbasesinthe91▏INSTITUTEOFENERGY,PEKINGUNIVERSITYnorth,north-westandnortheastregionsofthecountry,withfocusondesert,Gobi,otherbarrenland,andwastelandleftbehindcoalmining.Sevensuchlarge-scaleproductionbasesarelistedinthePlan;◎Buildhydropowerpluswindandsolarproductionbasesinthesoutheastregionwherehydroresourcesareabundant,withtwosuchbasesonthelist;◎Scaleupnear-coastwindpowerdevelopmenttoachievegrid-parity,promoteremoteoffshorewindtechnologyinnovationandapplication,buildoffshoreintegratedresourceutilizationprojectscombiningwind,tide,energystorage,hydrogenproductionandseawaterdesali-nization,withfivelarge-scaleoffshorewindpowergenerationbasesonthelist.●Activelyexploitdistributedwindpowerresourcesin:◎Industrialparks,economiczones,oilandgasfields,mineralmines,barrenhillsandcoastalbeaches;and,◎Ruralareaswithanationalprogramof“tenthousandvillagescapturingwind”,spanning100counties.●FullflungpromotionofdistributedsolarPV:◎PromotePVinstallationinindustrialparks,economiczonesandpublicbuildings;◎Urbanrooftopsolarprogram:increasePVcoverageofexistingroofs,withatleast50%ofnewroofsinindustrialzonesandpublicbuildingsmandatedtobeequippedwithsolarPVby2025;◎RuralPVprogram:build1,000solarPVvillagesby2025;and,◎Promotejointdevelopmentof“PV+”inagriculture,fishfarms,railways,highways,EVchargingstations,highwayservicestations,5Gbasestationsanddatacenters.●Promoteorderlydevelopmentofhydropower,withdueconsiderationofecologicalimpacts;●Steadilydevelopbiomasspowergenerationandbiomassheating,acceleratethedevelop-mentofbiogas;●Activelypromotethedevelopmentofmid-to-high-depthgeothermalheatingandcooling,fullyexploitshallow-depthgeothermalenergyviaheatpumptechnologies,andorderlypro-motegeothermalpowergeneration;and,●Promotedemonstrationofoceanenergyexploitation,includingtidalandwavepower,andsupporttheconstructionof10MWtidalpowerdemoproject.5.2.3Energystorage:increasecapability●Accelerateconstructionofpumpedhydrostoragecapacity(seeInsightChinareportofApril12,2022);●BuildterraceorcascadehydropowerstoragepilotprojectsalongtheYellowRiver;●Promotethedevelopmentoflong-durationsolarthermalstoragewiththegoalofimprovingoutputstabilityofrenewableenergysystems;and,●Promotethedevelopmentofothernewtypesofenergystorageapplications.Grantthemthestatusofanindependentpowergenerationentitywithuniqueroleinpeak-shaving,frequencyadjustment,emergencypowerandcapacitysupport.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏925.2.4Demand-side:debottleneckabsorption●Strengthenpowergrid’scapabilitytoabsorbrenewablesbothforlong-distancetransmis-sionfromproductionbasestoconsumptioncenters,andforlocalconsumption;●Increasetheshareofrenewablesintheexistinglarge-scalepowertransmissionlinesfromthewesttotheeast;●Improvetheflexibilityofcoal-firedpowerfleetsothattheycanbettersupporttheinte-grationofintermittentrenewables;●Promotethedirectusesofrenewableswithdedicatedcustomers,dedicatedtransmissionlinesorthroughtheconstructionofmicro-gridsorDC-baseddistributiongrids;●Promotethedirectuseofnon-powerrenew-ableenergysources,withparticularfocusonheating;●Buildpilotapplicationprojectsinindustrialparks,airports,railwaystations,schoolsandhospitalsforheating,coolingandelectricity,withrenewablestakingahigherpercentageshare;●Builddemoprojectsforlarge-scalehydrogenproductionwithrenewables;●Expandtheuseofrenewablesinruralareas;and,●Developnewpatternsofrenewableenergyutilizationwithnewbusinessmodels,support-edbynewprofessionalservices.Toenabletheaboveactions,theFYPcallsforthestrengtheningofregulatorymeasures,bothadministra-tiveandmarket-based,toovercometheexistinghurdlesanddriverenewablestonewheights.Amongthem,“renewablepowerabsorptionquota”(可再生能源电力消纳责任)isthemostintriguing,ifnotmostinnovative.ItisfullofChinesecharacteristics,butalsoveryimperativewhenacceleratedscalingofcleanenergytransitionisthepriority.WewillexplorethatinournextInsightChinareport.5.3RPAQ:CHINA’SSCREW-DRIVERTOEXPANDRENEWABLEENERGYCONSUMPTIONInsightChina,June16,2022Asstatedinourtwopreviousreports,China’sPVandonshorewindhavealreadyreachedgrid-paritywithcoal-firedpower,requiringnosubsidyforfurtherscalingtheirdeployment.Atthesametime,muchofthe“low-er-hangingfruits”havealreadybeenharvested,sonext-phasedevelopmentwillrequiretheremaininghurdlesbeclearedandnewpolicytoolsbeinvented.InspiredbytheRFS(renewableportfoliostandards)practicesintheUSandalsobasedtheirownexperiencesinfosteringenergyconservation(seeInsightChinareportofApril25,2022),theChinesepolicymakershavefoundanewtool-theRPAQor“renewablepowerabsorptionquota”,toacceleratethegreentransition.ThisInsightreportdecodeshowitworks.5.3.1RPAQinanutshell:RPAQisa“mandated”obligationforalocaladminis-trationandmarketparticipantswithinitsjurisdictiontoabsorbcertainpercentageofrenewablesintheirtotalpowerconsumption.ItwasdesignedbytheNationalDevelopmentandReformCommission(NDRC)/NationalEnergyAdministration(NEA)asatop-downcommand-and-controlpolicyinstrumentthatforcesmarketparticipantstoabsorbmorerenewablesintheirportfolios.93▏INSTITUTEOFENERGY,PEKINGUNIVERSITYTheRPAQwasfirstpromulgatedbytheNDRC/NEAinMay2019,withdetailedmethodologicalguidanceandproceduresforcalculatingthenumbersforeachofChina’s30provinces(Tibetisexempted).InMay2022,the2021-2022RPAQsforeachandeveryprovincewerepublished.Theyarealignedwiththetargetssetinthe14thFYPforRenewableEnergyDevelopment,releasedonJune1st2022,whichhassetthe2025targetofRPAQat33%(or18%ofnon-hydrorenewables)oftotalelectricityconsumptionasanationalaverage.5.3.2HowRPAQworks?Calculation:RPAQconsistsoftwoindicators:RPAQtotalrenewables(RPAQ-TR)andRPAQnon-hydrorenewables(RPAQ-NHR).Tofurthercomplicatethesystem,eachprovinceisimposedwithaminimumquotaandanincentivizedquotaforbothRPAQ-TRandRPAQ-NHRasillustratedbyTable5-2.Table5-2:RenewableEnergyAbsorptionQuotasforYear2021inSelectProvincesProvinceTotalRenewablesQuotaNon-hydroRenewablesQuotaMinimumIncentivizedMinimumIncentivizedBeijing18.0%19.8%17.5%19.3%Tianjin17.0%18.7%16.0%17.6%Hebei16.5%18.2%16.0%17.6%Shanxi20.0%22.0%19.0%20.9%InnerMongolia20.5%22.6%19.5%21.5%Liaoning15.5%17.1%13.5%14.9%Shanghai31.5%35.0%4.0%4.4%Jiangsu16.5%18.2%10.5%11.6%Sichuan74.0%82.0%6.0%6.6%Yunnan75.0%83.0%15.0%16.5%INSTITUTEOFENERGY,PEKINGUNIVERSITY▏94RPAQ-NHRistheshareofallnon-hydrorenewablesinthetotalelectricityconsumptionofaprovince.●RPAQ-NHR-minimum=(totalnon-hydrore-newableenergyproductionwithintheprovinceoverthetargetyear+netimportofnon-hydrorenewablesfromneighboringprovinces)/totalelectricityconsumptionoftheprovince.●RPAQ-NHR-incentivized=RPAQ-NHR-mini-mumplus10%.RPAQ-TRistheshareofallrenewablesinthetotalelectricityconsumptionofaprovince.●RPAQ-TR-minimum=(totalrenewableenergyproductionwithintheprovinceoverthetargetyear+netimportofrenewablesfromneighbor-ingprovinces)/totalelectricityconsumptionoftheprovince.Whencalculatingtotalrenewableenergyproduction,a10%discountisgivenforhydropowerproductioninanormalhydraulicconditionyear.●RPAQ-TR-incentivized=RPAQ-NHR-in-centivized+expectedshareofhydropowerintotalpowerconsumptioninanormalhydraulicconditionyear.Process:Theprovincialquotasaredeterminedbyafour-stepapproach:1.theNDRC/NEAprovidesaninitialdrafttoseekfeedbackfromprovincialauthorities;2.provincialauthoritiesstudytheproposedquotaswiththeassistanceoflocalgridcompaniesandprovidefeedbacktoNDRC/NEA;and,3.theNDRC/NEA,assistedbyaprofessionalthirdparty,studiesthereceivedfeedbackandpub-lishesthequotasbeforeendofMarcheachyear,whichcontainsthecompulsoryRPAQtargetsofthecurrentyear,andtheexpectedtargetsforthefollowingyear,foreachofthe30provinces.4.Provincialgovernmentsaremandatedtosubmittheiryear-endresulttotheNDRC/NEAforverificationbyFebruaryofthefollowingyear.BothRPAQ-TRandRPAQ–NHRaregettinghigherandhighereachyear,asillustratedinFigure5-2forRPAQ-NHRofBeijing.Nationwide,suchatrendliterallydemonstrateshowsteadfastlythenationalgovernmenthasbeenscrew-drivingarisingshareofrenewablesinthecountry’spower/energymix.Figure5-2:BeijingCity’sNon-HydroRenewablePowerAbsorptionQuotasfor2018-202210.0015.0020.0025.0020182019202020212022RPAQ-NHR-IncentivizedRPAQ-NHR-Minimum%95▏INSTITUTEOFENERGY,PEKINGUNIVERSITYFulfillment:Provincialauthoritiesdeconstructtheirrespectivequotaandallocatedownwardstotwokindsofmarketentities:1)thosewhodistributeandsellelectricity,forthemtoforcepowerconsumerstotakemorerenewables;and2)thoseend-userswhobuyelectricityfromthewholesalepowermarketandthosewhohavetheirownpowergen-erationfacilities.Eachofthemistaskedtotakeacertainshareofrenewableenergyintheirpowerconsumptionportfolios.Tofulfiltheirquota,marketentitiescanbuyaportionfromthosewhoseactualconsumptionhasalreadyexceededtheallocatedquota,orpurchasethe“greencertificates”ofrenewableelectricitytooffsettheactualconsumption.Therearesomeexemptionsinquotaaccounting,particu-larlywhenthecalculationoftotalpowerconsumptionisconcerned.Forexample,agriculturalusesofelectricity,electricityusedby“strategicallyimportantprojects”locatedintheprovince,orconsumptionrelatedtosomespecificprogramssuchaswinter-heatinginnorthernruralareaswillnotbecountedinthetotalpowercon-sumption,makingthedenominatorsmaller,thereforetheRPAQhigher.Assessment:Foragivenprovince,RPAQ=(volumeofrenewablepowerproducedandconsumedwithintheprovince+net-importvolumeofrenewablepowerfromotherprov-inces+volumeofnet-quotatransactionamongmarketentitieswithintheprovince+volumeofgreencertificatepurchased–volumeofrenewablepowerexemptedfromtheassessment)/(totalpowerconsumptionwithintheprovince-volumeofpowerconsumptionexemptedfromtheassessment).Whiletheminimumquotaformspartoftheprovincialgovernments’KPIwhichiscompulsory,theincentivizedquotadoesnothavemuchincentivesbeyondthereduc-tionoftheover-consumedvolumefromtheprovince’senergyconsumptionquota.MoredetailedruleswereprovidedintheMay2019NDRC/NEAdocument,theyarebeingrefinedwithgainedexperiences.5.3.3RPAQvsRFSOnemightsaythattheChineseRPAQlooksliketheUSequivalentofRPS(RenewablesPortfolioStandards)whichiscreatedbysomestates,e.g.California,todiver-sitytheirenergyportfoliobyrequiringpowerutilitiestoprocureaspecifiedpercentageofelectricityfromrenewableresources.Butdifferentiationsarenotable.RPSisstartedatstatelevelandimposedasalegislativemeasuretoencouragerenewableenergydevelopment,inwhichelectricutilitiesandotherelectricityretailersarerequiredtosupplyaspecifiedminimumpercentage(orabsoluteamount)oftotalpowerdemandwitheligibleresourcesofrenewableelectricity.RPAQisdesignedasanationaltop-downadministrativetoolthatimposesspecificrenewableelectricityquotastoprovinces,whicharethenfurthercascadeddowntopowermarketparticipants.Assuch,theRPAQfeaturesChinese“command-and-con-trol”mentality,whichmaynotbereproducibleinmanyothercountries.Despitethehurdlesinitsimplementa-tion,itisatoolwhichtheChinesepolicymakersaresousedtoandsoeagertodeploy,tobringrenewableenergydevelopmenttothenextphase.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏965.4BIOENERGY:REPOSITIONEDFORTACKLINGNON-ENERGYSUSTAINABILITYPROBLEMSInsightChina,June24,2022Bioenergyorbiomassenergyisbelievedtobeasustain-ablefuel,givenitslifecycleeffectofnet-zeroemission.CCSintegratedbioenergy,orBECCS,isbelievedtohaveamajorroleinglobalnetting-zeroroadmap.However,Chinaseemstohavearatherdifferentiatedconsideration.Althoughbioenergydevelopmentisstillverymuchencouraged,tworecentlypublished14thFYPdocuments,namelythe14thFive-YearDevelopmentPlanoftheBio-basedEconomy(theBioeconomyPlan)publishedonMay10bytheNDRC,andthe14thFive-YearPlanofRenewableEnergyDevelopment(theREPlan),jointlyreleasedbyeightministries/agenciesonJune1,chartanewcourseofChina’sbiomassenergydevelopment.ThisInsightChinareportmakesanefforttointerpretthisnewpositioningofbiomassenergyinChina’sgreentransition.5.4.1Bioenergyaspartofabroaderbio-economy:Contrarytotheearlierfive-yearplanningwhenaspe-cificallydesignatedFYPwouldbemadeforbioenergy,thecurrentFYPplanning,instead,hasitcoveredintwobroaderplans-oneonbioeconomyandtheotheronrenewables.TheBioeconomyPlancoversaverylargespectrumofactivitiescoveringmedical,healthcare,agricultureandfood,forestry,energy,environmentandmaterialsciencesandindustries.Thepolicymakersbelievetheseactivitiesareinter-relatedtooneanother,andprefertoseebioenergydevelopmentaspartandwithintheframeworkof“strategicemergingindustriesaroundthebioeconomy”,muchbroaderincoverageandlargerinscale.TheBioenergyPlanismorefocusedoninnovation,includingidentificationoffast-growth,high-yield,andhighlyresilientenergycrops;conversionofmunicipalwastesintoethanol,biodieselandbio-methane;utiliza-tionofmunicipalwastesforheatandpowergeneration,utilizationofsolidbiomassmaterialsforheatandpowerco-generationandtoreplacecoalforresidentialheating,etc.Nospecifictargetissetforanytimehorizon.5.4.2Bioenergyasamemberofrenewables:Biomassenergyisharnessedinthreeessentialways:heating,powergenerationandconversionintoliquidandgaseousfuels.Acombinationofthemoffersoftenbettereconomicefficiency.Heatingistheoldestpracticeeversincehumanexis-tence.Overthepastfourdecades,replacingfuelwoodbycoalforheatingandbyLPGforcookinghasbeenthenorm,alongwithimprovedstovesforbetterefficiencyandlesspollution,aspartofChina’smodernizationprocess.Reversingthetrendandreturntofuelwoodforheatingandcookingrepresentasignificantchallengeinsupplychainandculturalacceptanceduetolowclimatesensitivityofthepopulation.Inpowergeneration,bioenergyhasbeendwarfedbytheleapfrogginggrowthofsolarandwind.Bytheendofin2021,thetotalinstalledcapacityofbiomasspowergenerationreached3.8GW,accountingfor0.36%oftotalinstalledrenewablecapacity(1,042GW).Thisistinycomparedtoanannualadditionof100GWofsolarandwindpowercapacity.Howeverimpressivethegrowthofbiomass-firedpowercanbe,itwillremainmarginalinChina’spowermix.Oneoftheproblemsofbiomasspowergenerationisthelowenergydensityofmunicipal/agriculturalwastes,whichrequiresblendingcoaltosustainpoweroutput.97▏INSTITUTEOFENERGY,PEKINGUNIVERSITYLackofcontrolontheproportionofcoalinthefeedstockmixhaswitnessedbiomasspowerplantownersburningcoalasthemainfeedstockandyetstillawardedthebenefitofthehighly-subsidizedon-gridpowertariffs.Thediscoveryofthisfraudin2016hadcausedaseriousblowtobiomasspowerdevelopment.Biomassconversioninvolvesmainlyconvertingagri-culturalresiduestobio-ethanol,for10%blendingwithgasoline,convertingmunicipalwastesintobio-methaneorconvertingusedcookingoils,animalgreasesandsomeagriculturalproducts(e.g.jatropha)intobio-diesel.China'sbiofuelprogramwasinitiallydevelopedbasedontheneedtoabsorbexpiredcornsinthenationalgrainreserve,tofindanoutletforthereplacedoldgrainstocks.Butthesituationgotabitoutofcontrolwhennewcornswerebeingusedforbiofuelproductiontoo.Ascornstocksweredownandgrainpriceswerehigh,corn-basedethanolmarketbecameunsustainable.Inlate2020,Chinasuspendedanationwideplanforblendinggasolinewith10%ethanolfrom2020onwardafterasharpfallinthecountry'scornstocksandlimitedharvestduetounprecedentedflooding.Majorpartofthebiodieselproduction,1.5milliontonsin2021,mainlyfromspentoilsandanimalgreases,wasexported,mainlytoEurope,whileagricultural-basedproductionnevertookoff.Adearlessonlearnedisthatbiofueldevelopmentmustsafeguardthefoodsecuritybottomline,beitforethanol,biodieselorbio-jetfuel,withoutdisruptiontoeithergrainsorarableland.5.4.3BiomethaneasameanstomanagemunicipalwastesBiomethaneinChinawasinitiallyusedinruralareasasacleancookingfuelinsouthwestprovinceswhereabun-dantorganicagriculturalresidues,householdwasteandanimaldropswereavailablewithfavorabletemperatureconditionswhichfacilitatethefermentation.Nowandinthefuture,itwillbeinthecitieswherebiomethanewillfinditsbiggestpotential,intermsofbothfeedstockavailabilityandmarketfornewcapacityandprojects.Intermsoffeedstock,Chinaproducesabout6.3billiontonsoforganicwasteonaverageeveryyear.Currently,onlyabout5%oftheorganicwasteisprocessedandconvertedtoenergyintheformofgas,heatandpower.Intermsofmarket,bio-methanecanbeeasilyblendedintoexistingurbangasdistributionsystemtomeetthegrowinggasdemand.Managingthemountainsofmunicipalwastesisatoppriorityforbothcentralandlocalgovernment,withthedesiretobuildazero-wastesociety.Anationalprogramforbuildingzero-wastecitiesisunderway(seeInsightChina,No.015/2022).Biomethaneoffersanewwayofgettingthesemountainsremovedbeyondtraditionallandfillsandincineration.Biomethaneisexpectedtogrowfromabout2bcma(billioncubicmetersperannum)in2020tomorethan15bcmain2025and30bcmaby2030,accordingtoadraftguidelineissuedbytheNEAbackin2019.5.4.4Bioenergydevelopmentpriorities:TheREPlanprovidesfourmajortracksforbiomassdevelopmentincludingpowergeneration,cleanheating,bio-naturalgas,andnon-grainliquidfuels,ashighlightedinTable5-3.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏98Table5-3:FourTracksofBioenergyDevelopmentTrackFocusPowergeneration1.Optimizebiomasspowergenerationdevelopment,withsteadfastdevelopmentofurbanhouseholdwaste-to-energyandexplorethedevelopmentofcombiningbiomasspowergenerationwithCCS,orBECCStechnology.2.Orderlydevelopbiomasscombinedheatandpower(CHP),withacceleratedretrofittingandupgradingofbiomasspowergenerationtoCHPthatmatchlocalresourcesanddemand.3.Developbiomassheatingforurbanareasandcountyvillageswithhighpopulationconcentrationwhereresourcesareavailable,andprovisionofcentralizedheatingforsmall-andmedium-sizedindustrialparks.4.Demonstrate"marketization"ofbiomasspowergeneration,betterlevysystematregionalgarbageincinerationanddisposal,andrestoreenvironmentalvalueofbiomasspowergeneration.Cleanheating1.Rationallydevelopbiomassboilerheatingfromagriculturalandforestbiomassandbiomassformedfuels,encourageadoptionoflarge-andmedium-sizedboilers,providecentralizedheatingatareaswithhighpopulationdensityincitiesandtowns,andpilotthermalandheatsupplyfromagriculturalandforestbiomass2.Invillagesnotincludedinkeyairpollutionpreventionandcontrolregions,promotehouseholdstoveheatingwithformedfuelswhereverresourcesfit,followingprinciplesoflocalsourcingBio-methane1.Inlargeplantingandbreedingcountieslocatedatregionsdesignatedformajorgrainproduction,threeforestryresidueenrichmentareasandwherelivestockandpoultrybreedingareconcentrated,buildcounty-basedindustrialsystemandactivelypilotbiomethaneprojects2.Coordinateplanningandconstructionoflargescalebiomethaneprojectswithanannualproductioncapacityoftenmillioncubicmeters,andshapeupapplicationmodelsthatconnectwithurbangaspipelinesandnetwork,andisusedasvehiclefuel,boilerfuelandforpowergenerationNon-grainliquidfuels1.Activelydevelopcelluloseandothernon-grainethanolandencouragedemonstrationofpoly-generationofalcohol,electricity,gasandfertilizer2.SupportR&Danddeploymentofadvancedtechnologyandequipmentinsuchareasasbiodieselandbio-jetfuel99▏INSTITUTEOFENERGY,PEKINGUNIVERSITY5.4.5Demonstratinghowtoscale:TheREPlanhasputforwardthreedemonstrationroutes,assummarizedinTable5-4,todevelop,atscale,biomethane,biomass-firedpower,andbiomassheating,takingintoconsiderationmaterials/resourcesavailabili-tyandaccessibility.Table5-4:DemonstrationprioritiesforbioenergydevelopmentRouteGeographicfocusBiomethaneProvinces:Hebei,Shandong,Henan,Anhui,InnerMongolia,JilinandXinjiangRegionalfeatures:richinorganicwastes,highpressureondisposaloflivestockandpoultrywastes,andhighdemandongasPilotcounties:eachcountytobuildonetothreebio-methaneprojectsatproductioncapacityof10millioncubicmetersperyear,anddrivetheestablishmentofcircularindustrialsystemsthatdisposeofruralorganicwastes,produceandconsumeorganicfertilizer,andutilizecleangasBiomasspowergenerationRegions:theYangtzeRiverDeltaandthePearlRiverDeltaregionsRegionalfeatures:economicallyadvancedwithgoodfoundationofpracticinggarbagedisposalleviesPilots:operationalizehouseholdwastetoenergymarket,andimplementcompetitiveelectricitypricingmechanisminreferencetolocalcoal-firedpowerplantBiomassheatingRegions:villagesatNorthernChina,NortheastChinaandCentralChinaPilots:promotevarioususes,suchasformedbiomassfuelsforhouseholdstovesandcentralizedbiomassboilers5.4.6Thefutureofbioenergy:Twoconclusionscanbedrawnfromtheaboveanalysis.OneisthatbioenergyinChinacannotbedevelopedasanenergycarrierandfortheenergypurposelikeotherfuels.Itmustnotinterferewithfoodsecurityanditssupplychain,anditsmainpurposeistoaddressnon-en-ergyproblemssuchasdisposalofmunicipalwastesandagricultural/forestryresidues.Andthesecond,becauseofthefirst,isthatbioenergydevelopmentmustbeassessedwithinthecontextofINSTITUTEOFENERGY,PEKINGUNIVERSITY▏100broaderenvironmentalcleaningup.Exceptforafewcaseswhereresourcesareabundant,bioenergyprojectcanhardlybedevelopedasstand-alone.Itsbusinessmodelinvolvesmoreenvironmentaleconomicsthanenergybusinessanditspotentialwilldependmoreontheenvironmentalpolicyratherthantheenergyneed.Theseconsiderationsare,inourview,behindthemodesttargetinthe14thREPlan,whichsetsthetargetfornon-powerrenewables(mainlybioenergy)toreach60milliontonsofcoalequivalentby2025.Thiswillrep-resentonly6%ofthetotalrenewablesor1%ofChina’stotalenergyconsumption.5.5CHINA’SDOMINANCEINSOLARPVSUPPLYCHAIN:QUOVADIS?InsightChina,July12,2022On7thJuly,theInternationalEnergyAgency(IEA)releasedahighlysubstantiveSpecialReportonSolarPVGlobalSupplyChains,highlightingChina’sdominanceinthatlandscapeandcallingfordiversificationtoensureasecuretransitiontonet-zeroemissions.ThisInsightChinareportoffersadditionalperspectivesonhowChina’sdominanceemerged,whatarethehur-dlesfordiversification,andanewthinkingontacklingthedilemmafacingtheOECDcountries.5.5.1HowChinabuiltitsdominance?AccordingtoIEA,Chinaaccountsforover80%ofglobalsharesinsolarPVsupplychainfrompolysilicon,wafers,cellstomodules(Figure5-3),andChina’scurrentinvestmentplanwouldfurtherelevateitsshareofglobalpolysilicon,ingot,andwaferproductiontoalmost95%soon.Chinatodayisalsohometotheworld’s10topsuppliersofsolarPVmanufacturingequipment.Figure5-3:GlobalShareofSolarPVSupplyChainSource:IEA.101▏INSTITUTEOFENERGY,PEKINGUNIVERSITYTheIEAattributesChina’ssuccesstothecountry’sindustrialpoliciesandcostcompetitiveness.ThereportstatesthatChineseindustrialpoliciesfocusingonsolarPVasastrategicsectorandongrowingdomesticdemandhaveenabledachievingeconomyofscaleandsupportedcontinuousinnovationthroughoutthevaluechain.Thesepolicieshavecontributedtoacostdeclineformorethan80%overlast10years,helpingsolarPVtobecomethemostaffordableelectricitygenerationtechnologyinmanypartsoftheworld.Oncostcompeti-tiveness,theIEAsayscostsinChinaare10%lowerthaninIndia,20%lowerthanintheUnitedStates,and35%lowerthaninEurope.Thesediscrepanciesaremostlyduetolargevariationsinenergy,labor,investmentandoverheadcosts.Whileingenerallyagreementwiththisbroadassess-ment,wewouldaddthreepointstofurtherexplainthecausesleadingtothecurrentsituation.ThefirstisthemarketdynamismofChineseprivateentrepreneurship.ContrarytotheconventionalwisdomthatChina’sindustrialpoliciesarebettercarriedoutbystate-ownedenterprises,itssolarPVsupplychainhasbeenbuiltessentiallybyprivateentrepreneurswhoseizedtheglobalmarketopportunityintheearly2000sandwhopersisteddespitebumpyroadwithroundsofreconsolidationandfatalbankruptciesThus,thisisasuccessofChineseprivateentrepreneurship.ThesecondisthefactthatsolarmanufacturingisjustpartoftheoverallmanufacturingcapabilityChinahasbuiltsinceitsWTOmembershipin2001,whichcreatedthewindowofopportunityforittobecomethe“world’sfactory”.Withthatcapability,ChinaprovidedwhatisneededforeverysegmentofthesolarPVsupplychaintosucceed,suchasrawmaterials(mineralsandmetals),industrialclusters(industrialparks),financialloans,engineersandskillfulworkers,etcinthebackdropofanationaldevelopmentstrategytobuildamanufactur-ing-basedeconomy.AndthethirdisthefailureorinadequaciesofOECDcountries’industrialpolicies.WhileChinahassuccess-fullytranslateditsclimatecommitmentsintoindustrialpoliciestodeveloprenewables,Europestayed,tocertainextent,atlipservicesandUShasundergoneafewroundsofin-and-outsintheglobalclimatepacts.5.5.2HurdlestodiversificationWhenChinafacesgrowingenergysecurityrisksbyimportingmoreandmoreoil,withlargeconcentrationintheMiddleEast,thegovernmenttakessteadfaststepstodiversifyitsenergysupplyasimportantmeanstoenergysecurity.Thus,theIEA’scallfordiversificationwouldnotbestrangetotheChineseears,eventhoughcrudeoilandsolarpanelarefundamentallydifferentproducts.However,buildinganentirelynewsupplychaininEuropeorAmericarequiresthetwoafore-mentionedelementsinplace:privateentrepreneurshipandoverallengineeringandmanufacturingcapability,tobesupport-edbystableanddown-to-the-earthindustrialpoliciestomaketheprojectsbankable.Butbuildingafactoryisonething,makingitcompetitiveisanother.GivenChina’scurrentdominanceintheglobalsupplychain,anynewfactoryoutsidewillhavetosourcemostofitsinputsfromChina.Transportationcosts,plushigherelectricitycost,particularlyinEuropenowadays,willmakethefactoryhardtocompetewiththoseinChina.Noinvestorwillputmoneyiftheproductscan’tcompeteinthemarketevenwithprotectivepolicies.5.5.3WayforwardTheChinaPVdominance,overwhelmingly,hascreateda“love-and-hate”sentimentintheOECDcountries,asreflectedinthemostoftheheadlinesfollowingtheIEAreportrelease.Ononehand,theworldneedsthemade-in-ChinaPVpanelstoachievethenet-zerogoals,andontheother,China’sleadingpositioninthesectorhasINSTITUTEOFENERGY,PEKINGUNIVERSITY▏102beenturnedintoacauseofconcern,orevenathreatforthosewithazero-sumgamemindset.Diversification,althoughhighlydesirable,isunlikelytoachievethescaleneededtofulfilthe2030climatetargetsundertheParisAgreement.OnepracticalwayforwardwouldbefortheOECDcoun-triestoattractChineseprivateentrepreneurstojointlysetupmanufacturingfacilities.Thoseentrepreneurs,mostlyfamily-runbusinesses,havebuiltasuccessfulsolarbusinessinChina.Theyalsofeelanurgentneedtodiversifytheirinvestmentportfolioandthereforewouldappreciatetheopportunitytobuildcapacitiesclosertomarkets.Theirskillsandknow-how,accumulatedoverlasttwentyyearswillbeindispensableforbuildingasuccessfulsupplychainoutsideChina.Morestrategically,ifclimatechangeremainsoneofthefewcommoncausesthatcanstilluniteChinaandtheOECDeconomies,oneshouldthinkitanopportunityforcooperation,ratherthanasecuritythreatthatwoulddrawthepartiesfurtheraway.©PhotobyTorstensimononPixabay6POWERSECTORTRANSITIONINSTITUTEOFENERGY,PEKINGUNIVERSITY▏1046.1CANANEW“BODY”FITINANOLD“SKIN”?InsightChina,September29,2022Acountry’selectricpowersystemplaysaninstrumentalroleinitsenergytransition.AspartofChina2030/2060peaking/neutralitycommitment,Chinesepolicymakersvowedtobuilda“newpowersystem”(NPS)withnewandrenewableenergiesatcoreofitsarchitecturalfoundation.Butdeliveringsuchanambitionrequiresfundamentalreformoftheexistingpowerregulatoryregime.ClarityisneededonwhatfeaturestheNPSincomparisonwiththeoldone,andhowcouldtheoldpowerregulatory“skin”accommodateagrowingnewpower“body”.ThisInsightreportmakesanattempttoanswerthesequestions.6.1.1The“NewBody”China’sNPS,bydesign,isexpectedtohavethefollowingattributes:●Lowcarbonasitsdefiningcharacteristic,theNPSrequiresarapidexpansionofrenewablesandnuclearpower.●Secureandreliableatitsfoundation.●Smartandinteractive,massiveamountofpowerelectronicsanddigitaltechnologiesareconnectedandalsoconnectingalldevicesinthepowervaluechaininacoordinatedmanner.●Flexible,astheNPSmusthaveenoughcapabilityandflexibilitytoaccommodatetheconnectionofintermittentrenewablestothegridatlargescale.●Integrativeandasthebackboneofmodernsociety,theNPSshallofferthefoundationalinfrastructurethatallowsotherinfrastructures(suchasmobility)toplugandplayinallthenodesinthesystem.●Robustandresilient,theNPSmustbeabletoeffectivelyrespondtothreatsfromclimate-in-ducedextremeweathereventsandotherdisasters,aswellasthoseofcybersecuritythreats.●Andefficientandcosteffective,itshallprovetobeefficientfromasystemperspectiveandshallbeaffordablefortheendusers.Suchasystemdistinguishesitselffromthetraditionalfossil-fueledsystem,andTable6-1belowcomparesthetwosystemsintechnicalterms.Table6-1:DifferencesbetweenOldandNewPowerSystemsinChinaAreaOldPowerSystemNewPowerSystemGenerationCentralizedlarge-scalecoal-fired,gas-fueledorhydropowerunits,withstableoutputwhichcanbedispatchablebasedonloadcurve.Storageisonlyneededforpeakingpurposes.Massivenumberofdecentralizedsmall-scalegenerationsourceswithstrongintermittencyandoutputfluctuation.Moreflexiblesourcesofstablepowerwillbeneededtoovercometheshortcomingsofrenewables,withpumpedhydroenergystorage,electro-chemicalenergystorage,peakinggasunits,flexiblecoalunitsandhydrogenasameansofenergystorage.Storageisindispensableforgridstability,toavoidrenewablecurtailment,tokeepgridstablethroughfrequencymodulation,etc.105▏INSTITUTEOFENERGY,PEKINGUNIVERSITYAreaOldPowerSystemNewPowerSystemGrid:TransmissionandDistributionGridsystemischaracterizedbyhighvoltage,longdistance,andhighdegreeofcascadingandsynchronization.Ultra-highvoltage(1,000kV)longdistancetransmissionlinesplayasbackbonesofthegrid.Gridbecomesflattened,distributedandlocalized.UHVtransmissionlinesarenomoreneededifrenewablesareconsumedlocally.End-usesConsumersarepassiveusersofpower“Prosumers”:consumersalsoproducepowerandfeedintothegrid.Demandsideresponse:consumersadjusttheirdemandaccordingtopricesignalandotherincentives.EVandotherstoragesserveaspeakingfacilities.SystemOperationCentraldispatchingaccordingtomeritorderofdifferentgenerationunits.Dispatchingsystemisorganizedinfivepyramidlevels:national,cross-provincial,provincial,city,andcountylevel,withlower-levelsobeyingordersfromtheabove.Systeminertiaandshortcircuitcapacityincreaseasgenerationcapacityandpowergridexpand;Nogenerationsourcesconnectedtothedistributiongridsandpowerflowsonlyinoneway.Transmissionanddistributionareintegratedinamaster-slaverelationship.Storageisnotstrictlyrequired.Itisa“nicetohave”option.Flexibilityisnotstrictlyrequired.Digitalisationfocusesonsynchronizationofgeneration-sideelectro-mechanicaloperations.Lessneedforcentraldispatchingasrenewablesaremainlyconnectedtothedistributiongidsandconsumedlocally.Dispatchingismoreefficientatregionallevel:regioncanbeaprovinceorafewprovinces,dependingoncomplementarityofdifferentprovincces.Systeminertiaandshortcircuitcapacitydecreasewithhighpenetrationofrenewablesandpowerelectronics.Massiveamountofgenerationsourcesconnectedtothedistributiongrid,makingitspowerflowbi-directional,andchangingittoself-balancinglocalmicro-gridnetwork.Transmissionanddistributioninamutuallysupportive,two-wayinteractive,collaborativeandsymbioticrelationship.StorageisanintegralpartoftheNPSalongwithgeneration,gridandloan.FlexibilityisthekeyfeatureoftheNPS,requiredinallitscomponents.Digitalisationfocusesondatasynchronization,withsynchronizationofphysicalandcybersystemsthroughamassivedeploymentofpowerelectronicsanddigitaltechnologiesthatconnectalldevicesofthepowervaluechain.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏1066.1.2The“OldSkin”Giventheabovedifferences,theNPSwhichChinesepolicymakershaveinmindrepresentsadisruptiveremodelingofthecountry’sexistingpowersystem.Itbegsthequestionwhethersuchanewsystemcanbebuiltwithinthe“oldskin”oftheexistingsystem.Historically,Chinawentthroughtwomajorroundsofpowerregulatoryreform.Thefirstround,carriedoutin2002,separatedgenerationfromtransmissionanddistribution.Itcreatedfivelarge-scalepowergenerationcompanies,twogridcompanies,andadozenspecializedservicecompanies.Thetwogridcompanies,theStateGridcoveringthemajorpartofthecountryinthenorthandtheSouthernGridcoveringfivesouthernprovincesofGuangdong,Guanxi,Guizhou,YunnanandHainan,areuniquebuyerandsellerintheirrespectiveterritory7.Thesecondround,carriedoutin2015,brokethemonopolyofgridcompaniesinpurchasingandsellingelectricity,byallowingbigconsumerstopurchaseelec-tricitydirectlyfromgenerators.Fromthereitintroducedanationalpowertradingmarket,whereagrowingportionofpoweristradedinthemarket,reaching45%in2021.Nomajorreformwascarriedoutsincethe2015rounddespiterepeatedcalls,particularlysincethebuildingofaNPSwascalledforinMarch2021.Successivegovern-mentplansallcalledforthereformoftheold“skin”toaccommodatethegrowingnew“body”.7Around15smallandindependentgridcompaniesstillexistwithintheterritoriesoftheStateGridandSouthernGrid,thelargestoneistheWestInnerMongoliaPowerGridorMengxiGrid.6.1.3Canthe“oldskin”accommodateagrowing“newbody”?Fromenergytransitionperspective,China’scurrentpowerregulatorysystem,featuredbythesupermonopolyoftwogridcompaniesandsuitablefortheoldpowersystem,appearsincreasinglyinadequatetotheconstructionofthenewone.First,theoldsystemwhichisprotectedbytheoutdated1996ElectricityLaw,forbidstheprivateentitiesinsellingelectricityacrossthefencetotheirneighbors.Allgeneratedpowerfromdistributedsourcesmustfeedintothegridsystemwithlowprices,whichsignificantlyreducesthefinancialreturnofthedistributedpowersystem.Second,thedistributiontodayisconsideredpartofthetransmissionsystem.Aspartoftheveryrigidstate-ownedmonopoly,itdoesnotencouragetheconnectionofdistributedrenewables,nottomentiontheinteractionswiththeload,throughdemandsideresponsesandotherflexibilitymeasures.Third,thepowertradingmarket,designedforlargescalecoal-firedplants,isnotsuitablefordistributedrenewables.Newregulationsweretriedtoincentivizerenewablespowertradewhichchangesfasterthanthefossil-fueledpower,requiringaquicker,shorterandlargerbalancingsystem,andamoresophisticatedtradingrule.Andlast,butnottheleast,thereisnoapparentpoliticalwilltoreformthestate-ownedpowermonopoly.Besidevaguementionof“powersystemreform”inallgovern-mentpapers,thereisnoclearideahowtoreformtheoldsystemsothatitcanaccommodatetheNPS.Eitherthe“oldskin”bereformedtosupportthegrowthoftheNPS,ortheconstructionoftheNPSwillbeslowed107▏INSTITUTEOFENERGY,PEKINGUNIVERSITYduetotheconstraintsofthe“oldskin”.Unfortunately,webelievethelatterwillprevail,andthebottleneckswillappearsoon.6.2BREAKINGUPAMONOPOLYGIANT?UNLIKELY!InsightChina,October12,2022OurpreviousreporthighlightedtheurgentneedforChinatoreformthepowerregulatory“skin”tosuitagrowingnewpower“body”whichisdrasticallydifferentfromtheoldone.Inthisedition,we’llinvestigatehowa“newskin”maylooklikeandhowfeasibleitistochangethe“skin”.6.2.1Thecurrentgrid“skin”Asbrieflydescribedinthepreviousreport,China’scurrentpowersectorregulatoryregimewassetupin2002,bythefamousreform“DocumentNo.5”oftheStateCouncil.Thatreformseparatedgenerationfromtransmissionanddistribution.Itcreatedfivelarge-scalepowergenerationcompanies,twogridcompanies,andadozenspecializedservicecompanies.Thetwogridcompanies,theStateGridcoveringmajorpartofthecountryinthenorthandtheSouthernGridservicingthefivesouthernprovincesofGuangdong,Guanxi,Guizhou,YunnanandHainan,becamethe“single”buyerandsellerofpowerintheirrespectiveter-ritory.Figure6-1showsthecurrentsettingofChina’spowergridsystemsince2015.It’sworthmentioningthatwithintheterritoriesofthesetwostategridgiants,therestillexistadozensmall“independent”gridcompanies,thebiggestofwhich-theMengxiGrid-coversthewesternpartoftheInnerMongolia.Twomostimportantfeaturesofthissettingare:1)transmissionanddistributionareintegrated;and2)gridcompaniesenjoybothnaturalmonopolyandadministra-tivemonopolyinbuyingandsellingelectricityintheirrespectivejurisdictions,whichallowthemtopurchaseelectricityfromgeneratorsandsellittoendusers,bothonanexclusivebasis.Theyfurthersetupfullyownedsubsidiarycompaniesatregional,provincial,cityandcountylevels,makingChina’sgridapyramidalstructureoffivelayers.Sucha“supergrid”modelisuniqueinsizefromaglobalperspective.Europeanpowergrid,forexample,iscomposedofover20nationalgrids,andthemuchsmallerJapanesegridiscomposedofandmanagedby9independentgrids.AndtheUSgridisevenmoresophisticated,comprising4regionaltransmissionorga-nizations,3independentsystemoperators,andaround500companies.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏108Figure6-1:China’sPowerGridSystem(withintheterritoriesofthesetwostategridgiants,thereexistadozensmall“indepen-dent”gridcompanies,thebiggestofwhich-theMengxiGrid-coversthewesternpartoftheInnerMongolia)6.2.2GrowinginadequaciesOnecanarguethatChinaisdifferent,andasupergridmodelmayfitsuitbetterChina’snationalconditions.Buttheproblemisthatthesupergridprovesincreasinglydifficulttocopewiththepowersectordiversitiesatregionalandlocallevels,withtherigidityinitsopera-tionalanddispatchingruleslaggingseriouslybehindthemarketdevelopment.Tomakethingsworse,theStateGrid,takingbenefitofitsmonopolisticpositionoversuchavastland,hasbuiltanumberofultra-highvoltage(1,000kvACand800kvDC)transmissionlines,inthenameofconnectingthewesternresourcestotheeasternmarket,tofurtherconsolidateitsmonopolyposition.Chiavowstobuildanewpowersystemwithhighpenetrationofrenewablesandhighintegrationwithdigitaldevices,wheregridactsasthebackboneofamodernenergysystemthatcombinesallothersourcesofenergyinacomplementaryway.Thisnewpowersystemshouldbeflexibleinmatchingupproductionanddemand,resilientincopingwithextremeweathereventsandothermajorthreats,stableinoperations,smartinrespondingdemandinteractively,reliableinsupplyingtheneededpowerwithoutinterruption,andaffordableforend-customers.Theserequirementsmakethecurrentgridsystemincreasinginadequate.Themonopolyinbuyingand109▏INSTITUTEOFENERGY,PEKINGUNIVERSITYsellingelectricityrulesoutthepossibilityforasolarprojectownertosellelectricitytohisneighborwithoutgoingthroughthegridcompany,thusinhibitingthede-velopmentofdecentralizedrenewables,energystoragesanddemandsideresponsemeasures.6.2.3Policymakers’effortsChina’spolicymakershaverecognizedtheseproblems.Theytriedtosolvepartofthemthroughthe2ndroundofreformin2015,withthemainphilosophyof“managingthe“middlesegment”oftransmissionanddistributionbutopeningupthe“twoends”ofpowergenerationandpowersalesforcompetition.Thetwogridcompanieswererequestedtodivestnon-gridassetstofocusongridoperationsandtoopenupthepowertransmissionlinestothirdparties.Thisroundofreformhas“created”twomainbusinesses,whilemaintainingthegridcompaniesintact:●Thefirstisdirectpowersalesandpurchasesbetweenbigpowerusersandgenerators,whichlaidthebasisforwhatiscalledtodaya“nationalpowertradingmarket”.●Andthesecondisthesocalled“incrementaldistributionnetwork”business,whereprivatecompaniesareallowedtobuildandownanewpowerdistributionbusiness,foranewindustrialzoneoranewcitydistrict.TheNationalPowerExchangenowcovers45%ofthecountry’stotalpowerconsumptionvolume,butnoneofthepilotsin“incrementaldistributionnetwork”wasprovensuccessful.Giventheapparent“success”ofpowertrading,merelymeasuredintermsofincreasedtradevolume,theChineseregulatorshavedecidedtofocustheireffortsonbuildingupfurtherthepowertradingmarket.Theyhavealsoworkedoutmoredetailedtechnicalregulationsregardingtheparticipationofrenewablesinthepowermarket,whichweshallcoverlaterinagreenpowermarketreport.Despitetheseattempts,thefundamentalproblemremains:howcanthehighlyintegratedandverticallyorganizedgridcompanies,particularlytheStateGrid,bereformedtosupporttheenergytransition?6.2.4Whataretheoptions?Pro-reformvoicesarerarenowadaysgiventhemacro-politicalcontextinfavorofstate-ownedentities,buttheredoexistsomeindependentviews.Accordingtothosevoicesheard,Chinaneedstoundertakeanothermajorreformofthepowersectorwithtwomajoroperations:1.Re-organizetheStateGridintoregionalcompa-nies.2.Andseparatedistributionfromtransmission,andreformthedistributionregime.Onepro-reformexpertproposedtoreorganizetheStateGridinto6regionalgridcompaniesincludingNorthEastGrid,NorthernChinaGrid,NorthWestGrid,CentralChinaGridandSouthWestGrid.TogetherwithexistingSouthernGrid,Chinawouldhave7regionalgrids.Accordingtothisproposal,theStateGrid’sroleisreducedtomanagingcross-regionaltransmissionprojectsandconductingnationalpowersystemplanning,andthecountrywouldhaveonly4layersinsteadof5inoperationalhierarchy–regional,provincial,city-leveldistributiongrids,andmicro-grids.Micro-gridsanddistributiongridswillserveasthebasicbalancingunits,absorbingmostoftheintermittentrenewables.Provin-cialgridsandregionalgridseachwilltrytobalancethesystemattheirrespectivelevel.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏1106.2.5Willtherebeanew“skin”?Despitethegoodwishes,suchaproposalisunlikelytoworkfortwobasicreasons:1.TheStateGridwon’teasilygiveupitsmonop-olisticposition.Itwillfindallexcusestoresistanyreformplanthatisnotcompatibletoitsowninterest.2.AndnooneinBeijing’spolicymakingcirclewilleverenvisagesucharadicalplanwhichmayposeriskstothecountry’spowersupplysecuritywhich,asseeninEuroperightnow,isapre-conditionforanyreformplanandwhichprevailsintheenergytransitiondiscussion.Anotherapproach,whichmightberelativelyeasier,istoseparatedistributionfromtransmission,upgradeandre-formthedistributionnetwork.AmuchmoreinteractiveandreformeddistributionnetworkisurgentlyneededifthepowersectoristoplayitsenablingroleinChina’senergytransition.WewillhaveadeepdiveintothisissueinournextInsightreport.6.3THECRITICALITYOFDISTRIBUTIONREFORMInsightChina,November11,2022OurreportNo.042statedthatChina’sdistributionnetworkisinurgentneedforupgradingandreformifthepowersectoristoplayitsenablingroleinenergytransition.Thisreportexplainswhy.6.3.1ImportanceofdistributionnetworkinenergytransitionDistributionnetworkisreferredtopowergridwithvoltageatmidandlowlevelat10kvandbelowbuttwolevelsabovetheend-uservoltageof220vor380v,throughwhichelectricityiseithertransmittedfromthetransmissiongridorgatheredfromlocalgeneratingsourcesanddistributedtotheend-users.Itiswheremostofthedistributedpowersources,includ-ingrenewablepower(wind,solar,etc.),energystorage,gasorhydrogen-basedheatandpowercogeneration,andvehicle-to-grid(V2G)power,areconnectedtothepowergrid.Itisalsowhereelectricityisprovidedtoanincreasinglydiversesetofnewcustomers–prosumers,datacenters,4G/5Gtelecomstations,andelectricvehicles,allrequiringuninterruptedandhigh-qualitypowersupply.Increasingly,distributionnetworks,particularlymicro-grids,areconnectedtothegasandheatdistributionnetworksanddigitalizedtoformthebackbonesofsmartbuildings,smartindustrialparksandsmartcities.Therefore,distributionnetworkshavebecomethecorefoundationofamodernpowersystemwhereenergytransitionactuallytakesplace,notonlythroughtheconnectionofmorelowcarbonpowersources,butalsothroughinnovativedemand-sideresponsetoolssuchasvirtualpowerplants.Mucheffortworldwidehasbeenspentongreeningthegenerationsidewithincreasingshareofnon-fossilfuels,butlittleormuchlessonthedistributionside.Theironyisthat,withoutastrongandgreendistributionnetwork,strongandgreengriddoesnotexist,norcouldpowersectorsucceeditstransition.6.3.2DifferencesbetweennewandolddistributionnetworksAsstatedinourearlierreports,Chinavowstobuildanewpowersystemwithhighpenetrationofrenewablesandhighintegrationwithdigitaldevices,wheregridactsasthebackboneofamodernenergysystemthatcombinesallothersourcesofenergyinacomplementarymanner.Thisnewpowersystemshouldbeflexiblein111▏INSTITUTEOFENERGY,PEKINGUNIVERSITYmatchingupproductionwithconsumption,resilientincopingwithextremeweathereventsandothermajorthreats,stableinoperations,smartinrespondingdemandinteractively,reliableinsupplyingtheneededpowerwithoutinterruption24/7,andaffordableforend-customers.Suchanewpowersystemrequiresanewdistributiongridwhichdiffersfundamentallyfromtheexistingone(Table6-2).Itshallembodysuchfeaturesas1)availabil-ityofmultiplepowersourcesatdistributiongridlevel;2)sophisticatedcustomerbase;3)self-balancingnatureofdistributiongrid;4)two-waydirectionofpowerflow;5)highlevelofdigitalization;and6)roleasanopenencompassingplatform.Table6-2:DifferencesbetweentraditionaldistributionnetworkandnewdistributionnetworkTraditionalDistributionGridNewDistributionGridPowersourceNopowersourceavailableManysourcesincludingrenewables,energystorageandEVsCustomerbaseSimplepassiveusersDiversifiedcustomerbasewithgrowingsophisticationsintheirpowerdemand,egprosumersNatureofgridPassiveendofthepowergrid,dependentontransmissiongridSelf-balancingregionalandlocalnetworks,formingthebasicunitsofthenewpowersystemPowerflowdirectionOnewayflowofpowerfromtransmissiontodistributionPowerflowsbothwaysinaninteractivewayDegreeofdigitalizationLowpenetrationHighdegreeofdigitalizationmakingthegridpartiallyorfullycontrollablePlatformroleClosedmonopolisticsupplierwithinagivengeographyOpenplatformforrenewablesinterconnection,fordataacquisition,forpowertrading,fornewtechnologyapplicationsandforbusinessmodelinnovationInshort,thetraditionaldistributiongridsitspassivelyattheendofthepowervaluechain,wherenopowergeneratingsourceexistsandwherepowerflowsinonedirection,whilethenewdistributiongridisanactiveandinteractiveplatformwherepowerflowsinbothways,wherediversesourcesofpoweranddiversetypesofloadsareconnectedandwheredigitaltechnologiesarefullydeployedtomaketheplatformpartiallyorfullycontrollable.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏1126.3.3DistributionhasbeentheweakestsegmentInthecurrentwaveofenergytransition,China’spowerdistributionnetworkappearstobetheweakestsegment,duetothefollowingreasons:Firstly,distributionformspartofthesocalled“Trans-missionandDistributionNetwork”,whichisconsideredanaturalmonopolyandrunbyanadministrativemonopolyforagivengeography,i.e.,theStateGridforthenorthandtheSouthernGridforthesouth.Forboththecountry’spowersectorplannersandgridcompanies,thefocushasbeenonbackbonehigh-voltagetransmis-sionlines,withlittleattentionpaidtothevessel-leveldistributionnetwork.Secondly,andbecauseofthefirst,distributionnetworkwaspoorlylaiddownandisnowaged.Chinawasthefirstlargedevelopingcountrytoprovideaccesstoelec-tricityforallwithastrongelectrificationcampaign.Thewaytoachieveitwastoextendthedistributionnetworktoallcitydistrictsandruralvillageswithsimplewiresandcheaptransformers.Thishardwareisnowinade-quatetosupportheavierandmoresophisticatedpowerloads.Forexample,EVchargersarenowoneofthehurdlestoscalefurtherChina’sEVfleetsinresidentialquarters,simplybecausethepowertransformerstherewouldn’tsupportalargenumberofchargingpiles(seeInsightChinaNo.35).Theageddistributionhardwareisalsoinadequatetosupportthebi-directionalflowofelectricity,whichisapre-requisitefortheintegrationofdistributedpowergenerationsources.Theseweaknessesimpedetheprogresstobuildaflexibleandinteractiveplatformorthesocalled“energyinternet”thatwouldactasenablerforenergytransition.Andthirdly,theadministrativemonopolybythegridcompanyprohibitsarenewablepowerdeveloperfromsellingsurpluspower“overthefence”tohisneighborwhileatthesametime,offeringverylowon-gridtariffsorveryhighconnectionfeeswhentakingthesurpluspowerfromthedeveloper.Toovercometheproblem,thecentralgovernmenthastriedapilotof“incrementaldistributionnetwork”,whereprivatecompaniescandevelopandownanewdistributiongridinanewgeography,suchasanewindustrialzone.Thepilothasfailedtomeetexpectations.Someprovincialauthoritiesalsotriedtobreakdownthemonopolybyissuinglocalregulationstoallow“overthefence”salesofelectricity,buttheyremaintooweakagainstthestate-ownedgridgiants.6.3.4Needfora“revolution”inpowerdistributionClearly,giventhecriticalroledistributionnetworkplaysinChina’spowersectortransition,amoreflexible,open,inclusiveandinteractivedistributiongridiscalledfortomeetsupply-sidechangeswithlocallyavailablegenerationsources,demand-sidevariationswithnewloadsfromdigitalinfrastructure,EVsanddemand-sideresponsemeasures,aswellastheavailabilityandpenetrationofdigitaltechnologies.ThisinturnsuggeststhatarevolutioninthedistributionnetworkisurgentlyneededifChinaisseriousaboutenergytransition.Thus,wewouldliketoproposethefollowingsign-poststowatch:1.Aseparatefive-yearorlong-termdevelopmentplandedicatedtobuildingoutanewgenerationofdistributionnetwork;2.Asignificantamountofmoneyear-markedforinvestmentindistributionnetworkupgradingandmodernization;3.Separationofdistributionfromtransmission,withtherestructuringofthetwoState-ownedgridcompanies,givingappropriateroletolocalauthoritiesinmanagingthepowerdistributionbusiness;4.Atotallynewphilosophyofregulatingthedistributionbusiness:insteadoftreatingitaspartofthetransmissionanddistribution113▏INSTITUTEOFENERGY,PEKINGUNIVERSITYmonopoly,encouragingitsdevelopmentasaninnovationplatformthatfostersinteractionsamonggeneration,grid,load,andstoragetopromotethedevelopmentoflocalizedenergyinternet;and5.Amuchstrongerbusinessintegrationofthedistributionnetworkwithotherinfrastructurefacilities,suchastelecommunication,water,andgasdistribution,withthedevelopmentofnewbusinessmodelsofaninteractiveplatformenabledbydigitaltechnologies.Noneoftheseiswithinourforesightyet,andwedon’texpecttoseethememergeintheshortterm,giventhecountry’spriorityisonsecurityratherthantransitioninthecomingfewyears.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏114©PhotobyANDREWWAGNERonUnsplash7ELECTRICVEHICLES:BOOMSANDBOTTLENECKSINSTITUTEOFENERGY,PEKINGUNIVERSITY▏1167.1HOWCHINALEAPFROGSINGREENMOBILITY?InsightChina,August1,2022Withtheelectricvehicles(EVs)fleetbreakingthe10-millionmarkbyendJune2022,Chinaleadstheworldinmobilityelectrification.During1H2022,EVsalesamountedto2.66millionunitsdespiteeconomicdownturnduetoCovidlock-down,accountingfor21.6%oftotalvehiclesales.Thewhole-yearsale,expectedat5million,willeasilybreak2021’srecordof3.3million.ThisInsightChinareportinvestigatestheforcesthatdriveChina’sEVsuccessandlooksintoitsfuturedevelopment.7.1.1Steady-fastgrowthFigure7-1:China’sFleetofElectricVehicles4209101,5302,6213,8164,9207,84001,0002,0003,0004,0005,0006,0007,0008,0009,0002015201620172018201920202021unit1,000AsshowninFigure7-1,China’sEVstockrosesteadilyoverthelastsevenyears,fromlessthanhalfamilliontoover7.8millionbytheendof2021andover10millionbynow,rankingNo.1intheworldintermsofEVstock,wellaheadoftheUS(around2.5millionbyend2021).EVstodayaccountfor3.2%ofChina’stotalvehiclefleetbuttheChineseEVfleetaccountsforhalfoftheglobalpassengerEVsand90%ofelectricbusesandtrucks.7.1.2DrivingForces:Backin2009,ChinaofficiallypositionedtheEVindustryasoneofthe“emergingstrategicindustries”,basedonthreestrategicconsiderations:●Energysecurity:Chinabecameanetoilimporterin1996andsincethen,oilimportdependencyhascontinuedtorise,reaching75%now.Electrificationoftransportisanimportantmeanstoreduceoildependency.●Localairquality:Roadtransportationisamajorsourceoflocalairpollution,soreplacing117▏INSTITUTEOFENERGY,PEKINGUNIVERSITYoilwithelectricitywouldhelpeliminatethetailpipeemission,thusimprovingthelocalairquality.●Andautoindustryleap-frogging:DespitethefactthatChinabecametheworld’sbiggestautomarketin2009,thecountrydidnothaveitsowntechnologyandnationalchampions,andallthevehiclesrunningonstreetswereeitherimportedorproducedinChinabyjointventureswithJapanese,KoreanandWesterncompanies.ThepolicymakershaverealizedthatChinacouldnotcompeteontraditionalinternalcombustion-enginetechnology，butfacedwithanopportunitytocompeteintheEVindustry,giveneveryonestandingatthesamedepartingline,letalonethatChinahascompetitiveadvantagesindomesticmarket,manufacturingcapabilityandbatterysupply.AjointstudybytheInternationalCouncilonCleanTransportation(ICCT)andtheChinaEV100(aChineseEVindustryassociation),publishedinJanuary2021,providedaretrospectivereviewofthejourneytraveledbyChina’selectricvehicleindustry.Accordingtothestudy,China’sEVindustryhasgonethroughfoursuccessivestages:1.Priorto2009:exploratoryphasetodeterminewhatpathwaytoselecttowardaworld-leadingautoindustryandwhenthenewenergyvehicles(includingpurebatteryEV,plug-inEVandhydrogenfuel-cellvehicles)werechosenasafastlane.2.Between2009and2012:pilotprogramphasewiththeconfirmationofanEVdevelopmentstrategyandintroductionofpilotprogramsonamassivescalesuchas“tencitieseachhaving1000EVs”program,supportedbygovernmentinR&Danddirectsubsidies.3.Between2013and2017:marketgainingattractionphasewithrapidgrowthofEVsalesparticularlydrivenbyairqualitygoalsandenabledbybothsubsidiestoconsumersanda“doublecredit”(CAFEstandardsandEVquota)systemformanufacturers.4.And,since2018:marketopennessandcompetitionstage,withapolicyshiftfrommeresubsidiestoacombinationofincentivesandregulationstofurtherreleasethemarket’spotential.Thewaiverin2018ofjoint-ventureshareholdingrestrictionsfortheautoindustryallowedTeslatobuilditssuperfactoryinShanghaiin2019.ThestudyprovidesanexcellentaccountingreatdetailsoftheChineseEVdevelopmentinthesedifferentstages,whichcontainslotsonrelevantdataandinformation.7.1.3Successfactors:MeasuredinEVmarketpenetrationrate,ChinalagssomecountriessuchasNorway,SwedenandIceland,butitstandswell-aheadcomparedagainstmajoreconomiessuchasUS,JapanandEU.Thissuccesscanbeattributedtothefollowingeightmainfactors:1.Aclearlyarticulatedandregularlyupdatedindustrydevelopmentstrategywithtargets,policiesandregulationsadaptedtomatchthedevelopmentstageoftheindustry.MoredetailscanbefoundintheICCTandChinaEV100study.2.Aboomingdomesticmarketwithready-to-buyconsumers:beforetheEVwasintroduced,therewerehundredsofmillionsofelectricscoutersalreadyintheChinesestreets,famil-iarizingtheconsumerswiththisnewmeansofbattery-poweredtransportation.3.Agrowingtechnologymaturityimprovingperformanceanddrivingdowncost:energyINSTITUTEOFENERGY,PEKINGUNIVERSITY▏118intensityofpowerbatteriesgrewfrom105Wh/kgin2016to200Wh/kgin2021,andcostofpowerbatterysystemwasreducedfromRMB5000/kWhin2005toRMB1000/kWhin2020,withgrowingnumberofmanufacturershavingmasteredcoretechnologies(powerbattery,powerdriveandcontrolsystem)ofanEV.4.Acompetitivedomesticsupplychain:Chinahasbuiltarathercompleteandsophisticatedvaluechaintosupporttheleapfrogging,fromraremetalsandmaterialstoindustrialprocess-ingandmanufacturingandnowfurtherdowntolifecycleclosed-loopbatteryrecycling.Withthissupplychainavailability,Tesla’sShanghaisuper-factorywasbuiltwithin9.5monthsground-breakingon7January2019tofirstcardeliveryon23October2019.5.Acharginginfrastructure,thatissufficientlyleadingaheadtosupporttheEVexpansion.6.Ahighlyefficienteco-system,toturngovernmentplansintoimplementablecompanyactions.Differentgovernment-industry-academ-ic-researchpartnershipswereformedtoquicklybringlaboratoryprototypestomarketproducts,withclearroadmapschartedbytopacademicexperts.7.Astrongmobilizationoflocalauthoritiesandprivateentrepreneurship,exemplifiedbyShenzhenandBYD,wherethenationalEVchampionhaselectrifiedallpublictransport(bothbusesandtaxis)ofitshostcity.8.Andaburdenfreementality,freefromconstraintsbytheheavyburdenoftraditionalcarindustry,todriveanewgrowthwithinnovationsinbothtechnologies,regulationsandbusinessmodels.7.1.4Futureprospect:Chinahassetthetargetof20%EVpenetrationintotalnewvehiclesalesby2025,40%by2030andatleast50%by2035,upfrom5%in2020.The2025targethadalreadybeenachievedin1H2022,withEVsaccountingfor21.6%oftotalvehiclesales.Withanimportantconsumerbase,economiccompeti-tivenesspermiledrivenandpositiveuserexperience,anddrivenbythe“dualcarbon”goalinadditiontothetripleobjectivesof“energysecurity-localairquality-au-toindustryrevitalization”,China’sEVmarketispoisedtocontinuetogrow,withthefollowingtwotrends:ThefirstisdigitalizationthatmakesnewgenerationofEVsmoreintelligentanddigitallyconnected,andformsanew“smartelectromobility”.Theparticipationofdigitalhigh-techcompanies(suchasTencent,Huawei,andBaidu)intheEVindustrywillhelpacceleratethistrend.AndthesecondisthepenetrationoftheChineseEVsintotheglobalhigh-endmarkets.Norwayisagoodexample-havingthehighestEVpenetrationrateandbeingopentoallEVmodels.EventhoughNorwayisarelativelysmallmarket,fourChineseEVbrands(BYD,Nio,LiAutoandXpen)arecompetingtherealongwithTeslaandotherglobalbrands,withveryimpressiveperformanceoutcomes.Thesetwotrends–digitalizationandglobalization-arelikelytodefinethefifthdevelopmentstageoftheChineseEVindustry,buttwouncertaintiesloomlarge:ThefirstiswhethercharginginfrastructurecanmatchandsupportthecontinuousboomingoftheEVmarket.Thiswillaffectthenear-termdevelopmentoftheChi-neseEVindustry,andwewilldiscussthisinafollow-upreport.Thesecondiswhethertheworldhavesufficientsupplyoflithiumandotherraremetalstosupporttheacceler-atedelectrificationofglobaltransportationfleet.This119▏INSTITUTEOFENERGY,PEKINGUNIVERSITYquestionisparticularlyimportantwiththeannouncedbanofsellingoil-fueledcarsinEuropeby2035.ThislatterquestionconcernstheEVdevelopmentinthelongerterm.Ifnotproperlyaddressed,wemayseelithi-umresourcesconstitutealimitingfactor.Inthatcontext,thedramaticpriceincreasesinthelasttwoyearsofbothlithiumcarbonate(rawmaterial)andlithiumironphosphateorLiFePO4(thekeycomponentofapowerbattery)areparticularlyconcerning.7.2DEBOTTLENECKTHECHARGINGINFRASTRUCTUREInsightChina,August11,2022CharginginfrastructuretwinsEVrollout.And,auni-versalchargingnetworkthatmatchesfleetdeploymentisamust-havetoacceleratetheelectrificationanddecarbonizationofmobility.InthepreviousInsightChinareport,wediscussedChina’schampionshipintheEVindustry,focusingonvehicles.Thisreportdiscussesdevelopmentofcharginginfrastructureanditspotentialbottlenecks.7.2.1SteadyexpansionCharginginfrastructurehasbeenoneoftheenablingfactorsofChina’sEVleap-frogging.Andyet,itmayalsobottleneckitsfuturedevelopment.Figure7-2:GrowthofChina’sEVChargingPiles02324777038741,1471302383315168081,47005001,0001,5002,0002,5003,000201620172018201920202021PublicPrivateunit1,000Bytheendof2021,Chinahad2.617millionchargingpiles(Figure7-2)foranEVfleetof7.84million,thusaveragingonechargingpileforevery3vehicles.Suchag-gregatenumbersmask,however,importantdisparities:●Thefirstisdisparitybetweenpublicandprivate:halfofthe2.6millionchargingpilesareprivateandtheotherhalfpublic.AsindividualprivateEVownerislikelytohavehis/herownchargingINSTITUTEOFENERGY,PEKINGUNIVERSITY▏120pile,theratioofEVsperpublicchargingpilestandsat6or7,showinglaggingpublicchargingfacilities.Highwaychargingstations,numbered13,800intotaloronly1%ofthepublicchargingfacilitiesnation-wide,areparticularlyshortofdemand,limitingtheuseofEVstointra-citymobility.●Andthesecondisgeographicalandregionaldisparity:over50%chargingpilesarelocatedintop5provinces(Guangdong,Shanghai,Beijing,JiangsuandZhejiang),and72%areintop10provinces(previousfiveplusShandong,Hubei,Anhui,Henan,andHebei).Mostchargingpilesarebuiltinbigcities,restrictingEVsfromtravelingtosuburbsandvillageswherechargingfacilitiesarescareandscattered.ThesedisparitiesdepictwhereChinastandstodayforthenextstageofEVdeployment:charginginfrastructureremainsaconstrainingfactorandasaresult,onecandriveanEVhomewhentraveldistancestayswithinthebatteryrangebutcanhardlygofartheroutofacity’sboundaryortoafar-awayvillage.Inourview,twofundamentalfactorswillholdbacktherapiddeploymentofthecharginginfrastructure:poorbusinessmodelforpublicchargingstationsandhurdlestoupgradepowersupplysystematresidentialareas.7.2.2PoorbusinessmodelforpublicchargingstationsWhenChinaopenedthepublicchargingbusinessforpri-vateinvestmentin2014,itattractedabigrushofprivatecapital,withmorethan1,000companiescompetingtobuildthecharginginfrastructurein2017.Witharelativelylowentrybar,chargingturnsouttobeabusinesswithoutmuchaprofitmargin.AchargingpileoperatorchargesanEVbytakingelectricityfromthegridandgetspaidbythedifferenceinelectricityprices.Arazor-thinmargin,alowutilizationrate,ahighlandrentalpriceandhighmaintenancefee,together,affecttheprofitabilityofanchargingpileoperator.Asaresult,by2019,halfoftheoperatorshadbankruptedandexitedfromthemarket,whileathirdremainingwerestrugglingontheprofit/losssurvivalline.Evenforthosethatsurvived,theirbalancesheetsstaydepressing.Today,fiveoperators(TELD,StarCharge,StateGrid,YKCandSouthernGrid)occupythreequartersofChina’spublicEVchargingmarket.Twoofthem,StateGridandSouthernGrid,arestate-ownedentities,whichcarelessaboutprofitability.Threeothersareventure-capital-backedcompanies.AccordingtothefinancialreportsofTELD,thebiggestpublicchargingoperator,ithasnevermadeanyprofitsinceinoperation-from2016to2020,withatotalcumulatedlossofRMB370million(orUS$57million)bytheendof2020.Withoutprofits,it’shardforthecurrentoperatorstoexpandtheirpublicchargingpilenetwork.Newbusinessmodels,suchasbatteryswap,ofwhichChinahasalreadybuilt1,298stations,arebeingtriedoutatthismoment,soisthemobilechargingstationthatwalkstotheEVinaparkingslottoprovidechargingserviceinsteadoftheEVlookingforachargerandqueuingup.HurdlestoupgradepowersupplysysteminresidentialareasMorechargingpilesareneededtoenhancegrowthmo-mentumofprivateEVownership,especiallyinlocationswheretheywillbeparked:theresidentialareas.Chineseurbanresidentialareasareoftenorganizedandclusteredinto“smalldistricts”(小区)，whereresidentssharesuchutilityinfrastructureaswater,electricityandotherbasicservicesthataremanagedbyapropertymanagementcompany.Foraresidentialareawith500homes,normally,a3,000-kVApowersupplycapacityisrequired,assuming6kWforeachhome.Suchpowercapacityisusuallyobtainedbytherealestatedeveloperoftheresidentialareafromthelocalpowerdistributioncompany.Physically,powersupplytothe121▏INSTITUTEOFENERGY,PEKINGUNIVERSITYresidentialareaisassuredbytwotothreetransformers,whichareexpensivetobuyandinstall.ResidentialEVsgenerallyoptforaslowchargingpile,withapoweroutputcapacityof5to10kW,thatsuppliespowerat220V(singlephase)or380V(triplephase).Assuch,buildingonechargingpileintheresidentialareaisequivalentofaddingonemorehome-unitintermsofpowercapacityrequirement.Giventhatpowertransformerispartofthecommoninfrastructureprovidedbytherealestatedeveloper,thelatterhasalltheincentivestominimizethecostbypro-vidinga“just-level”tomeettheregulatoryrequirementtosellthehomes.Asaresult,mostofChina’surbanresidentialareashaveaverytightordistressedpowersupplysystem,whileupgradingthetransformerisacomplicatedprocesstogettheapprovalfromthelocalpowerdistributorandletallhomeownerssharetherelatedcosts.TransformerupgradingisthereforecriticaltotheexpansionofprivateEVfleetinChina’sresidentialareas.7.2.3NewGovernmentactionsCharginginfrastructurebuildoutinChinahasbeenatargetofgovernmentsupportwithnumerousdirectives.EVchargingwasincluded,inMarch2020,asoneofthesixpillarsof“NewInfrastructure”,where$1.4billionwasearmarkedtocharginginfrastructure.Recognizingthecurrentbottlenecksoutlinedabove,theNDRCand9othergovernmentagenciesissued,inJanu-ary2022,anew“OpiniontoFurtherImprovetheServiceDeliveryCapabilityofEVChargingInfrastructure”(theOpinion).TheOpinionaimstofurtherbreaktheidentifiedbottlenecksandimproveEVchargingservicecapacity,formingacharginginfrastructuresystemthatismoderatelyadvanced,balancedinlayout,intelligentandefficient.Specifically,theOpinioncallsto:●Accelerateconstructionofchargingfacilitiesinresidentialcommunities,bothexistingandnewlybuilt.Fromnowon,newresidentialbuildingsmustprovide100%chargingfacilityinalltheparkingspots.●Optimizetheconstructionofpublicchargingnetworkwithincitiesandacceleratetheconstructioninsuburbanareas;●Strengthentheconstructionofchargingnetworkincountiesandtowns,withpriorityinpublicbuildings,transportationhubsandpublicparkingareas;●Acceleratehighwayfast-chargingnetworks;●Supportconstructionofdedicatedbatteryswapstationsaroundmines,ports,andurbantransit,aswellasexploresharedbatteryswapmodelsinsuchsectorsascabs,logisticsandtransportation;●Promotenewchargingtechnologiessuchasfastsuperchargers,wirelessandautomaticchargers,andunifythetechnicalstandardsfordifferenttypesofchargingpiles.●Prioritizeuseoflandresources,includingstockparkinglots,andgiveprioritytopublicchargingstationswithnewlandsupply;and,●Optimizefinancialsupportpoliciesandprovidefinancialsupporttoconstructionofchargingpilesaspublicfacilities.Moreactionsarealsobeingtakenatmunicipalitylevel.TheBeijingmunicipalityforexample,recentlypublishedits14thfive-yearprogramforEVcharginginfrastructure,aimingtohave700,000chargingpilesand310batteryswapstationsby2025,withanEVbeingabletofindachargerwithin3kminplainareasandwithin0.9kmincorebusinessareas.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏122Significantmovesastheymayrepresent,thesemeasuresareyetinadequatetoremovethehurdlesinplacetoday–lackofbusinessmodelsforpublicchargingpilesandhurdlestoupgradeofpowersysteminresidentialareas.Consequently,wewillcontinuetoseethesetwohurdlesstandinginthewaytoslowdownthedesiredgrowthofEVfleetafteritsinitialstageofacceleration.7.3DEBOTTLENECKTHEGLOBALLITHIUMSUPPLYInsightChina,August18,2022OurtwopreviousreportsdiscussedChina’sEVprospect,highlightingcharginginfrastructurebottleneckinthenearterm,andpotentially,lithiumsupplyconstraintinalongerterm.ThisInsightChinareportzoomsinonthelithiumsupplyissue,fromaglobalperspective,givenitsglobalnature,toaddressanimportantquestion:doestheworldhaveenoughlithiumresourcestosupportcarfleetelectrifica-tion?7.3.1LithiumusesLithiumisthelightestmetalandthemostreactiveoneinthefirstgroupofthePeriodicTable.Inapowerbattery,lithiumisusedinbothcathodeandelectrolyte.Incath-ode,lithiumuseisintheformofeitherlithiumcarbonate(Li2CO3)orlithiumhydroxide(LiOH),bothintheformofwhitesaltpowder.Inelectrolyte,lithiumcarbonateismixedwithotherelementstoformapowercharginganddischargingsolution.Lithiumcarbonatehasbeenthepredominantmanufacturedmaterialforpowerbatteries,andthat’swhyalllithiumusesareconvenientlycalculat-edintermsoflithiumcarbonateequivalentorLCE-5.3tonsofLCEprovideonetonoflithiummetal.In2020,atotalof3.12millionEVsweresoldworldwide,andtheEVindustryconsumed122,030tonsofLCE.Asimplifiedcalculationgivestherefore,onaverage,eachEVrequiring39kgofLCE.In2021,thetotalEVsalesof6.6millionandLCEconsumptionof244,603tonsmeanapproximatelyasimilarLCEusepervehicleat37kg.Thesenumbersfallwithintheindustrialexpectationof30-50kgofLCEperEV.AccordingtoMinmetalsSecurities,asubsidiaryofChinaMinmetalsGroup,globaldemandoflithiumstoodat334,477tonsofLCEin2020,ofwhichEVswerethebiggestuser,accountingfor37%(seeFigure7-3).Thiswasfollowedbynon-batteryuses,accountingfor33%,includingceramicsandglass,lubricatinggreases,poly-merproduction,continuouscastingmoldfluxpowders,airtreatment,andevenasmedicineadditivetocontrolmooddisorder,thenconsumerelectronicsat19%,energystorageinpowersystemsat5%andtwo-wheelersat4%,powertoolsat1%,andanother1%bysingleusebatteries.7.3.2FutureDemandDemandforlithiumispoisedtogrowrapidly,notonlyforEVsbutalsoforconsumerelectronics,two-wheelers,energystoragesolutionsandothertraditionaluses.ButEVswillbethesinglelargestdriverofglobalgrowthinlithiumdemand.Asstatedinourearlierreport,China’s20%EVpenetrationtargetby2025hadalreadybeenreachedearlythisyear,andthenextmilestonetargetsaretoreach40%by2030and50%by2035.TheEUhasannouncedabanonsellingoil-fueledcarsby2035,meaninganEVpenetrationrateof100%bythen.123▏INSTITUTEOFENERGY,PEKINGUNIVERSITYFigure7-3:Globallithiumdemandbyusecategoryin2020Consumerelectronicsbattery,19%Powertoolbattery,1%EVbattery,37%Othernon-batteryuses,33%Singleusebattery,1%Energystoragebattery,5%2wheelerbattery,4%Source:MinmetalsSecuritiesGlobally,accordingtotheIEA’slatestGlobalEVOutlook,newEVsaleswillgrowfromlessthan10%nowto35%by2030,bywhentherewillbe250millionEVsonroad.Worldwide,77millionnewcarsweresoldin2021,6.6millionor8.57%ofwhichwereEVs.Let’sassumeaglobalautomarketof100millionunitsby2030,a35%marketsharemeans35millionnewEVswillbemanufactured.IfeachEVtakes30kgofLCE,takingintoaccounttechnicalprogress,then35millionEVswillrequire1.05milliontonsofLCE,tripletheglobaltotallithiumdemandin2020.Unlessgloballithiumsupplygrowsrapidlyfromnowon,the35%EVpenetrationrateby2030ishighlyunlikely.Atthesametime,let’snotforgetanothermajordriveroflithiumuse:energystoragesolutions.Withthegrowingpenetrationofintermittentrenewables,moreandmoreenergystoragesolutions,eitherathomes,buildings,factories,orongrid-side,willberequired.Sofar,lithium-basedLiFePO4(lithiumironphosphate)batteryisdominatingtheenergystoragesolutions.Tomeetthegrowingdemand,atotalof4,725GWhperyearofpowerbatterycapacityexpansionhasbeenplannedfor2025worldwide,ledbyindustry’sleadingplayers(CATL,LG,BYD,etc),withsome300giga-facto-riesatdifferentstagesofplanningandconstruction.IfeachGWhofpowerbatteryrequires600tonsofLCE,then4,725GWhwillrequireatotalof2.835milliontonsofLCE,4.7timesthecurrentglobalsupplyofaround600,000tonsperyear.7.3.3SupplyconstraintsAccordingtotheUSGeologicalSurvey(USGS),bytheendof2021,theworldhadatotalofprovenlithiumreservesof22milliontonsoflithiummetalor117milliontonsofLCE.Chile,Australia,ArgentinaandChinawerethefourlargestreserveholders,accountingfor85%oftheglobaltotal.Fromtheperspectiveofresourceavail-ability,theUSGSlistedaglobaltotalof89milliontonsoflithiummetal,ofwhichBolivia(21million),Argentina(19million),Chile(9.8million),USA(9.1million),Australia(7.3million)andChina(5.1million)andCongoKinshasa(3million)arethebiggestowners.Lithiumisfoundmainlyinbrinesofclosedbasins,oilfieldsandgeothermalreservoirs,andinsolidmineralsINSTITUTEOFENERGY,PEKINGUNIVERSITY▏124includingpegmatites,claysandzeolite.Lithiumbrinesandmineralsarerefinedtoproducelithiumcompoundincludinglithiumcarbonate,lithiumhydroxide,lithiumfluorideandlithiumchloridethatarereadytousebybatterymanufacturers.Production-wise,thesamefourcountriesbutindifferentorder,Australia,Chile,ChinaandArgentinaaccountfor96%oftherawlithiummineralproduction,butChinadominatesthedownstreamsupplychain,frommineralprocessing,cathodeandanodemanufacturingtobatterycellproduction,accountingforover60%oftheglobaltotalineachsegment.ButChina’sdominationisconstrainedbyabottleneck:over70%ofitsrawlithiummaterialsareimported.Facedwithagrowinglithiumdemand,manyindustrialanalystsincludingtheIEAhaveexpressedconcernsthatgloballithiumproductionwillnotexpandasrapidlytomatchupwiththedemand.Australia,thebiggestproducertoday,faceslaborshortageandESGchallengesinexpandingmineralextractionactivities,whileglobal“lithium-triangle”formedbythreeLatinAmericancountries(Chile,ArgentinaandBolivia)with60%ofgloballithiumresourcesallfacesignificanthurdlestoquicklyexpandproduction:harshconditionslinkedtohighaltitudeofbrinebasins,scarcityoffreshwater,ecologicalvulnerabilityofthemineralsites,localcom-munityissues,regulatoryuncertaintiesandeconomicandpoliticalfragilities.AccordingtotheIEA,lithiumminesthatstartedoper-ationsbetween2010and2019tookanaverageof16.5yearstodevelop.Bolivia,whichhasnationalizedlithiumproductionactivities,spentabout$900milliontobuildafactoryandrelatedinfrastructure,butproducednothingoutofitsincethefactory’soperationin2013.In2021,Bolivia,thecountrythatownsthebiggestresourcebase,producedjust540tonsoflithiumcarbonate.Chileannewgovernmentissteppingupeffortstonationalizeitslithiumresourcesandproductiontoo.Asaresult,theMinMetalsSecuritiesandotherindustri-alanalystsbetmoreontheChinesedomesticproduction,alongwithAustralianone.TheybelievetheChinesepro-ductionisdestinedtoincrease,despiteitslimitedvolumeoflithiumreserves,from170,000tonsto350,000tonsofLCEbetween2022-2025.Despitethis,globally,theyforeseeasupplyshortagefrom2025onwards:globallithiumdemandwillgrowfrom750,000tonsofLCEin2022to1.6milliontonsofLCEin2025and3.92milliontonsofLCEin2030,whilelithiumsupplyisexpectedtobeat1.65mtofLCEin2025and2.47mtLCEin2030.ThisisverymuchinlinewithwhattheIEAhadwarnedinitsMay2021reportthattheworldcouldfacelithiumshortagesby2025.7.3.4Doestheworldhaveenoughlithiumresourcestoelectrifythecarfleet?Theworldtodayhasatotalof1,446millioncarsonroad.Toelectrifyall,attoday’slithiumuselevel,wouldrequire10milliontonsoflithiummetal,abitbelowhalfofthegloballithiumreservesof22milliontons.Theavailabilityoflithiumresourcesat89milliontonsseemsadequatetosupportelectrificationofallthecurrentglobalfleet.Besides,newoptimismcanbeaddedifwein-cludelithiumcontainedinglobalseawater,estimatedat230billiontonsoflithiumwithaverageconcentrationof0.17partspermillion(ppm).Furthermore,lithium-basedbatteryisunlikelytobetheonlyoptiontoelectrifythecarfleetinthefuture.However,turningresourcesintoactualsupplyiseasiersaidthandoneasillustratedbytheBoliviancase.GloballithiumsupplyconstraintwilllimitthelevelofEVproduction,therebythepaceofmobilityelectrification.Forexample,ifhalfofgloballithiumsupplyin2025isusedforEVs,attoday’stechnologylevel,theworldcouldonlyproduce23millionEVsayearintotal.Thelithiumsupplydebateleadstotwoimportantquestions:125▏INSTITUTEOFENERGY,PEKINGUNIVERSITY●Oneisthat,inthelightofloomingshortages,lithiummineralpricewillcontinuetoremainhigh,harmingtheeconomicsofthedownstreamsupplychain,frombattery’sgiga-factoriestoEVmanufacturers,aswellascompetitivenessofEVsagainstconventionalcars.Chinaisacaseofthepoint.ItsLCEsupplyhadexperiencedapricespikeofan8-foldincrease,fromRMB51,500/ton(US$7,626/t)inJanuary2021toRMB467,500/ton(US$69,225/t)inJune2022.Cantheworldacceptsuchavolatilityinlithiumcommodityprice?●Andtheother,whichmightbemoreimperativefromtheenergytransitionperspective,isthatlithiumapplicationinpowerbatteriesoftheautoindustryenjoysanupperhandinbusinessmodelincomparisonwithitsuseinenergystoragesolutionsofthepowersector,sowhatliesaheadforthelatterthen,particularlyinthefaceofsupplyshortages?Newsolutionsneedtobediscoveredtosimultaneouslyelectrifytheautofleetandprovideenergystoragesolutions.Theyincludenon-lithiumbatteries,lithiumrecycling(accordingtotheIEA,onlylessthan1%oflithiumusehasbeenrecycledcurrently),seawaterextraction,useofretiredEVbatteriesforenergystoragepurposes,orevenuseEVsaspowerstoragemeanswiththebi-directionalvehicletogrid(V2G)chargers.However,noneofthemwillbeaneasygo.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏126©PhotoonPxHere8FUELSANDMINERALSINSTITUTEOFENERGY,PEKINGUNIVERSITY▏1288.1ENERGYSAVING:THECHINESEWAYOFHARNESSINGTHE“FIRSTFUEL”InsightChina,May25,2022Energysavingorefficiencyisnowcalled“thefirstfuel”bothinChinaandworldwide.Aboutsevendecadesago,itwasstillregardedas“the5th”inChina,whenitsmajorenergysourceswerecoal,oil,gasandhydropowerinthe1950s.Today,policymakersandenergyanalystsputithighupasaprioritywhenenergytransitionisconcerned.Andyet,significantbarriersexisttoharnessitsmaximumpotential.ThisInsightChinareportreviewstheChinesepracticesinenergysaving,theexistinghurdlesandfuturepros-pect.8.1.1The“duocontrol”mechanismastheChineseway:SincejoiningWTO(WorldTradeOrganization)in2001,Chinaexperiencedsharpsurgeofenergydemandandlocalpollution,drivenbyrapidexpansionofex-port-orientedmanufacturingactivities.Fearfulthattheenergysupplysystemwouldfailtomatchrampantanduncheckeddemand,Chinesepolicymakersdecidedtotakestepstoaddressthedemandsideasthekeyvehicletocaptureefficiency.Thefirststepwasanintroductionofper-unitGDPener-gyintensityreduction,settingtargetstoreduceenergyuseperRMB10,000yuanofGDPproduced.Startedinthe11thFive-YearPlan(FYP,2006-2010),acompulsorytargetof20%wassetoverthe2005level.SuchpracticehasbeencarriedoninthesubsequentFive-Yearplans:16%for2011-2015(12th),15%for2016-2020(13th)andnow13.5%for2021-2025(14th).Thenationaltargetwasthen“deconstructed”intopro-vincialones,witheachofChina’s31provincesagreeinguponatarget,somehigherthanthenationaltarget,somearelower,asillustratedinFigure8-1.Thesecondstep,introducedinthe12thFYP,wasimpos-inganationalceilingoftotalenergydemandat4billiontonsofcoalequivalentbytheendof2015.Thetargetwasalsosimilarlydeconstructedintoprovinciallevel,justashowtheenergyintensitytargetwashandled.Thosetwotargetstogether,totalenergyconsumptionvolumeandenergyintensity,arecalledthe“duocontrol”targets.Theywerefurthercascadedverticallydowntomunicipalandcountylevels.Officialsatdifferentlevels,measuredbytheirKPIs,areheldaccountabletotheirhigher-leveladministration,andthecentralgovernmenttotheNationalPeople’sCongress.Eversince2017,suchtargetshadbeenevaluatedandreportedonaquarterlybasis.The“duocontrol”mechanism,since2011,hasbecomethekeypolicytooltocaptureenergyefficiencyandsaving.Worldwide,suchpracticeisseenasuniqueandmainlyapplicabletocommand-and-controleconomies,suchasChina.129▏INSTITUTEOFENERGY,PEKINGUNIVERSITYFigure8-1:Deconstructionofthe16%energysavingtargetforthe12thFYP-10%-17%-16%-16%-17%-10%-12%-10%-15%-15%-15%-15%-18%-15%-15%-16%-16%-17%-16%-18%-18%-18%-16%-16%-16%-16%-16%-16%-17%-16%Thepolicyhascertainlyslowedthegrowthofitsenergydemand,butithasalsohamperedeconomicactivitiesandevencreatedhardshipsformanyordinarypeople.Veryoften,whenthe“assigned”energyconsumptionquotasareabouttobeusedup,localgovernmentstendtohaltanynewinvestmentprojectsproposedbylower-leveladministrationsthatwouldaddenergydemandintheirjurisdictions.Andlocalgovernments,sometimes,evenusesuchextrememeasuresasbluntlycuttingenergysupply,whentheperformancereviewcycleapproaches,justtomeettheirtargets,temporarily.8.1.2Relaxationandfine-tuning:Suchchallengesandgrowthpressuresatlocallevelshaveforcedthenationalgovernmentintoapositiontorelaxitsstringentmeasures.AsreportedinourInsightChinareportof30thMarchonthe14thFYPforEnergy,Chinahasscrappeditstotalenergydemandcontroltarget,buttheenergyintensityreductiontargetof13.5%by2025belowthe2020leveliskept.Andeachofthe31provincesstilltakesonanenergyconsumptionquotaforthe14thFYPperiod,butthemechanismis“fine-tuned”:●Energyintensityisgiventoppriority,whiletotalenergyconsumptiononlyusedasareference;●Energyintensitytargetisdividedintotwocategories:acompulsorybase-linetargetandanincentivetargetthatisabovethebaselineone,withcorrespondingincentives;●Energyusedasrawmaterialsarenomorecountedintotalenergy;INSTITUTEOFENERGY,PEKINGUNIVERSITY▏130●Renewableenergyconsumptionislargelyencouraged;●Moreconsumptionquotaisallocatedtoprovinc-eswithlowerenergyintensity;●Provincescantradeenergyconsumptionquotascross-border;●Centralgovernmentretainssomeenergycon-sumptionvolumetosupportsomestrategicallyimportantinvestmentprojects,whichdoesnotentertheprovincialaccounts;and,●Reviewiscalledoutonayearlybasis,ratherthanquarterly.Thelonger-termplanistoscrapthewhole“energyduocontrol”systemandreplaceitwith“carbonduocontrols”,onlywithtargetsofcarbonintensityandtotalcarbonemissionloadforeachprovince.8.1.3Hurdlesandprospect:Thesuccessofthe“duocontrol”approachheavilydependsonthegovernment’s“visiblehands”,withlittlerecoursetomarket-basedinstruments.Despitegovernment’sclaimthattheapproachissuccessful,ithasbeendifficulttoascertainhowmuchisattributabletogovernmentcontrol,becausetechnologicalprogresshasbecomeamajorforcedrivingChina’senergyintensityreduction.Onthecontrary,thelimitationsofthisapproachareprotruding,aswitnessedinpractice.Energysavingisdifferentfromenergysupplywhichisoftencentralizedtoachieveeconomyofscale.Energysavinginvolvesmultiple,dispersedenergyusers,ofteninmillionsormore.Energysavingprojectsonthedemandside,iftakenindividually,isrelativelysmall,butoftenincursveryhightransactioncosts,eventhougheachprojectmightappeartohavesignificantsavingpotentialwithgoodeconomics.Thisexplainswhynonationalchampionhasyetemergedintheenergysavingsector.In2018,Chinahad6,439registeredcompanieswithenergysavingasmainbusiness,eachtryingtoselloneparticularenergy-savingdevice/equipment,butnoneorveryfewhaveofferedintegratedsolutionsfromtheclientperspective.Nosustainablebusinessmodelhasyetevolvedtorapidlyscaleupenergysavingbusinessasdesired.Governmentpoliciesremaininbroadbrush,lackofconcreteandtenablemeasurestosupportpractitionersontheground.Supply-side-mindednessdominatesthepictureofenergysaving,asreflectedinthenationalfocusonbuildingbigenergysavingprojects.The“14thFive-YearActionPlanforEnergySavingandEmissionReduction”haslisted10suchsignificantprojects,includ-inggreenupgradingofkeyindustries,energysavingatindustrialparks,greenrenovationinurbanareas,energysavinginmobilityandlogistics,energysavinginagricul-tureandruralareas,andenergyefficiencyimprovementinpublicbuildings.Despitehighhurdles,twomegatrends-decarbonizationanddigitalization-offeropportunitiestobreakthedeadlock.China’s“duocarbon”commitmentofcarbonpeakingbefore2030andneutralitybefore2060,whendeployedatcompanylevel,willforcelargeenergy-con-suming,carbon-emittingcompaniestoproactivelyseekenergysavingsolutions.Thisisexpectedtodramaticallyalterthecurrentdilemmasmallenergysavingcompaniesarefacingwhentryingtosellequipmenttobiggercorporations.Inthemeanwhile,theapplicationofdigitaltechnologiescanhelpcompaniesandotherparitiestosizemoreaccuratelytheenergyuseofagivenactivityandachieveenergysavingbymatchinguptherequiredsupply.Cryp-to-currencytechnologies,suchasblockchain,canalsohelptorecordandtrack,real-timeandtamper-proof,theamountofenergysavedbytakingstepstoimproveefficiency,therebysignificantlyreducingthetransactioncost.131▏INSTITUTEOFENERGY,PEKINGUNIVERSITYDespitethesehopes,onefundamentalquestionremains:howcananeconomythatissousedtocentralizedactionschangeitsmentalitytoencouragedecentralizedactivities?Thisquestionisalsorelevantnotonlytothedebatearoundenergyefficiency,butalsotothedevelopmentofrenewableenergysupplies.8.2NATURALGAS:TRANSITIONFUELORMAJORFUEL?InsightChina,January14,2022Intheglobalracetonetting-zero,naturalgas’positionissomewhatambiguous:asafossilfuel,itistobesubstitutedbyrenewables,butasthecleanestfossilfuel,itplaysacriticalroleintheprogressivedecarbonisationoftheglobalenergysystem.Therefore,inmanypartsoftheworld,OECDcountriesinparticular,naturalgasiswidelyconsideredasa“transitionfuel”,bridgingthetransitionfromfossilenergysystemtoacleanandrenewableone.InChina,however,naturalgasisconsideredacleanfuel,amajorgripforlowcarbonenergytransition,andacompanionfuelthatwillgoalongwithrenewablesintheforeseeablefuture.8.2.1AMajorCleanFuelThisdifferenceisexplainedbythefactthatChinaisalargeandstillgrowingeconomy,needingallkindsofenergiestoprovideheating,cooling,power,mobilityaswellascarbon-basedmaterials.ForChinesepolicymakers,lowcarbonenergytransitionmusttakeplaceunderthepreconditionofenergysupplysecurityandeconomiccompetitiveness.Renewablessuchassolarandwindaresettoaccelerate,buttheydonothavetherequiredenergydensity,andtheyalonecannotmeettheindustrialheatingrequirement,eventhoughtheircostsaredecreasingrapidly.Gasisthemostreadilyavailablefueltoreplacecoaltoreducecarbonemissions,ensureenergysecurity,anden-ableeconomiccompetitiveness.Comparedtocoalwhichaccountsfor60%ofChineseenergysupply,naturalgasemitsonlyhalfoftheCO2perunitofenergydelivered.Inadditiontoclimatechange,Chinamustaddressamoreurgentandimmediateproblem-thelocalairpollution.Replacingcoalwithgashascontributedtoacontinu-ouslyimprovingairqualityinmanyChinesecities.Thelatestdatashowsthattheyearof2021witnessedthebestairqualityeverinBeijing.ThoughstillfallingbehindtheWHOrecommendedguidelinesofhealthyairquality,Beijing,atleast,managedtomeettheChinesestandardofgoodairqualityforatotalof288days,thankstothehighestgasshareinenergymixamongChinesecities.NaturalgasisthemostimportantenergysourceinEurope,accountingfor24.6%.ButitsshareinChina’sprimaryenergymixwasbarely8.4%by2019.Forenergysecurityatend-userlevel,aduoenergysupplyofbothelectricityandgasismoresecurethanelectricityalone.Consideringthegoalsofenvironmentalandclimateprotectionandconcernsofenergysecurity,theChinesegovernmentofficiallyclassifiednaturalgasasa“majorfuel”inits13thEnergyFive-YearPlan(2016-2020).TheEnergySupplyandConsumptionRevolutionStrategy(2016-2030),releasedin2017,setsthetargettoexpandtheshareofnaturalgasto15%oftotalprimaryenergyconsumptionby2030,alongwiththe25%targetfornon-fossilfuelsbythesametimeline.Atthetimeofwritingofthisreport,Chinahasnotyetpublishedanyrevised2030targetfornaturalgas,norhaveweseenanychangedgovernmentpositiononnatu-ralgas.IfChinamaintainsthecaponcarbonemissionsbefore2030andthecarbonneutralitytargetsbefore2060,whilebarringanymajordownwarddisruptionoftheChineseeconomy,weseeacontinuinggrowthofgasdemandinthecomingdecadesandbeyond.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏1328.2.2GrowingdemandIn2020,Chinaconsumed326billioncubicmetres(bcm)ofnaturalgas,representingayear-on-yeargrowthof7.2%.Domesticproductionwas188.8bcm,whileimportswere137.2bcm,ofwhich94bcmintheformofLNGfrom24countries,whereaspipelinegasfromCentralAsia,MyanmarandRussiaamountedto43.2bcm.Figure8-2:China’sgassupply2010-2020350300250200BCM1500%5%10%15%20%25%10050201020112012201320142015201620172018201920200ImportPipelineImportLNGDomesticproductionyoyIncreaseSource:NationalBureauofStatistics.Infrastructureside,byend2020,Chinahadatotalof79,100kmofhigh-pressuregaspipelines,22LNGreceivingterminalswith90milliontonnesperyear(mtpa)capacity,and27undergroundgasstorageswithatotalyearlypeakingcapacityof13bcm.Consumptionside,citygas(mainlyresidentialandcommercial)isthelargestuser,accountingfor38.4%oftotalgasdemandin2018,followedbyindustry(34%),powergeneration(18.5%)andpetrochemicalfeedstock(9.1%).Gas-firedpowerwillbeincreasinglyneededtosupportdedeploymentofintermittentrenewables.Preliminarydatasuggestthatin2021,China’sgasdemandgrewby12.3%,reachingatotalof368.4bcm.Itisexpectedtogrowat6-7%duringthe14thFYP(2021-2025)period.TheBeijingGasGroupexpectsChinesegasdemandtoreach420-450bcmby2025,whileChinaOil&GasPipelineCorporation(PipeChina),China’snewlycreatednationalpipelineconstructorandoperator,fore-castsgasdemandat400-450bcmby2025,whenChinawillsurpassEUtobecometheworld’ssecondlargestgasmarketaftertheUS.In2021,ChinasurpassedJapanandbecameworld’slargestLNGimporter.Forthemedium-termoutlookleadingupto2035,allforecastspointtoacontinuinggrowthofgasdemandinChina,althoughthelevelofgrowthvariesabitbydifferentinstitutions.Table8-1providestheforecastsofChina’sgasdemandat2025,2030and2035,respective-ly,bysomeChineseandinternationalinstitutions.133▏INSTITUTEOFENERGY,PEKINGUNIVERSITYTable8-1:China’sGasDemandForecastsbyVariousInstitutions(bcm)InstitutionTimeofforecastScenario202520302035USEIA2019Basic340435498IEA2020StatedPolicy425500568SustainableDev398446478JapanIEEJ2020Reference463523Advanced418492BP2020Basic490601651Fasttransition490585672NetZero460520517CNPC2020460550620Sinopec2021450508554CNOOC2021559600Source:CNInnovationcompilationReasonsfortheexpectationofcontinuedgrowthofgasdemand,atleasttill2035,include:●Continuedeconomicgrowth,industrializationandurbanizationwillincreaseenergydemand,butthereisnootherreadilyavailableenergyresourceatscalethatcanmeetthedemandwhilereducingbothlocalandglobalpollutionatacompetitiveprice;●Continuedsubstitutionofcoalbynaturalgas,pushedbycleanaircampaigns,withevenstricteranti-pollutionregulationsinthecomingdecade;●Regulatoryreform,thatwouldallowdirectaccessbygassupplierstolargecustomers,andotherregulatorymeasuresthatwouldreducetheend-usepricesofnaturalgas;and,INSTITUTEOFENERGY,PEKINGUNIVERSITY▏134●Abundanceofsupply:notonlydomesticproductionwillincreasewithmoreinvestmentinconventionalandunconventionalgasexplo-rationandproduction,internationalsourcesofsupplyalsoshownosignofscarcity,withpipelinegasfromRussia,CentralAsia,andLNGfromacrosstheworld.GivenChinese2030/60duocarbontargets,theemergingconsensusamongmostoftheChineseresearchinstitutionsseemstopointtopeakingofChina’sgasdemandat600bcmaround2040.Evenby2060whenChinareachescarbonneutrality,naturalgasdemandwillremainataround400bcm,withitscarbonemissionstobeneutralizedbyCCUStechnologies.8.3NUCLEARENERGYIN-BETWEENPROMISEANDPERPLEXITYInsightChina,January21,2022Chinahas53reactorsinoperationand16undercon-struction,runningtheworld’s2ndlargestnuclearpowerfleet(surpassingFrancewhichhas56reactorsbut15ofwhicharepermanentlyclosed)aftertheUS.Thelargestconstructionmarketfornewreactors,itisalsothemostvibrantmarketintermsofpilotingallkindsofnewreactors,fromR&Dinnuclearfusionandfast-reactorstonuclearheatingandSMRdemonstrationplants.Anon-fossilfuelalongwithrenewables,nuclearpowerisexpectedtoplayamoreimportantroletodeliverChina’scommitmenttoincreasingnon-fossilfuelenergyinitstotalenergymixfrom15.3%in2020to25%by2030,undertheParisAgreement.NuclearisalsopoisedtogrowaspartofChina’stechnologyportfolioinachievingthestatedgoalofcarbonneutralityby2060.However,uncertaintiesloomlargeonitsfuture,giventhesharplydividedpositionsamongexpertsandagrowingNIMBYeffect.ThisInsightChinareportinvestigatesissuessurround-ingthedomesticdevelopmentofthisimportantfuel.Overseasexpansionisatotallydifferentstory.8.3.1Thelargestconstructionmarket:On1stJanuary2022,the6threactoroftheFuqingNucle-arPowerPlantinFujianProvincewasconnectedtothegrid,bringingChina’stotalnumberofoperatingreactorsto53,withatotalcapacityof54GW.Bythesamedate,Chinahad16reactorsunderconstruc-tion,withatotalcapacityof16.5GW,largerthanIndia(6reactors,4.2GW)andKorea(4reactors,5.4GW),andcontinuestoleadtheworldinboththenumberofreactorsandtotalcapacity.Allreactorsinoperationandunderconstructionspreadacross8coastalprovincesasshowninFigure8-3,andnoneislocatedinlandyet.135▏INSTITUTEOFENERGY,PEKINGUNIVERSITYFigure8-3:China’sNuclearPowerReactorsinOperationandUnderConstruction16.19.1116.65.62.21.32.32.23.41.32.42.72.42.53024681012141618GuagdongZhejiangFujianJiangsuLiaoningShandongGuangxiHainanInOperationUnderConstructionGW8.3.2Themostvibrantmarket:Whiletechnologiesforthoseinoperationmainlycomefromforeignsources,includingFrance,US,CanadaandRussia,andChinesetechnologiesadaptedfromforeignones,thoseunderconstructionalmostexclusivelydeployChineseadaptedtechnologies,exceptfortworeactorswithRussianVVER-1200technology.Tenoutofthe16reactorsunderconstructiondeployChinesebrandHualongI,whichwasdevelopedjointlybyChinaNuclearPowerGroup(CNP)andGuangdongNuclearPower(CGDNP)basedonFrenchM310anditsChineseimprovedversionofCPR1000.What’sparticu-larlyworthnotingisthattwosodium-cooledpool-typefast-neutronreactors,600MWeach,andone125MWmulti-purposeSMR(smallmodularreactor),arealsounderconstruction.TheyputChinaintheleadingrankamongnationsinfast-reactorandSMRcommercializa-tion.On28thSeptember2020,ChinaPowerInvestmentCorporationannounceditsownprototypeofGuoheOne,orCAP1400,whichwasadaptedfromtheUSAP1000.Newprojectscanbeexpectedduringthe14thfive-yearplanperiod(2021-2025).Inaddition,Chinaisalsoactivelyexperimentingthefollowing:●Nuclearheating:in2021,theHaiyangNuclearPowerStationinLiaoningProvincedivested4%ofthesteamgeneratedfromtwonuclearreactorstoprovideheatingfor600,000resi-dentsinthecityofHaiyang.Thenuclearheatingreplaced12coal-firedboilers,reducedresidents’heatingbillandimprovedtheenergyefficiencyofthenuclearpowerstationby3.25percentagepoints(from36.69%to39.94%);●4thgenerationtechnology:on20thDecemberof2021,theworld’sfirstcommercialpebble-bedreactor(PBR,200MWe)builtbytheHuanengGroupusingTsinghuaUniversity’stechnology,wasconnectedtothegridandstartedcommer-cialoperation;●Nuclearfusion:on28thMayof2021,theEAST,oneofChina’sexperimentalnuclearfusionfacilities,achievedrepeatable120million°Cofplasmaoperationfor101secondsand160million°Cfor20seconds.On30thDecember,itachieved70million°Cfor1056seconds,breakingthecurrentworldrecord.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏136●Nuclearforhydrogenproduction:afewindustrialpilotsisunderplanning,includinginparticularChinaNuclearPowerCorporation’sPBR600MWeprojectwhichincludeshydrogenproduction.8.3.3Brightprospects:Theabovecapabilities,underpinnedbytheworld’slarg-estnuclearR&D,engineeringandserviceprofessionalteam,ensureabrightfuturefornuclearpowerinacountrywithstronggrowthofelectricitydemand,oftenblanketedbyheavyairpollutionbutfirmlycommittedtotheParisAgreementandtheGlasgowClimatePact.TheChineseNDCtotheParisAgreementrequiresnon-fossilfuels(includingnuclear,hydroandotherre-newables)togrowonepercentagepointeachyear.Giventheconstraintsofbuildingmorelarge-scalehydropowerplants,andthelimitedloadfactorofsolarPVandwindturbines(1281hoursayearforsolarand2073forwindinyear2020),nuclearprovesindispensableforChinatoreachthe2030target.Nuclearpower,inparticularthe4thgenerationpebble-bedreactors,canalsobeanimportantsourceofheatingtoreplacecoalinnorthernpartofthecountry.ChinaNuclearIndustryAssociationexpectsthecountrytoapprovetheconstructionof6-8thirdgenerationreactorsperyear(eitherHualongIorGuoheI)toscaletheirdeployment.Withsucharhythm,thetotalinstallednuclearpowercapacitycouldreach70GWby2025and120GWby2030,accountingfor8%ofthecountry’stotalelectricitydemand.8.3.4LoomingChallenges:Suchprospectmaybecomeawishfulthinkingofthenuclearindustryprofessionals.CriticsandopponentsinthecountrysaythatatthisrateChinashallhave40reactorsunderconstructionsimultaneouslyatagivenfuturetime,giventheconstructioncycleof5-6years.Thiswillbewellbeyondthecountry’stechnicalandregulatorycapabilities,particularlywhenitsown3rdgenerationtechnologiesareyettobeproven,withsafetyremainingthetopriskandconcern.Domesticdebateshavebeencenteredaroundthefollowingsixpoints:1.Safety:whilethetechnicaljargonsof3rdand4thgenerationmaysoundcutting-edgetoreassuresafety,opponentsbelieveabsolutesafetydoesnotexist,andthesocietywon’tacceptthepo-tentialimmenseconsequencefromanaccident,eventhoughwithanextremelylowprobability.Theyarguethathumanmistakesareveryoftenattheoriginofmajorhistoricaldisasters,sotechnicaladvancescannotpossiblyguarantee100%safety;2.Inlandsites:Chinawasreportedtohaveselected31inlandsitesfornuclearpowerstations,andsomehadactuallystartedgroundpreparation,butwashaltedduetooppositionfromsomeexpertsandthepublic.ThosefirmlyagainstinlandnuclearsitesarguethatgivenChina’sheavypopulationdensityandwaterscarcity,experiencesofothercountries(e.g.France)inbuildinginlandnuclearpowerbecomeirrelevant.TheyfurtherarguethatChernobylaccidentwasmuchmoreseverethanFukushima,preciselybecauseitwaslocatedinlandwhileFukushimawasattheseaside;3.Strategicallyimportantandsensitiveareas:opponentsalsoarguethatnuclearsafetyisessentiallyahomelandsecurityissueandthatChinashouldclearlybanbuildinganynuclearpowerupperstreamoftheYangtseRiver,theBeijingcapitaleconomiczone,andotherdefense-sensitiveareas.TheyevenarguethattheBohaiBayarea,althoughcoastal,shouldbe137▏INSTITUTEOFENERGY,PEKINGUNIVERSITYkeptnuclearfree,givenitsstrategicimportancetonationaleconomy,andthatallthealreadyapprovedprojectsshouldbemovedaway;4.Negativeimpactassessment:insteadofpro-motingnuclearpower’sadvantages,opponentsproposetohaveathoroughandindependent“negativeimpact”assessmentofnuclearsitesonhomelandsecurity;5.Economics:solar,windandbatterycostsarefallingrapidly,whilenuclearpowercostisincreasingduetotheincreasinglymorestringentsafetyrequirements.In2020alone,Chinaconnected120GWofnewsolarandwindcapacitytothegrid,outstrippingbyfarthetotalnuclearcapacitydevelopedoverlast30years;and6.Wastedisposal:thisisacommonglobalissueforwhichnosatisfactorysolutionisavailableyet.Nuclearprofessionalsandtheiropponentsspeakindifferentlanguages,andtherelacksformalchannelsofcommunications.ThetraditionalmindsetshowsthatChinesedecision-makersareverycautiousonissueswhereexpertandpublicopinionsarestarklydivided.Andfromgovernanceperspective,governmentofficialsarenowheldaccountablefordecisionstheymake“forlife”,notonlywhileinoffice,butalsoafterretirement.Theconsequenceismuchlesslikelihoodforthoseinofficetodaytotakeanybolddecisionsonsitinginlandnuclearpowerprojectsforthe3rdgenerationtechnologies.Itremainstoseewhetherthe“intrinsically8https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitionsandhttps://irena.org/-/media/Files/IRENA/Agency/Technical-Papers/IRENA_Critical_Materials_2021.pdf.9ExecutiveOrder13817:“AFederalStrategytoEnsureSecureandReliableSuppliesofCriticalMinerals,”issuedin2017,andExecutiveOrder13953:“AddressingtheThreattotheDomesticSupplyChainfromRelianceonCriticalMineralsfromForeignAdversariesandSupportingtheDomesticMiningandProcessingIndustries,”issuedin2020.EuropeanCommission,CriticalMaterialsforStrategicTechnologiesandSectorsintheEU-AForesightStudy(Brussels:EuropeanCommission,2020),https://ec.europa.eu/docsroom/documents/42881.EuropeanCommission,StudyontheEU’slistofCriticalRawMaterials–FinalReport(Brussels:EuropeanCommission,2020),7,https://ec.europa.eu/growth/sectors/raw-materials/specific-interest/critical_en.safe”4thgenerationmodularPBRreactorswillprovetobemoreacceptableforinlandprovinces,giventhatanexperimental10MWereactorhasbeeninoperationinBeijing–theinlandcapitalcity,providingheatandpowerfor20years.ThequestionremainshowChinacanachieveits2030ambitionwithoutadramaticexpansionofnuclearenergyoverthecurrentdecade.8.4CRITICALORSTRATEGICMINERALS:WHATMATTERSMOSTFORCHINA?InsightChina,February4,2022Energytransitionprovesmineral-intensive.Fromlithium,cobalttorareearthelements,thephraseofcriticalmineralsringsaloudfortheirfundamentalrolesindecarbonizationtechnologies:solarpanels,windturbines,powerbatteries,hydrogenfuelcells,younameit.Intheirrecentlypublishedstudies,boththeInternationalEnergyAgency(IEA)andtheInternationalRenewableEnergyAgency(IRENA)havedetailedtherolesofthoseminerals,highlightedtheimportanceoftheirsupplysecuritytomeetgrowingdemand,andindicatedtheurgencyforbetterglobalgovernance8.ThroughthetwoUSpresidentialexecutiveorders(13817and13953)in2017and2020respectively,andtheEuropeanCommission’sforesightstudyin20209,boththeUSandEUhavehighlightedChina’sdominantroleinsupplyingthosecriticalmineralsandrefinedproducts,andcalledforincreasingdomesticproductionanddiver-sifyingtheirsupply.Indeed,aMarch2021reportoftheINSTITUTEOFENERGY,PEKINGUNIVERSITY▏138CSIS(CentreforStrategicandInternationalStudies)10highlightedprominentroleofChinainthesupplyofrawmaterialsforbatteries(32%ofglobalproduction),windturbines(54%)andsolarPV(53%).OtherstudieshaveestimatedthatChinaproduces60%oftheglobalrareearthelementsandprocesses90%oftheirrefiningcapacity.DoesChinahavetherealprowessovertheglobalcriticalmineralsupplychain?HowdotheChinesepolicy-mak-ersandexpertsviewthesituation?ThisInsightChinareportexplorestheChineseview,asweunderstandit,byhighlightingitsdifferenceswiththatoftheWest.8.4.1DifferentiatingdefinitionsFortheUS,criticalmineralsaredefinedintheEO13817as:(i)anon-fuelmineralormineralmaterialessentialtotheeconomicandnationalsecurity,(ii)thesupplychainsofwhicharevulnerabletodisruption,and(iii)thatserveanessentialfunctioninthemanufacturingofaproduct,theabsenceofwhichwouldhavesignificantconsequencesforitseconomyornationalsecurity.EUusesthetermof“criticalmaterials”or“criticalrawmaterials”,definedasthosethataremostimportanteconomicallyandhaveahighsupplyrisk.EconomicimportanceandsupplyriskarethetwomainparametersusedtodeterminecriticalityfortheEU.ButforChina,thetermusedis“strategicminerals”,definedasthoseofstrategicvalueforthecountry,thatrequirehighattentionfromthestateintermsofresourceallocation,financialinput,andpreferentialpoliciestoensureeconomicsecurity,defensesecurityandthedevelopmentofstrategicemergingindustries,whichcover9industriesincludingnew-generationinformationtechnology,biotechnology,high-endequipmentmanu-facturing,newmaterials,newenergy,newandsmart10https://www.csis.org/analysis/geopolitics-critical-minerals-supply-chainsenergyvehicles,energyconservationandenvironmentalprotection,digitalcreativeindustry,andtheirrelatedservices.8.4.2ListingDifferences"Criticality"isthekeywordinboththeUSandEUdefinition,whichrepresentsthesignificanceofthosemineralstotheireconomicgrowthandlow-carbontransition.Thelevelofriskstotheirsupplyandsupplychains,ifnotwellmanaged,threatenstocompromisetheadvancementoftheplannedcleanenergyrevolution,aswellasnationalsecurityofsupplychainandnationaldefense.SuchdefinitionandnarrativeareechoedintheUSwhenitsInteriorDepartmentput35criticalmetalsinitsfinalinventoryin2018,andthenin2020whenEUrevisedits2017listtoinclude30metalandnon-metalmineralsinitsowninventory.BothUSandEUlistsfocusonnon-en-ergyminerals,butdoincludeafewenergymineralssuchasuranium(USlist)andcokingcoal(EUlist).139▏INSTITUTEOFENERGY,PEKINGUNIVERSITYTable8-2:DeclaredCriticalorStrategicMineralsinUSA,EUandChinaUSEnergymineralsUraniumMetalmineralsAluminum,antimony,beryllium,bismuth,cesium,chromium,cobalt,gallium,germanium,hafnium,indium,lithium,magnesium,manganese,niobium,platinumgroup,rareearths,rhenium,rubidium,scandium,strontium,tantalum,tellurium,tin,titanium,tungsten,vanadiumandzirconium.Non-metalmineralsArsenic,barite,fluorite,naturalgraphite,helium,PotassiumchlorideEUEnergymineralsCokingcoalMetalmineralsBeryllium,bismuth,titanium,strontium,cobalt,tantalum,vanadium,antimony,bauxite,platinumgroupmetals,heavyrareearths,lightrareearths,lithium,scandium,gallium,germanium,hafnium,indium,niobium,tungsten,magnesium;Non-metalmineralsNaturalgraphite,phosphaterock,boron,phosphorus,Siliconmetal,barite,naturalrubber,cokingcoal,FluorsparChinaEnergymineralsPetroleum,naturalgas,shalegas,coal,coal-bedmethane,uraniumMetalmineralsIron,cadmium,copper,aluminum,gold,nickel,tungsten,zinc,molybdenum,antimony,cobalt,lithium,rareearth,zirconiumNon-metalmineralsPhosphorous,sylvite,crystallinegraphite,fluoriteSource:CNInnovationcompilationfromUSPresidentialOrders,EuropeanCommissionstudiesandChinesesources.IntheChinesecase,the“strategic”natureismeasuredfromatleastthreedimensions:1)thoseinbigdomesticdemandbutheavilydependentonimports;2)thoseingrowingdemandtosupportthedevelopmentof“strategicemergingindustries”;and3)thosethatChinatodaydom-inatestheglobalmarket,suchasrareearthelements.Alongthosecriteria,ChinapublisheditsfirstCatalog,in2016,ofstrategicmineralsaspartoftheNationalMineralResourcesPlan(2016-2020)bytheMinistryofLandandNaturalResources(MLNR).Atotalof24mineralswerefirstselected,butthelistisnowbeingexpandedbyMLNR(notyetpublished)toatotalof36.Itincludes6energyminerals,25metalminerals,and5non-metalminerals.Twelveoutofthe36mineralsareclassifiedasstrategicmineralsinshortageofdomesticsupply,whichcorrespondtowhattheUSandEUcallascriticalminerals.Theyinclude:Iron,copper,aluminum,manganese,oilandgas,chromium,cobalt,niobium,tantalum,zirconium,lithium,nickel.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏140Table8-2providesthecriticalorstrategicmineralsdeclaredbytheUS,EU,andChina.Whilesecurityofsupplyisthecommonpolicyobjectivebehindthelistingofmineralseitherascriticalorstrate-gicintheworld’sthreelargesteconomies,theChineseCatalogincludesallfossilfuels–coal,oilandgasas“strategic”,giventhecountry’srisingenergydemandandhighenergyimportdependency.TheChineseCatalogalsohasiron,whichisthemostcommonmetal.ThisisduetoChina’sheavydependenceonimportedironoresforitssteelindustry,asituationliketheEUlistingofcokingcoal.Anotherdifferenceisthegrowth-drivenmentalityintheChinesedefinitionofstrategicminerals.Manyofthemineralsservethepurposeofdeveloping“strategicemergingindustries”.Itcontrastsa“defensivementali-ty”thattendstofocusonpossiblechokepointsalongthesupplychain.8.4.3SecuringasharedfutureoverdifferencesDespitedifferences,thethreemajoreconomiessharetheneedtoensureadequatesupplytomatchtherisingdemandofenergytransitiontonetoutcarbonemissionsbymid-century.It’sthereforehightimetoagreeonacommonlistof“energytransitionminerals”,andsetupanewglobalforumbringingtogetherthethreewithallotherrelevantcountriesandstakeholdersforconstructiveandproduc-tivedialogues.8.5HYDROGENINCHINA:HOPEORHYPE?InsightChina,January14,2022Withanannualproductionof33milliontonsin2019,Chinatodayistheworld’slargesthydrogenproducer.Italsoappearstobetheworld’smostambitiouscountryinhydrogendevelopment,ifyoutaketheannouncedtargetsasgiven.Indeed,theplansbyChineseprovincesandmunicipalitiesaimtobuildahydrogenmarketofRMB600billion(US$90billion)by2025.Duringthefirstsevenmonthsof2021,overRMB250billion($38billion)ofinvestmentwereannouncedacrossthecountryinthenameofhydrogen.Butthosenumberscouldbemisleading.Ouranalysisconcludesthatit’sahyperatherthanahopestory.8.5.1Fossil-basedproduction,withnocleartechnologyadvantageAscanbeseenfromTable8-3,98.5%ofChina’shydrogenproductioncameeitherfromfossilfuelsorindustrialprocesses,only1.5%fromelectrolysis.TheChinaEnergyGroup–acoal-basedconglomerate,andtheSinopecGroup–anoilrefinerygiant,dominatethemarketdevelopmentwith16%and14%respectivemarketshares.Barelyanyproductionfromrenewablesyet,allthemade-in-Chinahydrogenwasverygreyasof2020,despiteannouncementsoflargegreenhydrogenprojects.141▏INSTITUTEOFENERGY,PEKINGUNIVERSITYTable8-3:Chinesehydrogenproductionandconsumptionin2019Production(33.42milliontons)Consumption(33.42milliontons)SourceShareEnd-userShareCoal63.5%FeedstockAmmoniaproduction32.3%Industrialprocesses(steelandchlore-alkali)21.2%Methanolproduction27.2%Naturalgassteamreform13.8%Oilrefineryandcoalconversion25%Electrolysis1.5%EnergyIndustrialfuel15.4%Transportation0.1%Source:ChinaHydrogenAlliance,ChinaInvestmentAssociationandTencentResearchInstitute.Fromconsumptionside,only0.1%oftheproducedhydrogenwasusedtofuelbusesandcars,mostofitwenttoindustrialfeedstocks.Howabouttechnology?Well,theChina-madechlore-al-kalineelectrolizersaresaidtocostonlyhalf(forsmallunitsof50kW)oronesixth(forlargeunitsof2-3MW)oftheirwesternpeers.Butfurtherproofsarerequired,giventheverylimitedamountofhydrogenproducedfromelectrolysis,andthedatatodayisinsufficienttosupporttheclaim.Thealkalineelectrolizershaveverydifferentperformancesintermsofefficiency,longevity,andenvironmentalimpacts,sooneneedstocompareapplewithapple.Chinashowsnoadvantageinprotonexchangemembrane(PEM),solidoxideelectrolysis(SOE)orotherelectrolysistechnologies,norinfuelcellsthatconverthydrogenintoelectricity.Nogreenhydrogen,littleenergy-purposeduse,andnoclearadvantageintechnology.Furthermore,neitherindustrialstandardsforhydrogen-productionequipment,norsafetystandardsforhydrogenhandlinganduses(suchasrefuelingstations)areputinplaceyet.Consequently,conditionsforlarge-scaledevelopmentdon’texisttodayinChina.8.5.2Localover-enthusiasmDespitetheabovefacts,overtwothirdsofChineseprovinceshaveincludedhydrogenintheirlowcarbonenergydevelopmentplans,andmorethan50provincial,municipalandotherlocalauthoritieshavepublisheddedicatedhydrogendevelopmentplanswithtime-boundtargets.Beijing,forexample,hasvowedtoachieveanindustrialsizeofoverRMB100billion($15billion)by2025(fromINSTITUTEOFENERGY,PEKINGUNIVERSITY▏142a2020levelofRMB3billion),with10-15“leadingcompaniesofglobalimpact”,3-4world-classinnovationplatforms,over10,000fuelcellvehiclesandover10MWofdistributedhydrogen-fueledpowersystems.InnerMongolia,thenorthernprovincerichincoalbuthavingturnedtowindenergypowerhouse,aimstobuild500ktpaofgreenhydrogenproductioncapacityby2025,with100hydrogenrefuelingstationsforitsowntrucksandbuses.InvestmentprojectstotalingRMB90billion(aboutUSD1.4billion)havebeenrevealed.Allpooledtogether,theselocalplansaddupto3GWoffuelcellcapacity,withover100,000fuelcelldrivenvehiclesby2025.Theselocalgovernments’plans,whencomparedagainstoneanother,soundalarmingsimilarities:1.Everyonebelieveshydrogenisthefuture“ideal”energycarrier,andwantstonurtureglobalornationalchampionsinitsownjurisdictions;2.Everyonedesires“greenhydrogen”fromrenewableenergysources;3.Allexcessivelyfocusontransportationsectorasthemainuser,withspecifictargetsonfleetsizeandrefuelstations.AsofJuly2021,Chinahadatotalof190hydrogenrefuelingstationsinoperationandmorethan100stillunderconstruction,foratotalhydrogenfleetof1,500vehicles.4.Allarecommittedtoprovidesubsidiesforhydrogen-fueledvehicles,keycomponentsandrefuelingstations.ShanghaihasputasideatotalofRMB5billion(nearlyUSD900million)forpotentialsubsidies.Toattractinvestment,theFuyangcityintherelativelypoorHenanprovinceannouncedtheywillprovidesubsidyequivalentto10%ofthetotalinvestment,iftheinvestmentisoverRMB30billion(USD4.7billion).5.Noneofthoseplanshasseriouslyinvestigatedtheeconomicsofsuchinvestment,noranybusi-nessmodeltosupporttheirimplementation.Giventhosecharacteristics,theseplanswilleitherremain“plans”intheforeseeablefutureorbecomethesourceoflow-level,repetitiveandinefficientinvestmentswithhugewasteofmoney.8.5.3DrivenbylocaldemandforinvestmentandamythcreatedtobelieveThequestioniswhysuch“blinded”enthusiasmexistsinmanyplacesthataresupposedlyrunbytechnocrats?Well,weseethefollowingfourfactors:Thefirstistheneedtoattractinvestment.Traditionally,localauthoritiesattractinvestmentbygivingapieceoflandintheirindustrialzones.Withthelanduseright,projectdeveloperscaneitherleaselandouttoothersortogetbankloansusingthelanduserightasmortgage/collaterals,veryoftenforotherpurposes.Inbothcases,bothlocalauthoritiesandprojectdeveloperscanclaimsuccess:localauthoritieshavecompletedtheirassignedtaskswhiletheprojectdevelopershavemademoney,butnorealprogresshasbeenmadefortheoriginalpurpose.Thismodelhasbeenwidelyrepeatedinothersectors,suchaschipsandsoftwareoranyotherhigh-techindustry.Itworkedinthepast,notsureitwillworkforever.Thesecondistheneedforamyth.Eventhoughlocalofficialsingeneralhavereceivedhighereducations,theyknowlittleaboutthecomplexityofthehydrogenindustry.TheywerepersuadedbythemediathathydrogenisreadytotakeoffasthesolarPVindustrydid15-20yearsago,particularlywhentheysawreportsonambitioushydrogenstrategiesinthewesternworld.Mostimportantly,manyareshortofoptionstoachievetheircarbonreductiongoals,sotheycountonhydrogenasa“mythicalmagic”forhelp.143▏INSTITUTEOFENERGY,PEKINGUNIVERSITYThethirdistheherdingeffect.WhenleadingcitieslikeBeijingandShanghaihaveallpublishedambitioushydrogendevelopmentplans,othersdonotwanttobeleftbehind.Makinganevenmoreambitiousplanwillshowtheyareatthecuttingedgeofthetechnologyaswell.Thelastbutnottheleast,thevestedinterest.TheChinaEnergyGroup(mergerofformerlyShenhuaGroupandStatePowerInvestmentGroup),theworld’slargestcoalproducer,seeshydrogenasthefutureoutletoftheircoal;andSinopec–theworld’slargestoilrefiner-seesenergyuseasthefuturedestinationoftheirhydrogenproduction,whichiscurrentlyonlyusedasfeedstock.Sinopectargetsfor1000hydrogen-refuelingstationsby2025,withoutknowingwhethertherewillbeenoughvehiclestoserve.Acrossthecountry,overthepastfiveyears,morethan1,000hydrogencompanieshavebeencreatedandafewgotlistedinthelocalstockmarkets.8.5.4Centralgovernment’sdilemmaFortheforthcoming2022WinterOlympicgames,Chinawillrolloutafleetof700hydrogen-fueledbusesasashowcaseoflowcarbontransport,butsimilarbuseswerealreadyoperatedinboththe2008BeijingSummerOlympicandthe2010ShanghaiExpo.Sincethen,littleprogresshasbeenachievedinhydrogen-fueledcarsinChina,whileEVbusesandcarsdramaticallyimprovedtheirperformances.Therewillcertainlybemorepilotprojectsforgreenhydrogenproduction,hydrogensteelreduction,hydro-gen-naturalgasblending,hydrogenasflexiblepowersourceandsmallscalehydrogenapplications.Somemayachievebreakthroughs,butallthesepilotsareunlikelytosupportalarge-scalehydrogenmarketinthecomingyears.Contrarytothefrenzyofthelocalauthorities,thecentralgovernment,representedbytheNDRC/NEA,hasbeencalmandcautious.Althoughhydrogenhasnowofficiallybeenclassifiedasanenergycarrierinsteadofjustbeingachemicalelement,andhydrogenrefuelingstationshavebeenwrittenintothe14thFive-yearPlan,theNDRChasnotyetannouncedanyspecificstrategyorplanonhydrogen.Webelievethecentralgovernmentisacutelyawareofthelocalhypesonhydrogen.Theyareweighingouthowtoencouragetechnologydevelopmentwhilenotadding“fuels”tothefirethatisalreadyburningalotofmoneyacrossthecountry.8.6HYDROGEN:CHINA’SBLUEPRINTFOCUSESONCAPACITYBUILDINGANDDEMONSTRATIVEAPPLICATIONSInsightChina,April7,2022Inourprecedentreportof“HydrogeninChina:HopeorHype?”,wereviewedover50localhydrogendevel-opmentplansandconcludedthattheywere“over-en-thusiasticzealots”onthepartofregionalgovernments.Weobservedthatincontrasttothefrenzyofthelocalauthorities,thecentralgovernment,representedbytheNDRC/NEA,hasshownmorecalmnessandcau-tiousness.“Theyareweighingout,intheirforthcominghydrogenstrategyorplan,howtoencouragetechnologydevelopmentwhilenotadding‘fuels’tothefirethatisalreadyburningalotofmoneyacrossthecountry.”Nowthemuch-awaitedplanisout.ReleasedbytheNDRC/NDRConMarch23rd,the“Mid-to-Long-Term(2021-2035)HydrogenDevelopmentPlan”(thePlan)clarifiesChina’shydrogendevelopmentprioritiesandfocalareas.WiththisPlan,Chinajoinedothermajoreconomies(US,EuropeanCommission,andIndividualEUCountriessuchasGermany,UKandFrance,Japan,Australia,Korea,Canada,etc.)inhavinganationalhydrogenstrategy.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏144WhatarethedifferencesbetweentheChineseplanandthoseofothercountries?Well,thisReportdoesnotintendtoanswerthisquestion,buttriestohelpyoumakeyourownjudgementbyprovingthefollowingkeyelementsofthePlan.8.6.1Amuchwatered-downambitionThePlanacknowledgestheimportanceofhydrogenasacleanenergycarrierwithpotentiallybigcontributionstothenetting-zerogoalsbutputtingastrongemphasisonthefactthatconditionsarenotyetmatureforlarge-scaledeployment.ThehighlightedinadequaciesChinafacesincludeinnovationcapabilities,sophisticatedequipmentmanufacturing,criticalcoretechnologies,keycomponents,andhighcost.Forinstance,theend-usercostofhydrogentodayinChinaisbetweenRMB50-80/kg(US$7.8-12.6/kg),muchhigherthanoil-derivedfuels.Takingintoconsiderationallthoseconstraintsandwithanattempttocooldowntheoverheatedlocalenthusi-asm,thePlansetsratherqualitativeandaspirationaltargetsfor2025,2030and2035:●By2025:buildacompleteindustrialvaluechainwithboth“greyhydrogen”(industrialbyprod-ucts)and“greenhydrogen”(fromrenewables).Emphasisisgiventotechnologyinnovationaimedtomasterthecoretechnologiesandacquiremanufacturingprocessesandimprovehydrogen’scompetitivenessthroughdemonstra-tiveapplications.Thetargetistohave50,000hydrogenfuelcellvehiclesonroad,matchedwithadequatenumberofrefuelingstations,and100,000-200,000tonsofgreenhydrogenproduced.●By2030:construeanintegratedinnovationsystemandindustrialvaluechain,wheregreenhydrogenisembeddedinbroadareasofapplications.●By2035:formahydrogenapplicationecosystemcoveringmobility,energystorageandindustrialapplications,withtheshareofgreenhydrogenintotalenergyusesignificantlyincreasedtoplayitsduesupportingroleinenergytransition.Asshownabove,specificnumericaltargetsareonlysetfor2025.AsofJuly2021,Chinahadonly1,500hydrogenvehiclesonroad.Growingthefleetto50,000representsagrowthof240%peryearover4years,butitremainsnegligiblegivenChina’s395millionvehiclesfleetintotal.100,000-200,000tonsofgreenhydrogenproductionwillrequireaninstalledelectrolysiscapacityof1-2GW,muchlessthantheEUtargetof6GWby2024.Itrepresentsamuch-watereddownambition,givenChina’ssolarandwindmanufacturingcapabilities,andparticularlyincomparisonwithallthelocalgovernments’hydrogenplans.8.6.2Greenhydrogen:ThePlanhasclearlyspelledoutrenewablesasthefuturesourceofhydrogensupply,althoughtodayalmostallChina’shydrogenproductionissourcedfromcoal,gasandindustrialprocesses.Thegrowthrateofgreenhydrogenfromalmostzeroin2021to100,000-200,000tonswithin5yearsmayappearsphenomenal,butnotsowhencomparedtoChina’sexistingtotalhydrogenproductionvolume(33.42milliontons)nortoitstotalenergyconsumptionof3,400milliontonsofoilequiva-lent.Consequently,theessenceofthePlanismuchmoreaboutcapacitybuildingratherthananymaterialtargetonhydrogendevelopment.8.6.3TechnologicalcapabilitiesThePlancallsoutfourareasofeffortstoimproveChi-na’stechnologicalcapabilitiesinhydrogenproduction,transport,storage,andutilization.145▏INSTITUTEOFENERGY,PEKINGUNIVERSITY●Thefirstinvolvescoretechnologies.Effortsarecalledupontoimproveboththeefficiencyofgreenhydrogenproductionandtheunitsizeofproductiondevices.PEMfuelcelltechnologyisspecificallymentionedforimprovementinkeyperformanceindicatorsandmodularproductioncapacity,soarethoseforfuelcell’sreliability,stability,anddurability.Photodecompositionofwaterismentionedasanewhydrogenproduc-tiontechnologytopursuenext.Andallelementsinvolvingsafetyalongthehydrogensupplychainarealsoclassifiedascoretechnologiesforthehydrogenindustry.●Thesecondistobuildhydrogeninnovationclus-tersinkeyregionsatdifferentlevelstoachievebreakthroughsbycollectiveeffortscombiningtalent,technologyandmoney.Companies,universities,andacademicinstitutionsareencouragedtocreatecross-industryhydrogentechnologyinnovationcenters,engineeringhubs,andmanufacturinginnovationclusters.Smallcompanieswithhighlyspecializedtech-nologiesareencouragedtodevelopintoglobalchampionsintheirspecialtyfields.●Thethirdistoattracttalentsandbuildthenecessaryprofessionalteamandcapability.●Andthefourthistoexpandinternationalcooperation,jointupR&D,andbuildinterna-tionalhydrogeninnovationvaluechain,whileestablishingcommonstandardsinvolvingallelementsofthehydrogenindustry.8.6.4HydrogeninfrastructureThePlancallsforanorderlyconstructionofhydrogeninfrastructureinpacewithmarketdevelopmentandbuildinga“safe,stableandefficient”hydrogensupplynetworkandvaluechain.●Hydrogenproductionshouldbebasedonlocalconditionsofresourceendowmentandindus-triallayout.Inregionswheregreyhydrogenisavailable,localusesaregivenpriority.Inregionswithabundantsolar,windandhydro-powerresources,greenhydrogenproductionistobedeployed.R&Dactivitiesinnewhydrogenproductiontechnologies,includingsolidoxideelectrolyzer,photolyticwater,seawaterandhightemperatureheatfromnuclearreactors,areallencouraged.Largehydrogenproductionbasesshouldbeexploredonlyinregionswithlarge-scaleapplications.●Forhydrogentransport,safetyisgivenasthepre-conditionforallnewinnovationsinvolvinghigh-pressuregastransportandstorage,low-temperatureliquidtransportandstorage,andhydrogen-naturalgasblending,amongothers.Solidstate,deep-coldandhigh-pressure,andorganicliquidwaysofhydrogentransportandstoragearealsoencouragedforexperiment.Theobjectiveistobuildahigh-density,light,low-costanddiversifiedhydrogenstorageandtransportnetwork.●Refuelingstationsshouldbedemanddriven,wheresafetyisagaingivenabsolutepriority.Retrofittingexistingpetrolstationstoaddhydrogenrefuelingserviceisallowedtosaveland.Integratedstationscombiningonsitepro-duction,storageandrefuelingarealsoallowedasanewoperationalmodel.8.6.5DemonstrativeapplicationsThePlanattachesgreatimportancetothedemonstrativeapplicationsofhydrogeninallpotentialareasexceptforpassengercars.Intransportation,priorityisgiventocommercialvehicleswithheavytrucksasthestartingpoint,graduallyexpandingtopublictransport,logisticINSTITUTEOFENERGY,PEKINGUNIVERSITY▏146vehicles,shipsandaviation(drone)uses.Table8-4providesthepilothydrogenapplicationprogramsinkeysectors.Table8-4:ProgramsforDemonstrativeApplicationsofHydrogeninthe14thFive-YearPlanSectorProgramsTransportation•Inareaswithhighoperationintensityandfixeddrivingroutes,suchasminingareas,portsandindustrialparks,exploreanddemonstratehydrogenfuelcelltruckingandverifytheapplicationofthe70MPahydrogenstoragecylinders;•Inlocationswithsuitableconditions,pilotdeploymentoffuelcellcommercialvehiclesforpublicservicessuchasofurbanpublictransportation,logisticsanddelivery,sanitationandgarbageclearance;•Exploretopilothydrogenfuelcellapplicationsinshippingvesselsandaircrafts.Energystorage•Whererenewablesareabundantandhydrogendemandsarehigh,pilotcentralizedrenewables-to-hydrogenprojectsandexplorecommercialoperationmodelsthatsynhydrogenstoragewithintermittentrenewablepowergeneration;•Inregionsthathaveconcentratedhydrogendemandsfrompilotfuelcellbusroutes,encouragedeploymentofintegratedstorageplushydrogen-refuelingstationsbasedondistributedrenewableenergyorlowgridload,fullyutilizetheadvantageoflowercostsfromhydrogen-makingwithinstations,andpromotedistributedhydrogenmakingandlocalornearbyuses.Powergeneration•Incombinationwithincrementalpowerdistributionreformandintegratedenergyservicepilots,demonstratemicrogridsthatintegratehydrogenandelectricity,andpromoteapplicationpracticesthatcombinefuelcell’sheatandpowersupply;•Incombinationwithnewlybuiltandrenovatedtelecommunicationbasestationprojects,encouragepilotsofhydrogenfuelcellasbackuppowerforthebasestations,andgraduallyintegrateapplicationsofhydrogenfuelcellintofinancialinstitutions,hospitals,schools,commercial,industrialandminingenterprises.Industrialuses•Incombinationwithdomesticmarketenvironmentandindustrialfoundationofmetallurgicalandchemicalindustries,exploredemonstrationofhydrogen-poweredmetallurgicalprocessesandalsousingrenewables-madehydrogentoreplacefossilfuelsinsyntheticammonia,methanol,refinery,coal-to-oilandcoal-to-gasconversionplants.147▏INSTITUTEOFENERGY,PEKINGUNIVERSITY8.6.6Challenges:Giventhestartupnatureofthe“hydrogenasenergy”business,thePlancallsforpolicyandregulatorysupportandfortimelypromulgationofrulesandstandardsconcerningtheeffectiveandsustainableoperationofthehydrogenindustry.Withtimeandtheacquiredlearningbydoing,webelieveallpieceswillgraduallybeputinplace.Inourview,thebiggestchallengeaheadwillbethecreationofsoundbusinessmodels.Thatishowhydrogencanfinditsappropriatevalueinalltheend-useapplica-tionswhereeveryoneinvolvedinitsproduction,storage,transportandfinalusesgets“rewarded”andR&Dactivitiesarewellfundedmorebycommercialentitiesratherthanonlybygovernmentgrants.Commercialvaluecreationdependsnotonlyonreducingthecostofhydrogendelivered,whichisdifficultovertheshortterm,butalsoonindustry-specificregulationsthatinvolveheavydutytransport,shipping,energystorage,andalsoasflexiblesourcesofpowergenerationandinallnewindustrialapplications.Thisisacomplicatedbuta“must-be-resolved”issuebeforeweseehydrogenbusinesstrulytakingoffinChina.8.7ENERGYSTORAGE:CHINADECIDESTOWALKONTWOLEGSInsightChina,April12,2022Energystorageplaysacriticalroletosecureenergytransitionbymovingenergyacrosstimeandspace:storingenergywhenandwhereitischeapandabundant,anddeliveringittowhereandwhenitisneededandexpensive.11Inthisreport,energystorageisonlyaboutthepowersystem,notinvolvingthemobilitysystem.What’stheChineseapproachtoenergystorage11?HowdoChinesedecision-makersseeprioritiesforfuturedevelopment?Andwhatdotheyplantodointhisimportantsector?ThisreportaddressesthesequestionsonthebasisofChinesegovernment’splansmadepublicrecently,includingthe“2021-2035PlanforPumpedHydroEnergyStorageDevelopment”of17September2021(thePumpedHydroPlan),the“GuidingOpinionontheAccelerationofNewEnergyStorageTechnologies”of15thJuly2021(theOpinion)andthe“14thFiveYearIm-plementationPlanforNewEnergyStorageTechnologyDevelopment”publishedonMarch21,2022(the14thFYIP).8.7.1TheCurrentSituationBytheendof2020,Chinahadatotalof35.6GWofenergystoragecapacityinoperation,89.3%ofwhichispumpedhydro,9.2%iselectro-chemicals,therest1.5%issplitamongmeltingsalt,compressedairandflyingwheels.Electro-chemicalstorageisdominatedbylithium-ionbatteries(88.9%),followedbylead-acid(10.2%)andliquidflow(0.7%),supercapacitor(0.2%)andothers.AsillustratedbyFigure8-4,currently,theoverwhelmingmajority(90%)ofenergystoragecapacityinChinaisprovidedbypumpedhydro,withtherestbroadlyreferredas“newenergystorage”technologies.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏148Figure8-4:China’sinstalledenergystoragecapacitybyend2020Electro-chemicals9.20%Leadacid10.2%Zonedegraphiqueydro89.3%Others＜0.1%Supercapacitor0.2%Liquidflow0.7%TotalInstalledCapacity:35.6GWMeltingsalt1.5%Mechanical0.05%LithiumIon88.8%Source:ChinaEnergyStorageAlliance8.7.2WalkingonTwoLegs:pumpedhydroandnewstoragetechnologiesPumpedhydro:Pumpedhydroisthelargestinscale,mostmatureandcheapestwayofstoringelectricitytoday.Chinanotonlyhastheworld’slargestinstalledcapacity,butalsothestrongestengineeringandconstructioncapacity–theworld’slargestsinglesiteof3.6GWandthelargestsin-gleturbineof400MWarecurrentlyunderconstruction.Giventheseadvantages,the2021-2035pumpedhydrostorageplanhasseta2025targetof62GW-almostdoublingthe2020level,and120GWby2030.Toachievethosetargets,atotalof340siteswithatotalcapacityof420GWhavebeenidentifiedasthekeygetting-readyprojectsforimplementation,andanother247siteswithatotalcapacityof300GWidentifiedasreserveprojects.However,pumpedhydrositesarenot“universally”availableandcannotbedeployedwhereverstorageismostlyneeded,forexample,incombinationwithrenewablesatthegenerationsitetoavoidcurtailment,orinurbanareasfordemandresponsesandpeakshaving.Asaresult,thegovernmenthasdecidedtoacceleratethedevelopmentofthe2ndleg–the“newenergystoragetechnologies”.NewStorageTechnologies:Whatdoes“newenergystoragetechnologies”meaninChina?Well,neithertheOpinionnorthe14thFYIPhasgivenaprecisedefinition,butbothdocumentshavereferredtothefollowing:1)compressedairenergystorage,2)flyingwheel,3)lithium-ionbattery,4)sodium-ionbattery,5)lead-carbonbattery,6)supercapacitor,7)liquidmetalbattery,8)metal-airbattery,9)hydrogenandammoniaenergystorage,and10)heatandcoldenergystoragetechnologies.Interestingly,“high-temperaturesteam-vaporenergystorage”(calledpumpedsteamenergystorage)isalsomentionedasanewenergystoragetechnologyfornuclearpowerplantsandconventionalthermalpowerplants.Intotal,theystoodat4.15GWatendof2020.TheOpin-ionoflastJulysetsatargettoreach30GWby2025,whilethe14thFYIPofMarchthisyeardoesnotmention149▏INSTITUTEOFENERGY,PEKINGUNIVERSITYthistarget,nordoesitproposeanyspecificactionplantoachieveit.TheFYIPonlysetsthetargettoreducethecostofthesenewstoragetechnologiesby30%againstthe2020level.TheintentionoftheChineseplannersisclear:maximisethepotentialofpumpedhydroforlarge-scalesystemoptimisationwhileacceleratingthedevelopmentanddeploymentofthenewtechnologies,withsomereservationonaspecifictargetforthelatter.Theobjectiveistoturnthenewtechnologiesfromtheearlyphaseofcommercializationtolarge-scaledeploymentduringthe14thFYIP,withparticularattentiontoR&Dandmanufacturingcapabilitiesforhighlysafe,low-cost,high-reliabilityandlong-durationenergystoragesolutions.8.7.3KeyTasks:The14thFYIPhaslistedthekeytasksinthefollowingsixareas:1.Systematicinnovation:encouragetheblos-somof“ahundredflowers”ofallnewenergystoragetechnologies,including100-MWscaleofcompressedair,MWscaleofsafe,cheapandlong-lifelithium-ionbatteries,100-MWscaleofflowbatteries,MWscaleflywheel,MWscaleofsupercapacitor,sodium-ion,solidlithium-ion,lead-carbon,liquid-metalandmetal-airbatteries;achievebreakthroughsincross-boardtechnologiesrelatedtobatterysafety,aswellassmartcontroltechnologiesforbatteryintegra-tiontodifferenttypesofapplications;andbuildaninnovationeco-systemwithcorporationsasleadingsponsors,inclosecollaborationwithacademicandresearchinstitutions.2.Demonstrativeapplications:encouragedemonstrativeapplicationsofallkindsofnewtechnologieswithdifferentstoragedurationsfordifferentuses,particularlyforthosetech-nologiesthatareconsideredmajorequipment.Differentialpoliciesshouldbemadebasedondemonstrativeapplicationsinsomekeyareas.3.Scalingdeploymentacrossthepowervaluechain:encouragegeneration-sidedeploymentofnewstoragetechnologiestoenableeffectiveharvestofrenewablesandlong-distancetransmissionofhighlyconcentratedrenewablegeneration.Grid-sideapplicationswillfocusonenhancinggridsafetyandstrengtheninggridresilience;andend-use-sidenewtechnologiesareencouragedtosupportdistributedenergysystem,toprovidecustomerswithtailor-madeandflexibleenergysolutions.4.Findingsustainablebusinessmodels:newstoragetechnologydeployersareregardedasindependentmarketentitiesinthesamewayassolarandwindpowerdevelopers.Theycanparticipateinallrelevantpowermarket.Newregulatorymeasuressuchaspricingreformwillbemadetocreateaviablemarketandasustainablebusinessmodelfornewenergystoragesolutions.5.Gettingstandardsandregulationsinplace:makeorupdaterelevantindustrystandardsforsafeoperationofnewenergystoragetechnolo-gies.Emphasiswillbegiventothemitigationofsafety-relatedrisks.6.Deepeninginternationalcooperation:bybothimportingnewadvancedtechnologiesandexportingmade-in-Chinatechnologies,createnewplatformstostrengtheninternationalcooperation.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏1508.7.4Challenges:GivenChina’sambitiousclimate-relatedtarget,suchasonepercentagepointgrowthperyear(from15%in2020to25%by2030)ofnon-fossilfuelsintotalenergycon-sumptionandtheduo-decarbonizationgoals,renewablesarepoisedtocontinuegrowingrapidlyinthecomingdecade.Energystoragewillbeacriticalpieceofthepuzzleinnextphaseofrenewableenergydevelopment,andthetwo-legapproachtoenergystorageseemsspot-onandfitforpurpose.Commercialviabilityhasbecomekey.Althoughthegovernmenthasvowedtoturntheenergystoragebusinesscommerciallyviablethroughanumberofreformmeasures,wedoseepowersectorreformtobethebiggesthurdletoenergystoragedeployment,inparticularforthenewtechnologies.ThismayalsobethemainreasonfortheNDRC/NEAtodropthe2025newenergystoragetargetwhichwassetintheOpinion,forfearofa“greatleapforward”whiletheirviabilityisnotyetproven.Thegovernment’sintentionistoallowall“flowers”toblossom,butlackofclearlyfocusedanddifferentiatedprioritycouldbecomeasourceofconcern.Forexample,lithium-ionbatteryforpowersystemapplicationwillfacetoughusercompetitionfromEVs,wheretherealreadyexistsasoundandprovenbusinessmodel.But,iflithium-ionisthemainplayerofwhatiscalled“newenergystoragetechnologies”forthepowersystem,wewouldbeworriednotonlyaboutitscommercialviability,butalsotheglobalavailabilityoflithiummineralstosupportaspiredlarge-scaledeploymentofthesetechnol-ogies.8.8RE-ELECTRIFICATION:CHINARAMPSUPELECTRIFYINGEVERYTHINGInsightChina,No.23,May4,2022Withuniversalaccesstoelectricityalreadyachievedin2015,Chinahascompletedtheinitialprocessofelectri-fication.Herecomesanewroundofelectrificationthatconsistsofreplacingend-useconsumptionofcoalandoilwithelectricity–whichiscalledre-electrification.Indeed,end-useelectrificationisregardedasaneffectivetooltoimproveenergyefficiency,reducebothlocalpollutionandGHGemissions,whilemodernizingtheend-useequipmentandtechnologies.Recognizingthesebenefits,backin2016,theChinesegovernment,ledbytheNDRCand9otherrelevantministriesandagencies,releasedthe“GuidingOpinionontheAdvancementofElectricitySubstitution”(the2016Opinion),callingforelectricitysubstitutioninresidentialheating,industrialmanufacturing,publicbuildingsandtransportation.Theobjectivewastobringtheshareofelectricityinfinalenergyconsumption–akeyindicatorofacountry’selectrificationrate,to27%by2020.Thefinalfigurefor2020,at26.5%,althoughbelowthetarget,wasalreadyasignificantboostcomparedtothe2015levelof22.9%.Now,thenew14thFYPhassettheelectrificationtargetat30%by2025.Toachievethis,onMarch9thisyear,thesame10ministriesandagenciesjointlyissuedthenew“GuidingOpinionontheAcceleratedAdvancementofElectricitySubstitution”(the2022Opinion),providingfurthermeasurestoaccelerateend-useelectrification.151▏INSTITUTEOFENERGY,PEKINGUNIVERSITY8.8.1What’snew?Comparingthe2022Opinionwiththe2016version,wehaveseenthefollowingnoticeableenrichments:●Higherpurposeandambition:whilein2016version,thepurposeofelectrificationwasmainlytoreplacedispersedcoalconsumptionasameansofreducinglocalpollution,the2022Opinionhasgivenitamoremainstreamedman-dateinlightofthecountry’scarbonpeakingandneutralitygoals.Electrificationisregardedasamajortoolforgreenenergytransitioninend-usesectors,amajormeanstoabsorbrenewableenergies,toimproveenergysystemefficiencyandtobuildamodernenergysystemthatissecure,efficientandlowcarbon–inshort,amajorroutetodecarbonization.●Widerscopeofcoverage:ifthe2016guidelineswerecautious,callingonlyfor“pro-gressivelyexpandingthescopeforelectricitysubstitution,casebycaseandstepbystep”,the2022Opiniondemonstratesnohesitationincallingfor“advancementonallfronts”topromoteelectrificationinindustries,buildings,transportationandagriculture.Evenaviationisincludedinthescopeoftransportationsectorelectrification.●Moredetail-oriented:the2016guidelinesonlylistedmanufacturingsector,butthe2022Opinionprovidesveryconcretesector-focusedactionsforiron&steel,buildingmaterials,non-ferrousandpetrochemicalindustries.Listedtechnologiesforelectrificationhavealsoexpandedfrom5categoriesand18technologiesto21categoriesand50applicationfields.Table8-5providesanoverviewoftheproposedprioritiesindifferentsectors.●Clearersystematicconsideration:sixyearsarelongenoughforthenewguidelinestoincorporatenewenablingtechnologiesinthetoolboxforacceleratedelectrification.Onesuchenablerisdigitalization.The2022Opinioncallsfor"electricsubstitution+digitalization",toelevatesmartcontrolsandmanagementbyutilizingadvanceddigitaltechnologiessuchascloudcomputing,bigdata,IoT,mobileinternetandAI.Withbothelectrificationanddigitali-zation,theOpinioncallsfor“integratedenergyservices"forbuildingsandindustrialenergymanagement,whileencouragingV2G(vehicletogrid),bigdatacenters,and5Gbasestationstoparticipateinandinteractwiththesystemsviademand-sideresponsemeasuresandvirtuepowerplants.●Andstrongerpolicysupport:accordingtotheOpinion,electricswitchingprojectswillbesupportedbygreenfinanceviagreenbondsandgreenloans.Theyareeligibletoparticipatebothinthepowertradingmarketandincarbonemissionstrading.ButtheOpiniondoesnotgivespecificsonhowtogetitdeliveredinaneffectiveandintegratedmanner.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏152Table8-5:TheSector-focusedPrioritiesforCleanElectrificationSectorPriorityleversIndustry:sub-sectorpriorities•Steel•Buildingmaterials•Non-ferrousmetals•Petrochemicals•Chemicals1.Electrifycasting,heating,dryingandsteamsupply;2.Phaseoutnon-compliancecoalboilers;andindustrialkilnsburningcoal,petroleumcoke,residualoilandheavyoil;3.Promoteelectricfurnace,electricboiler,electrickilnandelectricheating;promoteelectricdrivenhigh-temperatureheatpumpsandhigh-powerelectricenergystorageboilers;4.Speedupconstructionofindustrialgreenmicrogrids,includingworkshoprooftopsolar,distributedwind,multipleenergystorage,heatpumpandresidualheatandpressureutilization;5.Promoteelectricbeltgallerytoreplacefueltrucktransportation;6.Promoteelectricdrillingandotherelectricmotorunits;andincreasinglevelofelectrificationinminingTransportation1.Implementingnationalintegratedverticaltransportationplan;Promoteelectrificationofroadtransportationandwatertransportation;andbuildintegratedverticaltransportationnetworkthatisgreenandlow-carbon;2.Accelerateelectrificationofurbanpublictransportation;prioritizinguseofnew-energyvehiclesinpublictransportation,taxifleets,urbansanitationservicesfleets,postalfleetandlogisticfleet;3.Prioritizeuseofnewenergyvehiclesinports,newly-addandsubstituteairportvehiclesinkeyairpollutionpreventionandcontrolareas;4.PromotehouseholdEVs;andaccelerateinstallationsofEVchargingpiles;5.Renovateandretrofitwithelectrificationofenterprises'internaloperationonsiteoffactoriesandmines;andpromoteelectricshipandcruisealonginlandrivers,withmatchedcharginginfrastructure;andexplorefeasibilitytoretrofitinlandrivershippingelectrification;6.Increaseshorefacilityelectrificationcoverageandusageatinlandriverportsandships;solidlypromoteshorefacilityelectrificationatcoastalportsandshipsincoordinatedmanner;7.Prioritizeairportelectricshorefacility;IncreaseusageofsubstitutefacilityofaircraftAPU(auxiliarypowerunit);andpromotinginnovationandapplicationofelectricaircrafts153▏INSTITUTEOFENERGY,PEKINGUNIVERSITYSectorPriorityleversBuildings1.Promoteelectricheatinginareasnotwell-coveredbycentralizedheatingnetworksbyusingelectricheatpumps,heat-storageelectricboilers.distributedelectricheaters;2.Synchronizecoal-to-electricityincookingwithelectricheating,particularlyinkeyplainregionswithmandatetozerooutdispersedcoal;3.Pilottosupplementheatingwithelectricheatingatendpointsofmunicipalheatingnetwork;4.Encouragecombinedcoolingandheatingtechnologyinregionswithrightconditions;andadoptelectriccoolingandelectricheating;5.Encouragegovernmentagencies,schoolsandhospitalsandotherpublicinstitutionbuildingsandoffices,hotels,commercialcomplexestoretrofitforelectrification;6.Utilizeself-ownedrooftopsandsitestoexpandnewenergypowergenerationforself-use.Agriculture1.Sustainpromotionofruralelectrificationtodeliverruralrevitalization;2.Broadlydeployfarmlandwells'electric-poweredirrigationanddrainage,high-efficiencyandenergy-savingsunshinegreenhousesandintegratednurseries,anddevelopecologically-friendlycultivation;3.Promoteelectricdryingandprocessingincultivation,grainstorageandagriculturalside-productsprocessingandincreasingproductionqualityandefficiency;4.Developon-sitepre-refrigeration,storageforpreservationandcoolinglogisticsinfruitandvegetablefreshproduceandspecialtyagriculturalproductsproductionareas;5.Promoteelectricsubstitutesinhusbandryandaquaculture,andincreasingdigitalizationandintelligenceinhusbandryenvironmentalcontrolandprecisionfeeding.8.8.2What’retheimplications?There-electrificationwillnodoubtsignificantlyboostChina’selectricitydemandandaddfurtherstressonthecountry’spowersupplysystem,whichhadalreadyexperiencedseverepowershortagein2021.Italsoputsnewchallengesindecarbonizingthepowersector.In2020,Chinaconsumed7,520TWhoftotalelectricity,30%ofwhichfromnon-fossilsources.ForecastbytheIndustrialEconomicsResearchInstituteoftheChineseAcademyofSocialSciencesputsthecountry’stotalpowerconsumptionin2025at9,000TWh,representing4.8%ofannualgrowthbetween2020and2025.Thegovernment’s14thFYPistohave39%ofthispowerfromnon-fossilfuels,9percentagepointsabovethe2020level.Ensuringsupplysecurityforthegrowingelectricitydemandandassuringthatagrowingpartofthiselectric-ityisgeneratedfromnon-fossilfuelsrepresentthusaformidable“duochallenge”forChina’sre-electrificationprocess.WewillfurtherexplorethesetrendsinourfutureInsightChinareports.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏154©PhotoonPxHere9EMERGINGSUBJECTSINSTITUTEOFENERGY,PEKINGUNIVERSITY▏1569.1TRANSFORMINGENERGYSYSTEMWITH5GMOBILECOMMUNICATIONTECHNOLOGIESInsightChina,April25,2022InformationandCommunicationTechnologies(ICT)aretransformingoursocieties.Theyalsohavethepotentialtoaccelerateenergytransitionbymakingtheinfrastruc-ture-heavyenergysystem“lighterandmoreflexible”.EnergycompaniesworldwidehavebeenamongthebiggestusersofICTdigitaltechnologies.However,innoothercountrythanChina,havewewitnessedagovernment-directednationalactionplantopromoteoneparticularICTtechnologyintheenergyfield.The“ImplementationPlanfortheApplicationof5GMobileCommunicationTechnologyintheEnergySector”(thePlan),jointlyreleasedbyNDRC(NationalDevelopmentandReformCommission),NEA(NationalEnergyAdministration),MinistryofIndustryandInformationTechnology(MIIT)andStateCouncil’sNetworkandInformationOfficeinJuly2021,notonlyshowshowstrongthepolicymakers’aspirationisintransformingtheenergysystemwithICTtechnologies,italsodemonstrateshowdetailedagovernment-directedplancouldbearoundonespecifictechnology.9.1.1Advantagesof5Gmobilecommunicationtechnologies:Fromtheappearanceofthefirstgeneration(1G)mobilephonein1986,mobilecommunicationhasevolvedfromsimpletransmissionofvoicetotextandemailenabled2Gin1994,videosandgamessupporting3Gin2000,Appsupporting4Garound2010,totoday’s5Gwithbiggerdatatransmissioncapability,fasterspeedandlowerlatency.Startingfrom4G,smartphoneshaveenabledandempoweredalargenumberofAppsallowingonlineshoppinganddigitalpaymentonyourpalmatyourfingertip,butitisonlywith5Gthatindustrialapplicationsbecomeviablethankstoitspowerfuldatatransmissioncapability.AsshowninTable9-1below,5Gtechnologyis60-100timesfasterindatatransmissionspeedthan4G,20timesbiggerincapabilitytoconnect(asreflectedbyBandwidth)and100timesshorterinresponselatency.InICTprofessionalterms,5Ghasthefollowingthreekeyfeatures:1.MassiveMachine-TypeCommunication(mMTC)allowingformachine-to-machinecommunicationthatisthebasisofallinternetofthings(IoT)industrialapplications;2.EnhancedMobileBroadband(eMBB)allowingforconnectionsoflargernumberofmachinestothecommunicationsystem;and,3.Ultra-ReliableLowLatencyCommunica-tion(URLLC)allowingforremotesurgeriesandautomaticdriving,amongotherapplica-tions.157▏INSTITUTEOFENERGY,PEKINGUNIVERSITYTable9-1:EvolutionofMobileCommunicationTechnologyandItsApplicationsFrequencyBandSpeedBandwidthLatencyApplications5G0.41-7.125GHzor24.25-52.GHz10Gbps400MHz<1msRealtimeindustrialIoTandcontrol,surgicaloperations,automaticdriving.emersedgaming,smartgrid,smartcities,etc4G850-4,600MHz100-150Mbps20MHz<100msHighresolutionvoice,picturesandvideos.withinternetconnectionandmobileAPPs3G800-2,100MHz2.8-14.4Mbps1.25-5MHzafew100msVoiceandhighspeeddatatransmmission,includingvideosandgames2G800-1,800MHz14.4kbps0.2-1.23MHzVoice,text,emailandinternetconnection1G900MHz2.4kbps0.025MHzVoicetransmissionviaanaloguesignalsSource:CNInnovationGiventheseadvantagesofandChina’sleadershipin5Gtechnology,theChinesepolicymakersregarditasacrucialstrategicresourceandamajorelementofnewinfrastructureforthecountry’sdeeperdigitaltransfor-mation.Duetohighenergyconsumptionof5Gstationsandhighcostinbuildingthem,itappearsthatitsapplicationforpeople-to-peoplecommunicationoronlineAppsupportingfunctions(generallyreferredtoastoCor“2C”)wouldbeanover-kill,thefocusedattentionhasthereforeshiftedtogreaterindustrialapplications(toBor“2B”),whereenergyranksasoneofthetopprioritysectors.9.1.2TheObjectives:AccordingtothePlan,theobjectiveistoachieve,overthenext3-5years,thefollowingfivecoredeliverablesdescribedas“anumberof”thatapply5Gtechnologytopowerplants,powergrids,coalmines,oilandgasfields,comprehensiveenergyservices,andenergyequipmentmanufacturing,whilebuildinguptheenablingcontextandfoundationtoscalenextphaseofdeployment.Theyare:1.Anumberoftypical5Gapplicationcases;2.Anumberof5G-dedicatedindustrialdatatransmissionandprocessingnetworks;198619942000201020195G4G3G2G1GINSTITUTEOFENERGY,PEKINGUNIVERSITY▏1583.Anumberofduplicable,easy-to-promoteandcompetitivebusinessmodels;4.Afew5Grelatedtechnologiesandproductsthatarespecificallydesignatedforenergyindustryapplications;and,5.Severaltechnologicalstandardsthatareurgentlyneededforwideradoptionofthe5Gtechnology.9.1.3TheTargetedApplications:ThePlanhasalsolistedafewspecificactionsineachofthefollowingenergyinfrastructureareas:1.SmartPowerPlants:deployingthecapabil-itiesof5Gandrelatedtechnologiestoachievesmartproductioncontrol,smartsurveillance,smartmaintenanceandemergencyresponse.2.SmartGrids:achievingsmartsurveillanceoftransmissionanddistributiongrids,gridpro-tectionandcontrol;aswellasbetterrenewableenergyintegration,collaborativedispatchingandgridstability.3.SmartCoalMines:achieving“smartness”inextractionandproductioncontrol,environmen-talmonitoring,andsafetyprotection,under-groundwellsurveillance,automaticdrivingofcoaltransportvehicles,andvirtualinteractionsbetweenofminingoperationandremoteexpertassistance.4.SmartOilandGas:achievingsmartE&P,smartoperationofoilandgasfields,smartandsaferefineries,andsmartandsafetransporta-tion.5.EnergyServices:achievingintelligentflexibleintegrationofpower,gas,heatandcoldenergysourcestoefficientlymeetenergydemandthroughinteractionsamongenergysources,networks,load,energystorage,virtualpowerplantsanddistributedenergysystems.6.Smartmanufacturingandconstruction:applying5Gcapabilitiesforreal-timedataacquisitionandcontrol,remotemonitoringofmanufacturingprocessandworkshopsafety.Eachoftheseareasisdetailedwithconcreteactions.9.1.4Challenges:JustasthePlan’s“narrative”hasillustrated,it’snotasimple-mindedfocusononeparticulartechnology,butrather,itshallbereadasanothernationalstrategicintentiontotapintothebiggesttechnologicalpotentialofdigitalizationtoacceleratecleanenergytransitionandbuildamoderncleanenergysystem.Toachievetheadoptedobjectives,thePlanemphasizesthecrucialityofinnovationandstandardization.Itcallsforthecreationofatechnologyinnovationplatformdedicatedto5Gapplicationsintheenergysector,apub-licserviceplatformandaresilientcybersecuritysystemtosupportthebroaderintegrationof5Gtechnol-ogyintotheenergysystem.And,ithasidentifiedpriorityfocusestodevelopbothcommonlyusedtechnologiesandsector-specifictechnologies,thepromulgationofindustrialstandardsfor5Gapplications,thecertificationofkeyapplicationtechnologiesandthedevelopmentofacyber-securitysystem.Whatappearsinadequateorlackofclarityis,asusual,whowillandhowtofootthebills.ThePlanistitledas“implementation”andtoimplementthecalled-forac-tionscostsmoney.Butjustasalltheotherplansreleasedsofar,thisPlanremains“constrained”inabroadbrush,withoutspecificsyetonhowtofinancethedesired“anumberof”s.159▏INSTITUTEOFENERGY,PEKINGUNIVERSITY9.2ALIGNINGWITHGLOBALSTANDARDSTOACCELERATEDECARBONIZATIONInsightChina,May9,2022Standards,bethemtechnological(involvingoneparticulartechnologysuchas5G),technical(involvingoneparticularproductsuchascellphone),orpractical(involvingaparticularwayofdoingthingssuchasCO2measurement)establishconsistentandcommonprotocolsforthemodernsocietytogetfactoriesbuilt,goodsandservicesdevelopedandexchanged,andmanufacturedproductsmovedacrossborders.Theyareindispensableformeasuring,reportingandverifying(MRV)GHGemissionsunderanynationalclimateschemeorglobalclimatepact.Whatwillhappen,ifChina,theworld’sbiggestGHGemitter,definesitsowntechnicalspecificationsforde-carbonizationproducts,anditsownnormsinGHGMRVandingreenfinancingthatareverydifferentfromtherestoftheworld?Well,itwillsignificantlyincreasethecostofglobaldecarbonization,andcreatetradefrictions.Fortunately,thiswon’tbethecase.ThisInsightreportreviewsChinesestandardizationandshedssomelightonthechallengesinitsglobalalignments.9.2.1Thetargetof85%alignmentby2025Aspartoftheefforttorevamptheoldstandardssystemtomatchupwithanewworldpoweredbynewtechnologies,filledwithnewproductsandoperatedbynewpractices,andtotacklethenewchallengessuchascarbonneutrality,Chinareleasedits“OutlineforNationalStandardizationDevelopment”lastOctober,settinggoalsforthecountrytobuildastandardssystemthatis“structurallyoptimal,advancedandrational,andinternationallycompatible”by2035.Itisaimedtosupportthecountry’sVision2035tobuildamodernized,high-quality,andglobally-leadingeconomy.TheOutlinesetsaninterimtargetthat,by2025,Chinawillalign85%ofitsdomesticstandardswithglobalones,onallfronts.Averyambitioustarget,ifachieved,willhavesignificantglobalimplications.9.2.2StandardsforcarbonpeakingandneutralityTheOutline,alongwithallothergovernmentalpolicydeclarationsoncarbonpeakingandneutrality,hasmentionedthefollowingworkfocusesthataredeemedasurgentneedsforstandardization:●TerminologiesandmeasurementsystemrelatedtoGHGemissions;●MRV:standardsforGHGemissionmonitoring,accounting,reporting,andverification;●Energysaving:standardsforenergysavingequipment,energyefficiency,energyaccount-ing,verification,assessmentandauditing;andmanagementofenergymeteringequipment;and,●Carbonaccounting:standardsforcarbonemissionMRVatregional,industrial,corporateandproductlevels;●Keyindustriesandkeyproducts:standardsforGHGemissions,andlabellingsystemforlow-caronproductsfromlife-cycleperspective;●Renewables:standardsforbothproductionprocessandproducts;●StandardsforcarbonsinksandCCUS;●Standardsforbuildinganewpowersystemwithrenewablesasmainstay;●Standardsforpowerdispatching,powersystemsecurity,powerstorage,andnewenergyvehiclehighpowercharging;●Standardsforhydrogenproduction,storage,transportanduses;INSTITUTEOFENERGY,PEKINGUNIVERSITY▏160●Standardsforgreenandlowcarbonindustries;and,●Standardsforgreenconsumption.9.2.3Alignwithwhom?Whileinternationalexchangeandcollaborationarecalledupontopromotemutualrecognitionofstandards,ChinagivesprioritytoInternationalStandardsOrganization(ISO)andInternationalElectrotechnicalCommission(IEC)astwomajorglobalbenchmarkedstandardsforalignment.Table9-2:ExamplesofInternationalStandardsBenchmarking:ISOandIECSector/FocusBenchmarkStandardsEnergysavingandenergyefficiencyISO/TC301,TC205,TC163,TC274,ISO50001IEC/SMB/ACEESolarenergyISO/TC180IEC/TC82,TC117WindenergyIEC/TC88HydrogenenergyISO/TC197,ISO/TC22/SC37IEC/TC105BiomassenergyISO/TC238,ISO/TC255NewenergyvehicleISO/TC22/SC37IEC/TC69NuclearenergyISO/TC85TidalwaveenergyIEC/TC114CCUSISO/TC265GHGmanagementISO/TC207,ISO14068,ISO/TC17,ISO/TC59/SC17,ISO/TC146/SC1,ISO/TC130IEC/TC111/WG17,IEC/TR627252013,IEC/TR627252014161▏INSTITUTEOFENERGY,PEKINGUNIVERSITYInstitutionally,theNationalCarbonEmissionManage-mentStandardsCommitteetakesonthemandatestoleadthedevelopmentofdecarbonizationstandardsandglobalalignment.Initsassessmentagainsttherelevantglobalbenchmarksandbestpractices,theCommitteehasidentifiedatleastsixkeyareasoffurtherworktobestsupportthetransition:1.Standardssystemthatimprovescarbonemissionsmanagement;2.GeneralstandardsthatstipulateGHGsmanage-mentterminology,andimprovedataquality;3.Improvenationalstandardsofexistingenterprise-levelandproject-levelGHGsandclearanceaccountingandreporting,maintainconsistencybetweenChineseandinternationalstandards,andstipulateaccountingstandardsofproductandservicecarbonfootprints;4.Inverificationstandards,improvespecificationofgeneralrulesforexaminationandverificationaswellasaccreditationofinstitutionsandpersonnel;5.Intechnicalstandards,stipulatedirectonlinemonitoringtechnologystandards;and,6.Inmanagementservicestandards,stipulateGHGinformationdisclosurestandards.9.2.4ChallengesWhilethetargetof85%globalalignmentby2025re-flectsasenseofurgencyinChinatoacceleratestandardsetting,weseeimportantchallengesahead.Thefirstisthelackofexpertise,capability,andcapacityonthepartofplayers,bethemgovernmentagencies,researchinstitutionsorcompanies.Sofar,Chinahasachievedmuchingettingtheterminology,thelanguage,andthenarrativetogetherinaligningwithglobalclimategovernance,butbarriersremainsuchasthe"murkiness"ofterminologies,inadequaciesincoverage,andgapsinaccountabilitytoupgradetheexistingstandardsystems.Thesecondwillbeinternationalconflictsinstandardssetting.Areal-lifecasehasemergedbetweenEUandChinaonstandardsforembeddedcarbonemissionsinproductsandservices.TheEU"carbonborderadjustmentmechanism"(CBAM)targetsimportsofcarbon-intensiveproductstoavoidcarbonleakageandwillimposeitsownstandardsfortheMRV.AsEuropelargesttradepartner,willChinaacceptandfollowtheEuropeanstandards?OrwillitmakeEuropeansaccepttheChinesestandards?Orwillthetwopartiesforgeacommon“middleground”,cooperatively?Well,thisquestionseemstogobeyondthecurrentlyfocusedissuesofstandardsharmonization.9.3BATTERYRECYCLING:MININGTHEABOVEGROUNDMINERALSInsightChina,March24,2022Chinaistheworld’slargestEVmanufacturerandmarketwith6millionof“newenergy”(i.e.electric)carsandtrucksalreadyonroads.In2021,Chinasold3millionEVs,plus400,000electricbusesandmillionsofelectricbikesandmopedsrunningincitiesandruralareas.AccordingtotheNewEnergyVehicleIndustrialDevelopmentPlan2021-2035,atleast20%ofChina'sannualvehiclesaleswillbenew-energyby2025.However,EVsaremetal-intensive,particularlythosemetalsthatareconsidered“critical”or“strategic”(seeInsightChinareport006/2022).Theexplosivegrowthofbattery-drivenEVsraisesconcernsovercriticalmineralsupplysecurity,whilepricespikes,supplychaindisrup-tionsandtighteningESGregulationsandstandardsofferINSTITUTEOFENERGY,PEKINGUNIVERSITY▏162thebiggestincentiveforChinatofixateitseffortsonrecycling12retiredorspentEVbatteries.Chineseregulatorsandpolicymakershavebeenliterally"ON"it.The14thFive-YearGreenIndustrialDevelop-mentPlan(2021-2025),releasedlastDecember,isarecentmovetofurtherimplementtheNewEnergyVehi-cleIndustrialDevelopmentPlan2021-2035andcontainsspecificprioritiestoadvanceEVbatteryrecyclingtothenextlevel,whichputemphasisonregulation,standard-ization,oversight,internet+recycling,sharedvalue-chaininfrastructure,technologyR&D,businessandservicemodelinnovation,andincentivesforfinancialflows.ThisInsightChinareportoffersanin-depthanalysisofhowthecountry,alreadyleadingglobalEVdeployment,planstomaintainitsnextEVadvantagebyclosingthematerialloop.9.3.1Sizingthemarketof"movingmetalmines"China'sfirstEVfleetappearedaround2008whenthenationalgovernmentrolledoutitspilotschemeof"10citiesand1,000electricvehicleseach".Mostmanu-facturershaveafive-to-eight-yearwarrantyontheirbattery.Bythetimearound2016to2018/2019,thefirstcropofEVsstartedcomingtotheendoftheirlifeandthebatteriesarereadyforrecycling.And,theyearof2015becomesthestartingpointof"explosive"growthofnewenergyvehicle(NEV)salesinChina-whenmorethan330,000vehiclesweresold,343%YoYgrowth.Technicalfeasibilityofrecyclinghasalreadybeenproven.Theoretically,existingtechnologyinChinacanrecoveraround80%ofthecomponentsofdifferentbatterytypes,whichmeansthattoday'slowratesofrecoveryliemoreinthestandardizationofsystems,regulationsandpathwaysthanimmaturetechnology.12TwowaystohandleretiredEVbatteriesareladderreuse/energystorageandrecyclingthatdisassemblesretiredbatteries,recycleshigh-valuemetalssuchaslithium,cobalt,nickelamongothers,andremanufactures.Thisreportfocusesonthelatter.ChinaisbracingforarecyclingclimaxofretiredEVbat-teriesinitscurrentFive-YearPlanperiod(2021-2025),whensomemarketanalystsforecasta31.3%CARG.In2020,itwasestimatedtobeat2.4billionyuan(~$380million).By2025,thecurrentforecastistoreachasmuchas100billionyuan(~$15.5billion).Between2026-2030,theCARGisexpectedtoreach35.6%andbetween2031-2035at19.4%.9.3.2LayingdowntheregulatoryfoundationTheMinistryofIndustryandInformationTechnology(MIIT)takeschargeofpolicy,regulationandstandardofretiredEVbatteryreuseandrecycling.In2016,MIITfirstissueditsTechnologyPolicyonEVBatteryRecycling.Thiskickedoffa"stream"ofregulatoryendeavor,summarizedinTable9-3,toguide,regulate,support,nurtureandincentivizeinvestmentinrecyclingofretiredEVbatteries.163▏INSTITUTEOFENERGY,PEKINGUNIVERSITYTable9-3:ChineseGovernmentPolicyHighlightsforRetiredEVBatteryRecyclingyearpolicykeypointsagency2016technologypolicyonEVbatteryrecycling•establishingtieredreuseorutilizationofEVbatteriesandrecyclingmanagementsystem,•guidingEVbatteryproducerstoenhancerecyclingofusedbatteries,-encouragingdevelopmentofspecializedrecyclingcompaniesMIIT2017plantopromoteEPR(extendedproducers’responsibility)•by2020,EPRpolicyframeworkinplace,majorprogressesmadeinproducteco-design,andaverage40%wasterecyclingrateforsomekeyproducts•by2025,EPRlawsandregulationinplace,average50%wasterecyclingrateforsomekeyproductsStateCouncil2017standardsonEVBatteryRecyclingDisassembling•safety,operationprocedure,storageandmanagement•specializedtechnologiesandrecyclingsystemStateStandardizationManagementCommittee2018•temporarymethodtomanageEVbatteryrecycling•temporarystandardonmanagingEVbatteryrecyclingandsourcetracing•a"traceabilitymanagementplatform"•localrecyclingsystems,17citiesandregionspiloting•clarificationofcarmakerstoholdmajorresponsibilityinrecycling,followingtheprincipleof"makersrecycle"•encouraging"internet+recycling"businessmodelsMIIT2020implementationguidelinesonscrapcarrecyclingmanagement•furtherregulationonEVbatteryrecycling•companiesinrecyclinganddisassemblingtakingchargeofvaluechainwhole-processsafetymanagement-disassembling,collection,storage,transportationandrecyclingandreuseMinistryofCommerce,MIIT2020coordinatedtransitionandupliftingplanofintegratedindustrialresourcesutilizationinBeijing-Tianjin-Hebeiandsurroundingregion(2020-2022)•regionalcomplementarityandcoordinationinshapingrecyclingsystem•promotionofladderreuseandrecyclingpilotsinShanxi,Shandong,Hebei,HenanandInnerMongolia•supportingEVbatteryrecyclingprojects•increasingregionalcapacityandcapabilityMIITINSTITUTEOFENERGY,PEKINGUNIVERSITY▏164yearpolicykeypointsagency2020new-energyvehicleindustrydevelopmentplan(2021-2035)•EPR•strengtheningestablishmentofplatformtomanageEVbatterysourcetracingand100%life-cycletraceabilityGeneralOfficeofStateCouncil2021managementmeasuresforgradualutilizationofnew-energyvehiclepowerbatteries•batteryinspectionandtest,sorting,disassembling,repairorregrouptoladderproducts•collaborationbetweennationalandregionaldepartmentsandbusinessandindustry•traceabilityandaccountabilityofladder2ndutilizationindustriesMIIT/5agencies202114thFive-YearGreenIndustrialDevelopmentPlan（2021-2025）•amorecompletebatteryrecyclingsystem•480millionyuan($76million),recycledresourcesindustrialoutput•57%recyclingrateofsolidwastesofkeycommodities•greenmanufacturingsystemsinplaceforkeysectorsandregions•alsoincludingreuseandrecyclingintheCircularEconomyDevelopmentPlanMIIT2022implementationplanonacceleratingindustrialresourcesintegratedutilization•betteringmanagementsystem,life-cycletracing,andmanagement•promotingupstream-downstreamco-buildingofrecyclingchannels,acrossregionsystems•pilotinginkeyregionssuchasBeijing-Tianjin-Hebeiregion,YangtzeRiverDeltaregion,andGuangdong-HongKong-Macauregion,intestingandinspection,automateddisassembling,andR&Dinhigh-valuemetalsextractionMIIT,NDRC/8agenciesStandardizationiscritical.Thecurrentnationaltechni-calstandardsonretiredEVbatteryrecyclingfocuson1)pre-treatment;2)packagedisassembling;and3)moduledisassembling.165▏INSTITUTEOFENERGY,PEKINGUNIVERSITY9.3.3Shapingupaclosed-loopmarketplaceecosystemTheproactivemovesinpolicy,regulationandstandardshavehelpedtoestablishandproveindustrialandvaluechainprocesses,architectureandecosystemsofthemarketplace.Localgovernmentshavealsostartedtopromotethebatteryrecyclingsector.Currently,Chinahasover10,000batteryrecyclingcentersacrossthecountry.Therearefourmajorcategoriesofrecyclersactiveonandleadingthemarket,assummarizedinTable9-4,eachwithitsownstrengthsandinadequaciestoimproveaslearnedfrommarketpractices.Table9-4:RecyclingModelsinChinarecyclercatego-ryoperationmodelstrengthsinadequaciesnew-energyautomakersbatteryswapandrecyclingthrough•agreementwithscrapcardisassemblycompanies•existing4Scardealers•post-saleservicestations•strongapplicability•highincentives•lessinterestconflicts•expertise•safeconcernsEVbatterymanufacturers•reverselogisticsthroughcoopwithautomakers,4Scardealers,post-saleservicestationsandEVbatteryrentstations•changelogisticdispatchcenterstorecyclingcentersforstorage,inspectionandsorting•somebatteriesfortieredreusemarketandothersforrecyclingbacktobatterymanufacturersasrawmaterials•strongexpertiseinbattery•recyclingprocesslearningfeedbacktoimprovebatteryperformance•highdemandonmanagementskills3rdpartyrecyclers•recyclingnetworkspots•clusteredstoragespots•scrapcardisassemblycompanies•matureoperation•stablenetworks•incentivizedactiveexpansionofnetworks•highercostsEVbatteryindustrialalliances•organizeindustrialalliancesclusteredaroundbatteryproducers,automakersand3rdpartyrecyclerstostrengthenspecializedexpertise,infrastructureandnetwork•lowcosts•highrecyclingrate•managementchallenge•informationfeedbackdelay•regionalconstraintsINSTITUTEOFENERGY,PEKINGUNIVERSITY▏166In2018,fiveChineserecyclingcompanieswereinitiallylistedonthemarket.Twoofthosecompanies-Brunp(acquiredbyCALT)andGEMnowrepresentabout50%ofallofficialbatteryrecyclingbusinessinChina.Bynow,atotalof47enterpriseshaveenteredthelistof"NewWastePowerBatteryComprehensiveUtilizationIndustrySpecification"issuedbyMIIT(orwhitelistedcompanies).AndthoseleadingcompaniesdefinethedynamicsandinnovationofthemarketplacetodayandchartitsfuturedevelopmentinChinaandbeyond.9.3.4RacingfortheglobalmarketAsouranalysishasshown,Chinesepolicymakersandregulatorsareunifyingindustrystandards,enhancinginfrastructure,andnurturingthemarketplacetohelpconnectthedotsandenableasector-wideaccelerationthatbringsbenefitstostorage,disassembly,safetyandenvironment.Inthemeanwhile,themarketleadershavetakenstepstoexplorediverse,cross-region,andcross-borderpartnershipsandinnovatefeasiblebusinessmodels.Together,theyhavepreparedthegroundforunifiedbatteryrecyclingandmanagement,aswellasscalingthemarketplace.Butthisdoesn'tmeanChinahasreachedthefinalstopyet.Thedomesticmarketisfarfrombeingsoundandhealthy.Thousandsofsmallerrecyclingbusinesses,ill-equippedwithtechnologyandexpertise,"disrupt"themarketandbusinessmodelbyofferingcheaperthantheofficiallyallowedrecyclingbusinesses.Inmostcases,theydonotnecessarilyrecoverallofthepreciousresources,andoftenimproperlydisposeofpreciousandenvironmentallyhazardousmaterials.AglobalraceisalreadyON.Drivenbycleanenergytransition,energysecurity,mineral/metalsupplychainsecurityagainstthebackdropofhighlycomplexgeopolitics,intensifyingclimatechange,andpricespikesofcommodities,China,accountingfor77%oftheEVbatteryrecyclingmarketinAsia,isgearingupitsactions.AndtheEUandUSarecatchingup.But,manymorequestionsremain.ArecentNaturere-searchpaperfindsthatbatterytechnologyandrecyclingadvancement,twowidelyacknowledgedstrategiesforaddressingsupplyrisks,cannotsolvesupplyshortageofcobaltinshort-tomedium-term(2028-2033).This“hap-pens”inthetimeframeofplannedleapfroggingofcleanmobility.Therefore,collaborationbeyondcompetitionismoreurgentlyneededthanever,particularlyamongthemajoreconomiestoscalereuseandrecycleofspentpowerbatteries.9.4THEENERGYDEMANDREPERCUSSIONSOFADVANCEDDIGITALIZATIONInsightChina,June30,2022Digitalizationanddecarbonizationfeaturethetrendsofourtime.Theyareintertwinedinthatdigitalizationenablescarbonemissionreductionviaimprovingenergyefficiency,betteringintegrationofrenewablesandoptimizingpowersystemwhileempoweringthebroadestsocialparticipationincleanenergytransition.Butitalsorequireselectricitytodrivethedigitalinfrastructurethatcaptures,transmits,processesandstoresdata,aswellasdisplaysdataincustomizedformatandexecutesthedesiredinstructions.Therefore,stableanduninterruptedpowersupplyisapre-requisitetooperationalizetelecommunicationsystems,IoT,bigdata,cloudandedgecomputing,bitcoinmining,etc.Asdigitalizationaccelerates,whataretherepercussionsonpowerdemand?ThisInsightChinareportassessestheenergydemandimplicationsofChina’sdigitalrevolution.9.4.11.ThedigitalrevolutionWithoveronebillionnetizens,Chinaistheworld’slarg-estdigitalizedsociety.Itisalsotheworld’s2ndlargest167▏INSTITUTEOFENERGY,PEKINGUNIVERSITY“digitaleconomy”nexttotheUS.In2020,theChinese“digitaleconomy”,measuredbyboththevalue-addofdigitalICTindustriesandthevaluecreatedbythedigita-lizationofindustriesandservices,amountedtoUS$5.4trillion(comparedto$13.6trillionintheUS),accountingfor38.6%ofthecountry’sGDP(64%intheUS)in2021.TheChinesegovernmentlaunchedalargelydigitaldriven“NewInfrastructure”schemeinmid-2020amidstthepandemic,aimingtolayastrongfoundationfortheexpectedpost-pandemicrecoveryandgrowth.Theplanhassevenfocuses,including5Gbasestations,ultra-highvoltagepowertransmissionlines,inter-cityandintra-cityrails,chargingpilesforEVs,bigdatacenters,AIandindustrialIoT.And,inNovember2021,theMinistryofIndustryandInformationTechnology(MIIT)publishedChina's14thFive-YearDevelopmentPlan(2021-2025)fortheICTIndustry,aimingtobuildandenhanceadigitalinfra-structurethatishigh-speed,ubiquitous,integratedandinterconnected,smartandgreen,secureandreliable.Somespecificgrowthtargetsfor2025areset:growthenumberof5Gbasestationsfrom0.7millionin2020to3.64millionin2025;datacentercomputingpowerfrom90eflops13to300eflops;andsmartterminaldevicesfrom3.2billionin2020to4.5billionin2025.9.4.2PowerrequirementsofdigitalinfrastructureThedigitalinfrastructureisbuiltwithbasicdigitalde-vices,allneedelectricitytopowerthem.Thesedevicescanbegroupedintothefollowingthreecategories:dataacquisition,datatransmissionanddataprocessing/storage.9.4.2.1DataacquisitionanddisplaydevicesTheseincludesensorsthatconvertthepropertyorstatusofaphysicalsystemintodigitalsignals(e.g.smart13EflopsstandsforExa(10^18)floatingoperationspersecond.meters,digitalsurveillance),andsmartinteractivedevices(suchasphones,tabletcomputers,Wi-Fiboxes,TVs)thatbothcapturedataanddisplayresults.Eventhoughindividually,theenergyconsumptionofsensorsanddevicesisminiscule,onlyafewwattsinmostcases,butwhenmultipliedbytheirnumber–ofteninmillionsorevenbillions,theenergyusebecomesverysignificant.The2018IEAstudyondigitalizationandenergyestimatedatotalof15.5billionsuchdevicesinoperationworldwideandthateachconsumed22kWhperyearonaverage.9.4.2.2MobilecommunicationstationsMobiletelecommunicationhasevolvedfromfirstgeneration(1G)in1986,to2G(1994),3G(2000),4G(2010)andthentoday’s5Gdeployment,withfasterspeed,widerbandwidthandlowerlatency.Mostofthesmart-phone-basedAppsweremadepossibleonlyafter4Gwasintroduced,andtoday,5GistheenablingtelecominfrastructurerequiredforindustrialIoT,remotemedicaloperationsandautomaticdrivingsystems.Duetoitslimitationsinsignaltransmissiondistanceandobstaclepenetrationcapability,a5Gstationisnotjustonetransmissiontower.Itiscomposedofonemacrosite(alsocalledbasestation),plusmanylower-levelmicro-sites,picositesandfemtositesinordertocoveragivenarea.Table9-5belowprovidessometechnicalspecifications(transmissiondistance,numberofconnec-tionsandpowerrequirements)ofdifferent5Gsites.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏168Table9-5:PowerRequirementofTypical5GSitesBasicdigitaldeviceTransmissionDistanceNumberofConnectionsPowerrequirement(fullload)5Gstation•Macrosite•Microsite•Picosite•Femtosite>200meters50-200meters20-50meters10-20meters>1000128-51264-1288-168.2-8.7kW2kW800W10-50WRunningatypical5Gmacro-site(orbasestation)requiresanaverage8.5kWofpower,2.5timesthatofa4Gsite.About45%ofitspowerisdedicatedtorunthemainelectronicdevice,40%forairconditioning,and15%forelectricalsystem.It’sestimatedthat,inthenextthreeyears,withthedeploymentofmorepowerfulsignalemittingandreceivingantenna(MassiveMIMO),aswellasintroductionofedgecomputing,a5Gmacrositewillconsume13.7kWinfullload;and,inthenextfiveyears,futurenewtechnologies,suchasmmwave,mayfurtherpushupthepowerrequirementto19kWperbasestation.9.4.2.3ServersanddatacentersDatacenteriswheredataisprocessedandstored,andthebasicelementoftheserveriscomposedofintegratedcircuitsorchips.Thesizeofadatacentervariesdependingonneed.Itcouldoccupyasmallroomoranentirebigbuilding.Itscomputingpowerisdeterminedbythenumberofserverracks–abigdatacentercouldhavetensofthousandsserverrackspackedoneafteranother.Serverracksaredividedinto3categories:low-densityracksrequirelessthan4kWpower;medium-densityones5-8kW;andhigh-densityonesbetween9-15kW.HighperformingandnewservertechnologiessuchasGPU(graphicprocessingunit)isexpectedtopushuppowerconsumptionofaserverrackto20-30kW.Datacenterhastwospecificneedsfor“normal”operation:topowertheserversandtokeeptheroomtemperaturewithin18~27°Candthehumiditylevelbelow60%.Theenergyefficiencyofadatacenterismeasuredbytheratiobetweentotalenergyconsumptionandtheamountthatisstrictlyconsumedbytheservers.ItiscalledPUE(Powerusageeffectiveness).Thecloserto1,thebetterandmoreefficient.Givenit’shardtoachieveefficiencyinpre-installedservers,thefocusofdatacenterefficiencyhasbeenonreducingthePUE,i.e.gettingridoftheenergyneededtorunthenon-serverpartofthedatacenter,andairconbecomesthemostimportantarea.Datacenterscanbelocatedclosetotheoperationalsitestoprovidewhatiscalled“edgecomputing”services,orlocatedfaraway(inthe“cloud”giventhattheuserdoesn’tcarewhereitisactuallylocated)incoolerareaswithcheaperandabundantelectricitysupply.9.4.3Aggregatingthedigitallyinducedenergydemand9.4.3.1SmartdevicesIfweassume20kWhpowerconsumptionpersmartdeviceperyear(10%reductionfromtheIEAaverageof22kWhperyeartakingintoaccountefficiencyimprove-ment),then,achievingChina’s2025targetof4.5billiondevices,ofwhich1.3billionnewlyadded,willcauseanadditionalannualpowerdemandof1.3x20=26TWh.169▏INSTITUTEOFENERGY,PEKINGUNIVERSITYAssumingthesedevicesonlyoperate8hoursaday,itmeansanadditionalpowergenerationcapacitydemandof9GW.9.4.3.25GdeploymentByend2021,Chinahad1.42million5Gbasestationsalreadyinoperation,formingtheworld’slargest5Gtelecommunicationnetwork.Thesestationsaremainlyforpeople-to-peoplecommunications,butthereisanewfocustodeploy5Gtechnologiesinindustrialactivities,asweoutlinedintheApril25theditionofInsightChinaseries14.IfChinaweretoachievethe2025targetof3.64million5Gbasestations,itwouldmeananincreaseof2.22mil-lionmorestationsinthenextfouryears.Ifusing2020asthebaselineyear,the5-yearincreaseisexpectedtobearound3million.If,onaverage,onemacrositerequires8.5kWpower,Then,3millionnewsiteswilladd3x8.5=25.5GWofpowercapacity.Thesesitesareexpectedtorun24/7,addingextra223.4TWhofpowerconsumption.However,if1macrositeisaccompaniedby5micrositeand25picosites,wewouldexpect38.5kW(8.5kW+5x2kW+25x0.8kW)foreach5Gmacro-siteasitssubsites.Then,3millionnewsiteswilladd3x38.5=115.5GWofpowercapacity.Thesesitesareexpectedtorun24/7,addingextra1,012TWhofpowerconsumption.Howmanymicro-andpico-siteswillaccompanyonemacrositewillhavesignificantimpactonpowerconsumption.Asoutlinedearlier,introductionofnewgeneration5GtechnologiessuchasMassiveMIMO,willpushupsignificantlythepowerconsumption.9.4.3.3DatacentersAccordingtoChina’sStateGridCorporationandChinaDataCentreEnergyConservationAssociation,datacen-14TransformingEnergySystemwith5GMobileCommunicationTechnologies.InsightChina,April25,2022.tersconsumedatotalof300TWhofelectricityin2020.Acomputingpowerincreaseasprogrammedinthe14thFive-YearPlanfrom90eflopsto300eflopswillpushthedatacenterpowerconsumptionfurther.Giventhe2020baselineandChina’stargetistoreducetheaveragedatacenterPUEfrom1.4in2020to1.3by2025nation-wide,a3.3foldincreaseincomputingcapacitywillbringtotaldatacenterpowerconsumptionto930TWhin2025.Deductingthe2020baselineof300TWh,theadditionaldatacenterpowerconsumptionfrom2020-2025wouldbe630TWh.Asdatacentersareexpectedtooperate24/7,thisimpliesanadditionalpowercapacityof72GW.9.4.3.4AggregationTosumup,theaccelerationindigitalinfrastructuredevelopmentwilladdbetween106.5to196.5GWofextrapowercapacityandbetween880to1,668TWhofelectricityconsumptionbetween2020and2025.Theseincreases(i.e.notincludingthe2020basenumbers)willaccountrespectivelyfor3.7-6.8%ofthecountry’stotalinstalledpowercapacity(2,900GWin2025)andanastonishing9.8-18.5%oftotalpowerconsumption(estimatedat9,000TWhfor2025).9.4.4ImplicationsforenergysecurityanddecarbonizationAdditionaldigitalinfrastructurealoneduring2020-2025willconsumebetween9.8-18.5%ofChina’stotalelectricityby2025.Unbelievable,isn’tit?Well,thenumbersabovedon’tlie.5Gstationsmakethemaindifferencebetween9.8%and18.5%in2025,andthedifferenceisattributabletothenumberofsub-sitesbywhicheachmacro-sitewillbeaccompanied.Buildingonlymacrositeswithoutsatellitesiteswouldsignificantlyreducepowerconsumption,butitwouldINSTITUTEOFENERGY,PEKINGUNIVERSITY▏170alsoreducethevalueofthe5Gdeploymentasitislesscoveredgeographically.Anothermajorissueisthepoorbusinessmodelof5Gtechnologyforpeople-to-peoplecommunication,duetoexcessiveenergybill.Afullyloaded5Gmacro-sitealonewouldconsume74,460kWhayear,costingRMB59,568(US$9,455),whichishardlyrecoverablefromincreasedcustomerbills.Consequently,the5Gpromotionprogramforpeople-to-peoplecommunicationcouldbehampered,simplyduetohighenergybills.Thesefactorstogetherexplaintheshiftoffocusof5Gapplicationfrompeople-to-peoplecommunicationtomachine-to-machinecommunications,whichcanbefoundinindustrial,medicalandtransportationsectors.Datacenterswillprovidethesteadilygrowingbaseloadofdigitalinfrastructureenergydemand,risingfrom4%ofthecountry’stotalpowergenerationin2020to10%in2005,ifthecomputingpoweristogrowasplanned.Thisgrowthcouldhavelargerstructuralrepercussionstoenergydemand:●Firstly,anincreasingnumberof“edgecomput-ing”datacenterswillbebuiltintheeasternmoredevelopedcoastalcities,tosupportindustrialIoToperations,automaticdrivingand5Gdeployment,addingfurtherstresstotheexistingloadcurve;●Secondly,moredatacentersareexpectedto“migrate”tothewesternpartofthecountry,drivenbythegovernment’scampaignof“DatafromtheEastprocessedintheWest”tomakedatatravelinsteadofpowertravelbetweenpowerrichWestanddemandheavyEast.Thiswillreducethewesternregions’capabilitytotransmitpowertotheEastviathelarge-scaleelectricitysuper-highways.Traditionally,digitalizationhasbeenanimportanttoolinreducingenergydemandandcarbonemissions.Butasdigitalizationaccelerates,weneedtopayaseriousattentiontoitsenergydemandandcarbonemissionimplications.ThisisnotonlytrueinChina,butalsoworldwide.9.5NEWWAVEOFPOWERSHORTAGESLIKELYTOPUSHFORMOREFOSSIL-FIREDPOWERInsightChina,August25,2022PowershortagehitsChinaagain.Thescorchingre-cord-hightemperatureshavebroughtdramaticspikeofpowerusetostaycool,challengingthepowergridwhichisfurtherexacerbatedbythedrought-induceddecreaseofhydropower.Thisseemsalreadyarecurringsituation.Almostoneyearago,Chinaexperiencedwidespreadpowershortages.Factorscontributingtotheshortagesofthattimeincludesurgeinpowerdemand,declineincoalsupplypartlyduetotheChineseembargoofAustraliancoalimports,andmismatchbetween“marketizedcoalandregulatedelectricity”.Toeasethepressureofthattime,thenationalgovernmentadoptedmeasuresthatincreasedcoalsupplyandincentivizedcoal-firedpowergenerators.ThisInsightreportfocusesonthisnewroundofpowershortageandexaminesitsimplicationsforenergytransition.9.5.1RecordhightemperaturesLikeotherpartsoftheworld,Chinahasliveditshottestheatwavesthissummer.Fornearly70days,allprov-incesexceptthenortherneastHeilongjiangexperiencedhightemperaturewhichisdefinedasabove35°C.28outofthe31provincesexperiencedsustainedtemperaturesabove40°C,and26ofthembroketheirrespectivehistoricallevels.And277weatherobservationstations171▏INSTITUTEOFENERGY,PEKINGUNIVERSITYacrossthecountryrecordedtheirhistoricallyhighesttemperatures,withthehighestreaching45°C.Theheatwaves,morefrequentandintensivewithlon-gestdurationsincerecordedhistoryin1961,haspushedupby26.8%theJuly2022residentialpowerdemandnation-wide,mostlydrivenbyairconditioning.ThetotalpowerdemandgrewYoYby6.3%inJuly,whichhasexceededtheplannedgrowthof4.7%andstressedoutthepowergrid.InSichuanprovince,Julyairconspowerdemandincreasedby25%YoY,accountingfor30%ofthetotalpowerloadof60GW,10%aboveitstotalinstalledcapacity.9.5.2DroughtandhydropoweroutputTheheatwave,combinedwithseveredrought,hasdriedoutriversandreservoirsanddramaticallyreducedthehydropoweroutput.Astheworld’slargesthydropowerstation,theThree-Gorgesprojecthasaninstalledcapacityof22.5GW,butnowoperatesatitslowestlevel,intermsofbothreservoirwaterlevelandwaterflowrate.Sichuanprovince,whichreliesonhydropowerfor80%ofitspowersupplyandprovides21%ofChina’stotalhydropower,producedonly60%oftheprovince’shydropowercapacityinJulyandthenfurtherdownto50%inAugust.9.5.3SupplyrationingTheeconomicallymoredevelopedcoastalprovinces,suchasShanghai,Zhejiang,JiangsuandGuangdong,relyheavilyonpowerimportsfromsomewesternprovincesincludingSichuan.Thedropofhydropowertherehassignificantlyreducedtheirpowerexport.Emergencysupplymeasureswerecalledupontoincreasecoal-firedpowergenerationlocallyand/ortoimportmorepowerfromthoselessaffectednorthernprovinces,butalas,theshortageremainsdaunting.Asaresult,powerrationingistheonlywaytoavoidlargesystemfailure.Asresidentialsectorisgiventhetopsup-plypriority,industryistakingthebiggesthit.Factoriesafterfactorieswereorderedtohaltoperationsbythelocalauthorities,severelydisruptingglobalsupplychaindisruption,again,ontopofthelongCOVIDlockdownearlier.9.5.4Copingwithclimate-inducedshortagesAccordingtotheweatherforecast,theheatwaveisex-pectedtodiedowninSeptember,sothisroundofpowershortageisexpectedtoeasebythen.However,atanageofacceleratedclimatechange,extremeweatherevents,includingheatwaves,willbecomethenewnormal.Aseriousquestionrequiresimmediateanswers–howshouldacountrybuildresilienceintoitspowersystemtopreventandmanageclimate-inducedshortages?AsshowninFigures1and2below,non-fossilfuelsaccountedfor48.8%ofChina’stotal2,380GWinstalledpowergenerationcapacity,butonly36.7%ofitstotalpoweroutputof8,400GWhin2021.Solarandwindac-countedfor26.7%oftheinstalledcapacitybutonly11.8%ofthegeneration.Hydropowerhasroughlythesameshareof15%inbothinstalledcapacityandgeneration.Whatthepowerplannershavelearnedfromthisnewroundofpowershortageisthathydropowerisnotasreliableasitisthoughttobe,particularlyinthebackdropofintensifyingglobalwarming,andtheyshouldbebetterpreparedtocopewiththemostextremedroughtconditions.Thesamegoesforwindpower,withclimatechangeimpactonthewindavailabilityandspeedindifferentpartsoftheworld.Solarradiationiscompar-ativelylessaffected,butnotfreefromclimateimpacts.Thisdemandsplannerstoincludeanewriskfactorwhenassessingreliabilityofallkindsofrenewableenergyresourcesinextremeweatherevents.InascenariowhereChinesegrowthresumeswiththeeaseofCovidinducedcontrols,thecountry’selectricitydemandispoisedtogrow,atafasterratethanantici-pated,tosomewherebetween9,500and10,000GWhINSTITUTEOFENERGY,PEKINGUNIVERSITY▏172in2025,whichiswellabovetheprevioushighestforecastof9,000GWh.Totalinstalledpowercapacityisexpectedtoreach3000GWby2025.Thegrowthwillbedrivenbygovernment’splansandprogramstoend-useelectrification,whichisexpectedtoreach30%by2025from26.5%in2020,toacceleratethedeploymentofdigitalinfrastructure(datacenters,5Gstations,andsmartdevices)andtheelectricvehicles.Allwillstressoutfurtherthealreadytightpowersupply.Figure9-1:StructureofChina’sInstalledPowerCapacity(2,380GW)in2021Conventionalhydro,14.9%Coal-firedpower,46.6%Windpower,13.8%Solarpower,12.9%Gas-firedpower,4.6%Biomassandothers,3.4%Pumpedhydro,1.6%Nuclearpower,2.2%Source:ChinaPowerDevelopmentReport2022.Figure9-2:StructureofChina’sPowerGeneration(8,400TWh)in2021Coal-firedpower,60.0%Conventionalhydro,15.5%Windpower,7.9%Gas-firedpower,3.3%Solarpower,3.9%Biomassandothers,3.9%Pumpedhydro,0.5%Nuclearpower,4.9%Source:ChinaPowerDevelopmentReport2022.173▏INSTITUTEOFENERGY,PEKINGUNIVERSITYRenewablesarebeingdevelopedatunprecedentedrate,andyetthepaceofgrowthwon’tbesufficientnorresilientenoughtotheunprecedentedextremeweatherevents.Energystoragesolutionsaresimplynotyetattheneededscalewithcompetitiveness.Asaresult,wehavewitnessedthesuddensurgeoffossilfuelssupplynotonlyinChina,butalsoinUS,Europe,India,andmanyothereconomies,asanimmediateorshort-termresponsetothedisruptionofpoweravailabil-ityduetoclimatechangeontopofthewarinUkraine.Atthiscriticalmoment,fossil-firedpowergenerationis,unfortunately,actingasthepeakingpowerreserveinthecaseofshortage.Themoreweather-dependent,renew-ableenergysourcesaredeveloped,themorefossil-firedreservepowerwillbeneeded.Thiswillpushanewroundofconstructionoffossil-firedpowerplants,atdemandcenters,toactapeakingpowerreserve,formobilizationincaseofshortagesofwhether-dependenthydroorwindresources.9.6MAKINGCHINA’SRURALENERGYGREATAGAIN!InsightChina,December5,2022Chinahas65%ofitspopulationlivinginurbanareasto-day.Thus,it’snosurprisethatsecurityofurbanenergysupplyhasbeengiventoppriorityinthebackdropoffightingairpollutionanddecarbonizingitsenergymixinthelasttwodecades.However,growingattentionhasbeenpaidtoruralareasinrecentyearswhenpolicymakersreckonthaturbanairpollutionwon’tbeeffectivetackledwithoutgrapplingwiththesurroundingruralenergywoes.Andveryim-portantly,ruralenergyisanintegralpartofthe“modernenergysystem”thecountryaspiredtobuild.Forthefirsttime,China’snationalenergydevelopmentplan–"14thFive-YearPlanonModernEnergySystems”(FYP)–hasdedicated,forthefirsttime,oneentirechapteronruralenergy.9.6.1Arolemodelforthedevelopingworldinthe1980sFourdecadesago,China’sruralenergydevelopmentwaswidelyregardedasarolemodelfordevelopingcountries.Itsachievementswereexemplifiedinthefollowingfourareas:1.Prioritizingenergyconservation,withover100millionwood-savingcookstovesinstalledinruralhouseholdsinthe1980’s;2.Buildingsmall-scalehydropowerasameanstoachieveruralelectrification;3.Usinglocalresourcestoproducebiogasforcleancooking;and4.Developinganalyticalenergymodelsandformulatingcomprehensiveenergydevelopmentplansforruralareas,integratingenergyasanimportantpartofeconomicdevelopmentagenda.Itisparticularlyworthmentioningthat,whenPresidentXiJinpingservedastheChiefoftheLiangjiaheVillageinShaanxiProvinceinthemid-1970s,hisbiggestwishwastofindanentrylevertopromoteeconomicgrowth.Oneday,hereadonthePeople'sDailythatmanyareasinSichuanProvincehaddeployedbiogasforcleancooking.Hewasveryexcitedanddecidedthathisvillageshouldalsoadoptbiogasasasolutiontoitslackofcoalandfire-wood.WithXi’sefforts,theLiangjiaheVillagebecamethefirst“biogasvillage”inShaanxiProvince,withmorethan70%ofhouseholdsinthevillageusingbiogas.China'sachievementsindevelopingruralenergywerewellrecognizedbytheinternationalcommunityduringthattime.TheFAO(FoodandAgricultureOrganizationoftheUnitedNations)issuedaspecialpamphletonChina'sruralenergydevelopmentplanningwhichwasINSTITUTEOFENERGY,PEKINGUNIVERSITY▏174widelydistributedinandstudiedbyotherdevelopingcountries.ThesuccessinruralenergydevelopmentalsomadeagreatcontributiontoChina’spolicyagendaofprovidinguniversalaccesstoelectricity,andChinawastheonlylargedevelopingcountrythathasachievedthisUNmillenniumgoalby2015.9.6.2ThenewchallengesandopportunitiesFormorethantwodecades,ruralChinaseemeda“forgotten”placeandruralenergyagendawasputonabackburner.Majorityofthecountry’sresourcesandeffortswereputtoaccelerateurbanizationandindustrialization.Butnowithasresurfacedandresurgedbacktothegovernment’senergypolicypriority,duetoonesimplereason-hauntingurbanairpollutionduetoruralenergymix.Indeed,theruralpopulationinnorthernChinamainlyreliesoncoalforspaceheatinginwinterandagriculturalresidualsareburntdirectlyafterharvest.BothhavebecomemainsourcesofairpollutionseverelyaffectingmajorcitieslikeBeijingandTianjin.Cookingisanotherculprit.AccordingtotheIEA,bytheendof2020,34%ofChina'spopulationor484millionpeoplewerestillusingsolidfuels(coal,firewood,charcoal,cropwaste,animalmanure,etc.)forcooking,andmajorityofthesepeopleresideinruralorsuburbanareas.Dispersedusesofcoalforcookingandheatinginruralareas,asopposedtocentralizedusesofcoalinpowerplantsandindustrialboilers,becamethetargetforcrackdown.In2017,thegovernmentlaunchedamajorcampaigntopromotecleanheatingforthenorthernregions,banningtheuseofcoalandsubsidizeheavilytoreplacecoalwithnaturalgasorelectricity.Thecampaignfailedlargelybecausebothgasandelectricityarefartooexpansivethancoal.Layinggasdistributionpipelinestoruralvillagesprovestobeapoorandhazardousbusiness.Heatinghomeswithelectricityisnotonlyfartooexpensive,butalsowithoutsupportfromtheruralpowergridsystem.Suchfailuregotthepolicymakerstorethinkthecountry’sruralenergystrategy.Insteadofconsideringruralareasaspassiveenergyconsumersattheendoffossilfuelsupplychain,whynottorepositionruralareasassourcesofcleanenergyofamodernenergysystembyridingthewavetosynchronizethedramaticcostreductionofrenewablesandtheimmensityofruralareas?9.6.3TurningruralareastoanenergyproducerItiswiththisnewstrategythatthe14thFYPforenergycallstoactivelydevelopsmallhydro,wind,rooftopsolar,hybridsolarPVwithagricultureandfishery,biomassandgeothermalenergywhereveravailable,notonlyforlocalusesbutalsoforsupplyingurbanareaswithcleanenergy.Theobjectiveistomakeruralareasacleanenergyproducerinadditiontotheircurrentroleasafoodsup-plier.Vastandmassiveprogramsarebeingundertaken,including:●Comprehensiveusesofbiomassresources:Eachyear,Chinaproducesoveronebilliontonsofcropstrawsand3.8billiontonsofanimalwastes.Differenttechnologiesarebeingdeployedtoturnthemintosolidgranules,biogas,bioethanolorelectricity,throughwhichtofindthebestuseofthebiomassinaccordancetolocalresourcesandmarketconditions.●SolarPV:PVpanelsaremassivelybeingdeployedonrooftopsandincombinationwithagricultureandfishery.Onesuchprogram,launchedbytheNationalEnergyAdministrationinMay2021,iscalled“County-wisePromotion”（整县推进）.ItmandatesasolarPVdeploymentplanforthewholecountythatis175▏INSTITUTEOFENERGY,PEKINGUNIVERSITYsupportedbygovernmentauthorities.Countiesparticipatingintheprogramarerequiredtoincludeatleast50%oftheirofficebuildingsroofs,40%ofschoolsandhospitalsroofs,30%ofcommercialandindustrialbuildingsroofsand20%ofresidentialbuildingsroofs.BySeptemberof2021,therewere676outofthetotalof2,860countiesinthecountrythathaddecidedtojointheprogram.●Integratedheatingsolutions:nosingletechnologyhasyetemergedasthewinnerinprovidingwinterheatingforChina’sruralresidentialbuildings.Butdifferenttechnologiesarebeingtriedanddeployed,includingenergysavingmeasuressuchasbuildinginsulation,solarwaterheaters,passivesolarhouses,people-tailoredheating,granularburners,heatpumpsandelectricorthermalenergystoragefacilities.●Integratedelectricitysolutions:withrooftopPV,lowspeedwindturbinesandenergystoragetechnologies,some“zerocarbonmicrogrids”arebeingpilotedinruralcommunitiestopro-videdailyelectricityneeds,plusheat-pumpforheating,andelectrifiedmobilitywithe-scoutersorelectricvehicles.Some“fancy”onesevendeploydigitaltechnologiestooptimizethesystemoperation.9.6.4Makingruralenergygreatagain!WilltheaboveendeavorsbesufficienttomakeChina’sruralenergygreatagain?Theshortansweristooearlytobeaffirmative.Indeed,whencomparedwithwheretheissuestoodfourdecadesago,itbecomesclearthatChina’sruralenergypriorityhasshifteddramaticallyfrommerelyprovidingcleancookingfuelandimprovingaccesstoelectricitytobeingpartofamuchlargerambitiontoupliftqualityoflifeinvillages,createnewrevenueopportunities,curblocalpollution,andmakeruralareasmorelivableandenjoyablethanbigcities.Togetthererequiresmanyhurdlestoberemoved,beitfinancialortechnical.Andyet,China’sruralareastodayarealreadyactivelyparticipatingintheglobalenergytransition.Whenthosepilotsorcasesareprovensuccessful,theycanbequickyduplicatedtootherpartsofChina,whilecontributingtoacceleratecleanenergytransitionofotherdevelopingcountries.9.7CHINAETS:WHATNEXTAFTERFIRSTCOMPLIANCECYCLE?InsightChina,December8,2022ETS(emissionstradingscheme)hasbeenregardedasoneofthe“cornerstones”ofclimatepolicyandakeytoolforreducingcarbonemissionscost-effectively.Asamajorstepforwardafternearlyadecade-longpilotingendeavoratregionallevelandthreeyearsofpreparations,ChinaofficiallylauncheditsnationalETSonJuly16thof2021,focusingonthepowersectoremissionsduringtheyearsof2019and2020asthefirstcompliancecycle.On3rdNovember2022,theMinistryofEcologyandEnvironment(MEE)thatoverseestheETSoperationpublishedadraftquotaallocationplanfortheyears2021and2022orthesecondcomplianceperiod,fordeliverybytheendof2023.ThisInsightreportoffersareviewofwhereChina’sETSstandstodayandwhattoexpectnext.9.7.1Learningbydoing:emissiontradingpilotsAsignificantEU-ChinacooperativeprojectinETScapac-itybuilding,kickedoffin2011,ledtoamajormilestoneonChinaside.In2013-2014,ChinalaunchedprovincialpilotemissionstradingschemesintwoprovincesandINSTITUTEOFENERGY,PEKINGUNIVERSITY▏176fivecities,includingShanghai,Beijing,Tianjin,Hubei,Guangdong,ShenzhenandChongqing.SichuanandFujianprovincesjoinedin2016.Thoseschemesin4provincesand5citiescovered3,443companies,involv-ingsuchindustrialsectorsaspetrochemicals,chemicals,cement,steel,non-ferrousmetals,paper,power,andaviation.Theyearof2019witnessedatotaltradingvolumeinthosepilotsamountingto69.6milliontonsofCO2,withpricesrangingfromRMB9.7($1.5)pertoninChongqingtoRMB78.6($12)pertoninBeijing,averaging22.4($3.4)perton(seeTable9-6)Table9-6:CarbonPricesatChinaProvincialEmissionTradingPilots(RMB/ton)BeijingShanghaiGuangdongShenzhenTianjinChongqingHubeiFujian78.840.523.113.713.69.732.116.3Bytheend2019,thetotalcumulativetradingvolumesincepilotlaunchreached395milliontons,withanaveragepriceofRMB23($3.5)perton.ThosepilotsprovidedvaluablelearningexperienceandcapacitybuildingneededtolaunchthenationalETS.InDecember2017,theNDRCpublishedits“NationalETSConstructionPlan”,officiallystartingthepre-launchreadinesspreparation.ThePlanproposedtostartwiththepowersector,toprogressivelyexpandtoinclude7otheremission-intensiveindustriesofcement,ironandsteel,non-ferrousmetals,petrochemicals,chemicals,paperandpulp,andaviation.Shanghaiwasdesignatedtohostthetradingactivities,whileWuhan/HubeiwastaskedwithalltheadministrativecomponentssuchasregistrationandMRV.9.7.2KickingoffnationalETS:powersectortradingThenationalETSrequiresmandatoryparticipationofallfossilfuel-firedpowerandheatproducerswithCO2emissionsof26,000tonsoraboveforanysingleyearbetween2013-2019.Atotalof2,162fossil-firedpowerplantswereincluded,whichwereresponsibleforover4.5billiontonsofCO2emissionsannuallyor45%ofChina’stotal.TheETSinaugurationonJuly16thof2021createdanimmediate“blast”and“cheering”fromallaround,andmanyforesawthedawningoftheworldlargestcarbonmarketandexpectedmuchenhancedcarbonpricingtodrivedecarbonization.Butthemomentumoftradingquicklycooleddown.Dailytradingvolumestartedat4.1milliontonsondayone,butdroppedtoabout100,000tonsfivemonthslater.Tradingpriceswentupanddownbutprettymuchwithintherangeof$6to$9perton.Theliquidityremainslowandthetradingseemslosingsteam.ByJuly15thof2022,thefirstanniversarymarkedatotalof194milliontonsofCO2tradedatanaveragepriceofRMB43.8($6.24)perton.Despitetheoverallcompli-177▏INSTITUTEOFENERGY,PEKINGUNIVERSITYancelevelof99.5%forthefirstcomplianceperiod,bothtradedvolumeandliquiditywereextremelylow.ThetradevolumeofEUR1.3billionfor2021wasfarbelowtheEUR683billionattheEUETS,andtheturnoverrate,at2%,wasalsoterriblylowcomparedto758%attheEUETS.Thelowturnoverrate–andtheresultinglowtradedvolumecanbeattributedtotwofactors:●Firstly,lackofexperienceandconsequentpas-siveattitudeofmostofentitiesthathadjoinedtheETSforthefirsttime.Theybehavedtowaituntilthelastminutetofulfilltheirregulatory/mandatoryrequirements.Thisexplainedthesuddensurgeoftradingactivitiesandmuchhigherpricestowardstheendofthecomplianceperiod.●And,secondly,reluctancetoselltheallocatedallowancesbylargegroups,suchastheHuadianGrouporNationalEnergyGroupthatweregivenlargesurplusofallowancesbutnotwillingtosell,thuscausingshortageofsupplyinthemarket,leaving6%ofmarketparticipants,mostlyindependentpowerproducers,failingtocomply.What’smorerevealedinthefirst-yearexperiencealsoincludessignificantinadequaciesinmarketdesign.AndhowtoresolvethemwilldefinehowChina’sETSwillevolvenext.9.7.3SizinginadequaciesinmarketdesignIntheory,thenumberofcarbonemissionspermitsshallbereducedannuallysothatitwillpushupthepermitpriceandincentivizecompaniestoreducetheiremissions.TherecentreviewofEUETSshowsthatthefreeallowanceshadunderminedtheETS,causingemissionsfromheavyindustrynotfallingasoriginallydesigned.WhathavewelearnedfromChina’sfirstyearexperience?Thefirstisnaturallytheallowancesallocationmecha-nism.Emissionquotawerefreelyallocatedtopartici-patingcompaniesofthebasisofemissionbenchmarksofindividualpowergeneratingunits.Aunit’sallowanceiscalculatedbasedonitstotalelectricityorheatgeneratedmultipliedbyagivenemissionbenchmarkassignedtothetypeofgenerator,using300-MW-generatorasareferencedivide(SeeTable9-7).Thebenchmarksaregenerallybasedonhighcarboncontentofthefeedstock.Asagenerator’sactualemissionisaffectedbythetypeofcoalitusesandalsobyitsloadfactor,theallocationsystemgivesadvantagetothosecompaniesthattooktheactualmeasurementofthecarboncontentoftheirfeedstocks,butpunishesthosethatdonothavethecapabilitytodoso.Thegapcouldbeashighas20-30%.Thesecondislackofdifferentiationingenerationtechnologies,whichmakesitdifficulttousethepricesignaltoincentivizeemissionreductioninindividualplants.ThemajorityofgeneratingunitsparticipatingintheETSarecoal-firedonesusingsimilartechnologies,sotechnically,roomforefficiencyimprovementandemissionreductionisverylimited.Thethirdislackof“teeth”innon-compliance.Asallallowancesareissuedfreeofchargeandliabilityremainsminimalorsymbolicatthecurrentstage,itdoesnotprovidestrongenoughincentiveforcompaniestomoveawayfromcoalanddrasticallyreduceemissions.Andthefourthisseverelatencyoftheoffsetmech-anism.ChinaCertifiedEmissionReduction(CCER)isnotrevivedyettoplayitsoffsetrole.TheBeijingGreenExchange(formerlyBeijingEnvironmentalExchange)hasbeentaskedtohostthenationalCCERtradingscheme.Butithasnotyetbeeninoperation,asrulesforcertificationandtradingremainunderreview.ProperdesignofoffsetmechanismwillbecrucialforpowercompaniestoinvestorpurchaseCCERsfromrenewablesorotheremissionreductionprojects.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏1789.7.4Whattoexpect:theoutlookNowtheMEEisgettingreadytolaunchthesecondcomplianceperiodoftradingfor2021and2022thatistobedeliveredbytheendof2023.Wehaveseenatrendofprogressivetighteningoftheemissionsbenchmarks,thatistoreducethefreeallowancesonanannualbasis.Fora300MWcoal-firedgenerator,thebenchmarkshavedecreasedby6.5%forpowergenerationandby12.7%forheatproductionfortheyear2021comparedtothosein2019and2020(Table9-7).Thismeanscorrespondingreductionofthefreelyallocatedallowances.Inthemeanwhile,abreak-even-pointbenchmarkfor2021isintroducedtobetterreflecttherealsituationwhereageneratorcanmakeprofitonlywhenrunningacertainnumberofhours.Thiswillbeusedincalculatingthe2022benchmarks.Table9-7:CarbonEmissionBenchmarksforDifferentCategoriesofGeneratorsCate-goryGeneratorCategoryPowerGeneration(tCO2/MWh)HeatProduction(tCO2/GJ)2019-2020202120222019-202020212022I300MWandabove,conventionalcoal-firedunit0.8770.82000.81590.1260.11080.1104II300MWandbelow,conventionalcoal-firedunit0.9790.87730.87290.1260.11090.1104IIINon-conventionalcoal-firedunitwithcoalgangueandcoalwaterslurry(includingcirculatingfluidizedbedunit)1.1460.93500.93030.1260.1110.1104IVGas-firedunit0.3920.39200.39010.0590.0560.0557Thenewbenchmarksystem,basedonactualnumbersof2021,help,tocertainextent,remedythefirstmarketdesigninadequacymentionedabove,butitdoesnotaddresstheotherthree.Assuch,weexpecttocontinuetoseealowturnoverrate,alowtradevolumeandrelativelystablebutlowcarbonpriceattheendofthesecondcommitmentperiod.ThreeimpetusesbecomekeytothefutureofChina’sETS:179▏INSTITUTEOFENERGY,PEKINGUNIVERSITY●Thefirstistoauctionpartoftheallowancesratherthanallforfreeissuancenow.Therevenuescollectedcanbeusedtocreateajustenergytransitionfund;100%ofthemoneyshallbeinvestedinclimateactionsalignedwithnationaldecarbonizationgoal;companiesthatreceivethefundingmustmeetstrictconditionsoncuttingtheiremissions;andveryimportant-ly,fundingshallalsobegearedtowardshelpingpowerplantworkersreskillandupskillandfindnewjobsafterplantclosure,orpoorregionstosupporttheirenergytransition.●ThesecondistoboostmarketliquiditybyrestartingtheCCERissuanceprocess.Anoffsettool,CCERsareexpectedtobeissuedbyMEEandtradedattheBeijingGreenExchangeafterallrulesarereviewedandapproved.Further-more,weexpecttoseegreenpowercertificateseithertradedviaCCERsordirectlyasanoffsetmechanism.●Andthethirdistoexpandthenationalmarket-placebyincludingotherindustriesintotheETS.Thiswillnotonlyincreasedramaticallymarketliquidity,butalsodiversifytheprofilesofparticipants.Amongthesevenindustriesonthe“waitinglist”,atleastthreeshallbecomeprior-ityfocuses,namelynon-ferrousmetals,cementandsteelsincetheyarecoveredbyEuropeanUnion’sproposedCarbonBorderAdjustmentMechanism(CBAM).InclusionofthesewillhelpcreatethefoundationforbilateraldialoguewiththeEU.Thosethreeindustriesaccountfor25%ofChina’stotalemissions.Togetherwiththepowersector,suchastepwillcover70%ofChina’stotalemissions,makingitbyfartheworld’slargestmarketintermsofcoverage.Toenablerapiddecarbonization,TsinghuaUniversity’sresearchshowsthatChina’scarbonpriceneedstogofromthecurrentlevelof$7pertonto$15pertonby2030,$25pertonby2035and$115pertonby2050.SomeoptimistsforeseeChina’sETStoreach200RMBbillion($28.6billion)by2025fromthecurrentlevelof$1.3billion.Weremaincautiousonbothpricelevelandtradevolume.9.8CCSORCCUS:WHATCHINAPREFERS?InsightChina,December14,2022Carboncaptureandsequestration(CCS)isbelievedtohaveacriticalroleinglobaldecarbonization,inhelpingthehard-to-abatesectors(cement,steel,refineryandpetrochemicals)toreduceemissions,producinglowcarbonhydrogenfromfossilfuels,providinglowcarbonbuteasilydispatchableelectricityfromcoalorgas-firedplants,removingultimatelyCO2fromatmospherewithdirectaircapturing(DAC)technology,andensuringa“fairtransition”bymaintainingemploymentinhighemissionsectors.However,simplysequestratingCO2ingeologicalstruc-turesrepresentsapurecost,withmanytechnologicalandlegalchallenges.Itsbusinessfeasibilityreliesmainlyonasufficientlyhighcarbonpricewhichmaynotberealisticformanypartsoftheworldintheforeseeablefuture.ChinaproposesanalternativewayofdealingwithCO2:convertingittousefulproductsforutilization,asanintermediatestep.ThisiswhyUwasaddedtoformthenewterm:CCUS.ThisInsightChinareportreviewsChinaCCUSactivitiesandexplainswhyChinaemphasizestheutilizationaspect.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏1809.8.1OverviewofactivitiesChinapreferenceforCCUS,asopposedtoCCS,canbeseeninstatistics.Globally,byendof2020,therewereatotalof5CCS(puregeologicalsequestration)projectsincommercialoperationand21newsequestrationprojects,noneisfromChina.By2020,Chinahad40CCUSprojectsalreadyinoper-ationorunderconstruction,withatotalCO2capturingcapabilityof3mtpaandatotalutilizationvolumeof1mtpa.Mostofthoseprojectsareforconversionandutili-zation,includingenhancedoilrecovery(EOR),enhancedcoal-bedmethanerecovery(ECBM),dry-iceproduction,conversionintousefulproducts,concretemineralization,carbonizedsteelslagandalgaecultivation.TheonlyChineseCCSprojectcompletedsofarwastheonebytheShenhuaGroup(nowtheStateEnergyGroup)–Chinaandtheworld’slargestcoalproducer.Itinjectedatotalof300,000tonsofhighlyconcentratedCO2capturedfromthecompany’scoal-to-oilconversionprojectbutstoppedaftertheinjectionwellwasfull.Table9-8:OverviewofChina’sCCUSActivitiesasofEnd2020CaptureConversionandUtilisationSequestration•13pureCO2captureprojectstotaling0.86mtpa;•DACtechnologyisindemostage.•EOR:byPetroChina,Sinopec,totaling1.65mtpa•ECBM,E-Uraniumrecovery,algaecultivation,greenhouseplantation,CO2fossilization•CO2forfoodindustry•CO2forindustrialapplications•CO2conversionintomethanol:CNOOCandChineseAcademyofSciences(CAS)•CO2asmediuminpowergeneration:Huaneng•CO2conversionintohydrocarbonswithhighefficiencyandlowcost:GHNewEnergy•CO2conversionintocarbonfibers:CarbonforX(C4X)•CO2conversionintostarch:CAS•CO2forcarbonenrichedagricultureandconcretemineralization:LingHe•twopuresequestrationprojectsbyShenhuaGroup:oneprojectbasedoncoalconversionwasabandonedafter300ktinjection;another150ktpaprojectunderconstruction.•onesequestrationprojectaspartofnaturalgasseparationprojectbyCNOOC.10smallscaleintegratedresearchprojects,fundedbystatebutabandonedoncebudgetdepleted.Source:ChinaCCUSDevelopmentReport,2021,andCNInnovation181▏INSTITUTEOFENERGY,PEKINGUNIVERSITYItisnosurprisethatthelargestCCUSprojectsareintheoilandgasindustryandbyoilcompanies,mostlyforEORasshowninTable9-9.OnlyCNOOConesarepureCCS,butCO2forgeologicalsequestrationisseparatedfromnaturalgasproduction.In2021,CNPCused0.65mtofCO2forEORactivitieswhileSinopecused1.52mt.Table9-9:China’sLargeCCUSProjectsCompanyProjectDescriptionSize(mtpa)CompletionCNPCEORinJilinoilfieldwithfivedemozones0.352021EORinChangqingoilfield:0.1mtpaalreadyoperation.2ndphasecooperationwithHuanengwithCO2fromcoal-firedpowerplant.1.5StudyEORinSongliaooilfields32025SinopecEORinShenlioilfieldwithCO2fromnearbyQilurefinery.Theprojecthas10.68mttotalCO2injectioncapacity,canincrease2.27mtoftotaloilproduction.12022EORinEastChina:collaborativeCCUSprojectwithShel,BASFandBaowuSteel10MOUsignedCNOOCOffshoreCCSprojectinSouthChinaSea,withCO2fromnaturalgasseparationfromitsEnpinggasfield,withatotalsequestrationcapacityof1.46mt0.32022OffshoreCCSproject:JVwithShellandExxoninthePeerRiverDelta10MOUsignedYanchangOilEORproject:0.15mtpaalreadyoperational.A5mtpaprojectisunderstudy5StudyGuanghuiEnergyEORproject:firstphase0.1mptastartedin20223UnknownTongyuanOilEORprojectwithCO2fromHuadiancoal-firedpowerplant1MOUsignedSource:CNInnovationINSTITUTEOFENERGY,PEKINGUNIVERSITY▏182Manylargeandambitiousprojectsareunderstudy,ei-therbyChinesecompaniesaloneorincooperationwithinternationalcompanies.Atthisstage,it’snotcertainthattheseannouncedprojectswillbeimplemented.9.8.2Puresequestrationorconversionandutilization?CCSorCCUScertainlyplaysacriticalroleinChina’snet-zerostrategy.AccordingtoChinaCCUSDevelop-mentReport(2021),Chinawouldneedtosequesterbetween1billionto1.8billiontonsofCO2by2060,giventhatitwillstillburnasignificantamountoffossilfuelsevenwhenreachingtheaccountednet-zerotarget.Butpuresequestrationprojectsrepresentonlycostswithoutanyrevenue.WebelievethefollowingfactorshaveledtheChinesetopreferCCUSoverCCS:●HighCost:China’slargestCCSprojectiscompletedbytheShenhuaGroup(nowtheStateEnergyGroup).Itinjected300,000tonsofhighlyconcentratedCO2capturedfromitscoal-to-oilconversionproject.ThecostisestimatedatRMB250/ton(or$38/ton).ButwhereCO2concentrationisnothigh,suchasfromapowerplantorsteelplant,thecostofgeologicalsequestrationrisestoRMB396–448/ton($56-69/ton),includingthatfora100-kmtransportpipeline.ComparedwiththeNorwegian“LongShip”project,whichisestimatedtocostUS$388/tonona10-yearand8-million-ton-storagebasis,Chinesecostsdon’tseemhigh.Andyet,theyfarexceedthecurrentdomesticcarbonmarkettradingpriceofRMB50/ton($7.7/ton).●Increasedenergyconsumption:Withcurrenttechnology,capturingCO2andimprovingitsconcentrationtotherequiredlevelofsequestrationwouldlowerapowerplant’senergyefficiencyby20-30%,increasingfuelconsumptionneededtosendthesameamountofelectricitytothegrid.●Sequestrationsiting:Nosequestration,noCCS.Intheory,ChinahassignificantaquafercapacitytopermanentlystoreCO2,butthesitesneedtobecloseenough(lessthan250kmforpipelinetransportation)totheemittingsources.GiventhatmostoftheChinesecement,steelandpowerplantsarelocatedindevelopedregionswithhighpopulationdensity,NIMBY(notinmybackyard)atlocallevelbecomesamajorbarrier.Peopleareconcernedwithriskofleakagewhichcouldimpactpublichealthwithmuchdeprivedoxygenlevel.●Legalliability:CCSprojectrequirestostoreCO2permanentlyoverthousandsofyears,butnotmanycompaniescanguaranteesuchalongevitytobeheldaccountable.Sofar,onlyNorwayandAustraliacanoffertheprecedenceforChinatolookintothatgovernmentsaremandatedlegallytoberesponsible.●Businessmodel:ThewidedeploymentofCCSprojectsrequiresasustainablebusinessmodelwherebyeveryoneacrossthevaluechainisadequatelypaid.Purecaptureandsequestrationprojectsdonothavetherevenuestreamtosup-port,whiletheutilizationaspectofCCUScanovercomeit.EveniftherevenueisnotcomingfromCO2utilisation,itcancomefromeitheroilandgassalessuchastheCNOOCcase,orfromcoalconvertedprojectssuchasShenhuacase.ThisexplainswhythereisnopureCCSprojectfromthepowersector,asitisdifficultforpowerplantstogetadditionalrevenuetocoverthecost.Chinesephilosophyemphasizestreatingasymptomwholistically.Inpolicypractices,Chinesepolicymakerstendtobelievethatcarbonissueshouldberesolved183▏INSTITUTEOFENERGY,PEKINGUNIVERSITYthroughrecyclingandutilization,insteadofsimplyburyingit.ThisiswheretheUjoinsthepictureofCCS,asimportantintermediatesteptowardultimatesolutiontoclimatechange.AsChinaactivelypursuesCO2conversionandutilizationactivities,whenandifsomeofwhichareprovenbothtechnicallyandcommerciallyviable,andcanbedeployedatscale,theymayhelpthecountryoreventheworldtoredrawthecoursetodecarbonization.9.9ESG:MANDATEDDISCLOSUREFORGREATERACCOUNTABILITYInsightChina,December16,2022ESGreportinghasbeenadoptedastheleadingmatrixandvehicletomeasureanddisclosetheenvironmentalandsocialbehaviorandperformanceofacompany,afinancialinstitutionoranyotherorganizations.Inaworldwithgrowingconstraintsfrompolycrisesanddiredeficitoftrust,suchstepsarekeytodemonstratingacompany’sintegrityandtrustworthiness,thushelpingenhanceitscompetitiveness.ThisInsightprovidesanoverviewofChinesecompanies’ESGreporting,withaninterpretationoftheconvergenceand/ordivergencebetweenChinesepracticesandthoseinEUandUS.9.9.1CatchingupwithglobaltrendAccordingtoanESGratingreportbyMorganStanleyCapitalInternational(MSCI),publishedinJuneof2021,whichsurveyedalllistedcompaniesin50countries,measuringthequalityoftheirreporting.Chinastandardsat47outofthe50,i.e.amongthelowest,witharatingbarelyreaching3,whileUKstandsoutataratingclosetothehighestof8.Figure9-3:ChineseListedCompaniesESGReporting,2011-202134338441542343542847552256864185522225428928431430132634837745157402004006008001,0001,2001,4001,60020112012201320142015201620172018201920202021ShanghaiStockExchangeShenzhenStockExchangeHowever,Chinaiscatchingupquickly(Figure9-3),mostlythroughregulatinglistedcompanies.Accordingtothelateststatistics,byJuly20thof2022,therewere1,429companieslistedontheShanghaiandShenzhenstockexchangesthathadpublishedtheir2021ESGreports,or29.6%ofallthelistedcompanies.Thisshows337morecompaniesjoiningtheleaguecomparedtooneyearbefore.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏1849.9.2DisclosingenvironmentalinformationasapriorityChineseregulatorshaveplayedasignificantroleinaccel-eratingsuchatrend,particularlymovingtostandardizethefragmentedESGreportinglandscape.Fourcrucialstepstakendefinethedynamicsofcorpo-rateESGreportinginChinatoday:●Thefirstis,inMay2021,theMinistryofEcologyandEnvironment(MEE)issuednewdisclosurerulesthatrequiredomesticentitiestodisclosearangeofenvironmentalinformationonanannualbasis,effectiveonFebruary8thof2022,buttobecomemandatoryby2025forallpubliclylistedcompanies.TheRulesapplytolistedcompaniesandbondissuersthataresubjecttocertainenvironmentalpenaltiesinthepreviousyearandotherentitiesidentifiedbyMEE,includingthosethatdischargehighlevelsofpollutants.Allthecoveredentitiesmustdiscloseinformationon:◎Environmentalmanagement◎Pollutantgeneration◎Carbonemissions;and◎Contingencyplanningforenvironmentalemergencies.●Thesecondis,onJune28thof2021,theChinaSecuritiesRegulatoryCommission(CSRC)publishedthefinalsetofamendmentstothedisclosurerulesapplicabletoannualreportsandhalf-yearreports,respectively,togetherwithrelevantexplanationtotheamendments.●Thethirdis,onJune1stof2022,“TheGuidanceforEnterpriseESGDisclosure”becameeffective.ThisisregardedasChina’sfirstESGdisclosureguidline,issuedbyChinaEnterpriseReformandDevelopmentSociety.ItappliestoallcompaniesandindustriesandfollowstheenvironmentaldisclosurerulesissuedbyMEEwhichcameintoeffectearlyinFebruary2022.●TheGuidancesetsoutaframeworkforChinesecompaniestoreportunderthreeprimaryindicatorsofESGmetrics,whicharefurtherdividedinto10secondaryindicators,35tertiaryindicatorsand118levelIVmetrics.ItisapplicabletovoluntaryormandatorydisclosurerequirementsthatmayapplytoChinesecompa-nies.Eachcompanycanchoosetheapplicabletimecycleformakingitsdisclosures.ThefinaldeliverableisanofficialESGreportthatismadeavailableonaplatformdesignatedbytheregulatoryauthorityorchosenbytheChinesecompany.ThisofficialESGreportisforusebyvariousbodiesincludingregulators,investors,mediaandthegeneralpublic.●Andthefourthisthenewfinancialinstitutions'sectorpracticestandards,releasedbythePeo-ple'sBankofChina(thecentralbank)inAugust2021.“TheGuidanceofEnvironmentalInfor-mationDisclosureofFinancialInstitutions”providesasystemicframeworkforfinancialinstitutionstodisclosureenvironmentalinformationwithprinciples,formatandcontentrequirements.ThismarksthebeginningofChina'snation-widetrialandpilotingendeavortoaccelerateESGreportinginthefinancialsector.9.9.3ConvergingdomesticandglobalstandardsChinasharesatleastthreemajorglobalprioritiestofurtherstrengthenESGinvestment,including:1)Closethelooptogreenthefinanciallandscape;2)Aligngreenfinancewithtime-boundgoalstoachieveplanet-andpeople-positive;and3)Enhancedisclosureandtranspar-encytoachieveaccountability.185▏INSTITUTEOFENERGY,PEKINGUNIVERSITYWhilecompliancewiththeGuidanceremainsvoluntary,itservesasagoodstartingpointforChinesecompaniestobeginexploringtheapplicationofESGstandardsadaptedforanddevelopedinalocalcontext.ThisapproachhasbeenappliedinotherjurisdictionsinAsia,suchasHongKongandSingapore,thatadoptedaflexible“complyorexplain”approachinitiallybeforemovingtomoreprescriptiveormandatory.Itislikelythatbroader,mandatoryreportingforESGisonthehorizoninChina.9.9.4BridgingthegapsRecentstudiesandsurveyshavereflectedsomeofthemajorcracksintheESGecosysteminChinatodaythough.Dataandevidenceareoftenin"poor"quality.Third-partyESGservicesectorfailstoprovidetheurgentlyneededsupport.Ataverypracticallevel,mostofChinesecompaniesarestillstrugglingwithlackofcapabilityandexperienceinESG-relatedreporting,beyondconventionalmandatedCSRreporting.Veryimportantly,inadequaciesinstandardsandregu-lationsmaketheESGreportingmoreaspirationalthancompulsory.Thisinadequacyconstitutesafundamentalbarriertoeffectivelydeploythispolicyinstrumenttohelpacceleratethescalingofinvestmentsalignedwithsuchnationally-embracedgoalsascarbonneutrality.TherearecurrentlyadozenstandardsandguidelinesbeingusedbyChinesecompaniesfortheirESGreport-ing,about67.7%adoptedtheGRI(GlobalReportingInitiative)Standards,butmanycompanieshavealsochosentoadoptChinesenationalstandardsorthosedevelopedbythestockexchangewheretheyarelisted.9.9.5OvercomingtheuncertaintychallengesESGisaninstrumentandproductcreatedbypublicpol-icytoservethepurposeofpolicytargetsandincentives.AndESGinvestmentisavehicletomobilizefinancialcapitalflowsatpaceandscaletoachievethosesetgoalsandtargetsatnationalandlocallevel,withindustrialandsectorspecificities.Bearingthesetwopurposesinmind,threequestionsbeganswersregardingthefutureofESG.Thefirstishowtoaligndomesticpolicytargetswithglobalmarketsfromtheperspectiveoftimeandspace.ESGregulatorshavetofigureoutsuchalignmentsoftheframeworks,guidelinesandregulationswiththetime-boundtargetson1)thedomesticfront,inparticulararoundthe14thFive-YearPlan(2021-2025),2)outboundFDIs,inparticularthroughtheBeltandRoadInitiative(BRI);and3)inboundFDIsthroughmultilateralforeigncompaniesinChinaandforeigninvestmentstoChina.Misalignmentsandgapshavealreadybeenexperienced,suchashumanrights,andmoreareexpected,suchasgovernanceandsecurityrisks.Thesecondishowtoensurehigh-quality,credibleandrelevantdatatobackuptheESGreporting.AlatestdomesticdebateiscenteredaroundthediscrepanciesoftheNationalBureauofStatisticsdataandinformationwiththerealityofthecountry'ssocialandeconomicdevelopment.Thefinal2021CentralGovernment'seconomicworkmeetinghasidentifiedthreemajorpressuresonChina'seconomicgrowth-disruptedsupply,shrinkingdemandandweakenedprospect.AndyetsuchdifficultiesarenotreflectedorwitnessedintheBureau'sdataatall.Instead,alltheofficialpublicdatacontinuestopaintabrightandpromisinglandscapeofeconomicgrowth.Asreflectedindataaroundjobsandunemployment,wagesanddebt-riddenconsumers,aswellasglobalsupplychaindisruptionandcorporatebankruptcy,amongmanyothers,thelackofcredibilityofthestatestatisticsmachineendangersthecountry'strustworthinessandcredibilityofitspolicytargets.Andthethirdiswheretodrawthelinesbetweensecuri-typrotectionanddatadisclosure.Increasinggranularityandexpandingcoverageofdatahelpstounlockunprec-edentedpotentialoftransparency,Satelliteimages,INSTITUTEOFENERGY,PEKINGUNIVERSITY▏186governmentmonitoringdata,andcitizens'participation,enabledbydigitalandAItechnologies,haveformedtheubiquitousplanetarysurveillance.Whileregulatorsworldwidearestrengtheningtheirgripsondisclosure,guardrailsarealsouptodefendnationalsecurity.Datasecurity,financialsecurity,technologicalsecurity.supplychainsecurity,biosecurity,andevenideologicalsecurity,younameit,posesometoughestquestionsforregulatorsinChinatoaddresswhendesigningESGstandards.TheessenceofESGistransparencythroughdatadisclosure.Therearenosimpleanswerstoallthosequestions.GiventhatESGisamust-do,bothfromdomesticandinternationalperspective,wewouldexpectChinatodeployitstraditionalwisdomofstrikingabalanceandtradeoffsamongallthekeyelementsinacomplexland-scape,tobreakthedeadlockofaccountabilitychallengesdomesticallyandtoreconcilewiththeWestthroughacommonESGlanguageandnarrative.9.10TACKLINGMETHANEEMISSIONSInsightChina,December22,2022The14thClimateChangeGreenbookofChinaattractedattentiontomethaneemissionsintheworld’slargestemitter.Releasedon21December2022inBeijingbythejointLabbetweentheChineseAcademyofSocialSciencesandtheStateMeteorologicalAdministration,theGreenbook,subtitledImplementingPoliciesandPracticesforthe“Duo-carbon”Goals,madeastrongcallforthecountrytourgentlyimprovekeytechnologiesandtheadministrativepolicysystemformethaneemissionpreventionandreduction.9.10.1Whyitmatters:Methane,thesecondlargestgreenhousegas,traps80timesmoreheatthancarbondioxideina20-yeartime-frameandaccountsfor16%ofglobalGHGemissions,responsibleforabout30%oftheworld’swarmingsinceindustrialization.China’semissionsarethehighestintheworld,aroundafifthoftheglobaltotal.In2021,Chinaemitted58.3metrictonsofmethane,morethananyothercountry,accordingtotheGlobalMethaneTracker.Since2014,methanehasbeenincludedinvariousgovernmentplansforemissionreductionandcompre-hensiveresourceutilization,andChina’smostrecentcommunicationtotheUNFCCCvowedtocontroltheemissionsofnon-CO2greenhousegasesincludingmeth-ane.TheChineseoilandgascompaniesarealsotakingactivestepstotacklethemethaneemissions,withCNPCjoiningtheOilandGasClimateInitiative’smethaneactionplan,while10ofChina’slargestgasdistributioncompanieshavejointlylaunchedaninitiative.Whatismissingisthecoalcompanies’participation.AccordingtoChina’sClimateEnvoyXieZhenhuaatCOP27,thenationalgovernmenthasdraftedanewplantoreininmethaneemissions,focusingonoilandgas,agricultureandurbanwastesmanagement.HesaidChinawillpromotenewtechnologiesandfinancingmechanismstoslashrisingmethaneemissions,andyetwouldhavetoimproveitsmethodsandmeansinquanti-fyingmethaneemissions.Butit’salsoknownthatmanyofthemethanesourcesarefugitiveemissions,whichareusuallydifficulttoaccuratelyaccountfor.9.10.2Thebigpicture:Tacklingmethanehasbecomeamajorpartofglobaleffortstolimittemperaturerisesto1.5C.In2021atCOP26,theGlobalMethanePledgewasfirstinitiated,aimingtoslash30%ofworldmethaneemissionsfrom2020levelby2030.AndatCOP27,around40countriesrevealedmethaneabatementplans.ButmethaneisnotyetincludedinChina’scurrentNDCs(nationallydeter-minedcommitments)totheParisAgreement,whichonlycoverscarbondioxide.187▏INSTITUTEOFENERGY,PEKINGUNIVERSITYNearlyhalf(44%)ofChina’smethanecomesfromtheenergysector,followedbyagriculture,asshowninFigure9-4onthecountry’slatestavailablesectoraldata,from2014.Figure9-4:SourcesofChina’sMethaneEmissionsin2014(milliontons,%)Coalmining21.0238%Fuelcombustion2.65%Oilandgassystem1.122%Wetland1.723%Animaldigestion9.8618%Animaldungs6%Ricecultivation8.916%Strawburning0%Solidwastetreatment3.837%Wastewatertreatment2.715%Source:ChinaMiningMagazine,Feb.2022.http://www.chinaminingmagazine.com/uploads/pdf/1644910124102.pdfIn2021,it’sestimatedthatChina’scoalsupplyandmineemitted25millionmetrictonsofmethane,accordingtoaGlobalEnergyMonitorreport.Abandonedminesareanothercoalmethanesource,whichareexpectedtogrowmorequicklythanthosefromestablishedmines,accordingtostudy.Agricultureisthesecond-largestsourceofmethaneemissions-fromanimaldigestion,excretion,andricecultivation.Chinaistheworld’sbiggestmeatproducerandconsumer.TheGreenbookhasidentifiedsomegapstobridge,particularlyaroundmonitoringofemissionsandkeytechnologybreakthroughstoreduceandmanageemissions.AUS-Chinacollaborativeopportunityexiststoputscientificexpertisetogethertofigureouthowtomakethemostofmuchimprovedsatelliteobservationsandadvancethetechnologiesbyleapsandbounds.9.10.3Zoomin:TophighlightsfromattendingtheGreenbook’slaunchoffersomeinsightsandrecommendations:●Monitoring:Chinahassetupitssafetyalertandinspectionsystems,butshallfurtherintegrateground,aerial,observationtowerandsatellitetools,combinethemonitoredambientconcen-INSTITUTEOFENERGY,PEKINGUNIVERSITY▏188trationwithatmospherictransmissionmodelandgenerateregionalemissionsestimates.●Economicsofutilizationtechnologies:Technol-ogieshavegreatlyprogressedinlow-densitymethaneutilizationandrecycleemissionsfromoilandgasleaks,butconstrainedbyscale,costsandgeographies,thereisnoeconomicsinmanycases,thusit’shardtoachievescaleforcommercialbenefits.Mostprojectshaveadoptedforeigntechnologies,withhighcostsforbothprojectconstructionandoperationandmaintenance.●Policyvacancy:Chinatodaystandsataveryearlystageof“mappingthelandscape”formethaneemissions,preventionandcontrol,thuslackingnationalpoliciesandmeasures,aswellasinadequatefinancialsubsidy,marketmechanism,standardsystemandadministrativemeasures.●Inventory,MRV,androadmap:Effortsareneed-edtostudytheaccountingmethodologyandtheroadmapofmethaneemissionsreduction,addmethanetoitsNDCsandtaketheimpactsintoconsideration,whileestablishingnationalemissionsinventoryandinformationplatform,regulatingmanagementinkeyregionsandsectors,andsettingspecificrequirementsforMRV.●Technologybreakthroughs:Accelerationshallbeadvancedforkeytechnologybreakthroughsforbothemissionsreductionandutilization,suchasCBM(coal-bedmethane),LDAR(leakdetectionandrepair)fromoilandgasdrilling,andbiogasdigestersforagriculturalwastes.Yes,but:China’scurrentcommitmenttopeakitsemissionsbefore2030doesnotincludemethane,thoughthegoalofachievingcarbonneutralitybefore2060willembraceallGHGsincludingmethane.ThecontentionbetweenUSandChinacontinuestoholdbackprogressofbilateralcooperation.And,withoutChina’scommit-mentsandactiveparticipation,thegoalofreducing30%by2030outlinedintheGlobalMethanePledgewillbedifficulttoreach.©PhotoonPxHere189▏INSTITUTEOFENERGY,PEKINGUNIVERSITYTHE2022YEARENDERINCOVIDDESPAIR,CHINAOFFERINGPLANETARYOPTIMISMIN2023InsightChina,December28,2022The2022ChristmasinChinaismarkedwithshock,fearanddespair.Onceagain,thecountryhasbecomeaglobalCOVIDpandemicepiccenter.Thegovernment’ssuddenU-turnofitspolicy,fromthemostrestrictivezero-COVIDtototalrelaxationonDecember7th,hasrushedthewholecountryintounexpectedandunpre-paredherdimmunity.Theconsequencesareextremelydireandsaddening.Hundredsofmillionsofpeopleandtheirfamiliesarebearingthesufferingsandlossoflovedones.TheunpreparednesscouldbewitnessedbytheCCPCentralCommittee’sannualCentralEconomicWorkConference(theConference),onDecember15thand16th,whenthetopdecisionmakersmadedecisionsonthecountry’s2023growthplanandstrategicpriorities.Thecoreisclearlyputonrapideconomicrecovery.Stability,securityandresiliencecontinuetobethetoptaglinesagainstthebackdropofdauntingtriplepressures-demanddeflation,supplyshockandweak-eninggrowthexpectations,withfurtherexacerbatedgeopoliticalcomplexitynotinChina’sfavor.As2022drawstoaclose,itseemsemotionallyandpsychologicallydifficulttorememberthatgoodthingshappenedthisyeartoo.Andevenaswefacemanychallenges,suchasthepandemic,climatecrisis,threatstoenergyandfoodsecurity,andshockstothesupplychain,therearereasonstobehopefulabout2023andbeyond.Andveryimportantly,weseeChinaoffersomeplanetaryoptimism.Creatingdemand:“1+N”decarbonizationpolicysystemforward:Asourreportshaveshown,theyear2021-2022heraldsunprecedentedclaritytoacceleratecleanenergytransitionintheworld’slargestcarbonemitter.Throughthecycleofthe14thFive-Yearplanningofnationaleco-nomicandsocialdevelopmentandthe2035Vision,Chi-nesepolicymakersatnationalandlocallevelsdeliveredatotalof75policydocumentsfordecarbonizationandcarbonneutrality,thuscreatingthelargest-evermarketdemandforenvironmentallyfriendly,resource-efficient,andlow-caronproductsandservicesandredirectingfinancialflowstowardsgreenandcleaninfrastructure.Thedesignofthepolicyarchitectureisalsothemostcomprehensive-everandbasedonanintegrated,system-icandunifiedapproach.Theoutcomeisthebodyof“1+N”policypapersthatguide,pushandpullaneconomy-widetransformationacrossallsectorsandinallregions.Painstakingtransition:arecordyearofbothnewcleananddirtypower:China’stotalpowerdemandin2022hasbeencurbedbyrepeatedCOVID-19lockdowns,whichhavehamperedmanufacturingactivityandslowedindustrialoutput.Andthecurrent“voluntary”shutdownisexpectedtofurtherholdbacktheplannedrecovery.●Theyearof2022sawChinasettodelightanddepressclimatetrackersinequalmeasures.Itsuseofcoal-firedpowergenerationclimbedbyroughly30%inDecemberfromOctober’stotal.And,thefull-yearcarbonemissionsfromcoalpowergenerationisexpectedtotop4.5billiontonsin2022,whichismorethanallofEurope’senergysectoremissionsin2021.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏190●Italsosetnewglobalrecordsinbothcleanpowerutilization.Itscontinuedexpansioninsolarandwindpowerhasputitontracktohit3,000terawatt-hoursofcleanenergypowergenerationthisyear,farexceedinganyothercountry,andlifteditsshareofcleanenergyinitselectricitymixtoanationalrecordof31.9%,comparedtoa26.3%sharein2015.●AndChina’sshareofglobalEVsaleshasgonefrom26%in2015to28%in2021andto56%inthefirsthalfof2022.BytheendofJune,thereweremorethan10millionEVsrunningonroad,andit’spoisedtoseize60%shareofglobalEVsalesbyyearendof2022.Integratingnatureandclimatechangeforsolution:planetaryoptimismfor2023:ThenewlyadoptedKunming-MontrealGlobalBiodiversityFramework,brokeredbytheChineseCOP15Presidency,marshalsthebeginningofanewagetosafeguardtheplanetaryboundary.Highlightedbythepopularlyknowns“30x30x30x30”,ourcollectivecommitmentsby2030areto:1)Protect30%oflandandocean;2)Restore30%ofdegradedecosystems–land,inlandwater,coastalandmarineareas;3)Andatleast$30billioneachyearfromrichnationstothepoortoprotectbiodiversityandecosystems.Alsocallednature’s“ParisAgreementmoment”,thelandmarkdealnowaimsto“sync”actionsandsolutionswithboththeglobalclimatechangeagendaandtheUNSDGs.Chinachampionstheimplementationandhasshownsignsofprogresson“decoupling”growthfrombothcarbonandresourceintensity,aswellaspoliciesandactionsonconservation.Yes,but:China’seconomyisnowundergreatdownwardpressure,coupledwithshrinkingdemandandfragilesupplychains.AccordingtotheConference,restoringdomesticconsumptionandimprovingitsGDParetoppriorityfor2023.Thecorefocusfallson“highquality”growthand“efficiency”.AndyetsuchendeavorisdestinedtobefurtherdisruptedbythecurrentwaveofCOVIDcases.Therefore,wewillcontinuetozoominandzoomoutonChina’sendeavorincleanenergytransitionandprotectingecologicalintegrity,butgettingdowntomorespecificstepsofdeliveryin2023.Andwelookforwardtohavingyourfeedbackandinputandjointlywecanmaketheworldabetterplaceinthenewyear!191▏INSTITUTEOFENERGY,PEKINGUNIVERSITYINSIGHTCHINAEDITORIALTEAM●XavierChen,Editor-in-ChiefDrXavierChenisSeniorResearcheratthePekinUniversity’sInstituteofEnergy.HeisalsofounderandPresidentoftheBeijingEnergyClub–aBeijing-basedhigh-levelforumandthink-tankonChineseandglobalenergyissues.Heisawell-knownexpertonChineseandglobalenergyissues,withnearly30yearsworkingexperiencesintheFrenchInstituteofEnergyEconomicsandPolicy(1yearasresearchengi-neer),AsianInstituteofTechnologyinBangkok(3years)asAssistantProfessor,InternationalEnergyAgencyinParis(8years,asIndiaPro-gramManager,ChiefofStaffandChinaProgramDirector),BPChinaVicePresident(10.5years),Statoil/EquinorChinaPresident(4.5years),andENNGroup’sChiefStrategyOfficer(2years).Dr.ChenspearheadedthecreationoftheBeijingEnergyClubin2008.HeplayedacriticalroleinsecuringtheChinesepresidencyoftheInternationalGasUnionfor2022-2025.Heisauthoroftwobooksandnumerouspublications.Hewasoneofthefour“GoodBusiness”AwardWinnersofBloomberg’sBusinessWeek(Chineseedition)in2017.●MsChanghuaWu,DeputyEditor-in-ChiefChanghuaWuisaseasonedpolicyanalyst,capableadvocate,socialentrepreneur,currentaffairsmediacommentatorandfrequentpublicspeaker,andstrategistforpublicandprivatepartnershipincleanenergytransformationandbroadersustainabilityagenda.HavingworkedwithsomeglobalandlocalleadersattheClimateGroupasGreaterChinaCEOfornearlyadecade,shesuccessfullyledstrategicengagementwithpublicandprivatesectorsinChinatoadvancelowcarboneconomyandcleanenergyrevolution.Herleadershipandcontribu-tionshavebeenrecognizedinChinaandbeyond,includingoneofthe15globalwomenleadersfightingclimatechangerecognizedbytheTimeMagazinein2019.ChanghuaholdsnumerouspositionsincludingtheCEOofFutureInnovationCentre(Beijing);China/AsiaDirectoroftheOfficeofJeremyRifkin;ViceChairofGoverningCouncilofAsia-PacificWaterForum;boardmemberofGlobalInfrastructureBaselFoundation;andmemberofAsiaWaterGroupofADB,amongothers.AleadingESGexpert,shealsositsonthesustainabilityadvisoryboardsofsomeleadingmultinationalcorporations.Andinthecapacityofresearchfellowsandadvisors,shealsoworkscloselywithsomeleadingthinktanksandorganizationsinChinaandgloballytoadvocatepolicychanges.INSTITUTEOFENERGY,PEKINGUNIVERSITY▏192●YongpingZhai,SeniorAdvisorDr.YongpingZhaiisahighlyexperiencedininternationalenergyandlowcarbonfinancing,with7years(1993-2000)workattheAfricanDevelopmentBank(AfDB)and21years(2000-2021)attheAsianDevelopmentBank(ADB).AftergraduatingfromTsinghuaUniversity,hewenttoGrenoble(France)forpost-graduateanddoctoralstudies,andafterobtainingthePhDinenergyeconomics,hewassecondedbytheFrenchgovernmenttoworkattheAsianInstituteofTechnologyinBangkok.AttheAfDB,Dr.ZhaiworkedasSeniorPublicUtilitiesEconomist,PrincipalProgramCoordinatorfortheSouthRegion.AttheABD,heworkedintheEnergyDivisionasLead/Principal/SeniorEnergySpecialist,mainlyinchargeofenergyinvestmentinSoutheastAsiancountries(2000-2010);DirectorforSouthAsia(2010-2015),leadingthelendingandgrantoper-ationsintheenergysectorinIndia,Bangladesh,Bhutan,Nepal,SriLankaandMaldives;ChiefofEnergySectorGroup(2015-2021)inchargeofthewholebank’senergysectoroperations.Dr.ZhairetiredfromADBinAugust2021butisstillveryactiveintheenergy/carbonarea,hold-ingnumerousadvisoryandacademicpositions.HTTPS://ENERGY.PKU.EDU.CN/Thisreportusedenvironmentalfriendlypaper.InstituteofEnergy,PekingUniversityAdd.:Rm.438PekingUniversityYanyuanBuilding,No.5YiheyuanRoad,HaidianDistrict,Beijing,ChinaZ.C.:100871Email:genergy@pku.edu.cnTel:+86-10-62751150FURTHERCONTACTThisreportisavailableforfreedownloadatthePekinUniversityEnergyInstitute’swebsite:https://energy.pku.edu.cnForfurthercontact,pleasewritetousatthefollowingemail:genergy@pku.edu.cn
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