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首页文档碳中和资料研究报告17、高盛英文报告《中国碳中和技术展望报告（84页）》

17、高盛英文报告《中国碳中和技术展望报告（84页）》VIP专享VIP免费

EQUITY RESEARCH | January 20, 2020 | 8:43 PM GMT
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a
result, investors should be aware that the firm may have a conflict of interest that could affect the
objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision. For Reg AC certification and other important disclosures, see the Disclosure
Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not
registered/qualified as research analysts with FINRA in the U.S.
The Goldman Sachs Group, Inc.
Michele Della Vigna, CFA
+44 20 7552-9383
michele.dellavigna@gs.com
Goldman Sachs
International
Zoe Stavrinou
+44 20 7051-2816
zoe.stavrinou@gs.com
Goldman Sachs
International
Chao Ji
+86 21 2401-8936
chao.ji@ghsl.cn
Beijing Gao Hua Securities
Company Limited
Sharmini Chetwode, Ph.D.
+852 2978-1123
sharmini.p.chetwode@gs.com
Goldman Sachs
(Asia) L.L.C.
China’s pledge to achieve net zero carbon by 2060 represents two-thirds of the
c.48% of global emissions from countries that have pledged net zero, and could
transform China's economy, starting with the 14th Five-Year Plan. We model the
country's potential path to net zero by sector and technology, laying out
US$16 tn of clean tech infrastructure investments by 2060 that could create
40 mn net new jobs and drive economic growth. Our China Carbonomics cost
curve highlights three key interconnected scalable technologies for net zero:
1) Electrification through renewable power dominates the lower part of the cost
curve and has potential to de-carbonize around half of Chinese CO2 emissions,
with power generation tripling by 2060 – dominated by wind and solar, driving
increased demand for base metals such as copper (+15%) and a complete
overhaul of the country’s power networks; 2) Clean Hydrogen is the second
most important technology, potentially driving 20% of the de-carbonization,
mostly in industry and heating; and 3) Carbon Capture could address 15% of
China’s emissions, mostly in industrial processes. Exports contribute c.20% of
Chinese CO2 emissions (gross): growing global consumer awareness of the
carbon footprint of goods and the prospect of a border adjustment on carbon
prices add urgency to China's net zero policy and highlight the importance of
carbon markets.
Carbonomics
China Net Zero: The clean tech revolution
Shuo Yang, Ph.D.
+86 10 6627-3054
shuo.yang@ghsl.cn
Beijing Gao Hua Securities
Company Limited
For the full list of authors, see inside.
Trina Chen
+852 2978-2678
trina.chen@gs.com
Goldman Sachs
(Asia) L.L.C.
The following is a redacted version of the original report. See inside for details.
AUTHORS
Sharmini Chetwode, Ph.D.
+852 2978-1123
sharmini.p.chetwode@gs.com
Goldman Sachs (Asia) L.L.C.
Polly Tao
+852 2978-6349
polly.tao@gs.com
Goldman Sachs (Asia) L.L.C.
Keebum Kim
+852 2978-6686
keebum.kim@gs.com
Goldman Sachs (Asia) L.L.C.
ENERGY -OIL & GAS, CARBONOMICS
Michele Della Vigna, CFA
+44 20 7552-9383
michele.dellavigna@gs.com
Goldman Sachs International
Zoe Stavrinou
+44 20 7051-2816
zoe.stavrinou@gs.com
Goldman Sachs International
Amber Cai
+852 2978-6602
amber.cai@gs.com
Goldman Sachs (Asia) L.L.C.
ENERGY - UTILITIES
Chao Ji
+86 21 2401-8936
chao.ji@ghsl.cn
Beijing Gao Hua Securities
Company Limited
Chelsea Zhai
+86 21 2401-8679
chelsea.zhai@ghsl.cn
Beijing Gao Hua Securities
Company Limited
BASIC MATERIALS
Trina Chen
+852 2978-2678
trina.chen@gs.com
Goldman Sachs (Asia) L.L.C.
Joy Zhang
+852 2978-6545
joy.x.zhang@gs.com
Goldman Sachs (Asia) L.L.C.
FINANCIALS
Shuo Yang, Ph.D.
+86 10 6627-3054
shuo.yang@ghsl.cn
Beijing Gao Hua Securities
Company Limited
ENERGY -OIL & GAS, REFINING & CHEMICALS
Nikhil Bhandari
+65 6889-2867
nikhil.bhandari@gs.com
Goldman Sachs
(Singapore) Pte
AUTO AND AUTO PARTS REAL ESTATE
Fei Fang
+852 2978-1383
fei.fang@gs.com
Goldman Sachs (Asia) L.L.C.
Olivia Xu
+852 2978-1521
olivia.xu@gs.com
Goldman Sachs (Asia) L.L.C.
Bill Wei
+86 21 2401-8946
bill.wei@ghsl.cn
Beijing Gao Hua Securities
Company Limited
Yi Wang, CFA
+86 21 2401-8930
yi.wang@ghsl.cn
Beijing Gao Hua Securities
Company Limited
China net zero: Thesis in charts 4
China net zero: Corporate Ecosystem 7
PM Summary: China net zero 2060 8
China net zero ambition: The most critical piece of the puzzle for global carbon neutrality 18
Differentiated and distinct emissions scale, sectoral mix and path for China 21
The cost curve of de-carbonization for China is very steep yet highlights a wide range of low-cost
opportunities 26
Laying out the path to net zero China 30
China net zero and investments: US$16 tn investment opportunity on China’s path to carbon neutrality 31
China net zero and job creation: Potential for the creation of c.40 mn jobs by 2060 33
Laying out the path to a net zero China: A sectoral deep dive 34
China net zero: The role of carbon sequestration 61
China net zero: The potential implications for natural resources demand 64
China net zero: Addressing China’s export competitiveness in the era of climate change 66
China net zero: What have banks done to address China’s goal for carbon neutrality? 70
China ETS: Getting closer to the implementation of the world’s largest national emissions trading scheme 73
Appendix: China de-carbonization cost curve details 79
Disclosure Appendix 81
20 January 2021 2
Goldman Sachs Carbonomics
Table of Contents
/84
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EQUITYRESEARCHJanuary20,20208:43PMGMTGoldmanSachsdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.ForRegACcertificationandotherimportantdisclosures,seetheDisclosureAppendix,orgotowww.gs.com/research/hedge.html.Analystsemployedbynon-USaffiliatesarenotregistered/qualifiedasresearchanalystswithFINRAintheU.S.TheGoldmanSachsGroup,Inc.MicheleDellaVigna,CFA+44207552-9383michele.dellavigna@gs.comGoldmanSachsInternationalZoeStavrinou+44207051-2816zoe.stavrinou@gs.comGoldmanSachsInternationalChaoJi+86212401-8936chao.ji@ghsl.cnBeijingGaoHuaSecuritiesCompanyLimitedSharminiChetwode,Ph.D.+8522978-1123sharmini.p.chetwode@gs.comGoldmanSachs(Asia)L.L.C.China’spledgetoachievenetzerocarbonby2060representstwo-thirdsofthec.48%ofglobalemissionsfromcountriesthathavepledgednetzero,andcouldtransformChina'seconomy,startingwiththe14thFive-YearPlan.Wemodelthecountry'spotentialpathtonetzerobysectorandtechnology,layingoutUS$16tnofcleantechinfrastructureinvestmentsby2060thatcouldcreate40mnnetnewjobsanddriveeconomicgrowth.OurChinaCarbonomicscostcurvehighlightsthreekeyinterconnectedscalabletechnologiesfornetzero:1)Electrificationthroughrenewablepowerdominatesthelowerpartofthecostcurveandhaspotentialtode-carbonizearoundhalfofChineseCO2emissions,withpowergenerationtriplingby2060–dominatedbywindandsolar,drivingincreaseddemandforbasemetalssuchascopper(+15%)andacompleteoverhaulofthecountry’spowernetworks;2)CleanHydrogenisthesecondmostimportanttechnology,potentiallydriving20%ofthede-carbonization,mostlyinindustryandheating;and3)CarbonCapturecouldaddress15%ofChina’semissions,mostlyinindustrialprocesses.Exportscontributec.20%ofChineseCO2emissions(gross):growingglobalconsumerawarenessofthecarbonfootprintofgoodsandtheprospectofaborderadjustmentoncarbonpricesaddurgencytoChina'snetzeropolicyandhighlighttheimportanceofcarbonmarkets.CarbonomicsChinaNetZero:ThecleantechrevolutionShuoYang,Ph.D.+86106627-3054shuo.yang@ghsl.cnBeijingGaoHuaSecuritiesCompanyLimitedForthefulllistofauthors,seeinside.TrinaChen+8522978-2678trina.chen@gs.comGoldmanSachs(Asia)L.L.C.Thefollowingisaredactedversionoftheoriginalreport.Seeinsidefordetails.AUTHORSSharminiChetwode,Ph.D.+8522978-1123sharmini.p.chetwode@gs.comGoldmanSachs(Asia)L.L.C.PollyTao+8522978-6349polly.tao@gs.comGoldmanSachs(Asia)L.L.C.KeebumKim+8522978-6686keebum.kim@gs.comGoldmanSachs(Asia)L.L.C.ENERGY-OIL&GAS,CARBONOMICSMicheleDellaVigna,CFA+44207552-9383michele.dellavigna@gs.comGoldmanSachsInternationalZoeStavrinou+44207051-2816zoe.stavrinou@gs.comGoldmanSachsInternationalAmberCai+8522978-6602amber.cai@gs.comGoldmanSachs(Asia)L.L.C.ENERGY-UTILITIESChaoJi+86212401-8936chao.ji@ghsl.cnBeijingGaoHuaSecuritiesCompanyLimitedChelseaZhai+86212401-8679chelsea.zhai@ghsl.cnBeijingGaoHuaSecuritiesCompanyLimitedBASICMATERIALSTrinaChen+8522978-2678trina.chen@gs.comGoldmanSachs(Asia)L.L.C.JoyZhang+8522978-6545joy.x.zhang@gs.comGoldmanSachs(Asia)L.L.C.FINANCIALSShuoYang,Ph.D.+86106627-3054shuo.yang@ghsl.cnBeijingGaoHuaSecuritiesCompanyLimitedENERGY-OIL&GAS,REFINING&CHEMICALSNikhilBhandari+656889-2867nikhil.bhandari@gs.comGoldmanSachs(Singapore)PteAUTOANDAUTOPARTSREALESTATEFeiFang+8522978-1383fei.fang@gs.comGoldmanSachs(Asia)L.L.C.OliviaXu+8522978-1521olivia.xu@gs.comGoldmanSachs(Asia)L.L.C.BillWei+86212401-8946bill.wei@ghsl.cnBeijingGaoHuaSecuritiesCompanyLimitedYiWang,CFA+86212401-8930yi.wang@ghsl.cnBeijingGaoHuaSecuritiesCompanyLimitedChinanetzero:Thesisincharts4Chinanetzero:CorporateEcosystem7PMSummary:Chinanetzero20608Chinanetzeroambition:Themostcriticalpieceofthepuzzleforglobalcarbonneutrality18Differentiatedanddistinctemissionsscale,sectoralmixandpathforChina21Thecostcurveofde-carbonizationforChinaisverysteepyethighlightsawiderangeoflow-costopportunities26LayingoutthepathtonetzeroChina30Chinanetzeroandinvestments:US$16tninvestmentopportunityonChina’spathtocarbonneutrality31Chinanetzeroandjobcreation:Potentialforthecreationofc.40mnjobsby206033LayingoutthepathtoanetzeroChina:Asectoraldeepdive34Chinanetzero:Theroleofcarbonsequestration61Chinanetzero:Thepotentialimplicationsfornaturalresourcesdemand64Chinanetzero:AddressingChina’sexportcompetitivenessintheeraofclimatechange66Chinanetzero:WhathavebanksdonetoaddressChina’sgoalforcarbonneutrality?70ChinaETS:Gettingclosertotheimplementationoftheworld’slargestnationalemissionstradingscheme73Appendix:Chinade-carbonizationcostcurvedetails79DisclosureAppendix8120January20212GoldmanSachsCarbonomicsTableofContentsChinaNetZeroStoryinnumbersChina’spledgetoachievenetzerocarbonby2060representstwo-thirdsofthec.48%ofglobalemissionsfromcountriesthathavepledgednetzero…...asthecountryaccountsforc.30%ofglobalCO2emissions(2019),andc.64%oftheincreaseinglobalCO2emissionssince2000......despiteasubstantialreductionofc.40%intheCO2intensityofitseconomicoutput(CO2emissionsperGDP)since2000.China'snetzeropathleads,onourestimates,toaUS$16tncleantechinfrastructureinvestmentopportunityby2060andc.40mnnetnewjobs.Renewablepoweristhemostimportanttechnology,potentiallyaidingthede-carbonizationofc.50%ofChineseCO2emissions...…andweexpectChina’spowergenerationtotripleto2060,drivenmostlybysolar,wind,nuclearandhydrogeneration.Electrificationtransformsroadtransportation,withalmost100%penetrationofnewenergyvehicles(NEVs)by2060requiringa>US$1tninvestmentopportunityincharginginfrastructure......andac.15%riseinannualcopperdemand,withnotableincreasesinaluminium,lithiumandnickeltoo.Cleanhydrogendrivesc.20%ofthede-carbonization,mostlyinindustry,heatingandlong-haultransport……andweestimatethatthemarketforhydrogencouldincrease7xby2060,fromc.25Mtpatoc.170Mtpa.Carboncaptureisanothercriticaltechnologywithawiderangeofindustrialapplications,criticaltodecarbonizec.15%ofthecountry’semissions.Netinternationaltradecontributesc.13%ofChina’sCO2emissionsthroughnetexports(andc.20%forgrossexports)……whosecompetitivenesscouldbeaffectedbyaborderadjustmentofcarbontaxesthatcouldcostChinauptoUS$240bnpaforacarbontaxofUS$100/tnCO2appliedtotheentirecarbonfootprintofgrossexportedemissions......highlightingtheimportanceofaclearde-carbonizationstrategyandtheimplementationofcarbonpricingschemes,withChina’supcomingnationalETSexpectedtobethelargestgloballyandbringthetotalshareofglobalGHGemissionscoveredbycarbonschemestoc.23%.Chinanetzero:ThesisinchartsExhibit1:Chinaaccountsforthemajorityofthec.48%ofglobalemissionsfromcountriesthathavepledgednetzerocarbon...Countriesthathavepledgednetzero(inlaw,inproposedlegislationandinproposedpolicies)Exhibit2:...andfor30%ofglobalCO2emissions,andc.64%oftheincreaseinglobalCO2emissionssince2000...CO2emissions(GtCO2,LHS)andshareofglobalCO2emissionsbyregion(%,RHS)0%5%10%15%20%25%30%35%0.00.00.11.010.0100.0EuropeamUnionGermanyCanadaFranceChileNorwayNewZealandDenmarkChinaUkrainePortugalSwitzerlandEthiopiaLuxembourgLatviaIcelandMarshallIslandsBrazilSingaporeNetzeroinlaworinproposednetzerolegisationNetzeroproposedinpolicydocumentUnderdiscussionShareofglobalCO2emissions(%)LogCO2emissions(GtCO2)in2019CO2emissions(GtCO2)in2019-LHSGlobalshareofCO2emissions(%)in2019-RHS30.3%13%13%11%7%6%6%4%3%3%0%5%10%15%20%25%30%35%024681012142000200620122018200220082014201920042010201620002006201220182002200820142019200420102016200020062012201820022008201420192004201020162000200620122018ChinaUnitedStatesOtherAsia&AsiaPacific(excl.China,India)EuropeIndiaCISMiddleEastAfricaSouth&CentralAmericaNorthAmerica(ex.US)ShareofglobalCO2emissions(%)CO2emissionsbyregion(GtCO2)CO2emissions(GtCO2)ShareofglobalCO2emissions(%)Source:Energy&ClimateIntelligenceUnit,GoldmanSachsGlobalInvestmentResearchSource:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,GoldmanSachsGlobalInvestmentResearchExhibit3:...despiteasubstantialreductionintheCO2intensityofitseconomicoutput.ReductioninannualCO2emissionsperunitofannualGDP(%)Exhibit4:CO2emissionsinChinaareskewedtowardsindustryandpowergeneration(c.80%oftotal)...SectoralsplitofCO2emissionsbyregion(%)-60%-50%-40%-30%-20%-10%0%10%20%30%40%UnitedKingdomChinaEU27+UKUnitedStatesCanadaRussiaAustraliaSouthKoreaGlobalMexicoIndonesiaJapanSouthAfricaIndiaBrazilSaudiArabiaIranReductioninannualCO2emissionsperGDP(%reductionintnCO2/k$/yr)%Reductionsince2010%Reductionsince2005%Reductionsince20000%20%40%60%80%100%NorthAmerica(ex.US)USSouth&CentralAmericaIndiaChinaAsiaPacific(excl.China,India)EuropeMiddleEastCISAfricaSectoralsplitofCO2emissions(%)BuildingsOtherindustrial&waste,agricultureIndustrialcombustionPowergenerationTransportSource:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,GoldmanSachsGlobalInvestmentResearchSource:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,GoldmanSachsGlobalInvestmentResearchExhibit5:...whichmakeupthevastmajorityofthecarbonabatementcostcurve.De-carbonizationcostcurveforChina’santhropogenicGHGemissions,basedoncurrenttechnologiesandcurrentcostsExhibit6:Atcurrenttechnologies,weestimatethat75%de-carbonizationwouldcostChinaUS$720bnpaDe-carbonizationcostcurveforChina’santhropogenicGHGemissions,basedoncurrenttechnologiesandcurrentcosts-200-10001002003004005006007008009001,0001,1001,2000.01.02.03.04.05.06.07.08.09.010.011.012.013.014.0Chinacarbonabatementcost(US$/tnCO2eq)ChinaGHGemissionsabatementpotential(GtCO2eq)Powergeneration(coalswitchtogas&renewables)Transport(road,aviation,shipping)Industry(industrialcombustion,processemissions,waste)Buildings(residential&commercial)Agriculture,forestry&otherlanduses(AFOLU)Non-abatableatcurrentconservationtechnologies2020ChinaCarbonomicscostcurve-200-10001002003004005006007008009001,0001,1001,2001,30001234567891011121314Carbonabatementcost(US$/tnCO2eq)ChinaGHGemissionsabatementpotential(GtCO2eq)Annualcost:$220bnpaAnnualCost:$1.8tnpa>90%CChinadede--carbrbonizazationAnnualCost:$720bnpa75%CChinadede--carbrbonizazation50%CChinadede--carbrbonizazationSource:GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearch20January20214GoldmanSachsCarbonomicsExhibit7:China’snetzeropathimpliesaUS$16tncleantechinfrastructureinvestmentopportunityby2060...CumulativeinvestmentopportunityacrosssectorsforChinanetzeroby2060(US$tn)Exhibit8:...creatingc.40mnnetnewjobs.NetjobcreationbridgeonthepathtonetzeroChinaby2060(mn)1.92.00.70.90.52.10.51.20.30.42.71.40.80.516.0024681012141618RenewablepowerNuclearpowerPowernetworksEnergystorage(batteries)TransportEV+FCEVinfrastructureBiofuelsHydrogenplants(SMR+electrolyzer)IndustrialprocessesHydrogenpipelineinfrastructureCCUSNaturalsinksChinanetzero2060TotalinvestmentsCumulativeinvestmentstonetzeroChinaby2060(US$tn)SolarOnshorewindHydro&otherRESOffshorewind17.36.939.7(2.5)(2.7)0.35.110.12.10.12.7(1.4)1.70102030405060Renewableelectricitygeneration(CMI&O&M)Coal-firedelectricitygenerationandheatsupplyCoalmining&dressingNuclearpowergenerationPowernetworksEVcharginginfra.construction,installation,operation,maintenance,…BatteriesandelectrificationequipmentmanufacturingMiningandprocessingofcopperandothermetalsBiofuelsandbioenergyproduction&supplychainCrudeoilextraction,processing&refiningCleanhydrogenmanufacturingjobs(electrolyzermanufacturing)NetjobcreationinChinato2060(mnjobs)Netjobcreationto2060onthepathtoChinanetzero(mn)Construction,installation&manufacturing(CMI)Operation&maintenance(O&M)Source:Companydata,GoldmanSachsGlobalInvestmentResearchSource:UNEP-ILO-IOE-ITUC,EuropeOn,IRENA,NBSC,GoldmanSachsGlobalInvestmentResearchExhibit9:Renewablepoweristhemostimportanttechnology,potentiallyaidingthede-carbonizationofc.50%ofChineseCO2emissions...De-carbonizationcostcurveforChina’santhropogenicGHGemissions,withorangeindicatingthetechnologiesrelyingonaccesstoRESelectricityExhibit10:...asweexpectChina’spowergenerationtotripleby2060...Chinaelectricitygenerationbridgeto2060(thousandTWh)CO2abatement(GtCO2)-200-10001002003004005006007008009001,0001,1001,20001234567891011121314Carbonabatementcost(US$/tnCO2eq)ChinaGHGemissionsabatementpotential(GtCO2eq)De-carbonizationtechnologiesrelyingonaccesstorenewableenergyOtherde-carbonizationtechnologies7.53.65.22.81.44.424.90.05.010.015.020.025.030.0China2019electricitygenerationBaseelectricityincorporatingefficiencyimprovementsGreenhydrogenElecrticvehicles(passenger,trucks)Buildings(30%penetration)IndustryelectrificationofheatChina2060NetzeroelectricityChinaelectricitygeneration(thousandTWh)Source:GoldmanSachsGlobalInvestmentResearchSource:BPStatisticalReview,GoldmanSachsGlobalInvestmentResearchExhibit11:...drivenbysolar,wind,nuclearandhydropowergeneration...Chinaelectricitygeneration(thousandTWh)Exhibit12:...whichdominatethelow-costpartofthecarbonabatementcurve.Chinapowergenerationde-carbonizationcostcurve0510152025302000200220042006200820102012201420162018202020222024202620282030203220342036203820402042204420462048205020522054205620582060Chinapowergeneration(thousandTWh)Coal+CCUSH2CGGTOther(biomass,geothermal)OffshorewindOnshorewindSolarHydroNuclearOilNaturalgasCoalGSProjections-500501001502002500.00.40.81.21.62.02.42.83.23.64.04.4Carbonabatementcost(US$/tnCO2eq)SolarOnshorewindOffshorewindSolar+batteryWind+batteryNuclearSolar+hydrogenstorageWind+hydrogenstorageHydroH2GCCTCCUSChinaGHGemissionsabatementinpowergeneration(GtCO2eq)Source:BPStatisticalReview,GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearch20January20215GoldmanSachsCarbonomicsExhibit13:CleanHydrogenisthesecondmostimportanttechnology,potentiallydrivingc.20%de-carbonization...De-carbonizationcostcurveforChina’santhropogenicGHGemissions,withblueindicatingthetechnologiesrelyingoncleanhydrogenExhibit14:...followedbyCarbonCapture,whichiskeytode-carbonizingChina’sindustrialprocessemissions.MergedconservationandsequestrationcostcurveincludingCCUSandnaturalsinks-200-10001002003004005006007008009001,0001,1001,20001234567891011121314Carbonabatementcost(US$/tnCO2eq)ChinaGHGemissionsabatementpotential(GtCO2eq)De-carbonizationtechnologiesrelyingoncleanhydrogenOtherde-carbonizationtechnologies-2000200400600800100012000.01.02.03.04.05.06.06.97.98.99.910.911.912.9Chinacarbonabatementcost(US$/tnCO2eq)ChinaanthropogenicGHGemissionsabatementpotential(GtCO2eq)DACCS-$400/tnCO2eqDACCS-$200/tnCO2eqDACCS-$100/tnCO2eqSource:GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearchExhibit15:Electrificationwillleadtoasubstantialriseinthedemandforbasemetals,suchascopperAverageannualincrementalcopperdemandforChinanetzero(MtCu)Exhibit16:13%ofChineseCO2emissions(and16%oftheincreasesince2000)isembeddedinnetexports...ChinaCO2emissionsproduced,consumedandexported(MtCO2)0.00.20.40.60.81.01.21.41.61.82.0NEVs(passengerEVs,EVtrucks,FCEVs)ChargingpointsPowernetworksSolarPVOnshorewindOffshorewindEnergystorageChinaincrementalannualcopperdemandby2060fornetzeroIncrementalannualcopperdemandforChinanetzero(MtCu)13%0%20%40%60%80%100%02,0004,0006,0008,00010,00012,00019901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015201620172018ChinaCO2emissions(MtCO2)Annualproduction-basedCO2emissionsAnnualconsumption-basedCO2emissionsNetexportedCO2emissionsNetexportedCO2emissions(%)-RHSSource:IRENA,InternationalCopperAssociation,GoldmanSachsGlobalInvestmentResearchSource:OurWorldinDataExhibit17:...whosecompetitivenesscouldbeaffectedbyaborderadjustmentofcarbontaxes...CostofChina’sannualgrossexportedemissions(US$bn)Exhibit18:...hencetheimportanceofaclearde-carbonizationstrategyandimplementationofdomesticcarbonpricingschemes.Carbonpricinginitiatives’shareofglobalGHGemissionscovered(%)0501001502002500%20%40%60%80%100%CostofChina'stotalgrossglobalexportedemissions(US$bn)CarbonintensitydifferenceofChina'sexportswithothercountry'slocalproducts(%)Carbonprice-$25/tnCO2Carbonprice-$50/tnCO2Carbonprice-$75/tnCO2Carbonprice-$100/tnCO20%10%20%30%200720082009201020112012201320142015201620172018201920202021EShareofglobalGHGemissionscoveredbycarbonpricing(%)ChinanationalETSEUETSJapancarbontaxSouthAfricacarbontaxKoreaETSGermanyETSMexicocarbontaxCaliforniaCaTGuangdongpilotETSAustraliaERFSafeguardMechanismMexicopilotETSUkrainecarbontaxHubeipilotETSFujianpilotETSKazakhstanETSFrancecarbontaxShanghaipilotETSCanadafederalfuelchargeAlbertaTIEROthersSource:GoldmanSachsGlobalInvestmentResearchSource:WorldBankGroup20January20216GoldmanSachsCarbonomicsPOWERGENERATIONINDUSTRY&WASTEBUILDINGS&AGRICULTURECHINANETZEROCorporateEcosystemMetalminers(lithium,nickel,copper)GanfengLithium[1772.HK/002460.SZ]MMG[1208.HK]JiangxiCopper[0358.HK/600362.SS]Zijin[2899.HK/601899.SS]Heatpumps,boilers&efficiencySanhuaIntelligentControl[002050.SZ]WasionGroup[3393.HK]SinoceraFunctionalMaterial[300285.SZ]Renewablepowerutilities&nuclearRenewableLongyuanpower[0916.HK]DatangRenewable[1798.HK]XinyiEnergy[3868.HK]ZhejiangChint[601877.SS]NuclearCGNpower[003816.SZ]ChinaNationalNuclearPower[601985.SS]Utility-scalebatteriesandelectrolyzermanufacturersYunnanEnergy[002812.SZ]Putailai[603659.SS]SeniorTech[300568.SZ]Sungrow[300274.SZ]ZhejiangNaradaPowerSourceCoLtd[300068.SZ]WindturbinesandsupplychainWindturbinesGoldwind[002202.SZ;2208.HK]MingyangSmartEnergy[601615.SS]TurbinepartsSinomaScience&Tech[002080.SZ],TitanWindEnergy[002531.SZ]JinleiWind[300443.SZ]RiyueHeavyIndustry[603218.SS]SolarpanelsandsupplychainSolarpanels:Longi[601012.SS]JinkoSolar[JKS]JASolar[002459.SZ]TrinaSolar[688599.SS]Solarpoly/wafer/cellDaqo[DQ]Tongwei[600438.SS]GCL-poly[3800.HK]Xinte[1799.HK]Longi[601012.SS]AikoSolar[600732.SS]Zhonghuan[002129.SZ]Solarglass/inverterXinyiSolar[0968.HK]FlatGlass[6865.HK/601865.SS]Sungrow[300274.SZ]Ginlong[300763.SZ]Goodwe[688390.SS]Equipment:ShenzhenSC[300724.SZ]Maxwell[300751.SZ]ZhejiangJingsheng[300316.SZ]TRANSPORTElectricvehiclemanufacturersNIOInc.[NIO]LiAutoInc.[LI]BYDCO.[002594.SZ,1211.HK]GuangzhouAutoGroup[2238.HK,601238.SS]GreatWallMotorCo.[601633.SS,2333.HK]BAICMotorCo.[1958.HK]EVbatterymanufacturersCATL[300750.SZ]BYDCO.[002594.SZ,1211.HK]EVEEnergyCo[300014.SZ]ShanghaiPutailaiNewEnergyCoLtd[603659.SZ]LeadIntelligent[300450.SZ]FuelcellmanufacturersWeichaiPower[300750.SZ]SinoHytecCo[688339.SZ]BiofuelproducersCofcoBiotechnologyCoLtd[000930.SZ]ShandongLongliveBio-technology[002604.SZ]Sinopec[0386.HK,600028.SS;,SNP]PetroChina[0857.HK,601857.SS,PTR]LongyanZhuoyue[688196.SS]Charging/refuelinginfrastructureQingdaoTeldNewEnergy[300001.SZ]SAICAnYoCharging[600104.SS]ShanghaiPotevio[600680.SS]StateGrid[600131.SS]StarChargeEVPowerJiangsuYKCNewEnergyTechnologyHydrogenproductiondistribution&transmissionSinopec[0386.HK,600028.SS,SNP]PetroChina[0857.HK,601857.SS,PTR]CNOOC[0883.HK,CEO]Agriculture&naturalsinksXinghuanForestryDevelopmentCompany(private)GuangxiLonglinForestryDevelopmentCompany(private)HeshengForestSilviculture(private)WenotethatthecorporateecosystempresentedaboveisnotexhaustivePMSummary:Chinanetzero2060China’scommitmenttonetzerowillreshapeitseconomy,startingwiththe14thFive-YearPlan,andtheglobalde-carbonizationeffortOnSeptember22,thePresidentofthePeople’sRepublicofChina,XiJinping,addressingthegeneraldebateofthe75thsessionoftheUnitedNationsGeneralAssembly,statedthatChinaaimstoscaleupitsIntendedNationallyDeterminedContributions,reachingapeakinitscarbondioxideemissionsbefore2030andachievingnetzerocarbonemissionsby2060.LiGao,headofclimatechangeattheMinistryofEcologyandEnvironment,reiteratedthetargetsinOctoberwhilestatingthatthe14thFive-YearPlan(2021-25)periodwillbekeyforChina’sclimateeffortsasthecountryeyesitsnewtargets.Thefinalizedproposalofthe14thFive-YearPlanfromtheParty,thefirstfiveyearsofChina’smovetowardsitssecondcentenarygoal,wasreleasedintheFifthPlenumofthe19thPartyCongressinlateOctober,andthedetailedplandraftwilllikelybesubmittedtotheNationalPeople’sCongress(NPC)forfinalapprovalduringthe“TwoSessions”inMarch2021.Netzerowillserveasaguidingprincipleforpolicymakingthatiscomprehensivelyembeddedintostructuralreforms,investmentpoliciesandinnovationpriorities.China’snetzeroemissionsambitionjoinstherapidlyincreasingnumberofnationalnetzeropledgesworldwidethatencompassc.48%ofglobalemissions(61%ifweincludetheUSnetzeropledgeinJoeBiden’sprogramme).YetthescaleofChinainthecontextofclimatechangeandglobalemissions(Chinaaccountedfor30%oftotalglobalCO2emissionsin2019)anditsongoingeconomicexpansion(accountingforc.64%oftheriseinglobalCO2emissionssince2000)makesthestatedambitionuniqueandacriticalmilestoneforglobalde-carbonizationefforts.WhileChinaiscurrentlytheworld’slargestemissionsproducer,overthepasttwodecades,thecountryhasbeenabletoreduceitsemissionsintensityperunitofGDPbyc.40%,oneofthelargestreductionsamongkeyeconomicregionsglobally(thesecond-largestreductionaftertheUnitedKingdom),meetingthenationaltargetssetoutinkeyclimatechangeagreements,includingitscommitmentslaidoutintheCopenhagenAccordandunderits13thFive-YearPlan(FYP)withinthesettimeline(by2020).NetzerowillrequireChinatoembarkonanambitiousmulti-decadeefforttotransformitseconomyandenergyecosystems.China’semissionsaredistinctnotonlyintermsofscalebutalsosectoralmix.In2019,>80%ofthecountry’semissionswereattributedtotwokeyemittingsectors:powergenerationandindustry&industrialwaste(comparedwithjustc.55%fortheEU,theothermajoreconomicareacommittedtonetzero).ThishighlightsthecriticalroleofenergyforChina(responsibleforpowergeneration,transport,buildingsandalargeshareofindustrialemissions),makingtheevolutionofthecountry’senergymixoneofthemostimportantdeterminantsofthede-carbonizationpathinthenearandmediumterm.Weexpectthismixtoincluderenewablepower,cleanhydrogenandcarboncapture.20January20218GoldmanSachsCarbonomicsTheChinaCarbonomicscostcurveisdominatedbypowerandindustry,hencetheimportanceofrenewables,cleanhydrogenandCarbonCapturetechnologiesInourdeep-divede-carbonizationreport,Carbonomics:Innovation,DeflationandAffordableDe-carbonization,welaidoutourglobalcarbonabatementcostcurve.Inthisreport,weintroduceaChina-specificde-carbonizationcostcurve,including>100differentapplicationsofGHGabatementtechnologiesacrossallkeyemittingsectorsinChina.TheCarbonomicscostcurvecomprisesde-carbonizationtechnologiesthatarecurrentlyavailableatcommercialscale,atthecurrentcostsassociatedwitheachtechnology’sadoptioninlargescale.Weexpectthiscostcurvetobedynamicandevolveovertime,asthesetechnologiesbecomemorewidelyadoptedandeconomiesofscaleandtechnologicalinnovationleadtocostdeflation.Weincludeconservationtechnologies(technologiesresultingintheavoidanceofemissions)andprocess-specificsequestrationtechnologies(technologiesthatsequesteremissionsbackfromanemittingplantatpointsource)acrossallkeyemission-contributingindustries:powergeneration,industry(whichincludesindustrialenergyandprocessemissions)andindustrialwaste,transport,buildingsandagriculture.Weestimatethattheinitial50%ofChina’santhropogenicGHGemissionscanbeabatedatanannualcostofUS$220bnandanaveragecarboncostofUS$32/ton.However,thecostcurvesteepensrapidly,especiallyaswemovebeyond75%de-carbonization,requiringUS$1.8tnpaforfullde-carbonizationattoday’scostsandavailabletechnologies.Thesteepnessofthecostcurvehighlightstheimportanceoftechnologicalinnovation,naturalsinks,directaircarboncapture(DACC)andefficientfinancing,inordertoflattenthecostcurveovertimeandachieveaffordablenetzero.Aswemovetowardsnetzero,thede-carbonizationprocessevolvesfrombeingone-dimensional(renewablepower,dominatinghalfofthelower-costpartofthecostcurve)toamulti-dimensionalcleantechecosystemencompassingfourkeyinterconnectedtechnologiesonthepathtonetzeroemissions:(a)Renewablepower:Thetechnologythatdominatesthe‘low-costde-carbonization’spectrumtodayandhasthepotentialtosupportthede-carbonizationof>45%ofChina’santhropogenicGHGExhibit19:Chinaaccountsfor30%ofglobalCO2emissionsand64%oftheglobalincreaseinCO2emissionssince2000...CO2emissions(GtCO2,LHS)andshareofglobalCO2emissionsbyregion(%,RHS)Exhibit20:...despitereducingitsGDPcarbonintensitymorethananyothermajoreconomy,excepttheUKReductioninannualCO2emissionsperunitofannualGDP(%)30.3%13%13%11%7%6%6%4%3%3%0%5%10%15%20%25%30%35%024681012142000200620122018200220082014201920042010201620002006201220182002200820142019200420102016200020062012201820022008201420192004201020162000200620122018ChinaUnitedStatesOtherAsia&AsiaPacific(excl.China,India)EuropeIndiaCISMiddleEastAfricaSouth&CentralAmericaNorthAmerica(ex.US)ShareofglobalCO2emissions(%)CO2emissionsbyregion(GtCO2)CO2emissions(GtCO2)ShareofglobalCO2emissions(%)-60%-50%-40%-30%-20%-10%0%10%20%30%40%UnitedKingdomChinaEU27+UKUnitedStatesCanadaRussiaAustraliaSouthKoreaGlobalMexicoIndonesiaJapanSouthAfricaIndiaBrazilSaudiArabiaIranReductioninannualCO2emissionsperGDP(%reductionintnCO2/k$/yr)%Reductionsince2010%Reductionsince2005%Reductionsince2000Source:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,GoldmanSachsGlobalInvestmentResearchSource:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,GoldmanSachsGlobalInvestmentResearch20January20219GoldmanSachsCarbonomicsemissions,aswellasbeingcriticalfortheproductionofcleanhydrogenlongerterm(‘green’hydrogen).(b)Cleanhydrogen:Atransformationaltechnologyforlong-termenergystorageenablingincreasinguptakeofrenewablesinpowergeneration,aswellasaidingthede-carbonizationofsomeoftheharder-to-abatesectors,withacriticalroleinseveralindustrialprocesses(iron&steel,petrochemicals),long-haultransport,andheatingofbuildings.(c)Batteryenergystorage:Criticalintheelectrificationoftransportandindustrial-scaleshort-termpowerstorage.(d)Carboncapturetechnologies:Vitalfortheproductionofclean(‘blue’)hydrogen,whilealsoaidingthede-carbonizationofindustrialsub-segmentswithemissionsthatarecurrentlynon-abatableunderalternativetechnologies(suchascement).LayingoutapotentialpathtonetzeroChina:US$16tninfrastructureinvestmentsand40mnnetnewjobsLeveragingtheCarbonomicscostcurve,welayoutapossiblepathtocarbonneutralityforChinaby2060(withpeakemissionsbefore2030),inlinewiththecountry’sstatedlong-termambitions.WenotethatthissimplyoutlinesoneofthemanypossiblepathwaysthatChinacouldfollowinitsde-carbonization.Thepathis,similartoChina’sde-carbonizationcostcurve,reliantoncurrentlyexistingde-carbonizationtechnologies(assumingeconomiesofscalefortechnologiesinthepilotphase)andwillevolvewithcleantechinnovation.OurpathtonetzeroChinaaddresseseachofthecountry’semittingsectors:powergeneration,transport,industry,buildingsandagriculture–utilizingthelower-costde-carbonizationtechnologiesavailable.Forpowergeneration,thisimpliesanon-fossilfuelenergyshareof>95%achievedby2060;forroadtransport,wemodelnewenergyvehiclepenetration(includingBEVs,Exhibit21:Thecostcurveofde-carbonizationforChinaisverysteepyethighlightsawiderangeoflow-costinvestmentopportunitiesDe-carbonizationcostcurveforChina’santhropogenicGHGemissions,basedoncurrenttechnologiesandcurrentcosts,assumingeconomiesofscalefortechnologiesinthepilotphase-200-10001002003004005006007008009001,0001,1001,2000.01.02.03.04.05.06.07.08.09.010.011.012.013.014.0Chinacarbonabatementcost(US$/tnCO2eq)ChinaGHGemissionsabatementpotential(GtCO2eq)Powergeneration(coalswitchtogas&renewables)Transport(road,aviation,shipping)Industry(industrialcombustion,processemissions,waste)Buildings(residential&commercial)Agriculture,forestry&otherlanduses(AFOLU)Emissionsreliantonothercarbonsequestration(naturalsinks,DACCS)Source:GoldmanSachsGlobalInvestmentResearch20January202110GoldmanSachsCarbonomicsPHEVsandFCEVs)ofcloseto100%by2060;forindustry,wefactorintransformationalimprovementsinefficiencyandincreasingpenetrationofcleanhydrogen,electrificationandcarboncapture,aswellasacriticalroleforthecirculareconomy;inbuildings,weassumeaswitchfromfossilfuel-sourcedheatingtocleanhydrogen,electrificationanddeepefficiencyimprovements;andfinally,foragriculture,weassumestrongimprovementsinlandmanagementpractices.Inaggregate,weestimateatotal‘green’infrastructureinvestmentopportunityofUS$16tnby2060–weestimateUS$9tnwillbededicatedtopowergeneration:renewablepower,butalsoamajorupgradeofpowernetworksandpowerstorage;US$1.2tntotransportinfrastructureforEVs;c.US$1.2tntocarbonsequestration(CarbonCaptureandnaturalsinks);andUS$2.6tntohydrogeninfrastructurefortransport,industryandheating.AswehighlightinourreportCarbonomics:Thegreenengineofeconomicrecovery,cleaninfrastructurecanfostermaterialnetjobcreationasittendstobemorecapital-andlabor-intensivecomparedwithtraditionalfossilfuelenergydevelopments,whilebenefitingfromalowercostofcapital,makingitanexampleofasuccessfulpro-growth,pro-environmentinitiative.WeestimatethatChina’spathtowardsitsnetzeroambitioncouldfacilitatethecreationofc.40mnjobsby2060acrosssectors.Weprimarilyfocusontheimpactofdirectemploymentacrossthesupplychain(wedonotaddressindirectandinducedemploymentinthisanalysis).Themajorityoftheemploymentcreationthatweexpectisinsustainableenergyecosystems,dominatedbyrenewablepowergeneration,followedbypowernetworksandelectrificationinfrastructure.Netjoblossesariseincoalminingandprocessing,aswellascoalpowergenerationandcrudeoilextraction,processingandrefining.Wenotethatinthisanalysis,weusetheavailableliteratureregardingemploymentfactors,whichmaynotaccountforfuturelaborefficiencyimprovementsandincreasedautomationacrosstheseprocesses.Exhibit22:WeestimateaUS$16tninfrastructureinvestmentopportunityonthepathtoanetzeroChinaby2060...CumulativeinvestmentopportunityacrosssectorsforChinanetzeroby2060(US$tn)Exhibit23:...withthepotentialtocreatec.40mnjobsby2060acrossallsectorsNetjobcreationbridgeonthepathtonetzeroChinaby2060(mnjobs)1.92.00.70.90.52.10.51.20.30.42.71.40.80.516.0024681012141618RenewablepowerNuclearpowerPowernetworksEnergystorage(batteries)TransportEV+FCEVinfrastructureBiofuelsHydrogenplants(SMR+electrolyzer)IndustrialprocessesHydrogenpipelineinfrastructureCCUSNaturalsinksChinanetzero2060TotalinvestmentsCumulativeinvestmentstonetzeroChinaby2060(US$tn)SolarOnshorewindHydro&otherRESOffshorewind17.36.939.7(2.5)(2.7)0.35.110.12.10.12.7(1.4)1.70102030405060Renewableelectricitygeneration(CMI&O&M)Coal-firedelectricitygenerationandheatsupplyCoalmining&dressingNuclearpowergenerationPowernetworksEVcharginginfra.construction,installation,operation,maintenance,…BatteriesandelectrificationequipmentmanufacturingMiningandprocessingofcopperandothermetalsBiofuelsandbioenergyproduction&supplychainCrudeoilextraction,processing&refiningCleanhydrogenmanufacturingjobs(electrolyzermanufacturing)NetjobcreationinChinato2060(mnjobs)Netjobcreationto2060onthepathtoChinanetzero(mn)Construction,installation&manufacturing(CMI)Operation&maintenance(O&M)Source:Companydata,GoldmanSachsGlobalInvestmentResearchSource:UNEP-ILO-IOE-ITUC,EuropeOn,IRENA,NBSC,GoldmanSachsGlobalInvestmentResearch20January202111GoldmanSachsCarbonomicsChinanetzero:AddressingChina’sexportcompetitivenessintheeraofclimatechangeNettradecontributesc.13%ofChineseCO2emissions(c.20%forgrossexports),andexportcompetitivenesscouldbeanimportantconsiderationintheurgencyofChina’spushfornetzeroatatimeofrisingconsumerawarenessofthecarboncontentofgoodsandservicesandthepotentialfortheEUtorequestaborderadjustmentoncarbontaxesthatcouldhurtthecompetitivenessofChina’shigh-carbonexports.Inthisreport,weaimtoaddressthepotentialimplicationsofabordercarbontaxadjustmentappliedonChina’sexportsandtheresultingimpactonitscompetitiveness.Using2019data,assumingc.20%ofemissionsareembeddedingrossexports,thetotalcostassociatedwithChina’sglobalgrossexportedemissionscouldbeashighasUS$240bnpaforacarbontaxofUS$100/tnCO2intheextremecaseofaglobalapplicationofborderadjustmentsandhighercarbontaxes.ThisanalysisisespeciallyrelevantwhenweconsiderChina’sexportstotheEuropeanUnion,giventhecurrentproposalforacarbonbordertaxadjustmentbytheEU.WeestimatethattheannualcostofacarbonbordertaxadjustmentintheEUforChina’sgrossexportstotheEUcouldbeashighasUS$35bnifacarbontaxofUS$100/tnCO2wereappliedontheentirecarbonfootprint.Iftheadjustmentwereappliedonlytothedifferenceincarbonintensitywithlocallyproducedproducts,thiswouldresultinalowercostestimateofc.US$15bnpa.ToillustratethepotentialimpactofacarbonbordertaxadjustmentimplementedbytheEU,weconsidertheexampleofChina’ssteelexportsintotheregion.DependingonthedifferenceinthecarbonintensityofproducingsteelintheEUcomparedwithChina,acarbontaxwillhavedifferingimpactsonsteelexportprices.UsingthecurrentcarbonintensityofsteelproducedinChinaunderacoalblastfurnaceBF-BOFprocess(2.1tnCO2eq/tnsteel)andcomparingittotheaveragecarbonintensityofsteelproducedintheEUusinganaturalgas-basedDRI-EAFprocess(1.1tnCO2eq/tnsteelwithgridelectricity),wecandeterminetheincrementalcostforsteelexportsbasedonthedifferenceincarbonintensity.TheresultsindicatethataUS$100/tnCO2taxcouldresultinanincreaseinthecostofChina’ssteelexportsofc.US$100/tnsteel–basedonthedifferenceinemissionsintensity.Alternatively,iftheaveragetonneofsteelproducedintheEUreliedonnetzeroelectricity,thenanaturalgasDRI-EAFprocesswouldhaveacarbonintensityof0.6tnCO2/tnsteel,resultinginanincreaseinthepriceofexportedsteelfromChinaofUS$150/tnsteel.AssumingasteelpriceofUS$500/tn,suchapriceincreasewouldbeequivalenttoanincreaseofc.30%inChinasteelexportcost.20January202112GoldmanSachsCarbonomicsTransforming(andgrowing)powergenerationcouldde-carbonizearoundhalfofChina’semissionsElectrificationisacriticaldriverofthepathtonetzero.Weestimatethatc.50%ofthede-carbonizationofChina’scurrentanthropogenicGHGemissionsreliesonaccesstocleanpowergeneration,includingelectrificationoftransport,productionofgreenhydrogenandelectrificationofvariousindustrialprocesses.WeexpectthatthetotaldemandforelectricityinanetzeroChinain2060couldbec.3xthatof2019,furtherstressingtheimportanceofde-carbonizingpowergenerationasquicklyaspossible.Renewableenergy(solar,wind,hydropower,bioenergy)isthekeydriverofpowergenerationde-carbonizationandhasthepotentialtorevolutionizethecurrentenergysysteminChina,complementedbyanimportant,butsecondaryrolefornuclearpower.Carboncapturecouldbeusedtoaidthetransitionforrelativelyyounglifecoalandgaspowerplants,butitsvitalroleinotherpartsofthede-carbonizationpathsuchasindustry(givenalackoflow-costalternatives)makesusbelievethatitislikelytohavealimitedroleinde-carbonizingChina’spowergeneration.Overall,thepathtonetzerowillrequirearadicalchangeinthecountry’senergymixandcurrentenergyecosystems:weestimatethatnon-fossil-sourcedpowergenerationpenetrationwillberequiredtosurpass50%by2030,reachc.70%by2040andexceed85%/95%by2050and2060respectivelyfromc.32%currently–itisdifficulttooverstatetherevolutionaryimpactthiswouldhaveonapowergenerationsystemthatcurrentlyreliesoncoalfor65%ofitselectricityandgenerates40%ofthecountry’sCO2emissions.De-carbonizingpowergenerationwhiletriplingelectricitygenerationwillrequireanattractiveregulatoryandfinancingframeworkforpowergeneration;itwillalsorequireacompleterebuildofthepowernetworkandenergystoragesystem(industrial-scalebatteriesandgreenhydrogen),whichwillberequiredtoconnectrenewablepowerproductionandconsumptionthatsitsinverydistantgeographicalregionsandishamperedbysignificanttimingandseasonalmismatches.Exhibit24:China’snetexportedemissionsamounttoc.13%ofitstotalannualproducedCO2emissions...ChinaCO2emissionsproduced,consumedandnetexported(MtCO2)Exhibit25:...andtheannualcostofagloballyappliedcarbonborderadjustmenttaxonChina’sgrossexportedemissionscouldbeashighasUS$240bnatUS$100/tnCO2,dependingonthedifferenceincarbonintensitybetweenChina’sexportsandtheimportingcountry’slocalproductsPotentialcarbonborderadjustmenttaxcostforChina’sannualgrossgloballyexportedemissions(US$bn)13%0%20%40%60%80%100%02,0004,0006,0008,00010,00012,00019901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015201620172018ChinaCO2emissions(MtCO2)Annualproduction-basedCO2emissionsAnnualconsumption-basedCO2emissionsNetexportedCO2emissionsNetexportedCO2emissions(%)-RHS0501001502002500%20%40%60%80%100%CostofChina'stotalgrossglobalexportedemissions(US$bn)CarbonintensitydifferenceofChina'sexportswithothercountry'slocalproducts(%)Carbonprice-$25/tnCO2Carbonprice-$50/tnCO2Carbonprice-$75/tnCO2Carbonprice-$100/tnCO2Source:OurWorldinDataSource:GoldmanSachsGlobalInvestmentResearch20January202113GoldmanSachsCarbonomicsIndustry:Cleanhydrogen,CCUS,efficiency,circulareconomyandelectrificationsetthesceneforacleantechindustrialrevolutionIndustryiscurrentlythesectorresponsibleforthelargestshareofGHGemissionsproducedinChina(c.48%),with>50%comingfromitsheavyindustries(ferrousandnon-ferrousmetalsmanufacturing,non-metallicmineralssuchascementandpetrochemicals).WebelievefourkeytechnologieswilldriveemissionsabatementinChina’sindustrybeyondastep-upinefficiencyimprovements:cleanhydrogen,carboncapture(CCUS),electrification,andthecirculareconomy.Inparticular,hydrogenhasacriticalroletoplayinanumberofindustrialprocesses,includingreplacingcoalinsteelmills,servingasabuildingblockforsomeprimarychemicalsandprovidinganadditionalcleanfueloptionforhightemperatureheat.Weestimatethatcleanhydrogencouldcontributetoc.20%ofChina’sde-carbonization,withitsaddressablemarketgrowingsevenfoldfromc.25Mtin2019toc.170Mtpainournetzeroscenario.Carboncapture(CCUS)alsoplaysacriticalroleinthede-carbonizationofChina’sindustry.IndustrialCCUSapplicationsinChinacanbecost-efficient,andhavethepotentialtounlockdeepemissionreductionsinChina’smodernindustrialfacilitiesandacrosssomeofthemostdifficulttoabateemissions,suchasthoseproducedinthemanufacturingandprocessingofcement.Weestimatethatc.15%ofChina’santhropogenicGHGemissionscouldbeabatedthroughcarboncapture.Akeyadvantageofcarboncaptureisthatitavoidstheriseofstrandedindustrialassets;manyoftheindustrialplantsinChinaarestillrelativelyyoungandrequireonlymodestretrofitstoexistingplantsandprocesses.Exhibit26:c.50%ofthede-carbonizationofChina’santhropogenicGHGemissionsisreliantonaccesstocleanpowergeneration...De-carbonizationcostcurveforChina’santhropogenicGHGemissions,withorangeindicatingthetechnologiesrelyingonaccesstoRESelectricityExhibit27:...withrenewablepowergrowthneededtosupportthisincreaseinelectricitydemandinanetzeropathChinanetzeroby2060electricitygenerationbridge2019-60(TWh)-200-10001002003004005006007008009001,0001,1001,20001234567891011121314Carbonabatementcost(US$/tnCO2eq)ChinaGHGemissionsabatementpotential(GtCO2eq)De-carbonizationtechnologiesrelyingonaccesstorenewableenergyOtherde-carbonizationtechnologies05,00010,00015,00020,00025,00030,000Chinaelectricitygeneration(2019)Coal,naturalgas&oilretirementsSolarWind(onshore+offshore)HydroOtherRESNuclearH2CCGTCoal+CCUSChinanetzeroelectricitygeneration(2060)Chinabridgetonetzeroelectricitygeneration(TWh)Source:GoldmanSachsGlobalInvestmentResearchSource:BPStatisticalReview,GoldmanSachsGlobalInvestmentResearch20January202114GoldmanSachsCarbonomicsTransportation:Theriseofnewenergyvehicles(NEVs)andthenewcharginginfrastructureinvestmentopportunityTransportation,incontrasttopowergeneration,mostlysitsinthe‘high-cost’spectrumofthede-carbonizationcostcurveandformsacomparativelylowshareofthecountry’sCO2emissionsrelativetootherkeyeconomicregions,at9%.However,asthecountry’smiddleclasscontinuestogrow,weexpectdemandfortransportationtoalsocontinuetogrow,especiallyforpassengerroadvehiclesandaviation;weestimatethatChina’stotalroadfleetwilltripleby2060.Aspartofouranalysis,welayoutthepotentialpathtonetzeroemissionsfortransportationforChina,addressingallofshort-andmedium-haulroadtransport,heavylong-haultransport,rail,domesticaviationanddomesticshipping.Forlight,short-andmedium-haultransport(primarilyconstitutingpassengervehiclesandshort/medium-haultrucks),weconsiderelectrificationasthedominantde-carbonizationtechnology;weestimatethatcharginginfrastructureisa>US$1tninvestmentopportunityforfullelectrificationofroadtransport.Forlong-haulheavytrucks,weconsidercleanhydrogenthepreferredoption,owingtoitsfasterrefuelingtime,lowerweightandhighenergycontent.OurChinanetzeropathwouldrequireNEVpenetrationintheroadtransportfleettoreach20%by2030,closeto70%by2040,90%by2050andalmost100%by2060.Welookatfleetpenetrationinthisanalysisasopposedtovehiclesales,asultimatelythepenetrationofthefleetiswhatdirectlytranslatesintotransportemissions.Aviationisoneofthetoughestsectorstode-carbonize,andwebelievethatbiofuels(sustainableaviationfuels–SAFs),syntheticfuelsandimprovedaircraftefficiencyarecurrentlythekeypartsofthesolution.Fleetrenewalislikelytobeanear-termsolution,withnewgenaircraftsburningc.15%lessfuelthantheirpredecessors.Longerterm,weseebioenergy,andinparticularSAFs,asthekeysolutionforaviationemissionsabatement.OnourpathtonetzeroChina,weestimatecloseto2.5mnbls/dofbiofuelswillberequiredintransportin2060.Exhibit28:>50%ofChina’sindustrialemissionsstemfromitsheavyindustries...ApproximatesplitofChina’sindustrialGHGemissions,2019(%)Exhibit29:...requiringcleanhydrogen,carboncapture(CCUS),electrification,efficiencyandcirculareconomyChinaGHGemissionsassociatedwithindustry,industrialprocessesandwaste(MtCO2eq)32%6%21%9%32%Ferrousmetals(iron&steelalloys)Non-ferrousmetals(ie.aluminium,copper,zinc)Non-metallicminerals(cement,clay,lime)Chemicals(ammonia,methanol,HVCsplastics)Otherunclassified(includesmanufacturingandwaste)01,0002,0003,0004,0005,0006,0007,0008,00020102012201420162018202020222024202620282030203220342036203820402042204420462048205020522054205620582060ChinaGHGemissionsassociatedwithindustry&industrialwaste-MtCO2eqGSpathtonetzeroforindustryCCUSBioenergyHydrogenprocessElectrificationofheatEfficiency&circulareconomyOther(alternativeprocessmaterials)Source:EnergyTransitionsCommission,FAO,IEA,GoldmanSachsGlobalInvestmentResearchSource:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,FAO,GoldmanSachsGlobalInvestmentResearch20January202115GoldmanSachsCarbonomicsChinanetzero:Amaterialupliftinbasemetalsdemand(Copper+15%)AttheheartofthepathtonetzeroChinaby2060liestheneedforaccesstocleanenergyandanacceleratedpaceofelectrificationfortransportandseveralsegmentsofindustry,asweoutlineintheprevioussectionofthisreport.ElectrificationandcleanenergyislikelytohaveanimpactonthetotalChinesedemandfornaturalresources,andinparticularmetalssuchasaluminium,copper,lithiumandnickel,demandforwhichreliesheavilyonanaccelerationintechnologiessuchasrenewables(solarpanel,windturbinesmanufacturing),powernetworkinfrastructure,charginginfrastructure,electricvehiclesandbatterymanufacturing.WeattempttoquantifythepotentialimpactthatthepathtonetzeroChinaby2060,aslaidoutintheprevioussections,willhaveondemandforeachofthesemetals.Theresultsofthisanalysisarecalculatedonthebasisofincrementaldemandforeachcleantechnologyrelativetotheconventionaltechnology(suchasincrementalcopperdemandperelectricvehiclecomparedwithconventionalgasolinevehicles).WefindthatannualcopperdemandinanetzeroChinawillriseby2.0Mt,ac.15%increaseonChina’s2019copperdemand,andrequireacumulativec.77Mtcopperin2020-60onapathconsistentwithnetzero.Exhibit30:Weexpectnewenergyvehicles(includingEVsandFCEVs)toreachalmost100%penetrationintheroadtransportfleet...NEVspenetrationinChina’sroadtransportfleetfornetzero(%)Exhibit31:...withelectricvehiclesthepreferredsolutionforpassengervehiclesandshort/medium-haullighttrucksandwithcleanhydrogenthepreferredsolutionforlong-haulheavytrucksChinaroadvehiclesfleetbridge(2019-60)foranetzeroemissionspath0%10%20%30%40%50%60%70%80%90%100%2005200720092011201320152017201920212023202520272029203120332035203720392041204320452047204920512053205520572059NEVspenetrationinChina'sroadtransportfleet(%)By2030:NEVspenetrationinfleet20%By2040:NEVspenetrationinfleet70%By2050:NEVspenetrationinfleet90%By2060:NEVspenetrationinfleetc.100%0100200300400500600700Chinaroadtransportfleet(2019)ICEnetvehicleretirementsEVpassengervehiclesEVshort,medium,lighttrucksFCEVheavylong-haultrucksChinaroadpassengerfleet(2060)Chinaroadfleet(mnvehicles)Source:GoldmanSachsGlobalInvestmentResearchSource:NBSC,GoldmanSachsGlobalInvestmentResearchExhibit32:Weestimatec.2.0MtincrementalannualcopperdemandforChinanetzero,ac.15%increasefrom2019consumption...Incrementalcopperdemandin2060forChinanetzeroExhibit33:...aswellasamaterialincreaseindemandforelectricvehiclebatterymetalconstituentssuchaslithiumandnickelIncrementaldemandby2060forChinanetzero(Mt)0.00.20.40.60.81.01.21.41.61.82.0NEVs(passengerEVs,EVtrucks,FCEVs)ChargingpointsPowernetworksSolarPVOnshorewindOffshorewindEnergystorageChinaincrementalannualcopperdemandby2060fornetzeroIncrementalannualcopperdemandforChinanetzero(MtCu)0.000.100.200.300.400.500.600.700.80LithiumNickelCobaltIncrementaldemandinChinaby2060netzero(Mt)Source:IRENA,InternationalCopperAssociation,GoldmanSachsGlobalInvestmentResearchSource:Companydata,GoldmanSachsGlobalInvestmentResearch20January202116GoldmanSachsCarbonomicsChinaETS:Gettingclosertotheimplementationoftheworld’slargestnationalemissionstradingschemeWebelievethatcarbonpricingwillbeacriticalpartofanyefforttomovetonetzeroemissions,whileincentivizingtechnologicalinnovationandprogressinde-carbonizationtechnologies.Atpresent,64carbonpricinginitiativeshavebeenimplementedorarescheduledforimplementation,covering46nationaljurisdictionsworldwide,accordingtotheWorldBankGroup,mostlythroughcap-and-tradesystems.Theseinitiativesaregainingmomentum,withthePeople’sRepublicofChinaannouncingtheimplementationofanationalemissionstradingscheme.Thiswouldbetheworld’slargestnationalemissionstradingscheme,bringingatotalof12GtCO2eqofemissions(c.23%oftheworld’stotalGHGemissions)undersomeformofcarbonpricing.TheMinistryofEcologyandEnvironment(MEE)hostedamediaconferenceonJanuary5,2021,confirmingthatthefirstcompliancecycleofChina’snationalETSwaseffectivelyrolledoutonJanuary1,2021.TheETSwillinitiallycoverpowergenerationplants.Itwillallocateallowances(alsoknownaspermits),basedontheplant’sgenerationoutput,withemissionbenchmarksforeachfuelandtechnology.China’sETS,settoexpandtosevenothersectors(aviation,non-ferrousmetals,steel,constructionmaterials,chemicals,petrochemicalsandpapermanufacturing)willbetheworld’slargestglobally.Ultimately,benefitsfromChina’snationalETSwillcomefromeithersurplusallowanceforcompaniesoperatingbelowthebaselinethreshold(e.g.“clean”coalutilities)orcompaniesthatareabletoissueCCERs(e.g.renewableoperators).Thelattercouldalsodrivedemandforrenewableprojects,whichcouldleadtogrowthindemandforrenewableequipment,benefitingupstreamplayers.Amongcoaloperators,thesuggestedbenchmarkislikelytodriveasymmetricriskexposure,withsomepotentiallybenefitingfromtheETS.Webasethisviewontheproposedthresholdsandwhereindustryintensitycurrentlystands.Thecurrentproposedcarbonemissionallowancebaselineis0.877-0.979kg/kWhforconventionalcoalunits,dependingontheirinstalledcapacity,whichwilllikelyaffectsubcriticalcoalplantsastheyhavealowerthermalefficiencyandahigheremissionintensity.Exhibit34:China’snationalETSwouldbetheworld’slargest,bringingtotalglobalemissionscoveredbycarbonpricinginitiativesto23%Carbonpricinginitiatives’shareofglobalGHGemissionscovered(%)Exhibit35:TheChinaETS’proposedcarbonemissionallowancebaselinecould,inthenearterm,potentiallybenefitlower-carbon,moreefficientcoalpowerplantoperatorsEmissionsfromdifferentpowergenerationplants(gCO2/kWh)0%10%20%30%200720082009201020112012201320142015201620172018201920202021EShareofglobalGHGemissionscoveredbycarbonpricing(%)ChinanationalETSEUETSJapancarbontaxSouthAfricacarbontaxKoreaETSGermanyETSMexicocarbontaxCaliforniaCaTGuangdongpilotETSAustraliaERFSafeguardMechanismMexicopilotETSUkrainecarbontaxHubeipilotETSFujianpilotETSKazakhstanETSFrancecarbontaxShanghaipilotETSCanadafederalfuelchargeAlbertaTIEROthers020040060080010001200SubcriticalSupercriticalUltra-supercriticalAdvancedultra-supercriticalIntegratedgasificationcombinedcycle(IGCC)NaturalgasCGGTCoalplantsretrofitedwithCCUSBiomass-CCUSCO2emissionsfrompowergeneration(gCO2/kWh)Emissionallowancebaseline:877-979g/kWhSource:WorldBankGroupSource:IEA,Companydata,GoldmanSachsGlobalInvestmentResearch20January202117GoldmanSachsCarbonomicsChinanetzeroambition:ThemostcriticalpieceofthepuzzleforglobalcarbonneutralityOnSeptember22,thePresidentofthePeople’sRepublicofChina,XiJinping,addressingthegeneraldebateofthe75thsessionoftheUnitedNationsGeneralAssembly,statedthatChinaaimstoscaleupitsIntendedNationallyDeterminedContributions,orthepost-2020climateactioncommitmentssubmittedbycountriesbeforereachingthe2015ParisAgreement,byadoptingmorevigorouspoliciesandmeasures.PresidentXiJinpingannouncedthatChinaeyesnewtargets:reachingapeakinitscarbondioxideemissionsbefore2030andachievingnetzerocarbonemissionsby2060.LiGao,headofclimatechangeattheMinistryofEcologyandEnvironment,reiteratedthetargetsinOctoberwhilestatingthatthe14thFive-YearPlan(2021-25)periodwillbekeyforChina’sclimateeffortsasthecountryeyesitsnewtargets.TheFive-YearPlans,asoutlinedinourAsiastrategists’report,areaseriesofsocialandeconomicdevelopmentinitiativesissuedsince1953inthePRCinwhichstrategiesforeconomicdevelopment,growthandreformtargetsaremappedoutbythePartyforthenextfiveyears.WhileeachFive-YearPlanisimportantinitsownright,thestrategicimportanceofthe14thFive-YearPlanperiod(2021-25)lieswiththefactthatitwillmarkthefirstfiveyearsofChina’smovestowardsitssecondcentenarygoal(2049,the100th-yearanniversaryoftheestablishmentofthePRCin1949)tobuilda“modernsocialistcountry”afterachievementofthefirstcentenary(2021,the100th-yearanniversaryoftheestablishmentoftheCCPin1921)goalofbuildinga“moderatelyprosperoussociety”.Thefinalizedproposalofthe14thFive-YearPlanfromthePartywasreleasedintheFifthPlenumofthe19thPartyCongressinlateOctober,andthedetailedplandraftwilllikelybesubmittedtotheNationalPeople’sCongress(NPC)forfinalapprovalduringthe“TwoSessions”inMarch2021.China’snetzeroemissionsambitionby2060addstotherapidlyincreasingnumberofnationalnetzeropledgesworldwide(asshowninExhibit36).However,China’simportanceinthecontextofclimatechangeandglobalemissions(itaccountedforc.30%oftotalglobalCO2emissionsin2019)anditsstrategicpositionintheglobaleconomy(asoneofthefastestgrowingeconomies)makesthestatedambitionuniqueandacriticalmilestoneforglobalde-carbonizationefforts.Upuntilthispoint,thenationhadyettocommittoalong-termde-carbonizationgoal,althoughithasmetitsnationaltargetssetoutinkeyclimatechangeagreementsoutlinedinExhibit38,includingitscommitmentslaidoutintheCopenhagenAccordandunderits13thFive-YearPlan(FYP),withinthesettimeline(by2020).AchievingthisgoalofnetzeroemissionswouldrepresentamilestoneinmodernChinesehistory,butwebelievethattobeachieveditwillrequireChinatoembarkonanambitiousmulti-decadeefforttotransformitseconomyandenergyecosystems.Netzerowouldhavetoserveasaguidingprincipleforpolicymakingthatiscomprehensivelyembeddedintostructuralreforms,investmentpoliciesandinnovationpriorities.20January202118GoldmanSachsCarbonomicsExhibit36:China’snetzeroemissionsambitionaddstotherapidlyincreasingnumberofnationalnetzeropledgesworldwide,whichnowcoverc.48%ofglobalCO2emissions.ApotentialadditionoftheUnitedStatestothenetzeropledges,assuggestedbyJoeBiden,wouldbringthiscoveragetoc.61%ofglobalCO2emissionsCountriesthathavepledgednetzero(inlaw,inproposedlegislationandinproposedpolicies)0%5%10%15%20%25%30%35%0.00.00.11.010.0100.0EuropeamUnionJapanGermanySouthKoreaCanadaUnitedKingdomFranceSpainChileHungaryNorwaySwedenNewZealandIrelandDenmarkFijiChinaSouthAfricaUkraineAustriaPortugalFinlandSwitzerlandSlovakiaEthiopiaSloveniaLuxembourgCostaRicaLatviaUruguayIcelandLiberiaMarshallIslandsMexicoBrazilColombiaSingaporeOthersNetzeroinlaworinproposednetzerolegisationNetzeroproposedinpolicydocumentUnderdiscussionShareofglobalCO2emissions(%)LogCO2emissions(GtCO2)in2019CO2emissions(GtCO2)in2019-LHSGlobalshareofCO2emissions(%)in2019-RHSDenotesnetzeropledgeisinlaw,Othersunderconsiderationincludesmanycountriesandregions(listnotexhaustive)Source:Energy&ClimateIntelligenceUnit,GoldmanSachsGlobalInvestmentResearchExhibit37:KeyemissionfiguresforChinac.11.5GtCO2CO2emissionsin2019c.30%ofglobalCO2emissionsin201938%increaseinCO2emissionsoverthepast10years%34%reductioninCO2emissionsperGDPoverthepast10years8.12tonsofCO2percapitapa,1.6xtheglobalaveragec.80%ofGHGemissionsfrompowergenerationandindustrySource:WorldBank,EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,GoldmanSachsGlobalInvestmentResearch20January202119GoldmanSachsCarbonomicsExhibit38:Summaryofkeyclimatechangeandde-carbonizationrelatedpledgesandtargetsfromChinaPledgeoragreementTargetsandpledgesdetailsTrackingprogressWhileChinahasnotyetsubmittedalong-termstrategytotheUNFCCC,PresidentXiJinpingmadeChina’sNDCannouncementattheUnitedNationsGeneralAssembly,accompaniedbytheannouncementoftheintentiontoaimtoachievecarbonneutralitybefore2060andpeakemissionsbefore2030.OnDec12,attheClimateAmbitionSummit,PresidentXimadeanimportantspeechtitled"Continuingthepastandopeningthefuturetostartanewjourneyinglobalresponsetoclimatechange",announcingthatChinawillraisenationalvoluntarycontributionstofightclimatechangestoachieveby2030:(1)CarbondioxideemissionsperunitofGDPwillbereducedbymorethan65%comparedto2005(2)Non-fossilenergywillaccountforabout25%ofprimaryenergyconsumption(3)Foreststoragewillincreaseby6billioncubicmeterscomparedto2005(4)Totalinstalledcapacityofwindandsolarpowergenerationwillreachmorethan1,200GWInSeptember2016,ChinaratifiedtheParisAgreementandsubmitteditsNationallyDeterminedContributions(NDCs)totheUNFCCC,including:(1)PeakCO2emissionsby2030atthelatest(2)Increasetheshareofnon-fossilenergysourcesinthetotalprimaryenergysupplytoaround20%by2030(3)LowerthecarbonintensityofGDPby60%to65%below2005levelsby2030(4)Increasetheforeststockvolumebyaround4.5billioncubicmetres,comparedto2005levelsby2030Thefollowingelementswerealsolistedasmeasuresforenhancedclimatechangeaction:-Increasetheshareofnaturalgasinthetotalprimaryenergysupplytoaround10%by2020-ProposedreductionsintheproductionofHCFC22(35%below2010levelsby2020and67.5%by2025)and“controlling”HFC23productionby2020.China’s2020pledgesconsistsofthefollowingelements:(1)ReductionofCO2emissionsperunitofGDPby40–45%below2005levelsby2020.(2)Increasetheshareofnon-fossilfuelsinprimaryenergyconsumptiontoaround15%by2020.(3)Increaseforestcoverageby40millionhectaresandforeststockvolumeby1.3billioncubicmetresby2020from2005levels.Reductionof20%intheenergyintensity(energyconsumptionperunitGDP)c.19%reductionintheenergyintensityby20101)Reductionof17%inthecarbonintensity(emissionsperunitGDP)comparedto20102)Reductionof16%intheenergyintensity(energyconsumptionperunitGDP)comparedto20103)11.4%ofnon-fossilenergyshare4)Forestcoverageof21.7%andforestgrowingstockto14.3bncubicmeters1)20%reductionincarbonintensityachievedby20152)18.2%reductioninenergyintensityachievedby20153)12%non-fossilenergyshareachievedby20154)21.63%forestcoverageand15.1bncubicmofforestgrowingstockachievedby20151)Reductionof40-45%inthecarbonintensity(comparedto2005level)-consistentwiththeCopenhagenAccord.Thereforereductionof18%comparedto20152)Reductionof15%intheenergyintensity(energyconsumptionperunitofGDP)from2015levelsby20203)15%ofnon-fossilenergyshare4)Coalpowercapacitylimitat1,100GW5)Forestcoverageof23.04%1)>40%reductionincarbonintensityachievedin20192)>14%reductioninenergyintensityalreadyachieved3)15%ofnon-fossilenergyshareacheievedin20194)Belowcoalcapacitythresholdin20195)22.96%forestcoveragein2019FYPoutlineand'Vision2035'expectedtobereleasedinMarch2021.11thFYP(2006-2010)12thFYP(2011-2015)13thFYP(2016-2020)14thFYP(2021-25)Summaryofkeyclimatechangeandde-carbonizationrelatednationalpledgesandtargetsfromChinaSummaryofkeyenergyandclimatechangepoliciesandpledgesfromFive-YearPlans(FYP)Long-termambition(announced2020)ParisAgreement(2016,Unconditionaltargetsto2030)CopenhagenAccord(2009,Pledgesto2020)0%10%20%30%40%50%60%70%80%90%100%20052006200720082009201020112012201320142015201620172018201920202030Chinaprimaryenergyconsumptionfuelmix(%)Non-fossilfuelshareFossilfuelsshareParisAgreementNDCs:20%non-fossilfuelshareCopenhagenAccord:15%non-fossilfuelshare-70%-60%-50%-40%-30%-20%-10%0%20052006200720082009201020112012201320142015201620172018201920202030%ChangeinGDPcarbonintensityfrom2005(%)ChinaGlobalCopenhagenAccord:40-45%reductionParisAgreementNDCs:60-65%reduction0246810121416182020052019ChangeForeststockvolume(bncubicm)05010015020025020052019ChangeForestarea(mnhectares)ParisNDCs:4.5bncu.mCopenhagenAccord:1.3bncu.mCopenhagenAccord:40mnhectaresSource:NationalBureauofStatisticsofChina,UNFCCC,WorldBankGroup,NDCRegistry,C2ES,NDRC,EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,GoldmanSachsGlobalInvestmentResearch20January202120GoldmanSachsCarbonomicsDifferentiatedanddistinctemissionsscale,sectoralmixandpathforChinaChina’semissionsaredifferentiatedintermsofscale,pathandsectoralmixcomparedwithotherkeygeographicalregionsgloballyChinaaccountsforc.30%and26%oftotalglobalCO2andGHGemissions,respectively,thesinglecountrywiththehighestshareofglobalemissionsproducedin2019,asshowninExhibit39.Itsemissionspathisdistinctfromthatofotherkeygeographicalandeconomicregions,showingthesteepestaccelerationin2000-10,aperiodmarkedbythestellarriseinChina’seconomicactivity,atatimewhenotherkeyeconomieswereabletostabilizeorevenreduceCO2emissions.Economicgrowthhasbeenaccompaniedbylargeenvironmentalnegativeexternalities,asthecombinationofanenergy-intensivegrowthmodelandcarbon-intensiveenergysupplyhasledtothebuild-upofacomparativelylargecarbonfootprint.China’semissionsaccelerationis,onourestimates,thesourceofc.45%oftheriseinglobalGHGemissionssincethe1970s,asshowninExhibit40.Exhibit39:Chinacurrentlyaccountsforc.30%andc.26%ofglobalCO2andGHGemissions,respectively,higherthananyothercountryorkeygeographicalregionglobally,havingshownapersistentupwardtrendCO2emissions(GtCO2,LHS)andshareofglobalCO2emissionsbyregion(%,RHS)30%13%13%11%7%6%6%4%3%3%0%5%10%15%20%25%30%35%0123456789101112132000200420082012201620192002200620102014201820002004200820122016201920022006201020142018200020042008201220162019200220062010201420182000200420082012201620192002200620102014201820002004200820122016201920022006201020142018ChinaUnitedStatesOtherAsia&AsiaPacific(excl.China,India)EuropeIndiaCISMiddleEastAfricaSouth&CentralAmericaNorthAmerica(ex.US)ShareofglobalCO2emissions(%)CO2emissionsbyregion(GtCO2)CO2emissions(GtCO2)ShareofglobalCO2emissions(%)Source:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,GoldmanSachsGlobalInvestmentResearch20January202121GoldmanSachsCarbonomicsChina’semissionsaredistinctnotonlyintermsofscalebutalsointermsofsectoralmixcomparedwithotherregionsglobally.In2019,c.80%ofthecountry’semissionswereattributedtotwokeyemittingsectors:powergenerationandindustry(includingindustrialcombustion,industrialprocessesandindustrialwaste).Theshareofpowergenerationandindustrialemissionsishigherthaninanyothermajorregionglobally,asshowninExhibit42andExhibit43,withtransportandbuildingsemissionshavingaproportionatelysmallersharecomparedwithotherregions.ThishighlightsthecriticalroleofenergyforChina(responsibleforpowergeneration,transport,buildingsandalargeshareofindustrialemissions),makingtheevolutionofthecountry’senergymixoneofthemostimportantdeterminantsofthede-carbonizationpathinthenearandmediumterm.Exhibit40:GlobalGHGemissionshavedoubledsince1970,withc.45%oftheincreaseattributedtoChinaGHGemissions%increaserelativeto1970baselineandproportionofincreaseattributedtoChinaExhibit41:Thesharpestincreaseinemissionsoccurredin2000-10,whichwasmarkedbythestellarincreaseinChina’seconomicactivityChina’sCO2andGHGemissions(GtCO2eq,LHS)anditsglobalshareofCO2emissions(%,RHS)0%20%40%60%80%100%120%1970197219741976197819801982198419861988199019921994199619982000200220042006200820102012201420162018GHGemissions%increase(from1970baseline)%increaseofGHGemissionsfrom1970baselineShareofGHGemissionsincreaseattributedtoChina1980,8%1990,11%2000,14%2010,27%2019,30%0%5%10%15%20%25%30%35%012345678910111213141970197219741976197819801982198419861988199019921994199619982000200220042006200820102012201420162018China'sCO2emissionsasa%ofglobaltotalCO2emissions(%)ChinaCO2andGHGemissions(GtC02eq)Source:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,FAO,GoldmanSachsGlobalInvestmentResearchSource:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,FAO,GoldmanSachsGlobalInvestmentResearchExhibit42:China’ssectoralemissionsmixisdifferentiated,with>80%ofthecountry’sCO2emissionsattributedtothepowergenerationandindustrysectors...SectoralsplitofCO2emissionsin2019(%)Exhibit43:...whichtogethermakethelargestcontributiontocountrylevelemissionsthaninanyotherkeyregiongloballySectoralsplitofCO2emissionsin2019(%)7%16%29%40%9%0%5%10%15%20%25%30%35%40%45%50%1970197219741976197819801982198419861988199019921994199619982000200220042006200820102012201420162018SectoralsplitofChina'sCO2emissions(%)PowerIndustryIndustrialcombustionOtherindustrial,wasteandagricultureBuildingsTransport0%10%20%30%40%50%60%70%80%90%100%NorthAmerica(ex.US)USSouth&CentralAmericaIndiaChinaAsiaPacific(excl.China,India)EuropeMiddleEastCISAfricaSectoralsplitofCO2emissions(%)BuildingsOtherindustrial&waste,agricultureIndustrialcombustionPowergenerationTransportSource:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,GoldmanSachsGlobalInvestmentResearchSource:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,GoldmanSachsGlobalInvestmentResearch20January202122GoldmanSachsCarbonomicsDespitetheriseinabsoluteemissions,ChinahassuccessfullyreducedtheemissionsintensityofitsGDPoverthepast20years,facilitatingmoresustainableeconomicgrowth...WhileChinaiscurrentlytheworld’slargestemissionsproducer,overthepasttwodecades(since2000),thecountryhasbeenabletoreduceitsemissionsintensityperunitofGDP(CO2emissionsperthousandUS$GDP)byc.40%,oneofthelargestreductionsamongkeyeconomicregionsglobally(thesecond-largestreductionaftertheUnitedKingdom,asshowninExhibit46)andhasachievedinthesametimeframethelargestabsolutereductioninemissionsintensity(Exhibit45),accountingforthelargedownwardshiftintheglobalGDPemissionsintensitycurveshowninExhibit44.Therefore,whilethecountry’sabsoluteemissionshavebeentrendingupwards,whenadjustingforeconomicgrowth,Chinahasbeenabletoconsistentlyachievemoresustainablegrowthoverthepasttwodecades.Exhibit44:WhileChina’scurrentemissionsintensityperunitofGDPexceedstheglobalaverage,thecountryhasachievedoneofthelargestreductionsinGDPemissionsintensityoverthepast20years,accountingforthelargedownwardshiftintheglobalGDPemissionsintensitycurveGDPCO2emissionsintensitycurve(tnCO2/k$byregionvs.globaltotalCO2anthropogenicemissions)AustraliaUnitedStatesRussiaChinaEU27averageUKGlobalaverage-0.10.10.30.50.70.91.11.31.50.05.010.015.020.025.030.035.040.0CO2emissionsperGDPcurve(tnCO2/k$GDP)TotalglobalanthropogenicCO2emissions(GtCO2)2000200520102015201920192015201020052000ChinaChinaChinaChinaSource:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,GoldmanSachsGlobalInvestmentResearchExhibit45:Chinahasoverthepast20yearsachievedthelargestabsolutereductioninCO2emissionsperunitofGDP...ReductioninannualCO2emissionsperunitGDP(tnCO2/k$pa)Exhibit46:...andoneofthehighestin%terms,followingtheUnitedKingdom,amongkeyemittingregionsgloballyReductioninannualCO2emissionsperunitGDP(%)-0.50-0.40-0.30-0.20-0.100.000.100.20ChinaUnitedStatesUnitedKingdomAustraliaGlobalIndiaSouthKoreaEU27+UKRussiaCanadaSouthAfricaMexicoJapanSaudiArabiaIndonesiaBrazilIranReductioninannualCO2emissionsperGDP(tnCO2/k$/yr)Reductionsince2010Reductionsince2005Reductionsince2000-60%-50%-40%-30%-20%-10%0%10%20%30%40%UnitedKingdomChinaEU27+UKUnitedStatesCanadaRussiaAustraliaSouthKoreaGlobalMexicoIndonesiaJapanSouthAfricaIndiaBrazilSaudiArabiaIranReductioninannualCO2emissionsperGDP(%reductionintnCO2/kUSD/yr)%Reductionsince2010%Reductionsince2005%Reductionsince2000Source:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,GoldmanSachsGlobalInvestmentResearchSource:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,GoldmanSachsGlobalInvestmentResearch20January202123GoldmanSachsCarbonomics...andmaintainsanaverageemissionsintensitypercapitathatisbelowmanyofthekeyeconomicregionsgloballyandclosetotheglobalaverageChina’s2019CO2emissions(producedatacountrylevel)percapitascreenbroadlyinlinewiththeglobalaverageandarestillwellbelowthoseofotherkeyregionsglobally(asshowninExhibit47).CountrieswithhigherGDP/capitaalsotendtohavehigherCO2emissions/capita.ThisisconsistentwiththeupwardtrendobservedinChina’sCO2emissionspercapitaoverthepasttwodecades,asshowninExhibit48.Exhibit47:China’sproducedCO2emissionspercapita(2019)screenbroadlyinlinewiththeglobalaverageandbelowthoseofotherkeyeconomicregionsgloballyCO2emissionsproducedineachcountrypercapita(tnCO2/cap)andGDPpercapita(k$/cap)for2019GermanyFranceUnitedKingdomItalySpainPolandTurkeyRussiaUnitedStatesCanadaBrazilAustraliaSouthKoreaJapanChinaIndiaUAEKuwaitSaudiArabiaIran024681012141618202224261.02.04.08.016.032.064.0128.0CO2emissionsproducedpercapita(tnCO2/cap)LogGDPpercapita(k$/cap)EuropeNorthAmericaAfricaSouth&CentralAmericaAsia&AsiaPacificMiddleEastNote:BubblesizerepresentstherelativesizeofCO2emissionsproducedineachcountryn2019Source:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,GoldmanSachsGlobalInvestmentResearchExhibit48:WhileChina’sCO2emissionspercapitaarebelowthelevelofmanyotherkeyeconomicregionsglobally,theyhaveincreasednotablyoverthepasttwodecades...CO2emissionspercapitapa(tnCO2/cap/yr)Exhibit49:...movinghigherontheCO2intensitypercapitacurveCO2emissionsintensitypercapitacurve(tnCO2/capbyregionvs.globaltotalCO2anthropogenicemissions)05101520251970197219741976197819801982198419861988199019921994199619982000200220042006200820102012201420162018CO2emissionspercapitaperannum(tnCO2/capita/yr)EU27+UKGlobalRussiaUnitedStatesChinaAustraliaUnitedStatesRussiaChinaEU27averageUK05101520253035400.05.010.015.020.025.030.035.040.0CO2emissionspercapitacurve(tnCO2/capita/pa)TotalglobalanthropogenicCO2emissions(GtCO2)2000200520102015201920192015201020052000Source:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0Source:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,GoldmanSachsGlobalInvestmentResearch20January202124GoldmanSachsCarbonomicsTheongoingurbanizationtrendinChinamayseeemissionspercapitarisetowardslevelsofotherdevelopedeconomiesintheabsenceofanetzeroemissionstrajectoryChina’surbanpopulationhasincreasedsharplyfromc.100million(1960)tomorethan800millionin2019,withc.60%ofChina’spopulationcurrentlylivinginurbanareas.Asaresult,thepopulationdensityinurbanareasinChinahasincreasedbyalmostthreetimesoverthepastthreedecades(since1990),asshowninExhibit51,andthecountrycurrentlyshowsamongthelargestpopulationdensitydiscrepanciesbetweenurbanandruralareasglobally,asshowninExhibit52.Large-scaleurbanizationinChinahasledtounprecedentedurbanexpansionandinfrastructuredevelopment.Theurbanizationtrendandthemigrationfromruralandurbanareasistypicallyassociatedwithhigherdisposableincomesandsubsequentlyhigherconsumptionexpenditure,asshowninExhibit53,resultinginhigheremissionsfromthissource.Exhibit50:TheurbanizationtrendinChinacontinues,withc.60%ofthecountry’spopulationcurrentlylivinginurbanareasvs.<30%threedecadesago(1990)...UrbanandruralshareofChina’spopulation(%)Exhibit51:...andthepopulationdensityinurbanareashasincreasedalmostthreefoldduringthistimeframe...Chinapopulationdensity(ppl/km3)0%10%20%30%40%50%60%70%80%90%196019621964196619681970197219741976197819801982198419861988199019921994199619982000200220042006200820102012201420162018%oftotalChina'spopulationinurban/ruralareasUrban%oftotalpopulationRural%oftotalpopulation05001,0001,5002,0002,500196019621964196619681970197219741976197819801982198419861988199019921994199619982000200220042006200820102012201420162018China'spopulationdensity(population/km2)UrbanRuralChinatotalSource:WorldBankGroupSource:WorldBankGroup,GoldmanSachsGlobalInvestmentResearchExhibit52:...resultinginthelargestpopulationdensitydiscrepancybetweenurbanandruralareasamongkeyregionsgloballyPopulationdensityforruralandurbanregions,andnationalaverageforkeyregionsglobally(ppl/km2)Exhibit53:Urbanhouseholds’averagedisposableincomeandconsumptionexpenditureare>2xhigherthanruralhouseholds’,resultinginhigherconsumptionemissionsChinesehouseholddisposableincome,consumptionexpenditure(yuan,2018)05001000150020002500ChinaEuropeanUnionUnitedStatesRussiaMiddleEastAustraliaIndiaUKPopulationdensity(population/km2)UrbanpopulationdensityRuralpopulationdensityOverallpopulationdensity020,00040,00060,00080,000100,000LowincomeLowmiddleincomeMiddleincomeUppermiddleincomeHighincomeMiddleincomeHouseholddisposableincomepercapitaHouseholdconsumptionexpenditurepercapitaHouseholddisposableincome,consumptionexpenditure(yuan,2018)RuralUrbanNationalaverageSource:WorldBankGroup,GoldmanSachsGlobalInvestmentResearchSource:NationalBureauofStatisticsofChina,GoldmanSachsGlobalInvestmentResearch20January202125GoldmanSachsCarbonomicsThecostcurveofde-carbonizationforChinaisverysteepyethighlightsawiderangeoflow-costopportunitiesInourdeep-divede-carbonizationreport,Carbonomics:Innovation,DeflationandAffordableDe-carbonization,weintroducedourglobalcarbonabatementcostcurve.Wenowintroduceourfirstregional,China-specificde-carbonizationcostcurve.TheCarbonomicsde-carbonizationcostcurveshowsthereductionpotentialforanthropogenicGHGemissionsproducedinChinarelativetothelatestreportedChinaanthropogenicGHGemissions.Itprimarilycomprisesde-carbonizationtechnologiesthatarecurrentlyavailableatcommercialscale(commercialoperation&development),presentingthefindingsatthecurrentcostsassociatedwitheachtechnology’sadoption.Weincludeconservationtechnologies(technologiesresultingintheavoidanceofemissions)andprocess-specificsequestrationtechnologies(technologiesthatsequesteremissionsbackfromtheatmosphere,suchasindustrialcarboncapture)acrossallkeyemission-contributingindustries:powergeneration,industry(whichincludesindustrialenergyandprocessemissions)andindustrialwaste,transport,buildingsandagriculture.OurChinade-carbonizationcostcurveaddresses>100differentapplicationsofGHGconservationtechnologiesacrossallkeyemittingsectorsinChina,asshowninExhibit54.Wenotethatthiscurveisconstructedonthebasisofcurrentcostsassociatedwitheachtechnologyandassuchislikelytobeadynamiccostcurvethatevolvesovertime,asthesetechnologiesbecomemorewidelyadoptedandaseconomiesofscaleandtechnologicalinnovationleadtocostdeflation.Exhibit54:China’sde-carbonizationcostcurveshowsanabundanceoflow-costde-carbonizationopportunities(mostlytechnologiesassociatedwithenergyemissionsabatement)yetbecomesverysteepbeyond75%de-carbonizationonthepathtonetzeroDe-carbonizationcostcurveforChina’santhropogenicGHGemissions,basedoncurrenttechnologiesandcurrentcosts,assumingeconomiesofscalefortechnologiesinthepilotphase-200-10001002003004005006007008009001,0001,1001,2000.01.02.03.04.05.06.07.08.09.010.011.012.013.014.0Chinacarbonabatementcost(US$/tnCO2eq)ChinaGHGemissionsabatementpotential(GtCO2eq)Powergeneration(coalswitchtogas&renewables)Transport(road,aviation,shipping)Industry(industrialcombustion,processemissions,waste)Buildings(residential&commercial)Agriculture,forestry&otherlanduses(AFOLU)Emissionsreliantonothercarbonsequestration(naturalsinks,DACCS)Source:GoldmanSachsGlobalInvestmentResearch20January202126GoldmanSachsCarbonomicsExhibit55:Summaryofkeytechnologiesconsideredintheconstructionofthede-carbonizationcostcurveforChinaalongwiththesectoralsplitofitsGHGemissionsTRANSPORTATIONPOWERGENERATIONBUILDINGSAGRICULTURE•DomesticAviation:Theswitchtoamoreefficientaircraftmodelisconsideredaviableoptionforpartialde-carbonizationinthenearterm.Sustainableaviationfuels(SAFs,biojet)remainthesolecommerciallyavailablede-carbonizationroutelongerterm.•DomesticShipping/marine:LNGshipsatechnologicaloptionforshipsmeetingathresholdsize,marinebiofuelsanotherviabletechnology,withcleanammoniarunshipsthekeyde-carbonizationtechnologylongerterm.•Roadshort-haultransport:EVsthekeytechnologyforroadpassengertransport,withasmallproportionofde-carbonizationachievedthroughroadbiofuelsforplaceswithconstrainedelectrificationinfrastructure.•Roadheavylong-haultransport:Electrificationofshortandmediumhaultrucksandbusesaviableoption.HydrogenFCEVsthemostpromisingde-carbonizationoptionforlong-haulheavytruckroutesandforklifts.•Rail:Railelectrificationandhydrogenruntrainsthetwode-carbonizationsolutionsconsidered.•Switchfromcoaltorenewables:Switchfromcoalpowerplantstorenewableenergysourcesincludingsolar,onshorewind,offshorewind,bioenergy,hydropowerisconsideredtheultimatede-carbonizationsolutionwhichcanachievefullemissionsabatementforpowergenerationsystemsinthepresenceofstoragesolutions.Weconsideredtheswitchtoalloftheserenewableenergysourcesinthepresenceofbatteries(forintradaystorage)andcleanhydrogen(forseasonalstorage).•SwitchfromgastohydrogenCGGTs:Whilstgascanactasatransitionfuel,weconsidertheswitchofexistingnaturalgasCGGTStohydrogenCGGTsinthelong-run.•Energystorage:Batteriesakeytechnologyforintradaystoragewithcleanhydrogenthepreferredsolutionforseasonalstorageenablingthefulluptakeofrenewablesinthepowergenerationsystem.•Switchtonuclear:Chinamaintainsarobustnuclearenergyexpansionprogramandwethereforeconsideritsroleissupportingtheabovede-carbonizationsolutions.De-carbonizationtechnologies•EfficiencymeasuressuchasImprovedlandmanagementandlivestockmanagementpractices:Improvedcropland,grazinglandandlivestockmanagementpracticescanhelptooptimizeresourceusefortheagriculturesector.•Precisionagriculture:theuseoftechnologytooptimizecropyields,minimizeexcessuseofnutrientsandpesticidescouldallpotentiallycontributetoreducedrawmaterialandenergyneedsforthesector.De-carbonizationtechnologies•Energy&heating:Hydrogenandrenewableelectricity-runheatpumpsarethetwokeytechnologiescurrentlycommerciallyavailableforde-carbonizationofbuildingslonger-term.Naturalgascanactasatranstionfuelwithinfratsructurepotentiallyutilizedforcleanhydrogenlonger-term.Weconsiderbothinourcostcurve.•Efficiency:Efficiencyimprovementscanreducetheenergyneedsforheatingandelectricityandarethusviableoptionsforde-carbonization.SwitchtoLEDlighting,additionofcavitywallinsulation,useofthermostatsandhighestefficiencyHVACsystemscanallcontributetoefficiencyimprovements.De-carbonizationtechnologiesINDUSTRY&WASTE•Industrialcombustion:Acrossmajoremittingindustrialsectors,>50%ofemissionsareassociatedwiththeuseofenergy,primarilythroughindustrialcombustion(heat)processes.Switchfromcoal,naturalgastobiomass,biogas,electricityorcleanhydrogenarethekeytechnologiesinde-carbonizingenergy-relatedemissionsinindustry.•Cement:Processemissionsassociatedwiththematerialsinvolvedsuchasclinker.Reducingtheratioofclinkertocementakeytechnology,alongwithCCUS.•Iron&Steel:TheswitchfromBF-BOFprocesstonaturalgasorhydrogenbasedDIR-EAFapossibleneartermde-carbonizationoption.Theroleofscrapandcirculareconomyisalsocritical.•Petrochemicals:Cleanhydrogen(eitherblueorgreen)andbioenergycouldaidthede-carbonizationofprocess/rawmaterial-relatedemissions.Recyclingandcirculareconomyalsocritical.•Efficiency:Acrossallindustrialprocesses,improvementsinefficiency&recyclinghavethepotentialtoaidde-carbonization.De-carbonizationtechnologiesDe-carbonizationtechnologies48%ChinaGHGemissionssplit6%5%33%7%-200-10001002003004005006007008009001,0001,1001,2000.01.02.03.04.05.06.07.08.09.010.011.012.013.014.0Chinacarbonabatementcost(US$/tnCO2eq)ChinaGHGemissionsabatementpotential(GtCO2eq)Powergeneration(coalswitchtogas&renewables)Transport(road,aviation,shipping)Industry(industrialcombustion,processemissions,waste)Buildings(residential&commercial)Agriculture,forestry&otherlanduses(AFOLU)Emissionsreliantonothercarbonsequestration(naturalsinks,DACCS)Source:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,FAO,GoldmanSachsGlobalInvestmentResearch20January202127GoldmanSachsCarbonomicsTheCarbonomicscostcurveresults,onourestimates,inac.US$1.8tnpatotalcostforChina’spathtonetzeroemissionsTheconstructionofourde-carbonizationcostcurveforChinaenablesustoestimatethetotalannualcostofGHGemissionsabatementachievedthroughtheexisting,large-scalecommerciallyavailablede-carbonizationtechnologiesaddressedinourcostcurve(Exhibit55).AsshowninExhibit56,theinitialc.50%ofChina’santhropogenicGHGemissions,whatweclassifyas‘low-costde-carbonization’,canbeabatedatanestimatedannualcostofc.US$220bn.However,giventhesteepnessofthecostcurve,aswemovebeyond75%de-carbonization,weentertheterritoryof‘high-costde-carbonization’,whichrequiresuptoc.US$1.8tnpafor90%de-carbonizationachievableintheabsenceofnon-processspecificsequestration(naturalsinksanddirectaircarboncapture).Overall,thisimpliesuptoc.US$1.8tnofannualcostasChinaapproachesnetzeroby2060.Wenotethattheremaining10%ofChina’santhropogenicemissions,intheabsenceofnewtechnologies,willhavetorelyonnon-processspecificcarbonsequestrationforabatement–naturalsinksanddirectaircarboncapture(DACCS),whichweaddressseparatelyinalatersectioninthisreport.Wealsonotethatthiscurveisconstructedonthebasisofcurrentcostsassociatedwitheachtechnologyandassuchislikelytobeadynamiccostcurvethatevolvesovertime,asthesetechnologiesbecomemorewidelyadoptedandaseconomiesofscaleandtechnologicalinnovationleadtocostdeflation.Exhibit56:TheCarbonomicscostcurveforChinaimpliesanannualcostofc.US$1.8tnonthepathtonetzero,yetwithplentyoflowcostde-carbonizationopportunities;c.50%de-carbonizationispotentiallyachievablewithanannualcostofUS$220bnChinacarbonabatementcostcurveforChina’santhropogenicGHGemissionswithcumulativeareaunderthecurve,basedoncurrenttechnologiesandassumingeconomiesofscalefortechnologiesinpilotphase2020ChinaCarbonomicscostcurve-200-10001002003004005006007008009001,0001,1001,2001,30001234567891011121314Carbonabatementcost(US$/tnCO2eq)ChinaGHGemissionsabatementpotential(GtCO2eq)Annualcost:$220bnpaAnnualCost:$1.8tnpa>90%CChinadede--carbrbonizazationAnnualCost:$720bnpa75%CChinadede--carborbonizazation50%CChinadede--carbonbonizazationSource:GoldmanSachsGlobalInvestmentResearch20January202128GoldmanSachsCarbonomicsThefourkeytransformationaltechnologieswiththepotentialtoreshapethecostdynamicsofChina’sde-carbonizationcostcurveLookingatChina’sde-carbonizationcostcurve,wenotethataswemovetowardsnetzero,theevolutionoftheenergymixislikelytobeoneofthemostcriticaldeterminantsofthecountry’sde-carbonizationpath.AswehighlightinourCarbonomicsreports,weexpectthede-carbonizationprocesstoevolvefrombeingone-dimensional(renewablepower)toamulti-dimensionalecosystem.Fourtechnologiesareemergingastransformational,potentiallyhavingaleadingroleinthefutureevolutionofChina’scostcurveandthepathtonetzeroemissions.Notably,allofthesetechnologiesareinterconnected:(a)Renewablepower:Thetechnologythatdominatesthe‘low-costde-carbonization’spectrumtodayandhasthepotentialtofacilitatethede-carbonizationofc.50%ofChina’santhropogenicGHGemissions,supportinganumberofsectorsincludingpowergenerationandsectorsthatrequireelectrification,aswellasbeingcriticalfortheproductionofcleanhydrogenlongerterm(‘green’hydrogen).(b)Cleanhydrogen:Atransformationaltechnologyforlong-termenergystorageenablingincreasinguptakeofrenewablesinpowergeneration,aswellasaidingthede-carbonizationofsomeoftheharder-to-abatesectors,withacriticalroleinseveralindustrialprocesses(iron&steel,petrochemicals),long-haultransport,andheatingofbuildings.(c)Batteryenergystorage:Extendsenergystoragecapabilities,andiscriticalinthede-carbonizationofshort-haultransportthroughelectrificationandutilityintradaystorage.(d)Carboncapturetechnologies:Vitalfortheproductionofclean(‘blue’)hydrogeninthenearterm,whilealsoaidingthede-carbonizationofindustrialsubsegmentswithemissionsthatarecurrentlynon-abatableunderalternativetechnologies(suchascement).De-carbonizationcostcurveTransformationaltechnologiesCleanHydrogenBatteriesLowcarbonelectricityCarbonsequestration(CCUS,naturalsinks)Source:GoldmanSachsGlobalInvestmentResearch20January202129GoldmanSachsCarbonomicsLayingoutthepathtonetzeroChinaWelayoutthepossiblepathtonetzeroandcarbonneutralityforChinato2060,inlinewiththecountry’sstatedlong-termambitionAspartofthisreport,welayoutapossiblepathtonetzeroandcarbonneutralityforChinato2060(withpeakemissionsbefore2030),inlinewiththecountry’sstatedlong-termambition.WenotethatthispathsimplyoutlinesoneofthemanypossibleroutesthatChinacouldfollowinitsde-carbonization,andis,similartoChina’sde-carbonizationcostcurve(Exhibit54),reliantoncurrentlyexistingde-carbonizationtechnologies(assumingeconomiesofscalefortechnologiesinpilotphase).OurpathtonetzeroChinaisdevelopedusingbothbottom-up(analysisofeachsectorseparately)andtop-downapproaches(ahybridapproach),andaddresseseachofthecountry’semittingsectors:powergeneration,transport,industry(includingindustrialcombustion,industrialprocessesandwaste),buildingsandagriculture.Overall,weexpectallofthekeytechnologiesaddressedinourde-carbonizationcostcurvetoplayaroleinfacilitatingthepathtonetzeroChina,eachintheirrespectivesector.Forpowergeneration,thisimpliesanon-fossilfuelenergyshareof>95%achievedby2060;forroadtransport,thisimpliesnewenergyvehiclespenetration(includingBEVs,PHEVsandFCEVs)ofcloseto100%by2060;forindustry,animperativeimprovementinefficiencyandincreasingpenetrationofcleanhydrogen,electrificationandcarboncapture,aswellasthecriticalroleofcirculareconomy;inbuildings,itimpliesaswitchfromfossilfuel-sourcedheatingtocleanhydrogen,electrificationandtherelevantefficiencyimprovements;andforagriculture,itassumestherequiredimprovementinlandmanagementpractices.TheresultingemissionspathforChinacarbonneutralityby2060ispresentedinExhibit57andExhibit58below.Exhibit57:Aspartofthisreport,welayoutapossiblepathforChinatoreachnetzeroemissionsby2060,inlinewiththecountry’sstatedambition...ChinaanthropogenicGHGemissions(GtCO2eq)pathtonetzero(incl.naturalsinks)Exhibit58:...withacontributionfromallkeyemittingsectorsandcarbonsequestrationChinaanthropogenicGHGemissionspathtonetzero(excl.naturalsinks)(GtCO2eq)-4.0-2.00.02.04.06.08.010.012.014.016.0202020222024202620282030203220342036203820402042204420462048205020522054205620582060ChinaGHGemissions(GtCO2eq)NaturalsinksCCUSAgricultureBuildingsTransportIndustry,industrialwaste&otherfugitivePowergenerationNetemissions0.02.04.06.08.010.012.014.016.02000200220042006200820102012201420162018202020222024202620282030203220342036203820402042204420462048205020522054205620582060ChinaGHGemissions(GtCO2eq)ChinaGSpathtonetzeroCCUSPowergenerationIndustry,industrialwaste&otherfugitiveTransportAgriculture,forestryandotherlanduseBuildingsCurrentpotentialpath(statedpolicies)Source:GoldmanSachsGlobalInvestmentResearchSource:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,FAO,GoldmanSachsGlobalInvestmentResearch20January202130GoldmanSachsCarbonomicsChinanetzeroandinvestments:US$16tninvestmentopportunityonChina’spathtocarbonneutralityThepathtonetzeroChinapresentsac.US$16tninvestmentopportunityto2060,onourestimatesApathtoanetzeroChinaby2060hasthepotentialtotransformnotonlyChina’senergyecosystemsbutalsoitsindustryandsociety’sstandardofliving.Exhibit59showsthewiderangeofinvestmentopportunitiesassociatedwithwhatwebelievearethekeytechnologiesrequiredtoachievenetzeroemissionsinChinaby2060.Theseinclude,amongothers,theincreasinguptakeofrenewableenergyandbioenergy,anincreasingfocusoninfrastructureinvestmentsfornetworksandchargingstationsthatwillenableaneweraofelectrification(aswehighlightinourreportFromPumptoPlug),anupgradeofindustrialplants(thecleanestavailablealternativetechnology),anupgradeofexistingheatinginfrastructureenablinggreateruptakeofcleanerfuelssuchasnaturalgasandeventuallycleanhydrogen,andfinallyagreaterfocusoncarbonsequestration(naturalsinksandcarboncapture).Inaggregate,weestimateatotalinvestmentopportunityofc.US$16tnby2060inascenarioconsistentwiththepathtonetzeroChinathatwehaveoutlinedabove,andinlinewiththecountry’sstatedde-carbonizationambition.Exhibit59:Weestimatethatthereexistsinaggregateac.US$16tninvestmentopportunityacrosssectorsonthepathtonetzeroChinaby2060CumulativeinvestmentopportunityacrosssectorsforChinanetzeroby2060(US$tn)1.92.00.70.90.52.10.51.20.30.42.71.40.80.516.00.02.04.06.08.010.012.014.016.018.0RenewablepowerNuclearpowerPowernetworksEnergystorage(batteries)TransportEV+FCEVinfrastructureBiofuelsHydrogenplants(SMR+electrolyzer)IndustrialprocessesHydrogenpipelineinfrastructureCCUSNaturalsinksChinanetzero2060TotalinvestmentsCumulativeinvestmentstonetzeroChinaby2060(US$tn)SolarOnshorewindHydro&otherRESOffshorewindSource:Companydata,GoldmanSachsGlobalInvestmentResearch20January202131GoldmanSachsCarbonomicsAshighlightedinExhibit59,weestimateatotalinvestmentopportunityofc.US$16tnby2060inascenarioconsistentwiththepathtonetzeroChina,butwewouldnotexpectthistobeevenlydistributedannuallyto2060.Instead,weanticipateanannualde-carbonizationinvestmentprofilesimilartothatshowninExhibit60,withanaccelerationofinvestmentsto2040,theyearwhenweexpectinvestmentstopeak,drivenlargelybytheinitialinfrastructureexpansionrequiredforpowernetworks,charginginfrastructureandheatingpipelineinfrastructuretoacceleratethepenetrationofelectrificationandcleanfuelsubstitutionintransport,buildingsheatingandindustry.Overall,theaverageannualinvestmentsinde-carbonizationthatweestimateover2021-60arec.US$400bn(comparedwithc.US$100bnspentonrenewablepowergenerationin2019),withthepeakin2040(c.US$650bn)representingupto2%ofthecountry’sGDP(basedonoureconomists’projections).Exhibit60:WeexpectanannualinvestmentprofilesimilartotheonepresentedinthisexhibitforapathconsistentwithnetzeroChinaby2060,withinvestmentspeakingin2040,representinguptoc.2%ofthecountry’sGDPAnnualde-carbonizationinvestmentsinUS$bn(LHS)andasa%ofChina’sGDP0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%2.0%2.2%01002003004005006007002021202220232024202520262027202820292030203120322033203420352036203720382039204020412042204320442045204620472048204920502051205220532054205520562057205820592060Annualde-carbonizationinvestmentsasa%ofGDPAnnualde-carbonizationinvestments(US$bn)RenewablepowerNuclearpowerPowernetworksEnergystorage(batteries)TransportEV+FCEVinfrastructureBiofuelsHydrogenplantsIndustrialprocessesHydorgenpipelineinfrastructureCCUSNaturalsinksAsa%ofGDP-RHSSource:GoldmanSachsGlobalInvestmentResearch20January202132GoldmanSachsCarbonomicsChinanetzeroandjobcreation:Potentialforthecreationofc.40mnjobsby2060AswehighlightinourreportCarbonomics:Thegreenengineofeconomicrecovery,cleaninfrastructurecouldplayamajorroleinfacilitatingacleanereconomywhilefosteringnetjobcreationasittendstobemorecapital-andlaborcomparedwithtraditionalfossilfuelenergydevelopments,whilebenefitingfromalowercostofcapital,makingitanexampleofasuccessfulpro-growth,pro-environmentinitiative.WeestimatethatChina’spathtowardsitsnetzeroambitioncouldfacilitatethecreationofc.40mnjobsby2060acrosssectors.Weprimarilyfocusontheimpactofdirectemploymentacrossthesupplychain(wedonotaddressindirectandinducedemploymentinthisanalysis).Themajorityofemploymentcreationthatweexpectisinsustainableenergyecosystems,dominatedbyrenewablepowergeneration,followedbypowernetworksandelectrificationinfrastructure.Netjoblossesariseincoalminingandprocessing,aswellascoalpowergenerationandcrudeoilextraction,processingandrefining.Wenotethatinthisanalysis,weusetheavailableliteratureregardingemploymentfactors,whichmaynotaccountforfuturelaborefficiencyimprovementsandincreasedautomationacrosstheseprocesses.Exhibit61:China’spathtonetzeroemissionshasthepotentialtocreatec.40mnjobsby2060acrosssectors,onourestimatesNetjobcreationbridgeonthepathtonetzeroChinaby2060(mnjobs)17.36.939.7(2.5)(2.7)0.35.110.12.10.12.7(1.4)1.705101520253035404550Renewableelectricitygeneration(CMI&O&M)Coal-firedelectricitygenerationandheatsupplyCoalmining&dressingNuclearpowergenerationPowernetworksEVcharginginfra.construction,installation,operation,maintenance,gridconnections,civil&roadworkBatteriesandelectrificationequipmentmanufacturingMiningandprocessingofcopperandothermetalsBiofuelsandbioenergyproduction&supplychainCrudeoilextraction,processing&refiningCleanhydrogenmanufacturingjobs(electrolyzermanufacturing)NetjobcreationinChinato2060(mnjobs)Netjobcreationto2060onthepathtoChinanetzero(mn)Construction,installation&manufacturing(CMI)Operation&maintenance(O&M)Source:UNEP-ILO-IOE-ITUC,EuropeOn,IRENA,NBSC,GoldmanSachsGlobalInvestmentResearch20January202133GoldmanSachsCarbonomicsLayingoutthepathtoanetzeroChina:Asectoraldeepdive1)Powergeneration:ThecrucialroleofcleanelectricityforanetzeroChinaandthetransformationalenergymixchangesrequiredPowergenerationis(alongwithgeneralindustry),oneofthemostvitalcomponentsofChina’spathtocarbonneutrality,contributingc.40%/33%ofthecountry’sCO2andGHGemissionsrespectively,andmakingitakeyareaforeffortstotacklethenetzerochallenge.Inrecentdecades,Chinahasmovedtothecenterofglobaleconomicgrowth,aresultofeconomicreformswhichresultedinanunprecedentedlevelofurbanizationandeconomicactivity.Giventhecountry’sabundantcoalsupplies,itscoal-poweredpowergenerationrampeduptomeetrapidlygrowingelectricitydemand,anditnowaccountsforc.65%ofthecountry’selectricitymix(c.68%fossilfuelsourceswhenincludingnaturalgasandoil).Aspartofthisreport,weattempttolayoutthepaththatChina’spowergenerationindustrycouldtaketoreachnetzeroemissionsby2060(andpeakemissionsby2030),asweshowinExhibit62.Wealsolayoutapotentialevolutionoftheelectricitymixthatcouldallownetzeroemissionsfromthesector(Exhibit63).Overall,webelievethepathtonetzerowillrequirearadicalchangeinthecountry’senergymixandcurrentenergyecosystems:weestimatethatnon-fossil-sourcedpowergenerationwillneedtosurpass50%oftotalgenerationby2030,reachc.70%by2040,andexceed85%/95%by2050/60,fromc.32%currently.Weseeelectrificationasacriticalcomponentofthepathtonetzeroforthecountry,enablingde-carbonizationacrosssectorssuchasroadpassengertransport,industrialheating,buildingsandtheproductionofgreenhydrogenrequiredforseveralindustrialapplications,long-haultransport,heatingandseasonalenergystorageapplications.Overall,weexpecttotaldemandforelectricityinanetzeroChinain2060tobec.3xthatof2019,asweshowinExhibit66.Renewableenergy(solar,Exhibit62:WelayoutapathforChina’spowergenerationindustrytoreachnetzeroemissionsby2060,andpeakemissionsby2030aspartofthisreport...ChinapowergenerationGHGemissionspathtonetzero(MtCO2eq)Exhibit63:...whichwillrequiretransformationalchangesinthecountry’scurrentpowergenerationmix,withthenon-fossilfuelsharerisingfromc.32%in2019to>95%by2060China’spowergenerationfuelmix(%)01,0002,0003,0004,0005,0006,0002000200220042006200820102012201420162018202020222024202620282030203220342036203820402042204420462048205020522054205620582060ChinapowergenerationGHGemissions(MtCO2eq)PowergenerationpathtonetzeroSolarWindHydroOtherRESNuclearH2CGGTCCUS0%10%20%30%40%50%60%70%80%90%100%2000200220042006200820102012201420162018202020222024202620282030203220342036203820402042204420462048205020522054205620582060Powergenerationfuelmix(%)CoalNaturalgasOilNuclearHydroRenewables(excl.hydro)H2CGGTCoal+CCUSIn2019:Non-fossilshare:32%(incl.nuclear)By2030:Non-fossilshare:>50%(incl.nuclear)By2040:Non-fossilshare:70%(incl.nuclear)By2050:Non-fossilshare:>85%(incl.nuclear)By2060:Non-fossilshare:>95%(incl.nuclear)Source:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,GoldmanSachsGlobalInvestmentResearch.Source:BPStatisticalReview,GoldmanSachsGlobalInvestmentResearch.20January202134GoldmanSachsCarbonomicswind,hydropower,bioenergy)iswithoutadoubtthemostcriticalcomponentforpowergenerationde-carbonization,andhasthepotentialtorevolutionizethecurrentenergysysteminChina(ashighlightedbyourChineseUtilitiesteam).Complementedbythealreadyrobustnuclearpowerexpansionprograminplace(whichwebelievewilllikelyhavealessimportantroletoplayasrenewablesexpansionacceleratesandbenefitsfromfurthercostdeflation,andasalternativeenergystoragesolutionsbecomemorereadilyavailable(utility-scalebatteriesandcleanhydrogen)),webelieveChinacouldachieveitsambitiousnetzeroemissionsgoal.Carboncapturecouldbeusedtoaidthetransitionforrelativelyyounglifecoalandgasplants,avoidingstrandedassets,butitsvitalroleinotherpartsofthede-carbonizationprocess(e.g.industry)leadsustobelieveitislikelytohavealimitedroletoplayinpowergenerationby2060.Exhibit64:Weseethepotentialforelectricitydemandtoincreasebyc.3x,onapathconsistentwithChina’snetzeroemissionstargetby2060...Chinaelectricitygeneration(TWh)Exhibit65:...asitisavitalpartofthede-carbonizationofothersectorssuchaselectrificationoftransportandbuildings,theproductionofgreenhydrogen,electrificationofheatinindustryandmoreChinaelectricitygenerationbridgeto2060E(thousandTWh)05101520252000200220042006200820102012201420162018202020222024202620282030203220342036203820402042204420462048205020522054205620582060Chinapowergeneration(thousandTWh)CoalNaturalgasOilNuclearHydroSolarOnshorewindOffshorewindOther(biomass,geothermal)H2CGGTCoal+CCUSGSProjections7.53.65.22.81.44.424.90.05.010.015.020.025.030.0China2019electricitygenerationBaseelectricityincorporatingefficiencyimprovementsGreenhydrogenElecrticvehicles(passenger,trucks)Buildings(30%penetration)IndustryelectrificationofheatChina2060NetzeroelectricityChinaelectricitygeneration(thousandTWh)Source:BPStatisticalReview,GoldmanSachsGlobalInvestmentResearch.Source:BPStatisticalReview,GoldmanSachsGlobalInvestmentResearch.Exhibit66:Thesignificantincreaseinelectricitydemandonanetzeropathwilllikelybemostlymetbyatransformationalaccelerationofrenewablepower...Chinanetzeroelectricitygenerationbridge(2019-60E,TWh)Exhibit67:...withthepotentialfor>4,000GWofsolarandc.3,000GWofwindpowergenerationcapacityadditionsto2060Chinanetzeropowergenerationcapacitybridge(2019-60E,GW)05,00010,00015,00020,00025,00030,000Chinaelectricitygeneration(2019)Coal,naturalgas&oilretirementsSolarWind(onshore+offshore)HydroOtherRESNuclearH2CCGTCoal+CCUSChinanetzeroelectricitygeneration(2060)Chinabridgetonetzeroelectricitygeneration(TWh)02,0004,0006,0008,00010,00012,000Chinapowergenerationcapacity(2019)Coal,naturalgas&oilretirementsSolarWind(onshore+offshore)HydroOtherRESNuclearH2CCGTCoal+CCUSChinanetzeropowergenerationcapacity(2060)Chinabridgetonetzeropowergenerationcapacity(GW)Source:BPStatisticalReview,GoldmanSachsGlobalInvestmentResearch.Source:GoldmanSachsGlobalInvestmentResearch.20January202135GoldmanSachsCarbonomicsRenewablepower:Thelow-carbontechnologydominating‘low-costde-carbonization’,benefitingfromeconomiesofscaleandabifurcationinthecostofcapitalforhigh-vs.low-carbonenergyRenewablepowerhastransformedthelandscapeoftheenergyindustryandrepresentsoneofthemosteconomicallyattractiveopportunitiesonourde-carbonizationcostcurve(asshowninExhibit69),onthebackoflowertechnologycostsastheindustrybenefitsfromeconomiesofscaleandalowercostofcapital.Weestimatethatc.50%ofthede-carbonizationofChina’santhropogenicGHGemissionsisreliantonaccesstocleanpowergeneration(asshowninExhibit68),includingelectrificationoftransportandvariousindustrialprocesses,electricityusedforheatingandmore.Renewablepowercostshavefallen>70%inaggregateacrosstechnologiesoverthepastdecade,andcurrentrenewablepowerLCOEsinChinaarenowclosetoconventionalfossilfuelpowersuchascoal,asshowninExhibit70below.Wenotethatalongwiththeoperationalcostreductionthatrenewableenergyhasenjoyedoverthepastdecade,owingtoeconomiesofscale,theongoingdownwardtrajectoryinthecostofcapital,aswehighlightinourreportCarbonomics:Innovation,DeflationandAffordableDe-carbonization,fortheselow-carbondevelopmentshasalsomadeameaningfulcontributiontotheoverallaffordabilityandcompetitivenessofcleanenergy.WeshowinExhibit72howthereductioninthecostofcapitalhascontributedtoone-thirdofthereductioninLCOEsofrenewabletechnologiessince2010.Incontrast,financialconditionskeeptighteningforlong-termhydrocarbondevelopments,creatinghigherbarrierstoentry,loweractivity,andultimatelyloweroil&gassupply,inourview.Thishascreatedanunprecedenteddivergenceinthecostofcapitalforthesupplyofenergy,asweshowinExhibit73,withthecontinuingshiftinallocationawayfromhydrocarboninvestmentsleadingtohurdleratesof10%-20%forlong-cycleoil&gasdevelopmentscomparedwithc.3%-5%fortheregulatedinvestmentsinEurope.Exhibit68:Accesstorenewablepoweristhemostcriticalcomponent,beingmorebroadlyvitalforthede-carbonizationofc.50%ofthecurrentChinaanthropogenicGHGemissionsabatementacrosssectorsChinaanthropogenicGHGemissionsde-carbonizationcostcurvewithorangeindicatingtechnologiesreliantonaccesstorenewablepowerExhibit69:Directpowergenerationde-carbonizationthroughrenewableenergyisamongthelowest-costtechnologiesonourChinade-carbonizationcostcurve,evenwhenenergystorageisrequiredPowergenerationChinade-carbonizationcostcurve-200-10001002003004005006007008009001,0001,1001,20001234567891011121314Carbonabatementcost(US$/tnCO2eq)ChinaGHGemissionsabatementpotential(GtCO2eq)De-carbonizationtechnologiesrelyingonaccesstorenewableenergyOtherde-carbonizationtechnologies-500501001502002500.00.40.81.21.62.02.42.83.23.64.04.4Carbonabatementcost(US$/tnCO2eq)SolarOnshorewindOffshorewindSolar+batteryWind+batteryNuclearSolar+hydrogenstorageWind+hydrogenstorageHydroH2GCCTCCUSGHGemissionsabatementinpowergeneration(GtCO2eq)Source:GoldmanSachsGlobalInvestmentResearch.Source:GoldmanSachsGlobalInvestmentResearch.20January202136GoldmanSachsCarbonomicsExhibit70:RenewableenergyLCOEsinChinaarecurrentlyclosetothatofconventionalfossilfuelpowergenerationsuchascoal,particularlyforsolar-utilityandonshorewind...LCOE(USD/kWh)Exhibit71:...andweexpectstellargrowthincapacityforbothtechnologies,forapathconsistentwithnetzeroemissionsby2060SolarandwindcapacityadditionsinChinafornetzero(TW)20%reductionpotentialforUtility-scaleSolar15%reductionpotentialforOn-shoreWind-0.020.040.060.080.100.120.000.020.040.060.080.100.12GasOff-shorewindSolar-DGOn-shoreWindSolar-utilityCoalNuclearHydroLCOE-2019LCOE-2023E(USD/kwh)(USD/kwh)0.20.61.01.42.12.93.54.14.50.20.50.81.01.31.61.92.32.60.00.00.00.10.10.20.30.40.60.00.51.01.52.02.53.03.54.04.55.020192025E2030E2035E2040E2045E2050E2055E2060ESolar&WindinstalledcapacityinChinafornetzero(TW)SolarOnshorewindOffshorewindSource:GoldmanSachsGlobalInvestmentResearch.Source:GoldmanSachsGlobalInvestmentResearch.Exhibit72:RenewablepowerLCOEshavedecreasedby>70%inaggregateacrosstechnologies,benefitingfromareductioninthecostofcapitalforthesecleanenergydevelopments,contributingc.1/3ofthecostreductionsince2010LCOEforsolarPV,windonshoreandwindoffshoreforselectregionsinEurope(EUR/MWh)Exhibit73:Thebifurcationinthecostofcapitalforhydrocarbonsvs.renewableenergydevelopmentsiswidening,onthebackoninvestorpressureforde-carbonizationTopProjectsIRRforoil&gasandrenewableprojectsbyyearofprojectsanction-77%-36%-32%-53%-33%-90%-80%-70%-60%-50%-40%-30%-20%-10%0%10%20%20102011201220132014201520162017201820192020ERenewablesLOCE%reduction(from2010base)splitbetweenoperationalandfinancialSolarPV-operationalreductionSolarPV-financialreductionOnshorewind-operationalreductionOnshorewind-financialreductionOffshorewind-operationalreductionOffshorewind-financialreduction0%5%10%15%20%25%30%35%40%45%50%200020012002200320042005200620072008200920102011201220132014201520162017201820192020ETopProjectsIRRandrenewablesIRRbyyearofprojectsanctionOffshoreoilLNGSolarOnshorewindOffshorewindSource:GoldmanSachsGlobalInvestmentResearch.Source:GoldmanSachsGlobalInvestmentResearch.20January202137GoldmanSachsCarbonomicsHighercapitalandlaborintensityofrenewablepowertoactasamajorsourceofinvestmentandemploymentcreationinthepathtonetzeroChinaEarlierinthisreport,wehighlightedthesubstantialpotentialinvestmentandjobcreationopportunityassociatedwithapathconsistentwithnetzeroemissionsinChinaby2060.Renewablepowergenerationactsasamajorcontributortobothinvestments(Exhibit59)andjobcreation(Exhibit61).Thisismainlyattributedtothehighercapitalandlaborintensityofthesetechnologiesandtheirassociatedinfrastructure,comparedwithtraditionalfossilfuelenergydevelopments.Intheexhibitsthatfollow,wepresentthecapitalintensity(capex)perunitofoutputenergyforeachtypeofpowergenerationtechnology.Wepresenttheresultsbothinunitsofcapexperflowingunitofenergy(US$/GJofpeakenergycapacity)andperunitofenergyoverthelifeoftheasset(US$/GJ).Thisshowshighercapitalintensityperunitofenergyaswemovetocleaneralternativesforpowergeneration.However,thisdoesnotnecessarilytranslateintohighercostsfortheconsumer,thankstotheavailabilityofverycheapfinancing(underanattractiveandstablelong-termregulatoryframework)andloweropex,comparedwithtraditionalhydrocarbondevelopments.Cleantechnologieshaveahigheraveragecapitalintensitythanconventionalfossilfuelpower,basedonbothperunitofflowingoutputenergyandperunitofenergyovertheasset/technologylifetime.Thelow-carboneconomy’shighercapitalintensityislikelytofosteremploymentcreation,asindicatedbythestrongcorrelationbetweenthecapitalintensityperunitofenergyanditslaborintensity(jobsperunitofaveragecapacityoverassetlife)presentedintheexhibitsbelow.SolarPVis,accordingtotheInternationalLabourOrganization(ILO)andtheInternationalRenewableEnergyAgency(IRENA),themostlabor-intensivecleantechnologyinpowergeneration(includingconstruction,manufacturing,installation,operating&maintenance),albeitthereexistsawiderangeoflaborintensityfactorsdependingonutilityscalevs.rooftopPV.Exhibit74:Renewablecleantechnologiesinpowergenerationhavehighercapitalintensitycomparedwithtraditionalfossilfuelsources,basedonperflowingunitofenergy...Capexperflowingunitofenergy(US$/GJ)Exhibit75:...andoverthelifetimeoftheassetCapexperunitofenergyoverthelifeoftheasset(US$/GJ)foreachtechnology050100150200250300350Coal-firedcombustionNaturalgasCGGTOnshorewindHydroSolarPVBiomassOffshorewindGeothermalCapitalintensityperflowingunitofenergy($/GJ)CapexperflowingunitofenergyCapexperflowingunitofenergy-GSbasecaseforChina024681012Coal-firedcombustionNaturalgasCGGTOnshorewindHydroSolarPVBiomassOffshorewindGeothermalCapitalintensityperunitofenergyoverthelifetimeoftheasset($/GJ)Capexperunitofenergyoverassetlife-rangeCapexperunitofenergyoverassetlife-GSbasecaseforChinaSource:Companydata,IRENA,GoldmanSachsGlobalInvestmentResearch.Source:Companydata,IRENA,GoldmanSachsGlobalInvestmentResearch.20January202138GoldmanSachsCarbonomicsExhibit76:Thecapitalintensityofcleantechnologiesinpowergenerationshowsa>80%correlationwithlaborintensityintheindustryCapexperunitofenergyoverassetlifevs.totallaborintensityperMWaveragecapacityExhibit77:SolarPVisthetechnologythatdeviatesfromthetrend,withalaborintensitythatvarieswidelydependingonthedevelopment(particularlyinrooftopvs.large-scaleutility)Capexperflowingunitofenergyvs.totallaborintensityperMWaveragecapacityNaturalgasCGGTCoal-firedcombustionOnshorewindBiomassOffshorewindGeothermalHydroCSPSolarPVR²=0.81150.01.02.03.04.05.06.07.08.0050100150200250300350400TotallabourintensityperMWaveragecapacityCapexperflowingunitofenergy($/GJ)NaturalgasCGGTCoal-firedcombustionOnshorewindBiomassOffshorewindGeothermalHydroCSPSolarPVR²=0.72310.01.02.03.04.05.06.07.08.00.02.04.06.08.010.012.0TotallabourintensityperMWcapacityCapexperunitofenergyoverlifetime($/GJ)Source:Wetetal.asillustratedbyIRENA,UNEP-ILO-IOE-ITUC,GoldmanSachsGlobalInvestmentResearch.Source:Wetetal.asillustratedbyIRENA,UNEP-ILO-IOE-ITUC,GoldmanSachsGlobalInvestmentResearch.20January202139GoldmanSachsCarbonomicsTherisingimportanceofenergystorageandextensivenetworkinfrastructureAsthegrowthinrenewablepoweraccelerates,intradayandseasonalvariabilityhastobeaddressedthroughenergystoragesolutions.Toreachfullde-carbonizationofpowermarkets,webelievetwokeytechnologieswilllikelycontributetosolvingtheenergystoragechallenge:utility-scalebatteriesandhydrogen,eachhavingacomplementaryrole.Weincorporatebothofthesetechnologiesinourpathtonetzeroandexpectutilityscalebatteriesforenergystoragetosurpass400GWby2060,whilecleanhydrogen-runCGGTsreachc.3%intheelectricitygenerationmixinasimilartimeframe.EnergystorageandtheneedforextensivenetworkinfrastructureisaparticularlyimportantconsiderationforChina,astheareaswiththelargestpotentialforsolarandwindappeartobefarfromthemainindustrialhubsandcitycenterswheremostpowerdemandarises,asshowninExhibit79.InlightofChina’sgeographicalcomplexity,acarefulbalanceneedstobestruckbetweenthecompetitivenessofthewindandsolarresourcesinsparselypopulatedregions,especiallyintheNorthwest,andthedifficultiesofintegrationandnetworkdevelopment.Whilebatteriesarecurrentlythemostdevelopedtechnologyforintradaypowergenerationstorage,weconsiderhydrogenasamorerelevanttechnologyforseasonalstorage,implyingtheneedforinnovationanddevelopmentofbothtechnologies.Batteries,forinstance,areparticularlysuitedtosunnyclimates,wheresolarPVproductionislargelystablethroughouttheyearandcanbestoredforeveningusage.Hydrogenontheotherhand,andtheprocessofstoringenergyinchemicalformandreconvertingittopowerthroughfuelcells,couldbeusedtooffsettheseasonalmismatchbetweenpowerdemandandrenewableoutput.Yet,withfuelcellsoverallcurrentlyhavingefficienciesthatvarybetween50%and65%,theoverallefficiencyofenergystoragebecomesaweakpointforhydrogen,whereweestimatethelife-cycleofenergystorageefficiencytobeintherangeofc.25%-40%overall,comparedwithc.70%-90%forbatteries,asshowninExhibit78.Exhibit78:WeseeutilityscalebatteriesandhydrogenasthetwokeycomplementarytechnologiestoaddresstheenergystoragechallengeEnergystorageEfficiencyComparison1Energygeneration100%Transportation,distribution85-95%ElectricBatterystorage70-90%PowergenerationOverallefficiency70-90%2BatterystorageHydrogenstoragePowergenerationOverallefficiency25-40%Energygeneration100%ElectrolyzerH2production60-70%Compression&distribution45-65%Fuelcellelectricity25-40%Source:Companydata,GoldmanSachsGlobalInvestmentResearch.20January202140GoldmanSachsCarbonomicsExhibit79:PhotovoltaicpowerpotentialandmeanwindpowerdensityinChinaappearstobehigherinthewestandnorthpartsofthecountry,farfromthemostofthelargeurbancentreswithhigherpowerneeds,highlightingthekeyroleofenergystorageandextensivenetworkinfrastructurePhotovoltaicpowerpotentialsolarresourcemap(GlobalSolarAtlas)andmeanwindpowerdensitymap(GlobalWindAtlas)forChinaThemapswereobtainedfromtheGlobalSolarAtlas2.0,developedandoperatedbythecompanySolargiss.r.o.onbehalfoftheWorldBankGroup,utilizingSolargisdata,withfundingprovidedbytheEnergySectorManagementAssistanceProgram(ESMAP)andtheGlobalWindAtlas3.0,developed,ownedandoperatedbytheTechnicalUniversityofDenmark(DTU)andreleasedinpartnershipwiththeWorldBankGroup,utilizingdataprovidedbyVortex,usingfundingprovidedbytheEnergySectorManagementAssistanceProgram(ESMAP).Source:GlobalSolarAtlas2.0-WorldBankGroup,Solargis,ESMAP,GlobalWindAtlas3.0-WorldBankGroup,TechnicalUniversityofDenmark(DTU),Vortex.20January202141GoldmanSachsCarbonomics2)Transportation:Theriseofnewenergyvehicles(NEVs)andthenewcharginginfrastructureinvestmentopportunityTransportation,incontrasttopowergeneration,mostlysitsinthe‘high-cost’spectrumofthede-carbonizationcostcurve,yetwhenitcomestoChina,transportemissionsformacomparativelylowershareofthecountry’sCO2andGHGemissions,relativetootherkeyeconomicregions,atc.9%/7%respectively(asshowninExhibit43).Aspartofouranalysis,welayoutthepathtonetzeroemissionsfortransportationforChina,asshowninExhibit81,addressingshortandmedium-haulroadtransport,heavylong-haultransport,rail,domesticaviationanddomesticshipping.Roadtransport(passengerandshort,medium-haultrucks):ElectrificationattheheartofthetransportevolutionWebelieveroadtransportisatthestartofitsmostsignificanttechnologicalchangeinacentury,withelectrification,autonomousdrivingandcleanhydrogenatthecoreofthede-carbonizationchallenge.Forlight,shortandmedium-haultransport(primarilyconstitutingpassengervehiclesandshort/medium-haultrucks),weconsiderelectrificationthekeyde-carbonizationtechnology.Forlong-haulheavytrucks,weconsidercleanhydrogenapreferredoption,owingtoitsfasterrefuelingtime,lowerweightandhighenergycontent.Overall,weestimatethatChina’stotalroadfleet(includingpassengervehicles,short,mediumandlong-haultrucks)willincreasethree-foldto2060(froma2019base),withnewenergyvehicles–NEVs(includingallofBEVs,PHEVsandFCEVs)reachingalmost100%penetrationintheroadtransportfleetasshowninExhibit82,forapathconsistentwithnetzeroemissionsinChinaby2060andpeakemissionsbefore2030.ThispathwouldrequireNEVpenetrationintheroadtransportfleettoreach20%by2030,closeto70%by2040,90%by2050andalmost100%by2060.Welookatfleetpenetrationinthisanalysis,ratherthanvehiclesales,asitisultimatelythepenetrationofthefleetthatdirectlytranslatesintotransportemissions.Exhibit80:Transportsitsatthehigherendofthede-carbonizationcostcurveforChina...De-carbonizationcostcurveforChina’santhropogenicGHGemissions,basedoncurrenttechnologiesandcurrentcosts,assumingeconomiesofscalefortechnologiesinthepilotphaseExhibit81:...yetacombinationofelectrification,cleanhydrogenandbioenergycouldsuccessfullyachieveapathconsistentwithnetzeroemissionsinChinaby2060Chinatransportemissions(MtCO2eq)-200-10001002003004005006007008009001,0001,1001,2000.01.02.03.04.05.06.07.08.09.010.011.012.013.014.0Chinacarbonabatementcost(US$/tnCO2eq)ChinaGHGemissionsabatementpotential(GtCO2eq)Powergeneration(coalswitchtogas&renewables)Transport(road,aviation,shipping)Industry(industrialcombustion,processemissions,waste)Buildings(residential&commercial)Agriculture,forestry&otherlanduses(AFOLU)Non-abatableatcurrentconservationtechnologies02004006008001,0001,2001,4002000200220042006200820102012201420162018202020222024202620282030203220342036203820402042204420462048205020522054205620582060Chinatransportemissions(MtCO2eq)ChinatransportpathtonetzeroElectrification(Evs,PHEVs,HEVs)Hydrogen-FCEVS,FCEtrainsBiofuels(aviation&marine)Ammonia&LNGshippingSource:GoldmanSachsGlobalInvestmentResearch.Source:GoldmanSachsGlobalInvestmentResearch.20January202142GoldmanSachsCarbonomicsWhileweprojectconsiderablegrowthinpurebatteryvehicles(essentialforanetzeropath),weexpectmulti-energypowertraintoaccountforthelargestsegmentofindustrydemandoverthenext15years.Multi-energyisdefinedasplug-inhybridEV(greenplate,mostlytransmission-driven),range-extendedEV(greenplate,fullmotor-driven),andlightemissionhybridcars(blueplate,fulltransmission-driven).Onourcurrentprojections(currentpath),inlinewiththegovernment’svolumetarget,wemodelthesemulti-energyvehiclesaccountingfor47%ofChina’stotalcarsalesin2025,versuspurebatterycarsat13%,andpurenon-batterycars(i.e.ICE-only)at40%.Webelievetheabilitytocompetitivelyintegrateelectricpowertrain(controlsystemsupportsautonomoustechnologies)withfuelsystem(compatiblewithinfrastructure)willlikelyappealtoamajorityofcustomers,especiallyoutsidethetopmunicipalities(onlysixcitieshaveICEcarplaterestrictions,versusChina’s>600cities),thusprovidingstructuraladvantagesintermsofbrandanddatacollection.Weexpectthetrendtodrivelong-termexpansionofLiAuto(allrangeextended)andGAC’sJapanesejointventures(Honda’si-MMD,Toyota’shybridsynergydrive),owingtotheiradvantageoushybridIPs.Exhibit82:ForapathconsistentwithnetzeroemissionsinChinaby2060,weexpectnewenergyvehicles(includingEVsandFCEVs)toreachalmost100%penetrationintheroadtransportfleet....NEVspenetrationinChina’sroadtransportfleetfornetzero(%)Exhibit83:...withelectricvehiclesthepreferredsolutionforpassengervehiclesandshort,medium-haullighttrucksandwithcleanhydrogenthepreferredsolutionforlong-haulheavytrucksChinaroadvehiclesfleetbridge(2019-60E)foranetzeroemissionspath0%10%20%30%40%50%60%70%80%90%100%2005200720092011201320152017201920212023202520272029203120332035203720392041204320452047204920512053205520572059NEVspenetrationinChina'sroadtransportfleet(%)By2030:NEVspenetrationinfleet20%By2040:NEVspenetrationinfleet70%By2050:NEVspenetrationinfleet90%By2060:NEVspenetrationinfleetc.100%0100200300400500600700Chinaroadtransportfleet(2019)ICEnetvehicleretirementsEVpassengervehiclesEVshort,medium,lighttrucksFCEVheavylong-haultrucksChinaroadpassengerfleet(2060)Chinaroadfleet(mnvehicles)Source:GoldmanSachsGlobalInvestmentResearch.Source:NBSC,GoldmanSachsGlobalInvestmentResearch.Exhibit84:Apathtonetzerodemandsadrasticchangeinthecurrentinputenergyfuelmixintransportandefficiency,withelectrification,cleanhydrogen,bioenergyandammoniadominatingthe2060transportfuelmixTransportinputenergyfuelmix(Exajoules)Exhibit85:Electrificationbenefitsfromtheongoingdeflationofbatterytechnology,whichweexpecttocontinue,albeitataslowerpacepost2030EBatterypackcostovertime(US$/kWh)0246810121416182020192060Chinatransportinputfuelenergy(EJ)GasolineDieselJetfuelFueloilBioenergyElectricityHydrogenAmmonia201520162017201820192020E2021E2022E2023E2024E2025E2026E2027E2028E2029E2030E2031E2032E2033E2034E2035E2036E2037E2038E2039E2040E16411095110050100150200250300201520162017201820192020E2021E2022E2023E2024E2025E2026E2027E2028E2029E2030E2031E2032E2033E2034E2035E2036E2037E2038E2039E2040ENCMTeslaUSDSource:GoldmanSachsGlobalInvestmentResearch.Source:Companydata,GoldmanSachsGlobalInvestmentResearch.20January202143GoldmanSachsCarbonomicsChinahasalreadyputinplacetargetsencouragingelectrificationefforts,asoutlinedbyourAsiaautosteamhere.OnOctober27,2020,theChinaSocietyofAutomotiveEngineers(China-SAE)unveileditsEnergySavingandNewEnergyVehicleTechnologyRoadmap2.0,outliningitsdevelopmentplansfornewenergyvehicles(NEVs)through2035.Theroadmapincludesasalesweightingtargetforinternalcombustionengine(ICE)vehiclesof0%in2035,suggestingthateffortstowardrealizingalow-carbonsocietyarebeingsteppedupinChina.Thetargetof0%ICEin2035breaksdownas50%hybridsand50%NEVs(EVsandplug-inhybrids),andsuggeststhatChina-SAEhasmajorexpectations,notonlyforEVmarketexpansion,butalsoforgrowthinhybridsales.WebelievethatforthepathtoanetzeroChinaby2060tomaterialize,thesetargetshavescopeforevenfurtherincreases,withagreaterfocusonnetzerovehiclesandlessfocusonhybridvehicles.Roadtransport(heavylong-haultrucks):TheroleofcleanhydrogenWhilewebelievethatelectricvehiclesscreenasthemostattractivede-carbonizationsolutionforpassengervehiclesandshortandmedium-haultransport,webelievethatcleanhydrogencouldbethekeytechnologywhenlong-haulheavytransportisconsidered,givenitshighenergycontentperunitmassandfasterrefuelingtime.Althoughthereareestimatedtobeonly6,180FCEVsinChinain2019(IEA),owingtoalimitedproductoffering,non-competitivepricepointsandlittleinfrastructure,weseetherecentpolicydrivetowardsde-carbonizationasareasontoreconsiderthepotentialforFCEVs.Despitesmallabsolutevolumes,thegrowthofFCEVsacceleratednotablyin2019,withthenumberofrefuelingstationsincreasingthreefoldinChinain2019(from20to61),givingChinathefourth-largestnumberofstations.ChinahasalreadyannouncedatargettodeployonemillionFCEVsby2030,andtohave>1,000stations,50,000FCEVsand>300stationsby2025.Furtherregionalinitiativesexploretheuseofhydrogenforde-carbonization,withWuhanannouncingplanstobecomethefirstChineseHydrogenCityby2025andShanghailaunchingitsFuelCellVehicleDevelopmentPlan.Foradeepdiveonthefutureoftrucking,pleaseseeourglobalExhibit86:China-SAEtargets50%NEVand0%pure-ICEin2035ChinaNEVroadmapthrough2035~2025~2030~2035PassengerVehicle(PV)-Fuelefficiencytobebetterthan4.6L/100km(WLTC)fornewPV(incl.NEV)-Fuelefficiencytobebetterthan3.2L/100km(WLTC)fornewPV(incl.NEV)-Fuelefficiencytobebetterthan2.0L/100km(WLTC)fornewPV(incl.NEV)CommercialVehicle(CV)-Freightcar:fuelefficiencytobemorethan8%betterthan2019level-Bus:fuelefficiencytobemorethan10%betterthan2019level-Freightcar:fuelefficiencytobemorethan10%betterthan2019level-Bus:fuelefficiencytobemorethan15%betterthan2019level-Freightcar:fuelefficiencytobemorethan15%betterthan2019level-Bus:fuelefficiencytobemorethan20%betterthan2019levelInternalCombustionEngine(ICE)-Fuelefficiencytobebetterthan5.6L/100km(WLTC)fornewICE-HEVaccountsmorethan50%ofICE-Fuelefficiencytobebetterthan4.8L/100km(WLTC)fornewICE-HEVaccountsmorethan75%ofICE-Fuelefficiencytobebetterthan4.0L/100km(WLTC)fornewICE-HEVaccounts100%ofICENewEnergyVehicle(NEV)-NEVaccountsabout20%oftotaldemand-FCVownedshouldbearound100kunits-NEVaccountsabout40%oftotaldemand-FCVownedshouldbearound100k-1mnunits-NEVaccountsabout50%oftotaldemand-FCVownedshouldbearound1mnunitsSource:China-SAE20January202144GoldmanSachsCarbonomicsteam’spublishedreportandpresentation.Hydrogen’skeyattributes(lowweightandhighenergyperunitmass,shortrefuelingtime,zerodirectemissionswhensourcedfromrenewableenergysources)makeitanattractivecandidateasatransportationfuel.Hydrogencanbeusedinitspureforminfuelcellelectricvehicles(FCEVs),butcanalsobeconvertedintohydrogen-basedfuelsincludingsyntheticmethane,methanolandammoniainaprocesscommonlyknownas‘power-to-liquid’,potentiallyapplicableforaviationandshipping,wheretheuseofdirecthydrogenorelectricityisparticularlychallenging.Forallhydrogenapplications,thevolumerequirementforon-boardstorageremains,alongwiththecomparativelylowoverallwell-to-wheel(orpowergenerationtowheel)efficiency,thetwokeychallengesforuseofhydrogen.Theexhibitsthatfollowpresentourcomparativeanalysisforhydrogenfuelcellelectricvehicles(FCEVs)andhowthesescreenonaweightperunitofoutputenergyandvolumeperunitofoutputenergybasis,comparedwithotherlarge-scaleemployedcommercialvehicles–electricvehicles(EVs)andgasolineinternalcombustionenginevehicles(ICE).Exhibit87showsthatforafullyloaded(orfullycharged)averagepassengervehicle,compressedhydrogenFCEVsscreenattractivelycomparedwithLi-batteryEVsonaweightperunitofoutputenergybasis(tank-to-wheel).Similarly,hydrogeninitscompressedformleadstoFCEVsscreeningattractivelyonavolumeperunitofenergyoutput,comparedwithEVs.Forthepurposeofthisanalysis,weconsidertheweightandthevolumeofthesystemthatstoresandconvertsinputenergytooutputenergyacrossallthreetypesofvehicles.ThisincludestheinternalcombustionengineandgasolinetankcomponentsforICEpassengervehicles,theLi-batteryforEVs,andthefuelcellandcompressedhydrogenstoragetankforFCEVs.Exhibit87:FCEVsusingcompressedhydrogenscreenattractivelyonaweightperunitofoutputenergybasiswhencomparedwithLi-batteryEVs...Weightperunitofoutputenergy(tank-to-wheelbasis,kg/MJ)fordifferentaveragepassengervehiclesand%increaseinaveragevehicleweightExhibit88:...andconsideringthecompressedformofhydrogenusedinFCEVs,theyalsoscreenattractivelyonavolumeperunitofoutputbasisVolumeperunitofoutputenergy(tank-to-wheelbasis)(litre/MJ)0%5%10%15%20%25%30%35%40%45%50%0.00.20.40.60.81.01.21.41.61.82.0Gasoline-ICECompressedH2(350bar),fuelcellCompressedH2(700bar),fuelcellLi-battery%increaseinaveragevehicleweight(%)Weightperunitofoutputenergy(tanktowheel)(kg/MJ)0.00.20.40.60.81.01.21.41.6Gasoline-ICECompressedH2(700bar),fuelcellCompressedH2(350bar),fuelcellLi-batteryVolumeperunitofoutputenergy(tanktowheel)(litre/MJ)Source:EIA,Companydata,GoldmanSachsGlobalInvestmentResearch.Source:Companydata,GoldmanSachsGlobalInvestmentResearch.20January202145GoldmanSachsCarbonomicsHowever,FCEVsscreenlessattractivelyintermsofcost(US$).ThecostperunitofenergyoutputforFCEVsbecomesmorecompetitivewhenconsideringlong-haulheavytransport,astheirlongrangeimplieslessfrequentrefuelingrequiredandaslargecapacity(>300kWh)batteriesinEVsremaincostly.ThismakesFCEVsattractiveforlong-haultransportapplicationssuchasbusesandtrucksandpresentsanareawhereeconomiesofscalecanbringfurthercostdeflationbenefits.Exhibit89:HydrogenoutperformssignificantlywhenwecomparetherefuelingtimesofFCEVsversusBEVsatdifferentkWchargingratings...minstorefuel/rechargeExhibit90:...andalsoprovidesarangeadvantageforlong-haultransportapplicationsZEVClass8trucksandrange(km)3330150020406080100120140160ICEFCEVBEV-DC(100kW)BEV-AC(22kW)Timetorefuel(measuredinminutes)200km200km210km300km400km483km500km805km1,000kmMaxEUdailytruckdistacnce:c.800kmSource:Companydata,GoldmanSachsGlobalInvestmentResearch.Source:Transport&Environment,EU,Companydata,GoldmanSachsGlobalInvestmentResearch.Exhibit91:Basedoncurrentprices,FCEVtrucksaremoreexpensiveonaTCObasis,butwithlargecostreductionpotentialTotalcostofownershipofaClass8truck(15years)Source:Companydata,GoldmanSachsGlobalInvestmentResearch.20January202146GoldmanSachsCarbonomicsCharginginfrastructure:AnUS$>1tninvestmentopportunityAchievingcloseto100%NEVspenetrationontheroadfleetrequiresmassiveinfrastructureinvestments,bothforpowernetworksandforchargingstations.Forthefirsttime,the“ReportoftheWorkoftheGovernment”deliveredbyPremierLiduringthe2020TwoSessionsmeetingemphasizedthegovernment’sfocusonacceleratingNewInfrastructureconstructionanddevelopment.“NewInfrastructure”hasbeenfrequentlymentionedbygovernmentauthoritiessincethebeginningof2020.OnMarch4,2020,thePolitburoStandingCommitteeheldameetingtoemphasizetheinvestmentfocusinsevenkeyareasofinfrastructure:(1)5Gbasestationsandnetworks,(2)datacenters,(3)UltraHighVoltage(UHV),(4)electricvehiclechargingpiles,(5)artificialintelligence,(6)IndustrialIoT,and(7)intercityrail/urbantransitnetwork,wherethechargingpilesforelectricvehiclesareclassifiedas“Newinfrastructure”.Consequently,localgovernmentshavemadecorrespondingactionplanstosupportthe“NewInfrastructure”:Guangzhou:OnMay8,2020,Guangzhouapproved73keyprojectsinNewInfrastructureinvolvingHuawei,Baidu,JD,etc.(totalinvestmentsatRmb180bnacross2020-22E).Thismoveisthefirststepintheirthree-yearplanforacceleratingthedevelopmentof5G,IIoT,EVchargingpiles,andartificialintelligenceinfrastructure.Specifically,itplanstobuildmorethan70kEVchargingfacilities,4kchargingstationsand3GWhchargingcapacityby2022E.Beijing:OnJune10,2020,BeijingMunicipalCommissionofDevelopmentandReformpublished“BeijingActionPlantoAccelerateNewInfrastructureConstruction(2020-2022)”whichsetgoalsfor5Gbasestation,IDC,EVchargingpiles,IIoT,AIdevelopmentaswellasthedigitalinfrastructure’sapplicationsinvariousindustries.Specifically,ittargetstobuild50kEVchargingpilesandc.100batteryswapstationsinthreeyears.Shanghai:OnJune19,2020,ShanghaiMunicipalGovernmentreleasedthe“Three-yearActionPlan(2020-2022E)”topromoteindustrialinternetinnovationandupgradeandachievethe“ShanghaiIndustrialCapabilityUpgradegoal”,whichoutlinedconcreteactionitemsforIoTconstructionandend-applications.Specifically,ittargetsbuilding100kEVchargingstations,45taxiEVchargingstationsand20hydrogenrefuelingstationsby2022.AccordingtoChinaElectricVehicleChargingInfrastructurePromotionAlliance(EVCIPA),bySeptember2020,therewere1.4mnchargingfacilityunitsinChina(including606kpublicchargingstall/stationunitsand812kprivatechargingstallunits).Intermsofbreakdownbyprovinces,Guangdong,Shanghai,Jiangsu,BeijingandZhejiangarethetop-5provinceswiththehighestpublicchargingpiles/stationfleetsasatSeptember2020.20January202147GoldmanSachsCarbonomicsExhibit92:BySeptember2020,therewerecumulatively606kpublicchargingfacilitiesinChina...Exhibit93:...consumingc.750GWhofelectricityinChina4784965165315315425475515585665926060100200300400500600700inkunits4905355965731722894425056046757367520100200300400500600700800GwhSource:ChinaElectricVehicleChargingInfrastructurePromotionAlliance.Source:ChinaElectricVehicleChargingInfrastructurePromotionAlliance.Exhibit94:Top-10provincesintermsofpublicchargingpilesfleet(inunits)Exhibit95:Top-10provincesintermsofpublicchargingstationfleet(inunits)71,95069,50662,93461,01738,77636,05829,32524,85723,27821,174GuangdongShanghaiJiangsuBeijingZhejiangShandongAnhuiHebeiHubeiHenan5,9684,9624,1533,9662,6222,2761,7401,5421,5311,400GuangdongShanghaiJiangsuBeijingZhejiangShandongHebeiSichuanHunanShaanxiSource:ChinaElectricVehicleChargingInfrastructurePromotionAlliance.Source:ChinaElectricVehicleChargingInfrastructurePromotionAlliance.20January202148GoldmanSachsCarbonomicsAviation:Aviationisoneofthetoughestsectorstode-carbonize,andwebelievethatbiofuels(sustainableaviationfuels–SAFs),syntheticfuelsandimprovedaircraftefficiencyarecurrentlykeypartsofthesolution.Fleetrenewalislikelytobeanear-termsolution,withnewgenaircraftsburningc.15%lessfuelthantheirpredecessors.Longerterm,weseebioenergy,andinparticularSAFs,asthekeysolutionforaviationemissionsabatement.SAFscanbeusedinterchangeablywithjetfuelincurrentaircraft,andhavethepotentialtocutemissionsbyupto80%vs.kerosene.Thatsaid,SAFrequiressignificantinvestmentbeforeitcanbeconsideredaneconomicallyviablealternative,withthecurrentproductioncosttypicallyc.4xthatofjetfuel.OnourpathtoanetzeroChina,weestimatedemandcloseto2,500kblpdofbiofuelswillberequiredintransportin2060.Rail:Weviewelectrificationandcleanhydrogenasthetwokeytechnologiesforthepathoflocomotivestonetzeroemissions,andweaddressbothofthesetechnologiesinourpathtonetzeroemissions.Hydrogentrainsinparticularcouldrevolutionisecurrentlong-haullocomotiveroutes,leveragingthekeyadvantagesoutlinedabove:highenergycontentperunitmass,shortrefuelingtimeandzeroemissionswhenproducedviacleanroutes(‘blue’and‘green’hydrogen).Attheendof2018,twofuelcelltrainsproducedbyAlstombecameoperationalinGermany,andithasbeenannouncedthatanother14willbeputintoservicein2021.AfuelcelltrambeganoperatinginFoshan(China)in2019,withChinaexploringfurtherpossibilitiesforH2-fuelledrail.Domesticshipping:Domesticshippingaccountsforonlyasmallamountofemissions,andweconsiderLNGbunkers(forthenearterm)andcleanammonia(longerterm)asthetwokeyde-carbonizationsolutions.Exhibit96:Theswitchtoamoreefficientaircraftcouldbeanear-termcomplementtoaviationde-carbonization...Fuelburnimprovementvs.previousgenerationaspercompanydataExhibit97:...withbioenergyultimatelythekeycurrentlyavailablecleanalternative,resultinginc.2,500kbpdofbiofuel(SAF)demandinourChinanetzeropathby2060Chinatransportbiofuelsdemand(kbpd)25%25%20%20%14%10%0%5%10%15%20%25%30%A330neoA350A320neo787737MAX777X05001,0001,5002,0002,500200520102015202020252030203520402045205020552060Chinatransportbiofueldemand(kbpd)Source:Companydata,GoldmanSachsGlobalInvestmentResearch.Source:BPStatisticalReview,GoldmanSachsGlobalInvestmentResearch.20January202149GoldmanSachsCarbonomics3)Industry:Cleanhydrogen,CCUS,efficiency,circulareconomyandelectrificationsettingthesceneforanewindustrialtechnologyrevolutionIndustry(includingindustrialcombustion,industrialprocessandwasteemissions)iscurrentlythesectorresponsibleforthelargestshareofGHGemissionsproducedinChina(c.48%).Industrialemissionsaretypicallysplitintothreedistinctcategories;energyemissionsassociatedwithindustrialcombustion,industrialprocessemissionsassociatedwiththerelevantprocessroutesandfeedstocks,andindustrialwasteemissions(includingfugitive).Whiletheexactsplitofindustrialemissionsissubjecttouncertainty,withdifferencesbetweensources,weestimatethat>50%ofChina’semissionsfromindustrycomefromitsheavyindustriesasshowninExhibit99(ferrousandnon-ferrousmetalsmanufacturing,non-metallicmineralssuchascement,petrochemicals).WebelievefourkeytechnologieswillformtheprimarypillarsthatwillenabletheemissionsabatementofChina’sindustry:cleanhydrogen,carboncapture(CCUS),electrification,efficiencyimprovementsandcirculareconomy.Theriseofcleanhydrogen:Themissingpieceofthepuzzle,connectingtwocriticalcomponentsofthede-carbonizationtechnologicalecosystem,carbonsequestrationandcleanpowergenerationHydrogenoffersanopportunitytoindirectlyextendelectricity’sreachbeyondpowergeneration,anditcanbeproducedbyincreasinglyabundantrenewables,includinginWesternChina.Hydrogenhasacriticalroletoplayinanumberofindustrialprocessesinourview,includingreplacingcoalinsteelmills,servingasabuildingblockforsomeprimarychemicalsandprovidinganadditionalcleanfueloptionforhightemperatureheat.Whilethebasicscientificprinciplesbehindcleanhydrogenarewellunderstood,mostofthesetechnologiesappliedintheirrespectiveindustrialsectorsarestillatthedemonstrationorpilotstage.Weestimatethatcleanhydrogencancontributetoc.20%de-carbonizationinChinawithitsaddressablemarketgrowing7xfromc.25Mtin2019toc.170Mtpaonthepathtonetzero.Exhibit98:Weseecleanhydrogen,carboncapture(CCUS),electrification,efficiencyandcirculareconomyasthekeypillarsfortheabatementofChina’sindustrialemissions...ChinaGHGemissionsassociatedwithindustry,industrialprocessesandwaste(MtCO2eq)Exhibit99:...with>50%ofthecountry’sindustrialemissionsstemmingfromitsheavyindustries(ferrousandnon-ferrousmetals,non-metallicmineralssuchascement)Chinaindustry&wasteGHGemissionssplit(2019)01,0002,0003,0004,0005,0006,0007,0008,00020102012201420162018202020222024202620282030203220342036203820402042204420462048205020522054205620582060ChinaGHGemissionsassociatedwithindustry&industrialwaste-MtCO2eqGSpathtonetzeroforindustryCCUSBioenergyHydrogenprocessElectrificationofheatEfficiency&circulareconomyOther(alternativeprocessmaterials)32%6%21%9%32%Ferrousmetals(iron&steelalloys)Non-ferrousmetals(ie.aluminium,copper,zinc)Non-metallicminerals(cement,clay,lime)Chemicals(ammonia,methanol,HVCsplastics)Otherunclassified(includesmanufacturingandwaste)Source:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,FAO,GoldmanSachsGlobalInvestmentResearch.Source:EnergyTransitionsCommission,FAO,IEA,GoldmanSachsGlobalInvestmentResearch.20January202150GoldmanSachsCarbonomicsWhilehydrogenhasgonethroughseveralwavesofinterestinthepast50years,nonehastranslatedintosustainablyrisinginvestmentandbroaderadoptioninenergysystems.Nonetheless,overthepastfewyears,theintensifiedfocusonde-carbonizationandclimatechangesolutionshasledtorenewedpolicyactionaimedatthewideradoptionofcleanhydrogen.Policysupport,andtheaccelerationoflow-costrenewablesandelectrificationinfrastructure,seemtobeconvergingtocreateunprecedentedmomentumintheuseofhydrogen,pavingthewayforpotentiallymorerapiddeploymentandinvestment.WebelievethereisaneedforChinatodevelopanationalhydrogenstrategythatwouldguidethesustainabledevelopmentoftheburgeoninghydrogenindustry.Thelow-carbonintensitypathwaysforhydrogenproductionandthefacetsthatmakethefueluniquelypositionedtobenefitfromtwokeytechnologiesinthecleantechecosystem–carboncaptureandrenewablepowergeneration–are‘blue‘and‘green‘hydrogen.‘Blue’hydrogenreferstotheconventionalnaturalgas-basedhydrogenproductionprocess(SMRorATR)coupledwithcarboncapture,while‘green’hydrogenreferstotheproductionofhydrogenfromwaterelectrolysiswherebyelectricityissourcedfromzerocarbon(renewable)energies.Exhibit100:Cleanhydrogenhasthepotentialtocontributetoc.20%ofChina’sde-carbonizationcostcurvewebelieve...ChinaanthropogenicGHGemissionsde-carbonizationcostcurvewithblueindicatingtechnologiesreliantonaccesstorenewablepowerExhibit101:...andweestimateahydrogenaddressablemarketofc.170Mtpaby2060(aseven-foldincrease)onapathconsistentwithChinanetzeroemissionsPotentialcleanhydrogenaddressablemarketforChinanetzero(Mtpa)-200-10001002003004005006007008009001,0001,1001,20001234567891011121314Carbonabatementcost(US$/tnCO2eq)ChinaGHGemissionsabatementpotential(GtCO2eq)De-carbonizationtechnologiesrelyingoncleanhydrogenOtherde-carbonizationtechnologiesc.2528305041168050100150200Chinatotalhydrogenproduction2019PowergenerationLong-haultransport(heavytrucks,trains,ammoniadomesticshipping)Industry(steel,ammonia,petrochemicals)Buildingsenergy(heating)PotentialhydrogenconsumptionforChinaNetzero2060China(2019)ChinaNetzeroPotentialcleanhydrogenaddressablemarketforChinaNetZero2060(Mtpa)Source:GoldmanSachsGlobalInvestmentResearch.Source:GoldmanSachsGlobalInvestmentResearch.Exhibit102:Blueandgreenhydrogenthetwocleanhydrogenproductionroutes...LCOHforhydrogenbymethodofproduction(US$/kgH2)Exhibit103:...benefitingfromcostdeflationincarboncapture,renewableelectricityandelectrolyzercostsHydrogenLCOHfordifferentelectricityandelectrolyzercosts012345678910CoalgasificationCoalgasification+CCUSCoalgasificationCoalgasification+CCUSCoalgasificationCoalgasification+CCUSNaturalgasSMRSMR+CCUSNaturalgasSMRSMR+CCUSNaturalgasSMRSMR+CCUSNaturalgasSMRSMR+CCUSAlkalineelectrolyzerPEMelectrolyzerAlkalineelectrolyzerPEMelectrolyzerAlkalineelectrolyzerPEMelectrolyzerAlkalineelectrolyzerPEMelectrolyzerAlkalineelectrolyzerPEMelectrolyzerCoalprice15$/tnCoalprice35$/tnCoalprice55$/tnGasprice$2.5/mcfGasprice$5.0/mcfGasprice$7.5/mcfGasprice$10.0/mcfLCOE$20/MWhLCOE$35/MWhLCOE$50/MWhLCOE$65/MWhLCOE$80/MWhHydrogencostofproduction($/kgH2)Opex($/kgH2)Fuel(coal,NG)orelectricitycost($/kgH2)Capex($/kgH2)GSbasecasecostofproductionGreenhydrogenBluehydrogenGreyhydrogen1,4000/MWh0.01.02.03.04.05.06.07.08.00153045607590105Hydrogencostofproduction-alkalineelectrolyzer($/kgH2)LCOE($/MWh)BlueH2:SMR+CCUS,$2.5/mcfBlueH2:SMR+CCUS,$10/mcfBlueH2:SMR+CCUS,$6.25/mcfCapex:$500/kWeCapex:$700/kWeCapex:$900/kWeCapex:$1,100/kWeSource:Companydata,GoldmanSachsGlobalInvestmentResearch.Source:GoldmanSachsGlobalInvestmentResearch.20January202151GoldmanSachsCarbonomicsCleanhydrogenanditsroleinthede-carbonizationofsteelAswehighlightinthesectionabove,oneofthekeyindustrialapplicationsofcleanhydrogenthathasrecentlyattractedindustryinterestistheproductionofnet-zerocarbonsteel,tohelpmeetthegrowingglobalsteeldemandwithloweremissions.ThisisparticularlyimportantforChina,withferrousmetals(iron&steelalloys)manufacturingcontributingc.2GtCO2eqofGHGemissions(c.32%ofChina’stotalindustrialemissions).Anumberofprojectsarecurrentlyunderwaytodeveloptheseprocessesandmovetowardscommercialization,asoutlinedbelow.HYBRIT:In2016,SSAB,LKABandVattenfallformedapartnershipforthede-carbonizationofsteelnthroughamodifiedDRI-EAFprocess,aimingatproducingthefirstfossil-freesteelmakingtechnologywithanetzerocarbonfootprint.During2018,apilotplantforfossil-freesteelproductioninLuleå,Sweden,startedconstruction.ThetotalcostforthepilotphaseisestimatedatSkr1.4bn.TheSwedishEnergyAgencywillcontributemorethanSkr500mntowardsthepilotphaseandthethreeowners,SSAB,LKABandVattenfall,willeachcontributeonethirdoftheremainingcosts.TheSwedishEnergyAgencyearliercontributedSkr60mntothepre-feasibilitystudyandafour-yearresearchproject.SALCOS:AninitiativeundertakenbySalzgitterAGandtheFraunhoferInstitutetodevelopaprocessfornhydrogen-basedreductionofironoreusingtheDRI-EAFroute.Theprocessinitiallyinvolvesthereductionofironoretoironwiththeaidofnaturalgasandahighervolumeofhydrogeninadirectreductionreactor.Basedonthismethod,areductionofironofupto85%canbeachievedaccordingtotheoperators,withCO2savingsofinitiallyupto50%theoreticallypossible.ΣIDERWIN:AresearchprojectbyArcelorMittalwhichisinthepilotphase.Itutilizesanelectrochemicalnprocesssuppliedbyrenewablesourcestotransformironoxidesintosteelplatewithasignificantreductionofenergyuse.Exhibit104:Schematicsummaryofpossiblesteelmanufacturingroutesandassociatedemissionsintensity(tnCO2eq/tnsteel)Feedstock(extraction)IronReductionTransformationForming,downstreamprocessingCoalIronoreNaturalgasIronoreCleanhydrogenIronoreScrapBF-BOFBlastFurnace-BlastOxygenFurnaceDRIDirectironreduction(naturalgas)DRIDirectironreduction(cleanhydrogen)ElectricArcFurnace(EAF)Zero-carbonelectricity:GridelectricityDownstreamprocessing–coldrollingandcastingZero-carbonelectricity:Gridelectricity1.8-2.00.60.00.00.3-0.4Figuresinblueindicatetheemissionspertonnesteelproduced–tnCO2/tnsteel0.1-0.20.0Emissionsintensity1.9-2.10.6-1.20.0-0.60.0-0.6Source:EnergyTransitionsCommission,Companydata,GoldmanSachsGlobalInvestmentResearch.20January202152GoldmanSachsCarbonomicsCOURSE50:AninitiativefromtheJapaneseIronandSteelFederationwhichaimstoreducethencarbonfootprintofsteelproductionthroughtheuseofahigherproportionofhydrogenforironorereduction,aswellascapturetheCO2contentoftheprocessstreams.HIsarna:In2004,agroupofEuropeansteelcompanies(includingTataSteel)andresearchinstitutesnformedULCOS,whichstandsforUltra-LowCarbonDioxideSteelmaking.Itsmissionistoidentifytechnologiesthatmighthelpreducecarbonemissionsofsteelmakingby50%pertonneby2050.HIsarnaisoneofthesetechnologiesandisaprocessinvolvinganupgradedsmeltreductionthatprocessesironinasinglestep.Theprocessdoesnotrequirethemanufacturingofironoreagglomeratessuchaspelletsandsinter,northeproductionofcoke,whicharenecessaryfortheblastfurnaceprocess.20January202153GoldmanSachsCarbonomicsCarbonCapture:Vitaltechnologyforsomeoftheharder-to-abateindustrialprocessesthatremainsnonethelesslargelyunder-deployedInadditiontoitscontributiontotheelectricitysector(whichweanticipatetoberelativelysmallinthefaceofthepowerfulrenewablesacceleration),carboncapture(CCUS)playsamuchmorecriticalroleforChineseindustry.IndustrialCCUSapplicationsinChinaareoftencost-efficientandhavethepotentialtounlockdeepemissionreductionsinChina’smodernindustrialfacilitiesandacrosssomeofthemostdifficult-to-abateemissions,suchasthoseproducedinthemanufacturingandprocessingofcement.AsshowninExhibit58,weestimatethatc.15%ofChina’santhropogenicGHGemissionscouldbeabatedthroughcarboncapture.Akeyadvantageofcarboncaptureisthatitavoidstheriseofstrandedindustrialassets,withmanyoftheindustrialplantsinChinastillrelativelyyoung(asshowninExhibit105),andrequiringonlymodestretrofitstoexistingplantsandprocesses.Chinamorebroadlysitsatthelowerendofthecostrangesacrossmostcarboncapturetechnologicalapplications,giventhelowerrawmaterial,laborcostsandthehighercarbonintensityofitsindustrialstreams.WhileChinahasbyfarthelargestpotentialroleforCCUS,givenitslargeindustrialsectorandrelativelyyoungfacilities,thecurrentdeploymentpoliciesrequireamaterialstep-uptoalignwiththecountry’snetzeroambition.OnJuly8,2020,itscentralbank,alongwiththeNationalDevelopmentandReformCommissionandtheChinaSecuritiesRegulatoryCommission,publishedTheGreenBondEndorsedProjectsCatalogue:2020Edition35,whichforthefirsttimeincludedCCS,expandingprojectfinancingchannels.Ofthec.26large-scaleCCUSprojectscurrentlyoperatingglobally,onlythreearelocatedinChina,andofmorethan40CCUSprojectsindevelopmentaroundtheworld,onlyfourarelocatedinChina.CCUSdevelopmentisstronglypolicydependent,andwebelieveChinawillneedtoputinplaceanappropriateinvestmentframework,providingincentivesthatmatchthoseinotherregions(suchastheQ45taxintheUS).Exhibit105:Carboncapturecanbeakeyde-carbonizationsolutionformanyhard-to-abateindustrialemissions,particularlygivenChina’srelativelyyoungindustrialplantbase...AverageageandtypicallifeofindustrialassetsinChina(years)Exhibit106:...andtheglobalpipelineoflarge-scaleCCSfacilitiesisregainingmomentumaftera‘lostdecade’...AnnualCO2capture&storagecapacityfromlarge-scaleCCSfacilities0510152025303540HVCsMethanolAmmoniaIron&Steel:DRIsIron&Steel:BF-BOFCementkilnsAverageageandtypicallifeofindustrialassetsinChina(yrs)Averagelife:30yearsAveragelife:40years02040608010012014016020102011201220132014201520162017201820192020CO2annualcaptureandstoragecapacity(Mtpa)OperatingUnderconstructionAdvanceddevelopmentEarlydevelopmentSource:IEA.Source:GlobalCCSInstituteStatusreport2020.20January202154GoldmanSachsCarbonomicsEnergyefficiency&circulareconomyWeviewenergyefficiencyasacriticalcomponentofChina’sde-carbonizationstrategy.Chinahasbeenoneofthegloballeadersinenergyefficiencyimprovementsoverthepastdecade,withmostofitsefficiencygainsstemmingfromtheindustrysector.China’spolicyhasproventobesuccessfuloverthepastdecadeandatpresent60%offinalenergyuseiscoveredbymandatoryenergyefficiencypoliciesaccordingtotheIEA.Theindustrysectorhashigherpolicycoverage,atnearly70%,becauseofthemandatoryenergyefficiencyimprovementtargetsintroducedthroughtheTop1,000andTop10,000Programmes.EnergyintensityperunitofGDPreductionhasbeenapolicyfocusforthecountry,withquantitativetargetssetduringtheprevious5-yearplans(FYP)asshowninExhibit38.Inadditiontoefficiencyimprovements,inourindustrialemissionspathtonetzerowealsoincorporatetechnologiesthatencouragecircularitywithintheindustrialecosystem.Examplesoftheseincludetheuseofscrapsteel,aluminumandothermetals,aswellasplasticsrecycling.Exhibit107:...asmoreprojectsinthedevelopmentstagestarttofocusonindustrieswithlowerCO2streamconcentrations(industrial&powergenerationasopposedtonaturalgasprocessing)Large-scaleCCSprojectsbystatusandindustryofcapture(Mtpa,2019)Exhibit108:AccordingtothelateststatusreportbytheGlobalCCSInstitute,China’scurrentCO2storagepotentialinoil&gasfieldsalone(notincludingthelargesalineformationsstoragepotential)issufficienttomeetsitsde-carbonizationneedsCO2storageresourceinmajorsoil&gasfields(MtCO2)051015202530354045OperatingUnderconstructionAdvanceddevelopmentEarlydevelopmentLargescaleCCSprojectscapacitybystatusandindustry(Mtpa)NaturalgasprocessingFertilizerproductionHydrogenproductionIronandsteelproductionEthanolproductionPowergenerationChemicalproductionOilrefiningVariousUnderevalutationDACCS205,00010,0004,0005,0005,0008,00016,6002,80016,0001101001,00010,000100,0001,000,000UnitedStatesRussiaBrazilUAESaudiArabiaChinaAustraliaUKNorwayCO2storageresourceinmajoroil&gasfields(MtCO2)Source:GlobalCCSInstitute,GoldmanSachsGlobalInvestmentResearch.Source:GlobalCCSInstitutestatusreport2020.Exhibit109:Industryisoneofthesectorswiththehighestpolicycoveragewithrespecttoenergyuseandefficiency...EnergyusecoveredbymandatoryenergyefficiencypoliciesinChina(%)Exhibit110:...andthecountry’soverallenergyintensityofGDPhasbeentrendingdownwardsoverthepastthreedecadesChinatotalenergysupplyperGDPPPP(toe/k$)0%10%20%30%40%50%60%70%80%IndustryTransportationResidentialbuildingsNon-residentialbuildingsOveralltotalEnergyusecoveredbymandatoryenergyefficiencypoliciesinChina(%)0.000.050.100.150.200.250.300.350.400.450.501990199520002005201020152018China'stotalenergysupplyperGDPPPP(toe/k$)Source:IEA.Source:IEA,WorldBankGroup.20January202155GoldmanSachsCarbonomicsElectrificationofheatandothercleanalternativefuelsIndustrialcombustionfortheproductionofheatcontributesasignificantportion(>60%)ofemissionsstemmingfromindustry.Theseemissionscanbeabatedthroughafuelswitchsuchasswitchingtofurnaces,boilers,andheatpumpsthatrunonbioenergy,cleanhydrogenorzero-carbonelectricity.Inseveralcases,electrifyingheatcaninvolveachangeintheproductionprocesses,suchasinethyleneproduction,wheretheinstallationofbothelectricfurnacesandelectricallydrivencompressorsisrequired.Thebiggestchallengeassociatedwithheatelectrificationstemsfromtheincrediblyhighenergyrequirementsoftheseprocesses(processessuchascementrequiretemperaturesexceeding1,000degreesCelsius).Thishighlightsthecriticalimportanceof100%carbon-freeelectricityavailabilitytoensureemissionsabatementisachieved.Whileheatelectrificationhasbeensuccessfullyachievedinlow-andmedium-heatmanufacturingprocesses,itremainsinresearchandatthepilot/demonstrationstageforseveralhigh-temperatureprocesses.Insuchhightemperatureprocesses,alternativefuelssuchascleanhydrogencouldbemoreeconomicandtechnologicallyfeasiblesourcesofenergy.Exhibit111:Summaryofkeyde-carbonizationtechnologiesforthemajorindustrialemittingsub-sectorsHydrogenfuelorfeedstockBioenergyfuelorfeedstockCarboncapture,utilization,storageElectrificationofheatOtherinnovativetechnologiesIron&SteelEfficiencygains,Circulareconomy-recycling,ElectricalironreductionCementClinkertocementratioreduction(alternativefeedstocks),Efficiencygains,Circulareconomy-recyclingAmmoniaEfficiencygains,MethanepyrolysisforhydrogenPetrohemicals(incl.ethylene)Efficiencygains,AlternativeprocessdesignOtherindustrial(heat)Efficiencygains,IndustrialheatpumpsAppliedatlargeindustrialsitesAppliedinpilotphaseAppliedinresearchphaseIndustrialsub-sectorSource:Companydata,GoldmanSachsGlobalInvestmentResearch.20January202156GoldmanSachsCarbonomics4)BuildingsandAgriculture:FuelswitchandefficiencytogovernemissionsreductionpathFinally,wehaveconstructedapotentialpathtonetzeroGHGemissionsforChina’sbuildingsandagriculture,thetwosectorswiththesmallestrelativecontributiontothecountry’stotalannualemissions(c.6%and5%forbuildingsandagriculturerespectively).Wenotethatthesepathsarenottheonlypotentialde-carbonizationroutesavailableforChinatoachievenetzeroemissions,yetreflectourviewsofthepotentiallywinningtechnologiesinthespace.Regardingbuildings,weexpectacombinationofefficiencymeasures(alreadyimplementedinthesectorasshowninExhibit109andwiththecountryaimingfor70%ofitsnewbuildingstobegreenby2022asshowninExhibit116),increasingelectrification(heatpumps)andotheralternativecleanfuelsswitch(suchascleanhydrogen,biomass,solarthermal,wasteheat)tofacilitatethetransitiontoanetzeroemissionsbuildingecosystem.Webelievethatwhilenaturalgascanformakeytransitionfuelinthenearterm,ultimatelycleanhydrogenislikelytobethepreferrednetzerofuelchoice,andthereforearguefornaturalgaspipelineinfrastructuretobedesignedandbebuilttobecompatiblewithhydrogenfromtheonsetofthetransitionandtheinfrastructurebuild.Withheatingandcoolingthemajorenergyconsumersinthebuildingsector,Chinaistypicallydividedintofivemajorclimatezones1accordingtodifferentthermaldesignrequirementswithdifferentdesigncodesapplyingtospecificclimatezonesandruralandurbanareas.NorthChinarequiresspaceheatingandthisismetdifferentlyinruralandurbanareas.Thehighdensityofurbanareas(asweshowearlierinthereportinExhibit52)makesitsuitablefordistrictheatingsystems,whileruralareastypicallyrely1AssessmentofEnergySavingPotentialbyReplacingConventionalMaterialsbyCrossLaminatedTimber(CLT)—ACaseStudyofOfficeBuildingsinChina,byYuDong,XueCui,XunzhiYin,YangChen,HaiboGuo.Appl.Sci.2019,9(5),858;https://doi.org/10.3390/app9050858Exhibit112:WelayoutasuggestedpathtonetzeroemissionsinthebuildingssectorinChinato2060E,relyingprimarilyonelectrification,efficiencyimprovementsandfuelswitch(cleanhydrogen&bioenergy)...ChinabuildingsGHGemissionsandpathtonetzero(MtCO2eq)Exhibit113:...andanemissionsreductionpathforagriculture,theemissionsofwhichareprimarilynon-CO2andhardertoabateintheabsenceofnaturalsinkssequestrationChinaagriculturalemissions(MtCO2eq)-2004006008001,0001,2002000200220042006200820102012201420162018202020222024202620282030203220342036203820402042204420462048205020522054205620582060ChinabuildingsGHGemissionsonthepathtonetzero(MtCO2eq)GSpathtonetzeroforbuildingsNaturalgasHydrogenElectrificationEfficiency(BAT,insulationetc)Biomass-1002003004005006007008009001,0002000200220042006200820102012201420162018202020222024202620282030203220342036203820402042204420462048205020522054205620582060ChinaagricultureGHGemissions(MtCO2eq)Source:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,FAO,GoldmanSachsGlobalInvestmentResearch.Source:EuropeanCommissionJointResearchCentre(JRC).EmissionDatabaseforGlobalAtmosphericResearch(EDGAR)releaseversion5.0,FAO,GoldmanSachsGlobalInvestmentResearch.20January202157GoldmanSachsCarbonomicsonindividualhouseholdheatingsystems.Coolingrequirementsontheotherhandareapplicabletothewholecountry,withindividualairconditioningunitscommoninresidentialbuildingsanddistrictcoolingsystemsoftenusedincommercialbuildings.Agricultureis,inourview,oneofthetoughestsectorstode-carbonize,withthevastmajorityofemissionsbeingnon-CO2andstemmingfromentericfermentationbyanimalsandcroplandmanagement.Webelievethatthereisstillscope,however,forimprovedefficiencyandlandmanagementpractices,whichincludeamongothers,improvementsincropland,grazinglandandlivestockmanagement,utilizationofprecisionagricultureforoptimizationincropyieldsandminimizationofexcessuseofnutrientsandpesticides,andreducedagriculturalwaste.Ultimately,foragriculturetoreachnetzeroemissions,webelieveforestry(reforestation,afforestationandagroforestry)needstobeaddressed,collectivelyreferredtoascarbonsequestrationthroughnaturalsinks,whichweaddressinthefollowingsectionofthisreport.Exhibit114:Chinaistypicallydividedintofivemajorclimatezoneswhenitcomestoheatingandcoolingrequirements...MapofChina’sfivekeyclimatezonesExhibit115:...andweexpectapathconsistentwithnetzeroChinaby2060torequirearadicalchangeinhouseholds’currentfuelenergymix,withahigherrelianceonelectricityandefficiencyimprovementsandthereplacementofcoal,oil,naturalgaswithcleanhydrogenlongertermChinabuildings’energyusesplitbyfuel(%,2019)Coal12%Oil12%Naturalgas12%Electricity35%Heat7%Bioenergy15%OtherRES7%Source:MDPI.Source:IEA,GoldmanSachsGlobalInvestmentResearch.Exhibit116:Chinaaimsfor70%ofallnewbuildingstobe‘green’by2022TargetAdditionalrequirementsofStar-ratedgreenbuildingsevaluation1-Star2-Star3-Star(a)Decoration(b)%ofimprovementfrombasicnationalstandardsBuildingenvelopethermalperformance5%10%20%Airconditioncapacity5%10%15%Heattransfercoefficientofexteriorwindowsincoldandseverecoldregions5%10%20%WaterefficiencyofsanitaryappliancesGrade3Indoorairpollutantconcentration10%Airtightperformanceofexternalwindows20%Grade2InJul2020,China'scentralpolicymakersannouncedthatgreenbuildingsshallaccountfor70%ofallnewbuildingsby2022SealedattachementoftheglasspanelandwindowframeBasicdecorationforallbuildingsSource:GoldmanSachsGlobalInvestmentResearch.20January202158GoldmanSachsCarbonomicsNaturalgas:AtransitionfueltowardsChinanetzeroAsChinamovestowardsthegoalofelectrifyinganddecarbonizingitseconomy,gasisamongthepreferredchoicesasatransitionfuel.Comparedwithcoal,gasemits50%-60%lesscarbonwhencombustedforpowergeneration,andcanrampupquicklywhentheintermittentrenewableenergyisunavailable.Further,theavailabilityofgasinfrastructurehelpsfacilitatethepotentialswitchfromgastogreenorbluehydrogeninthelongerterm.Forexample,low-pressuregaspipelinesaretypicallymadeofPEandcouldtransporthydrogen-naturalgasmixtureswithoutincurringadditionalinvestment.Comparedwith2017-19,whenaveragegasdemandgrowthwas14%yoy,weexpectslowergrowthofChinagasdemandin2022-24,aCAGRof8%.Despitethemarket’sattentiononChina’scoal-to-gassubstitutionpolicies,webelievethateconomicgrowthhasbeenaprimarydriverofChina’sgasdemand,giventhattheindustrialsectoraccountsfor40%oftotalgasdemandandishighlycyclicalinnature.Assuch,weexpectrobustgrowthinChinagasdemandin2021,drivenbythelowbaseof2020andcontinuedeconomicrecovery.Through2022-24,however,China’srebalancingtowardstheservicesector,asexpectedbyoureconomists,willlikelyleadtoslowergrowthintheindustrialsector,whichinturncoulddriveslowergasdemandgrowthforindustrialuse.TogetherwithslowerruralC2Gsubstitutiononthebackofshrinkingconnectablehouseholds,weexpectthegrowthoftotalgasdemandtomoderateoverthenextthreeyears.Thatsaid,China’sgasindustrylandscapeissettobesubstantiallyreshapedbyongoingreforms,whichmayintroducemarket-drivencoal-to-gassubstitutiontowardsmid-decade(2025-26).PipeChina,thenewlyformednationalpipelinecompany,hasstartedtoofferpublicaccesstoitsLNGterminalsthiswinterandissettobuildmorepipelinesandterminalsforpublicuse.ThisshouldgraduallyreducetheSOEs’dominantmarketpowerinthedomesticgasmarket,contributingtoagradualconvergenceoftheonshoreandoffshoregasprices(Exhibit117).Bymid-decade,weexpectthenextglobalLNGoversupplytoleadtolowgaspricesandmarket-drivencoal-to-gassubstitutioninChina,potentiallydrivingmeaningfulgasdemandacceleration(Exhibit118).Exhibit117:TheongoingindustryreformsareliberalizingChina’swholesalegasmarkets...Source:CEIC,Companydata,GoldmanSachsGlobalInvestmentResearch.20January202159GoldmanSachsCarbonomicsThissectiononnaturalgaswascontributedbyAmberCai(ChinaOil&Gasanalyst).Exhibit118:...andasaresult,weexpectChina’sgasindustrytogothroughtwophases:fromgas-on-gascompetitiontoapotentialgas-coalcompetitionSouthChinapowergenerationcost(pre-carboncost)020406080100120140160201420152016201720182019202020212022202320242025202620271InsufficientcompetitioninthewholesalemarketIncreasinggas-on-gascompetitionGas-coalcompetitionCompetitionandconvergencebetweeendomestic&internationalgasafterChinagasreformsPotentialMarket-drvienC2Gsubstitution:Globalgassurplus(2025-26)Morecompetitiveon-shoregasmarketCarbontradingschemesinplaceOnshorepipelinegas(SouthChina)InternationalspotLNGCoalAssumedagaspricepathsimilarto2019Source:Wind,Refinitiv,GoldmanSachsGlobalInvestmentResearch.20January202160GoldmanSachsCarbonomicsChinanetzero:TheroleofcarbonsequestrationWeenvisagetwocomplementarypathstoenableChinaandtheworldtoreachnetzeroemissions:conservationandsequestration.Theformerreferstoalltechnologiesenablingthereductionofgrossgreenhousegasesemittedandthelatterreferstonaturalsinksandcarboncapture,usageandstoragetechnologies(CCUS)thatreducenetemissionsbysubtractingcarbonfromtheatmosphere.Wehavealreadyincorporatedandaddressedconservationtechnologies,aswellasprocess-specificcarboncapturetechnologies,inourChinade-carbonizationcostcurveinExhibit55.TheneedfortechnologicalbreakthroughstounlockthepotentialabatementofChina’scurrentanthropogenicGHGemissionsthatcannotatpresentbeabatedthroughtheconservationtechnologiesmakessequestrationacriticalcomponentinsolvingtheclimatechangechallengeandleadingChinatonetzerocarbonemissionsatthelowestpossiblecost.Aspartofourglobalde-carbonizationanalysis,wehaveconstructedamergedcarbonabatementcostcurveforsequestrationandconservationthatincludesnaturalsinks,showninExhibit119.Overall,weestimatethatc.15-20%ofemissionscanabatedthroughsequestration(acombinationofcarboncaptureandnaturalsinks,asshownbelow).Exhibit119:Themergedcostcurveofde-carbonizationforChinacombinesconservationandsequestration(carboncaptureandnaturalsinks)technologiesandindicatesthatc.55%ofemissionscanbeabatedataprice<US$100/tnCO2,comprisingmostlycleanalternativesinpowergenerationandindustryandnaturalsinksChinamergedconservationandsequestrationde-carbonizationcostcurveforanthropogenicGHGemissions,basedoncurrenttechnologiesandassociatedcosts-200020040060080010001200012345678910111213Chinacarbonabatementcost(US$/tnCO2eq)ChinaanthropogenicGHGemissionsabatementpotential(GtCO2eq)DACCS-$400/tnCO2eqDACCS-$200/tnCO2eqDACCS-$100/tnCO2eqSource:GoldmanSachsGlobalInvestmentResearch20January202161GoldmanSachsCarbonomicsCarbonsequestrationeffortscanbebroadlyclassifiedintothreemaincategories:1)Naturalsinks,encompassingnaturalcarbonreservoirsthatcanremovecarbondioxide.Effortsincludereforestation,afforestationandagro-forestrypractices.2)Carboncapture,utilizationandstoragetechnologies(CCUS)coveringthewholespectrumofcarboncapturetechnologiesapplicabletotheconcentratedCO2streamcomingoutofindustrialplants,carbonutilizationandstorage.WehavealreadyaddressedthecarboncapturepotentialinChinaforindustrialapplicationsintheprevioussectionofthisreport(LayingoutthepathtoanetzeroChina:Asectoraldeepdive).3)Directaircarboncapture(DACCS),thepilotcarboncapturetechnologythatcouldrecoupCO2fromtheair,unlockingalmostinfinitede-carbonizationpotential,irrespectiveoftheCO2source.Naturalsinks:Chinaalreadymakingsubstantialprogress,withmoretocomeWhileChinahasamongthelowestforestareacoverageasapercentageoftotallandareaamongkeyeconomicregionsglobally,ithasachievedremarkableresultsoverthepastthreedecadesinincreasingitsforestarea.AccordingtodatafromtheWorldBankGroup,Chinahasadded>520,000squarekmofforestlandsince1990,ac.34%increaseinitsforestarea;currently,c.23%ofthecountry’slandareaisconsideredforestarea,upfromonly17%in1990.Thisisincontrasttotheglobalaverage,whichhasexhibitedadownwardtrendonthebackofnotableforestareareductionsinLatinAmericaandSub-SaharanAfrica,asshowninExhibit120andExhibit122.Thiscomesonthebackofongoingpolicysupport,withChinaincorporatingquantitativetargetsforforestareacoverageandforeststockvolumesintheCopenhagenAccord,theParisAgreementanditsfive-yearplans(FYP),assummarizedinExhibit38.Giventhelowcostofthesenaturalsolutions(weestimateittoliemostlybelowUS$50/tnCO2),webelievethatnaturalsinkscanhelpbridgethegapbetweentotalemissionsremainingunderanetzeroscenarioduetolackofavailablecleanalternativesandabsolutezeroemissions.Weincorporatenaturalsinksintoourpathtonetzeroby2060.20January202162GoldmanSachsCarbonomicsExhibit120:WhileChinahasamongthelowestforestareacoverageasa%oftotallandareaamongkeyeconomicregionsglobally…Forestareaasa%oftotallandareaExhibit121:…overthepastthreedecades,ithasincreaseditsforestcoverageasa%oflandareamorethananyothermajoreconomicregiongloballyChangeinforestarea%oftotalland60%ea0%10%20%30%40%50%60%70%ChinaEUIndiaUnitedStatesEastAsia&PacificRussiaNorthAmericaMiddleEast&NorthAfricaLatinAmerica&CaribbeanSub-SaharanAfricaWorldChangeinforestareasasa%oftotallandarea1990200020102016-3%-2%-1%0%1%2%3%ChinaEUIndiaUnitedStatesEastAsia&PacificRussiaNorthAmericaMiddleEast&NorthAfricaLatinAmerica&CaribbeanSub-SaharanAfricaWorldChangeintheforestarea%oftotallandarea1990-20002000-20102010-2016Source:WorldBankGroup,GoldmanSachsGlobalInvestmentResearchSource:WorldBankGroup,GoldmanSachsGlobalInvestmentResearchExhibit122:Chinahasadded>520,000sqkmofforestareasince1990...ChangeinforestareainsquarekmExhibit123:...ac.34%increaseinitsforestareainsqkm2intotalduringtheperiodChangeinforestareainsquarekm(%)-800,000-600,000-400,000-200,0000200,000400,000ChinaEUIndiaUnitedStatesEastAsia&PacificRussiaNorthAmericaMiddleEast&NorthAfricaLatinAmerica&CaribbeanSub-SaharanAfricaWorldChangeinforestareainsqkm1990-20002000-20102010-2016-10%-5%0%5%10%15%ChinaEUIndiaUnitedStatesEastAsia&PacificRussiaNorthAmericaMiddleEast&NorthAfricaLatinAmerica&CaribbeanSub-SaharanAfricaWorldChangeinforestareainsqkm(%)1990-20002000-20102010-2016Source:WorldBankGroup,GoldmanSachsGlobalInvestmentResearchSource:WorldBankGroup,GoldmanSachsGlobalInvestmentResearch20January202163GoldmanSachsCarbonomicsChinanetzero:ThepotentialimplicationsfornaturalresourcesdemandAttheheartofthepathtonetzeroChinaby2060liestheneedforaccesstocleanenergyandanacceleratedpaceofelectrificationfortransportandseveralsegmentsofindustry,asweoutlineintheprevioussectionofthisreport.ElectrificationandcleanenergyislikelytohaveanimpactontotalChinesedemandfornaturalresources,andinparticularmetalssuchasaluminium,copper,lithiumandnickel,demandforwhichreliesheavilyonanaccelerationintechnologiessuchasrenewables(solarpanel,windturbinesmanufacturing),powernetworkinfrastructure,charginginfrastructure,electricvehiclesandbatterymanufacturing.WeattempttoquantifythepotentialimpactthatthepathtonetzeroChinaby2060,aslaidoutinprevioussections,willhaveonthedemandforeachofthesemetals,asshownintheexhibitsthatfollow.Theresultsofthisanalysisarecalculatedonthebasisofincrementaldemandforeachcleantechnologyrelativetotheconventionaltechnology(suchasincrementalcopperdemandperelectricvehiclecomparedwithconventionalgasolinevehicles).WefindthatannualcopperdemandinnetzeroChinawillriseby2.0Mtpa,ac.15%increasefromChina’scopperdemandin2019,andrequireacumulativec.77Mtcopperin2020-60onapathconsistentwithnetzero.Similarly,asshownintheexhibitsthatfollow,weexpecttheelectrificationtrendtoleadtoamaterialincreaseindemandformetalssuchasaluminium,lithium,nickelandcobalt.Overall,weestimatec.3.0Mtaverageincrementalaluminiumdemandto2060,representingac.8%increaseonChina’sannualaluminiumconsumptionin2019.WeexpectlithiumdemandfromChinatoincreasebyc.0.76Mtto2060,tentimesthegloballithiumproductionin2019,andnickeldemandtoincreaseby0.42Mt,ac.32%increasefromChina’s2019consumption.Exhibit124:Weestimatec.2.0Mtincrementalaverageannualcopperdemandby2060forChinanetzero,representingac.15%increasefromChina’sannualcopperconsumptionin2019...Incrementalcopperdemandin2060forChinanetzeroExhibit125:...withc.77MtofcumulativeincrementalcopperdemandfromChinaover2020-60fornetzeroCumulativeincrementalcopperdemandforChina,2020-60(MtCu)0.000.200.400.600.801.001.201.401.601.802.00NEVs(passengerEVs,EVtrucks,FCEVs)ChargingpointsPowernetworksSolarPVOnshorewindOffshorewindEnergystorageChinaincrementalannualcopperdemandby2060fornetzeroIncrementalannualcopperdemandforChinanetzero(MtCu)0102030405060708090100Chinacopperdemand(2019)NEVs(pass.EVs,EVtrucks,FCEVs)ChargingpointsPowernetworksSolarPVOnshorewindOffshorewindEnergystorageCumulativeChinaincrementalcopperdemandto2060…Incrementalcumulativecopperdemandfor2020-26forChinanetzero(MtCu)Source:IRENA,InternationalCopperAssociation,GoldmanSachsGlobalInvestmentResearchSource:IRENA,InternationalCopperAssociation,GoldmanSachsGlobalInvestmentResearch20January202164GoldmanSachsCarbonomicsExhibit126:Weestimatec.3.0Mtincrementalaluminiumdemandby2060forChinanetzero,representingac.8%increasefromChina’sannualaluminiumconsumptionin2019...Incrementalaluminiumdemandby2060forChinanetzero(MtAl)Exhibit127:...and120Mtofcumulativeincrementalaluminiumdemandto2060inapathconsistentwithnetzeroCumulativeincrementalaluminiumdemand2020-60fornetzeroChina(MtAl)0.00.51.01.52.02.53.03.5NEVs(passengerEVs,EVtrucks,FCEVs)SolarPVOnshorewindChinaincrementalaluminiumdemandin2060fornetzeroIncrementalaluminiumdemandby2060forChinanetzero(MtAl)020406080100120140NEVs(passengerEVs,EVtrucks,FCEVs)SolarPVOnshorewindChinaincrementalaluminiumdemandin2060fornetzeroCumulativeincrementalaluminiumdemandby2060forChinanetzero(MtAl)Source:IRENA,WorldBank,GoldmanSachsGlobalInvestmentResearchSource:IRENA,WorldBank,GoldmanSachsGlobalInvestmentResearchExhibit128:Weestimatec.0.76,0.42and0.13Mtofincrementallithium,nickelandcobaltdemandinChinain2060,dependingonthetypeofNCMbatteryused...Incrementalnickel,lithium,cobaltdemandin2060forChinanetzero(Mt)Exhibit129:...asEVbatteryproductioncontinuestoincreaseIndexedChinaandEUproductionoflithiumionbatteries0.000.100.200.300.400.500.600.700.80LithiumNickelCobaltIncrementaldemandinChinain2060netzero(Mt)0.811.21.41.61.822.22.42.6Jan17Jul17Jan18Jul18Jan19Jul19Jan20Jul20ChinaproductionoflithiumIonbatteriesEUproductionofbatteriesandaccumulatorsIndexSource:Companydata,GoldmanSachsGlobalInvestmentResearchSource:HaverAnalytics,GoldmanSachsGlobalInvestmentResearch20January202165GoldmanSachsCarbonomicsChinanetzero:AddressingChina’sexportcompetitivenessintheeraofclimatechangeAdjustingforinternationaltrade,c.13%ofChina’semissionsareexportedtoothercountriesgloballyonanetbasis(c.20%whenconsideringgrossexports)...Officialemissionaccountingdata(usedthroughoutthisreport)typicallyassociateemissionswiththecountryinwhichtheseemissionswereproduced,typicallyreferredtoas‘territorialemissions’.However,thispresentsakeychallenge,ascountriescontributinglittletodirectemissionsmayhavenetimportedemissionsassociatedwiththeproductstheseregionsconsume.Incontrast,countriessuchasChina,whichtendtobenetemissionsexporters(ashighlightedbyourAsiamacroteam),producemoreemissionsthantheyconsumedomestically.Asaresult,tobeabletoestimatethe‘consumption’-relatedemissionsassociatedwitheachcountry,adjustmentsthataccountforinternationaltrade(emissionsembeddedingoodsthatarebeingtradedinternationally)arerequired.Wereferencetwostudiesinthisreportwhichbothattempttoquantifytheimpactofinternationaltradeonemissions(usinganinter-countryinput-outputtablemethodology,whichtrackstheinternationaltradeofgoods).ThoseincludeaworkingpaperpublishedbyOECD2andthe‘OurWorldinData’database3.Theresultsofbothstudiesarebroadlyconsistent,indicatingthattheshareofChina’snetexportedemissionsisc.13%(2018),aproportionthathasremainedbroadlyconstantoverthepastfewyearsasshowninExhibit130.Chinahasoneofthehighestproportionsofnetexportedemissions,followingtheRussianFederation.WhenlookingatChina’semissionsassociatedwithgrossexports(asopposedtonet),thisfigurebecomesc.20%ofChina’sCO2emissions.2Wiebe,K.S.andN.Yamano(2016),“EstimatingCO2EmissionsEmbodiedinFinalDemandandTradeUsingtheOECDICIO2015:MethodologyandResults”.OECDScience,TechnologyandIndustryWorkingPapers,No.2016/5,OECDPublishing,Paris.3H.Ritchie(2019)–“HowdoCO2emissionscomparewhenweadjustfortrade”.PublishedonlineatOurWorldInData.org.Retrievedfrom:‘https://ourworldindata.org/consumption-based-co2’[OnlineResource]BasedonGlobalCarbonProject;CarbonDioxideInformationAnalysisCentre;BP;Maddison;UNWPPExhibit130:China’snetexportedemissionsamounttoc.13%ofitstotalannualproducedCO2emissions...ChinaCO2emissionsproduced,consumedandexported(MtCO2)Exhibit131:...oneofthehighest%ofnetexportedemissionsfollowingtheRussianFederationCO2emissionsand%ofCO2emissionsthatisnetexported13%0%20%40%60%80%100%02,0004,0006,0008,00010,00012,00019901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015201620172018ChinaCO2emissions(MtCO2)Annualproduction-basedCO2emissionsAnnualconsumption-basedCO2emissionsNetexportedCO2emissionsNetexportedCO2emissions(%)-RHS13%-44%-8%17%8%-12%7%-50%-40%-30%-20%-10%0%10%20%-50000500010000150002000025000ChinaUnitedKingdomUnitedStatesRussiaIndiaOECDNon-OECDCO2emissions(MtCO2)Annualproduction-basedCO2emissionsAnnualconsumption-basedCO2emissionsNetexportedemissionsCO2Netexportedemissionsasa%oftotalCO2Source:OurWorldinDataSource:OurWorldinData,GoldmanSachsGlobalInvestmentResearch20January202166GoldmanSachsCarbonomics...andaglobalcarbontaxborderadjustmentofUS$100/tnCO2couldcostthecountryasmuchasUS$240bnpaInthissection,weaimtoaddressthepotentialimplicationofabordercarbontaxadjustmentappliedonChina’sexportsandtheresultingimpactontheircompetitiveness.Forthepurposesofthisanalysis,weconsidergrossexportedemissionsfromChina(asopposedtonet)amorerelevantmetric,andweassumethatin2019theyremainedatc.20%ofthecountry’stotalCO2emissions(inlinewiththelevelconcludedfromtheOECDworkingpapermentionedabove).Thisimpliesthatin2019,c.2.4GtCO2eqofemissionswereassociatedwithChina’sgrossexports.Applyingdifferentcarbonpricesandassumingvaryinglevelsofcarboncontentdifferencewithlocallyproducedproducts,wecanestimatethetotalcostassociatedwithChina’sglobalgrossexportedemissions.ThisispresentedinExhibit134andcouldbeashighasUS$240bnpaforacarbontaxofUS$100/tnCO2,dependingonthecarbonintensitydifferencebetweenChina’sexportsandtheimportingcountry’slocalproduct.ThismethodologyandanalysisisparticularlyapplicablewhenweconsiderChina’sexportstotheEuropeanUnion,giventhecurrentproposalforacarbonbordertaxadjustmentbytheEU.WeestimatethattheannualcostofacarbonbordertaxadjustmentintheEUforChina’sgrossexportsintheareacouldbeashighasUS$35bnifacarbontaxofUS$100/tnCO2wereappliedandassumingnetzeroproductsinEU.WeestimatethedifferenceincarbonintensityofproductsproducedlocallyintheEUvs.Chineseexportstobeclosetoc.40-50%(drivenentirelybydifferencesintheenergyintensityoftheindustrialmanufacturingprocessesofthetworegionsandbroadlymatchingthedifferenceincarbonintensitybetweencoalandnaturalgas).Thiswouldresultinalowercostestimateofc.US$15bnpa.Exhibit132:The%ofnetexportedemissionsbyChinaisbroadlyconsistentacrossstudiesandhasremainedrelativelyconstantoverrecentyearsataroundc.13%...CO2emissionsembeddedingrossexports/importsbyregion(2015,MtCO2)accordingtoaworkingpaperoftheOECDExhibit133:...andwhenlookingatgrossexportedemissionsasopposedtonet,thefigureiscloseto20%ofitstotalemissionsShareofCO2emissionsassociatedwithgrossexportsandgrossimports-40%-30%-20%-10%0%10%20%30%40%-2000-1500-1000-50005001000150020002500ChinaUKUSRussianFederationNorthAmericaEuropeSouth&CentralAmericaCO2emissionsembeddedingrossexports/imports-2015(MtCO2)TotalCO2emissionsembeddedingrossimportsTotalCO2emissionsembeddedingrossexportsTotalCO2emissionsembeddedinnetexportsasa%oftotal-80%-60%-40%-20%0%20%40%ChinaUKUSRussianFederationNorthAmericaEuropeSouth&CentralAmericaShareofCO2emissionsthatisassociatedwithgrossexportsandimports(%)TotalCO2emissionsembeddedingrossexportsasa%oftotalTotalCO2emissionsembeddedingrossimportsasa%oftotalSource:OECDStat,GoldmanSachsGlobalInvestmentResearchSource:OECDStat,GoldmanSachsGlobalInvestmentResearch20January202167GoldmanSachsCarbonomicsCasestudy:ExaminingtheimpactofacarbonborderadjustmenttaxonChinesesteelexportstotheEUToillustratethepotentialimpactofacarbonbordertaxadjustmentimplementedbytheEU,weconsidertheexampleofChina’ssteelexportsintotheregion.DependingonthedifferenceinthecarbonintensityofproducingsteelintheEUcomparedwithChina,acarbontaxwillhavedifferingimpactsonsteelexportprices.UsingthecurrentcarbonintensityofproducingsteelinChinaunderacoalblastfurnaceBF-BOFprocess(2.1tnCO2eq/tnsteel)andcomparingittotheaveragecarbonintensityofsteelproducedintheEUusinganaturalgas-basedDRI-EAFprocess(1.1tnCO2eq/tnsteelwithgridelectricity),wecandeterminetheincrementalcostforsteelexportsonthebasisofthedifferenceincarbonintensity.AsillustratedinExhibit136,theresultsindicatethataUS$100/tnCO2carbonpricecouldresultinanincreaseinChina’ssteelexportcostofc.US$100/tnsteel.Alternatively,iftheaveragesteelproducedintheEUreliesonnetzeroelectricity,thenanaturalgasDRI-EAFprocesswillhaveacarbonintensityof0.6tnCO2/tnsteel,meaningthecaseillustratedinExhibit137wouldresultinanincreaseinthepriceofsteelexportedfromChinaofUS$150/tnsteel.AssumingasteelpriceofUS$500/tn,suchapriceincreasewouldbeequivalenttoc.30%inflationinChinasteelexportcosts.Exhibit134:TheannualcostofagloballyappliedcarbonborderadjustmenttaxonChina’sgrossexportedemissionscouldbeashighasUS$240bnatUS$100/tnCO2,dependingonthedifferenceincarbonintensityofChina’sexportsandtheimportingcountry’slocalproducts...CostofChina’sannualgrossgloballyexportedemissions(US$bn)Exhibit135:...andwhenwelookattheEUinparticular,thecostcouldbeashighasUS$35bnpaCostofChina’sannualgrossexportedemissionstotheEU(US$bn)0501001502002500%20%40%60%80%100%CostofChina'stotalgrossglobalexportedemissions(US$bn)CarbonintensitydifferenceofChina'sexportswithothercountry'slocalproducts(%)Carbonprice-$25/tnCO2Carbonprice-$50/tnCO2Carbonprice-$75/tnCO2Carbonprice-$100/tnCO205101520253035400%20%40%60%80%100%CostofChina'stotalgrossEU28exportedemissions(US$bn)CarbonintensitydifferenceofChina'sexportswithEU28localproducts(%)Carbonprice-$25/tnCO2Carbonprice-$50/tnCO2Carbonprice-$75/tnCO2Carbonprice-$100/tnCO2EstimateddifferenceinCarbonintensitySource:GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearch20January202168GoldmanSachsCarbonomicsExhibit136:ComparingthestandardcoalblastfurnaceprocessusedinChinaforsteelproductionwithanaveragenaturalgasDRI-EAFprocessusedintheEU,acarbonborderadjustedtaxcouldleadtoapriceincreaseofUS$100/tnsteelforChineseexports....IncreaseinChina’sexportedsteelpricesatdifferentcarbonbordertaxandcarbonintensitylevelsExhibit137:...whichcouldbeashighasUS$150/tnsteelifnetzeroelectricityisusedinthesteelmanufacturingprocessintheEU,atacarbontaxofUS$100/tnCO2IncreaseinChina’sexportedsteelpricesatdifferentcarbonbordertaxandcarbonintensitylevels02449739712102550751001251501752002252500255075100125150Chinasteelexportspriceincreasepertonne(US$/tnsteel)Carbonbordertax(US$/tnCO2)ΔtnCO2/tn=1.25ΔtnCO2/tn=1.5ΔtnCO2/tn=1.0ΔtnCO2/tn=0.75ΔtnCO2/tn=0.50ΔtnCO2/tn=0.50GSbaseΔtnCO2/tn0387511315018822502550751001251501752002252500255075100125150Chinasteelexportspriceincreasepertonne(US$/tnsteel)Carbonbordertax(US$/tnCO2)ΔtnCO2/tn=1.25ΔtnCO2/tn=1.0ΔtnCO2/tn=0.75ΔtnCO2/tn=0.50ΔtnCO2/tn=0.50GSbaseΔtnCO2/tn=1.5Source:GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearch20January202169GoldmanSachsCarbonomicsChinanetzero:WhathavebanksdonetoaddressChina’sgoalforcarbonneutrality?Achievingthegovernment’slong-termclimategoalsofacarbonpeakby2030andcarbonneutralityby2060willrequireafundamentaltransformationofChina’sentiresocialandeconomicsystems,withthefinancialsystemplayingacrucialrole.Asthekeyfinancialintermediary,banksaretheprimaryfinancialinstitutionsforthedevelopmentofgreenfinanceinChina.WhilethereareopportunitiesforbankstoactivelyrespondtoChina’snationalcarbonneutralgoal,therearechallengesthatwillneedtobetakenintoconsideration.OnJanuary6,2020,thePBOCproposedimplementingmajordecisionsithadtakenaboutthecarbonpeakandcarbonneutralityasakeymissionin2021,toimproveChina’sgreenfinancialpolicyframeworkandtoactasanincentivemechanism.Asfarasweareaware,thiswasthefirsttimethecentralbankhasincludedcarbonissuesinitsworkingpipelinetogetherwithmonetarypoliciesandfinancialstability.ThePBOCwillguidefinancialresourceswithatilttowardsgreendevelopment,enhancingthefinancialsystem’sabilitytomanageclimatechange-relatedrisks,andtopromotetheestablishmentofacarbonemissionstradingmarkettosetareasonablepriceforcarbonemissions.Webelievethatthesepoliciescouldgraduallyimprovethegreenfinancestandardsystem,clarifyregulatoryandinformationdisclosurerequirements,andimprovegreenfinancialproductsandmarketsystems.BasedonPBOCdata,thebalanceofgreenloanswasRmb11.6tnasof3Q2020,anincreaseof16%fromthebeginningoftheyearandup17%yoy,fourpercentagepointshigherthanthegrowthrateoftotalloansoverthesameperiod.ThetotalbalanceofgreenbondswasRmb1.1tnasofend-2020,a32%increasefromayearago,thegrowthrateofwhichslowedvs.2019’s77%.Inthemeantime,thestructureofthegreenbondmarkethasundergonesignificantchanges:bankswerepreviouslythemajorissuersofgreenbondsforcapitalraising,butstartingfrom2019,bankshavehelpedunderwritemoregreenbondsissuedbynon-financialcorporatesthantheyhaveissuedthemselves.ACarrotandStickapproach:PolicyplaysanimportantroleincarbonneutralityWebelievethatChinamovedmuchearlierthanmostmarketparticipantsexpectedinadoptingamarket-drivencarbonexchangemarket:2011:twolocalcarbonexchangeswereestablishedtotestthewater.ThiswasnsupportedbytheNDRC,agovernmentagencyinChinaforeconomicplanning.2017:anationalcarbonexchangewasannouncedasafurthersteptounifyandnintegratethenationwidecarbonexchangemarket.Sincethen,thegovernmenthasannouncedmorepoliciesandproceduresregardingncarbontrading,clearingandaccounting,suggestingfurtherprogresstowardsafully-fledgedcarbonexchange.20January202170GoldmanSachsCarbonomicsIntermsofthefinancialsector,in2018thePBOCissuedguidelinesthatestablishedaframeworktoevaluatetheperformanceofbankswithrespecttogreenfinance,including:thegrowthofgreenfinancennon-performingloans(NPL)ngreenfinanceevaluationtobepartofbanks’macro-prudentialassessment(MPA)ngreenfinancebondstoberegardedasqualifiedcollateralforamediumliquiditynfacility(MLF)fromthePBOC.Toachievethegoalofacarbonpeakby2030andcarbonneutralityby2060,wewouldexpectmorechangestotheregulatoryindicatorsofgreenfinance,withthepotentialtofurtherincreasetheassessmentofgreenfinanceinbanks’MPAin2021.Whatdobankssay?NPLsmattermostforhealthygrowthofgreenfinanceOntheonehand,moregreenbondsissuedbynon-financialcorporatesthanthebanksthemselvesshoulddrivenewbusinessgrowth.However,anumberoffactorsneedtobetakenintoconsideration:thelowmarginofgreenbondunderwriting,thoughthiscouldbepartiallyoffsetwithnthePBOCpledginggreenbondstothecentralbankforcheaperliquiditytheNPLcyclecannotbesmoothedoutinthegreensector,giventhefluctuatingnnatureofbusinesscyclesmoregreenfinancepotentiallymeanslessnon-greenfinance.Oldeconomysectorsnsuchasmaterialsandothertraditionalindustriescouldfacemorechallengesintermsofnewfinancingandcashflows.Carbonexchangescanfunctiontodisciplinecarbonemissionsasapriceischarged,withobtainingaquotaforcarbonemissionsposingadditionalcoststocorporates,particularlythoseintheoldeconomy.Fromthepointofviewofbanks,toachievecarbonneutrality,NPLswillmattermost:theywillnotonlydeterminethesustainabilityandhealthygrowthofgreenfinance,butalsotheorderlyexitofnon-greenfinance.WebelievethiswillposechallengesforChina’sbanks,butnotnecessarilythreats,asthegovernment’s“CarrotandStick”policystance,thataimstodrivecarbonneutrality,isconsistentwiththePBOC’sfinancialdeleveragecampaign(startedin2017)toabatesystemicriskandencourageanappropriateriskpricingmechanism.20January202171GoldmanSachsCarbonomicsThischapterwascontributedbyShuoYang,Ph.D.(ChinaFinancialsanalyst).Exhibit138:ChinagreenloansbalancewasRmb11.6tnasof3Q20,a17%increasevs.ayearagoChinagreenloansbalanceExhibit139:Chinagreenbondbalancegrowthslowedin2020butstillata32%highgrowthrateChinagreenbondsbalanceandissuance8.29.29.59.910.210.511.011.624%13%16%17%0%5%10%15%20%25%051015202530Dec-18Mar-19Jun-19Sep-19Dec-19Mar-20Jun-20Sep-20RmbtnChinagreenloansbalanceGreenloansGreenloansyoy(RHS)Totalloansyoy(RHS)0.220.440.781.040.110.220.390.26101%77%32%0%20%40%60%80%100%120%0.00.20.40.60.81.01.21.41.61.82.02017201820192020RmbtnChinagreenbondsbalance&issuanceamountBalanceIssuanceamountBalancegrowthyoySource:PBOC.Source:Wind.Exhibit140:Afternearlyadecadeofpilottestinganddiscussion,Chinamayofficiallylaunchthenationwideemissionstradingsystemin2021-20252011201320152017201820202021-2025TheNDRCapprovedtwoprovincesandfivecitiesaspilotsofcarbonemissiontrading(CET)Shenzhenwasthefirstpilottolaunchcarbonemissiontrading(CET)ThenationaltradingsystemwaspledgedbyPresidentXiJinpingaheadoftheParisclimateaccordChinaannouncedthelaunchofthenationalETS,designedtoincludeallmajorindustrialsectors,buttherehasbeennotradingyet,andrelevantregulationshavenotbeenissuedPresidentXipledgedcarbonneutralityby2060;TheecologyandenvironmentministrysaidtheywererevisingthedraftplanofemissionallowanceallocationsTheecologyandenvironmentministrytookoverresponsibilityforestablishingthenationalETSfromNDRTheecologyandenvironmentministrytargetsthelaunchofanationwideemissionstradingschemeduringtheperiodfrom2021to2025ThThedevevelopmentoffChinhina’scacarbrbonemiemissisiontrarading(CE(CET)Source:Xinhua,Reuters.20January202172GoldmanSachsCarbonomicsChinaETS:Gettingclosertotheimplementationoftheworld’slargestnationalemissionstradingschemeCarbonpricingakeyingredientforde-carbonization,withChina’sproposednationalETSthelargestglobally...Webelievethatcarbonpricingwillbeacriticalpartofanyefforttomovetonetzeroemissions,whileincentivizingtechnologicalinnovationandprogressinde-carbonizationtechnologies.TheverysteepcarbonabatementcostcurveforChinacallsforgrowingtechnologicalinnovation,sequestrationtechnologiesdeploymentandeffectivecarbonpricing.Thetwoapproachestode-carbonization,conservationandsequestration,arebothvitalinachievingnetzerocarbonemissions,asemissionscontinuetoovershootthepathassociatedwiththemorebenignglobalwarmingpaths.Intheshortterm,webelievethatcarbonpricesshouldbesufficientlyhightoincentivizeinnovationandhealthycompetitionbetweenconservationandsequestrationtechnologies,whileinthelongerterm,theequilibriumpriceofcarbonislikelytodeclineonthebackoftechnologicalinnovationandeconomiesofscale.Atpresent,64carbonpricinginitiativeshavebeenimplemented(orarescheduledforimplementation),covering46nationaljurisdictionsworldwide,accordingtotheWorldBankGroup,mostlythroughcap-and-tradesystems.Theseinitiativesaregainingmomentum,withthePeople’sRepublicofChinain2017announcingtheimplementationofanationalemissionstradingscheme.Thiswouldbetheworld’slargestnationalemissionstradingschemeandaccordingtotheWorldBankGroup,combiningalloftheseinitiatives(includingChina)willcover12GtCO2eq,representingc.23%oftheworld’stotalGHGemissions.Exhibit141:WiththeadditionofChina’snationalETS,thetotalglobalemissionscoveredbycarbonpricinginitiativesshouldreachc.23%...Carbonpricinginitiatives’shareofglobalGHGemissionscovered(%)Exhibit142:...withChinacurrentlyoperatingseveralregionalpilotETSCarbonpriceforseveraloperatingETS($/tnCO2eq)0%5%10%15%20%25%20072008200920102011201220132014201520162017201820192020E2021EShareofglobalGHGemissionscoveredbycarbonpricing(%)ChinanationalETSEUETSJapancarbontaxSouthAfricacarbontaxKoreaETSGermanyETSMexicocarbontaxCaliforniaCaTGuangdongpilotETSAustraliaERFSafeguardMechanismMexicopilotETSUkrainecarbontaxHubeipilotETSFujianpilotETSKazakhstanETSFrancecarbontaxShanghaipilotETSCanadafederalfuelchargeAlbertaTIEROthers05101520253035BeijingpilotETS(2013)ChongqingpilotETS(2013)FujianpilotETS(2016)GuangdongpilotETS(2013)HubeipilotETS(2013)ShanghaipilotETS(2013)ShenzhenpilotETS(2013)TianjinpilotETS(2013)EUETS(2005)CaliforniaCaT(2012)Carbonprice($/tnCO2e)2014201520162017201820192020China'spilotETScarbonmarketsChina'snationalETSexpectedtolaunchin2021EUincludestheUK.Source:WorldBankGroup.EUincludestheUK.Source:WorldBankGroup.20January202173GoldmanSachsCarbonomics...andgettingclosertoimplementationwithnumerousrecentannouncementsonitsprogressTheMinistryofEcologyandEnvironment(MEE)hostedamediaconferenceonJanuary5,2021,confirmingthatthefirstcompliancecycleofChina’snationalETSwaseffectivelyrolledoutonJanuary1,2021.TheETSwillinitiallycoverpowergenerationplants.Itwillallocateallowances(alsoknownaspermits),basedontheplant’sgenerationoutput,withemissionbenchmarksforeachfuelandtechnology.China’sETS,settoexpandtosevenothersectors(aviation,non-ferrousmetals,steel,constructionmaterials,chemicals,petrochemicals,papermanufacturing)willbetheworld’slargestglobally.Exhibit143:TradingvolumeshaveincreasedonChina’spilotETSandthenationalETScouldbeastepfunctionupward...TradingvolumeofprimaryandsecondarypilotETSmarketsinChina(CNYmn)Exhibit144:...andsohavethenumberofprojectsregisteredforCCERwith256mntonnescumulativeofCCERtradedinprimary&secondarymarketsChinaCertifiedEmissionReduction(CCER)offsetsvolume(MtCO2)1,0379401,1121,2941,4112,1891,846-5001,0001,5002,0002,5002013-142014-152015-162016-172017-182018-192019-20Tradingvolumeofprimaryandsecondarymarketsinpilots(CNYmn)0102030405060702014-152015-162016-172017-182018-192019-20ChinaCertifiedEmissionreductions(CCERoffsets)tradingvolume(MtCO2)Source:2020ChinaCarbonPricingSurvey.Source:2020ChinaCarbonPricingSurvey.Exhibit145:GuangdongiscurrentlythelargestpilotregionalETSoperatinginChinaintermsoftradingvolume...CumulativetradingvolumeofChina’spilotETS(toOctober30,2020)Exhibit146:...andtradingvalueCumulativetradingvalueofChina’spilotETS(toOctober30,2020)020406080100120140160180GuangdongHubeiShenzhenShanghaiBeijingTianjinFujianChongqingCumulativetradingvolume(Mt)Cumulativetradingvolume(MtCO2)-toOct302020AuctionOverthecounter(OTC)Spottrading05001,0001,5002,0002,5003,0003,500GuangdongHubeiShenzhenShanghaiBeijingTianjinFujianChongqingCumulativetradingvalue(mnCNY)Cumulativetradingvalue(mnCNY)-toOct302020AuctionOverthecounter(OTC)SpottradingSource:2020ChinaCarbonPricingSurvey.Source:2020ChinaCarbonPricingSurvey.20January202174GoldmanSachsCarbonomicsUltimately,benefitsfromChina’snationalETSwillcomefromeithersurplusallowancesforcompaniesoperatingbelowthebaselinethreshold(e.g.“clean”coalutilities)orcompaniesthatareabletoissueCCERs(e.g.renewableoperators).Thelattercouldalsodrivedemandforrenewableprojects,whichcouldleadtogrowthindemandforrenewableequipment,benefitingupstreamplayers.Amongcoaloperators,thesuggestedbenchmarkislikelytodriveasymmetricriskexposure,withsomepotentiallybenefitingfromtheETS.Webasethisviewontheproposedthresholdsandwhereindustryintensitycurrentlystands.Thecurrentproposedcarbonemissionallowancebaselineis0.877-0.979kg/kWhforconventionalcoalunits,dependingontheirinstalledcapacity,whichwilllikelyaffectsubcriticalcoalplants,whichhavealowerthermalefficiencyandahigheremissionintensity.ThetimelinelaidoutbytheMinistryofEcologyandEnvironment(MEE)wouldimplythatthefirstbatchof2,225entitiesinthepowersectorwillhaveuntilDecember31,2021,tocomplywiththeschemefortheir2019-2020emissions.ThisfollowstwokeylegislativedocumentsreleasedbytheMEE(i.e.theMeasuresfortheAdministrationofNationalCarbonEmissionTrading(Trial)andthe2019-2020ImplementationPlanforNationalCarbonEmissionTradingTotalAllowancesSettingandAllocation(PowerGenerationIndustry)).Followingthisannouncement,theMEEplanstoexpeditebuildingtheregistrationandtradingsystemfortheETS.OurChinaCleanEnergyanalystbelievesChineseupstreamcleanenergymanufacturersarepositionedwelltobenefitfromthenewde-carbonizationtarget(including25%non-fossilenergyby2030,upfrom20%)announcedbyPresidentXionDecember12,2020,attheClimateAmbitionSummit.OurGSSUSTAINteamoutlinesthekeydetailsfromthesereleasesbelow,buildingontheirpreviouswork:ThepowergenerationsectorhasbeenidentifiedasthefirstsectortobenincludedinthefirstcompliancecycleofChina’sETS,startingfromJanuary1,2021,andhasuntilDecember31,2021,tomeetitscomplianceobligationsfortheir2019and2020emissions.Exhibit147:China’sETS’proposedcarbonemissionallowancebaselinecouldpotentiallybenefitinthenearterm,lower-carbon,moreefficientcoalpowerplantoperators,withsubcriticalplantstheleastfavoured...RangeofCO2emissionsfromdifferentpowergenerationplants(gCO2/kWh)Exhibit148:...aswellasbenefitingrenewableenergyproducers(carboncreditsmightalsorendersolarandwindmorefinanciallyattractive),withlonger-termcostimplicationsforfossilfuelpowergenerationcompaniesGenerationLCOE(Rmb/kWh)020040060080010001200SubcriticalSupercriticalUltra-supercriticalAdvancedultra-supercriticalIntegratedgasificationcombinedcycle(IGCC)NaturalgasCGGTCoalplantsretrofitedwithCCUSBiomass-CCUSCO2emissionsfrompowergeneration(gCO2/kWh)Emissionallowancebaseline:877-979g/kWh00.10.20.30.40.50.60.70.80.9100.10.20.30.40.50.60.70.80.91GasSolar-DGOffshorewindSolar-utilityOnshorewindCoalNuclearHydro2019LevelizedCostofElectricity2023ELevelizedCostofElectricityPotentialcarboncost(Rmb35)Potentialcarboncost(Rmb105)Potentialcarboncost(Rmb350)Generationcost(Rmb/kwh)Source:IEA,Companydata,GoldmanSachsGlobalInvestmentResearch.Source:GoldmanSachsGlobalInvestmentResearch.20January202175GoldmanSachsCarbonomicsIntheDecember30ImplementationPlan,theMEEconfirmedthatthefirstbatchofn2,225entitiesinthepowersector,includingthosewithcoal-firedunits,willbeincludedinthefirstcycle.Aninitiallookatthedraftlistof2,267companiesreleasedonNovember20,suggeststhatwhilethemajorityoftheassetsarewithinthepowersector,thelistalsoextendstootherindustriessuchaschemicalsandpaperthathaveon-siteinstallations.TheDecember30ImplementationPlanconfirmedacarbonemissionallowancenbaselinebetween0.877-0.979tCO2/MWhforconventionalcoalunitsand1.146tCO2/MWhforunconventionalcoalunits(e.g.plantsusingcoalgangueorcoalwaterslurry).Thenewbaselineforconventionalcoalunitsismorestringentthantheinitialnproposedbaseline,butourviewontheasymmetricriskexposureamongcoaloperatorsremainsunchanged.WeseemoreefficientoperatorspotentiallybenefitingfromtheETSastheymayhavesurplusallowancestomonetize,whileasmallerportionoflessefficientplayerscouldseegreatercoststocomply.OnJanuary5,2021,theMEEannouncedthatMeasuresfortheAdministrationofnNationalCarbonEmissionTrading(Trial)willbecomeeffectiveonFebruary1,2021(link).Asdiscussedinourpreviousnote,thisestablishesstrongertransparencyandgovernancemeasuresforemissionsdisclosuresbyintroducinglegalliabilitiesforcorporates.OurChinaCleanEnergyanalystcontinuestobelievethatChineseupstreamcleanenergymanufacturersarepositionedwelltobenefitfromtheschemebasedonthisannouncement.TheprovincialdepartmentsofEcologyandEnvironmentwilldecideonquotastobenallocatedforeachcompanybyJanuary29,2021.Source:GoldmanSachsGlobalInvestmentResearch.20January202176GoldmanSachsCarbonomicsWefurthernotethatthereareanumberoflow-carbonpilotcitiesandprovincesthathaveproposedpeakemissiontargetyears:Thisinitiativestartedin2010,ledbyNCSC(NationalCenterforClimateChangenStrategyandInternationalCooperation).FollowingChina’scommitmentatCOP25toreachpeakemissionsby2030,citiesnhaveannouncedtheiremissionpeaktargets,mostwithatargetyearbefore2025.Asof2020,NCSCreportedthat82pilotcitiesandprovinceshaveproposedpeaknemissiontargetyears,with18targeting2020and42targetingpre-2025.20January202177GoldmanSachsCarbonomicsAppendix:Chinade-carbonizationcostcurvedetailsExhibit150:Chinade-carbonizationcostcurvewiththecarbonabatementpricerange(US$/tnCO2eq)andabatementpotential(GtCO2eq)splitbyindustryConservationcarbonabatementroutesIndustryCarbonabatementprice-basecaseCarbonabatementprice-lowcaseCarbonabatementprice-highcaseCarbonabatementpotentialPowergeneration(US$/tnCO2eq)(US$/tnCO2eq)(US$/tnCO2eq)(GtCO2eq)Hydroelectricpower,lowcostscenario,highcoalpricePowergeneration-16-19-130.00Nuclearpower,lowcostscenario,highcoalpricePowergeneration-14-17-110.03Hydroelectricpower,highcostscenario,highcoalpricePowergeneration-11-13-90.00Hydroelectricpower,lowcostscenario,basecoalpricePowergeneration-10-11-80.00Nuclearpower,lowcostscenario,basecoalpricePowergeneration-8-9-60.06Hydroelectricpower,highcostscenario,basecoalpricePowergeneration-4-5-30.00Solarpower,lowcostscenario,highcoalpricePowergeneration-4-5-30.15Hydroelectricpower,lowcostscenario,lowcoalpricePowergeneration-2-3-20.00Onshorewindpower,lowcostscenario,highcoalpricePowergeneration-2-2-20.08Nuclearpower,highcostscenario,highcoalpricePowergeneration-1-1-10.03Nuclearpower,lowcostscenario,lowcoalpricePowergeneration-10-10.03Solarpower,lowcostscenario,basecoalpricePowergeneration3230.31Hydroelectricpower,highcostscenario,lowcoalpricePowergeneration3240.00Onshorewindpower,lowcostscenario,basecoalpricePowergeneration5460.16Nuclearpower,highcostscenario,basecoalpricePowergeneration6570.06Solarpower,mediumcostscenario,highcoalpricePowergeneration108110.15Solarpower,lowcostscenario,loqcoalpricePowergeneration108120.15Onshorewindpower,lowcostscenario,lowcoalpricePowergeneration1210140.08Nuclearpower,highcostscenario,lowcoalpricePowergeneration1310160.03Onshorewindpower,basecostscenario,highcoalpricePowergeneration1613190.08Solarpower,mediumcostscenario,basecoalpricePowergeneration1613190.31Solarpower,highcostscenario,highcoalpricePowergeneration2117250.15Onshorewindpower,basecostscenario,basecoalpricePowergeneration2318270.16Solarpower,mediumcostscenario,lowcoalpricePowergeneration2319280.15Solarpowerwithbatterystorage,lowcostscenario,highcoalpricePowergeneration2621310.03Solarpower,highcostscenario,basecoalpricePowergeneration2822330.31Windpowerwithbatterystorage,lowcostscenario,highcoalpricePowergeneration2823340.02Offshorewindpower,lowcostscenario,highcoalpricePowergeneration2919400.05Onshorewindpower,basecostscenario,lowcoalpricePowergeneration3019400.08Solarpowerwithbatterystorage,lowcostscenario,basecoalpricePowergeneration3321440.05Onshorewindpower,highcostscenario,highcoalpricePowergeneration3422450.08Windpowerwithbatterystorage,lowcostscenario,basecoalpricePowergeneration3523470.04Solarpower,highcostscenario,lowcoalpricePowergeneration3523470.15Offshorewindpower,lowcostscenario,basecoalpricePowergeneration3623480.11Solarpowerwithbatterystorage,lowcostscenario,lowcoalpricePowergeneration4026540.03Onshorewindpower,highcostscenario,basecoalpricePowergeneration4026540.16Windpowerwithbatterystorage,lowcostscenario,lowcoalpricePowergeneration4227570.02Offshorewindpower,lowcostscenario,lowcoalpricePowergeneration4328580.05Onshorewindpower,highcostscenario,lowcoalpricePowergeneration4731640.08CoalpowerCCUSPowergeneration6039810.22Offshorewindpower,highcostscenario,highcoalpricePowergeneration6744910.05Offshorewindpower,highcostscenario,basecoalpricePowergeneration74481000.11Offshorewindpower,highcostscenario,lowcoalpricePowergeneration81531090.05Solarpowerwithbatterystorage,highcostscenario,highcoalpricePowergeneration87571180.03HydrogenCGGT,switchfromlowgaspricePowergeneration92601250.03Solarpowerwithbatterystorage,highcostscenario,basecoalpricePowergeneration94611270.05Windpowerwithbatterystorage,highcostscenario,highcoalpricePowergeneration100651350.02Solarpowerwithbatterystorage,highcostscenario,lowcoalpricePowergeneration101661370.03Windpowerwithbatterystorage,highcostscenario,basecoalpricePowergeneration106691440.04Windpowerwithbatterystorage,highcostscenario,lowcoalpricePowergeneration114741530.02HydrogenCGGT,switchfrombasegaspricePowergeneration116751570.03Solarpowerwithhydrogenstorage,lowcostscenario,highcoalpricePowergeneration117761570.03Onshorewindpowerwithhydrogenstorage,lowcostscenario,highcoalpricePowergeneration119771600.02Solarpowerwithhydrogenstorage,lowcostscenario,basecoalpricePowergeneration123801660.05Onshorewindpowerwithhydrogenstorage,lowcostscenario,basecoalpricePowergeneration125811690.04Solarpowerwithhydrogenstorage,lowcostscenario,lowcoalpricePowergeneration130851760.03Onshorewindpowerwithhydrogenstorage,lowcostscenario,lowcoalpricePowergeneration132861790.02HydrogenCGGT,switchfromhighgaspricePowergeneration140911890.07Solarpowerwithhydrogenstorage,highcostscenario,highcoalpricePowergeneration2021312720.03Solarpowerwithhydrogenstorage,highcostscenario,basecoalpricePowergeneration2081352810.05Onshorewindpowerwithhydrogenstorage,highcostscenario,highcoalpricePowergeneration2141392890.02Solarpowerwithhydrogenstorage,highcostscenario,lowcoalpricePowergeneration2161402910.03Onshorewindpowerwithhydrogenstorage,highcostscenario,basecoalpricePowergeneration2211442980.04Onshorewindpowerwithhydrogenstorage,highcostscenario,lowcoalpricePowergeneration2281483080.02TransportSwitchaircrafttooneofhighestefficiencyTransport406910.01LNGinshippingTransport68211150.01HydrogenFCEVtruck,long-haulTransport2191642730.11MarinebiofuelsTransport2352152540.00BiofuelsonroadtransportTransport2681793570.01CityBusestoelectricbusesTransport2992603240.07Cleanammoniafuel-runshipsTransport3192503930.02Trucktoelectric,short-haulTransport4283894540.14Trucktoelectric,medium-haulTransport4544154800.02SwitchtohydrogenFCEtrainTransport4742327170.03AviationbiofuelsTransport5644986300.06GasolinevehicletoEV,urbanTransport9677201,2260.34GasolinevehicletoEV,ruralTransport1,1707761,7210.14Source:GoldmanSachsGlobalInvestmentResearch20January202178GoldmanSachsCarbonomicsConservationcarbonabatementroutesIndustryCarbonabatementprice-basecaseCarbonabatementprice-lowcaseCarbonabatementprice-highcaseCarbonabatementpotentialIndustry&industrialwasteNon-ferrousmetalssecondaryproductionthroughscrap/recyclingIndustry&waste-121-146-970.23Efficiencygainsandcirculareconomy(plasticsrecycling)inchemicalsIndustry&waste-58-70-460.09Switchfromcoaltonaturalgas+CCUSbasedprocessinammoniaIndustry&waste3931470.04TextilesmanufacturingefficiencygainsIndustry&waste4532590.40Swicthfromcoaltonaturalgas+CCUSprocessesinchemicals(HVCs,methanol)Industry&waste5241620.03Efficiencygainsandwastereductioninmanufacturingprocesses(lowcost)Industry&waste5841750.19Inertanodesfornon-ferrousmetalsprocessingIndustry&waste6855820.03SwitchfromBF-BOF(coal)tonaturalgasDRI-EAF(withzerocarbonelectricity)insIndustry&waste7963940.22Fuelswitchtobiomass&wasteincementIndustry&waste8165970.35OtherindustrialCCUSIndustry&waste90601300.32RetrofitBF-BOF(coal)withcharcoal/biomassfurnaceforfuel/feedstockinsteelIndustry&waste91731100.06SwitchfromBF-BOF(coal)toscrap-EAFprocessinsteelIndustry&waste102811220.85Swicthtoelectroysishydrogenprocessinchemicals(HVCs,methanol)Industry&waste1271021530.13CCUSincementIndustry&waste1301041560.70Non-ferrousmetalsCCUSIndustry&waste140981820.12ElectrificationofheatinindustrialprocessesIndustry&waste145753450.39Efficiencygainsandwastereductioninmanufacturingprocesses(mediumcost)Industry&waste1701192210.19SwitchtoelectrolysishydrogenprocessinammoniaIndustry&waste2051232870.07SwitchfromBF-BOF(coal)tohydrogenDRI-EAFprocessinsteelIndustry&waste2201762640.85Efficiencygainsandwastereductioninmanufacturingprocesses(highcost)Industry&waste3502454550.19ReducingclinkertocementincementprocessIndustry&waste3632904350.10Switchtobiogas/biomassfuelandfeedstockinammoniaIndustry&waste4273415120.03Swicthtobiogas/biomassforfuelandfeedstockinchemicals(HVCs,methanol)Industry&waste5234196280.18BuildingsLEDandincreasedefficiency,commercialbuildingsBuildings-77-96-580.03LEDandincreasedefficiency,residentialBuildings-67-83-500.05Insulation(cavityandwall),commercialbuildingsBuildings-58-72-430.02Insulation(cavityandwall),newbuildBuildings-50-63-380.02HVACSystems/thermostat&smartmetersefficiencygains,commercialbuildingsBuildings-48-60-360.01HVACSystems/thermostat&smartmetersefficiencygains,newbuildsBuildings-42-52-310.01HVACSystems/thermostat&smartmetersefficiencygains,retrofitBuildings-32-40-240.01Insulation(cavityandwall),retrofitBuildings-20-25-150.02Solarthermalrenewableheat,commercialbuildingsBuildings3829480.01SolarthermalrenewableheatBuildings4534560.10BACSsystems/efficiencygains/BATappliancesresidentialBuildings1591201990.11BACSsystems/efficiencygains/BATappliancescommercialBuildings1831382290.02Switchfromcoalboilertonaturalgasboiler,retrofitBuildings2321742900.04Switchfromcoalboilertonaturalgasboiler,commercialbuildingsBuildings2391792990.02Switchfromcoalboilertonaturalgasboiler,newbuildBuildings2812113520.02Heatpumpsforwaterheating(groundsource),commercialbuildingsBuildings3172383960.00Heatpumpsforwaterheating(groundsource)Buildings3732804660.00Switchfromcoalboilertohydrogenboiler,commercialbuildingsBuildings4973736220.05Switchfromcoalboilertoheatpump(renewabeelectricity),commercialbuildingsBuildings5384046730.03Switchfromcoalboilertohydrogenboiler,newbuildBuildings5854397310.05Switchfromcoalboilertohydrogenboiler,retrofitBuildings5934447410.10Switchfromcoalboilertoheatpump(renewabeelectricity),newbuildBuildings6334757910.03Switchfromcoalboilertoheatpump(renewabeelectricity),retrofitBuildings7495629360.02Agriculture,ForestryandOtherLanduses(AFOLU)Fire&disasterimprovedmannagementpracticesAgriculture,forestry&otherlanduses106140.04Reducedsoilerosion,salinizationandcompactionAgriculture,forestry&otherlanduses3521490.34ImprovedcroplandmanagementpracticesAgriculture,forestry&otherlanduses4225590.10ImprovedgrazinglandmanagementpracticesAgriculture,forestry&otherlanduses5835810.02ImprovedlivestockmanagementpracticesAgriculture,forestry&otherlanduses120721680.25Source:GoldmanSachsGlobalInvestmentResearch20January202179GoldmanSachsCarbonomicsDisclosureAppendixRegACWe,MicheleDellaVigna,CFA,ZoeStavrinou,ShuoYang,Ph.D.andAmberCai,herebycertifythatalloftheviewsexpressedinthisreportaccuratelyreflectourpersonalviewsaboutthesubjectcompanyorcompaniesanditsortheirsecurities.Wealsocertifythatnopartofourcompensationwas,isorwillbe,directlyorindirectly,relatedtothespecificrecommendationsorviewsexpressedinthisreport.Unlessotherwisestated,theindividualslistedonthecoverpageofthisreportareanalystsinGoldmanSachs’GlobalInvestmentResearchdivision.GSFactorProfileTheGoldmanSachsFactorProfileprovidesinvestmentcontextforastockbycomparingkeyattributestothemarket(i.e.ourcoverageuniverse)anditssectorpeers.Thefourkeyattributesdepictedare:Growth,FinancialReturns,Multiple(e.g.valuation)andIntegrated(acompositeofGrowth,FinancialReturnsandMultiple).Growth,FinancialReturnsandMultiplearecalculatedbyusingnormalizedranksforspecificmetricsforeachstock.Thenormalizedranksforthemetricsarethenaveragedandconvertedintopercentilesfortherelevantattribute.Theprecisecalculationofeachmetricmayvarydependingonthefiscalyear,industryandregion,butthestandardapproachisasfollows:Growthisbasedonastock’sforward-lookingsalesgrowth,EBITDAgrowthandEPSgrowth(forfinancialstocks,onlyEPSandsalesgrowth),withahigherpercentileindicatingahighergrowthcompany.FinancialReturnsisbasedonastock’sforward-lookingROE,ROCEandCROCI(forfinancialstocks,onlyROE),withahigherpercentileindicatingacompanywithhigherfinancialreturns.Multipleisbasedonastock’sforward-lookingP/E,P/B,price/dividend(P/D),EV/EBITDA,EV/FCFandEV/DebtAdjustedCashFlow(DACF)(forfinancialstocks,onlyP/E,P/BandP/D),withahigherpercentileindicatingastocktradingatahighermultiple.TheIntegratedpercentileiscalculatedastheaverageoftheGrowthpercentile,FinancialReturnspercentileand(100%-Multiplepercentile).FinancialReturnsandMultipleusetheGoldmanSachsanalystforecastsatthefiscalyear-endatleastthreequartersinthefuture.Growthusesinputsforthefiscalyearatleastsevenquartersinthefuturecomparedwiththeyearatleastthreequartersinthefuture(onaper-sharebasisforallmetrics).ForamoredetaileddescriptionofhowwecalculatetheGSFactorProfile,pleasecontactyourGSrepresentative.M&ARankAcrossourglobalcoverage,weexaminestocksusinganM&Aframework,consideringbothqualitativefactorsandquantitativefactors(whichmayvaryacrosssectorsandregions)toincorporatethepotentialthatcertaincompaniescouldbeacquired.WethenassignaM&Arankasameansofscoringcompaniesunderourratedcoveragefrom1to3,with1representinghigh(30%-50%)probabilityofthecompanybecominganacquisitiontarget,2representingmedium(15%-30%)probabilityand3representinglow(0%-15%)probability.Forcompaniesranked1or2,inlinewithourstandarddepartmentalguidelinesweincorporateanM&Acomponentintoourtargetprice.M&Arankof3isconsideredimmaterialandthereforedoesnotfactorintoourpricetarget,andmayormaynotbediscussedinresearch.QuantumQuantumisGoldmanSachs’proprietarydatabaseprovidingaccesstodetailedfinancialstatementhistories,forecastsandratios.Itcanbeusedforin-depthanalysisofasinglecompany,ortomakecomparisonsbetweencompaniesindifferentsectorsandmarkets.DisclosuresDistributionofratings/investmentbankingrelationshipsGoldmanSachsInvestmentResearchglobalEquitycoverageuniverseAsofJanuary1,2021,GoldmanSachsGlobalInvestmentResearchhadinvestmentratingson3,072equitysecurities.GoldmanSachsassignsstocksasBuysandSellsonvariousregionalInvestmentLists;stocksnotsoassignedaredeemedNeutral.SuchassignmentsequatetoBuy,HoldandSellforthepurposesoftheabovedisclosurerequiredbytheFINRARules.See‘Ratings,Coverageuniverseandrelateddefinitions’below.TheInvestmentBankingRelationshipschartreflectsthepercentageofsubjectcompanieswithineachratingcategoryforwhomGoldmanSachshasprovidedinvestmentbankingserviceswithintheprevioustwelvemonths.RegulatorydisclosuresDisclosuresrequiredbyUnitedStateslawsandregulationsSeecompany-specificregulatorydisclosuresaboveforanyofthefollowingdisclosuresrequiredastocompaniesreferredtointhisreport:managerorco-managerinapendingtransaction;1%orotherownership;compensationforcertainservices;typesofclientrelationships;managed/co-managedpublicofferingsinpriorperiods;directorships;forequitysecurities,marketmakingand/orspecialistrole.GoldmanSachstradesormaytradeasaprincipalindebtsecurities(orinrelatedderivatives)ofissuersdiscussedinthisreport.Thefollowingareadditionalrequireddisclosures:Ownershipandmaterialconflictsofinterest:GoldmanSachspolicyprohibitsitsanalysts,professionalsreportingtoanalystsandmembersoftheirhouseholdsfromowningsecuritiesofanycompanyintheanalyst’sareaofcoverage.Analystcompensation:AnalystsarepaidinpartbasedontheprofitabilityofGoldmanSachs,whichincludesinvestmentbankingrevenues.Analystasofficerordirector:GoldmanSachspolicygenerallyprohibitsitsanalysts,personsreportingtoanalystsormembersoftheirhouseholdsfromservingasanofficer,directororadvisorofanycompanyintheanalyst’sareaofcoverage.Non-U.S.Analysts:Non-U.S.analystsmaynotbeassociatedpersonsofGoldmanSachs&Co.LLCandthereforemaynotbesubjecttoFINRARule2241orFINRARule2242restrictionsoncommunicationswithsubjectcompany,publicappearancesandtradingsecuritiesheldbytheanalysts.Distributionofratings:Seethedistributionofratingsdisclosureabove.Pricechart:Seethepricechart,withchangesofratingsandpricetargetsinpriorperiods,above,or,ifelectronicformatorifwithrespecttomultiplecompanieswhicharethesubjectofthisreport,ontheGoldmanSachswebsiteathttps://www.gs.com/research/hedge.html.RatingDistributionInvestmentBankingRelationshipsBuyHoldSellBuyHoldSellGlobal49%35%16%64%57%54%20January202180GoldmanSachsCarbonomicsAdditionaldisclosuresrequiredunderthelawsandregulationsofjurisdictionsotherthantheUnitedStatesThefollowingdisclosuresarethoserequiredbythejurisdictionindicated,excepttotheextentalreadymadeabovepursuanttoUnitedStateslawsandregulations.Australia:GoldmanSachsAustraliaPtyLtdanditsaffiliatesarenotauthoriseddeposit-takinginstitutions(asthattermisdefinedintheBankingAct1959(Cth))inAustraliaanddonotprovidebankingservices,norcarryonabankingbusiness,inAustralia.Thisresearch,andanyaccesstoit,isintendedonlyfor“wholesaleclients”withinthemeaningoftheAustralianCorporationsAct,unlessotherwiseagreedbyGoldmanSachs.Inproducingresearchreports,membersoftheGlobalInvestmentResearchDivisionofGoldmanSachsAustraliamayattendsitevisitsandothermeetingshostedbythecompaniesandotherentitieswhicharethesubjectofitsresearchreports.InsomeinstancesthecostsofsuchsitevisitsormeetingsmaybemetinpartorinwholebytheissuersconcernedifGoldmanSachsAustraliaconsidersitisappropriateandreasonableinthespecificcircumstancesrelatingtothesitevisitormeeting.Totheextentthatthecontentsofthisdocumentcontainsanyfinancialproductadvice,itisgeneraladviceonlyandhasbeenpreparedbyGoldmanSachswithouttakingintoaccountaclient’sobjectives,financialsituationorneeds.Aclientshould,beforeactingonanysuchadvice,considertheappropriatenessoftheadvicehavingregardtotheclient’sownobjectives,financialsituationandneeds.AcopyofcertainGoldmanSachsAustraliaandNewZealanddisclosureofinterestsandacopyofGoldmanSachs’AustralianSell-SideResearchIndependencePolicyStatementareavailableat:https://www.goldmansachs.com/disclosures/australia-new-zealand/index.html.Brazil:DisclosureinformationinrelationtoCVMInstruction598isavailableathttps://www.gs.com/worldwide/brazil/area/gir/index.html.Whereapplicable,theBrazil-registeredanalystprimarilyresponsibleforthecontentofthisresearchreport,asdefinedinArticle20ofCVMInstruction598,isthefirstauthornamedatthebeginningofthisreport,unlessindicatedotherwiseattheendofthetext.Canada:GoldmanSachsCanadaInc.isanaffiliateofTheGoldmanSachsGroupInc.andthereforeisincludedinthecompanyspecificdisclosuresrelatingtoGoldmanSachs(asdefinedabove).GoldmanSachsCanadaInc.hasapprovedof,andagreedtotakeresponsibilityfor,thisresearchreportinCanadaifandtotheextentthatGoldmanSachsCanadaInc.disseminatesthisresearchreporttoitsclients.HongKong:FurtherinformationonthesecuritiesofcoveredcompaniesreferredtointhisresearchmaybeobtainedonrequestfromGoldmanSachs(Asia)L.L.C.India:FurtherinformationonthesubjectcompanyorcompaniesreferredtointhisresearchmaybeobtainedfromGoldmanSachs(India)SecuritiesPrivateLimited,ResearchAnalyst-SEBIRegistrationNumberINH000001493,951-A,RationalHouse,AppasahebMaratheMarg,Prabhadevi,Mumbai400025,India,CorporateIdentityNumberU74140MH2006FTC160634,Phone+912266169000,Fax+912266169001.GoldmanSachsmaybeneficiallyown1%ormoreofthesecurities(assuchtermisdefinedinclause2(h)theIndianSecuritiesContracts(Regulation)Act,1956)ofthesubjectcompanyorcompaniesreferredtointhisresearchreport.Japan:Seebelow.Korea:Thisresearch,andanyaccesstoit,isintendedonlyfor“professionalinvestors”withinthemeaningoftheFinancialServicesandCapitalMarketsAct,unlessotherwiseagreedbyGoldmanSachs.FurtherinformationonthesubjectcompanyorcompaniesreferredtointhisresearchmaybeobtainedfromGoldmanSachs(Asia)L.L.C.,SeoulBranch.NewZealand:GoldmanSachsNewZealandLimitedanditsaffiliatesareneither“registeredbanks”nor“deposittakers”(asdefinedintheReserveBankofNewZealandAct1989)inNewZealand.Thisresearch,andanyaccesstoit,isintendedfor“wholesaleclients”(asdefinedintheFinancialAdvisersAct2008)unlessotherwiseagreedbyGoldmanSachs.AcopyofcertainGoldmanSachsAustraliaandNewZealanddisclosureofinterestsisavailableat:https://www.goldmansachs.com/disclosures/australia-new-zealand/index.html.Russia:ResearchreportsdistributedintheRussianFederationarenotadvertisingasdefinedintheRussianlegislation,butareinformationandanalysisnothavingproductpromotionastheirmainpurposeanddonotprovideappraisalwithinthemeaningoftheRussianlegislationonappraisalactivity.ResearchreportsdonotconstituteapersonalizedinvestmentrecommendationasdefinedinRussianlawsandregulations,arenotaddressedtoaspecificclient,andarepreparedwithoutanalyzingthefinancialcircumstances,investmentprofilesorriskprofilesofclients.GoldmanSachsassumesnoresponsibilityforanyinvestmentdecisionsthatmaybetakenbyaclientoranyotherpersonbasedonthisresearchreport.Singapore:GoldmanSachs(Singapore)Pte.(CompanyNumber:198602165W),whichisregulatedbytheMonetaryAuthorityofSingapore,acceptslegalresponsibilityforthisresearch,andshouldbecontactedwithrespecttoanymattersarisingfrom,orinconnectionwith,thisresearch.Taiwan:Thismaterialisforreferenceonlyandmustnotbereprintedwithoutpermission.Investorsshouldcarefullyconsidertheirowninvestmentrisk.Investmentresultsaretheresponsibilityoftheindividualinvestor.UnitedKingdom:PersonswhowouldbecategorizedasretailclientsintheUnitedKingdom,assuchtermisdefinedintherulesoftheFinancialConductAuthority,shouldreadthisresearchinconjunctionwithpriorGoldmanSachsresearchonthecoveredcompaniesreferredtohereinandshouldrefertotheriskwarningsthathavebeensenttothembyGoldmanSachsInternational.Acopyoftheseriskswarnings,andaglossaryofcertainfinancialtermsusedinthisreport,areavailablefromGoldmanSachsInternationalonrequest.EuropeanUnionandUnitedKingdom:DisclosureinformationinrelationtoArticle6(2)oftheEuropeanCommissionDelegatedRegulation(EU)(2016/958)supplementingRegulation(EU)No596/2014oftheEuropeanParliamentandoftheCouncil(includingasthatDelegatedRegulationisimplementedintoUnitedKingdomdomesticlawandregulationfollowingtheUnitedKingdom’sdeparturefromtheEuropeanUnionandtheEuropeanEconomicArea)withregardtoregulatorytechnicalstandardsforthetechnicalarrangementsforobjectivepresentationofinvestmentrecommendationsorotherinformationrecommendingorsuggestinganinvestmentstrategyandfordisclosureofparticularinterestsorindicationsofconflictsofinterestisavailableathttps://www.gs.com/disclosures/europeanpolicy.htmlwhichstatestheEuropeanPolicyforManagingConflictsofInterestinConnectionwithInvestmentResearch.Japan:GoldmanSachsJapanCo.,Ltd.isaFinancialInstrumentDealerregisteredwiththeKantoFinancialBureauunderregistrationnumberKinsho69,andamemberofJapanSecuritiesDealersAssociation,FinancialFuturesAssociationofJapanandTypeIIFinancialInstrumentsFirmsAssociation.Salesandpurchaseofequitiesaresubjecttocommissionpre-determinedwithclientsplusconsumptiontax.Seecompany-specificdisclosuresastoanyapplicabledisclosuresrequiredbyJapanesestockexchanges,theJapaneseSecuritiesDealersAssociationortheJapaneseSecuritiesFinanceCompany.20January202181GoldmanSachsCarbonomicsGlobalproduct;distributingentitiesTheGlobalInvestmentResearchDivisionofGoldmanSachsproducesanddistributesresearchproductsforclientsofGoldmanSachsonaglobalbasis.AnalystsbasedinGoldmanSachsofficesaroundtheworldproduceresearchonindustriesandcompanies,andresearchonmacroeconomics,currencies,commoditiesandportfoliostrategy.ThisresearchisdisseminatedinAustraliabyGoldmanSachsAustraliaPtyLtd(ABN21006797897);inBrazilbyGoldmanSachsdoBrasilCorretoradeTítuloseValoresMobiliáriosS.A.;OmbudsmanGoldmanSachsBrazil:08007275764and/orouvidoriagoldmansachs@gs.com.AvailableWeekdays(exceptholidays),from9amto6pm.OuvidoriaGoldmanSachsBrasil:08007275764e/ououvidoriagoldmansachs@gs.com.Horáriodefuncionamento:segunda-feiraàsexta-feira(excetoferiados),das9hàs18h;inCanadabyeitherGoldmanSachsCanadaInc.orGoldmanSachs&Co.LLC;inHongKongbyGoldmanSachs(Asia)L.L.C.;inIndiabyGoldmanSachs(India)SecuritiesPrivateLtd.;inJapanbyGoldmanSachsJapanCo.,Ltd.;intheRepublicofKoreabyGoldmanSachs(Asia)L.L.C.,SeoulBranch;inNewZealandbyGoldmanSachsNewZealandLimited;inRussiabyOOOGoldmanSachs;inSingaporebyGoldmanSachs(Singapore)Pte.(CompanyNumber:198602165W);andintheUnitedStatesofAmericabyGoldmanSachs&Co.LLC.GoldmanSachsInternationalhasapprovedthisresearchinconnectionwithitsdistributionintheUnitedKingdomandEuropeanUnion.EuropeanUnion:GoldmanSachsInternationalauthorisedbythePrudentialRegulationAuthorityandregulatedbytheFinancialConductAuthorityandthePrudentialRegulationAuthority,hasapprovedthisresearchinconnectionwithitsdistributionintheEuropeanUnionandUnitedKingdom.EffectivefromthedateoftheUnitedKingdom’sdeparturefromtheEuropeanUnionandtheEuropeanEconomicArea(“BrexitDay”)thefollowinginformationwithrespecttodistributingentitieswillapply:GoldmanSachsInternational(“GSI”),authorisedbythePrudentialRegulationAuthority(“PRA”)andregulatedbytheFinancialConductAuthority(“FCA”)andthePRA,hasapprovedthisresearchinconnectionwithitsdistributionintheUnitedKingdom.EuropeanEconomicArea:GSI,authorisedbythePRAandregulatedbytheFCAandthePRA,disseminatesresearchinthefollowingjurisdictionswithintheEuropeanEconomicArea:theGrandDuchyofLuxembourg,Italy,theKingdomofBelgium,theKingdomofDenmark,theKingdomofNorway,theRepublicofFinland,Portugal,theRepublicofCyprusandtheRepublicofIreland;GS-SuccursaledeParis(Parisbranch)which,fromBrexitDay,willbeauthorisedbytheFrenchAutoritédecontrôleprudentieletderesolution(“ACPR”)andregulatedbytheAutoritédecontrôleprudentieletderesolutionandtheAutoritédesmarchesfinanciers(“AMF”)disseminatesresearchinFrance;GSI-SucursalenEspaña(Madridbranch)authorizedinSpainbytheComisiónNacionaldelMercadodeValoresdisseminatesresearchintheKingdomofSpain;GSI-SwedenBankfilial(Stockholmbranch)isauthorizedbytheSFSAasa“thirdcountrybranch”inaccordancewithChapter4,Section4oftheSwedishSecuritiesandMarketAct(Sw.lag(2007:528)omvärdepappersmarknaden)disseminatesresearchintheKingdomofSweden;GoldmanSachsBankEuropeSE(“GSBE”)isacreditinstitutionincorporatedinGermanyand,withintheSingleSupervisoryMechanism,subjecttodirectprudentialsupervisionbytheEuropeanCentralBankandinotherrespectssupervisedbyGermanFederalFinancialSupervisoryAuthority(BundesanstaltfürFinanzdienstleistungsaufsicht,BaFin)andDeutscheBundesbankanddisseminatesresearchintheFederalRepublicofGermanyandthosejurisdictionswithintheEuropeanEconomicAreawhereGSIisnotauthorisedtodisseminateresearchandadditionally,GSBE,CopenhagenBranchfilialafGSBE,Tyskland,supervisedbytheDanishFinancialAuthoritydisseminatesresearchintheKingdomofDenmark;GSBE-SucursalenEspaña(Madridbranch)subject(toalimitedextent)tolocalsupervisionbytheBankofSpaindisseminatesresearchintheKingdomofSpain;GSBE-SuccursaleItalia(Milanbranch)totherelevantapplicableextent,subjecttolocalsupervisionbytheBankofItaly(Bancad’Italia)andtheItalianCompaniesandExchangeCommission(CommissioneNazionaleperleSocietàelaBorsa“Consob”)disseminatesresearchinItaly;GSBE-SuccursaledeParis(Parisbranch),supervisedbytheAMFandbytheACPRdisseminatesresearchinFrance;andGSBE-SwedenBankfilial(Stockholmbranch),toalimitedextent,subjecttolocalsupervisionbytheSwedishFinancialSupervisoryAuthority(Finansinpektionen)disseminatesresearchintheKingdomofSweden.GeneraldisclosuresThisresearchisforourclientsonly.OtherthandisclosuresrelatingtoGoldmanSachs,thisresearchisbasedoncurrentpublicinformationthatweconsiderreliable,butwedonotrepresentitisaccurateorcomplete,anditshouldnotbereliedonassuch.Theinformation,opinions,estimatesandforecastscontainedhereinareasofthedatehereofandaresubjecttochangewithoutpriornotification.Weseektoupdateourresearchasappropriate,butvariousregulationsmaypreventusfromdoingso.Otherthancertainindustryreportspublishedonaperiodicbasis,thelargemajorityofreportsarepublishedatirregularintervalsasappropriateintheanalyst’sjudgment.GoldmanSachsconductsaglobalfull-service,integratedinvestmentbanking,investmentmanagement,andbrokeragebusiness.WehaveinvestmentbankingandotherbusinessrelationshipswithasubstantialpercentageofthecompaniescoveredbyourGlobalInvestmentResearchDivision.GoldmanSachs&Co.LLC,theUnitedStatesbrokerdealer,isamemberofSIPC(https://www.sipc.org).Oursalespeople,traders,andotherprofessionalsmayprovideoralorwrittenmarketcommentaryortradingstrategiestoourclientsandprincipaltradingdesksthatreflectopinionsthatarecontrarytotheopinionsexpressedinthisresearch.Ourassetmanagementarea,principaltradingdesksandinvestingbusinessesmaymakeinvestmentdecisionsthatareinconsistentwiththerecommendationsorviewsexpressedinthisresearch.Theanalystsnamedinthisreportmayhavefromtimetotimediscussedwithourclients,includingGoldmanSachssalespersonsandtraders,ormaydiscussinthisreport,tradingstrategiesthatreferencecatalystsoreventsthatmayhaveanear-termimpactonthemarketpriceoftheequitysecuritiesdiscussedinthisreport,whichimpactmaybedirectionallycountertotheanalyst’spublishedpricetargetexpectationsforsuchstocks.Anysuchtradingstrategiesaredistinctfromanddonotaffecttheanalyst’sfundamentalequityratingforsuchstocks,whichratingreflectsastock’sreturnpotentialrelativetoitscoverageuniverseasdescribedherein.Weandouraffiliates,officers,directors,andemployees,excludingequityandcreditanalysts,willfromtimetotimehavelongorshortpositionsin,actasprincipalin,andbuyorsell,thesecuritiesorderivatives,ifany,referredtointhisresearch.TheviewsattributedtothirdpartypresentersatGoldmanSachsarrangedconferences,includingindividualsfromotherpartsofGoldmanSachs,donotnecessarilyreflectthoseofGlobalInvestmentResearchandarenotanofficialviewofGoldmanSachs.Anythirdpartyreferencedherein,includinganysalespeople,tradersandotherprofessionalsormembersoftheirhousehold,mayhavepositionsintheproductsmentionedthatareinconsistentwiththeviewsexpressedbyanalystsnamedinthisreport.Thisresearchisnotanoffertosellorthesolicitationofanoffertobuyanysecurityinanyjurisdictionwheresuchanofferorsolicitationwouldbeillegal.Itdoesnotconstituteapersonalrecommendationortakeintoaccounttheparticularinvestmentobjectives,financialsituations,orneedsofindividualclients.Clientsshouldconsiderwhetheranyadviceorrecommendationinthisresearchissuitablefortheirparticularcircumstancesand,ifappropriate,seekprofessionaladvice,includingtaxadvice.Thepriceandvalueofinvestmentsreferredtointhisresearchandtheincomefromthemmayfluctuate.Pastperformanceisnotaguidetofutureperformance,futurereturnsarenotguaranteed,andalossoforiginalcapitalmayoccur.Fluctuationsinexchangeratescouldhaveadverseeffectsonthevalueorpriceof,orincomederivedfrom,certaininvestments.Certaintransactions,includingthoseinvolvingfutures,options,andotherderivatives,giverisetosubstantialriskandarenotsuitableforallinvestors.InvestorsshouldreviewcurrentoptionsandfuturesdisclosuredocumentswhichareavailablefromGoldmanSachssalesrepresentativesorathttps://www.theocc.com/about/publications/character-risks.jspandhttps://www.fiadocumentation.org/fia/regulatory-disclosures_1/fia-uniform-futures-and-options-on-futures-risk-disclosures-booklet-pdf-version-2018.Transactioncostsmaybesignificantinoptionstrategiescallingformultiplepurchaseandsalesofoptionssuchasspreads.Supportingdocumentation20January202182GoldmanSachsCarbonomicswillbesupplieduponrequest.DifferingLevelsofServiceprovidedbyGlobalInvestmentResearch:ThelevelandtypesofservicesprovidedtoyoubytheGlobalInvestmentResearchdivisionofGSmayvaryascomparedtothatprovidedtointernalandotherexternalclientsofGS,dependingonvariousfactorsincludingyourindividualpreferencesastothefrequencyandmannerofreceivingcommunication,yourriskprofileandinvestmentfocusandperspective(e.g.,marketwide,sectorspecific,longterm,shortterm),thesizeandscopeofyouroverallclientrelationshipwithGS,andlegalandregulatoryconstraints.Asanexample,certainclientsmayrequesttoreceivenotificationswhenresearchonspecificsecuritiesispublished,andcertainclientsmayrequestthatspecificdataunderlyinganalysts’fundamentalanalysisavailableonourinternalclientwebsitesbedeliveredtothemelectronicallythroughdatafeedsorotherwise.Nochangetoananalyst’sfundamentalresearchviews(e.g.,ratings,pricetargets,ormaterialchangestoearningsestimatesforequitysecurities),willbecommunicatedtoanyclientpriortoinclusionofsuchinformationinaresearchreportbroadlydisseminatedthroughelectronicpublicationtoourinternalclientwebsitesorthroughothermeans,asnecessary,toallclientswhoareentitledtoreceivesuchreports.Allresearchreportsaredisseminatedandavailabletoallclientssimultaneouslythroughelectronicpublicationtoourinternalclientwebsites.Notallresearchcontentisredistributedtoourclientsoravailabletothird-partyaggregators,norisGoldmanSachsresponsiblefortheredistributionofourresearchbythirdpartyaggregators.Forresearch,modelsorotherdatarelatedtooneormoresecurities,marketsorassetclasses(includingrelatedservices)thatmaybeavailabletoyou,pleasecontactyourGSrepresentativeorgotohttps://research.gs.com.Disclosureinformationisalsoavailableathttps://www.gs.com/research/hedge.htmlorfromResearchCompliance,200WestStreet,NewYork,NY10282.©2021GoldmanSachs.Nopartofthismaterialmaybe(i)copied,photocopiedorduplicatedinanyformbyanymeansor(ii)redistributedwithoutthepriorwrittenconsentofTheGoldmanSachsGroup,Inc.20January202183GoldmanSachsCarbonomics
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