China’s carbon-neutral climate goals could spawn new global players

China aims to reach maximum carbon emissions by 2030. A wind farm is pictured here in Chongqing, southwest China, on June 28, 2022.

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BEIJING: China says it wants to be carbon neutral by 2060, and those stated ambitions are spawning companies that could one day become world leaders in their fields.

Two years ago, the Chinese president Xi Jinping formally announced that the world’s second-largest economy would strive to peak carbon emissions in 2030 and carbon neutrality in 2060.

Being carbon neutral means that the amount of carbon dioxide emitted by the entire country will be offset in other ways. It also means shouldn’t?/won’t? There will be an increase in greenhouse gas emissions in China after 2030.

while the country struggle to get away from coal, Analysts said Beijing’s high-level emphasis on climate has fueled a political push to try to support companies focused on renewable energy and reducing carbon emissions.

“China is already a leader in many parts of the decarbonization effort,” said Norman Waite, an energy finance analyst at the Institute for Energy Economics and Financial Analysis (IEEFA).

“They’re either at the forefront or in the same pack as everyone else in efforts to decarbonize. It’s not a one- or two-company effort. It’s a group of companies that are pushing forward,” he said.

Overseas expansion

Electric cars and batteries have been an obvious growth area, with Chinese electric vehicle manufacturers expanding their business beyond China.

Chinese electric car giant and battery manufacturer BYD thrown out cars for Europe at the end of September, while it starts up child is scheduled to hold its European launch event in Berlin in early October.

Technologies to store and transmit power generated through renewable sources are another area that analysts are looking at.

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“More Chinese companies are getting the size in China that they are also starting to go out and establish partnerships abroad” in energy storage, said Johan Annell, a partner at Asia Perspective, a consulting firm that works primarily with northern European companies. operating in East and Southeast Asia.

In energy efficiency, heating and cooling equipment, Annell said, “there are also a lot of Chinese companies coming out and starting to win business, particularly in countries surrounding China,” such as Mongolia and Kazakhstan.

Emerging leader in offshore wind energy?

The offshore wind sector is another field that could see an emerging Chinese leader.

Offshore wind power is renewable energy that uses turbines in coastal waters, many of which can be installed near the world’s largest urban centers, IEEFA’s Waite said in a September report.

China’s leaders also recognize that, in the long term, China’s development will not be economically sustainable, and therefore politically and socially sustainable, until it is also environmentally sustainable.

Mingyang Smart Energy, already a leader in offshore wind power in China, “appears poised to disrupt non-Chinese international markets at a vulnerable time for established competitors,” Waite said. He noted that the company can tackle foreign markets with its strong balance sheet, large production capacity and potentially aggressive pricing power.

The three global players in the industry: Siemens Gamesa Renewable Energy, from Denmark Vestas wind system Y General Energy — “They are racking up losses, and only Vestas is doing it without the added stress of an impending restructuring,” he said.

Vestas said it does not comment on its competitors, and the other two companies did not respond to CNBC’s request for comment.

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In December, Mingyang signed a memorandum of understanding to build a factory in the UK and explore options to enter the local UK market.

The company’s other projects or contracts include partners in Italy, Japan and Vietnam, Waite said.

The UK and the rest of Europe are each expected to add around 10 gigawatts of offshore wind power over the next three years, according to IEEFA Research.

Over the next five years, that capacity will triple in the UK and quintuple in mainland Europe to around 60 gigawatts, according to the report.

‘New investment in infrastructure’

For Chinese companies, aligning with the country’s carbon neutrality theme dovetails well with Beijing’s other directives: enhancing innovation, moving to high-end industrial manufacturing and boosting investment in non-traditional infrastructure, said Bruce Pang, chief economist and head of research for Greater China. at JLL.

“If you are a rational local government agency, your actions under logic will focus [on projects] under the name of new investment in infrastructure,” he said.

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National security is another factor driving China’s focus on developing energy sources.

“More priority is given to energy security due to economic and socio-economic challenges,” said Seungjoo Ro, head of ESG research, sustainability and corporate governance research at CLSA.

Ro noted that there are still 38 years left on China’s carbon-neutral roadmap, and it is still not entirely clear how investors can gauge potential stock price returns based solely on climate-related measures at this point.

It’s not an easy road ahead

In practice, some $22 trillion is required to meet China’s ambitious carbon targets, according to a World Economic Forum report and Oliver Wyman.

“To achieve its ambitious carbon neutrality and peak carbon targets, China needs to close an annual financing gap of around 1.1 trillion yuan ($170 billion),” the summer report noted. “You can only do it if you manage to develop much more sophisticated green financing schemes.”

And if Chinese companies want to play a role in global efforts to meet environmental goals, some differences between local and international standards need to be ironed out, said Kelly Tian, ​​director of financial services at Oliver Wyman.

The past two years show how Chinese leaders are still struggling to balance growth and economic interests with achieving climate goals, especially in an economy where coal is the dominant energy source.

Overzealous measures to force local areas to cut carbon emissions last year resulted in a power shortage which interrupted the production of the factory.

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China ended up adding coal production capacity this year, helping the country avoid a similar power shortage. despite extremely dry and hot weather in some parts of the country, Cory Combs, associate director of research and consulting firm Trivium China, said in a September report. published by Asia Society Policy Institute.

Even if the carbon directives come from top leaders, Combs said there is still tension between short-term and long-term economic interests that will likely last well into the next decade.

Reducing that tension will help China reduce carbon emissions, he said. “But China’s leaders also recognize that, in the long term, China’s development will not be economically sustainable, and therefore politically and socially sustainable, until it is also environmentally sustainable.”

China’s state media has promoted environmental improvements across the country. And after years of some of the worst air pollution in the world, conditions in Beijing have improved so much so in the last year that locals can often see distant mountains and stars from the city center.

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