The good and bad about China’s climate ambitions
Just before the launch of COP26 last November, China submitted its update National Determined Contributions to reducing greenhouse gas emissions. It was the long-awaited flesh to the bone of China’s 30-60 target of peak greenhouse gas emissions around 2030 and becoming net-zero by 2060.
While many observers have criticized the updated targets as not ambitious enough, there is some good news in there that can lead to significant investment opportunities over the coming decade.
First, China changed its 2030 goal from peaking greenhouse gas emissions “around 2030” to “before 2030”. In particular, this means that China aims to more than double its renewable energy production capacity from 534GW today (already the largest capacity of any nation in the world) to more than 1,200GW by 2030. Obviously, most of the technology will come from domestic Chinese producers, but companies that deliver parts and components for wind and solar farms to China will clearly benefit from enormous and steady demand from China.
And while the Chinese government isn’t clear about when the emissions from coal will peak exactly, the goal is to reduce the share of coal in primary energy production from 57% in 2020 to 51% in 2025 and 47% in 2030. This means that China has committed to exiting coal, though at a slow pace. The place of coal will likely be filled not only by renewable energy but also by natural gas which is expected to slightly grow as a share of primary energy production.
And while many countries in the West are thinking about exiting nuclear power, it seems clear that China will put a lot of emphasis on investments in advanced nuclear technology, particularly after 2030. This means that initiatives like the efforts by Rolls-Royce and others to develop small nuclear reactors that can be used to safely power small towns and provide energy for the production of green hydrogen have a large market to sell these reactors to when they become available at the end of this decade.
In my view, there are clear opportunities not just in renewable energy but also in nuclear power and modern natural gas that investors can benefit from. But that is where the good news about China’s climate targets end. The big problem with Chinas 30-60 target is that in order to get to net-zero by 2060, the country has to decarbonise its economy between 2030 and 2060 at a faster rate than any country (developed or not has ever managed to do). I have serious doubts that China will be able to do that (nor do I have any confidence that Western countries will meet their climate goals) which is why I am convinced we have no chance to ever achieve the Paris climate goals or keep global warming even below 2°C. This is why I think we have to increasingly focus on investments in climate change adaptation technologies, rather than mitigation technologies. And in the case of China, that means, there will be a continued high demand for infrastructure investments, only that it will not be roads, bridges, and railroads, but floodwalls, heat insulation and water treatment, and desalination, etc. In my view, the future of infrastructure investments is bright as long as you invest in the right projects.