Net Zero Readiness Index: China

China, which has both the world’s largest population and largest manufacturing sector, is also the largest emitter of greenhouse gases in total, although levels per person are lower than many other countries. It is dependent on coal for much of its energy but is actively promoting a clean energy strategy to lower the carbon intensity of power generation. In July 2021, it opened a national carbon emissions trading scheme covering more than 2,000 power plants, with plans to add other industrial sectors.¹

In September 2020, Chinese President Xi Jinping informed the UN General Assembly that the country would aim for peak carbon emissions before 2030 and would reach carbon Net Zero by 2060.² These dates are later than those pledged by many other countries in the NZRI. However, they mean the country would move from peak carbon to Net Zero in three decades, about half the time of countries which made progress with decarbonization long before China, says Daisy Shen, Partner, Climate and Sustainability, KPMG in China.

China already has the world’s highest level of renewable energy capacity of 925GW in 2020, around three times as much as the US.³ It added 72GW of wind and 48GW of solar in 2020, both big increases on 2019.⁴ Despite this effort only 33 percent of its electricity came from low-carbon sources in 2018, highlighting the need for the country to continue its rapid expansion of renewable generation.

The country’s National Energy Administration recently published policies on minimum proportions of solar generation on roof areas in pilot cities and counties for different types of buildings, including 50 percent for government buildings, 40 percent for schools and hospitals and 30 percent for commercial buildings. In response to the policy, provinces including Fujian, Guangdong, Jiangxi, Shaanxi and Shandong have accelerated the installation of solar rooftop generation.

Some key companies in high-emission sectors have announced timetables and goals to achieve carbon neutrality through measures covering energy consumption, energy efficiency and increasing use of renewables. International measures including the EU’s proposed carbon border adjustment mechanism that impose a cost on certain carbon intensive goods are contributing pressure to decarbonize.

In March 2021, a Chinese government consultancy said that steel production, which makes up 15 percent of emissions, will peak in 2025 along with emissions from the sector.⁵ In January 2021, Baowu, the country’s largest steelmaker, said it will aim for carbon neutrality by 2050, a decade ahead of the national target and matching commitments by its international competitors, with peak emissions in 2023 and a cut of 30 percent by 2025.⁶ And Sinopec, the country’s largest oil company, has set up an investment unit that includes new energy as well as conservation and environmental protection.⁷

Shen says that the development of green finance will increasingly affect Chinese companies. Financial institutions are required to factor climate risks into credit and lending policies, optimize business structures and reduce high carbon emission projects in portfolios.

China is rated second among the 32 countries in this research on agriculture, land use and forestry, due to factors including relatively low consumption of dairy per person, strong performance on limiting food losses and waste. The area of land covered by forest is calculated by the UN Food and Agriculture Organization as increasing at 0.85 percent annually, the highest figure of the countries covered by the NZRI. While trading for carbon sinks is yet to be introduced in China, the development of a carbon market would be the next step for the sustainable development of the forestry industry.

The country is ranked fourth in the transport sector, partly due to the high availability and use of public transport, having developed the world’s longest high-speed rail network over recent decades. China also has the world’s largest electric vehicle market, with 5.4 million in use in 2020⁸ – nearly half of the global fleet – leading to local carmakers entering the market. In addition, the country is investing heavily in the development of battery manufacturing technology and building electric vehicle production capacity. China’s national target is to have ‘new energy’ vehicles making up 20 percent of new car sales by 2025.

In the buildings sector, Shen says that technology is seen as a way to reduce emissions, including through use of green energy, effective energy management and applying green building standards in property development.