Index > Briefing
Wednesday, December 16, 2020
Carbon Neutrality and the Transformation of China's Economy

In 2020, Chinese President Xi Jinping delivered two important international speeches on global climate change and carbon emissions, which shows just how important these issues are to China. During the 75th General Assembly of the United Nations that was held in September 2020, Xi announced that China will increase its contributions, adopt more effective policies and measures, strive to reach the peak of carbon dioxide emissions by 2030, as well as achieve carbon neutrality by 2060. On December 12 of 2020, in the speech delivered at the Climate Ambition Summit, Xi proposed for the first time China's national independent contributions for wind power and solar power installed capacity indicators in 2030; the total installed capacity of the two will reach three times the amount as recorded at the end of 2019. According to data from the National Energy Administration, as of the end of 2019, the national installed capacity of wind power was 210 million kW, and solar energy was 200 million kW.

Just as oil was once used as a tool for the game between major powers, "carbon reduction and carbon neutrality" has now become a pawn in the game between the major powers, and there is already competition for "carbon neutrality". Carbon neutrality refers to offsetting carbon dioxide emissions through energy conservation, emission reduction, technological innovation and other means to achieve "zero emissions." China has advanced the carbon peak time it previously set, and put forward a carbon neutral target for the first time. In 2015, under the "common but differentiated responsibilities" of the United Nations Framework Convention on Climate Change, China proposed a nationally determined contribution target, including that by 2030 there would be the reduction in carbon dioxide emissions per unit of GDP by 60%-65% as compared to 2005, the proportion of non-fossil energy in the total energy increased to about 20%, in addition the country's carbon dioxide emissions would the peak in the same year, and China is currently striving to reach that peak as soon as possible.

According to Bloomberg NEF, as of now 60% of the world's carbon emitting countries and regions have set carbon neutrality targets. These countries and regions include China, the European Union, the United Kingdom, Japan, and South Korea.

The initiator of this "carbon neutrality" race was the European Union. A year ago, the new European Commission issued the European Green New Deal, proposing that Europe will become the world's first "carbon neutral" region by 2050, and formulated a detailed road map and policy frameworks to this end. These policies and measures cover almost all economic fields such as industry, agriculture, transportation, energy, etc., in order to accelerate the economic transformation from a traditional model to a sustainable development model and realize a green revival. Many EU leaders stated that the Green New Deal is the driving force of the European economic recovery plan and the "lifeline" for the EU to escape the shadow of the pandemic. On December 10, European Commission President Ursula von der Leyen stated on social media that the leaders of the 27 EU member states have reached a consensus on the EU's long-term budget plan. The long-term budget of EUR 1.8 trillion will be used to build a more resilient, greener and more digital Europe. This budget includes a EUR 750 billion recovery fund, of which 25% is to be used for climate action.

Since the proposal to address climate change appeared in the late 1980s, the EU has been determined to reduce carbon emissions. In contrast, the United States' attitude towards carbon emission reduction appears to be quite uncertain. The Republicans and Democrats have always had huge differences on the issue of climate change. In 2017, the newly elected U.S. President Donald Trump announced the withdrawal of the U.S. from the Paris Agreement, which took effect on November 4, 2020. President-Elect Joe Biden, who will take office in 2021 has stated that he will lead the U.S. in rejoining the Paris Agreement. Although the U.S. has repeated its carbon emission reduction policies, it still has significant advantages if it wants to achieve emission reduction targets, especially in terms of energy technology innovation.

The different attitudes of the European Union and the U.S. towards addressing climate change and implementing carbon emission reductions are related to their respective energy structure status and differences in their approach towards economic revitalization. For Europe, consolidating its dominance in global climate governance through the goal of carbon neutrality not only means the realization of regional green revival, but also the possibility of mastering the right to speak in the future. The U.S. on the other hand, is the biggest beneficiary of the oil and gas era and will not give up its dominance in the energy sector. In addition, the European Union and the U.S. have repeatedly pressured developing countries. At the beginning of 2020, von der Leyen said that China and other large fossil fuel producing countries must find a way to price carbon emissions, otherwise they may face the EU's planned carbon border adjustment tax on imported goods. The detailed proposal of carbon border adjustment tax will be put forward in 2021 and it will be implemented first in the steel, cement and power sectors.

This is not the first time that China has been placed under pressure. Around 2007, the European Union and the U.S. proposed "carbon tariffs", which was opposed by the Chinese government. During that time, it was the opinion of some of the public that "carbon tariffs" and "carbon reductions" were the containment of the development rights of developing countries by the European Union and U.S. If one of the motivations behind the EU's proposal of carbon neutrality is to grasp the right to speak, then the motivation behind China's participation in this competition is to make a second economic transformation since its reform and opening-up. This is a strategic decision that China has made after considering the overall interests of the country, the international situation, high-quality economic and social development, and high-level protection of the ecological environment. This will bring about historical opportunities for China's sustainable development.

After four decades of reform and opening-up, China's economy has achieved rapid growth, currently ranking second in the world, it has also however become an example of high energy consumption and high pollution in the eyes of the outside world. In 2006, China became the world's largest carbon dioxide emitter. International Energy Agency (IEA)'s data show that China's carbon dioxide emissions in 2017 was 9.26 billion tons, which was greater than the combined emissions of the United States and the European Union. About 90% of carbon emissions come from areas such as electricity and heat production, industry and transportation. China is in a critical period of transforming its development model, optimizing its economic structure, and transforming its growth momentum. Energy consumption and carbon dioxide emissions have also entered a stage of low growth rate and low incremental growth. This represents a key historical period for China to plan for the second economic transformation after reform and opening-up.

From the perspective of long-term development, the implementation of the carbon neutral vision will decouple China's economic growth from carbon emissions, as well as promote true transformation of its economy towards high-quality development. At the same time, "carbon neutrality" will become a global standard for technology and industrial development, and even a "threshold" for trade and investment. Therefore, it may be possible for it to form a new international order based on new rules.

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