An Energy Sector
Roadmap to Carbon
Neutrality in China

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An Energy Sector Roadmap to Carbon Neutrality in China

Abstract

Abstract
In September 2020, President Xi Jinping announced that the People’s Republic ofChina will “aim to have CO2 emissions peak before 2030 and achieve carbon
neutrality before 2060”. Amid the growing wave of governments around the world
setting targets for reaching net zero emissions, no pledge is as significant as
China’s. The country is the world’s largest energy consumer and carbon emitter,accounting for one-third of global CO2 emissions. The pace of China’s emissions
reductions will be an important factor in global efforts to limit global warming to
1.5 °C.
This report, An Energy Sector Roadmap to Carbon Neutrality in China, responds
to the Chinese government’s invitation to the International Energy Agency to cooperate on long-term strategies by setting out pathways for reaching carbon
neutrality in China’s energy sector. It shows that achieving carbon neutrality fitswith China’s broader development goals, such as increasing prosperity andshifting towards innovation-driven growth. The first pathway in this Roadmap – theAnnounced Pledges Scenario – reflects the enhanced targets China announced
in 2020. The report also explores the implications of a faster transition – theAccelerated Transition Scenario – and the socio-economic benefits it would bringbeyond those associated with reducing the impact of climate change.
This Roadmap examines the technology challenges and opportunities that thisnew phase of the clean energy transition will bring for China’s development, witha focus on long-term needs. The technology innovations required in the Chinesecontext are a key in-depth focus area. The report concludes with a series of policy

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IEA, 2021.

considerations to inform China’s energy debate.

An Energy Sector Roadmap to Carbon Neutrality in China

Acknowledgements

Acknowledgements, contributors
and credits
This report was prepared by the Energy Technology Policy Division within the
Directorate on Sustainability, Technology and Outlooks of the International Energy
Agency. The study was designed and directed by Timur Gül (Head of the Energy
Technology Policy Division). The analysis and production was co-ordinated by
Araceli Fernández Pales (Head of the Technology Innovation Unit) and Peter Levi.
The main contributors were Thibaut Abergel (buildings, CO2 emissions
decomposition), Praveen Bains (bioenergy, geospatial analysis), Simon Bennett(innovation policy), Niels Berghout (CCUS), Jose Miguel Bermudez Menendez(hydrogen), Cyril Cassisa (climate and energy policy), Xiushan Chen (climate andenergy policy), Elizabeth Connelly (transport), Chiara Delmastro (buildings,
investment), Alexandre Gouy (industry), Insa Handschuch (climate policy), Zoe
Hungerford (electricity system flexibility), Jean-Baptiste Le Marois (innovation
policy), Hana Mandová (industry), Rebecca McKimm (China policy), Rachael
Moore (CCUS), Leonardo Paoli (transport, batteries), Faidon Papadimoulis (datamanagement), Uwe Remme (energy supply), Alan Searl (China policy), Jacopo
Tattini (transport), Jacob Teter (transport), Tiffany Vass (industry, material
efficiency) and Daniel Wetzel (electricity, employment).
Other contributors were Adam Baylin-Stern, Ekta Bibra, Daniel Crow, Tomas De
Oliveira Bredariol, Zhu Erpu, Carlos Fernández Álvarez, Timothy Goodson, Craig
Hart, Taku Hasegawa, Paul Hughes, Luo Huilin, Huang Jingyun, Zhu Linxiao, Li
Lishuo, Samantha McCulloch, Jeremy Moorhouse, Pawel Olejarnik, Francesco
Pavan, Apostolos Petropoulos, Amalia Pizarro, Ryszard Pospiech, Jacques
Warichet, Chengwu Xu, Gong Yuanyuan and Yang Ziyi. Caroline Abettan, Reka
Koczka, Diana Louis, Per-Anders Widell and Zhang Yang provided essential
support.
The work benefited greatly from the collaboration with and input from several
Chinese experts: Da Yan (Tsinghua University), Lin Jin (Tsinghua University),
Shan Hu (Tsinghua University), Teng Fei (Tsinghua University), Wan Can(Tsinghua University), Zhang Jian (Tsinghua University), Zhang Qiang (Tsinghua
University), Jiang Kejun (Energy Research Institute), Zhou Dadi (Energy
Research Institute), Chai Qimin (National Center for Climate Change Strategy and

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IEA, 2021.

International Cooperation), Dang Yanbao (Ningxia Baofeng Energy Group Co

An Energy Sector Roadmap to Carbon Neutrality in China

Acknowledgements

Ltd), Jiang Liping (State Grid Energy Research Institute), Li Yongliang (China
Petroleum and Chemical Industry Federation), Qin Xiao (China Renewable
Energy Engineering Institute), Wang Ke (Renmin University of China), Wang
Zhixuan (China Electricity Council), Xiong Xiaoping (Development ResearchCenter of the State Council), Zhang Jiutian (Beijing Normal University), Zhang
Longqiang (China Metallurgical Information and Standardization Institute), Zhang
Xian (Administrative Center for China's Agenda 21, Ministry of Science andTechnology), Zhang Ying (Chinese Academy of Social Science) and Yang Lei(Peking University).
Valuable comments and feedback were provided by IEA senior management andother colleagues within the IEA, in particular, Mechthild Wörsdörfer, Laura Cozzi,
Tim Gould, Brian Motherway, An Fengquan, Stéphanie Bouckaert, Peter Fraser,
Tom Howes, An Fengquan, Christophe McGlade and Sara Moarif and Brent
Wanner. Thanks also go to Jon Custer, Astrid Dumond, Tanya Dyhin, Merve
Erdem, Grace Gordon, Christopher Gully, Jad Mouawad, Jethro Mullen, Isabelle
Nonain-Semelin, Rob Stone, Julie Puech, Clara Vallois, Therese Walsh andWonjik Yang of the IEA Communications and Digital Office for their help in
producing the report.
We would like to extend our gratitude to Energy Foundation China for providing
financial support as well as technical input to this work, in particular Zou Ji, Fu
Sha, Du Xuan and Yang Zhuoxiang.
The study also benefits from financial support from the funders of the IEA Clean
EnergyTransitions

Programme,inparticularl’Agence

FrançaisedeDéveloppement. The chapter on innovation for carbon neutrality of the study also
benefits from the analysis developed with the financial support provided by theEuropean Commission and European Union's Horizon 2020 research andinnovation programme funding under grant Agreement No 952363.
Trevor Morgan carried editorial responsibility and Debra Justus and Erin Crum
were the copy-editors.
The analysis and findings in this report draw on strategic guidance, insights anddata received during several IEA event and experts’ consultation meetings: a highlevel workshop on the opportunities and challenges to reach carbon neutrality in
China was held in April 2021.
Many experts from outside the IEA reviewed the report and provided comments

PAGE | 5

IEA, 2021.

and suggestions of great value. They include:An Energy Sector Roadmap to Carbon Neutrality in China

Acknowledgements

AloncleHervéAgence Française de Développement

Ausfelder

Florian

DECHEMA

Cattier

François

EDF

Chen

XavierBeijing Energy Club

Da

Zhang

Tsinghua University

Dabo

Guan

Tsinghua University

Fang

Zhang

Tsinghua University

Feng

Wei

Lawrence Berkeley National Laboratory

Gasc

JeremyAgence Française de Développement

Hove

AndersGIZ

Ishwaran

Mallika

Shell

Jinmiao

Xu

Asian Development Bank

Jones

Ayaka

US Department of Energy

Kan

Flora

ICF

Ku

Anthony

NICE America Research, IncLu

Hongyou

Lawrence Berkeley National Laboratory

MelainaMarc

US Department of Energy

Myllyvirta

Lauri

Centre for Research on Energy and Clean Air

Ning

Wei

Chinese Academy of Sciences, Institute of Rockand Soil Mechanics

Philibert

CédricConsultant (former IEA)

Ping

Zhong

MOST/ACCA21

Price

Lynn

Lawrence Berkeley National Laboratory

Qi

An

Energy Research Institute

Saheb

YaminaInternational Panel on Climate Change

Sandholt

Kaare

China National Renewable Energy Centre

ShiyanChang

Tsinghua University

Sol

Aurélie

Agence Française de Développement

ThomasWim

Consultant (former Shell)

TongboSui

SinomaTu

Kevin

Columbia University

van Hulst

NoéInternational Partnership for Hydrogen and FuelVoïta

Thibaud

NDC Partnership

Zhong

Frank

World Steel Association, Beijing

Zhou

Nan

Lawrence Berkeley National Laboratory

ZifengLu

Argonne National Laboratory

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IEA, 2021.

Cells in the Economy

An Energy Sector Roadmap to Carbon Neutrality in China

Acknowledgements

The individuals and organisations that contributed to this study are not responsible
for any opinions or judgements it contains. The views expressed in the study are
not necessarily views of the IEA’s member countries or of any particular funder or

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IEA, 2021.

collaborator. All errors and omissions are solely the responsibility of the IEA.

An Energy Sector Roadmap to Carbon Neutrality in China

Table of contents

Table of contents
Abstract ..................................................................................................................................... 3
Acknowledgements, contributors and credits ......................................................................... 4
Table of contents..................................................................................................................... 8
Executive summary ................................................................................................................ 13
Chapter 1: Vision of a carbon neutral China ....................................................................... 18
Economic and social context.................................................................................................... 19
Energy and emissions trends ................................................................................................... 21
Energy and climate policies ..................................................................................................... 33
References ............................................................................................................................... 49

Chapter 2: The energy transition .......................................................................................... 52
A pathway to carbon neutrality ................................................................................................. 53
CO2 emissions .......................................................................................................................... 55
Energy trends ........................................................................................................................... 61
Environmental co-benefits ........................................................................................................ 68
Energy investment ................................................................................................................... 73
References ............................................................................................................................... 77

Chapter 3: Sectoral pathways ............................................................................................... 78
Power and heat generation ...................................................................................................... 79
Low-emissions fuel supply ....................................................................................................... 90
Industry................................................................................................................................... 100
Transport ................................................................................................................................ 114
Buildings ................................................................................................................................. 129
References ............................................................................................................................. 143

Chapter 4: Technology needs for the energy transition .................................................. 147
Introduction............................................................................................................................. 148
Electrification .......................................................................................................................... 148
CCUS ..................................................................................................................................... 160
Hydrogen ................................................................................................................................ 175
Bioenergy ............................................................................................................................... 189
References ............................................................................................................................. 198

Chapter 5: Near-term opportunities for a faster energy transition ................................. 201
Opportunities for a faster transition to 2030 ........................................................................... 202
The Accelerated Transition Scenario ..................................................................................... 202
Benefits of a faster transition.................................................................................................. 214

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IEA, 2021.

References ............................................................................................................................. 225

An Energy Sector Roadmap to Carbon Neutrality in China

Table of contents

Chapter 6: Innovation for carbon neutrality ...................................................................... 226
Clean energy innovation in China .......................................................................................... 227
China’s approach to energy innovation .................................................................................. 233
Opportunities to accelerate innovation ................................................................................... 252
References ............................................................................................................................. 258

Chapter 7: Policy considerations ....................................................................................... 265
Towards a comprehensive policy framework ......................................................................... 266
Policy approach and priorities ................................................................................................ 267
Reducing emissions from existing assets .............................................................................. 272
Boosting markets for clean technologies ............................................................................... 278
Building clean energy infrastructure ....................................................................................... 283
Fostering clean energy innovation ......................................................................................... 288
International collaboration ...................................................................................................... 292
References ............................................................................................................................. 295

General annex ....................................................................................................................... 297
Abbreviations and acronyms .................................................................................................. 297
Units of measure .................................................................................................................... 300

List of figures

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IEA, 2021.

Economic and development indicators in China and selected countries ................. 20
Total primary energy demand by fuel in China ........................................................ 23
Fossil fuel consumption by sector in China .............................................................. 24
Selected clean energy technologies in China relative to the rest of the world ......... 25
Greenhouse gas emissions in China and rest of the world, 2020 ........................... 27
CO2 emissions intensity of primary energy demand relative to CO2 emissions per
capita by country/region, 2000 and 2020 ................................................................. 29
CO2 emissions from existing energy-related infrastructure under typical lifetime
assumptions and operating conditions in China ...................................................... 31
Average age of key emissions-intensive assets in China ........................................ 32
Main climate and energy policy institutions in China ............................................... 43
Evolution of selected energy and climate policies and key priorities in China ......... 45
Energy-related CO2 emissions in China by scenario ............................................... 56
Energy sector CO2 emissions by fuel and technology in China in the APS ............. 58
Energy sector CO2 emissions reductions by measure in China in the APS ............ 59
Energy sector CO2 emissions by sector, sub-sector and fuel in China in the APS . 60
Primary energy demand in China by fuel and scenario ........................................... 63
Final energy demand by fuel and sector in China by scenario ................................ 64
Change in final energy demand by fuel and sector in China in the APS, 2020-2060.................................................................................................................................. 65
Selected energy efficiency indicators in China in the APS ...................................... 66
Air pollutant emissions by type and sector in China in the APS .............................. 69
Illustration of population-weighted mean PM2.5 concentration and fossil fuel share inprimary energy demand by selected region in China at carbon neutrality in 2060 .. 71
Annual energy investment by sector and technology area in China in the APS ...... 73

An Energy Sector Roadmap to Carbon Neutrality in China

Table of contents

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IEA, 2021.

Average annual energy investment in emerging technologies by technology maturity
in China in the APS .................................................................................................. 76
CO2 emissions reductions in power generation in China by driver in the APS ........ 79
Electricity demand by sector and generation by fuel in China in the APS ............... 80
Power generation capacity by type nationally and by region in China in the APS... 82
Fossil fuel capacity and generation by region in the APS ........................................ 83
Flexible capacity to ensure system adequacy in China in the APS ......................... 87
Flexible capacity to ensure system adequacy by type and share of variable
renewables in generation in China in the APS ......................................................... 88
Supply of low-emissions fuel by sector and fuel in China in the APS ...................... 91
Biofuels production by type and technology in China in the APS ............................ 93
Electrolyser capacity and CO2 capture from hydrogen production in China in the
APS .......................................................................................................................... 97
Production costs of hydrogen and hydrogen-derived fuels by technology in China in
the APS .................................................................................................................... 98
Industrial CO2 emissions and energy consumption in China in the APS ............... 101
Global production of major bulk materials and China’s share in the APS ............. 102
Technology penetration and energy sector CO2 emissions reductions by measure
and technology maturity in China’s chemicals sector in the APS .......................... 107
Technology penetration and energy sector CO2 emissions reductions by measure
and technology maturity in China’s steel sector in the APS................................... 110
Clinker production by technology and cement sector CO2 emissions reductions bymeasure and technology maturity in China in the APS .......................................... 112
Heating and electric motor technology deployment in light industries in China in the
APS ........................................................................................................................ 113
CO2 emissions from transport in China in the APS ................................................ 114
Modal shares and cumulative CO2 emissions reductions by measure andtechnology maturity in surface passenger transport in China in the APS .............. 118
Freight activity and related CO2 emissions by mode in China ............................... 120
Total cost of ownership of heavy-duty trucks in China and Europe in the APS ..... 122
Share of heavy-duty trucks activity by mode and related CO2 emissions reductions
by measure and technology maturity in China in the APS ..................................... 123
Energy consumption and CO2 emissions in international shipping in China in the
APS ........................................................................................................................ 125
Domestic air travel in China and the United States and rail travel in China .......... 126
Share of aviation final energy demand by fuel and related CO2 emissions reductions
by measure and technology maturity in China in the APS ..................................... 128
Energy consumption and energy intensity index in buildings in China in the APS 131
Direct and indirect CO2 emissions in buildings by subsector and buildings
consumption by fuel in China in the APS ............................................................... 132
Share of building CO2 emissions reductions by maturity category and end use in
China in the APS .................................................................................................... 134
Buildings floor area and final energy intensity index for space heating and cooling in
China in the APS .................................................................................................... 135
Space heating equipment sales by type and average energy efficiency of spaceheating and cooling equipment sold in China in the APS ...................................... 138
Schematic of a direct current electricity distribution and management in buildings................................................................................................................................ 140
Average daily solar PV generation in buildings in China in 2060 in the APS ........ 141
CO2 emissions reductions from electrification by sector in China in the APS ....... 149
Growth in electricity consumption in China by sector and scenario, 2020-2060 ... 152
Cumulative CO2 emissions avoided by selected electricity technologies by maturity
category in China in the APS, 2020-2060 .............................................................. 154

An Energy Sector Roadmap to Carbon Neutrality in China

Figure 6.2
Figure 6.3
Figure 6.4
Figure 6.5

EV battery demand and average unit CAPEX ....................................................... 155
Heat pump installed capacity and average unit CAPEX in the APS ...................... 158
Demand for selected critical metals for EVs in China in the APS .......................... 160
CCUS deployment by sector and source of emissions in China in the APS ......... 162
Global CCUS deployment by sector in the APS .................................................... 164
Cumulative CO2 emissions avoided in selected CCUS applications by maturity in
China in the APS, 2020-60 ..................................................................................... 165
Map of CO2 sources and potential geological storage in China ............................. 172
CO2 emissions avoided from hydrogen in China by sector in the APS.................. 175
Hydrogen production by route and hydrogen demand by sector in China in the APS................................................................................................................................ 176
Existing oil refineries, ammonia and methanol plants, cost of renewables-basedhydrogen production and potential CO2 storage sites in China ............................. 178
Cumulative CO2 emissions avoided for selected low-carbon hydrogen technologies
by maturity in China in the APS ............................................................................. 181
Global electrolyser capacity for dedicated hydrogen production and average unit
CAPEX in the APS ................................................................................................. 183
Global demand for fuel cells for transport and average unit capital costs in the APS................................................................................................................................ 187
Cumulative CO2 emissions reductions from bioenergy use by sector in China in the
APS ........................................................................................................................ 192
Primary bioenergy demand and share in total energy demand by sector in China in
the APS .................................................................................................................. 193
Cumulative CO2 emissions avoided from selected bioenergy technologies bytechnology readiness in China in the APS, 2020-2060 .......................................... 196
Annual change in energy-related CO2 emissions in China, APS and ATS ............ 205
Change in energy sector CO2 emissions by sector and primary energy use in China
in 2030 in the ATS relative to the APS ................................................................... 206
Total coal consumption in 2030 by scenario/case and coal-fired power generation in
China in the APS and ATS ..................................................................................... 207
Indicators of the deployment of selected clean energy technologies in China in 2030................................................................................................................................ 209
Annual average change in energy intensity in industry and bulk materials productionin China .................................................................................................................. 211
Fuel use by transport mode in China in the APS and ATS in 2030 ....................... 212
Zero-carbon-ready residential building retrofits and new construction in China .... 214
Global manufacturing capacity of selected clean energy technologies ................. 216
Indicators of the deployment of selected innovative clean energy technologies in
China in the APS and the ATS, 2030 ..................................................................... 217
Energy-related employment in China ..................................................................... 219
Additional workers needing clean energy skills or training in the APS and ATS,
2019-2030 .............................................................................................................. 221
Average annual growth rate of primary energy intensity and share of non-fossil fuelsin primary energy demand for the energy sector to achieve net zero CO2 emissions
by 2050 in China .................................................................................................... 224
CO2 emissions reductions by current technology maturity category in China in the
APS ........................................................................................................................ 228
China’s share of global public spending on low-carbon energy R&D, venture capitaland patenting .......................................................................................................... 232
SOE ownership share of power generation capacity in G20 countries .................. 238
China’s role in international clean energy technology co-patenting ....................... 251
Low-carbon energy technology types mapped according to their general attributesof size and modularity versus barriers to market entry .......................................... 254

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IEA, 2021.

Figure 6.1

Table of contents

An Energy Sector Roadmap to Carbon Neutrality in China

Figure 7.1
Figure 7.2
Figure 7.3

Table of contents

Policy priorities for China’s net zero emissions strategy by technology maturity level................................................................................................................................ 268
Energy sector CO2 emissions from existing infrastructure by sector assuming typicallifetimes in China in the APS .................................................................................. 273
Cumulative investment in selected energy infrastructure in China in the APS ...... 288

List of boxes
Box 1.1
Box 1.2
Box 2.1
Box 2.2
Box 2.3
Box 3.1
Box 3.2
Box 3.3
Box 3.4
Box 4.1
Box 4.2
Box 4.3
Box 4.4
Box 4.5
Box 4.6
Box 5.1
Box 6.1
Box 6.2
Box 6.3
Box 6.4
Box 6.5
Box 6.6
Box 7.1
Box 7.2

Paris Agreement and net zero emissions ................................................................ 38
Corporate net zero targets in China ......................................................................... 41
Modelling approach .................................................................................................. 55
How does China’s expected emissions peak compare with other countries? ......... 56
Bringing down fossil methane emissions in China ................................................... 71
Electricity system flexibility requirements ................................................................. 85
Implications of lower biofuels supply due to a lack of sustainable biomass ............ 95
How public transport investments reduce reliance on private cars and domestic
flights in China ........................................................................................................ 117
Shenzhen’s Future Complex DC building demonstration project .......................... 142
Electricity system targets and policies ................................................................... 149
EV battery manufacturing in China ........................................................................ 156
CCUS deployment targets and policies ................................................................. 161
China’s role in global hydrogen value chains ......................................................... 182
Regional hydrogen FCEV strategies in China ....................................................... 185
Bioenergy deployment targets and policies ........................................................... 191
The impact of a faster energy transition on fossil methane emissions .................. 207
Bounty system ........................................................................................................ 231
Coal conversion: example of large-scale, centrally co-ordinated technology
innovation ............................................................................................................... 235
Nuclear technology development by SOEs............................................................ 239
Hydrogen technology development at the sub-national level ................................ 243
Turbo-charging China’s EV technologies by boosting demand ............................. 246
China’s transformation from a solar PV technology importer to innovator ............. 251
Unlocking emissions in China’s heavy industry sectors ......................................... 273
China’s electricity market reforms .......................................................................... 284

List of tables

Table 6.2

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IEA, 2021.

Table 6.1

Selected economic and energy indicators for China ................................................ 21
Recent Five-Year Plan targets and attainment ........................................................ 47
Key projects targeting emissions reductions in heavy industry in China ............... 105
Key projects targeting emissions reductions in heavy industry in China ............... 105
Potential CO2 storage hubs in China ..................................................................... 171
CO2 trunk line deployment strategies towards 2060 .............................................. 174
Average performance of selected end-use indicators in China ............................. 210
Cumulative additions of selected carbon-intensive energy assets in China in the
APS and ATS, 2021-2030 ...................................................................................... 222
Technology development and key energy innovation priorities outlined in China’s
recent five-year plans ............................................................................................. 229
Low-carbon energy technology groups relative to possible innovation policy
approaches that build on China’s innovation strengths ......................................... 256

An Energy Sector Roadmap to Carbon Neutrality in China

Executive summary

Executive summary
There is no plausible path to limiting the global temperature rise to 1.5 °C
without China 1. In September 2020, President Xi Jinping announced that China
will “aim to have CO2 emissions peak before 2030 and achieve carbon neutrality
before 2060”. Announced 40 years after the country began its remarkable journey
towards economic modernisation, this new vision for China’s future comes amid
growing convergence among the world’s major economies on the need to reach net
zero emissions globally by mid-century. But no pledge is as significant as China’s:
the country is the world’s largest energy consumer and carbon emitter, accounting
for one-third of global CO2 emissions. The pace of China’s emissions reductions
over the coming decades will be important in determining whether the world
succeeds in preventing global warming from exceeding 1.5 °C.
The energy sector is the source of almost 90% of China’s greenhouse gas
emissions, so energy policies must drive the transition to carbon neutrality.
This Roadmap responds to the Chinese government’s invitation to the IEA to cooperate on long-term strategies by setting out pathways for reaching carbon
neutrality in China’s energy sector. It also shows that achieving carbon neutrality fitswith China’s broader development goals, such as increasing prosperity,
strengthening technology leadership and shifting towards innovation-driven growth.
The first pathway in this Roadmap – the Announced Pledges Scenario (APS) –reflects China’s enhanced targets that it declared in 2020 in which emissions of CO2
reach a peak before 2030 and net zero by 2060. The Roadmap also explores theopportunities for an even faster transition and the socio-economic benefits it would
bring to China beyond those associated with reducing the impact of climate change:
the Accelerated Transition Scenario (ATS).

China can build on its current clean energy momentum
China’s energy sector reflects decades of efforts to lift hundreds of millions
of people out of poverty while pursuing other energy policy goals. Energy
consumption has doubled since 2005, but the energy intensity of gross domestic
product (GDP) has decreased significantly in the same period. Coal accounts forover 60% of power generation – and new coal power plants continue to be built –but solar photovoltaics (PV) capacity additions have outpaced those of any othercountry. China is the second largest oil consumer in the world, but also home to
70% of global manufacturing capacity for electric vehicle batteries, with Jiangsu
province alone accounting for one-third of the country’s capacity. China’s

The People’s Republic of China (hereinafter, "China")

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IEA, 2021.

1

An Energy Sector Roadmap to Carbon Neutrality in China

Executive summary

contributions to low-carbon technologies, particularly solar PV, were mostly driven
by the government’s increasingly ambitious five-year plans, leading to cost
reductions that have changed the way the world thinks about the future of clean
energy. If the world is to meet its climate goals, then similar clean energy progressis needed – but on a greater scale and in all sectors. For example, China produces
more than half the world’s steel and cement, with Hebei province alone accountingfor 13% of global steel production in 2020. CO2 emissions from the steel and cement
sectors in China alone are higher than the European Union’s total CO2 emissions.
China’s CO2 emissions are rising, but a peak before 2030 is in sight. The
sooner the emissions peak comes, the higher China’s chance of reaching carbon
neutrality on time. The leading sources of China’s emissions are the power sector(48% of CO2 emissions from energy and industrial processes), industry (36%),transport (8%) and buildings (5%). The specific targets made public so far from thelatest Five-Year Plan include an 18% reduction in CO2 intensity and a 13.5%
reduction in energy intensity during the period 2021-2025. There is also a nonbinding proposal to raise the non-fossil fuel share of total energy consumption to
20% by 2025 (from around 16% in 2020). If China achieves these short-term policy
targets, the IEA projects that China’s CO2 emissions from fuel combustion will beon track to plateau in the mid-2020s and then enter a modest decline to 2030. We
also note China's commitment at the United Nations General Assembly in
September 2021 to discontinue building coal-fired power projects abroad and to
step up support for clean energy.

Carbon neutrality demands a rapid and profoundtransformation of the energy sector
Reaching a peak in China’s CO2 emissions before 2030 relies on progress inthree key areas: energy efficiency, renewables and reducing coal use. In the
APS, China’s primary energy demand grows much more slowly through 2030 thanthe overall economy. This is mainly the result of efficiency gains and a shift awayfrom heavy industry. A transforming energy sector leads to rapid improvements in
air quality. Solar becomes the largest primary energy source by around 2045.
Demand for coal drops by more than 80% by 2060, oil by around 60% and natural
gas by more than 45%. By 2060, almost one-fifth of electricity is used to generatehydrogen.
The level of investment required for China to achieve its goals is well within
its financial means. Energy sector investment climbs significantly in absolute

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IEA, 2021.

terms, but falls as a share of overall economic activity. Total annual investment

An Energy Sector Roadmap to Carbon Neutrality in China

Executive summary

reaches USD 640 billion (around CNY 4 trillion) in 2030 – and nearly
USD 900 billion (CNY 6 trillion) in 2060, almost a 60% increase relative to recent
years. Annual energy investment’s share of GDP, which averaged 2.5% in 20162020, drops to just 1.1% by 2060.

Every sector has a viable path to deep cuts in emissions
A power sector dominated by renewables provides the foundation for China’s
clean energy transition. China’s power sector achieves net zero CO2 emissions
before 2055 in the APS. Renewables-based generation, mainly wind and solar PV,
increases seven-fold between 2020 and 2060, accounting for almost 80% ofgeneration by then. By contrast, the share of coal drops from over 60% to just 5%,
and unabated coal-based generation stops in 2050. Renewable capacity rises atleast three-fold in all regions by 2060, with the largest growth in China’s northwest
and northern regions where solar and onshore wind take advantage of strong
resource potential and good availability of land. However, investments in low-carbon
flexibility sources to increase the reliability and resilience of electricity systems arehighest in China’s coastal provinces.
Efficiency improvements and today’s market-ready technologies can only
take the industry sector part of the way to net zero. In the APS, industrial CO2
emissions decline by nearly 95% and unabated coal use by around 90% by 2060,
with the residual emissions being offset by negative emissions in the power and fueltransformation sectors. Energy efficiency improvements and electrification drive
most of the industrial emissions reductions in the short term, while emerging
innovative technologies, such as hydrogen and carbon capture, utilisation andstorage (CCUS), take over post-2030.
Electrification is the key to decarbonising transport and buildings. New
investments in metro, light-rail and electric buses in cities, and high-speed rail
between cities, lower the energy intensity of passenger trips. Emissions reductions
in road freight, shipping and aviation come from fuel efficiency gains and use of lowcarbon fuels. Direct CO2 emissions in the buildings sector drop by more than 95%
by 2060 through electrification, clean district heating and energy efficiency.

Faster progress before 2030 is possible and beneficial
An early push reduces the emissions burden faced after 2030. The timing and

PAGE | 15

IEA, 2021.

level of the peak in emissions, as well as the pace of emissions reductions oncethe peak has been reached, are crucial for the achievement of China’s longer-termgoal of carbon neutrality. China has the technical capabilities, economic meansand policy experience to accomplish a faster clean energy transition to 2030 thanin the APS. Its recently launched emissions trading scheme and its power market

An Energy Sector Roadmap to Carbon Neutrality in China

Executive summaryreforms are two clear examples. In the ATS, policy progress accelerates, resulting
in a faster decline in coal use in power and industry, stronger deployment ofexisting low-carbon technologies, and more rapid efficiency gains. In 2030, energy
sector CO2 emissions are more than 2 Gt, or nearly 20%, lower in the ATS thantheir level today. Investment needs are not a major barrier: cumulative investmentsin the ATS are similar to those in the APS.
Accelerated progress before 2030 delivers socio-economic benefits beyond
those linked to addressing climate change. They include bringing greater
prosperity to regions that have not yet fully benefited from China’s economic
development, its central role in global clean energy technology value chains and its
emerging leadership in clean energy innovation. Accelerated domestic action
increases employment in China’s clean energy supply by 3.6 million by 2030,
compared with the 2.3 million jobs lost in fossil fuel supply and fossil fuel power
plants. Net additional jobs in this faster transition are almost 1 million higher than in
the announced pledges pathway. Employment could grow even more if China
captures some of the raising demand for clean energy technologies driven by othercountries’ greater ambition.
Expanding the scope of China’s neutrality target to cover all greenhousegases would underscore the benefits of an early peak in CO2 emissions. Suchan ambition could require the energy sector to reach net zero CO2 emissions wellbefore 2060 to compensate for the non-energy sector emissions that are moredifficult to eliminate. This would make accelerated progress in reducing CO2
emissions through to 2030 essential. The longer-term transition challenge would be
profound: for example, reaching net zero CO2 emissions as soon as 2050 would
imply that the installed capacity of solar PV and wind would be around 1 400 GW,
or 20%, higher than it is in the APS in 2050.

Dealing with existing assets helps an orderly transition
Even without any further investment in new fossil fuel assets, China’s energyrelated emissions would still only decline very slowly. If the existing emissionsintensive infrastructure in China today continues to operate in the same way it has in
the recent years, it could result in 175 Gt of CO2 emissions between now and 2060.
This is the equivalent of one-third of the remaining global emissions budget that could
limit the global temperature rise to 1.5 °C.

PAGE | 16

IEA, 2021.

The next cycle of heavy industry investment in China could result in a hugeamount of additional emissions if cleaner alternatives are not ready in time.
In the APS, about 40% of the Chinese energy sector’s CO2 emissions reductions in
2060 come from technologies that are still at the prototype or demonstration stage
today. It is essential to have new and emerging low-carbon industrial technologies

An Energy Sector Roadmap to Carbon Neutrality in China

Executive summary

available at the time of the planned phase-out of existing capacity so as to avoid theneed for a further cycle of emissions-intensive capacity renewal. This alone could
avoid emissions from heavy industry in China equivalent to almost 15% of theremaining estimated global carbon budget that is compatible with a 50% chance oflimiting the average temperature increase to 1.5°C.
A faster clean energy transition between now and 2030 makes the processeasier to navigate for existing assets and their stakeholders. The ATS avoids
around 20 Gt of “locked-in” emissions to 2060 from long-lived assets in the power
and industry sectors that are built in the period to 2030 in the APS. This early actionmeans that the required average annual pace of emissions reductions to reachcarbon neutrality by 2060 is nearly 20% lower over 2030-2060 than in the APS,
leaving more time for markets to adjust and businesses and consumers to adapt.

Innovation is essential for the transition to succeed
Reaching carbon neutrality by 2060 hinges on a major acceleration in clean
energy innovation. China is emerging as a world leader in clean energy innovation:
public spending on low-carbon energy research and development (R&D) in China
has risen by 70% since 2015. China accounts for nearly 10% of patenting activity inrenewables and EVs. In recent years, its start-ups have attracted more than onethird of global early-stage energy venture capital.
But China’s innovation system will need to be harnessed appropriately tostimulate the wide range of low-carbon energy technologies needed. The
latest Five-Year Plan aims to shift the focus of innovation to low-carbon technologies
and pursue new policy approaches. Current Chinese policy incentives are better
suited to large-scale technologies like CCUS and biorefining than network
infrastructure and consumer-facing products, which are China’s current
manufacturing strengths. Beyond direct R&D funding, policies can incentivise
innovators through competitive niche markets, infrastructure investments and otherregulatory measures to stimulate technology deployment.

A central actor in the world’s energy and climate future

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IEA, 2021.

China’s many strengths make it well-placed to successfully carry out its own
transition to carbon neutrality while also demonstrating international
leadership in technology and energy policy making. China is both the world’s
largest emitter and the largest manufacturer of key clean energy technologies suchas solar panels and EV batteries. What happens in China will go a long way towards
shaping the outcome of global efforts to reduce emissions in time to prevent the worst
effects of climate change. For those efforts to succeed, international collaboration
with China is essential.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

Chapter 1: Vision of a carbon
neutral China
The People’s Republic of China (hereafter, “China”) has been the fastest growing
major economy in the world since 1980, with gross domestic product (GDP)expanding more than 30-times. In 2020, its economy was the largest in the world
when adjusted for purchasing power parity. Industrialisation and urbanisation havebeen the principal motors of its economic transformation. Today, China accounts fora quarter of the world’s industrial output by value added, producing more than half
its cement and steel.



Rapid growth in the production and use of energy has been both the driver and theconsequence of China’s economic growth. China became the world’s largest energy
consumer in 2009. Primary demand growth has slowed in recent years, from 8%
annual increase over 2000-2010 to just over 3% over 2015-2020. Despite impressive
growth in renewables and hydropower since 2000, China remains heavily dependent
on fossil fuels, which met around 85% of the its total primary energy needs in 2020– coal alone accounting for almost 60% and oil for about a fifth. China is by far thelargest coal-consumer in the world, as well as the largest market for solar, wind andelectric vehicles.

China is the world’s largest emitter of greenhouse gases, at about a quarter of global
emissions. Carbon dioxide emissions from fuel combustion and industrial processes
reached more than 11 gigatonnes CO2 in 2020, of which around 90%, were from fuelcombustion. Coal-fired power stations alone, including combined heat and power
plants, were responsible for more than 45% of China’s entire energy and processrelated emissions and 15% of global emissions in 2020.

In September 2020, China’s president announced national aims to have CO2
emissions peak before 2030 and to achieve carbon neutrality before 2060. CO2
emissions per unit of GDP are targeted to fall by more than 65% between 2005 and2030, the share of non-fossil fuels in primary energy use to around 25% and windand solar capacity to rise to over 1 200 gigawatt (GW) in 2030 (from about 540 GW
now). Growth in coal use is to be limited in the period to 2025 and phased out
thereafter.

China’s 14th Five-Year Plan (FYP) for 2021-2025 is a key policy instrument. It
contains binding targets to reduce energy intensity by 13.5%, carbon intensity by
18% and to reach 20% share of non-fossil fuel in primary energy use by 2025.
Further national, sectoral and technology plans are expected to be adopted in the
coming years, including for total energy consumption and emissions.



Achieving China’s stated goals is critical to combat climate change. They could lower
global average temperature by almost 0.2 °C by the end of the century. The goals
require China to be quicker to get from peak to net zero emissions than most othercountries, many of whom have already experienced a peak in their CO2 emissions.

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IEA, 2021.

Highlights

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

Economic and social context
The People’s Republic of China (herein after China) has accomplishedbreathtaking rates of economic and social development since the process oftransforming its planned socialist system to a more open, market-based economy
was launched at the end of the 1970s. China has been the fastest growing major
economy in the world since 1980, with GDP now more than 30-times larger thanin 1980 and five-times larger than at the turn of the century. In 2020, its economy
was the second largest in the world behind the United States in nominal terms andthe largest when adjusted for purchasing power parity (PPP). GDP per capita in
PPP terms was around US dollars (USD) 17 000 (Yuan renminbi [CNY] 117 300)in 2020 – about 40% of the average for the European Union and Japan, and morethan one-quarter of that for the United States. The Covid-19 pandemic caused
GDP to contract for all major economies except China, where GDP growth slowed
to 2.3% in 2020. China’s GDP growth is projected to rebound by more than 8% in
2021 – the fastest rate of any major economy other than India (IMF, 2021).
Industrialisation has been the principal motor of China’s economic transformation.
It has been the world’s largest producer of industrial goods since 2007, with
manufacturing output growing particularly rapidly following its accession to theWorld Trade Organisation in 2001. A series of five-year plans (FYPs) have set
ambitious growth targets for industrial sectors (OECD, 2018). Today China
accounts for one-quarter of the world’s total industrial production by value added
and is the leading producer of steel, cement, aluminium, chemicals, electronics
and textiles. It produces more than half of all the world’s cement and steel.
China’s industrial expansion initially was driven principally by exports, but it isincreasingly underpinned by a rapidly growing domestic market. The gradual
opening of the Chinese economy to foreign investment also helped to boost
economic growth through its integration into global value chains. Today, industry
accounts for 40% of China’s GDP in PPP terms – one of the highest shares in theworld. Industrialisation also affects activities in other sectors such as transport.
For example, the development of industrial clusters mainly in the east suppliedwith raw materials produced in provinces in the west and north contributed to anincrease in freight from about 4 trillion t-km in 2000 to about 14 trillion t-km in 2010and more than 20 trillion t-km in 2020.
Since the early 2010s, economic growth has moderated slightly with areorientation of China’s development towards higher value manufactured goods
and services. Over investment in manufacturing capacity during the earlier periodof high domestic economic growth and strong international demand as well as the

PAGE | 19

IEA, 2021.

economic stimulus after the 2008 financial crisis, led to overcapacity and low

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

utilisation rates in some industrial sub-sectors, notably steel, cement, aluminium,chemicals, refining, glass, ship-building, and paper and paperboard. China has
stepped up efforts in recent years to address overcapacity, such as by setting
targets for closing inefficient plants and limiting new capacity additions in certain
sub-sectors, with the aim of upgrading its industries and shifting investment to highvalue-added manufacturing. The “Made in China 2025” initiative launched in 2015
targeted a four percentage point increase in manufacturing value-added share by2025 (State Council, 2015). The 14th FYP (2021-2025) aims to increase the share
in GDP of strategic emerging sectors, including next-generation information
technology, biotechnology, new energy, new materials, high-end equipment andnew energy vehicles, from around 12% in 2019 to 17% by 2025 (State Council,
2021).

Economic and development indicators in China and selected countries

Value added
per capita
Agriculture

16

Industry
12Service8GDP
per capita
China

4

World
0
2000

2010

80

8%

60

6%

40

4%

20

2%

0

0%

Average annual growth rate, 2000-20(marker)20

GDP per capita, 2020
Thousand USD PPP (2019) per capita

Thousand USD PPP (2019) per capita

Value added and GDP per capita

2020

IEA, 2021.
Notes: Gross domestic product (GDP) is expressed in purchasing power parity (PPP) terms and constant 2019 values.
Sources: IEA analysis based on UNDESA (2019); Oxford Economics (2020); IMF (2020a, 2020b), World Bank (2021)

China has accomplished breathtaking rates of economic and social development,
transforming people’s way of life and its standing in the world

Today, the services sector is the main contributor to China’s economic growth,though a shift towards a services-based economy remains at an early stage. The
share of services in GDP at current prices rose from 40% in 2000 to 54.5% 1 in
2020, just under the target of 56% in China’s 13th FYP (2016-2020). In 2019, morethan 367 million Chinese, or 47% of the total workforce, were employed in services(compared with 25% in agriculture and 28% in industry) – up from less than
200 million, or 27%, in 2000.

1

PAGE | 20

IEA, 2021.

This is equivalent to a rise from 47% in 2000 to 53% in 2020 when services value added and GDP are expressed inpurchasing power parity terms at constant USD 2019 values.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

Economic development has been accompanied by rapid urbanisation andprofound social and cultural changes, transforming people’s way of life as well as
China’s standing in the world. The share of the population living in cities jumped
from 36% in 2000 to more than 60% in 2020. The fight against poverty has been
extraordinarily successful. The share of the population living under the official
poverty threshold of around USD 600 (approximately CNY 4 000) at 2020 prices
per person per year fell to under 1% in 2020 compared with about 50% just 20
years before. In addition, 430 million people gained access to clean cooking fuelssuch as modern solid biomass, liquefied petroleum gas, biogas and electricity overthat period. Universal access to electricity was achieved in 2014.
The focus of economic development in coastal regions has led to large regionalvariations in living standards, ranging from extreme poverty to relative prosperity.
Roughly two-thirds of the population lives in east and central China, where four ofthe five most heavily populated provinces – Guangdong, Henan, Jiangsu andShandong – are located. In much of rural China, most people still rely on
subsistence farming, while in major cities like Shanghai and Beijing, a modern
services-based economy has emerged. Unlike most other emerging economies,
the population increase has not been a major driver of economic growth for thelast 20 years. China’s population increased by just 11% since 2000, reaching justover 1.4 billion by 2020. GDP per capita in PPP terms increased by over 9% peryear on average from 2000 to 2010 and by more than 6% per year since 2010
despite a slowdown in 2020.
Selected economic and energy indicators for China
Indicator

2000

2010

2020

Change 20002020

GDP (USD billion PPP [2019])

4 790

12 74724 410+410%

Share of world GDP

7%

13%

19%

+12%-points

GDP per capita (USD PPP [2019])

3 773

9 479

17 291+358%

Population (millions)

1 269

1 345

1 412

+11%

Total primary energy demand (EJ)

49

107

148

+200%

Primary energy demand per capita (GJ/capita)

39

80

104

+170%

Import dependency (%)

4%

15%

23%*

+19%-points

Energy sector CO2 emissions (Gt CO2)

4

9

11

+218%

Energy intensity (MJ per USD PPP)

10.2

8.4

6.0

-41%

Carbon intensity (g CO2/USD PPP)

655

616

412

-37%

* 2019 values.
Notes: GDP = gross domestic product; PPP = purchasing power parity. Import dependency is calculated based on the
difference between imports and exports relative to total primary energy demand.

Energy and emissions trends
Rapid growth in the production and use of energy – particularly domestic coal –has historically been both the motor and the consequence of China’s economic

PAGE | 21

IEA, 2021.

renaissance. The strong reliance on energy-intensive industries in driving

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

economic development led to China becoming the world’s largest energy
consumer in 2009, while its reliance on coal has made it the biggest emitter ofenergy-related CO2 since 2005. The reorientation of economic development
towards less energy-intensive sectors, continuous efficiency improvements andthe adoption of stricter environmental standards is starting to curb the country’s
voracious appetite for fossil fuel use in many end-use sectors and steer demand
towards electricity, though emissions have continued to climb due mainly to thegrowth in the use of coal for power and heat generation. China has significantly
improved air quality in recent years, but air pollution remains a serious healthproblem, especially in urban agglomerations and industrial clusters (seeChapter 2).

Energy use
Changes in the structure of the Chinese economy towards lighter industry andservices, combined with efforts to enhance energy efficiency through tighter
regulations have helped to substantially slow the rate of growth in energy demandin recent years. Those regulations include the Top 100/1000/10000 programme –an energy conservation initiative covering enterprises that started in 2006 andexpanded under the 13th FYP (2016-2020) – and minimum energy performancestandards (see Chapter 7). Primary energy demand rose on average by more than
8% per year between 2000 and 2010, slowing to 3.4% in the five years to 2015
and just over 3% over 2015-2020. 2 As a result of continued rapid GDP growth, thefall in energy intensity of GDP (energy demand per monetary unit of GDP in PPP
terms) accelerated in the 2010s, from an average of 2% in 2000-2010 to over 3%
per year between 2010 and 2020.
Despite impressive growth in renewables since 2000, China remains heavily
dependent on fossil fuels, which met around 85% of the country’s total primaryenergy needs in 2020 – coal alone for about 60% and oil for about a fifth. China is
by far the largest coal-consuming country in the world, the 3 billion tonnes of coalequivalent it burned in 2020 making up more than 50% of the world market (IEA,
2020a). China’s coal consumption historically increased in parallel with its
industrialisation, most rapidly from 2002 to 2013, when coal contributed 77% of
the overall increase in the country’s primary energy demand. Cement, chemicals
and steel plants alone accounted for half of this increase, 30% of it (or 15% of thetotal increase in coal demand) indirectly through the use of electricity (generated

PAGE | 22

IEA, 2021.

2
The IEA and official Chinese energy statistics differ due to methodological differences. The IEA uses the physical energy
content method (PEC method) while China uses the partial substitution method (PS method). Unless otherwise stated, allenergy data in this report are from the IEA.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

primarily in coal-fired power plants). Coal use has been broadly flat from 2013 to2018 as a result of efficiency improvements and policy limits on coal use
expansion, but coal demand increased again in 2019 and 2020 and in early 2021.

Total primary energy demand by fuel in China

EJ

160
Other renewables

120

Hydropower
Bioenergy and waste

80

NuclearNatural gas

40

Oil
Coal

0

2000

2005

2010

2015

2020
IEA, 2021.

Despite impressive growth in renewables since 2000, China remains heavily dependent on
fossil fuels, with coal alone still meeting 60% of its total primary energy needs

The development of a coal-based economy was made possible by the availabilityof ample low cost domestic coal resources. China is by far the world’s largest coalproducer, accounting for roughly half of global production. Nonetheless, coalconsumption exceeds domestic production capacity and the country has become
increasingly dependent on imports, which now make up about 8% of total coalconsumption. Coal is mainly used for electricity and heat generation, which
accounts for 60% of total coal use (industry uses 33%, buildings 3% andagriculture and non-energy use 4%). Coal remains by far the most important fuelin the power and heat sector, accounting for three-quarters of total output in 2020,
though its share has fallen from its peak of 90% in 2007. China currently has
1 080 GW of installed coal-fired power capacity – more than half of global coalcapacity – and nearly 250 GW at various stages of development (CEC, 2021). Of
the 88 GW of capacity that has been officially approved, 37 GW was authorised in

PAGE | 23

IEA, 2021.

2020 – three-times more than in 2019 (Reuters, 2021).

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

2000

Power

2020

Fuel transformation

2000

Industry

2020

Transport

2000

Buildings

2020

Other

Natural
gas

Oil

Coal

Fossil fuel consumption by sector in China

0

15

30

45

60

75

90
EJ
IEA, 2021.

Notes: Power sector includes power and heat generation.

Coal still dominates power generation, though its relative importance has declined
significantly in recent years with growing capacity additions of renewables and nuclear

Demand for oil and natural gas has also grown considerably since 2000. Oil use
has risen at an annual average rate of 5%, complementing the use of coal in heavy
industries and meeting rapidly rising demand for personal transport and freight.
Gas demand has risen briskly since 2015 with strong policy support, particularly
for power generation, industrial uses, and residential and commercial space andwater heating. Despite significant domestic production of oil and gas, China relies
heavily on imports, which met over 70% of its consumption of oil and 45% of gas
in 2020. China surpassed the United States to become the largest importer of oilin 2017 and became the largest net importer of natural gas in 2018, ahead ofJapan.
Despite the continued dominance of fossil fuels, the use of modern low-carbon
fuel and technologies, including nuclear, hydropower, bioenergy and otherrenewables, has grown considerably over the last decade, their share of total
primary energy demand rising from 9% in 2011 to 14% in 2020. 3 Renewablesbased electricity and nuclear power made up more than 9% of total primary energy
demand in 2020. Hydropower has accounted for 35% of total renewable capacity
additions since 2000. Two plants – the Three Gorges and the Xiluodu Dam –contributed the bulk of the increase in hydropower capacity and output.

3

PAGE | 24

IEA, 2021.

According to China’s National Energy Administration, the share of non-fossil energy in total primary energy demand reached15.9% by end of 2020, exceeding the 15% target set for 2020.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

Another 60% of renewable capacity additions since 2000 has come from solar
photovoltaic (PV) and wind power. Installed capacity of the two sources combinedreached about 540 GW in 2020, more than half of which is onshore wind turbines.
Total installed capacity of utility-scale solar PV stands at 180 GW today, withrooftop panels and offshore wind capacity accounting for about 90 GW. Most of
those solar PV panels were manufactured in China, which has become the world’s
leading producer, helping to bring down costs globally (see Chapter 5).
Nuclear power has also increased markedly, with 48 reactors commissioned
between 2000 and 2020, taking the total to 51 and boosting the share of nuclear
in primary energy demand from 0.4% to 2.7% and the share of power generationfrom 1.2% to over 5%. Renewables including hydro plus nuclear power accounted
for about 30% of power generation in 2020, compared with only 18% in 2000.
Their expansion helped drive down the carbon intensity of electricity generation to
610 g CO2/kWh in 2020 from 650 g CO2/kWh five years before and close to
900 g CO2/kWh in 2000.

Selected clean energy technologies in China relative to the rest of theworld

Electric cars

Solar thermal
600

1 000

GW thermal

12Million cars

Installed capacity, GW

Solar PV and wind
1 500

8

400
300
200

4

500

500

100
0

0
2010

2015

2020

0
2010

2015

China

2020

2010

2015

2020

Rest of world
IEA, 2021.

China plays a leading role in the deployment of clean energy technologies, accounting forhalf of the world’s electric car fleet and 70% of solar thermal capacity

Industry is the leading energy end-use sector; its share of energy demandremaining relatively stable over the last decade, accounting for between 59% and
65% of total final energy consumption. Although its use of coal has declined by
17% since 2014, it is still the dominant fuel in industry, accounting for 50% of
China’s total industrial energy use in 2020, compared with around 30% in the rest

PAGE | 25

IEA, 2021.

of the world. The steel and cement sub-sectors are responsible for more than 70%

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

of industrial coal use, with the rest used as chemical feedstock (4%) and as boiler
fuel in a range of sectors. The use of electricity has risen by nearly 70% and thatof natural gas more than doubled since 2010, with both fuels displacing coal for
low-temperature heat. Natural gas is also increasingly used in chemicals
production.
Transport saw the biggest increase in energy demand in percentage terms overthe decade to 2020, though it still only accounts for about 15% of total final energy
use in China. Road vehicles account for over 80% of transport energy use, withpassenger modes (two/ three-wheelers, cars and buses) consuming slightly morethan road freight (trucks, light commercial vehicles). Fuel use in domestic aviation
has risen even faster than that for cars, but not as fast as road freight. Oil products
account for around 85% of China’s transport energy demand. The recent take-off
of electric vehicles (EVs) is tempering the rise in oil demand for road transport.
There were more than 4.5 million electric cars on the road in China in 2020 – 45%of the global fleet – of which nearly 80% are battery electric and the rest are plugin hybrids. The 580 000 electric buses and 240 million electric two/wheelers on
the road in China at the end of 2020, made up 98% and 78% of the global fleets
respectively, and displaced more oil demand than all the world’s electric cars,
China’s included (IEA, 2021a). China is by far the biggest global battery
manufacturer, accounting for around 70% of total installed capacity at end-2020
and just under half of electric car battery production worldwide in 2020 (seeChapter 4).
The share of the buildings sector in China’s final consumption has remainedroughly stable in recent years at just over one-fifth. Electricity use has risen most
rapidly, accounting for 35% of total energy use in buildings in 2020. An increasing
share of this electricity is used for heating: every year since 2015 sales of heatpump water heaters have exceeded 1 million units. Installations of groundwater
geothermal heat pumps have been rising briskly, supplying more than 1 billion m2
of floor area with heat in 2020 out of a total of almost 65 billion m2 in China. Total
installed capacity of solar thermal collectors approached 350 GW in 2020 – almost
two-and-a-half times more than in 2010 – thanks to measures introduced by thegovernment to fight against air pollution caused by burning coal, such as the Clean
Winter Heating Programme (2017-2021), which applied to Beijing, Tianjin and26 other cities. The deployment of clean energy building technologies remains
heavily dependent on financial incentives. A reduction in incentives led to a fall in

PAGE | 26

IEA, 2021.

solar thermal installations, which peaked in 2013.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

Energy sector CO2 emissions
Emissions trends
China is the world’s largest emitter of greenhouse gases (GHGs), accounting foraround a quarter of global emissions. Its emissions totalled about 13 Gt CO2-eq in
2020, equating to 9 t CO2 per capita – 45% higher than in the rest of the world.
CO2 emissions from fuel combustion and industrial processes, referred tohereafter as energy sector CO2 emissions, reached more than 11 Gt in 2020 andmade up almost 90% of China’s total GHG emissions, compared with under 60%
for the rest of the world, reflecting its emissions-intensive energy mix and a large
heavy industry sector. About 70% of China’s energy-related emissions in 2020
came from coal, 12% from oil, 6% from natural gas, and about 11% from process
emissions. Coal-fired power and heat generation plants alone were responsible
for more than 45% of China’s entire emissions and 15% of total global emissions.
Emissions of other GHGs, including from non-CO2 emissions from energy sector
and GHG emissions from non-energy related activities, e.g. agriculture, were
estimated at 2.4 Gt CO2-eq, while emissions from forestry and land-use change
were estimated at more than 0.7 Gt CO2-eq of net-negative emissions (suchemissions are either net-positive or with smaller net-negative scale in most othercountries).

Greenhouse gas emissions in China and rest of the world, 2020
GHG emissions

Energy sector CO2 emissions
25

Gt CO2Gt CO2eq

50
40

20

30

15

20

10

10

5

0

0
China

Rest of world

China

Rest of world- 10
CO₂, fuel combustion

CO₂, industrial processes

Other GHGs without LULUCF

LULUCF

Industrial processes

Natural gas

Oil

Coal

IEA, 2021.
Note: GHG = greenhouse gases; LULUCF = land use, land-use change and forestry.
Sources: IEA data for CO2 emissions from fuel combustion and industrial processes. Estimations for other GHG emissions
from IEA, FAO (2021); Saunois, M., et al. (2020); Friedlingstein, P., et al. (2020); UNFCCC (2021); He, J. et al. (2021).

PAGE | 27

IEA, 2021.

China is the world’s largest emitter of greenhouse gases, accounting for around a quarterof global emissions, most of which come from burning fossil fuels

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

In 2021, China’s energy sector CO2 emissions are likely to increase by over
300 Mt, or 3%, in part due to the economic bounce-back from the impact of theCovid-19 pandemic. With energy demand and emissions continuing to rise in2020 despite the pandemic, emissions in 2021 are likely to be almost
450 Mt CO2, 4% above 2019 levels. All fossil fuels will contribute to higher CO2
emissions in China in 2021, but coal is expected to be the main contributor,
accounting for 60% to the increase over 2020, predominantly due to increased
coal use in the power sector (IEA, 2021b).
Although CO2 emissions have grown substantially over the last two decades,
they have not risen as fast as GDP. This was mostly due to gradual, structural
economic shifts towards sectors with lower emissions intensity combined with
policy action to curb the growth in energy demand and promote low-carbon fuels.
The carbon intensity of GDP (emissions per unit of GDP in PPP terms) dropped
from a peak of nearly 810 g CO2 in 2005 to 450 g CO2 in 2020. 4 Due to China’s
reliance on fossil fuels, the carbon intensity of primary energy use, on the other
hand, has remained above 2000 levels, at nearly 80 g CO2/MJ compared with aworld average of under 60 g CO2/MJ. Carbon intensity of primary energy has
fallen more rapidly in most advanced economies, as the shift to less carbonintensive fuels has been more pronounced. For example, carbon intensity ofprimary energy use has fallen in the United States mostly thanks to a shift fromcoal to gas-fired power plants and in Europe to a sharp increase in the share of
renewables in electricity and heat generation. The combination of the rise incarbon intensity of primary energy use and the two-and-a-half-fold increase in
primary energy demand caused total emissions in China to triple over the lasttwo decades. On a per capita basis, energy sector CO2 emissions, at 8 tonnes
in 2020, remain lower than in some advanced economies such as the UnitedStates or Canada (13-15 t CO2 per capita), but higher in others such as
European Union (around 5 t CO2 per capita).

CO2 emissions from fuel combustion only.

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IEA, 2021.

4

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

CO2 emissions intensity of primary energy demand relative to CO2emissions per capita by country/region, 2000 and 2020
100

g CO2/MJ

China

2000

75
Russia

Japan

India

2020
United States

50
Bubble size
European
Union

25

Canada1 Gt CO2
10 Gt CO2

0
0

5

10

15

20

25

t CO2/capita

IEA, 2021.
Notes: Bubble area represents total energy-related and process-related CO2 emissions.

China’s carbon intensity of primary energy use remains high due to its heavy reliance on
fossil fuels, though per capita emissions are lower than some advanced economies

Emissions from existing infrastructure
Past and current investments in the vast range of physical assets that produce,transport and consume energy will have an impact on the amount and type ofenergy that will be used in the future in China. What happens to that energyrelated infrastructure – particularly coal-fired power, steel and cement plants
under construction or recently deployed – will have a major impact on the
success of efforts to accelerate the use of clean energy technologies andachieve carbon neutrality. Recent trends bear this out: despite rapid deploymentof renewables and EVs, and strong progress in reducing the energy intensity ofGDP, China’s energy sector CO2 emissions have continued to rise in recent
years. This is because emissions-intensive infrastructure has been expanding inparallel with the growing adoption of clean energy technologies.
The future energy consumption and emissions of existing infrastructure depends
on three main factors: the scope for modifications to assets and their operation
regime to lower the amount and CO2 intensity of the energy they use; the scopefor capturing emissions (i.e. retrofits with carbon capture, utilisation and storage);and the span of their operational lives. For the owners of energy assets,
decisions about whether to continue operation (where permitted under theprevailing regulatory framework), modify how they operate, or replace them withlower carbon alternatives will be based predominantly on relative costs andgovernment decisions in relevant areas of policy making. Indeed, much of the

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IEA, 2021.

emissions-intensive power sector and industrial infrastructure in China has someAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

form of government oversight, directly in the case of publicly owned
infrastructure or indirectly in the case of state-owned enterprises (SOEs).
Moreover, private owners of such assets are also subject to government
regulations.
Examining the potential emissions trajectories of specific sectors and types ofequipment in the absence of action to modify them is a useful starting point tounderstand the room for manoeuvre in curbing emissions in the future. Without
investments in new fossil-fuelled assets, emissions from China’s energy system
would decline, but the decline would take a long time. If operated under the
typical conditions observed in recent years, i.e., at typical utilisation rates, and if
no assets are retired early or modified, existing energy infrastructure would leadto around 175 Gt CO2 of cumulative emissions between 2020 and 2050 –
equivalent to around 15 years of CO2 emissions from China’s entire energy
sector at the 2020 level. Emissions from existing infrastructure would drop by
30% by 2030 and 95% by 2050.
The bulk of cumulative emissions from existing infrastructure absent any change
in the way it operates would come from the power sector (60%), steel making(8%) and cement production (10%), reflecting their large shares of China’s
emissions today and the long lifetimes of the assets in these sub-sectors. Other
industrial sub-sectors account for an additional 9%, and the transport andbuildings sectors combined account for 8%. The share of transport and buildings
are much smaller than for the rest of the world, reflecting their smaller shares in
China’s current energy sector emissions. Around 30% of the electricity
generated in China’s coal-dominated power sector is used in buildings, so on an
indirect emissions basis, the buildings sector would account for a significantly

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IEA, 2021.

larger share.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

Gt CO2CO2 emissions from existing energy-related infrastructure under typicallifetime assumptions and operating conditions in China
12

Other, 7

10

8

6

Other

Buildings, 3
Other transport, 4Road freight, 488Buildings
Other transport

Cars, 3

Road freight

18

Cars

15
3

Other industry
Chemicals

4

Cement
101

Steel

2
Other power
Coal power

0
2020

2030

2040

2050

2060
IEA, 2021.

Notes: This analysis is independent of any scenario context presented in this publication. Emissions quantities are projectedbased on typical operating conditions (e.g., capacity factors, fuel shares and mileages) with 2020 as the base year for the
analysis. Numeric area labels in the figure denote cumulative emissions quantities by sub-sector in gigatonnes CO2.
Emissions are accounted for on a direct basis. Recent lifetimes observed for coal power plants and heavy industry assets in
China of 25-35 years are used to inform this analysis.

Cumulative emissions from existing unmodified energy infrastructure could reachapproximately 175 Gt CO2 by 2050

The large share of the power sector in total emissions from existing infrastructureis due to the dominance of coal-fired power plants, which account for over 60% ofgeneration today and more than 95% of potential cumulative power sector
emissions from existing plants to 2060. Emissions from existing coal plants decline
only slightly through to 2030 as 40% of plants have been built in the last ten years,
and then drop by 95% by 2050. This analysis does not include any coal power
plants that are planned to be built in the coming years.
Industry is the other major contributor to potential CO2 emissions from China’s
existing infrastructure, due to the sector’s high energy intensity, the large share offossil fuels – especially coal – in energy use and the relatively long operational
lifetimes of factories and heavy industrial equipment. Of the roughly 50 Gt ofcumulative emissions from industry in this analysis, the steel and cement subsectors account for 30% and 35% respectively. While China’s leading steel
producers have set targets to achieve a peak in emissions in 2022-2023, the China
Metallurgical Industry Planning and Research Institute projects overall output tokeep rising to 2025. The China Building Materials Federation has recently put
forward a 2023 peaking target for the cement sector as part of an effort to reach a

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IEA, 2021.

peak in emissions from the broader building materials sector.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

The rate of turnover of energy-consuming capital stock strongly influences theopportunities for adopting new energy technologies, including clean ones. That
rate varies considerably across the various sectors and types of equipment. Many
household appliances and office equipment such as computers usually need to be
replaced after a few years, while cars and trucks, heating and cooling systems,
and industrial boilers generally last between one and two decades. But mostexisting buildings, roads, railways and airports and many power plants, oil
refineries and pipeline systems are likely still to be in use several decades fromnow. Globally, coal-fired power plants are typically operated for 40-50 years andcement and steel plants for around 40 years. However, in China, these emissionsintensive assets have tended to be decommissioned and replaced by more
efficient capacity much more frequently in recent years, with lifetimes being morein the 25-35 year range (Cui et al., 2020; Cui et al., 2021, IEA, 2020c).

Average age of key emissions-intensive assets in China

500

Heavy industry capacity

Gt

GW

Coal-fired power generation capacity
2.5

400

2.0

300

1.5

200

1.0

100

0.5

0

0.0
<10

11-20

21-30

31-40

>40

<10

11-20

21-30

31-40

Years
South
Northwest

East
Northeast

CentralNorth

Cement

>40
Years

Steel
IEA, 2021.

Notes: ‘North’ comprises Beijing, Hebei, Inner Mongolia, Shandong, Shanxi and Tianjin; ‘Northeast’ comprises Heilongjiang,
Jilin and Liaoning; ‘Northwest’ comprises Gansu, Ningxia, Qinghai, Shaanxi, Tibet and Xinjiang; ‘Central’ comprises
Chongqing, Henan, Hubei, Hunan, Jiangxi and Sichuan; ‘East’ comprises Anhui, Fujian Jiangsu, Shanghai and Zhejiang;‘South’ comprises Guangdong, Guangxi, Guizhou, Hainan and Yunnan. No data for Hong Kong, Macau and Chinese Taipei
is shown in this graph.
Sources: Platts (2021); Tong et al. (2019); Wang et al. (2019); Liu et al. (2021).

40% of China’s coal-fired power plants, 55% of its cement plants and 15% of its steel plants
are less than ten years old, compared with lifetimes in recent years of 25-35 years

China’s most emissions-intensive assets are younger than in most other countries
due to the country’s rapid economic development in recent years. The average

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IEA, 2021.

age of coal plants is just 13 years in China, compared with over 40 years in theAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

United States and around 35 years in Europe, though China’s plants have a typicaloperational lifetime that is much lower in recent years (around 25-35 years
compared with 40-50 years globally). Of the 2 100 GW of coal-fired capacity inoperation worldwide today and the 138 GW under construction, around 1 850 GW
could still be operating in 2030, 950 GW of it in China. Five provinces – Jiangsu,
Shanxi, Shandong, Xinjiang and Guangdong – account for nearly 40% of all
China’s coal plants that are ten years old or younger.
In heavy industry, China holds an even more dominant position globally,
accounting for around 60% of steel production from the more emissions-intensive
pathway (i.e. using blast furnaces fed with coal, coke and iron ore as opposed toelectric furnaces fed with scrap or direct reduced iron produced from natural gas),a similar share of cement production and around 30% of total production ofammonia, methanol and high value chemicals combined in the chemicals subsector. Most of this capacity is at the younger end of the age range in each asset
class, averaging 10-15 years, compared with lifetimes in recent years of around25 years in China and typical lifetimes of 30-40 years globally. Around 80% of
steel plants and 90% of cement plants are less than 20 years old – the result of
the seven-fold growth in steel production and nearly eightfold growth in cement
production in China since the turn of the millennium.
While existing trucks, planes, cars, ships and appliances and equipment inbuildings account for much smaller shares of projected emissions from existing
infrastructure in China due to their lower emissions intensity and shorter lifetimes,
they also tend to be at the younger end of the typical age range for such assets
worldwide. Around two-thirds of China’s building stock (measured by floor area)
has been built since 2000, while three-quarters of cars are less than ten years old.
More than half of the commercial aircraft operating in China are less than ten years
old.

Energy and climate policies
Carbon neutrality target
China’s adoption of a carbon neutrality target marks a turning point in its
economic development. The target forms an essential part of a new climate
policy vision that calls for a profound long-term transformation in the way thecountry produces and uses energy, affecting every aspect of the economy andday-to-day life. Making that vision a reality will be important to averting the worst

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IEA, 2021.

consequences of climate change for the entire world.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

At the United Nations General Assembly in September 2020, China’s president
announced that the country aims to have CO2 emissions peak before 2030 andto achieve carbon neutrality before 2060. This represents a significant steppingup of the country’s climate ambitions. Previously, China’s nationally determined
contribution (NDC) under the 2015 Paris Agreement aimed to achieve a peak in
CO2 emissions by “around 2030 and making best efforts to peak early” but did
not set a long-term target or goal.
China has since made several announcements of supplementary climate targets
and stronger action to accelerate the energy transition in support of the newcarbon neutrality target. At the UN Climate Ambition Summit in December 2020,
the Chinese government declared that it would: enhance the NDC targets for2030, including reducing its CO2 emissions per unit of GDP by more than 65%
from the 2005 level (compared with a previous target of 60-65% and anannounced reduction of over 48% in 2020); increase the share of non-fossil fuelsin primary energy consumption to around 25% (up from around 20% in thecurrent NDC and 16% in 2020 based on official data); and increase the forest
stock by 6 bcm above 2005 levels (up from the previous target of 4.5 bcm, which
was achieved in 2018). A new target of expanding the total installed capacity ofwind and solar power to more than 1 200 GW (compared with 535 GW in 2020)
was also announced. In March 2021, the ninth meeting of the Central Committee
for Financial and Economic Affairs called for building a new power system withsolar PV and wind as the main energy sources. In addition, on Earth Day in April
2021 China’s president announced that “China will strictly control coal-fired
power generation projects and strictly limit the increase in coal consumption overthe 14th FYP period (2021-2025) and phase it down in the 15th FYP period(2026-2030)”.
China’s new climate policy differs in several ways from the previous one, notleast in its much greater ambition. It sets out a clear timeline for the country’s
path to carbon neutrality, shifting the key policy question from “whether andwhen” to “how”. And it goes beyond the previous focus on carbon intensity
measured by emissions per unit of GDP. The government has since clarified thescope of the carbon neutrality target. China’s Special Climate Envoy noted in aspeech in July 2021 that the China’s peak target concerns energy-related CO2
emissions, while the carbon neutrality target has a wider scope, covering
economy-wide GHG emissions, including non-CO2 GHGs such as methane andhydrofluorocarbons (NCSC, 2021).
The pathway set out in this report covers all energy sector CO2 emissions

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IEA, 2021.

including from fuel combustion and industrial processes, which account forAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

nearly 90% of the China’s total GHG emissions today (see Chapter 2). The core
scenario of this Roadmap also considers a drastic reduction of methane
emissions from the energy sector by 2060.
In May 2021 the central government established a “leadership group on carbon
peak and carbon neutrality”, chaired by the executive vice-premier and comprisingheads of key national level ministries and agencies to co-ordinate crossgovernment efforts to achieve the climate goals. The group is developing what it
calls a “1+N” policy framework for carbon peak and carbon neutrality, with
“1” referring to top level overall guideline and “N” referring to policy packages for
key action areas (NCSC, 2021). The carbon peak and neutrality 1+N” policy
framework will focus on transformation and innovation in ten areas: changing theenergy mix; modernising industry; improving the efficiency of resource use;
promoting energy efficiency; building a low-carbon transport system; promoting
clean energy technological innovation; developing green finance; introducing
supporting economic policies; improving carbon pricing mechanisms andimplementing nature-based solutions.

How does carbon neutrality fit with China’s broader economic
modernisation strategy?
The Chinese government sees the carbon neutrality target as a catalyst for shifting
the country’s development model towards higher quality and more sustainableeconomic growth to protect the environment and health of the population, both inChina and globally. The government has set a goal to “basically realise socialist
modernisation” by 2035. The goal includes: significantly increasing China’s
economic, technological and innovation strength; raising per capita GDP to thelevel of moderately developed countries; modernising the governance system;
advancing culture and health; and reducing urban-rural and regional disparities.
The modernisation goals also include advancing eco-friendly work practices andlifestyles, and fundamental improvements in the environment under the aim of“building a beautiful China”. The government has also adopted a goal of turning
China into “a great modern socialist country that is prosperous, strong, democratic,
culturally advanced, harmonious and beautiful” by 2050 (Xi, 2017; State Council,
2021).
A continued move away from energy-intensive heavy industry and towards higher
value-added technologies and services forms a central element of the economictransition in line with both the modernisation agenda and carbon neutrality target

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IEA, 2021.

(see Chapter 5). The most recent FYPs set targets for this transition, including:An Energy Sector Roadmap to Carbon Neutrality in China•

Chapter 1: Vision of a carbon neutral China

Raising the share of value added from the services sector in total GDP in the 11th
(2006-2010), 12th (2011-2015) and 13th (2016-2020) FYPs. The share increased
from 41% in 2005 to 54.5% in 2020 (with GDP expressed at current prices5).

•

Encouraging innovation through increasing public spending on research anddevelopment (R&D) since the 10th FYP (2001-2005). Spending reached
USD 354 billion (CNY 2.44 trillion) in 2020, its share of GDP increasing from 1%
in 2000 to 2.4% in 2020.

•

Increasing the number of patents since the 12th FYP (2011-2015). They rosefrom less than two per 10 000 people in 2010 to over six in 2020, while the 14th
FYP (2021-2025) targets 12 high value patents per 10 000 people for 2025. 6•

Boosting the contribution of scientific and technological advances to economic
growth in the 13th FYP (2016-2020) and the share of key digital economy sectors
in GDP in the 14th FYP (2021-2025).

The national “Made in China 2025” initiative is one example of how thegovernment is seeking to exploit synergies between broader economic
development and the carbon neutrality target. As a strategy to enhance China’s
manufacturing sector, it seeks to strengthen technology innovation and productquality, and to promote the structural transition to higher value manufacturing andgreen production. It includes energy efficiency, material efficiency and pollution
control goals, and focusses on the development of clean low-carbon materials,
energy sources, vehicles and equipment. More recently, China has ramped up its
New Infrastructure Initiative as part of its Covid-19 recovery package, involving
investment in digitalisation and energy and transport infrastructure, such as ultrahigh voltage transmission networks, urban and intercity rail networks and EV
charging facilities.
China has been pursuing a more diverse mode of development since 2012 tobalance economic growth with environment and public health. At the 18th National
Congress of the ruling Communist Party of China in November 2012, China’s
president raised the concept of “ecological civilisation” and the vision of “beautiful
China”. In 2016, the State Council released the Healthy China 2030 strategy,
which stresses the importance of environmental protection, particularly air andwater quality to improve public health.

5

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IEA, 2021.

This is equivalent to a rise from 49% in 2005 to 53% in 2020 when services value added and GDP are expressed in constant2019 values at purchasing power parity.
6
Five criteria are specified for high value patents by the China National Intellectual Property Administration: https://www.cnipa.gov.cn/art/2021/4/2/art_55_158182.html.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

There are clear signs that climate change is becoming an integral part of China’s
development vision and strategy. At the ninth meeting of the Central Financial andEconomic Affairs Commission in March 2021, chaired by China’s president, theoverall vision and strategic positioning of the carbon peak and carbon neutrality
goals were highlighted. The president stressed that achieving carbon neutrality
would require a broad and profound systemic economic and social transformation,and that the targets would need to be incorporated into the country’s overall
development of “ecological civilisation”, a concept underpinning China’s vision onsustainable development and environmental goals that was written into theChinese constitution in 2018. The president recognised that the five years to 2025
are critical to achieve the peak in emissions and identified several tasks for that
period.

China’s carbon neutrality target in the global context
The new climate targets signal a decisive move by China towards more ambitious
action to tackle climate change. Given the country’s growing economic andgeopolitical clout, as well as its status as the world’s largest CO2 emitter, it is hopedthat the change in policy will lead to China playing an active role in global climate
governance. International co-operation and sharing of best practices are vital toachieve global net zero emissions in the second-half of the century (IEA, 2020b).
China is not alone in adopting a net zero target. As of September 2021,
52 countries and the European Union have adopted some form of net zero
emissions target, covering two-thirds of global GDP and around two-thirds ofglobal energy-related CO2 emissions. Of those countries, 16 have incorporated
the target into law, five have proposed legislation and the rest have announced atarget in an official policy document. By far, China is the country with the mostsignificant carbon footprint among those that have stated targets, accounting foraround 30% of global energy-related CO2 emissions in 2020 and around half ofthe energy-related emissions covered by a net zero emissions target.
The timeframe for net zero emissions varies across countries, ranging from 2030
to 2070, with the majority setting 2050 as the target year, including the UnitedStates, the European Union, Japan, Canada, Korea and South Africa. Amongother major emerging economies, Brazil has a target in its NDC for 2060 and hasannounced its intention to bring it forward to 2050, while Indonesia is exploring
opportunity to reach net zero emissions by 2060. The coverage of emissions also
varies, with most of the net zero emissions targets to date being economy-wide

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IEA, 2021.

and including all GHGs.

An Energy Sector Roadmap to Carbon Neutrality in China

Box 1.1

Chapter 1: Vision of a carbon neutral China

Paris Agreement and net zero emissions

The Paris Agreement – the most recent major international climate accord,reached at the 21st Conference of the Parties to the UN Framework Convention
on Climate Change (COP 21) in December 2015 and formally signed in April 2016
– sets a target of limiting future increases in global temperature to “well below 2 °C”
above pre-industrial levels and pursuing efforts to limit the temperature increase to
1.5 °C above pre-industrial levels. To reduce risks of relying heavily on netnegative emissions to reach the 1.5 °C temperature increase target by the end of
the century, the Intergovernmental Panel on Climate Change encourages
countries to aim for carbon neutrality by 2050 (IPCC, 2018). Article 4 of theAgreement sets out related aims on how to achieve this goal, notably bringing
about a peak in global emissions of greenhouse gases “as soon as possible” andrealising rapid reductions thereafter to achieve a balance between anthropogenic
emissions by sources and removals by sinks of greenhouse gases, i.e., net zero
emissions of greenhouse gases, in the second-half of this century.
Nationally Determined Contributions (NDCs) are at the heart of the Agreement andwill be critical to its success. They represent the pledges made by the country to
reduce national emissions and adapt to the impacts of climate change.
Article 4 requires each Party to prepare, communicate and maintain successive
NDCs, including measures to mitigate domestic emissions, taking account of its
national circumstances and capabilities.
The four annual Conference of the Parties (COP) since the Paris Agreement havefocused on developing rules, guidelines and procedures for implementing various
aspects of the Agreement, and encouraged countries to enhance the ambition of
their NDCs and develop long-term low emission development strategies. The next
meeting in Glasgow in November 2021 (COP 26), postponed from the previous
year, will review progress in meeting the goals of the Agreement, seek to ratchet
up near-term efforts to curb emissions, including by urging countries to submit
revised or updated NDCs, and encourage countries to establish long-term plans
for achieving net zero emissions. It also aims to finalise the “Paris Rulebook” forimplementing the Agreement.

It is hard to overstate the importance of China in reaching global net zero
emissions. Given the size of its economy and energy sector, achieving China’s
stated climate goals will make a huge contribution to meeting the goals of the Paris
Agreement. By meeting its carbon neutrality target in line with the country’s statedgoals, China alone could lower global average temperature by almost 0.2 °C by

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IEA, 2021.

the end of the century. In short, if China fails, the world will fail.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

Key challenges in China’s quest for carbon neutrality
The magnitude of the task in reducing CO2 emissions and the most cost effective
and practical way of doing so differ markedly across countries in several respects,
notably their stage of economic development, economic structure and existing
patterns of energy supply and use. These differences are reflected in the timing of
the peak in emissions: it has already been achieved in many advanced
economies, in some cases decades ago, but not in China and most otheremerging economies, where economic growth is generally much faster and per
capita energy use often lower. France, Germany and the United Kingdom wereamong the first to achieve a peak in energy-related CO2 emissions in the 1970s,
while the United States, Italy and Japan followed in 2000, 2005 and 2013
respectively. Brazil reached its emissions peak in 2014 and Korea in 2018. These
countries, therefore, would get from peak emissions to net zero emissions over alonger timeframe compared with the timeframe of China’s carbon neutrality
pledge.
The degree of economic maturity and prosperity is a critical element in determining
the peak in CO2 emissions. Historically, the peak was achieved at an average
GDP per capita of between USD 22 000 (CNY 152 000) and USD 30 000(CNY 207 000) in PPP terms at 2019 prices in those countries that achieved it in
the 1970s, and at above about USD 40 000 (CNY 276 000) in countries such as
the United States, Korea and Japan that achieved it later. In 2020, China’s GDP
per capita approached USD 17 500 (CNY 121 000), which is approaching the levelof France, Germany and United Kingdom when they reached their emissions
peak. However, China’s economy is still growing strongly – GDP expanded at an
average rate of nearly 6% over the five years to 2020 despite the Covid-19 crisis– while that of the three European countries cited was only around 3% in the late1970s, ahead of a recession at the beginning of the 1980s. Bringing about a peakin emissions at a time of rapid economic growth and rising demand for energy
services requires considerable efforts, though the tremendous development ofenergy technologies in recent years – and China’s potential for leveraging them –offers new opportunities to decouple emissions and growth.
The significance of heavy industry in China’s economy also makes achievingcarbon neutrality particularly difficult. The industrial sector as a whole accounted
for 36% of energy sector CO2 emissions in 2020. Industrial processes are energy
intensive, and few viable low-carbon alternatives to conventional fossil fuel-based
technologies are commercially available in some crucial sub-sectors, notably steel

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IEA, 2021.

and cement. In addition, certain industrial sectors tend to be heavily exposed toAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

international trade, which increases the risk of carbon leakage (the relocation ofemissions-intensive industries to countries with laxer emissions constraints).
Further increasing the share of services and reducing that of energy-intensive
industry, and supporting innovation and cost reduction of low-carbon solutions forindustries will undoubtedly facilitate the decarbonisation of China’s energy system.
The transport sector, which accounted for 8% of China’s total energy sector CO2
emissions in 2020, will need to be a major focus of measures to curb emissions.
With the country’s meteoric growth in car ownership and road freight, the use ofoil products and natural gas for road transport has grown by nearly fourfold overthe past two decades (at an annual average rate of over 7%), from a level that in2000 was roughly equal to the current transport demand for oil products in Canada
to a level that is nearly as high as that of the European Union. Oil demand fordomestic aviation has grown even faster, on average by more than 9% annually
over the same period.
The relatively young age of the building stock, which generated 5% of China’s
energy sector emissions in 2020, and the heavy reliance on fossil fuel for heating
will also need to be addressed. Energy consumption in the buildings sector has
been growing rapidly despite policy efforts that have reduced the average energy
intensity of buildings by more than 40% in the last three decades. The averageage of the buildings stock is barely above 15 years, nearly half of existing floorarea will probably still be standing in 2050, raising the importance of retrofit
measures to lower energy use and switch to low-carbon technologies. One-thirdof total final consumption in buildings is still derived from fossil fuels, with around
50% of space heating produced by fossil fuels using inefficient equipment within
the building, a share that rises to 80% in northern China (including district heating
generation). The explosive growth of electrical end-uses is also driving up
emissions in power generation. For example, ownership of air conditioners has
more than doubled in the last two decades in China (IEA, 2019).
China’s relatively heavy dependence on fossil fuels, particularly coal, for powerand heat generation, which accounted for nearly 50% of energy sector CO2
emissions in 2020, will need to be central to efforts to achieve a peak in emissions
and bring them down rapidly thereafter. In all countries that have already achievedmajor emissions reductions, one of main drivers has been the transformation of
the power sector, involving increased shares of less carbon-intensive technologies
in the generation fuel mix; for example, a switch from coal to gas and renewablesin the United Kingdom and the United States, from coal to renewables in Germany,and from coal and oil to nuclear power in France. Phasing out unabated coal-fired

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IEA, 2021.

power and heat generation, which accounts for over 45% of China’s energy sector

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

CO2 emissions and 16% of world emissions in 2020, must be central to efforts tomeet the new climate targets. The task is made harder by the young age of China’s
fleet of coal plants. Managing the socio-economic impacts of the clean energy
transition will be key policy considerations (see Chapter 7).
Nonetheless, China is well placed to accelerate the shift in investment to lowcarbon power generation and to avoid locking in additional CO2 emissions fromlong-lived assets. China is the world leader in the deployment of renewables,
including solar PV, wind and hydro, as well as one of the leading countries innuclear power deployment. Total investment in these clean energy technologies
reached about USD 130 billion (around CNY 900 billion) in 2020 – about six-times
more than in fossil fuel power plants. Net additions to wind and solar capacity
combined have exceeded those of fossil fuel plants every year since 2016. Market
and regulatory reforms to facilitate the integration of more renewables into thepower system will be crucial to integrate rising shares of variable renewables
generation while ensuring cost effectiveness and grid security.

Box 1.2

Corporate net zero targets in China

Several large companies, mostly state-owned, have made carbon neutrality
pledges since the government announced its new targets. Industry associations
have steered a number of these pledges and several associations are developing
sectoral roadmap towards emissions peak and carbon neutrality. Energy-intensive
industrial companies that have done so include Sinopec and PetroChina 7 (oil andgas, and chemicals), Baowu Steel, HBIS, Ansteel Group and Baotou Steel (ironand steel), most of which are targeting carbon neutrality by 2050. Among the major
power generation companies, the Three Gorges Group has announced a goal ofcarbon neutrality by 2040 and Datang Corporation by 2060.
A larger number of companies have announced commitments or plans tocontribute to the national goal, without determining a target year for emissions or
proposing a plan yet for achieving it. For example, the State Grid published acarbon peaking and neutrality action plan, with measures such as building
additional transmission capacity and smart grids, and increasing the share of
renewables in the power it transmits. Several power generation companies,
including China Energy Investment Group, China Huaneng Group and SPIC, haveannounced strategic studies on long-term net zero emissions goals. As of July
2021, of China’s 65 largest energy-consuming companies 8, 56 had not announced

7

PetroChina pledged to reach near-zero emissions by 2050.
Mainly in chemicals, cement, steel, aluminium, vehicle manufacturing, shipping, aviation, construction, power generationand mining.

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IEA, 2021.

8

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

a net zero commitment with a target year and 53 had yet to specify a target year
for a peak in emissions.
The scope of net zero emissions pledges by many Chinese companies have yet
to be clarified, though at this stage they are likely to cover direct and some indirectemissions from company operations (known as scope 1 and 2 under the GHG
Protocol), rather than the full value chain (scope 1, 2 and 3) given current reporting
guidelines and practices. 9 Various strategies have been proposed to curb
corporate emissions including switching to low-carbon technologies, investing in
R&D and using carbon offsets and green bonds. Some technology companies
advocate the increased use of digital technologies in government, health systems
and education, and promotion of lifestyle changes.
Between 2013 and 2015, the Chinese government published national guidelinesfor GHG emissions accounting for enterprises in 24 sectors to clarify their scope.
It also established an emissions reporting framework for companies that may becovered by the national emissions trading system, which began operating in 2021
(initially covering the power sector with industry to follow). In the Notice on Carbon
Emission Report and Verification and Emission Monitoring Plan in 2016 and 2017
and subsequent notices, companies in the power, construction materials, steel,
non-ferrous metal, petroleum, chemicals and paper industries are required toreport their energy consumption and scopes 1 and 2 CO2 emissions associatedwith the products they produce. China has also developed green or carbonintensive taxonomies to support financial institutions and companies in classifying
activities and assets contributing to clean energy transitions, and financial risks
associated with climate change (IEA, 2021c).

Current policy landscape
China has launched a process to develop plans to meet the carbon peak andneutrality targets, building on existing energy and environmental policies. The
government announced that the period of the 14th FYP (2021-2025) will be criticaland has identified a group of key areas, including: limiting the consumption of fossil
fuels; improving energy efficiency; promoting renewables and reforming theelectricity system; promoting green manufacturing; raising energy efficiency
standards in construction; promoting low-carbon transport; encouraging
innovation of low-carbon technologies; strengthening “dual control” of energy(energy consumption and intensity); reforming tax, price, land, finance and

9

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IEA, 2021.

Scope 1 covers all direct emissions from the activities of a company or organisation, including onsite fuel combustion andits own transport. Scope 2 covers indirect emissions from electricity, steam, heat and cooling purchased and used by thecompany. Scope 3 covers all other indirect emissions from the company’s activities occurring from sources that it does not
own or control, such as business travel, procurement, waste and water.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

procurement policies; accelerating carbon emissions trading; developing green
finance; promoting more environmentally responsible behaviour; increasing
carbon sinks; strengthening international co-operation on climate change andbuilding a green “silk road”.

Institutional arrangements
China has complex and dynamic policy-making processes and structures. Under
the guidance of the central government, a multitude of bodies at national and subnational levels, e.g. provincial and municipal, share responsibility for making andimplementing energy and climate policy. A number of national ministries in China
are involved in formulating and implementing energy and climate policies; there isno single ministry with overall responsibility for these areas of policy. In China, theNational Energy Commission and the Leadership Group on Climate Change,
Energy Conservation and Emission Reduction, both of which are chaired by thepremier and report to the State Council (China’s main governing body), coordinate national policy making. As mentioned, a new “Leadership Group” wasestablished in May 2021 to direct the country’s efforts to achieve carbon peaking
and carbon neutrality.

Main climate and energy policy institutions in China

IEA, 2021.
Note: The figure does not provide an exhaustive presentation of institutions involved in China’s climate and energy policy
processes.

PAGE | 43

IEA, 2021.

Several national and local bodies share responsibility for making and implementing energy
and climate policy

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

Under the guidance of the State Council, national ministries are responsible fordeveloping relevant policies. The main central government ministries involved inenergy and climate policy making include: the National Development and Reform
Commission (NDRC), which has a broad mandate for formulating and guiding
implementation of socio-economic development strategies and policies; theNational Energy Administration, managed by the NDRC, which is in charge ofdesigning and implementing energy-related policies; and the Ministry of Ecology
and the Environment (MEE), which oversees polices related to the environment,
including climate change. Other ministries, including finance (MOF), science andtechnology (MOST), Industry and Information Technology (MIIT), Natural
Resources (MNR) and Foreign Affairs (MFA), are also involved in energy andclimate policy making. In addition, the State-owned Assets Supervision and
Administration Commission of the State Council (SASAC) supervises and manages
SOEs, including large power, oil and gas companies, and industry associations suchas the China Electricity Council.
Provincial governments are responsible for implementing national policies as well
as developing policies and initiatives at the provincial level. They also participate innational policy-making processes. For example, the central government has called
for provincial inputs to the ongoing process to develop an action plan for peakemissions before 2030 and is encouraging provincial initiatives to achieve peakemissions as soon as possible. Shanghai and Hainan provinces have indicated they
will strive for peak emissions by 2025. Hainan also indicated a target for carbon
neutrality by 2050. Jiangsu and Guangdong plan to reach peak emissions earlier
than the national goal. Beijing has already achieved peak emissions, thanks tomeasures to address air pollution, improve energy efficiency and a pilot emissions
trading system (ETS) in the province, and actively draws plans for carbon neutrality.
Industrial associations and SOEs are also implementing initiatives to reduce
emissions.
The FYPs are the key policy-making process to guide economic and social
development. The FYP outline includes the highest level socio-economic guidance
and targets and is supplemented by a comprehensive set of sectoral andtechnological plans such as the Energy Development FYP, Power Development
FYP and Environmental Protection FYP. The sectoral FYPs, which are typicallyreleased by the relevant ministries within a year of the FYP outline, provide moredetailed targets and action plans, and include certain provincial level targets.
Provincial FYPs, which are developed by local governments typically within one or
two years of the release of the national and sectoral FYP outline, are intended to
implement the national FYPs adapted to local circumstances.

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IEA, 2021.

In parallel with the regular FYP process, laws, national strategies and action plans
are developed for specific sectors or cross-cutting themes with more flexible
timeframes. Ongoing strategic priorities are often integrated into the next
formulations of FYPs. For example, the Energy Supply and Consumption
Revolution Strategy for 2016-2030 is an important long-term strategy that guides

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

the six dimensions of China’s energy sector: energy consumption, supply,
technology, system, international co-operation and energy security. It stresses theimportance of making energy consumption cleaner and more efficient, as well as
encouraging technological innovation. Action plans focus on specific aspects ofenergy, environment or climate change, such as air quality.

Evolution of energy and climate policies
China’s first national programme on climate change was released in 2007, settingout various targets for 2010 and supporting measures. New targets, including a
17% reduction in carbon intensity (CO2 emissions per CNY of GDP), were
included in the 12th FYP (2011-2015), accompanied by a work plan on limiting the
growth of GHG emissions. The National Plan on Climate Change, released in2014, provided a basis for negotiating the Paris Agreement and the subsequentpreparation of China’s first NDC, which was submitted in June 2015. The targets
in the NDC were incorporated into the 13th FYP (2016-2020).
Evolution of selected energy and climate policies and key priorities in China

IEA, 2021.
Notes: FIT = feed-in tariff; ETS = emissions trading system.
Sources: IEA policy database; Gallagher et al. (2019).

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IEA, 2021.

Energy efficiency and renewables remain central pillars of China’s energy policies, driven
by energy security, economic and air quality benefits as well as climate considerations

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

Energy efficiency and renewables have been central pillars of China’s energy
policies over the last two decades, driven by energy security, economic and air
quality benefits and climate considerations. The 11th FYP (2006-2010) was thefirst to introduce a target to reduce energy intensity (20% over the period of theplan), which was supplemented by the 2007 Work Plan on energy conservationand pollutant emissions reductions. Energy efficiency has remained a priority in
all FYPs since, with a cap on total energy consumption being introduced
alongside a target of reducing energy intensity by 16% in the 12th FYP(2011-2015). A new cap on coal consumption was established and the energy
intensity target set at 15% for the 13th FYP period (2016-2020). Energy
efficiency mandates are a key policy instrument to manage industrial energy
consumption. In 2014, MIIT issued a comprehensive cross-sectoral guideline on
industrial energy efficiency, including consolidated industrial energy use data,
energy efficiency standards and benchmarking values.
The 2005 Renewable Energy Law was the first major law to encourage
renewables and requires power grid operators to purchase output from registeredrenewable energy producers and offers financial incentives, including preferential
electricity tariffs for renewable power and discounted lending and tax preferences.
The law established a national fund to foster renewable energy development.
Feed-in tariffs for renewable energy were introduced in 2006 and strengthened in
2009-2011, and have proved highly successful in boosting renewables capacity,
notably wind and solar PV, as well as the development of a domestic turbine andPV panel manufacturing industry which have driven costs down. The cap on coaluse introduced in the 13th FYP period (2016-2020) provided strong guidance andcertainty for the transition to renewables and other clean energy sources.
Market mechanisms are playing an increasing role in achieving energy and climate
policy goals more cost effectively through more efficient allocation of resources.
Power market reforms launched in 2015 aim to liberalise electricity pricing
mechanisms, lower electricity prices, increase industrial productivity and boost
economic growth. Implementation is still underway. The national ETS, which cameinto operation in 2021, and the provincial schemes, which have been operating forseveral years, are the main carbon pricing mechanism.
Improving air quality has been a major objective of energy policies in recent years.
The Air Pollution Prevention and Control Action Plan (2013-2017) and thesubsequent three-year action plan (2018-2020) were adopted to address thedeteriorating effects on public health of rising emissions of particulate matter,
nitrogen oxides and other pollutants, especially in the largest cities. A third action

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IEA, 2021.

plan is being developed to continue air quality improvement measures for the 14th

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

FYP period (2021-2025). The plans set emissions reduction targets for key air
pollutants and identify priorities for action, including promoting cleaner
manufacturing processes, making energy use cleaner and more efficient,developing greener transportation systems and promoting regional co-ordinationof pollution prevention and control. In addition to being very effective at alleviating
pollution, they have contributed to more efficient energy use and encouraged thetransition to clean energy sources, which serve economic, energy security andclimate goals.
The 14th FYP (2021-2025) represents a key milestone on the path to carbon
neutrality. The plan was released in March 2021, about five months after theannouncement of the new 2030 and 2060 climate targets. As with previous plans,
it states a binding target to reduce energy intensity, in the current plan by 13.5%,
and a target for reducing carbon intensity by 18%. The carbon-intensity target isthe same as in the previous FYP, which was slightly exceeded. Unlike previous
plans, no explicit GDP growth target for the five-year period was set, though atarget of over 6% was set for 2021. The International Monetary Fund projects that
China’s GDP will grow on average by around 6% over 2021-2025 and just over
8% in 2021(IMF, 2021a; IMF, 2021b).

Recent Five-Year Plan targets and attainment
Targetindicator

2006-20102011-20152016-202020212025

11th FYP

Attained

12th FYP

Attained

13th FYP

Attained

14th FYP

CO2 intensity
per unit of GDP

/

/

-17%

-20%

-18%

-18.8%-18%

Energy intensity
per unit of GDP

about
-20%

-19%

-16%

-18.2%-15%-14%-13.5%

about 2.7

3.3

<4.0

4.3

<5.0

4.98

tbd

/

/

11.4%

12%

15%

15.9%

about
20%

0.3

0.86

21

43

110

253

tbd

10

31

100

131

210

282

tbd

TPED (billion
tce)*
Share of nonfossil fuel in
TPED**
Solar PVcapacity (GW)Wind capacity(GW)* Total primary energy demand (TPED) cap has been an indicative target since the 12th FYP (2011-2015).
** Measured using the partial substitution method used by China for primary energy data.
Notes: TPED = total primary energy demand; tce = tonne of coal equivalent; tbd = to be decided.
Sources: China’s various five-year plans; MEE (2021), Report on the State of the Ecology and Environment in China 2020;
NBS (2021), Statistical Communique on the 2020 National Economic and Social Development; SCIO (2021), SCIO briefing
on China's renewable energy development.

The 14th FYP (2021-2025) stipulates that total energy consumption and total

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IEA, 2021.

emissions will also be capped but does not state quantitative targets. A possible

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 1: Vision of a carbon neutral China

explanation for the absence of targets for energy use and emissions in the mostrecent FYP is that an action plan to bring about a peak in CO2 emissions before
2030 is being developed, along with several sectoral FYPs, which will provide
further guidance on energy development and climate actions. For instance,
preliminary targets for the iron and steel sub-sector reportedly include a peak inemissions before 2025 and a subsequent reduction of 30% (estimated at around0.42 Gt CO2) by 2030 (Xinhua News, 2021). Another explanation may be theuncertainties about the global economic recovery from the Covid-19 pandemic on
China’s domestic economy and its consequences for energy demand. This may
also explain the absence of a GDP growth target.
The 14th FYP identifies new energy sources and new vehicle technologies as
strategic emerging industries. It stresses the need to step up energy market
reforms, pursue investment in low-carbon energy and ensure energy security. It
also outlines the main energy infrastructure developments to be completed andlaunched over the five-year period. For the electricity system these include anincrease in hydropower capacity, deployment of smart grid technology,
strengthening the transmission system and storage capacity to facilitate theintegration of more variable renewables capacity and network connections toremote regions. Other energy infrastructure developments include oil and gas

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IEA, 2021.

exploration and production, energy storage and transportation.

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Chapter 1: Vision of a carbon neutral China

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An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

Chapter 2: The energy transition



The Announced Pledges Scenario (APS) sets out a pathway to carbon neutrality
in the People’s Republic of China’s (hereafter, “China”) energy sector in whichemissions of CO2 reach a peak before 2030 and fall to net zero in 2060, in linewith China’s stated goals. The remaining 610 Mt of emissions, mainly from heavy
industry and long-distance transport (road freight, shipping and aviation), areentirely offset by negative emissions produced by bioenergy, in conjunction withcarbon capture, utilisation and storage (CCUS), and direct air capture of CO2 withstorage.



China’s primary energy demand continues to rise by 18% to 2030; it then falls by
26% by 2060, despite economic activity more than doubling. Primary energy
intensity – energy consumption per Yuan renminbi (CNY) of gross domestic
product (GDP) – falls by 75% between 2020 and 2060, or 3% per year on
average, due to big gains in energy and material efficiency, and a shift away fromheavy industry towards less energy-intensive economic activities.



The share of low-carbon energy – solar, wind, hydropower, bioenergy, otherrenewables and nuclear power – in primary demand jumps from 15% today to
74% in 2060. Solar energy, used for power generation and for heating, becomesthe largest primary energy resource by around 2045, accounting for around aquarter of demand in 2060. The use of fossil fuels falls rapidly over the projection
period, and most of that remaining in 2060 is in conjunction with CCUS. Demandfor coal plunges by more than 80%, oil by around 60% and natural gas by almost45%.

Achieving carbon neutrality in China also would also bring important otherenvironmental benefits, notably major improvements in air quality. Despite
evident progress, air pollution today remains a concern today driven by the fast
expansion of China’s vehicle fleet and coal use in heavy industry and power
generation. Particulate matter (PM2.5) falls to about 40% of today’s level in 2030
and to just 9% in 2060. NOX emissions fall by 35%, while SO2 emissions fall byaround 30% in 2030; by 2060, NOX falls by 90% and SO2 by 80%.

The clean energy transition to carbon neutrality requires a substantial increase inenergy-related investment. Total investment reaches around USD 640 billion(CNY 4 trillion) in 2030, more than 10% more than the average for the last five
years, and nearly USD 900 billion (CNY 6 trillion) in 2060, almost a 60% increase
from recent levels. The electricity and transport sectors account for most of theincrease.

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IEA, 2021.

Highlights

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

A pathway to carbon neutrality
There is no single pathway for energy sector emissions consistent with the goalof China of achieving a peak in CO2 emissions before 2030 and carbon neutrality
before 2060. 1 There are many paths to both outcomes, involving different rates
of change and different aspects of the transformation of the energy system, andmany uncertainties surrounding all of them. Innovation and the speed at which
new technologies enter the market and are adopted – key underlying drivers of
the clean energy transition and the focus of the present roadmap particularly inthe long term – are especially uncertain. The required trajectory of energy sector
emissions also depends on emissions from outside the energy sector, as well as
emissions of other carbon-containing greenhouse gases (GHG) and air
pollutants. 2 Net zero CO2 emissions for the energy sector mean that any
remaining emissions in sectors where abatement is technically difficult or very
costly would need to be fully offset by negative emissions through carbon
removal technologies.
This roadmap uses the APS to describe one plausible pathway to carbon
neutrality in China’s energy sector. It sets out the broad evolution of the energy
sector and the underlying technological transformation that would be required toreach a peak in emissions before 2030 and net zero CO2 emissions from theenergy sector by 2060. It is designed to follow China’s enhanced targets
declared in 2020 related to its nationally determined contribution (NDC) under
the Paris Agreement and carbon neutrality goals (see Chapter 1). The Chinese
government has since indicated that its target of carbon neutrality in 2060 may
cover all GHG emissions, not just CO2 from the energy sector. We have assumed
the same target date for energy sector CO2 emissions mainly on the grounds
that emissions from that sector make up the overwhelming bulk of China’s total
GHG emissions (or almost 90%).
The APS is designed to assess what is needed to meet those goals in a realistic
and cost-effective way. It is a path, not the path, to carbon neutrality in China. In
addition to the strength of policy action, much depends on the pace of innovationin new and emerging technologies in China and elsewhere, the future lifestyle

1

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IEA, 2021.

In this publication, unless otherwise stated, historical and projected CO2 emissions from the energy sector include thosefrom fossil fuel combustion as well as from industrial processes, which are often closely linked to energy use. The combustionof bioenergy is considered to be carbon-neutral (following the Intergovernmental Panel on Climate Change [IPCC] 2006
Guidelines for National Greenhouse Gas Inventories), with energy-related CO2 emissions in the production of bioenergy
feedstock or the conversion of biofuels being accounted for within the agriculture and other energy transformation sectors.
2
Emissions of carbon-containing GHGs other than CO2, such as methane (CH4,), and various chemical compounds used inaerosols, originate mainly from non-energy sectors, notably agriculture and waste processing. Variations in the projections
from these sectors affect the necessary rates of transformation of the energy sector.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

choices of Chinese citizens, the availability of sustainable bioenergy, and theextent and effectiveness of international collaboration. This Roadmap also
explores the opportunities for China to undertake a faster energy transition to2030 beyond that required by the current official target, involving a faster decline
in emissions over the second half of the 2020s, and the broad long-term
implications for China and the rest of the world (see Chapter 5).
We also present the results of the Stated Policies Scenario (STEPS) to provide
a benchmark for the APS projections. It assesses the evolution of China’s energy
system on the assumption that the policies and measures that have already been
adopted by the Chinese government with respect to energy and the environment
are implemented, including commitments made in the NDC. This scenario does
not assume any future changes to existing policies and measures, though it doesconsider the impact of existing policies on the long-term evolution of clean
energy technologies. STEPS does not take into account the 2060 carbon
neutrality target, as the policies needed to achieve it have yet to be adopted.
Underlying assumptions about economic growth and population are the same asin the APS.
For both the APS and STEPS, the same broad assumptions are applied to othercountries. That is, the APS assumes that all announced national net zeropledges are achieved in full and on time, regardless of whether they are currently
underpinned by specific policies, while STEPS takes account only of specificpolicies that are in place or have been announced by governments. Both arebuilt on the principle that the uptake of all available technologies and emissions
reduction options is dictated by costs, technology maturity, policy and societal
preferences, market conditions, and national circumstances. The energy
transition is assumed to take place in an orderly manner, ensuring the securityof fuel and electricity supplies, minimising stranded assets where possible andaiming to avoid volatility in energy market.
Neither the APS nor the STEPS should be considered as predictions, but rather
as assessments of the impact of different policy approaches on technology
choices and their implications for energy and emissions trends. They areintended to serve as a quantitative framework to support decision making andpolicy making in the energy sector and to improve understanding of the need for

PAGE | 54

IEA, 2021.

technological innovation in energy supply and use.

An Energy Sector Roadmap to Carbon Neutrality in China

Box 2.1

Chapter 2: The energy transition

Modelling approach

The projections for both the APS and the STEPS are generated by a hybrid
modelling approach that combines the strengths of the International Energy
Agency (IEA) Energy Technology Perspectives (ETP) Model and the IEA’s World
Energy Model (WEM). The ETP model is a large-scale partial-optimisation modelwith a detailed technology representation across the energy conversion, industry,transport and buildings sectors. In total, more than 800 technologies are modelledindividually including a detailed assessment of technology readiness. The WEM isa large-scale simulation model designed to replicate how competitive energy
markets function and examine the implications of policies on a detailed sector-bysector and region-by-region basis. Both models have been developed over many
years, using the latest data for energy demand and supply, costs, and prices.
Combining the two models allows us to prepare a unique set of insights on energy
markets, investment, technologies and the policies that would be needed for theclean energy transition.

CO2 emissions
The significant gap in energy sector CO2 emissions between the STEPS and the
APS that opens up especially after 2030 represents the size of the challenge
China faces in achieving carbon neutrality through the accelerated deploymentof clean energy technologies. In the STEPS, emissions resume their upward
trajectory after a decrease in the growth rate in 2020 due to the macroeconomic
impacts of the Covid-19 outbreak, reaching a broad plateau in the second halfof the current decade with a peak before 2030 before starting a gentle decline
and maintaining that trend through to 2060. Emissions reach 6 Gt in 2060, morethan 35% below their 2020 level. In the APS, emissions follow a similar path to2030, but fall much more rapidly thereafter, reaching net zero in 2060.
Cumulative emissions over 2021-2060 in the STEPS, at around 400 Gt, areroughly 80% higher than those in the APS.
CO2 emissions from fossil fuel combustion alone reach around 450 Mt by 2060
in the APS. They are entirely offset by negative emissions produced bybioenergy in conjunction with carbon capture and storage (BECCS). The APS
falls within the range of scenarios and emissions pathways produced by national
institutions for China’s clean energy transition. In the APS, the peak in China’s
emissions is reached at a lower level of economic development and per capita

PAGE | 55

IEA, 2021.

emissions than in most of the countries that have already achieved that peak.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

Energy-related CO2 emissions in China by scenario

IEA, 2021.
Notes: Emissions trajectories in scenarios for net zero emissions in 2060 developed by Chinese institutions use different
base years. The range shown here relates to energy-related CO2 emissions, i.e. they do not include those from industrial
processes. APS = Announced Pledges Scenario; STEPS = Stated Policies Scenario.
Source: Emissions trajectories from scenarios developed by Chinese institutions from Energy Foundation China (2020) andKhanna, N. et al. (2021).

The APS falls within the range of scenarios and emissions pathways produced by national
institution for China’s clean energy transition

Box 2.2

How does China’s expected emissions peak compare with othercountries?

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IEA, 2021.

If China’s emissions were to peak before 2030, it would likely mean that thecountry had achieved this feat at lower levels of economic development and per
capita emissions than most other countries that have already passed peakemissions. Most other economies achieved that peak when GDP per capita was
between USD 20 000 (about CNY 140 000) and USD 50 000 (about CNY 340000) at PPP and 2019 prices (see Chapter 1). In the APS, China’s emissions
peak before 2030 at just above USD 20 000 (about CNY 140 000) per capita.
Similarly, China’s peak per capita emissions are around 7 t CO2 to 8 t CO2,
compared with the 7 t CO2 to 15 t CO2 range in most other countries.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

Per capita annual energy-related CO2 emissions and GDP at emissions peakin China and selected other countries
tonne CO2 per capita

25

Average(other economies)*

US

Other economies
at peak

20
GERMANY

15
10

China at peak
(APS)

JAPAN

5
China historical
trend
0
0

10

20

30

40

50

60

70

thousand USD 2019 at PPP per capita

IEA, 2021.
Notes Selected countries include Australia, Canada, Denmark, Finland, France, Germany, Greece, Israel, Italy, Japan,
Korea, the Netherlands, New Zealand, Norway, Poland, Portugal, Spain, Sweden, the United Kingdom and the Unitedstates (US) . PPP = Purchasing power parity; APS = Announced Pledges Scenario.

Remaining energy sector emissions in 2060, which total around 610 Mt, comemostly from sectors where they are hard to abate, mainly heavy industry and longdistance transport (road freight, shipping and aviation). The share of combustionrelated emissions from coal is about 50% lower in 2060 relative to 2020, as
unabated coal-fired power plants and coal-based industrial processes are largely
phased out. Process emissions (generated inherently as part of chemical
reactions in industrial processes) fall by around 90% over 2021-2060, their shareof total emissions almost doubling as it proves particularly difficult to eradicate
such emissions in certain heavy industries, notably cement and steel. Residualenergy sector emissions in 2060 are entirely offset by negative emissions
produced by BECCS and direct air capture (DAC) with storage (see Chapter 4 fora detailed discussion of these carbon removal technologies). BECCS alone
provides more than 80% of total negative emissions in 2060. Carbon removal
technologies could also help compensate for some of the more difficult-to-abate
non-CO2 GHG emissions in China’s quest to achieve economy-wide GHG

PAGE | 57

IEA, 2021.

neutrality by 2060.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

Gt

Energy sector CO2 emissions by fuel and technology in China in the APS
14

14

12

12

10

10

8

8

6

6

4

4

2

2

0

0
-2

-2

Coal

2020

2030

Oil

STEPS
Bioenergy & waste

Gas

2020

2030

Direct air capture

APS
Process

2060

2060
Net
NetCO2CO2emissions

IEA, 2021.
Notes: STEPS = Stated Policies Scenario; APS = Announced Pledges Scenario.

Emissions from fossil fuel combustion and industrial processes in 2060, at just 0.6 Gt, areentirely offset by negative emissions using carbon removal technologies

As in the rest of the world, no single technology can deliver the emissions
reductions required for reaching net zero emissions in China. Decarbonising theentire energy sector requires the deployment of a wide range of technologies,
tailored to the needs of individual parts of the energy sector and to China’s
circumstances. The clean energy transition to 2030 can build on a range ofavailable technologies as well as proven policies, with the biggest contributions toemissions reductions in the APS initially coming from gains in energy efficiency,
particularly in industrial processes, space heating and cooling, and road vehicles(see below). Energy efficiency alone contributes around a quarter of the CO2
emissions reductions in 2030 in the APS. This share drops in the long run once
best available technologies dominate the market, but it still accounts for around
12% of the total emissions reductions in 2060. Renewable electricity, mainly windand solar PV, accounts for a third of total emissions reductions in 2030. The
contribution of renewables rises further to almost 40% in 2060 as such energy

PAGE | 58

IEA, 2021.

sources become dominant in electricity generation stocks.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

Energy sector CO2 emissions reductions by measure in China in the APS
Behaviour

Gt CO2

18

Avoided demand

15

Energy efficiency
12
Hydrogen9

Electrification

6

Bioenergy

3

Other renewables
Other fuel shifts02020

ServicedemandMitigation
measures2030

ServicedemandMitigation
measures

2060

CCUS

IEA, 2021.
Notes: Other renewables include in particular solar PV and wind. Energy efficiency accounts for enhanced technology
performance. CCUS = carbon capture, utilisation and storage. Avoided demand accounts for emissions reductions from thelowering of energy service demand through technology optimisation (e.g. smart thermostats, material efficiency, eco-driving,etc). Hydrogen includes low-carbon hydrogen and hydrogen-derived fuels such as ammonia and synthetic hydrocarbon fuels.
See ETP model documentation for the definition of each abatement measure. (www.iea.org/reports/energy-technologyperspectives-2020/etp-model).

Energy efficiency, solar PV and wind account for almost 60% of the emissions reductionsin 2030, while electrification, CCUS, hydrogen, behavioural change and bioenergy playbigger roles in 2060 in the APS

For the long-term transition to carbon neutrality by 2060, however, there are four
additional technology opportunities that emerge in the transition over the•Electrification of end-use sectors: The rising share of electricity in total energy use
in all sectors accounts for 13% of cumulative CO2 emissions savings over
2021-2060.

•

Carbon capture, utilisation and storage: The role of CCUS changes over the
projection period. The initial focus is on addressing emissions from young existing
assets in the power sector and heavy industry by retrofitting carbon capture
equipment. Later, the removal of CO2 from the atmosphere comes into play,offsetting emissions in sectors where emissions are hard to abate. CCUS accounts
for 8% of the total cumulative emissions savings to 2060.

•

Low-carbon hydrogen and hydrogen-derived fuels: The use of hydrogen andammonia and synthetic hydrocarbon derived from hydrogen increases over time
across different sectors, contributing more than 3% of cumulative emissions savingsby 2060.

•

Sustainable bioenergy: Biomass and fuels derived from biomass feedstock,
including gaseous and liquid biofuels, play an important role in curbing emissions,especially in the near term and in road and air transport. It contributes almost 7% of
cumulative emissions savings to 2060.

PAGE | 59

IEA, 2021.

projection horizon in the APS (they are assessed in detail in Chapter 4):

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

These four technology areas are generally at an earlier stage of development anddeployment than renewables, nuclear power and technologies for increasing theenergy efficiency of using fossil fuels. Their contributions to curbing emissions will
depend on accelerating innovation and commercialisation. In the absence of
relevant policies to support these technologies, such change is unlikely to beachievable (see Chapter 6). Finally, behavioural changes, such as energy
conservation and switching to less energy-intensive modes of transport, andavoided demand through a more efficient use of materials, are also importantabatement levers in China, accounting jointly for 12% of total emissions reductionsin 2060.
Differences in technology maturity explain why the speed of progress towards net
zero emissions differs among sectors in the APS. Many clean-electricity-generating
technologies are already available today on the market and are deployed rapidly,
so that China’s power sector is fully decarbonised before 2055. In other sectors,
most low-carbon technology options are still under development and are deployedlater, delaying the reduction in emissions. The passenger car fleet and buildings arealmost fully decarbonised by 2060, emitting less than 5 % by then compared tocurrent levels. By contrast, long-distance transport modes – heavy road freight,
aviation and maritime shipping – still emit significant volumes of CO2 in 2060,
despite falling by 60%, as does heavy industry (mainly chemicals, iron and steel andcement), which see a 94% reduction (see Chapter 3). No technology to produce
fossil-free iron and steel is commercially available today anywhere in the world,though it is expected to be demonstrated in the present decade.

Gt CO2

Energy sector CO2 emissions by sector, sub-sector and fuel in China in
the APS
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0

2030

2060

Power

2030

2060

Other energy
transformation

2030

2060

Industry

2030

2060

Transport

2030

2060

Buildings

2030

2060

Direct air
capture andstorage

Residential
Services
Aviation
Shipping
Road
Other transport
Iron and steel
CementChemicals
Other industry
Coal
Oil
Gas
BECCS
DACS

IEA, 2021.
Notes: BECCS = bioenergy with carbon capture and storage. DACS = direct air capture and storage. Other energy
transformation includes coal mining, oil and gas extraction, oil refining, coal and gas transformation and liquefaction,
production of hydrogen and hydrogen-based fuels, and biofuels production with and without CCS.

PAGE | 60

IEA, 2021.

The emissions that remain in 2060 are concentrated in sectors where emissions are hard toabate – essentially heavy industry and long-distance transport

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

Another reason for differences in the projected pace of decarbonisation acrosssectors in the APS is the age structure of existing energy-related assets. Many ofChina’s power and industrial plants, which depend heavily on fossil energy, werebuilt only recently. Most were designed to last decades, so shutting them down
early would be expensive (see below). In principle, it will be possible to retrofit
those plants with CCUS where CO2 storage is available, though the economic
competitiveness of doing so will need to be assessed on a case-by-case basis.
Ships and aircraft are also expensive assets with long lifetimes. Innovation will beneeded to replace existing ones with new low-carbon technologies or fuels in thelong term.

Energy trends
Primary energy demand
China’s primary energy demand 3 increases by 18% between 2020 and 2030, andthen falls by 26% by 2060 to a level 12% lower than in 2020 in the APS. This
compares with an increase of around 10% over 2020-2060 in the STEPS.
Although population declines by around 7%, economic activity more than triples.
The decoupling of economic growth and energy demand in the APS represents asignificant break with past trends. Primary energy intensity – the amount of energy
consumed per CYN of GDP – falls by 75% between 2020 and 2060, or 3% peryear on average.
The reduction in energy demand in the APS is largely the result of big gains inenergy and material efficiency, as well as a shift away from heavy industry towards
less energy-intensive economic activities. Efficiency gains moderate the growth indemand to 18% by 2030, when it begins to decline as heavy industry production
peaks within that period. Electrification of end uses contributes to this trend, as
electricity can provide many energy services more efficiently than conventional
fossil-based technologies. For example, an electric car today is two to four times
more efficient than an equivalent internal combustion engine (ICE) car, while anelectric heat pump can provide the same amount of useful space heat as aconventional gas-fired boiler using up to 75% less energy.

3

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IEA, 2021.

Primary energy refers to energy in its initial form before being subjected to any human-engineered conversion process.
Some energy is converted in power stations, refineries, heat plants and other transformation processes. Final consumption
refers to energy and feedstock use in final end-use sectors net of losses in transformation and distribution.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

Primary energy demand by fuel in China in the APS (EJ)
2020

2030

2060

Coal

87

86

16

Oil

26

32

11

Natural gas

12

15

7

Nuclear4

7

19

Renewables

18

32

76

Hydro

5

5

7

Modern bioenergy and waste

4

11

16

Traditional use of biomass

3

0

0

Solar

3

10

33

Wind

2

4

16

Other renewables

1

1

3

147

173

129

Non-fossil fuel share*

15%

23%

74%

Non-fossil fuel share** (PS method)

16%

26%

80%

Net energy sector emissions (Gt CO2)

11

11

0

Total

* Calculated using the IEA methodology based on the physical energy content method. ** Calculated using the partial
substitution (PS) method used by China’s National Bureau of Statistics.
Note: CO2 emissions from the energy sector include those from fossil fuel combustion as well as from industrial processes.

In the APS, the share of non-fossil fuels in total primary energy demand broadly
matches the official target for 2030. 4 The share jumps to around 75% in 2060,
almost twice the level reached in the STEPS. The share of renewables jumps from
12% in 2020 to 60% in 2060, near twice the share achieved in the STEPS. Solarenergy, which is used for power generation (solar PV) and for heating in buildings
and industry (solar thermal), becomes the largest primary energy resource byaround 2045, accounting for around a quarter of total demand in 2060. The shareof sustainable bioenergy more than doubles by 2060 relative to 2020, in part
thanks to its versatility in being able to be used to provide power and heat forbuildings and industry or converted into gaseous or liquid fuels for heating or

4

PAGE | 62

IEA, 2021.

At the United Nations Climate Ambition Summit in December 2020, the Chinese government declared that it would enhance
its NDC targets for 2030, including an increase in the share of non-fossil fuels in primary energy consumption to around 25%
by 2030 (calculated using China’s National Bureau of Statistics methodology based on the PS method).

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transitiontransport. Nuclear power also expands rapidly, almost quintupling between 2020
and 2060. Its share of primary demand reaches around 15% in 2060 comparedwith 3% today and 9% in the STEPS.

EJ

Primary energy demand in China by fuel and scenario
200

Other renewables

175

Solar

150

Bioenergy & waste

125

Wind

100

Hydro

75

Nuclear

50

Natural gas

25

Oil

0

2020

2030

2060

2030

STEPS

2060

Coal

APS

IEA, 2021.
Notes: APS = Announced Pledges Scenario; STEPS = Stated Policies Scenario.

With fossil fuel use falling rapidly, the share of renewables in total demand rises from 12%
in 2020 to 60% in 2060; solar energy becomes the largest energy source in the APS

The growth in the use of renewables – largely solar PV, wind power and bioenergy– in the APS represents an acceleration of current trends. It is driven by assumed
stronger policies to tackle climate change, enhance energy security and improve
air quality in line with China’s long-term goals. Those policies spur faster
improvements in technology and cost reductions, encouraging faster deployment
in a virtuous circular manner. The integration of much higher shares of variable
renewables into the generating mix requires far greater use of novel ways ofproviding system flexibility, such as battery and hydrogen storage, to ensure
electricity security (see Chapter 4). Greater electrification of end uses facilitates
this integration by increasing the potential of demand response, such as flexible
charging of electric vehicles (EVs).
The use of fossil fuels falls rapidly over the projection period and most of thosethat are still used in 2060 do not produce emissions thanks to the widespread
deployment of CCUS at new and existing industrial and power plants and otherfuel transformation facilities. Coal consumption plunges by more than 80%, witharound 60% of the remaining coal use in 2060 being used in power plants
equipped with carbon capture facilities. In the STEPS, coal use falls by around40%. Oil demand falls by around 60% below today’s level (5% above in the

PAGE | 63

IEA, 2021.

STEPS) to around 4.8 mb/d in 2060, of which nearly 55% is for non-emitting

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

feedstock and most of the remainder for aviation, shipping and freight roadtransport. Natural gas demand peaks by around 2035 and falls by almost 45%
below today’s levels by 2060 (it rises by 25% in the STEPS). By then, gas is usedprimarily as a fuel in power generation to provide electricity system flexibility, as a
substitute fuel for coal in cement production, and as a fuel and feedstock inhydrogen production, mostly in cases in conjunction with CCUS.

Final energy demand
China’s total final energy consumption in the APS increases moderately in theearly 2020s and then falls steadily through to 2060 with energy and material
efficiency gains – especially in the period to 2030 – and structural economicchanges. By 2060, it is around 15% lower than in 2020 and around one-quarter
lower than in the STEPS. Electricity consumption increases the most in absoluteterms in the APS, almost doubling by 2060, followed by hydrogen, which emerges
as a fuel in the 2020s, primarily in the transport sector, but also in the industry andelectricity sectors. Liquid synthetic hydrocarbon fuels, derived from hydrogenproduced from low-carbon electricity and CO2, begin to be used in aircraft in thefirst half of the 2030s and reach the equivalent of around 0.35 mb/d in 2060,
meeting 26% of China’s total aviation fuel demand.

Final energy demand by fuel and sector in China by scenario

IEA, 2021.
Notes: APS = Announced Pledges Scenario; STEPS = Stated Policies Scenario. Hydrogen includes low-carbon hydrogenand hydrogen-derived fuels (ammonia and synthetic hydrocarbon fuels).

Final energy use increases moderately in the early 2020s and then falls steadily through to2060 in the APS with energy and material efficiency gains and structural economic changes

Coal demand sees the biggest decline in both absolute and percentage terms in
the APS, falling almost 85% between 2020 and 2060. This is largely driven by the

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IEA, 2021.

transformation of the industrial sector, which is the main final user of coal today.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

Beyond the shift from more coal-intensive heavy industry towards less energyintensive industries, coal is also replaced as fuel and as reducing agent in heavy
industry (see Chapter 3). Coal use in cement production is replaced to a large
extent with low-carbon fuels such as bioenergy and waste. Coal-based steel
production is progressively displaced by hydrogen-based direct reduced ironroutes and scrap-based steel production, mainly fuelled by electricity. Coal use inbuildings, which accounted for 7% of total final coal consumption in 2020,
disappears by 2060 with the widespread electrification of space heating. Final oil
demand falls by almost 60%, with feedstock for petrochemical production
absorbing most of the oil still used in 2060. Natural gas use falls by more than
60% over 2020-2060 with its use for generating process heat in industry being
reduced by more efficient technologies and for space heating in buildings byelectric heat pumps and more energy-efficient building envelopes.
The decline in fossil fuel use is most pronounced in the industry sector, where coaldominates energy needs today, but consumption also falls heavily in the transportand buildings sectors in the APS. In all three sectors, electricity emerges as theleading source of energy. In the transport sector, hydrogen, ammonia andsynthetic hydrocarbon fuels cover almost 25% of all energy needs in 2060 andelectricity around 55%.

Change in final energy demand by fuel and sector in China in the APS,
2020-2060
Coal
Oil

Buildings

Natural gas
Electricity
Heat
Transport

HydrogenAmmonia
Bioenergy & waste
Other renewables

Industry

Synthetic HC fuels
- 40

- 30

- 20

- 10

0

10

20

EJ

IEA, 2021.
Notes: Final consumption refers to energy and feedstock use in final end-use sectors net of losses in transformation anddistribution. Synthetic HC fuels = synthetic hydrocarbon fuels.

PAGE | 65

IEA, 2021.

Electricity, bioenergy, hydrogen and hydrogen-based fuels replace the bulk of fossil fuelsin end uses in a carbon-neutral China

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

Focus on energy efficiency
Improving energy efficiency is crucial to China’s energy transition. It has played an
important role in the slowing of CO2 emissions growth in recent years and has thepotential to play a leading role in the future, especially in the near term. Primaryenergy intensity fell by 3% per year on average between 2011 and 2020. In the
APS, the average pace of decline accelerates to 2040, slowing thereafter to 2% peryear on average in the period to 2060 as the average efficiency of equipment in use
approaches that of the most efficient technologies available.
Energy intensity improves considerably in all end-use sectors in the APS. In
industry, the national average thermal energy intensity of producing clinker – themain ingredient of cement – falls by 15% between 2020 and 2060 thanks to energy
efficiency improvements associated with the adoption of state-of-the-art technology
when existing equipment is refurbished or replaced. These improvements are partly
offset by additional energy requirements related to the use of other carbon mitigation
measures, for instance the installation of carbon capture equipment or the
pre-treatment of alternative fuels or raw materials such as biomass, waste or
calcined clay. The average energy intensity of steel production falls by 40% between
2020 and 2060, reaching global average best practice levels by 2045, mainly driven
by process integration measures to optimise the use of by-products and excess heatin steel works. The best-performing industrial equipment such as electric motors
become the norm in all new installations by 2030 (see Chapter 3).

Selected energy efficiency indicators in China in the APS

IEA, 2021.
Note: Steel energy intensity is measured as energy consumption per tonne of steel produced (from iron ore preparation to
crude steel production), car average fuel economy as energy consumption per kilometre and buildings energy intensity as
energy consumption per square metre of floor area.

PAGE | 66

IEA, 2021.

Energy efficiency improves enormously across all end-use sectors in China in the APS,
especially for passenger cars in the coming decadeAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

In transport, improved efficiency yields large intensity gains across different
modes over 2020-2060 in the APS. On average, the fuel economy (measured byenergy consumption per kilometre travelled) of the light-duty vehicle fleet drops by
about 4.0% per year between 2020 and 2030, slowing to around 1.8% in
2030-2060. This results from the progressive shift to electric motors in cars, lightcommercial vehicles and minibuses, which are inherently more efficient than ICEs,
as well as more efficient ICEs and powertrains, and improved designs andmaterials. In the case of trucks, the average fuel economy improves by 2.3% peryear to 2030, mostly with more efficient conventional engine trucks, and by 0.5%
per year thereafter, mostly due to the steady penetration of EVs and hydrogenpowered fuel-cell EVs.
In buildings, energy consumption per unit of floor area falls at an average annual
rate of around 1.4% between 2020 and 2030 in the APS, and to 0.7% thereafter
to 2060. This is mainly driven by improvements in the thermal efficiency of building
envelopes that reduce energy needs for heating and cooling, as well as more
efficient heating and cooling equipment, light ing (including a continued switch tomuch more efficient light-emitting diodes [LED] light bulbs) and appliances.
Electrification is a key pillar of the transformation of the buildings sector in the
APS, augmenting energy efficiency gains in heating and cooking. In particular, thedeployment of electric heat pumps increases the average efficiency of spaceheating equipment installed in 2030 by 40% and in 2060 by more than two-fold.
The scale of energy efficiency improvements in the APS requires early policy
action to stimulate the adoption of the most efficient technologies already available
to avoid locking in inefficient energy use in the long term. While the accelerated
deployment of clean and efficient energy technologies is essential to reduce
emissions in transport, buildings and industry, changes in consumer behaviour
and lifestyles can also make an important contribution, especially in sectors where
technical options for cutting emissions are limited. In the APS, behaviouralchanges by Chinese citizens and companies – reflected in the changes in energy
consumption patterns and trends discussed above – are mostly induced bypolicies and investments made by the government. The Covid-19 pandemic has
demonstrated that behaviour can change for the common good if people
understand that change is necessary. It is up to the government to explain
convincingly why and to provide clear guidance about what changes are needed

PAGE | 67

IEA, 2021.

(see Chapter 7).

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

Environmental co-benefits
Achieving carbon neutrality in China would not just help avert the worst
consequences of climate change; it would also bring important otherenvironmental benefits, notably major improvements in air quality. China has
improved air quality considerably in recent years, but pollution – ambient andindoor – remains a serious health problem, especially in urban agglomerations
and industrial clusters. Decarbonising the entire energy system would be a major
step towards eradicating the problem for good.
The government has taken firm steps to address ambient air pollution over the last
decade. The National Ambient Air Quality Standard, first issued in 1982, wasrevised in 2012 and fully implemented in 2016. It requires cities to achieve by 2030
the national standard for fine PM2.5 of 35 μg/m3, which corresponds to interim
target-1 of the World Health Organization (WHO). 5 China started publishing an air
quality index, which measures PM2.5 in real time in more than 360 cities. The
Action Plan on Prevention and Control of Air Pollution, issued by the State Council
in September 2013, identified goals to improve the air quality of the entire country
by 2017, while imposing stricter air pollution reduction guidelines in three key
industrial areas surrounding Beijing, Shanghai and Guangzhou. Among otherthings, the plan pledged to strictly control coal consumption. A three-year action
plan to fight air pollution was launched in 2018.
A new action plan to improve air quality further is being developed for the 14th
Five-Year Plan (FYP) period of 2021-2025. That FYP sets a binding target for
337 cities at and above prefecture level for the share of days meeting the national
air quality standard at 87% in 2020, which was reinforced for 2025 (standards
were met on only 82% of days in 2019 and 84.8% in 2020 when adjusted for the
impact of the Covid-19 pandemic). There is also a target of reducing PM2.5
concentration by 10% and eliminating heavy pollution in the same cities by 2025.
For key regions, including Beijing-Tianjin-Hebei and surrounding areas (BTHS),
the Yangtze River delta, and the Fenwei Plain, a reduction of 10% in emissions of
nitrogen oxides (NOX) is targeted.
Progress is evident. According to official figures, 157 of the 337 cities reached thenational air quality standard in 2019 – more than twice as many as in 2016.
Nationwide, over the past five years, we estimate that emissions of sulphur dioxide(SO2) fell by almost 40%, largely because of pollution controls in the power sector,

The WHO air quality guideline sets the maximum concentration of PM2.5 at 10 μg/m3. The WHO has introduced a series ofinterim targets that are less stringent, but represent an attainable set of milestones towards better air quality.

PAGE | 68

IEA, 2021.

5

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

while PM2.5 emissions dropped by almost 35%, mainly due to a shift away fromtraditional use of biomass by households and control measures in industry. Yet air
pollution remains a serious problem. Today only about 1% of the population has
a level of exposure to PM2.5 concentrations that complies with the WHO guideline,
while around 80% of the population is exposed to levels even higher than the mostmodest WHO interim target-1 (Cheng et al., 2021). Almost 1 million premature
deaths are attributable to ambient air pollution today (Yue et al., 2020).
In the APS, massively reduced combustion of fossil fuels allied with continued
efforts to control pollution, including stringent emissions standards, leads to rapid
improvements in air quality in China. The main reason for this improvement is a
sharp drop in PM2.5 emissions, which fall to about 40% of today’s level in 2030 andto just 9% in 2060. NOX emissions fall by around 35%, while SO2 emissions fall byaround 30% in 2030; NOx drops by almost 90% in 2060 and SO2 by 80% in 2060.

Air pollutant emissions by type and sector in China in the APS
100%

Index (2015 = 100%)

140%
120%

75%

100%
50%

80%
60%

25%
40%
0%

20%

2030

0%
2020

2030

SO2
SO2

NOX
NOx

2040

2050

PM2.5
PM2.5

2060
TPED

2060

2030

SO
2
SO2
Industry*

Transport

2060

2030

2060

NOX
NOx

PM
PM2.5
2.5

Buildings

Power

Other

IEA, 2021.
* Includes the transformation sector (except power and heat).
Notes: Air pollutant emissions include indoor pollutants from domestic cooking and heating. TPED = total primary energy
demand. SO2 = sulphur dioxide; NOx = nitrogen oxide; PM2.5 = particulate matter with a diameter less than 2.5 micrometres.

Emissions of all the main pollutants fall sharply as fossil energy use is phased out andstringent air pollution standards take effect

PAGE | 69

IEA, 2021.

Industry and transformation sectors other than power and heat are the largest
contributors to air pollutant emissions in China today. Together they are responsible
for around 55% of all of the country’s SO2 and one-third of NOX emissions and are
the second-largest contributors to PM2.5 emissions after the buildings sector.
Equipment to control emissions is widely used, but the technologies are often
inefficient. For example, more than two-thirds of coal-related PM2.5 emissions arecontrolled today by basic and cheap electrostatic precipitator (ESP) devices. Infurnace limestone injection to limit SO2 emissions is used in about half of theAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transitionindustries that use coal, but it removes only about half of the emissions. In the APS,
more efficient technology makes significant inroads: the introduction of technologies
with higher efficiency (such as advanced ESP and fabric filters) enable more
efficient control of PM2.5, while the increasing deployment of wet flue-gas
desulphurisation devices, such as wet scrubbing or sulphuric acid processes,
remove about 85%. For reducing NOX emissions, low- NOX burners are widelyadopted. These efforts result in a fall in SO2 emissions of about 20% by 2030 andmore than 75% by 2060, while PM2.5 and NOX emissions are cut by 30-35% by 2030
and 85-88% by 2060.
In recent years, coal-fired power plants have been a major focus of policy efforts totackle deteriorating air quality, because they are major sources of pollution andusually located close to densely populated urban areas in China’s coastal provinces.
A more stringent set of emissions standards for power plants comparable with thosein the European Union and the United States were introduced in 2012: 30 mg/m3 forPM2.5, 100 mg/m3 for SO2 from new plants and 200 mg/m3 for existing ones
(although it can be higher in some provinces), and 100 mg/m3 to 200 mg/m3 for NOX.
In the APS, power sector emissions of SO2 drop by around 25% in 2030 and almost
75% in 2060, NOX by almost 30% and more than 80%, and PM2.5 by almost 50%
and more than 90%.
In the transport sector, policy makers have struggled to introduce anti-pollution
measures fast enough to keep pace with the expansion of China’s vehicle fleet. But
emissions limits for all vehicle types that are among the most stringent in the world
are now in place. In the APS, emissions of all pollutants from transport fall heavily
through the enforcement of air pollution standards and the electrification of vehicles.
NOX emissions drop by more than 35% in 2030 and by more than 95% in 2060,
while PM2.5 emissions fall by almost 45% and 75%. Efforts to strengthen fuel quality
standards together with the phasing out of conventional ICE vehicles reduce SO2
emissions by 20% by 2030 and more than 95% by 2060.
Around one-third of the Chinese population continues to rely on the use of solid fuels
for cooking and heating, mostly in rural areas. This is an important source ofhousehold air pollution, which is still cause of premature deaths. 6 In the APS, theelimination of traditional biomass and coal use for cooking and heating enables thebuildings sector to reduce direct PM2.5 and SO2 emissions by around 95% by 2060
and direct NOx by around 80% over the same period. The number of premature
deaths associated with household air pollution falls by almost 80% to less than 160
000 already in 2030 in the APS.

PAGE | 70

IEA, 2021.

6
China has indoor air quality standards for households, limiting the concentration levels of particulate matter to 150 μg/m3,
but most households exceed this limit.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

The extent of the task of reducing PM2.5 pollution varies considerably acrossregions, reflecting differences in economic structure and patterns of fossil energy
use. All regions apart from BTHS would meet the WHO guideline on PM2.5 by 2060
if the carbon neutrality target is met (Cheng et al., 2021). Heavy air pollution inthat region today is mainly driven by the large emissions from heavy industry andthe residential sector, together with unfavourable topography and meteorologicalconditions.

Illustration of population-weighted mean PM2.5 concentration and fossil
fuel share in primary energy demand by selected region in China atcarbon neutrality in 2060
Fossil fuel share in primary energyµg/m3

PM2.5 exposure
120

100%

100

80%

80
60%
60
40%
40
20%

20
0
China BTHS

FWP

YRD

SCB

0%
China BTHS

PRD
NDC goals

FWP

YRD

SCB

PRD

Carbon neutrality goals

IEA, 2021.
Notes: The five regions selected are the most heavy-polluted and densely-populated. BTHS = Beijing-Tianjin-Hebei andsurrounding areas; FWP = Fenwei Plain; YRD = Yangtze River Delta; SCB = Sichuan Basin; PRD = Pearl River Delta. NDC= nationally determined contribution; μg/m3 = micrometres per cubic metre.
Source: Reproduced from Cheng et al., 2021.

Carbon neutrality coupled with strict clean air policies would result in all but one of themost polluted and densely populated regions meeting the WHO guideline for PM2.5

Box 2.3

Bringing down fossil methane emissions in China

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IEA, 2021.

Methane emissions are the second-largest cause of global warming. Whilemethane tends to receive less attention than CO2, reducing methane emissions is
critical for avoiding the worst effects of climate change. Methane has a shorter
atmospheric lifetime than CO2 but it absorbs much more energy while it remains in
the atmosphere. China is the world’s largest emitter of methane from fossil fueloperations. These amounted to almost 26 Mt (770 Mt CO2-eq) in 2020,

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

representing over 20% of global fossil methane emissions or roughly the same as
total CO2 emissions from the country’s road transport sector.

Mt CH4

Fossil methane emissions in the top-three emitters globally in 2020 andemissions reductions in China in the APS
30

Emissions25

Coal mine20

Oil and gas

15

Emissions reductions
Oil and gas-related

10

Coal-related
5
0

China

Russia
2020

US

2020

Reductions

2030
Reductions
APS - China

2060

IEA, 2021.
Note: APS = Announced Pledges Scenario; Mt CH4 = million tonnes of methane.

In the APS, a concerted effort to deploy all available abatement measures infossil fuel supply as well as changes in fossil fuel consumption lead to a fall ofover 80% in methane emissions by 2060. Most of this drop stems from reductions
in coal mine methane emissions and achieving this will require overcoming major
economic and institutional hurdles. There is a relatively small number of technicalsolutions to avoid coal mine methane emissions, especially after the start ofoperations, but all of these are deployed in the APS. Methane can also be emitted
in abandoned mines and these emissions must be addressed, especially as
domestic coal production starts to fall. In the oil and gas sector, methane
emissions fall by almost 75% by 2060, reflecting the availability of a broad rangeof cost-effective and readily available mitigation technologies, such as vapour
recovery units that reduce the need to vent or flare gas, and frequent leakdetection and repair programmes, as well as lower production.
Chinese policy makers are aware of the importance of addressing methane toachieve climate neutrality. It was included as a priority for mitigation efforts in the
14th FYP (2021-2025), with a national methane action plan expected by early2022. Some regulations have already been issued. A 2020 notice on
environmental impact assessments for coal developments requires
improvements in the utilisation rate of coal mine methane: it stipulates the need
to use it where concentrations are above 8% and encourages utilisation ifconcentrations are below that level. In 2021, a policy document called for piloting
methane monitoring in oil, gas and coal developments. Government officials also
indicated their intention to improve methane emissions standards, promote
investments in mitigation measures and support institutions working on methane
reduction strategies. China, as a major consumer of oil and natural gas, could
also adopt performance standards or similar policy instruments to drive methane
reductions in pipeline and storage facilities.

PAGE | 72

IEA, 2021.

Some state-owned companies have begun to tackle methane emissions. The
China Oil and Gas Methane Alliance was established this year by seven ChineseAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

companies with the objective of reducing the average methane intensity ofnatural gas production (the ratio of methane emissions to gas produced) to below
0.25% by 2025. China National Petroleum Corporation, which currently leads theinitiative, aims to lower its methane intensity by 50% from the 2019 baseline andachieve international best practice on methane management by 2025.
* Methane global warming potential is considered at 30 over 100 years based on IPCC, 2021.

Energy investment
The clean energy transition envisioned in the APS requires a major increase inenergy-related investment, both in energy supply and in demand-side equipment
and infrastructure, yet it is well within China’s financial means. Total energy
investment reaches around USD 640 billion (around CNY 4 trillion) in 2030 – morethan 10% more than the average for the last five years and nearly USD 900 billion(CNY 6 trillion) in 2060, almost a 60% increase relative to recent years. However,the share of energy investment in China’s GDP, which averaged 2.5% in
2016-2020, drops to 1.6% by 2030 and to just 1.1% by 2060.

Trillion USD (2019)

Annual energy investment by sector and technology area in China in the
APS
1.0

By sector

By technology area

2016-20 2030 2040 2050 2060

2016-20 2030 2040 2050 2060

0.8
0.6
0.4
0.2

Technology area
Other
Fossil fuels
CCUS
HydrogenElectricity system
Electrification
Efficiency
Other renewables
Bioenergy
SectorBuildings
Transport
Industry
Infrastructure
Electricity generation
Fuel production
IEA, 2021.

Notes: 2016-2020 are annual averages. Left graph: infrastructure includes electricity networks, public EV recharging, CO2
pipelines and storage facilities, direct air capture and storage facilities, hydrogen refuelling stations, and in import, export andliquefaction terminals, storage facilities as well as pipeline systems for hydrogen, fossil fuels pipelines and terminals. Rightgraph: end‐use efficiency investments are the incremental cost of improving the energy performance of equipment relative
to conventional designs. Electricity systems include electricity generation, storage and distribution, and public EV charging.
Electrification investments include spending on batteries for vehicles, heat pumps and industrial equipment for electricity‐
based material production routes.

PAGE | 73

IEA, 2021.

Energy investment rises by more than 10% to 2030 and almost 60% by 2060, driven mainly
by electricity generation, networks and end-user equipment, though its share of GDP falls
progressively

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

Overall supply-side investment increases over 2021-2060 in the APS, despite
the projected slowdown in the rate of growth in supply. Its share in total energy
investment over that period falls, though, compared with the average for
2016-2020. Power generation accounts for the bulk of the increase in supplyside investment. Investment increases for renewables (despite falling unit costs)
as well as for nuclear power, hydrogen and other low-emissions fuels, offsetting
the rapid decline in spending on fossil energy production and fossil-based heatand power generation. The share of fossil fuel supply in total energy sector
investment drops from an annual average of more than 15% in 2016-2020 toless than 1% in 2060.
Total investment in end-use sectors increases substantially over the projection
period. The transport sector sees the biggest increase, rising from an averageof almost USD 120 billion (almost CNY 820 billion) in 2016-2020 to around
USD 210 billion (CNY 1.4 trillion) in 2060. This stems from increased demand
for mobility – boosting demand for cars, trucks, planes and ships – and relatedtransport infrastructure, as well as the higher capital cost of EVs compared withconventional vehicles (despite the projected decline in the cost of batteries) andother means of transport. Policies to reduce travel (e.g. through teleworking) andincrease the use of public transport nonetheless reduce investments in roadvehicles in the longer term. Investment in transport infrastructure jumps by morethan 30 times by 2060 compared with the average for 2016-2020.
Investments in buildings more than doubles from around USD 50 billion (around
CNY 350 billion) per year in 2016-20 to almost USD 130 billion (about
CNY 890 billion) in 2040, driven mainly by retrofits to building envelopes andspending on more efficient electrical appliances and heating equipment, fallingback to around USD 95 billion (almost CNY 650 billion) in 2060. Improvements
to building envelopes extend the lifetime of the buildings stock, thereby reducing
investment needs in buildings later, which in turn reduces overall demand forconstruction materials. Investment in industry increases from USD 50 billion(around CNY 345 billion) per year in 2016-2020 to almost USD 110 billion(around CNY 750 billion) in 2060, mainly because of the shift to more expensive
low-carbon technologies for producing steel, cement and chemicals.
By technology area, electrification is the principal driver of higher investment in
the APS. More capital is needed to transform power generation and expand andmodernise electricity networks, as well as for electric appliances and equipmentin end uses, including EV batteries, heat pumps and industrial motors.

PAGE | 74

IEA, 2021.

Investment nearly doubles from a yearly average of about USD 280 billion

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition(almost CNY 2 trillion) in 2016-2020 to around USD 560 billion (CNY 3.9 trillion)
in 2060. Investment in hydrogen, including production facilities, refuelling
stations and end-use equipment, rises modestly to around USD 7 billion (CNY46 billion) in 2030 as production facilities are scaled up, and more rapidly
thereafter as use of the fuel in transport expands, reaching more than USD 70
billion (about CNY 495 billion) in 2060. Investment in CCUS reaches more than
USD 25 billion (CNY 180 billion), while that in energy efficiency reaches morethan USD 90 billion (around CNY 630 billion) in 2060, mostly for deep building
retrofits and efficient appliances in the industry and buildings sectors.
Financing the large increase in investment needed to reach carbon neutrality willundoubtedly require greater reliance on private sources. This will hinge on public
policies to create incentives for private investors to direct capital to clean energy
technologies, such as reforming energy taxes and establishing appropriate
regulatory frameworks. Direct government financing will need to focus ondeveloping new infrastructures and accelerating innovation of technologies thatare at the demonstration or prototype stage today (see Chapter 6), as well assoft loans, to ensure a predictable flow of bankable projects that can be financed
privately. Increased capital investment will be partly compensated by lower
operating expenditures, which account for a large share of the total cost of
upstream fuel supply projects and fossil fuel generation projects.
Reaching carbon neutrality by 2060 in China requires investing heavily in thedevelopment and large-scale deployment of technologies that are notcommercially available today, such as carbon capture in cement, hydrogenbased steel production, ammonia-fuelled ships and DAC (see Chapters 3 and
6). They account for nearly 25% of overall investment during the 2030s in the
APS, rising to around 40% in the 2050s. The increase in investments intechnologies under development today associated with heavy industries andlong-distance transport is particularly large, accounting for nearly 75% of the

PAGE | 75

IEA, 2021.

overall annual investment in those technologies in the 2050s.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

Average annual energy investment in emerging technologies bytechnology maturity in China in the APS
Total

2031-2040
2041-2050
2051-2060
0

200

400

600

800
Billion USD (2019)

Heavy industry

2031-2040

2041-2050

2051-2060
0

20

40

60

Long-distance transport

80

Billion USD (2019)2031-2040
2041-2050
2051-2060
0

40

80

120

160
Billion USD (2019)

On the market

Demonstration

Large prototype
IEA, 2021.

Notes: On the market includes mature and early adoption technologies. The three broad technology maturity categories referto the status of technology types today.

PAGE | 76

IEA, 2021.

Investment in technologies at the demonstration or prototype stage today, especially in
hard-to-abate industrial and transport sectors, grows fastest to 2060

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 2: The energy transition

References
Cheng, J. et al. (2021), Pathways of China's PM2.5 air quality 2015-2060 in the context ofcarbon neutrality, National Science Review, https://doi.org/10.1093/nsr/nwab078.
Energy Foundation China (2020), China’s New Growth Pathway: From the 14th Five-Year
Plan to Carbon Neutrality, www.efchina.org/Attachments/Report/report-lceg-20201210.
IPCC (Intergovernmental Panel on Climate Change) (2021), Climate Change 2021: The
Physical Science Basis – Contribution of Working Group I to the Sixth Assessment
Report of the Intergovernmental Panel on Climate Change [Masson-Delmotte, V. et al.
(eds.)], in press, Cambridge University Press,www.ipcc.ch/report/ar6/wg1/downloads/report/IPCC_AR6_WGI_Full_Report.pdf.
Khanna, N., N. Zhou and L. Price, (2021), Pathways Toward Carbon Neutrality: A Review of
Recent Studies on Mid-Century Emissions Transition Scenarios for China. Berkeley,
CA: California-China Climate Institute.
https://ccci.berkeley.edu/sites/default/files/GTZChina-July52021-FINAL.pdf.

PAGE | 77

IEA, 2021.

Yue, H. et al. (2020), Stronger policy required to substantially reduce deaths from PM2.5
pollution in China. Nature Communications 11, 1462, 2020;
https://doi.org/10.1038/s41467-020-15319-4.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Chapter 3: Sectoral pathways



The People’s Republic of China’s (hereafter, “China”) power sector achieves
net zero CO2 emissions before 2055 in the Announced Pledges Scenario(APS). Electricity generation increases by 130% by 2060; its share of total final
energy demand more than doubles, reaching over 50%. Renewables-based
generation, mainly wind and solar photovoltaics (PV), increases nearlysevenfold between 2020 and 2060, when it accounts for almost 80% ofgeneration. By contrast, the share of coal drops from more than 60% to just
6%. Some unabated coal-based capacity remains for system security but it
provides less than 0.1% of electricity generation in 2060.

Electrolytic hydrogen production rises from a few kilotonnes today to morethan 70 Mt by 2060, requiring 750 GW of electrolysers, or nearly 40% of global
capacity. Hydrogen is predominantly used directly in heavy industry (around40%) and fuel-cell vehicles (around 25%), as well as for feedstock for making
ammonia for shipping and synthetic kerosene for aviation. China remains aworld leader in biogas and biomethane production, accounting for around 35%
of global production in 2060.

Industrial CO2 emissions decline by almost 95% by 2060 in the APS, with theresidual emissions being offset by negative emissions in the power and fueltransformation sectors. Energy efficiency improvements and electrification
drive most of the reductions in the short term, while emerging innovative nearzero emissions technologies, particularly hydrogen and carbon capture,utilisation and storage (CCUS) in cement, steel and chemicals, play theleading role in the longer term.



In road transport, around 60% of cumulative emissions reductions come fromelectrification and 4% from low-carbon hydrogen. Continuing investments inmetro, light rail and electric buses in China’s cities and high-speed rail between
cities, which displaces air travel, lower the energy intensity of passenger trips.
Reduced emissions from road freight, shipping and aviation are driven by
gains in vehicle, ship and aircraft fuel efficiency, as well as switching to lowcarbon fuels, requiring huge investments in refuelling and recharging
infrastructure.

Direct CO2 emissions in the buildings sector are reduced by more than 95%
by 2060 through electrification, clean district heat and energy efficiency. Onsite generation, mainly with rooftop solar PV panels, grows rapidly. By 2060
nearly 100% of China’s total floor area is zero-carbon ready.

PAGE | 78

IEA, 2021.

Highlights

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Power and heat generation
The rapid decarbonisation of power supply alongside the electrification of a wide
range of energy end uses across all sectors must form an important pillar of
China’s strategy for achieving carbon neutrality (see Chapter 4). This requires amassive expansion of renewable electricity generating capacity, as well as offlexible low-carbon resources to maintain electricity system security.

Decarbonisation of electricity supply
The power generation sector in China emitted around 5.4 Gt of CO2, or around
47% of the country’s total energy sector emissions, in 2020. Power sector
emissions increased by around 2% in 2020, despite the Covid-19 pandemic, andpreliminary data point to a continued increase in 2021. In the APS, they reach apeak of 5.6 Gt by around 2025 and then fall to zero before 2055 and are marginallynegative in 2060, helping to offset residual hard-to-abate emissions, particularly inthe heavy industry and long-distance transport sub-sectors. The rate of decline in
the carbon intensity of electricity – CO2 emissions per kilowatt hour generated –averages 3% per year in the 2020s, compared with 1% over the last decade. With
CO2 emissions being cut on average by 260 Mt per year over the period
2030-2050, power generation is the first sector to reach net zero emissions in this
scenario, as emissions-reduction technologies are generally more advanced
today. It is also the leading contributor to the decarbonisation of the Chinese
economy, accounting for more than 55% of cumulative emissions reductions over2020-2060.

CO2 emissions reductions in power generation in China by driver in the
APS

IEA, 2021.
Note: CCUS = carbon capture, utilisation and storage, utilisation and storage.

PAGE | 79

IEA, 2021.

The power sector reaches net zero emissions before 2055 despite generation growing
130%, mainly due to switching to renewables and the phase-out of unabated coal

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Concurrent with rapid decarbonisation, electricity generation increases by 130%
during the period 2020-2060, driven by economic growth, increased electrificationof energy end uses and, after 2030, increased use of electricity for making
hydrogen in the APS. The share of electricity in China’s total final energy
consumption reaches over 50% in 2060, compared with only 25% today. By 2060,
around a quarter of the overall increase in electricity generation is consumed inindustry, one-fifth from transport, driven by electric vehicles (EVs), and just under
15% is consumed in buildings. The production of electrolytic hydrogen accounts
for the largest single contributor to growth, and represents almost 20% ofelectricity demand in 2060 or 3 300 TWh – demanding twice the electricity
generated in India today.

Electricity demand by sector and generation by fuel in China in the APS
Fuel mix

Fuel share (%)

TWhElectricity demand
18 000
15 000
12 000

100%
80%
60%

9 000
40%

6 000

20%

3 000
0
2020

0%
2030

2040

2050

Industry

Buildings

Hydrogen

Other

2060

2020

Transport

Renewables

Nuclear

Fossil fuels with CCUS

Unabated fossil fuels

2030

2060

IEA, 2021.
Note: CCUS = carbon capture, utilisation and storage.

Electricity demand grows briskly, driven by industry, EVs and later by hydrogenproduction, with renewables displacing fossil fuels in generation

Renewable energy sources – mainly solar PV and wind power – grow rapidly tomeet most of the increase in demand and displace much existing fossil-based
generation. Their output increases nearly sevenfold by 2060 and their share of
total generation rising from around 25% in 2020 to 40% in 2030 and 80% in 2060.
The share of solar PV alone in the generation mix reaches almost 45% in 2060,
up from just 4% in 2020.
The huge additions of renewables capacity are driven by their cost advantage
over other technologies, in most cases, and policy support, including power

PAGE | 80

IEA, 2021.

market and carbon price signals. Solar PV and onshore wind are already able toAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

compete with new coal-fired plants today in many regions. The recent switch torenewable auctions in China is expected to further drive down prices andimprove siting, design and operation. 1 This results in solar and onshore windundercutting the cost of electricity generated by many existing coal plants
between 2025 and 2030, accelerating the phase-out of the least efficient onesin the 2030s. Offshore wind costs continue to fall, making the technology
competitive with unabated fossil fuel generators for bulk generation in the 2030s.
Between 2030 and 2060, 220 GW of solar PV capacity and 57 GW of windcapacity are added on average each year. Most of this capacity is built in thenorth and northwest, where there is plenty of land and the best resources.
However, regional interests to produce electricity, create jobs and boost GDP
locally, as well as make use of provincial government land, mean capacity isadded across all regions. In regions where less land is available, such as theeast and south, more capacity is built offshore.
Output of nuclear energy and hydropower – the two other main low-carbon
generating technologies – also increases substantially in the APS. The share of
nuclear in the generation mix jumps from 5% in 2020 to 10% in 2060 – equal toadding four 1 GW reactors every year on average. Construction is focused oncoastal regions. China’s fleet of nuclear reactors becomes the largest in theworld after 2030. The generation from hydropower in the generation grows by
45% over 2020-2060. Capacity is concentrated in China’s central region and in
Yunnan province in the southern region. Policy support for CCUS drives pilot
projects, which in turn precipitates substantial cost declines, making it
competitive in the 2030s. Rising carbon prices under China’s emissions trading
system (ETS) contribute to making low-carbon technologies more competitive,
but do not have a huge impact on fossil fuel phase-out until after 2040, whenremaining unabated generators are more rapidly removed from the system.
In parallel to the rapid expansion of low-carbon technologies, the share of coalin the generating fuel mix drops sharply, from over 60% today to 45% in 2030
and 5% in 2060, almost all of which is generated in plants equipped with carbon
capture facilities. Many coal plants remain online in the first half of the projection
horizon, but operate at much lower capacity factors (16% on average in 2040
compared with about 55% today), providing flexibility services rather thanoperating as baseload plants. By 2045, unabated coal-fired generation
approaches zero, with the remaining unabated plants acting as standby units
and used only when variable renewables are not available. By 2060, China’s

PAGE | 81

IEA, 2021.

1 Details of generation costs assumptions can be found in the technical annex that will accompany the final version of thispublication.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

existing coal capacity is roughly 65% lower, dropping from nearly 1 030 GW
today to less than 360 GW (190 GW of which is retrofitted with CCUS and
170 GW acting as standby capacity). The vast majority of the retired plants will
have operated for at least 35 years at the time of their retirement, i.e. exceeding
their design lifetime.

Power generation capacity by type nationally and by region in China in the
APS
Regional capacity in 2060

10 000GWGWNational capacity

Energy storage

2500
Clean fuels, bioenergy,
and other renewables

8 000

2000

6 000

1500

4 000

1000

2 000

500

0

0

Wind

Solar PV

Hydro

Nuclear

2020

2035

2060
Thermal with CCUS

Unabated thermal

IEA, 2021.
Note: CCUS = carbon capture, utilisation and storage; PV = photovoltaics.

Renewable capacity expands rapidly in all regions as fossil fuel plants are phased out or
retrofitted with CCUS, considering heat demand and electrical reliability

Managing the phase-out of coal and other fossil fuel-fired power plants will haveto take account of many diverse factors, including operation costs, whether they
provide heat for industry or buildings, the potential for switching to cleaner
burning fuels or co-firing, their role in ensuring electricity system security, andthe proximity of plants to potential CO2 storage sites or potential users of the gas(which affects the economics of retrofitting them with carbon capture equipment).
The implications for local communities is another important consideration (seeChapter 6).
We have assessed the optimal scheduling of plant closures and retrofits basedon cost considerations and the technical feasibility of meeting heating demandand balancing electricity loads in each of the main regions in China. Thermal
plants in 2060 are concentrated largely where industrial and buildings heat

PAGE | 82

IEA, 2021.

demand is highest, namely China’s northern (华北), eastern (东华), and central

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways(中华) regions. These regions account for 60% of remaining thermal capacity in
2060. Many combined heat and power (CHP) plants remain online in 2060, forboth district heating and industry, but they are all abated, either by burning
cleaner fuels or being retrofitted with carbon capture. While district heating
dominates fossil fuel CHP output today, more efficient buildings and clean
heating options, including district-level heat pumps, result in most abated fossil
fuel CHP capacity serving industry in 2060. CCUS is prioritised for plants nearindustrial facilities that demand high temperature heat, have high-levels ofprocess emissions, or can make economic use of the CO2 and co-generated
heat in neighbouring industries. By 2060, 1300 Mt CO2 (30% of total CO2 stored
across all sectors) are being captured and stored in the power sector annually,of which almost 65% comes from coal-fired co-generation plants. Most of this isstored underground, mainly in the coastal regions and the northwest.

Installed capacity

GW

Fossil fuel capacity and generation by region in the APS
400
300
200
100
0

2020

2060

Central
（华中）

2020

2060

Eastern
（华东）

2020

2060

Northern
(华北）

2020

2060

Northeast
（东北）

2020

2060

Northwest
（西北）

2020

2060

Southern（南方)

Capacity factor

100%
80%
60%
40%
20%
0%
H₂ switching

Thermal with CCUS

Unabated thermal (only for critical shortages)

Unabated thermal
IEA, 2021.

Note: CCUS = carbon capture, utilisation and storage.
Source: Capacity factors for 2020 based on (CEC, 2020), (CEC, 2021), and (IN-EN, 2021a).

PAGE | 83

IEA, 2021.

Fossil fuel plants are replaced or retrofitted with CCUS or switch to clean fuels. Some
unabated coal remains for system security, but provides <0.5% of generation in 2060

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Electricity market reforms, already underway, play a key role in guiding the
growth of renewables and phase-out of fossil fuel plants, as well as laying thefoundations for more efficient operation of the power system in the APS.
Implementing least-marginal cost dispatch in all regions reduces curtailment,
optimises coal plant operation and improves the flexibility of existing assets,
reducing power sector CO2 emissions by 31% and operating costs by 14% by2035 compared with what would happen were current dispatch protocols toremain in place. The development of interprovincial markets raises this to 45%
emissions reductions and 26% operating cost reduction, facilitating the sharingof reserve generating capacity and reducing the need for new flexible capacity.
Without a change in market protocol, revenues for all generators would
deteriorate, and pricing signals would run counter to China’s 2060 ambitions.
Market reforms become, accordingly, essential to being able to cost effectively
achieve this vision.

Electricity system flexibility
Massively increasing the share of variable renewables in the generating mix willcall for new ways of ensuring flexibility of the power system by making current
generating assets more flexible, making transmission and distribution systems
more robust, adding storage capacity, and exploiting the potential flexibility ofdemand. In traditional power systems in which generation is dominated by fossil
fuels, output can be ramped up and down in line with hourly, diurnal, weekly andseasonal fluctuations in load. Solar and wind are inherently inflexible on theupside as their availability at any given time depends on weather conditions.
Flexibility resources need to be more diverse in a zero-emissions power system,
because fossil fuel plants tacitly provide a range of flexibility services today.
Replacing them cost-effectively requires different sources of flexibility, each with

PAGE | 84

IEA, 2021.

a distinct profile able to meet the mix of services required.

An Energy Sector Roadmap to Carbon Neutrality in China

Box 3.1

Chapter 3: Sectoral pathways

Electricity system flexibility requirements



Peak capacity (adequacy), i.e. to ensure enough capacity is available to meetthe highest expected demand of the year. Adequacy becomes a greater
concern as demand rises, the sources of demand change (resulting in different
load profiles) and the share of variable renewables increases, affecting theavailability of capacity across the day, month and year. For example, demandis highest for heating in the winter and cooling in the summer, while thecapacity of wind is often more available in winter, solar in summer and hydroin spring. In the APS, peak capacity is provided by a range of resources, eachwith different availability and dispatchability profiles, but batteries, pumped
hydro storage, and demand response rise to prominence due to their flexibility,
making up 40% of all peak capacity reserves by 2060.



Ramping flexibility, i.e. the ability to change output quickly and at short notice(within the hours to minutes) to keep supply and demand in balance. The
demand for ramping flexibility proliferates by 2060, as variable renewables
increase. By 2060, there is 15-times more capacity available to provide
ramping flexibility than 2020. Demand response represents over 50% of thiscapacity, and is typically used for small, momentary ramping needs, while
dispatchable plants and storage, particularly, hydro, meet most of the moresustained ramping requirements.

Stability, i.e. the ability to quickly reduce demand or increase supply when
there is a large deviation in system frequency caused by a sudden loss of
output or surge in demand. Here storage excels, particularly batteries, given
their ability to quickly respond with output over a short-period of time. By 2060,
storage provide 40% of stability and dispatchable renewables and hydrogenproviding another 50%. In general, abated fossil generators play a lesser rolefor stability, as CCUS typically hinders units from quickly responding.



Inertia, i.e. the system’s ability to ride-through momentary disturbances insupply or demand without causing cascading failures on the network.
Rotational inertia—the energy stored in large spinning motors—is currently the
primary provider of this service on today’s grids. Nuclear power, bioenergy,hydropower and fossil fuel plants (with and without CCUS) with highmomentum turbines provide the bulk of stability services by 2060. Other
non-spinning sources of inertia, such as grid-forming inverter technology, arebeing explored to cover for a loss of rotational inertia in the system.

PAGE | 85

IEA, 2021.

All electricity systems, regardless of the generating fuel mix, require different formsof flexibility to ensure uninterrupted supply. Fossil fuel generators provide many ofthese services today without explicit compensation. The main services are as
follows:

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Flexibility capacity by type in China in the APS
2060

2020
Inertia

Stability
Ramping
flexibility
Peakcapacity /adequacy
Energy
0%

20%

40%

60%

80%

100%

0%

20%

40%

60%

80%

100%

Nuclear

Hydro

Clean fuels and bioenergy

Storage

Unabated thermal

Thermal with CCUS

Variable renewables

Demand response

IEA, 2021.
Note: CCUS = carbon capture, utilisation and storage.

Well-designed wholesale and retail markets are crucial to ensuring that flexibility
is provided in the most economically efficient manner, including exploiting existing
assets. Pricing arrangements need to be established for certain end uses, such as
direct access for hydrogen producers to wholesale markets and time-of-use tariffs
for household charging of EVs. The adequacy of market revenues to attract newinvestment rather than just optimise operation is a topic of debate around the world,
including in China. Explicit procurement mechanisms or auctions may be needed
to stimulate sufficient and timely investment in flexibility.

The sources of flexibility in China’s power system change radically over 2021-2060
in the APS. Today, virtually all flexibility to meet peak load is met by fossil fuel andhydropower plants, including pumped hydro storage. By 2060, storage provides
35% of flexible capacity, dispatchable renewable energy sources such ashydropower provide 24% and demand response – measures to encourage oroblige electricity consumers to make short-term reductions in their consumption inreal time during peak periods in response to a price signal, including hydrogen

PAGE | 86

IEA, 2021.

producers – 5%.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

National availability at peak
3 000

Regional availability during peak in 2060
GW

GW

Flexible capacity to ensure system adequacy in China in the APS
Demand Response

800

Energy storage

600
2 000

Clean fuels, bioenergy,
and other renewables

400

Variable renewables

1 000

Hydro

200

Nuclear0
2020

Thermal with CCUS

2060

Unabated thermal
Peak Demand

IEA, 2021.
Notes: Capacity available to meet peak load assumes coincident availability during the top 100 demand hours and top 100
net-demand hours. Clean fuels, bioenergy, and other renewables includes hydrogen-fired generators, bioenergy, synthetic
fuels, concentrated solar power, and geothermal.

By 2060, total available flexible capacity grows substantially, and is dominated by lowcarbon flexibility sources. These are spread across all regions to ensure adequacy. As
fossil fuel generating capacity is retired, a host of new low-carbon flexibility sources
emerge, led by demand response and batteries

The sources of flexibility in meeting peak load change over time. Prior to 2030,
flexibility requirements are met largely by existing power plants in the APS.
Demand for hourly ramping grows during this time, while seasonal adequacy andsystem stability become a concern only in isolated parts of the electricity system.
Power market reforms under way in China, namely sub hourly markets andancillary service markets, exploit additional inter hour ramping capabilities fromexisting thermal plants. This minimises the need for building dedicated flexibility
resources and lays the foundations for using new sources of flexibility, such asbattery storage and demand response, cost-effectively. Additional reforms allow
distributed energy resources, including batteries, EVs and demand response, toparticipate in electricity markets, either directly in wholesale markets through

PAGE | 87

IEA, 2021.

aggregators or via dynamic, time-of-use retail rates.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

GW

Flexible capacity to ensure system adequacy by type and share of variable
renewables in generation in China in the APS
1 000

2060

800

2040
2020

600

Batteries

400

Demand response,
incl. electrolysers
Fossil fuels with
CCUS

200

0%

20%

40%

60%

80%

Share of variable renewables in total electricity generation
IEA, 2021.
Note: CCUS = carbon capture, utilisation and storage.

Low-carbon flexibility capacity expands rapidly after 2030, displacing and augmenting
unabated fossil fuels and facilitating an acceleration in variable solar and wind generation

After 2030, demand for non-fossil sources of flexibility in China increases rapidly,
as the share of renewables accelerates and the availability of dispatchable fossil
plants diminishes. Batteries and demand response are predominantly used toprovide short-term flexibility, while fossil plants with CCUS and hydrogen are used
more for seasonal balancing. Battery and pumped hydro capacity can provide
960 GW of peak adequacy by 2060. Fossil fuels with CCUS grow moderately as
demand for seasonal firming increases, reaching nearly 275 GW by 2060.
Demand response, which is limited today in China, expands rapidly as new,potentially more flexible electricity uses such as EVs, air conditioners andhydrogen electrolysers grow. Demand response (DR) becomes the largest single
source of flexible ramping capacity, with responsive load able to deliver nearly
300 GW of flexibility over short-time frames. During peak hours, around 130 GWof this demand response is available for critical peak regulation. We assume
responsive DR is limited to 100 hours per year reflecting the current customer
acceptability, but with improved data analytics and smart controls, demand
response could, in principle, be deployed daily. For example, smart EVs could
manage the timing of recharging based on consumer patterns of vehicle use andin response to real-time price signals. This could ensure that EV owners charge

PAGE | 88

IEA, 2021.

when they need to, coinciding with the availability of renewables and periods of

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

low demand. Net zero-ready building codes could also expand opportunities fordemand response and jump-start China’s demand response market (seeChapter 7).

Implications for the electricity grid
The expansion and decarbonisation of electricity generating capacity needed toachieve net zero emissions in China involves continuing the rapid expansion ofelectricity networks. The biggest increase in power flows in the APS over
2021-2060 is from the northwest and the south to the rest of China, with the central
regional grid becoming a growing nexus for power exchange. Diurnal flows begin
to develop due to solar, in particular from the northern and northwestern regional
grids, which often export during the day, and sometimes import at night, especiallyin colder months. Reinforcing interconnections between regional grids andenhancing scheduling and reserve sharing between regions helps improve system
reliability and reduce costs.
The rise in distribution system investment from 60% to 70% of total grid investmentin the APS (see Chapter 2) is driven by a need to modernise existing, often
outdated, systems and to expand capacity to meet the large increase in electricity
demand in dense urban areas. Of the cumulative investment in distribution overthe projection horizon, three-quarters is for refurbishing existing grids, including
upgrades to meet new demand from recharging EVs, air conditioning, electricheating in homes and switching to electricity in heavy industry (e.g. electric arc
furnaces). Distributed energy and storage, including “islandable” microgrids, 2 growin importance, helping to enhance the resiliency of the electricity system – anincreasingly important concern as electricity reaches over half of all final energy
consumption by the 2050s. Pilot direct-current grids within net zero-readybuildings and districts may require additional investment to exploit opportunities
for demand response (see buildings section).
Digital technologies, including smart grids, play an increasing role in the APS, theirshare of investment rising from around 15% today. These technologies are vital tomanaging a more dynamic electricity system, maintaining stability, improving
cybersecurity and integrating more demand response.
The increased investment in power networks and changes in the way they operateenvisioned in the APS hinge on market and pricing reforms and changes in grid

2

PAGE | 89

IEA, 2021.

An islandable microgrid or distributed generator is able to disconnect from an external electricity network in the event of apower disruption, while operating safely and reliably, and to reconnect in a synchronised way once power operations arerestored on the external electricity network.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

codes. Reform of the rules governing interprovincial markets, which have inhibitedthe full utilisation of interprovincial transmission lines, are of particular importancein providing incentives for provinces with a net imbalance in generation to rely on
cheaper power generated from renewables in other provinces. Current operationof the grid, which schedules generators and balances by province instead of overwider regions, results in overbuilding of network assets in certain regions andsuboptimal utilisation of generating resources. Enhanced cost recovery
regulations could help to minimise costs while providing enough incentives for gridcompanies to invest. New regulatory models linking investment returns toperformance and incentivising innovation could encourage them to steer
investment to low-carbon technologies and test new local, distributed ownershipmodels to stimulate competition.

Low-emissions fuel supply
Reaching carbon neutrality will require low-emissions fuels where energy needs
cannot easily or economically be met by electricity. This is likely to be the case forsome modes of long-distance transport, including trucks, aviation and maritime
shipping, and for high-temperature heat and feedstock supply in heavy industry.
Low-emissions fuels include liquid biofuels, biogas, biomethane and bioLPG, 3hydrogen, and hydrogen-based fuels (ammonia and synthetic hydrocarbon fuels
produced using CO2 from biogenic origin or captured from the atmosphere) that
do not emit CO2 from fossil fuels directly when used and emit very little when being
produced. For example, hydrogen produced from natural gas is considered a lowemissions fuel only if it is in conjunction with CCUS with high capture rates (over90%) and permanent carbon sequestration. Some low-emissions fuels are
effectively drop-in, i.e. they are compatible with the existing fossil fuel distribution
infrastructure and end-use technologies, and require few if any modifications toequipment or vehicles.
Low-emissions fuels, mostly in the form of biofuels, today account for less than
1% of final energy demand in China. The share increases to over 1% in 2030 and
9% in 2060 in the APS. Liquid biofuels meet 2% of transport energy demand in
2030 and 9% in 2060, up from 1% in 2020; hydrogen-based fuels meet around
one-quarter of transport energy needs by 2060. Low-carbon gases (biomethane

3

PAGE | 90

IEA, 2021.

Biogas is a mixture of methane, CO2 and small quantities of other gases produced by anaerobic digestion of organic matterin an oxygen-free environment. The precise composition of biogas depends on the type of feedstock and the production
pathway. Biomethane, also known as “renewable natural gas”, is a near-pure source of methane produced either by
upgrading biogas (a process that removes any CO2 and other contaminants present in the biogas) or through the gasificationof solid biomass followed by methanation. BioLPG, or biopropane, is liquid petroleum gases (LPGs) produced from renewablenon-petroleum feedstock.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

and hydrogen) meet almost over 15% of demand for gas supplied throughnetworks in 2060, up from almost zero today. China becomes a global leader inthe production of low-carbon gases, accounting for more than 30% of hydrogenand 30% of biomethane by 2060. The combined share of low-carbon hydrogenand hydrogen-based fuels in total final energy use in China reaches almost 10%
in 2060. 4 The industry sector is a major driver of hydrogen demand, absorbing
40% of total hydrogen production in 2060.

Supply of low-emissions fuel by sector and fuel in China in the APS
Liquid biofuels in transport
2020

Shipping
Aviation
Road transport

2030
2060
Low-carbon gases in gas grid
2020

BiomethaneHydrogen2030
2060
Hydrogen-based fuels in TFC

Buildings
Industry
Transport - hydrogen
Transport - ammonia
Transport - synfuels

2020
2030
2060
5%

10%

15%

20%

IEA, 2021.
Notes: TFC = total final consumption. Hydrogen-based fuels refer to the fuel use of hydrogen, synthetic hydrocarbon fuels(synfuels) produced from hydrogen and CO2, and ammonia, and includes also onsite hydrogen production in the industry
sector.

The share of low-emissions fuels in final energy demand jumps from less than 1% in 2020
to more than 1% in 2030 and almost 10% in 2060, led by industry and transport

Biofuels
In 2020, around 7% of the China’s primary supply of modern bioenergy (biomass
excluding traditional uses for cooking) was in the form of liquid biofuels usedmostly for road transport, and a further 24% was consumed as gaseous biofuels(mostly biogas), the vast majority used for cooking in the residential sector. The
rest was biomass burned directly for heating or used to generate electricity. Thereis considerable potential to expand the production and use of gaseous and liquidbiofuels, though feedstock collection and transportation systems will need to be

4

PAGE | 91

IEA, 2021.

This includes onsite hydrogen production and use in the industry sector, which consumes 8% of energy demand in industry.
Excluding onsite hydrogen production in industry, hydrogen and hydrogen-based fuels meet 5% of China’s energy demandin the APS by 2060.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

developed to ensure reliable and adequate supplies to support large-scale
production using advanced technologies based on a greater variety of biomass
inputs, particularly those that do not compete directly for land with food crops.
China is the world leader in biogas production, accounting for almost half of global
output in 2020, produced mostly from anaerobic digestion of feedstocks such as
livestock manure, crop residues and biogenic municipal solid waste (MSW). In
2018, 70% of all the household biodigesters in the world were in China, the resultof government policies to phase out the traditional, inefficient and polluting use of
bioenergy for residential clean cooking (IEA, 2020a). Small amounts of biogas arealso used in co-generation plants to supply district heating and electricity
networks. By contrast, biomethane supply remains tiny. In 2019, China’s National
Development and Reform Commission set a target of 30 bcm (just over 1 EJ) forbiomethane production by 2030, mainly to replace coal in rural communities, but
output today has reached only 1% of that level due to technical difficulties in
upgrading biogas to biomethane and blending it into natural gas for distribution
through the national gas grid.
China remains a global leader in biogas and biomethane in the APS, with supplies
almost doubling to 2030 and more than tripling to 2060. Biogas starts to be used
to generate power on a significant scale, using internal combustion engines (amodular technology with relatively high part-load efficiencies) to enhance powersystem flexibility. Injection of biomethane into gas networks expands from virtuallyzero in 2020 to almost 3% of total gas supply in 2030 and 15% in 2060. This
reduces the emissions intensity of network-based gas by an equivalent amount.
Biomethane produced via upgrading biogas created from anaerobically digested
manure and biogenic MSW also avoids methane emissions that would otherwise
be released. However, as with natural gas, fugitive emissions from biomethanemust be minimised along the entire supply chain to ensure the greatest climate

PAGE | 92

IEA, 2021.

benefit.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Biofuels production by type and technology in China in the APS
Liquid biofuels
50%

4 000

40%

3 000

30%

2 000

20%

1 000

PJ

PJ

Gaseous biofuels
5 000

3 000

18%

2 000

12%

1 000

6%

10%

0

0%
2020

2030

2040

2050

2060

0%

0
2020

BiogasBiomethane
Biomethane with CCUS
Share of global gaseous biofuel production

2030

2040

2050

2060

Advanced biodiesel and bio-kerosene with CCUS
Advanced biodiesel and bio-kerosene
Conventional biodiesel
Advanced ethanol with CCUS
Advanced ethanol
Conventional ethanol
Share of global liquid biofuel production

IEA, 2021.
Notes: Conventional ethanol refers to production using food energy crops. Advanced ethanol refers to production using
wastes and residues and non-food energy crops grown on marginal and non-arable land. Conventional biodiesel includes
the fatty acid and methyl esters (FAME) route using food energy crops. Advanced biodiesel includes biomass-based FischerTropsch and hydroprocessed esters and fatty acids (HEFA) routes using wastes, residues and non-food energy crops grownon marginal and non-arable land. Biomethane includes biogas upgrading and biomass gasification-based routes. CCUS =carbon capture, utilisation and storage.

China remains a global leader in biogases as it ramps up its biomethane production, andbecomes a major producer of bio-kerosene

China utilises its sizeable supplies of collectable livestock manure, biogenic MSW,
crop residues and modest supplies of municipal sewage sludge to provide feedstock
for its biogas output through 2060 in the APS. Though the manure and crop residues
mostly originate from a handful of provinces such as Sichuan, Henan, Shandongand Heilongjiang, the biomass feedstocks are widely dispersed within theseprovinces, so their use for making biogas and biomethane will involve building newconnections to the gas grid (see Chapter 4).

PAGE | 93

IEA, 2021.

Liquid biofuels production in China increased by a quarter between 2015 and 2019,yet still accounts for only 3% of global production, despite China being the thirdlargest producer of bioethanol after the United States and Brazil (IEA, 2020a). China
uses corn feedstock to make bioethanol. Output of biodiesel from FAME is small,
making up only 0.2% of diesel use in China. Renewable diesel from HEFA, while
making up an even smaller share of the diesel pool than biodiesel, accounts for 3%of global production. Both FAME biodiesel and HEFA renewable diesel are
produced from used cooking oils (UCOs).

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Liquid biofuels use fell well below the targets set in the 13th Five-Year Plan (FYP)
for 2016-2020 for several reasons. Rapidly declining corn stockpiles, increasing
corn prices and a lack of ethanol production capacity held back bioethanol output,
prompting the government to relax its national E10 blending mandate (requiring a
10% gasoline blend) in favour of provincial and city mandates (see Chapter 4).
Unlike bioethanol, biodiesel, mostly produced from UCOs from restaurants, does
not benefit from policy support (only Shanghai has a B5 blending mandate) andremains too expensive to compete with conventional diesel. Significant volumes of
FAME biodiesel and HEFA and UCO are exported to Europe, where demand isstrong (IEA, 2021a) (NEA, 2020).
Like gaseous biofuels, the production of liquid biofuels expands rapidly in the APS,
driven mainly by advanced technologies after 2030. Technology routes such as
biomass gasification using the Fischer-Tropsch process (bio-FT) and cellulosic
ethanol (produced using cellulosic feedstocks such as crop and wood residues) areused to produce drop-in substitutes for diesel, jet kerosene, gasoline and LPG. Total
liquid biofuels output rises from 54 kb/d in 2020 (112 PJ) to 240 kb/d in 2030
(500 PJ) and 1 230 kb/d in 2060 (2 600 PJ), the share of advanced fuels jumping
from less than 6% in 2020 to almost 100% in 2060. They continue to be used almost
exclusively in road transport initially but a growing share goes to shipping as the riseof EVs and fuel-cell electric vehicles (FCEVs) reduces demand for liquid fuels forcars. After 2040, as low-carbon ammonia production ramps up to fuel ships, liquidbiofuels are produced increasingly for the aviation sector. China becomes thesecond-largest producer of bio-kerosene, which meets 40% of domestic aviationfuel needs in 2060, after the United States. HEFA bio-kerosene provides near-term
opportunities to scale up production to 2030, while emerging technology routes suchas bio-FT and alcohol-to-jet (ATJ) produced from cellulosic ethanol take off after
2040.
Biofuel production using cellulosic feedstocks is under demonstration today, with
China home to several plants, with a combined capacity of 120 million litres ofcellulosic ethanol in 2020. China is also trialling the use of advanced energy crops
such as cassava and sweet sorghum. These crops can be grown on marginal lands
and can provide a diversified product portfolio. For instance, the stalk of sweetsorghum can provide sugar for ethanol fermentation, while the grain can provide
flour for human consumption. Bagasse residues can be used as animal feed.

PAGE | 94

IEA, 2021.

The production of biofuels can be combined with CCUS at a relatively low cost insome biofuel production routes, such as cellulosic ethanol, ATJ, bio-FT and biogas
upgrading. This is because the processes involved release very pure streams of
CO2. In the APS, the use of biofuels produced with CCUS results in the removal of
130 Mt CO2 in 2060, offsetting residual emissions in transport and industry.

An Energy Sector Roadmap to Carbon Neutrality in China

Box 3.2

Chapter 3: Sectoral pathways

Implications of lower biofuels supply due to a lack ofsustainable biomass

The future availability of land and water for growing biomass to make biofuels ishighly uncertain, in part because it is not clear how much land will be needed to
grow crops for food (see Chapter 4). Additionally, the conversion of woody biomass
feedstocks to biofuels (via biomass gasification or cellulosic fermentation) is
currently still in the demonstration phase, and needs to be commercialised at fullscale within the next decade to play a part in the energy transition to carbon
neutrality.
If biomass supply is ultimately limited by access to marginal land for growing
energy crops or by collection rates for agricultural waste and residues, or if biofuel
conversion technology does not achieve commercial deployment, biofuel
production in the future would be lower than projected in the APS. In that case,there would be a greater need to produce low-carbon hydrogen and synthetic fuelsusing hydrogen and captured CO2, especially later in the projection horizon to
make synthetic kerosene to replace the shortfall in bio-kerosene supply. Assuming
advanced biodiesel and bio-kerosene production is reduced by 50%, three times
more (1 100 PJ additional) synthetic diesel and synthetic kerosene would be
required in 2060 in China when compared with the APS. If the 12 Mt of hydrogenrequired for the synthetic fuels is sourced from electrolysis, an additional 13% ofelectrolyser capacity (95 GW) could in turn be needed, powered by 2 115 TWh ofelectricity. Likewise, if the CO2 consumed by the increase in synthetic fuels isprovided by direct air capture (DAC), an additional 90 Mt CO2 would need to be
captured in 2060.

2 000

1 000

400

750

300

500

200

250

100

1 500

Mt CO₂ per year

2 500

GW

PJ

Potential impacts of limited biofuels production in China in 2060

1 000
500
0
APS

Limitedbiofuels

Biofuels

APS

0Limitedbiofuels0
APS

Synthetic fuels

Limitedbiofuels

Electrolyser
capacity

Advanced biodiesel and bio-kerosene
Synthetic diesel and kerosene

APS

Limitedbiofuels

Direct air
captureElectrolyser capacity
CO₂ captured from DAC

IEA, 2021.

PAGE | 95

IEA, 2021.

Note: APS = Announced Pledges Scenario; DAC = direct air capture.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

However, more DAC plants would also need to be built in the western provinces –home to the best solar and wind resources and much of the country’s potential CO2
storage capacity – to compensate for the loss of negative emissions from biofuels
production with bioenergy with carbon capture and storage (BECCS). If half ofthese biofuels negative emissions were lost from reduced liquid biofuels
production, then the shortfall of around 50 Mt CO2 would need to be met by DAC
and storage, increasing the overall deployment of DAC to 80% above what isprojected in 2060 in the APS.

Hydrogen and hydrogen-derived fuels
Hydrogen use in the energy sector today is largely confined to oil refining and the
production of ammonia and methanol in the chemicals industry. Chinese hydrogen
demand was around 25 Mt in 2020, met mainly by domestic production based on
fossil fuels (mostly gasification of coal) and directly emitting around 360 Mt CO2. 5
Production and use in the APS increase slowly until 2030 to 31 Mt and fasterthereafter to 90 Mt in 2060. Around 40% of consumption in 2060 is in heavy
industry (mainly steel and chemicals production). The direct use of hydrogen intransport accounts for around one-quarter of total hydrogen demand, and its
conversion into other fuels (mainly ammonia for shipping and synthetic kerosene
for aviation) accounts for another 20%. The remainder is used in different
applications such as refining, gas-fired power plants to balance electricity
generation from solar PV and wind, and heating in buildings. In total, hydrogenand fuels derived from hydrogen account for almost 6% of China’s final energy
consumption in 2060. 6
Most of the increase in hydrogen production in China in the APS is based on lowcarbon technologies: water electrolysis using electricity generated fromrenewables and grid electricity (with significantly lower carbon intensity comparedwith today) accounts for 80% of total production and coal and natural gas with
CCUS account for 9% and 7% respectively in 2060. This switch to low-carbon
technologies, and particularly electrolysis, does provide benefits beyond CO2
emissions reduction: renewables-based electrolysis consumes four to nine times
less water than coal gasification. As a result, total specific water consumption for

5

PAGE | 96

IEA, 2021.

This excludes approximately 40 Mt CO2 captured in ammonia production and utilised to manufacture urea, which isre-emitted in the agricultural sector when urea is applied to soils, and around 75 Mt CO2 emitted when methanol is oxidisedat its end use.
6
This excludes onsite hydrogen production and use in the industry sector, which accounts for around 8% of industrial energy
demand in the APS by 2060. Including on-site hydrogen production in industry, hydrogen and hydrogen-based fuels meet
10% of China’s final energy consumption.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

hydrogen production in 2060 could be up to 60% lower than today. Hydrogen also
displaces end-use fossil fuels, which require more water than hydrogen to be
produced, helping to alleviate water stress in China – a growing problem in recent
decades.
China’s electrolyser capacity reaches close to 25 GW by 2030 and 750 GW by
2060 in the APS, up from less than 100 MW today. China accounts for close to
40% of global electrolyser capacity additions over the projection horizon, its sharerising quickly until 2040 and then plateauing. Those plants consume hugeamounts of electricity, reaching close to 3 300 TWh in 2060. By contrast, coal use
for hydrogen production falls from 115 Mtce in 2020 to less than 90 Mtce in 2060
– 15% of China’s total coal demand – more than 80% of which is in conjunction
with CCUS, while the use of natural gas declines from close to 30 bcm to justabove 20 bcm in 2060 (more than 90% with CCUS). In total, more than 200 Mt of
CO2 is captured in these plants in 2060.

Electrolyser capacity and CO2 capture from hydrogen production in China
in the APS
CO₂ captured at hydrogen production
40%

600

30%

400

20%

200

Mt

GW

Electrolysis capacity
800

10%

0

0%
2020

2030

2040

2050

2060

250

50%

200

40%

150

30%

100

20%

50

10%

0

0%
2020

2030

2040

2050

2060

China share of global capacity

IEA, 2021.

Electrolytic hydrogen output and CO2 capture from fossil fuel-based hydrogen plants growsubstantially, the former contributing 80% of total hydrogen production in 2060

Scaling up production capacity and improving technology will be critical toreducing the cost of hydrogen. Alkaline electrolyser technology using thechlor-alkali process (which yields hydrogen as a by-product of chlorine and caustic
soda production) is already commercial in China, but low-carbon hydrogenproduction from fossil fuels using CCUS is at an early stage of development. Twosmall pilot projects involving the production of methanol from oil and coal with
captured CO2 used for enhanced oil recovery are in operation, while other projects

PAGE | 97

IEA, 2021.

to demonstrate the production of hydrogen from coal with CCUS are planned. In

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

addition to an expansion of electrolysis, the APS envisages retrofitting the fractionof the young existing fleet of coal-based hydrogen plants that will not be retired by
2060. The next decade will be critical to consolidate the development anddemonstration of CCUS technologies in China, which will need to be ready by2030 to be deployed rapidly on a large scale.
The choice between the production of hydrogen from electrolysis or natural gas orcoal with CCUS depends on economics and other factors, including whether CO2
storage is available. For natural gas with CCUS, production costs in China areprojected to reach around USD 2/kg (CNY14/kg) in 2060 in the APS, with the costof the gas itself typically accounting for more than 50% of the total. In the case ofcoal with CCUS, production costs reach around USD 1.2/kg (CNY 8.3/kg).
Although the efficiency of coal gasification is lower than that of steam reforming of
natural gas, the cost of coal is lower, accounting for around one-third of the total
production cost. Costs without CCUS are much higher due to carbon penalties.

Production costs of hydrogen and hydrogen-derived fuels by technology
in China in the APS
Hydrogen-derived fuels

6
5

600

USD/kt7

USD/bbl

USD/kgHydrogen

500

1.8
1.5

400

1.2

300

0.9

200

0.6

1

100

0.3

0

0

0.0

4

NG

NG CCUS

Coal

Coal
CCUS

Electrolysis

2060

2060

2020

2060

2020

2060

2020

2060

2020

2060

2020

2

2020

3

2020 2060
Ammonia

Synthetic
kerosene

IEA, 2021.
Notes: NG = natural gas reforming; Coal = coal gasification; CCUS = carbon capture, utilisation and storage. Electrolysis isbased on dedicated renewables-based generation. Assumptions for technoeconomic parameters available from IEA (2021b).
Fuel price assumptions: natural gas - 2020, USD 23.6/MWh (CNY 163/MWh) and, 2060 USD 23.4/MWh (CNY 162/MWh);coal – 2020, USD 10.7/MWh (CNY 74/MWh) and, 2060 USD 7.4/MWh (CNY 51/MWh); electricity – 2020, USD 25-99/MWh(CNY 172-683/MWh) and, 2060 USD 13-44/MWh (CNY 89-303/MWh). CO2 price assumptions: 2020, USD 0-10/t CO2 (CNY0-69/t CO2) and USD 0-200/t CO2 (CNY 0-1 380/t CO2).

PAGE | 98

IEA, 2021.

Coal gasification is expected to remain cheaper than steam reforming of natural gas, but
electrolysis emerges as a competitive option in the long term

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

For water electrolysis, learning effects and economies of scale drive down capitalcosts in China by around 55% by 2030 and by 70% by 2060 in the APS. Overall
production cost reductions hinge on the cost of low-carbon electricity, as
electricity accounts for 45-75% of total production costs. The average cost of
producing hydrogen from renewables in China in the APS drops from USD 3.1/kg(CNY 10/kg) to USD 6.7/kg (CNY 46/kg) today to around USD 1.3/kg (CNY 9/kg)
to USD 1.8/kg (CNY 12/kg) as early as 2050. Hydrogen produced from waterelectrolysis reaches cost parity with coal with CCUS.
Ammonia – the main hydrogen-based product today – is currently used
exclusively as a feedstock in the chemical industry. In the APS, it is also used
increasingly as a low-carbon fuel option for maritime transport, benefiting fromits higher volumetric energy density than both hydrogen and electric batteries.
China’s ammonia production rises from 54 Mt in 2020 to 80 Mt in 2060, when
two-thirds goes to maritime shipping (meeting 40% of the sector’s total energy
needs). The use of ammonia as a fuel needs to overcome certain technicalbarriers, including its toxicity and nitrous oxide emissions. The use of synthetic
kerosene derived from hydrogen also expands rapidly, especially after 2030.
Synthetic kerosene meets one-quarter of the country’s aviation fuel demand in
2060 in the APS.
Converting hydrogen into ammonia or synthetic hydrocarbon fuels is expensive,
but it results in fuels that can be more easily transported and stored. They arealso often compatible with existing infrastructure or end-use technologies (as in
the case of synthetic kerosene for aviation), lowering overall costs. The cost of
making both ammonia and synthetic hydrocarbons produced from electrolytichydrogen is significantly higher than conventional fuels in shipping and aviation.
However, the large potential for low-cost renewables in western regions in China
is expected to drive down production costs. In the APS, producing ammonia fromelectrolytic hydrogen in China falls as much as 70% between 2020 and 2060, by
which time the extra step accounts for about 20% to the overall cost relative tohydrogen. In the case of synthetic kerosene, production cost falls up to 60%
between 2020 and 2060, with the additional synthesis step more than doublingproduction costs compared with hydrogen, depending on the cost of the CO2
feedstock, which explains why their use in the APS is largely restricted to aviation
where alternative low-carbon options are limited. Synthetic kerosene production
costs fall from USD 280/bbl (CNY 1930/bbl) to USD 510/bbl (CNY 3520/bbl) in
2020 to USD 140/bbl (CNY 965/bbl) to USD 200/bbl (CNY 1380/bbl) by 2060 in
China thanks to cheaper renewable electricity and CO2 feedstocks, though they

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IEA, 2021.

remain far higher than the projected USD 55/bbl (CNY 380/bbl) cost ofAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

conventional kerosene. The carbon-neutral CO2 from BECCS and DAC needed
to make these fuels costs around USD 14/bbl (CNY 96/bbl) to USD 70/bbl(CNY 480/bbl) in 2060. As a result, a CO2 price of USD 200 to USD 345(CNY 1 380 to CNY 2 380) per tonne is needed to make synthetic kerosene
competitive with conventional jet kerosene.

Industry
Slashing CO2 emissions in industry will be crucial to achieving carbon neutrality
in China. Industry is the second-largest source of CO2, accounting for around
35% of the country’s total energy sector emissions in 2020. This reflects thesector’s importance to the economy (see Chapter 1): China produced nearly
60% of the world’s cement and crude steel, around 55-65% of primary steel andaluminium, and 30% of the primary chemicals 7 used to make plastics andfertilisers.
CO2 emissions from China’s industrial sector decline by almost 95% between
2020 and 2060 in the APS, with the residual emissions being offset by negativeemissions in other sectors. Around 80% of those remaining industrial emissions
in 2060 are in heavy industry. The fall in emissions results largely from switching
to low-carbon technologies and fuels, though energy savings also contribute.
Energy consumption falls by around 20%, mainly due to declines in the volume
of output, as China’s economy shifts away from cement and steel production
towards higher-value manufacturing industries, which tend to consume lessenergy per unit of value added. Efficiency gains also play an important role,though many of them are a by-product of the development of inherently lessenergy-intensive means of production, which are facilitated by increases insecondary (rather than primary) production of steel, aluminium and plastics.

Including ethylene, propylene, benzene, toluene, mixed xylenes, ammonia and methanol.

PAGE | 100

IEA, 2021.

7

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Industrial CO2 emissions and energy consumption in China in the APS
Final energy consumption

EJ

Gt

CO2 emissions
5

70
60

4

50
3

40

2

30
20

1

10
0

0

Chemicals
Aluminium

Steel
Paper

CementOther

CoalNatural gas
Heat
Other renewables

Oil
Electricity
Bioenergy
Hydrogen
IEA, 2021.

Notes: Other includes non-metallic minerals besides cement, non-ferrous metals besides aluminium and all
non-energy-intensive manufacturing, including non-specified industrial energy consumption. Chemicals includes energy used
for feedstock. Steel includes energy used in blast furnaces and coke ovens. Heat and hydrogen refer to energy supplied inthese forms by the power and fuel transformation sector that is sold for use in industry; they exclude onsite generation.

Industrial emissions decline by 94% by 2060, thanks to an 83% decline in the use of coalthat is largely offset by a near-doubling of that of electricity

Switching away from coal is the main contributor to lowering emissions. Coal use inindustry plummets, from around 30 EJ in 2020 – around one-fifth of global coalconsumption – to just 5 EJ in 2060. In contrast, oil use stays relatively flat throughto 2060, at around 6 EJ. Its share of industrial energy consumption increases overthis period, with the vast majority used as chemical feedstock. While the energy
used as feedstock is not combusted, it does lead to process emissions, most ofwhich are captured. Gas use drops from 4 EJ to 3 EJ over the same period, with its
share of industrial energy use falling from 8% to 6%. Of the remaining 8 EJ of coaland gas demand in industry in 2060, around 70% is in plants equipped with carbon
capture or used as feedstock. The overall share of fossil fuels in industrial energy
consumption declines from around 70% in 2020 to 30% in 2060.
Electricity forms the backbone of the energy transition in industry. It becomes thelargest energy carrier in the sector by 2035 and meets more than half the sector’s
total energy needs in 2060. Electricity consumption increases from around
4 000 TWh today to over 7 000 TWh in 2060. The rate of increase is nonethelessslightly lower than for the rest of the world, which sees a twofold increase in total

PAGE | 101

IEA, 2021.

electricity demand over the same period. This is largely due to a shrinking industrial

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

sector in China and a high share of heavy industry processes, which are difficult tocompletely electrify with commercial technologies today. Direct use of bioenergy
and renewable heating technologies such as solar thermal and geothermal,
together with hydrogen, also expands.
The task of reducing industrial emissions is aided by a projected peaking of thecountry’s primary production of leading bulk materials in the coming years andsubsequent decline in the APS. Global demand for steel and chemicals keeps
growing, by 20% and 35% respectively between 2020 and 2060, while demand for
cement, aluminium and paper products undergo modest declines from their current
levels. China’s share in the global production of these materials generally declines
as its economy continues to gradually shift away from heavy industry, towards
higher value-added manufacturing segments of the economy. Crude steel
production in China is projected to peak in the mid-2020s and then drop by 40% to2060 compared with 2020 levels. Cement production follows a similar trajectory,
with output falling by 45% over the same period. As a result, China’s share of global
steel and cement production declines to around 30% in 2060.

CementCrude steel

Global production of major bulk materials and China’s share in the APS
2020
2030
2060
2020
2030
2060

Aluminium

0

1 000

2 000

3 000

4 000

5 000

2020
China

2030

Rest of world
2060

Paper

2020
2030

Primary
chemicals

2060
2020
2030
2060
0

200

400

600

800

1 000
Mt

IEA, 2021.
Notes: Paper includes all major paper categories, including case materials, printing and writing papers, cartonboard,household and sanitary papers, newspaper, packaging paper and board, printing and writing papers, and wrapping paper.
Primary chemicals includes ethylene, propylene, benzene, toluene, mixed xylenes, ammonia and methanol.

PAGE | 102

IEA, 2021.

China currently accounts for over half of global production of many key bulk materials, butthese shares are set to decline in the coming decades as its economy restructures

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

The adoption of material efficiency strategies, such as lightweighting, product life
extensions, improved design and construction practices, reuse of products, andincreased sorting and collection for recycling, play a crucial role in stemming therise in demand for these emissions-intensive commodities around the world.
Without these strategies, global steel and cement demand in 2060 would bearound 15% higher than in the APS. However, for China, increased material
efficiency, alongside energy efficiency improvements, are insufficient to put
China’s industrial sector on a pathway compatible with its carbon neutrality target.
It will also require dramatic reductions in the emissions intensity of production –particularly primary steel, cement and primary chemicals – through thewidespread adoption of innovative technologies that are not commerciallyavailable today.
Although industrial use of fossil fuels falls sharply in the APS, significant amounts
are still consumed – much of it in plants with carbon capture equipment – in 2060
because of difficulties in replacing those fuels in certain applications. Some
processes require high temperatures, which can most easily and cost-effectively
be provided by fossil energy in China today. Fossil energy is a convenient sourceof feedstock for primary chemicals, providing both the hydrogen and carbon
required. Coal and coke are used as reduction agents for producing steel;hydrogen is being pursued as an alternative in China and other countries, although
it is significantly more expensive at present. In the case of cement, directemissions of CO2 are inherent to the production process, irrespective of whether
fossil fuels are used to heat the kiln (which is usually the case because of their lowcost). The long lifetimes of industrial assets also slow the pace at which newtechnologies can be introduced, though they tend to be much lower in China thanelsewhere (see Chapter 1). Not all existing assets are suitable for retrofitting lowcarbon technologies.
Daunting though the task undoubtedly will be, there are several factors that should
help to accelerate the decarbonisation of China’s heavy industry. Despite cuts to
low-grade capacity and production bans, overcapacity persists in some sectors,
particularly cement production where the national average utilisation rate isaround 75%. This presents an opportunity to close the most inefficient,
CO2-intensive and polluting plants. In addition, heavy industry is dominated bystate-owned enterprises (SOEs), which can be better placed to implement quickly
the changes required to slash emissions where there are clear policy signals thanprivate enterprises driven solely by concerns about profitability. And the very steep
build-up in production capacity in the 2000s means that a large share of existing
capacity will reach the end of its life in the 2030s and 2040s, when innovative low-

PAGE | 103

IEA, 2021.

emissions alternatives to conventional routes for production are expected toAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

become widely available on a large scale. A large increase in the availability ofscrap materials in the coming decades will also open up opportunities for lowcarbon investment.
Innovation will be central to reducing China’s industrial emissions (see Chapter 5).
More than one-third of the cumulative reductions in the APS are associated withtechnologies that are not commercially available today. Several hinge on the largescale development of supply infrastructure, notably for CCUS (CO2 transport andstorage), electricity generation, hydrogen production from electrolysers, andstorage.

Chemicals
The chemicals industry in China – the largest in the world 8 – is central to economic
development, providing a range of key products to other sectors and generatinglarge export earnings. Output slowed in the 2010s after several decades of rapid
expansion, yet still rose by 85% between 2010 and 2019, contributing about halfof the growth of the world chemicals market. It was broadly flat in 2020 despite theCovid-19 crisis. SOEs still dominate the sector, though investment by foreign
multinationals, notably in speciality chemicals, has been growing rapidly in recent
years.
China’s chemicals sector is unique globally. The country has limited indigenous
supplies of oil and gas – the main feedstocks for the global chemical industry – sothe development of the industry over the last three to four decades has relied to asignificant degree on coal-based technologies, notably coal gasification to
produce synthesis gas for making ammonia and methanol. This proved relatively
straightforward, as the technology has been widely available for nearly a century
and has been used – albeit on a much smaller scale – elsewhere, such as inGermany, South Africa and the United States. Coal gasification technologies tend
to be more complex and capital-intensive than those based on natural gas, but
after decades of experience with the technology, the best plants using high-quality
coal can achieve efficiencies comparable with gas plants. Today, China producesnearly one-third of the world’s ammonia and more than half the world’s methanol.
Producing olefins – key precursor to chemicals for making plastics – from coal ismore problematic. A group of catalytic processes termed “methanol to olefins”(MTO) using zeolite catalysts were developed in China to facilitate the productionof ethylene and propylene from methanol produced from coal. While much more

Primary chemical production is used here as a proxy for the size of the chemical industry as a whole.

PAGE | 104

IEA, 2021.

8

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

energy-intensive overall, the MTO route negates the need for oil to produce
plastics, which form an important input to China’s downstream manufacturingindustries. More than two-thirds the methanol China produces is used merely as
an intermediate to produce olefins, which would otherwise be produced directlyfrom oil in a steam cracker. Aromatics – more complex petrochemicals – can also
be produced from methanol, although this technology is at a much earlier stage ofdevelopment.

Key projects targeting emissions reductions in heavy industry in China
Technology

Maturity

Time
frame

Description

Steel

MatureDRI steelmaking
with high shares
Demonstrationof hydrogen
blending

Expected
early
2020s

HBIS Group, together with Tenova (Zhong, 2020) announced a
600 kt/year project that will use Energiron technology in Hebei
province, with plans to commence operation in 2022. Rizhao
Iron and Steel group (Zhao, 2020) have since announced asimilar project of 500 kt/year.

Smelting
reduction withhydrogenblending

Expected
2021

Jianlong Group (IN-EN, 2021a), together with Beijing Universityof Science and Technology, is exploring the use of hydrogencombined with coal in a smelting reduction furnace in a
300 kt/year plant.

Concept

Started2021

Baowu (CNPGN, 2021) is performing a second-stage test of ahydrogen-rich carbon cycle blast furnace with tuyere injectionof hydrogen and ultra-high oxygen enrichment.
Shanxi Jinnan Iron and Steel Group (Metallurgical Information
Network, 2020) and the Central Iron and Steel ResearchInstitute signed an agreement to test hydrogen injection in a
2 000 m3 blast furnace.

Other hydrogenConcept
relatedStarted2019

Baowu, CNNC and Tsinghua University (QIBEBT, 2020) are
exploring the potential of a 600 MW nuclear plant to be used toprovide the hydrogen, oxygen and electricity needs for a
1.8 Mt/year steelmaking facility.

Unknown

Shougang Jingtang Iron and Steel United Company (DEEHP,
2021) are exploring the potential to use pressure swing
adsorption to separate CO2 produced during the production
process of the sleeve kiln.

Blast furnacesteelmaking
with hydrogen
blending

CO2 capture

Demonstration

Concept

PAGE | 105

IEA, 2021.

Utilisation ofsteel off-gases

Several projects already operating at large scale, designed to
extract the valuable components of blast furnace gas and cokeoven gas for use in energy applications and the chemicals andtransport sectors. Key examples are operated by Hengyang
2012-2019 Steel Pipe (Energy Saving of Nonferrous Metallurgy, 2012),
Shandong Aside Technology Co. (EESIA, 2019), Baotou Steel(IN-EN, 2012), Sichuan Dagang (Baowu, 2018), Lubao Groupand Shanxi SDIC Hydleysen (IN-EN, 2019), LanzaTech andShougang Group (LanzaTech, 2018).

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Time
frame

Description

Demonstration

Complete

The Shanghai Advanced Research Institute together with
Offshore Oil Fudao Company and Chengda (Refining andChemical Industry Trends, 2020) have demonstrated methanol
synthesis directly from CO2 using a new catalyst in a 5 kt/year
unit.

Demonstration

Expected
2021

Ningxia Baufeng Energy Group (BloombergNEF, 2021) is
expanding its 30 MW electrolysis project to 100 MW by the endof 2021, with the hydrogen used for methanol production andsubsequently for olefin production.

PrototypeStarted2013

Mobil, Sinopec Engineering Group, Zhejiang University andTsinghua University developed three pilot plants in 2013 (Zhu
et al., 2014), and commercial-scale demonstration projects areunder development. While this technology does not currently
lead to emissions reductions, it offers the potential to use
electrolytic methanol in the future to produce aromatics.

Demonstration

Started2012

CO2 capture has been demonstrated at coal-to-chemical plants
in China as part of the CO2 enhanced oil recovery activities at
Sinopec’s Zhongyuan (Zhang et al., 2017) and Changqing
oilfields (PetroChina, 2016). The Karamay Dunhua project
captures 100 kt/year of CO2 at a methanol plant.

CO2 capture

Demonstration

Started2018

The Conch Group (Stanway, 2019) built a 50 kt/year
demonstration plant at its Wuhu Baimashan Cement Plant(Huanbao, 2021). The captured CO2 is used in the foodindustry.

CO2 capture

Concept

Unknown

Jinyu Jidong Cement company (DEEHP, 2021) is developing afacility with chemical absorption and CO2 capture from cementkiln flue gas.

Technology

Maturity

Chemicals

Methanol
synthesis

High-value
chemicals

BTX aromatics
from methanol

CO2 capture

CementNote: DRI = direct reduced iron; BTX = benzene, toluene and mixed xylenes; CNNC = China National Nuclear Corporation.

Direct CO2 emissions from chemicals production in China decline by 90% fromaround 530 Mt in 2020 to around 60 Mt in 2060 in the APS, despite an increase in
primary chemical production of nearly 30% by 2030 and 40% by 2060. Thisequates to a fall in the CO2 intensity of production from around 2.5 t CO2 per tonneof primary chemicals today to around 0.2 t CO2 per tonne by 2060. In the shortterm, the key mitigation measures are improved energy and materials efficiency,
which together contribute around 80% of the cumulative emissions reductions to2030. Recycling of thermoplastics, using both mechanical and chemical recycling
technologies, together with reuse and reductions in the use of single-use plastics,
reduces demand for high-value chemicals by around 4 Mt, or 3%, in 2030 (and35 Mt, or 17%, by 2060). Enhanced sorting and collection infrastructure is key torealising these savings, as well as reducing the amount of plastic waste that finds

PAGE | 106

IEA, 2021.

its way into the country’s waterways and the high seas.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

In the longer term, the burden of emissions reductions shifts to the deployment ofinnovative technologies, particularly CCUS and electrolytic hydrogen. Those twotechnology families alone cover 85% of primary chemicals production by 2060 and
40% of the cumulative emissions reductions to 2060 in the APS. Electrolytic
production of methanol and ammonia increases from virtually zero today to around
40% of the total output of these commodities by 2060. This entails the constructionof around 80 GW of electrolysis capacity – around 800 times the capacity of theworld’s largest industrial water-based electrolyser in operation at year-end 2021
(see Chapter 4). Most of the capacity for the remaining production of thosechemicals and nearly all the capacity for producing high-value chemicals is
equipped with CCUS. This requires around 3 Mt of annual CO2 capture capacity
by 2030 and 200 Mt by 2060. The deployment rate required after 2030 isequivalent to one large capture facility with a capacity of 1 Mt CO2 per year beingcommissioned every two months on average.

Technology penetration and energy sector CO2 emissions reductions bymeasure and technology maturity in China’s chemicals sector in the APS
Cumulative emissions reductions, 2020-2060

Primary chemical production
100%

Mitigation measure

80%
60%

Technology maturity

40%
0%

20%
0%
2020

2030

2040

Conventional
Hydrogen-based

2050

2060

CCUS-equipped
Other

20%

MeasureMaterial efficiency
Hydrogen
Other renewables
Energy efficiency

40%

60%

Electrification
Bioenergy
Other fuel shifts
CCUS

80%

100%

Maturity
MatureMarket uptake
Demonstration
Prototype

IEA, 2021.
Notes: CCUS = carbon capture, utilisation and storage. Conventional include all commercial routes for primary chemical
production that are not equipped with CCUS. CCUS-equipped is based on the share of generated CO2 that is captured,
including both energy-related and process emissions. Hydrogen-based includes electrolysis- and pyrolysis-based
technologies. Other includes bio-based primary chemical production and direct electrification routes, such as electric steam
cracking. Maturity categories are assigned based on the detailed assessment of the technology readiness of designs
presented in the International Energy Agency (IEA) Clean Energy Technology Guide (IEA, 2020b).

CCUS and hydrogen-based production routes account for 85% of primary chemicals
production by 2060 in the APS

Electrolytic hydrogen and CCUS are key pillars of the decarbonisation of thechemicals industry in the APS (see Chapter 4). CCUS is particularly attractive inapplications where the presence of carbon in the process must be retained to form

PAGE | 107

IEA, 2021.

the molecular structure of the product, such as methanol and high-value chemicals

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

production. CO2 from atmospheric or biogenic sources can be used in place of the
carbon contained in fossil fuels, but sustainable supplies are limited and costly.
CO2 capture from chemical production rises to 200 Mt per year by 2060, 90% of
which is captured from methanol and high-value chemicals plants. Hydrogenproduced from variable renewable electricity, twinned with flexible processarrangements in the chemicals sector, becomes a competitive route to produce
ammonia and, to a lesser extent, methanol. The cost of hydrogen supplied at astable load factor with the help of hydrogen storage reaches around USD 1.5/kg
by 2060. This is higher than from unabated coal, but is competitive with production
from imported natural gas and is viable in more locations than CCUS-equipped
coal-based plants.

Steel
Steel demand in China has increased sharply over the past two decades, primarily
in the construction and manufacturing sectors with surging infrastructure needs.
Steel production, which meets export as well as domestic demand, increased by
7% to a record 1.1 Gt in 2020, despite the Covid-19 pandemic, and has continued
to rise in 2021, offsetting declines in other parts of the world. Hebei province alone
produced around 250 Mt in 2020, or around 13% of global steel production(Mysteel Global, 2021). China’s output has increased by 67% since 2010 andmore than eightfold since 2000.
Around 80% of the country’s steel production is from iron ore (i.e. primary
production), as opposed to scrap, compared with around 60% for the rest of theworld. The use of carbon-based reduction agents to cleave the oxygen from ore(iron oxide) to produce molten iron is the only way of doing this today using
commercially available technology; in China, coke and coal are the primary
reduction agents. Only 10% of the country’s crude steel production involves
electric furnaces, which are typically used when the sole metallic input tosteelmaking is scrap. At the early stage of a country’s economic development,
when its infrastructure, building stock, vehicles fleets and industry are growing
rapidly, it is usually necessary to produce most steel from iron ore as little steel isscrapped. The majority of the scrap currently used in China is blended into primary
production, nearly all of which takes place via the blast furnace basic oxygen
furnace route.
China’s reliance on scrap steel, which is inherently less energy- and carbonintensive, will undoubtedly grow in the coming decades as its economy maturesand more scrap becomes available. Output from scrap-based electric furnaces in

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IEA, 2021.

the APS nearly doubles by 2030 and more than triples by 2060, with existingAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

induction furnaces being replaced by more efficient electric arc furnaces. By 2060,
electric arc furnaces constitute the single-largest avenue for steel production in
China, partly facilitating the shift of the sector’s energy inputs towards the use ofelectricity. In addition, a projected decline in China’s overall steel production also
pushes down emissions. However, these factors are unlikely to be sufficient to put
the country’s industry on a pathway compatible with reaching carbon neutrality by
2060.
A major hurdle to decarbonising China’s steel sector is the relatively low age ofexisting production capacity, which averages around 15 years compared witharound 35 years in the United States and around 40 years in much of Europe(Tong et al., 2019; Wang et al., 2019; Liu et al., 2021). While emissions-intensive
assets in the steel industry, such as blast furnaces, tend to be operated for around40 years on average globally, the typical lifetimes of these assets in China is much
lower, at around 25 years. Facilities are often replaced after a single operating
cycle (rather than undergoing a major refurbishment) in China, which eases theprospective burden of replacing its existing stock of assets to avoid locking inemissions. However, China’s steel industry is so large that even a slightmisalignment between the end of the operating cycle of existing facilities and theavailability of innovative technologies could incur large additional costs andsignificantly delay progress towards carbon neutrality (see Chapter 5).
CO2 emissions from steel production decline from around 1.5 Gt in 2020 to 1.4 Gt
in 2030 and around 120 Mt by 2060 in the APS. Material and energy efficiency
measures, largely associated with the increased use of scrap steel, account foraround 50% of the cumulative emissions reductions to 2060. The increase in scrap
use is driven in large part by economic factors and would occur regardless ofefforts to cut emissions. In the longer term, as with the other heavy industrial
sectors, the burden of emissions reductions falls to the deployment of innovativetechnologies which are not available commercially today, primarily CCUS andelectrolytic hydrogen, which together account for around 15% of the cumulativeemissions reductions. They are associated with two main production routes:
hydrogen-based direct reduced iron (DRI), a relatively energy-efficient processthat in the future can be twinned directly with low-cost, captive variablerenewables-based electricity production; and the innovative smelting reduction
process, which avoids the need for a coke oven and some agglomeration
processes, producing a purer CO2 stream that is more amenable to capture.
Together, these routes account for more than two-thirds of primary steel
production by 2060, with most of the remainder being supplied by conventional
blast furnaces nearing the end of their lives. Scrap-based electric arc furnace

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IEA, 2021.

production accounts for more than half of total steel production by 2060.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Technology penetration and energy sector CO2 emissions reductions bymeasure and technology maturity in China’s steel sector in the APS
Crude steel production

Cumulative emissions reductions, 2020-2060

100%

Mitigation measure

80%
60%

Technology maturity

40%
0%

20%

MeasureMaterial efficiency
Hydrogen
Other renewables
Energy efficiency

0%
2020

2030

2040

Conventional (BF-BOF)
CCUS-equipped

2050

20%

2060

Conventional (scrap-EF)
Hydrogen-based

40%

60%

Electrification
Bioenergy
Other fuel shifts
CCUS

80%

100%

Maturity
MatureMarket uptake
Demonstration
Prototype

IEA, 2021.
Notes: Conventional includes all unabated commercial routes for producing steel from iron ore today. CCUS-equipped
includes innovative smelting reduction with CCUS and innovative blast furnace steelmaking with CCUS. Hydrogen-based
includes a proportion of steelmaking where hydrogen is blended into ironmaking furnaces and all pure hydrogen-based DRI
steelmaking. Other includes direct electrolysis of iron ore. Maturity categories are assigned based on the detailed assessmentof the technology readiness of designs presented in the IEA Clean Energy Technology Guide (IEA, 2020b). CCUS = carbon
capture, utilisation and storage; BF-BOF = Blast Furnace - Basic Oxygen Furnace. Scrap-EF = Scrap-Electric Furnace

More than two-thirds of China’s primary steel is produced using innovative smelting
reduction and hydrogen-based DRI routes by 2060 in the APS

CementNever has an industrial sector expanded at the scale and rate of China’s cement
industry since the turn of the millennium. Cement production quadrupled in just
15 years, from around 600 Mt in 2000 to around 2.4 Gt in 2015. Since then, it hasremained broadly flat, rising by a modest 2% in 2020. In the APS, Chinese cement
production continues to grow slowly in the near term, peaking in 2025 and thenentering a progressive decline as its infrastructure and building stocks mature,causing domestic demand to fall.
Cement production technology is well-established and varies very little acrosscountries. Cement cannot be recycled cost-effectively, so all production is fromvirgin materials (mainly limestone). Dry kilns – usually the most efficient type ofkiln – using a range of fuels, are the source of nearly all cement produced aroundthe world. In China, coal accounts for around 75% of the energy inputs to cementkilns, with the remainder comprising electricity, natural gas, and small amounts ofoil products, waste and bioenergy.
The production of cement currently emits large amounts of CO2, both from the

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IEA, 2021.

combustion of fossil energy needed for process heat and from the chemical

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

reaction that forms an integral part of the production process. Making cement
requires large amounts of energy for process heat to produce a lumpy substanceknown as clinker from a mixture of limestone and clay in a kiln, which is then mixed
with gypsum and sometimes other elements such as slag, fly ash and limestone,
and crushed and ground into a fine powder (known as Portland cement). 9 Asidefrom the fuels used, the key parameter that determines the emissions intensity of
cement production is the amount of clinker – the active and most emissionsintensive ingredient – used per tonne of cement. In China, the clinker-to-cement
ratio today is 0.66, compared with a global average of 0.72. This leads to an
average carbon intensity that is about 7% lower than the world average.
Total CO2 emissions from cement production, which currently account for around
one-third of China’s overall industrial emissions, decline from around 1.3 Gt in
2020 to around 30 Mt by 2060 in the APS. The emissions intensity of cement
production declines from 0.55 t CO2 per tonne of cement today, to a mere 0.03 t
by 2060. A number of incremental improvements – reductions in the clinker-tocement ratio, reductions in demand for cement through material efficiency
strategies, declines in the energy intensity of clinker production through energy
efficiency measures, and increasing use of natural gas and bioenergy blending inplace of coal – together drive nearly all of the emissions reductions achieved by
2030. In the longer term, the deployment of innovative technologies, including
CCUS, is the largest contributor. CCUS-equipped kilns increase their share ofclinker production from zero today to around 85% by 2060 (equivalent to theinstallation of twenty 1 Mt CO2 per year plants every year on average over2030-2060).
Switching to alternative fuels also contributes to the reduction in emissions in the
APS. Electrolytic hydrogen is blended into the fuel used in kilns at a rate of around
5% of thermal energy requirements by 2060, along with around 30% on averageof bioenergy. Electricity, in specially modified kilns, provides 8% of the heatrequirements. Most of the emissions from fossil fuels that are still used then are
captured in the same stream as the process emissions. The remaining CO2 thatis generated is partly offset by the CO2 captured from the bioenergy that is fired in
the kiln (a type of BECCS).

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IEA, 2021.

9
Alternative binding materials to Portland cement do not contribute to emissions reductions in the APS as they are at earlystages of development. For more information, see the IEA Technology Roadmap - Low-Carbon Transition in the Cement
Industry (IEA, 2018).

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Clinker production by technology and cement sector CO2 emissions
reductions by measure and technology maturity in China in the APS
Cumulative emissions reductions, 2020-2060

Clinker production
100%

Mitigation measure

80%
60%

Technology maturity

40%
0%

20%

40%

60%

80%

100%

20%
0%
2020

2030

2040

Conventional
Hydrogen-based

2050

2060

CCUS-equipped
Other

MeasureMaterial efficiency
Hydrogen
Other renewables
Energy efficiency

Electrification
Bioenergy
Other fuel shifts
CCUS

Maturity
MatureMarket uptake
Demonstration
Prototype

IEA, 2021.
Note: CCUS = carbon capture, utilisation and storage. Conventional refers to unabated dry kilns without CCUS. CCUSequipped comprises kilns with CCUS, calculated as the proportion of CO2 emissions generated that are captured. Hydrogenbased and Other comprise kilns fuelled by a combination of hydrogen and electricity, with the proportions calculated basedon the share of energy inputs (where they overlap, the proportion of process emissions captured is allocated to CCUSequipped). Material efficiency includes reductions in the clinker-to-cement ratio together with cement demand reduction
measures. Maturity categories are assigned based on the detailed assessment of the technology readiness of designs
presented in the IEA Clean Energy Technology Guide (IEA, 2020b).

More than 80% of China’s cement production is equipped with CCUS by 2060 in the APS

Other industry
Industries other than chemicals, steel and cement consume large amounts ofenergy and generate significant CO2 emissions in China. The most important arealuminium and other non-ferrous metals (e.g. copper), non-metallic minerals
besides cement (e.g. lime), pulp and paper, construction, food, vehicle,
machinery, mining, textile, wood. The combined emissions from these sectors
drop from around 740 Mt in 2020 to just 50 Mt in 2060 in the APS.
Emissions from aluminium production fall by 95% in 2060 despite output falling by
just 18%. Increased availability of scrap leading to high shares of secondary
production (as in the steel sector) is a major contributor to lower emissions. In
addition, process emissions are reduced by replacing carbon electrodes with inert
ones. Carbon electrodes, which are currently used in the Hall-Héroult electrolytic
smelting process (the leading technology currently in use in China and elsewhere),emit CO2 while being oxidised, unlike inert anodes. In the pulp and paper industry,emissions also fall by around 90% thanks mainly to the increasing share of

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IEA, 2021.

bioenergy in the sector’s fuel inputs, and increased recycling.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Emissions in the remaining industrial subsectors (referred to here as lightindustries) increase by almost 40% by 2030 and then fall by 95% by 2060, mainly
through electrification. China dominates several light industrial activities. For
example, it accounts for almost half of the energy demand of the global machinery
sector. Energy use in light industry is for three main services: heat, mechanicalwork provided via electric motors and other electrical needs such as lighting andrefrigeration. Low-temperature heat needs can be met efficiently by industrial heatpumps, while hydrogen and bioenergy can provide high-temperature heat.
Commercial heat pumps can easily provide heat at temperatures below 100°C.
Industrial heat pumps are being developed that can provide heat at over 160°C
using industrial waste heat as an input (Nowak, 2021). Electricity meets around
75% of heat needs in light industry (resistance heaters for lower temperatures,electromagnetic heating for higher temperatures), hydrogen for around 7%,
bioenergy for 4%, and other renewables, including concentrated solar andgeothermal power, for the remaining 4% in 2060 in the APS.

Heating and electric motor technology deployment in light industries in
China in the APS
Heat provision

Electric motor use

2020 2030 2040 2050 2060

2020 2030 2040 2050 2060

100%

80%

60%

40%

20%

0%

Heating technology
Fossil fuelBioenergy
Electric
Heat pump
Hydrogen
Other heat sources
Temperature level<100°C
100-200°C>200°C
Efficiency classClass 0-1
Class 2-3
Class 4-5
VSD-equipped
IEA, 2021.

Notes: VSD = variable speed drive. Light industry excludes non-specified industrial energy consumption. Other heat sources
includes solar thermal and geothermal heaters, as well as imported heat from the power and fuel transformation sector.

The share of electric heating in light industry increases from around a quarter today tothree-quarters in 2060, while the share of electric motors equipped with variable speed
drives rises sharply, boosting overall efficiency levels

There are no direct emissions from the provision of mechanical energy, which isprovided almost entirely by electric motors powered by electricity. Energy needs

PAGE | 113

IEA, 2021.

are nonetheless reduced, alleviating the need for generating low-carbon electricity

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

in the APS, thanks to the deployment of more efficient motors. In 2060, 90% oflight industry motors in use are class 4 or above (compared with almost zero
today) and half are equipped with a more efficient variable speed drive. 10 These
measures have the combined impact of reducing the electricity needs for lightindustry by 90 TWh, or 9%, in 2060.

Transport
The transport sector in China emitted around 950 Mt of CO2, or around 9% of thecountry’s total energy sector emissions, in 2020 – marginally lower than in 2019 dueto the Covid-19 pandemic. In the APS, transport emissions continue to grow in thenear term, reaching a peak of just over 1 Gt by 2030 and then falling to about 100 Mt
in 2060 – nearly 90% below the 2020 level. The bulk of the remaining emissions in
2060 are from domestic aviation and shipping and long-distance road freight, whereemissions are harder to abate. Putting China’s transport sector on this pathway calls
for a major concerted policy effort to drive the adoption of low-carbon technologies
across all transport modes and ensure that transport systems operate as efficiently
as possible (e.g. by leveraging digitalisation to make intermodal journeys as simple
and seamless as possible, and streamline logistics).
CO2 emissions from transport in China in the APS

IEA, 2021.

China’s transport emissions, which have risen more than threefold since 2000, peak by
2030 and then drop by nearly 90% by 2060 thanks to improved efficiency and low-carbon
technologies

10

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IEA, 2021.

Motor class represents their efficiency level. A motor of class 1 has an efficiency above 75% at 1.1 kW and 50 Hz, while aclass 4 motor has an efficiency of around 87%. A variable speed drive controls the frequency and voltage provided to themotor to better control its speed and torque, improving energy efficiency.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Transport energy use and related emissions have surged in recent decades asmobility of people and goods has risen with growing prosperity and economic
activity. The growth in passenger mobility has involved more local and shortdistance trips, most of which happen within and/or around cities, and longdistance or intercity voyages, most often by train, high-speed rail, bus or plane(long-distance car travel is still rare in China). The spectacular growth in car
ownership presaged a later boom among the middle and upper classes in air
travel, both domestic and international. Domestic freight by inland waterway,
along the coast, and by rail has expanded, but trucks still account for the bulk of
freight activity, energy use and emissions.
Achieving the new carbon neutrality target will hinge on finding ways ofdecarbonising all the main modes of transport in China, especially motorised
road vehicles that power its goods and passenger movements and that accountfor more than 80% of all transport emissions. Most vehicles, including two- andthree-wheelers, passenger cars and light commercial vehicles, can bedecarbonised relatively quickly and cost-effectively in China, mostly throughdirect electrification. Fuel-cell vehicles powered by hydrogen could be acommercially viable technology pathway, especially for commercial fleet
vehicles and intercity passenger and freight trains. Modal shifts, including fromcars to public transport and, in some cases, to non-motorised modes such as
bicycles, are another solution. Eliminating emissions from heavy-freight trucks,
inland shipping and aviation, where viable alternatives to fossil fuels are not yet
commercially available, will take longer. For those modes, policies will need tocatalyse the development and deployment of low-carbon fuels that are currently
at the demonstration or prototype stage.

Passenger road transport
Although passenger vehicles currently account for only 5% of China’s energy
sector CO2 emissions, the share has been growing rapidly as the car fleet has
expanded and would grow further without measures to curb the sale ofconventional internal combustion engine (ICE) cars. With the emergence of aprosperous middle class, car ownership in China has gone from about one car
per 250 residents in the early 2000s and a total of about 7 million cars on theroad (Wang, Teter and Sperling, 2011) to one car per 6 residents and nearly
240 million cars today. In 2009, China overtook the United States as the world’s
largest car market, with sales reaching nearly 22 million in 2020, though car
ownership levels in China remain at one-quarter of US levels. As in many other

PAGE | 115

IEA, 2021.

countries, the share of SUVs, which usually consume more fuel, in China’s

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

vehicle sales has risen markedly in recent years, from just less than 16% in 2015
to more than 46% in 2020. 11 Road congestion is a major problem in many
Chinese cities, especially Beijing, Tianjin and Hangzhou, and along majorintercity road arteries. Rising car use has driven up oil demand, with China
surpassing the United States as the world’s largest net crude importer in 2017.
The Chinese government has sought to curb rising oil demand, CO2 emissions
and air pollution from vehicles through fuel efficiency standards, pollutant
emissions standards 12 and support for EVs (the Chinese government uses theterm “new energy vehicle” [NEV] to describe vehicles capable of being powered
by fuels other than oil products). Almost all NEVs in China today are plug-in
hybrids or battery EVs, though FCEVs are in the early stages ofcommercialisation. Despite continuing consolidation, China has more than
100 vehicle manufacturers that supply cars mostly to the domestic market. Manyof them are owned or heavily supported by provincial and local governments,and several of the largest and most established state-owned groups (e.g. SAIC,
Dongfeng, Beijing Automotive, Chang’an, FAW and Guangzhou Auto) have(often multiple) joint ventures with international vehicle manufacturers. China
has also invested heavily in public transport modes, as well as digital solutions
to encourage multimodal travel, or “smart mobility”, 13 as a way of curbing the
growth of road traffic, fuel use and emissions.

11

PAGE | 116

IEA, 2021.

In the IEA’s database on light-duty vehicle sales, the shares of SUVs according to a globally harmonised definition ofvehicle segments are 30% in 2015 and 42% in the latest year for which data are available (IEA, forthcoming).
12
China is unique in having implemented both fuel consumption and pollutant emissions standards for motorcycles, lightduty vehicles and heavy-duty vehicles. It has recently entered the fifth phase of fuel consumption standards for light-duty
vehicles and the third phase of standards for heavy-duty vehicles. It also has fuel standards limiting sulphur content to 10 ppm
for gasoline and diesel, as well as air quality standards. Beijing’s emissions standards for light- and heavy-duty vehicles havetypically anticipated stricter limits for the rest of the country.
13
The smart mobility concept encompasses the use of big data, internet, artificial intelligence, blockchain and supercomputing
technology in the transport sector. It involves the use of data to integrate transport infrastructures and modes, as well as theservice network and energy network with the information network. “Super apps” such as WeChat (Tencent) and Alipay (AntGroup) allow Chinese citizens to pay for bus, metro, light rail, dockless e-bikes, taxis and ride-hailing services in one go andto plan trips tailored to their preferences and the weather using a smartphone. The same apps can be used to order andtrack deliveries.

An Energy Sector Roadmap to Carbon Neutrality in China

Box 3.3

Chapter 3: Sectoral pathways

How public transport investments reduce reliance on private
cars and domestic flights in China

China has invested heavily in public transport infrastructure, which has alreadybrought enormous benefits. In the past decade alone, two-thirds of the world’s new
metro lines and nearly 90% of new high-speed rail lines were built in China. Theserail lines now make up three-quarters of the world total. The energy used and CO2
emitted per passenger-kilometre travelled by a car is typically at least three times
that of a conventional bus and fifteen times that of a train, so these investments havecurbed transport emissions enormously (IEA, 2019a; 2020b). In many cities in
China, most urban transit buses are already electric. Together with the fact that theoccupancy of urban and intercity buses and rail are well above global averages, thismeans that the energy and emissions savings from shifting travel to public transport
are even bigger. In addition, such modes can move far more people, faster and using
far less space than a private car. As a result, passenger mobility is far less energyintensive than in the United States, where cars dominate: total passenger travel(measured in passenger-kilometre) is 45% higher in China than in the UnitedStates, yet energy consumption is less than half.
Urban and intercity passenger activity and energy demand in China and theUnited States, 2020

IEA, 2021.

Thanks to reliance on more efficient modes, domestic passenger activity in
China is nearly 25% higher than in the United States, while using nearly half
as much energy

PAGE | 117

IEA, 2021.

Continued investments in public transport, including metro rail systems, light rail,
high-speed rail and electric buses, together with schemes to subsidise user fees,
will be needed to ensure efficient, low-carbon mobility as the country continues tourbanise. Of particular importance, as discussed in the section below on aviation,is providing low-carbon alternatives to short-haul flights, which are far moreenergy- and carbon-intensive than buses or trains.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Achieving an early peak in emissions from passenger road transport andeliminating them entirely by 2060, as envisioned in the APS, require even stronger
efforts to promote a shift in mobility from cars to other modes alongside a rapidtransition to NEVs. The State Council’s release of the NEV Industrial Development
Plan for 2021 to 2035 is a promising sign of the importance that the government
attaches to NEVs as a means of decarbonising passenger road transport and therole of electrification in a mobility system that will be increasingly autonomous,connected and shared (State Council, 2020).
In China’s megacities, CO2 emissions reductions are driven largely thoughcontinued investments in urban rail, together with rapid electrification of
2-wheelers, cars and buses. Currently the majority of urban transit buses sold areelectric. Bans on ICE motorcycles in major cities have contributed to the diffusionof their quieter and less polluting electric analogues. Integrated urban planningand development and deployment of “smart city” and “smart mobility” businessmodels and technologies extend upon the foundation of China’s innovation in
urban mobility; most of the technologies needed to achieve deep decarbonisation
are already commercial or at demonstration stage.

Modal shares and cumulative CO2 emissions reductions by measure andtechnology maturity in surface passenger transport in China in the APS

IEA, 2021.
Notes: Emissions reductions include those in light commercial vehicles, which are used for a range of commercial activities
including road freight. Maturity categories are assigned based on the detailed assessment of the technology readiness ofdesigns presented in the IEA Clean Energy Technology Guide (IEA, 2020b). Aviation is excluded from this figure as modal
shift potential for aviation is treated separately in the discussion on aviation. Pkm = passenger kilometre.

PAGE | 118

IEA, 2021.

Switching to more efficient and less carbon-intensive modes, together with electrificationof cars, virtually eliminates emissions from passenger transport by 2060 in the APS

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

A range of policies will be needed to drive the energy transition in China’s transport
sector. Tolls on major highways, which are already high, could be increased toincentivise low-carbon and more space-efficient bus and train journeys.
Decarbonising intercity road journeys will require efforts to move to zero-emissions
intercity buses, including plug-in and battery electric powertrains, electric roadsystems for roadways with consistent and heavy bus and truck traffic, and FCEVs(see below), as well as installing fast-charging EV stations and hydrogen refuelling
stations (HRSs) on major highways.
In the early 2010s, China initially relied on heavy subsidies for automakers that
produced NEVs, while provincial governments offered additional subsidies thatfavoured local industrial champions. NEV sales did not initially meet targets due tothe absence of a coherent policy and inadequate investment in battery
manufacturing, vehicle innovation and recharging infrastructure (Wan, Sperling andWang, 2015). This began to change in 2015, when the combination of central andlocal government policies and exemptions for NEVs on city-level vehicle registration
quotas or favourable odds in vehicle registration lotteries led to a surge in EV sales.
However, huge subsidies given to vehicle makers rather than NEV buyers led tosome degree of gaming; it is estimated that as many as 22% of all NEVs soldthrough 2015 may have been “ghost vehicles” that were never actually put on theroad (Wang et al., 2017).
In 2017, China revamped its NEV policies. It announced that its subsidy scheme
would be made both more restrictive and targeted at vehicles according to theirperformance (i.e. based on electric driving range, battery pack rated energy densityand vehicle efficiency) and would be gradually phased out. It also coupled NEV
sales mandates with its fuel consumption standards in the “dual credits” scheme,
comprising a NEV mandate and fuel economy standard. Original equipment
manufacturers (OEMs) are mandated to produce a specific percentage of NEVs intheir total annual production, and to meet fuel economy standards. Credits areawarded based on NEV sales volumes, and calculated based on vehicle efficiency,
battery capacity and electric driving range. Credits effectively relax the stringency offuel economy standards that each OEM is required to meet. To comply with thescheme, OEMs can buy surplus credits from each other. In 2020, EV subsidies werereduced and conditions for obtaining them made more stringent, with their complete
phase-out set for 2023. The national subsidy scheme for FCEVs was discontinued
from the end of April 2020 and replaced by rewards-based funding for research,development and demonstration (RD&D) projects in city clusters.
The government is also promoting the development of EV recharging infrastructure.

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IEA, 2021.

Under the Covid-19 stimulus plan, EV recharging stations are classified as a priority

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

alongside 5G and data centres, which are defined as “new infrastructure”. Following
the central government’s direction, many provincial and municipal governments
have announced recharging station targets in 2020. For example, Beijing
announced that it would install 50 000 new public and household chargers, andShanghai 100 000, between 2020 and 2022. These targets are generallyaccompanied by local government subsidies for recharging fees and operating
costs.

Road freight
China’s domestic cargo movements by road, rail and waterway have grown rapidly
over the past two decades. The share of road freight in total freight emissions has
risen from 65% 2000 to around 80% today, even though its share of freight activity(measured in tonne-kilometres) has declined from just under 40% to less than athird in 2020. Road freight emissions peaked at about 390 Mt in 2019 before
dropping slightly in 2020 due to the Covid-19 pandemic. They rebounded in early2021. Growth in freight activity is projected to continue to 2060 at a more moderatepace than in recent decades, with the share of road freight rising as thetransportation of coal, primary materials and bulk commodities, which are usuallyshipped by rail, falls and that of high-value (and lower-density) goods, morepractically moved by trucks, increases.

Freight activity and related CO2 emissions by mode in China
CO₂ emissions

Freight activity
500

Mt

Trillion tonne-kilometres

12
10
8

400
300

6
200
4
100

2
0
2000

0
2005

2010

Road freight

2015

2019

Freight rail

2000

2005

Cargo shipping

2010

2015

2020

Air cargo
IEA, 2021.

Note: Air cargo accounts for less than 0.1% of activity and less than 3% of total freight emissions, and so is not shown in theleft-hand side figure. The methodology for measuring road freight activity was revised in 2008 resulting in revisions to theestimates for 2000 and 2005.
Sources: Freight activity from the National Bureau of Statistics of China (2021).

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IEA, 2021.

Road freight accounts for about one-third of total freight movements in China but for about
80% of total freight-related CO2 emissions

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

As with passenger road transport, decarbonising road freight will require a
combination of measures to encourage shifts to less carbon-intensive modes suchas rail and waterways, more efficient low-carbon fuels and powertrains such as
biofuels, EVs and FCEVs, and measures to exploit systemic and operational
efficiencies (e.g. using digital freight matching solutions [Xu and Peng, 2021]).
Accelerating the adoption of zero-emission trucks in all operations is the maintechnological solution to put the sector on a low-carbon trajectory. With about
6 700 sales in 2020, China leads the world in the commercialisation of battery
electric medium- and heavy-duty trucks (IEA, 2021a). Major truck makers in China
have put at least 29 medium- and heavy-duty electric truck models on the market todate. 14
In addition to direct electrification, there is potential for FCEVs powered by hydrogento be deployed in heavy-duty vehicle operations, particularly over long distances.
China’s FCEV market is still at a very early stage, though it is far more advanced
than in any other country, with a total fleet of 3 100 FCEV trucks in operation at the
beginning of 2021 (AFC TCP, 2021). Some industrial companies have also started
to announce plans to purchase FCEV trucks for mining and other industrial
operations. The prospects for expanding the use of these trucks will hinge on
subsidy schemes and successful demonstrations under way in several parts of thecountry (see Chapter 4 for a detailed assessment of FCEVs).
Policy incentives, emissions standards and technological advances are needed tomake zero-emissions trucks competitive with conventional diesel trucks, which are
the only commercially viable option today. The costs of producing a truck in China
are substantially lower than those in Europe, reflecting lower materials and labourcosts. The purchase price of a diesel truck can be less than half of that in Europe,
making it hard for new powertrains to compete.
On the other hand, battery and electricity prices are currently lower in China, making
battery and hybrid electric trucks cheaper relative to Europe. Moreover, battery
electric trucks using lithium-iron phosphate chemistries can cost just over
USD 100/kWh (CNY 650/kWh), reducing the costs of ownership and operation ofbattery electric trucks to nearly USD 0.6/km (CNY 3.9/km). They are nonethelessstill much more expensive than diesel trucks. More advanced battery chemistries
designed for heavy-duty applications can cost more than USD 300.kWh(CNY 1 940/kWh).

14

PAGE | 121

IEA, 2021.

The actual number of available models is likely to be higher, as there are still a number of smaller truck makers in this yetto-be-consolidated industry. The majority of these models are battery electric, but a few are plug-in hybrid or fuel-cell electrictrucks.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

FCEV trucks are even more costly as many of the components continue to be
produced by foreign manufacturers (though fuel cell stacks and systems areassembled domestically). 15 The cost of producing, delivering and dispensinghydrogen (and of manufacturing fuel cells and hydrogen tanks) is projected to drop
steadily due to economies of scale, making FCEV trucks a more competitive
option for trucks that reliably travel more than 500 km/day than electric trucks in
the longer term in the APS, on the condition that the associated refuelling
infrastructure is heavily utilised to spread the high costs of building, operating andmaintaining it.

USD/kmTotal cost of ownership of heavy-duty trucks in China and Europe in the
APS
Low utilisation of infrastructure
1.6
Refuelling / Charging
1.2
Electricity / Fuel
0.8

Operations and maintenance

ICE Engine / Battery / Fuel cell

0.4

LFP battery
0.0

EuropeChina

Diesel ICE

Europe

China

FCEV

EuropeChina

Diesel
HEV

FCEV

BEV
(500 km)Base vehicle + Minor components

BEV(500 km)Today

2060 - China

IEA, 2021.
Notes: BEV = battery electric vehicle; HEV = hybrid electric vehicle; LFP = lithium iron phosphate. Current electricity prices
are assumed to remain unchanged for the sake of simplicity and comparability. The cost of batteries is assumed to reach
USD 60/kWh (CNY 390/kWh) and fuel cells USD 60/kW (CNY 390/kW) in 2060. Low utilisation of infrastructure (clear yellow
boxes) illustrate cost increases that would result from suboptimal use of hydrogen refuelling stations or battery charging – at
one-third of baseline estimated utilisation rates for FCEVs in today, and half of these estimates for BEVs today and BEVs
and FCEVs in 2060.

Zero-emission vehicles struggle to compete on the basis of total cost of ownership today,
but technology learning and economies of scale bring down the costs of producing andoperating them in the APS

There were more than 100 stations operating in China in mid-2021 (Nengyuanjie,2021). With targets at the provincial and local government levels, and several
companies making pledges to build more, that number will increase rapidly in the
coming five years. Like EV recharging points, HRSs are listed as “newinfrastructure” under China’s post-Covid stimulus plan, leading many provinces

15

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IEA, 2021.

Chinese manufacturers are currently developing domestic manufacturing capacity for all components of fuel cells, including
bipolar plates, membrane electrode assembly and proton-exchange membranes, and others needed to integrate fuel cellsystems into vehicles. China aims to become a state-of-the-art producer of FCEV components as it is for lithium ion (Li-ion)batteries. In order to accelerate this process, the Chinese government is providing direct subsidies to domestic producers.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

and cities to set new HRS targets. For instance, to support its plan to boost the
FCEV fleet to 10 000 by 2025, Beijing announced that it would increase thenumber of HRSs in the city from 3 at present to 37 in 2023 and 74 in 2025. In total,
provincial governments have targeted over 830 hydrogen refuelling stations by
2025.
Most HRSs today are built either by hydrogen producers or FCEV manufacturers
and operators. The pace of construction will be accelerated by the entrance oftraditional energy companies, a process that has already begun. Sinopec, thestate-owned oil company, which operates China’s largest petroleum retail
network, recently announced that it aims to build 100 new HRSs in 2021 byupgrading its petrol stations, in addition to the 10 it already operates. The
company, which is among the largest hydrogen producers in China, is targeting
1 000 stations in 2025.
The rapid deployment of NEV trucks accounts for most of the reduction inemissions between 2020 and 2060 in the APS. The share of NEVs in the heavyduty truck fleet grows from almost zero today to nearly 20% in 2030 already – overthree times the rate of growth of EV passenger cars over the past decade in China
and roughly that of Finland. Reduced activity and improved operational efficiency
due to improved logistics account for the rest of the emissions reductions.
Share of heavy-duty trucks activity by mode and related CO2 emissions
reductions by measure and technology maturity in China in the APS

IEA, 2021.
Notes: Logistics and operational measures include measures to maximise vehicle capacity utilisation (such as backhauling,
digital freight matching and others), reduce mileages (e.g. through real-time route optimisation) and improve operation
efficiency (e.g. through night-time deliveries). For more on such measures, see The Future of Trucks (IEA, 2017). The figure
focuses on the technologies and measures needed to achieve emissions reductions in medium- and heavy-duty trucks.
Maturity categories are assigned based on the detailed assessment of the technology readiness of designs presented in the
IEA Clean Energy Technology Guide (IEA, 2020b). ICE = internal combustion engine.

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IEA, 2021.

Decarbonising road freight hinges on the rapid deployment of zero-emissions trucks andthe roll-out of fast electric recharging and HRSs

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Maritime shipping
Reducing CO2 emissions from shipping and aviation is one of the hardest tasks
facing policy makers in all countries. 16 In both sectors, the long distances travelledrequire a large amount of energy that must be dense enough so as not to take up
too much room or weight on board; electric batteries using the most advanced
technologies currently available are viable only for short distances and small-scale
operations. Biofuels are currently the only low-carbon alternative to petroleumbased fuels, but they will probably be able to play only a limited role in meeting
energy needs given global constraints on land availability for growing the biomass
feedstock. Curbing emissions in those sectors will therefore hinge on developing
and commercialising new low-carbon technologies and fuels.
Tackling emissions from maritime shipping is particularly important in China: of theworld’s 50 busiest ports carrying container traffic, 16 are Chinese. More than onequarter of the world’s container traffic moves through these ports, up from about
18% at the turn of the century. In the APS, CO2 emissions from international
shipping in China rise to a peak of just under 145 Mt in 2030 – up from 120 Mt in2020 – and then fall steadily to around 30 Mt in 2060, thanks to a slowdown infreight volume and advances in the energy efficiency of ship motors (which
together lower energy needs) and switching to biofuels and other low-carbon fuels.
Oil-based fuels, mainly fuel oil and diesel, still meet over one-quarter of thesector’s total energy needs in 2060, down from almost complete dependence onthese fuels today. Ammonia derived from low-carbon hydrogen becomes theleading fuel after 2050, accounting for almost 40% of energy use in 2060, with
biofuels providing another fifth. Hydrogen used in fuel cells provides about 10%.

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IEA, 2021.

16
This section covers international maritime shipping (and the next section international commercial aviation) in addition todomestic activities, despite the fact that the former are not covered by China’s carbon neutrality target.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Energy consumption and CO2 emissions in international shipping in China
in the APS

IEA, 2021.
Note: International shipping activity, energy use and emissions are allocated by attributing half of incoming international
shipping trips into Chinese ports and half of outgoing trips.

Emissions from international shipping decline by around 75% by 2060, driven mainly byswitching to low-carbon ammonia, which becomes the dominant fuel after 2050

China is already starting to develop new low-carbon technologies for shipping.
Efforts to develop and commercialise hydrogen fuel cell ships are currently
focused on medium-sized ships with power ratings below 1 MW. The Wuhanbased Troowin proton-exchange membrane fuel cell supplier was granted the first
fuel cell product approval by the China Classification Society in January 2021. The
next phase will be to test a purpose-built 2 100 DWT (Dead Weight Tonnes) bulk
carrier powered by four 130 kW hydrogen fuel cells. In addition, the world’s firstammonia fuel-ready vessel (a Suezmax tanker of about 160 000 DWT) is underconstruction at a Chinese shipyard for a Greek ship owner. Three Chinese
harbours – Nanjing, Caojing and Zhanjiang – have ammonia terminals with overall
storage capacity of around 120 kt. With some modifications, these terminals could
be used to refuel vessels powered by ammonia ICEs. China already has six
harbours with power supply facilities for cold ironing – the provision of shoreside
electrical power to a ship at berth while its main and auxiliary engines are turned
off.

PAGE | 125

IEA, 2021.

The rapid adoption of technologies needed to reduce domestic and international
shipping emissions envisioned in the APS hinges on the installation of ammonia
bunkering facilities. The highest priority will need to be given to Shanghai,An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Shenzhen and Nanjing – three of the main ports – as they are among the dozen
main ports worldwide that will need to lead the transition to ammonia as a lowand eventually zero-emissions substitute for oil-based fuels. China also needs tobuild power supply facilities for cold ironing and hydrogen bunkering facilities toservice ferries, cruise ships and domestic freight ships that switch to electricity andfuels cells. Rigorous policies will be needed in China and elsewhere, including
under the International Maritime Organization, to drive these investments.

Aviation
The take-off of activity in commercial passenger aviation in China lagged behindpersonal car ownership, but has increased even more rapidly in recent years.
Domestic travel alone, measured by passenger-kilometres, increased about
fivefold in the 15 years to 2019. As a result of reduced air travel during the Covid19 pandemic, domestic air travel in China exceeded that of the United States forthe first time in 2020. Prior to the pandemic, China had the world’s second-busiest
airport (Beijing Capital), the eighth (Shanghai Pudong) and the eleventh(Guangzhou Baiyun). Domestic air travel dropped somewhat in 2020 but isrebounding strongly and is likely to exceed the 2019 record level in 2021. Although
the contribution of domestic aviation to China’s total energy sector CO2 emissions
remains small, at around 0.7%, it is growing rapidly and, in the absence of efforts
to rein back growth, will undoubtedly continue to do so in the years to come.

Trillion passenger-kilometres

Domestic air travel in China and the United States and rail travel in China
1.4
1.2
China, HSR

1.0
0.8

China, conventional rail

0.6

China, domestic aviation

0.4
US, domestic aviation
0.2
0.0
2005

2007

2009

2011

2013

2015

2017

2019

IEA, 2021.
Notes: HSR = high-speed railways. United States intercity rail travel is not shown as volumes over the time period shown are
well under 40 billion passenger-kilometres annually. Activity has been allocated between conventional and HSR based on
the definition of HSR as having an operational cruising speed of at least 250 km/hour.
Sources: IEA Mobility Model (August 2021 version); United States Bureau of Transport Statistics (2021); IATA (2020); ICAO
(2019).

PAGE | 126

IEA, 2021.

Domestic air travel grew around fivefold in the 14 years to 2019, though both intercity andhigh-speed rail travel remain more significant

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

The main measure that has limited the rise in aviation emissions to date in China
is massive investment in HSR infrastructure, which is an affordable andconvenient competitor to domestic flights of less than 1 200 km. HSR travel has
grown in parallel with air travel in recent years. While not all HSR lines have been
built to connect major population centres, and hence are not guaranteed to service
consistent ridership between major urban centres (Pike, 2019) – a prerequisite forpaying off the “carbon debt” of steel- and cement-intensive rail lines – we estimatethat the development of the HSR network has reduced CO2 emissions by 250 Mt
in cumulative terms over the past decade, or about two and a half times the total
domestic and international aviation emissions of China in 2019. 17
As part of its economic and industrial policy, the Chinese government is cultivatinga domestic aviation industry. It plans to continue building new airports, with30 scheduled to begin operations in 2021-2025 and 209 more due to becommissioned before 2035, nearly doubling their current number. The
government is also backing a domestic aircraft maker – the publicly owned
Commercial Aircraft Corporation of China (COMAC) – in the hope that it will
eventually rival Airbus and Boeing. It has already developed three commercial
jets: the short- to mid-range ARJ21, which is already in commercial operation, andthe longer-range CR919 and C929.
Start-ups in China have recently joined the ranks of innovators investing heavily
in RD&D in electric and hydrogen aircraft. Researchers at COMAC’s Beijingbased Dream Studio piloted a test flight of a small hydrogen-powered aircraft in
2019, and a larger model prototype, the ET480, which uses Li-ion batteries andfuel cells developed by the State Power Investment Corporation, was launched in
2021.
CO2 emissions from domestic aviation grow through to 2030, after which they start
to fall back through a combination of efficiency improvements, continuing shifts to
HSR and conventional rail, and the adoption of sustainable aviation fuels (SAFs)
18

in the APS. To achieve these long-term emissions reductions, China will needto reconcile its ambition of developing its aviation industry with its climate policies.
As in other countries and with the International Air Transport Association (IATA)
targets, the emissions and fuel intensity targets set by China’s Civil Aviation
Industry Authority and in recent FYPs have consistently been exceeded as a result

17

PAGE | 127

IEA, 2021.

This estimate is derived by assuming that passengers using HSR would have made the same trips by car, bus or air, andfor the sake of simplicity and comparability with the rest of the emissions reported here, uses the weighted average direct(i.e. tank-to-wheel) carbon intensity based on the annual shares of car, bus and air travel, using the IEA Mobility Model.
18
SAFs include biofuels derived from a range of feedstocks and production pathways, as well as synthetic fuels (usinghydrogen together with CO2 from either atmospheric or biogenic sources). They can be blended into fossil-derived jet
kerosene used by commercial aircraft.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathwaysof efficiency improvements driven as much by the need to reduce fuel costs andmaximise profits. The status of the Chinese government’s commitment to thevoluntary pilot phase (2021-2023) and first phase (2024-2026) of the Carbon
Offsetting and Reduction Scheme for International Aviation (CORSIA) scheme by
the International Civil Aviation Organization (ICAO) is still unclear. The
government has also not yet announced specific measures to cut aviation-related
emissions, 19 but some national-level policy directives have emphasised the needto promote RD&D and the adoption of SAFs. Domestic aviation has also been
identified as one of the energy-intensive sectors to be covered by the national ETS(it has already been included in the Guangdong pilot ETS project), though thetimeline and design of the ETS expansion to these sectors has yet to be
determined.

Share of aviation final energy demand by fuel and related CO2 emissions
reductions by measure and technology maturity in China in the APS

IEA, 2021.
Note: Maturity categories are assigned based on the detailed assessment of the technology readiness of designs presented
in the IEA Clean Energy Technology Guide (IEA, 2020b).

Reduced demand by taxing air travel and shifting travel to railways limits the rise inemissions to 2030, while efficiency gains and large-scale deployment of sustainableaviation fuels drive down emissions in the longer term

PAGE | 128

IEA, 2021.

19
China’s GHG Voluntary Emission Reduction Program was approved in 2020 as one of the six eligible carbon-offsetting
programmes for compliance with CORSIA, the scheme adopted by the ICAO to offset and reduce emissions frominternational aviation.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Buildings
Energy use and emissions from buildings in China have grown more in absoluteterms than in any other country in recent decades in line with urbanisation and risingincomes, especially since the turn of the century. China accounted for more than
17% of global final energy consumption and nearly 25% of CO2 emissions (direct
and indirect) in buildings in 2020. Buildings contributed around 20% of China’s total
emissions – about 25% from direct use and 75% from the indirect use of fossil fuelsin providing heat and electricity consumed in the sector. Despite growing demandfor energy services in buildings, per capita consumption is still more than 70% lower
than in the United States, and around 45% lower than in Europe and Japan.
Demand for energy services has risen in parallel with increasing dwelling size, withresidential floor area jumping from less than 20 m2 per person in 2000 to more than
35 m2 in 2020 – close to the European average.
Residential properties dominate total final energy use in buildings, reaching around
18 EJ in 2020, or about 80% of the total; the remaining 5 EJ is consumed incommercial and public buildings. Climatic conditions vary enormously across thecountry, significantly affecting energy needs for heating and cooling. China’s
buildings energy standards identify five climate zones, and around 5% of China’s
population live in areas needing mainly cooling and about 15% in areas needing
mainly heating, while the remaining 80% require both heating in the winter andcooling in the summer.20 Nationally, space and water heating are responsible fornearly 60% of final buildings energy consumption, followed by cooking (14%),
electrical appliances and devices (14%), space cooling (7%), and lighting (5%).
The leading fuel in the sector is electricity, covering more than 35% of buildings final
energy use – nearly two and half times the share in 2010. China has contributed
about 60% of the global growth in electricity use in buildings worldwide over the last
decade. Bioenergy is the next most important fuel in buildings, meeting 15% of thesector’s energy needs, down from just over 30% in 2010. It is used mostly forcooking, but also for space and water heating – predominantly in the form of
traditional biomass in rural buildings. The amount of traditional biomass used inbuildings has fallen by about 60% since 2000, thanks to policy efforts to increaseindoor air quality. The direct use of coal has also fallen sharply in recent years,
especially since the introduction of measures to promote switching to electricity andnatural gas, and the 2017 Clean Winter Heating Plan, but the fuel still accounts formore than 10% of buildings final energy consumption. Oil and gas hold similar

PAGE | 129

IEA, 2021.

20
Areas needing mainly cooling is defined as cooling degree days above 5 000 with a base temperature of 10°C and areas
needing mainly heating as heating degree days above 5 000 with a base temperature of 18°C. (IEA, 2020c).

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

shares of about 10%, that of oil increasing slightly and that of gas more thandoubling over the last decade, displacing coal as well as traditional biomass.
The direct use of modern renewables in buildings has also grown significantly inrecent years. With more than 70% of global solar collectors capacity cumulatively
installed in the country since 2013, China is the world’s leading market for solar
thermal collectors, which cover nearly 6% of total buildings energy needs (Huang,
Tiang and Fan, 2019). District heat is an important source of energy for spaceheating, especially in the north, where it has grown sixfold since 2000, accounting
for around 8% of total final energy consumption in buildings across the country in2020. District heat, natural gas and electricity are more commonly used in urban
areas.
The rapid transformation of the fuel mix in buildings in recent decades has helped
to temper the growth in direct CO2 emissions, though the heavy reliance on coal for
generating electricity and district heat has led to a big increase in indirect emissions.
Direct emissions increased by around 7% between 2010 and 2020 to about 520 Mt,
but indirect emissions increased by more than 70% to 1.6 Gt.
Achieving carbon neutrality in Chinese buildings will be made harder by continued
growth in the stock of buildings and floor area. While population is expected tostabilise in the next few years and then fall slowly after 2030, economic growth,
increasing per capita floor area and dwelling unit size, and urbanisation will continue
to drive construction. In the APS, total buildings floor space is projected to expand
by about 40% between now and 2060, reaching nearly 90 billion m2 – which
represents more than 10% of the global increase in floor area. Despite the projected
increase in floor area and the on-going increase people’s living standards, energy
use in buildings levels off in the next few years and then falls back in that scenario,
mainly because of improvements in the thermal efficiency of building envelopes that
reduce energy needs for heating and cooling, as well as improved efficiency ofheating and cooling equipment and appliances. Overall buildings energy intensity

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IEA, 2021.

falls by 30% between 2020 and 2060.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

25

100

20

80

15

60

10

40

Index (2020 = 100)

EJ

Energy consumption and energy intensity index in buildings in China in
the APS
Other
Appliances
CookingLightingSpace
coolingWaterheating
5

20

0

0

2020

2025

2030

2035

2040

2045

2050

2055

2060

Space
heating
Energyintensity

IEA, 2021.
Notes: Energy intensity refers to energy consumed per unit of floor area.

Despite the growing demand for services, energy use in buildings starts to fall back in thelate 2020s thanks to efficiency improvements in all building end uses

Switching to electricity, alongside major improvements in the efficiency of electricalappliances and equipment, also helps to curb demand. The increased uptake ofheat pumps drives the average efficiency of the space heating equipment stock to
110% by 2030 and to more than 150% by 2060 in the APS. In addition, despite an
additional 150 million more households using air conditioners in 2060 comparedwith today, passive building envelope measures combined with improved air
conditioner energy performance mean that electricity demand for space cooling in
2060, at around 490 TWh, just 15% above 2020 levels (425 TWh). However, thefall in energy use for space and water heating, lighting, and cooking is partially offset
by increased electricity demand for appliances, which almost doubles over2020-2060.
Increased ownership of appliances and electrical equipment in homes and offices,
including the ones still uncommon today such as dishwashers and dryers, is a major
driver of the increased share of electricity in buildings energy use through to 2060.
Those appliances and equipment, nonetheless, become progressively more energy
efficient. By 2030, over 50% of appliances on sale have efficiencies that arecomparable on average to existing best available technologies. This share jumps to100% in 2040. All light bulbs are LEDs from 2030. Minimum energy performancestandards (MEPS) are complemented by requirements for smart controls to
optimise the operation of appliances and to allow demand response to further shave

PAGE | 131

IEA, 2021.

peaks in electricity demand. Nearly 1000 PJ, or the equivalent of all lighting

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

consumption in China today, is saved from appliances and lighting in 2060 thanks
to efficiency gains. This requires government working with manufacturers andutilities to deploy new measures and standards which enable buildings equipment
and the electricity grid to interact.
Total CO2 emissions from buildings are eliminated by the second half of the 2050s
in the APS thanks to the phasing out of fossil fuels in direct uses and the complete
decarbonisation of power and heat generation. Direct emissions already peaked by
the mid-2010s in both the residential and services sectors and together drop by aquarter between 2020 and 2030, and by more than half by 2040. Indirect emissions,which peak soon after 2020, fall even faster over the projection horizon: by morethan 80% by 2040 relative to today, due to the combined effect of building energy
efficiency and power sector decarbonisation.

Direct and indirect CO2 emissions in buildings by subsector and buildings
consumption by fuel in China in the APS
Final energy
25
EJ

GtCO2

CO2 emissions
2.5
2.0

20

1.5

15

1.0

10

0.5

5

2020 2025 2030 2035 2040 2045 2050 2055 2060
Non-residential (indirect)
Residential (indirect)

Non-residential (direct)
Residential (direct)

2020
Coal
Grid gas
Electricity
Renewables

2060
Oil
HydrogenDistrict energy
Traditional biomass

IEA, 2021.

CO2 emissions from buildings are eliminated by the second half of the 2050s in the APS as
fossil fuels in direct uses are phased out and power and heat generation are decarbonised

The accelerated electrification of energy use in buildings is the main driver of
reduced emissions in buildings in the APS. The share of electricity in total buildings
energy use reaches nearly 60% in 2060 with increased use for heating, cooking
and electrical appliances. More than half of total space heating demand is met byelectric heat pumps in 2060. In addition, the share of electricity in energy use forcooking almost doubles to around 15% by 2030 and reaches 50% in 2060. The
contribution of solar thermal and geothermal energy also grows significantly, their
combined share of final energy consumption reaching around 15% in 2060, nearly

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IEA, 2021.

doubling relative to 2020 levels. The direct use of fossil fuels in buildings falls afterAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

2025 and is completely phased out by 2060. Gas use drops to just 4% in 2060, allof which is low-carbon by then. Thanks to their higher efficiencies compared withtraditional gas boilers, gas-fired and hybrid heat pumps help to curb overall gas
consumption, especially in the colder northerly parts of the country. Low-carbon
district heating networks remain a significant source of space and water heating,their share of heat provision reaching nearly 20% by 2030, remaining broadly
constant through to 2060.
Switching to clean modern energy in rural households forms part of the transition
to net zero emissions in China’s buildings sector. The use of inefficient stoves
relying on traditional biomass is eliminated before 2030, mainly thanks to a shift
to distributed solar PV combined with electric pressure cookers. Biogas produced
from biomass in digesters and used in more efficient stoves, together withelectricity, becomes the dominant cooking fuel later. Modern bioenergy meetsnearly 1% of overall residential space heating demand and 35% of cooking energy
needs in 2030, and 10% of overall residential space heating demand and nearly
50% of cooking energy in 2060.
This transformation of energy use in buildings is mostly achieved by using
technologies that already exist today, such as heat pumps, efficient buildings
design and materials, and renewables, though incremental improvements inperformance are needed. Around two-thirds of the emissions reductions inbuildings to 2060 are obtained from technologies already mature or at the early
adoption stage. Technologies at the demonstration and prototype stage accountfor the rest, mainly after 2040. The greatest need for innovation is in boosting theefficient operation of heating equipment in cold climates and multifamily buildings,
deploying demand-side response as well as integrating energy storage into
buildings, grid balancing and efficient climate-friendly cooling equipment. New
business models will also be essential to encourage more building retrofits and

PAGE | 133

IEA, 2021.

make appliances and equipment responsive to real-time price signals.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Share of building CO2 emissions reductions by maturity category and end
use in China in the APS
100%

80%

60%
Prototype
Demonstration

40%

Market scale-up
Mature

20%

0%

2030

2060
Heating2030

2060
Cooling

2030

2060
Other
IEA, 2021.

Note: Maturity categories are assigned based on the detailed assessment of the technology readiness of designs presented
in the IEA Clean Energy Technology Guide (IEA, 2020b).

Nearly 90% of the emissions reductions in buildings to 2030 come from existing
technologies, but full decarbonisation of building end uses requires new designs

Zero-carbon-ready buildings
Policy action will be crucial in driving the development and deployment of ultralow-energy and low-carbon buildings. Stricter building energy standards andcodes to improve the design of buildings and the performance of building
envelope technologies, and make them amenable to switching to low-carbon
fuels, play a central role in the APS. They progressively require zero-carbonready buildings, which are highly energy efficient and resource efficient, andeither use renewable energy directly or are conceived to rely on zero carbon in
2060. 21 Improvements to the building envelope – of existing and new buildings– is a key first step towards zero-carbon-ready buildings. There are a broad
variety of ways of achieving this depending on climate, from high insulation andairtightness in cold climates to ventilation and shading in warmer climates.
Lowering building energy needs helps to reduce overall peaks in heating andcooling demand and, therefore, the need to install capacity to meet those needsin both buildings themselves and in power and heat generation.
Retrofits – structural changes to an existing building or system within it toimprove its energy performance – will be particularly important in China because

PAGE | 134

IEA, 2021.

21
Zero-carbon-ready buildings energy codes focus on building operations as well as emissions from the manufacturing ofbuildings construction materials and components, and include measures which facilitate the decarbonisation of the broader
energy system. For instance, such measures include connectivity, automation and energy storage to manage electricity
demand (IEA, 2021c).

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

most of the building stock is very recent and will be around for a long time (thoughdemolition rates are higher than in Europe and the United States). The existingbuilding stock is relatively young, at around 15 years on average, the result of a
tripling of the building stock over the last three decades. Of the 63 billion m2 offloor area in China today, nearly half will probably still be standing in 2050. At
present, under 0.3% of buildings are retrofitted each year, but this number is
growing since 2010. In the APS, thanks to policies that encourage thedevelopment and deployment of replicable retrofit packages, 22 nearly allbuildings still standing are renovated to zero-carbon-ready levels by 2060.
Building energy standards and codes for new buildings need to incorporate zerocarbon-ready requirements to ensure that buildings built today are able toproduce no emissions in the future. In the APS, as a result of these codes andretrofits, nearly all floor area in China is zero-carbon-ready in 2060, leading to a
reduction in final energy intensity – or the final energy consumed per square
metre – of more than 65% for heating and more than 45% for cooling between
2020 and 2060.

100

100

80

80

60

60

40

40

20

20

Index (2020 = 100)

Billion m²

Buildings floor area and final energy intensity index for space heating andcooling in China in the APS
OtherCompliantbuildings
ZCRB
Retrofit ZCRB
Intensity (right axis):
Heating
Cooling
0

2020

2030

2060

0

IEA, 2021.
Notes: ZCRB = zero-carbon-ready buildings. Energy intensity of heating/cooling is measured as ratio between the final energy
consumption and the heated/ cooled floor area. Compliant buildings are those that comply with building energy codes inplace today.

Accelerated retrofits and the construction of new zero-carbon-ready buildings reduce theenergy intensity of heating by over 65% and cooling by 45% in 2060

22

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IEA, 2021.

For instance, in Europe, Energiesprong is a progressive whole-house approach to retrofitting homes with the aim of limiting
the impact on buildings inhabitants and being replicable on a large scale. The approach has been adopted in the
United Kingdom, France, Germany and northern Italy and similar initiatives are under way in both New York and California.
With the standardisation of construction, modular and replicable retrofit packages can lower costs and increase retrofit rates.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Heating and cooling
Heating and cooling accounted for 65% of total buildings energy consumption in
China in 2020. Heating needs are concentrated in two main areas: northern
China, where district heating is the main source of heat (floor area covered by
district heating networks has nearly quadrupled since 2000); and central regionswith moderate climates (such as the Yangtze River Basin) where demand forspace heating is lower but growing rapidly and where heat pumps can play anincreasingly important role.
The decarbonisation of heating in China in the APS hinges on a combination ofswitching to low-carbon fuels and energy efficiency improvements to lower theunderlying need for heat. Sales of coal and oil boilers installed in buildings orused for district heating, together with sales of gas heating equipment that is notcompatible with hydrogen, are completely phased out by 2035. While an
overwhelming majority of new buildings rely on electric heat pumps, thistechnology also makes inroads in existing buildings, as a substitute for fossil fuelboilers. They meet 14% of total space and water heating consumption (or nearly
45% of heating needs) in 2060. The contribution of renewables (including solar
thermal systems, geothermal heat pumps, modern biomass stoves and boilers)
to meet heating demand rises from around 20% to nearly 50% in 2060 and thatof new hybrid systems that integrate solar PVs with heat pumps exceed 0 million
units by 2060. Market penetration of hydrogen boilers and fuel-cell microco-generation units is limited, taking off in the late 2020s, and fulfils about 5% ofheating consumption by 2060. District heating based on low-carbon fuelsremains an important source of heating; its share grows from 13% in 2020 tomore than 20% in 2060.
Reducing energy losses in district heating and integrating buildings efficiency
measures into district heating programmes help to lower indirect emissions. In
many cases, district heat is distributed to buildings located far from production
sites – sometimes tens of kilometres away – to fully exploit excess heat fromindustrial processes, waste incineration, as well as fossil, biomass and nuclear
power plants. Losses tend to increase with distance. Innovations in distribution
pipes, hydronic systems (which use a water solution usually mixed with glycol
as the heat-transfer medium) and advanced heating management measurescontribute to lower losses and higher heating efficiency in the APS. As longdistance district heat infrastructure is long-lived, the integration of buildings andnetworks needs to be carefully planned at both the district and city scales, taking

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account of the future electricity generation mix and availability of waste heat.

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Chapter 3: Sectoral pathways

Demand for energy for space cooling in China has increased faster thananywhere else in the world since 2000, rising from 150 PJ to 1 530 PJ in 2020 –an average rate of about 2.5% per year. Cooling now accounts for about 7% of
total final energy demand in buildings. Space cooling is mostly provided byindividual air-conditioning units, though collective building systems and districtcooling networks are common in urban areas in the south. The city of Guangzhou
operates one of the world’s largest district cooling systems. Cooling places
enormous demands on the electricity system, accounting for 16% of the national
peak in demand nationwide on average in 2020 and more than half on extremely
hot days (IEA, 2019b).
Air conditioning will inevitably increase with the rising temperatures that climatechange will bring and rising affordability with higher household incomes. In the
APS, household ownership of at least one unit grows from 70% today to 85% in
2030, more than 90% in 2050. China manufactures 70% of all the room air
conditioners sold in the world, 60% of which currently supply the domestic
market. The potential of the industry to innovate and improve their energy
efficiency is enormous. Gree, a leading Chinese manufacturer, recently won the
Global Cooling Prize with a technology that integrates advanced vapour
compression cycles, evaporative cooling, ventilation and renewable energy
sources.
The growth of electricity consumption for space cooling is limited in the projection
horizon in the APS, thanks both to improved building envelopes (see above) andincreased air conditioner efficiency and flexibility, driven largely by more
stringent MEPS. Already by 2030, the seasonal energy efficiency ratio – thecooling output during a typical cooling season divided by the total electricity input
during the same period – increases by one-third compared with 2020 and almost
doubles by 2060. This yields cumulative savings of 26 EJ – more than three

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times all the electricity consumed in buildings in China in 2020.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Space heating equipment sales by type and average energy efficiency of
space heating and cooling equipment sold in China in the APS
Heating equipment sales

Efficiency of equipment soldIndex (2020 = 1)

100%
75%
50%
25%

3.0
2.5
2.0
1.5

0%
2020
Coal boilers
Oil boilers
Electric heat pumps
District heat2060
Gas equipment
Hydrogen equipment
Other electric equipment
Renewable equipment

1.0
2020

2030

2040
Heating

2050

2060

Cooling

IEA, 2021.
Notes: Other electric equipment includes hybrid heat pumps.

Increased sales of heat pumps help drive up the overall efficiency of space heating
equipment, while standards underpin cooling efficiency gains

A new electricity paradigm
The way electricity is supplied and used is undergoing a profound change
throughout the world with the emergence and application of new technologies,
including digitalisation. China is very much at the forefront of that change. Zerocarbon-ready buildings make full use of these technologies, which modify
radically the way they interact with the public electricity system and patterns ofelectricity use within buildings. The principal changes concern the potential for
auto-generation of power, mainly with rooftop solar PV panels; the use of storage
devices in buildings and demand response. All of these changes are being madepossible and more attractive by digital technology.
The expansion of solar PV in buildings – a form of distributed generation –reduces the need for drawing on electricity from public networks and creates
opportunities for injecting surplus electricity into those networks, reducing theneed for centralised generation and modifying the interaction between buildings
and the electricity system. Satellite image recognition and analysis shows thatabout 830 GW of PV capacity could be installed on the roofs of urban buildings
today (BERC, 2021a, 2021b). However, accounting for rural buildings, thegrowing buildings stock and modern construction practices allowing for a greater
exploitation of rooftop surfaces, solar PV systems installed on buildings play a
growing role in China in the APS, with capacity jumping from 80 GW today tonearly 2 200 GW in 2060. By then, almost 50% of total solar PV capacity will be

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IEA, 2021.

integrated to buildings.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Growing opportunities for demand response, using advanced controls, building
energy management systems and small-scale storage, including thermal storage
devices connected to buildings and the batteries of EVs, will also increaseinteractions with the grid, holding out the promise of exploiting new revenue
streams and facilitating the integration of renewables-based electricity into thepower system. In 2060, demand response technologies whose effects gounnoticed by the end user are used for power regulation and short-time scale
turn-offs. In addition, China’s light-duty EV stock reaches 350 million in 2060,
representing an electrochemical storage capacity of around 25 TWh. Part of thatcapacity is used to absorb surplus solar power generated in buildings or centrally(vehicle from grid, or V1G) or make up for short-term shortfalls in power (vehicle
to grid, or V2G), using a technology known as unilateral controlled charging. To
put that into perspective, the average daily electricity use by buildings in winteris just over 10 TWh in 2060 in the APS.
DC power distribution and energy management systems present further
opportunities with respect to electricity use in buildings. The installation of solar
PV systems and the growth of DC appliances (e.g. LEDs, electronics and heatpumps) and battery storage, which store DC power, make it feasible to convert
entire buildings to run fully on DC electricity, as self-consumption reduces theneed for alternating current (AC) power supplied from the grid. At present,
buildings are supplied with AC power, and the conversion to DC occurs at theappliance level. The main advantage of DC systems is that it avoids conversion
losses, which in total range from 10% to 20% depending on the converters usedin the electricity distribution system and appliances. DC systems could also
facilitate demand response in buildings, as DC appliances could responddynamically to changes in voltage which reflect requirements from the grid toincrease or decrease the end-use consumption at a given point in time. Ensuring
the

mass

manufacturingofDCappliancesalongside

international

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IEA, 2021.

standardisation is a prerequisite to make such systems viable at scale.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

Schematic of a direct current electricity distribution and management inbuildings

IEA, 2021.

Direct current buildings make use of solar PV systems, producing direct current, to power
DC appliances and storage devices avoiding the need for current conversion

Assuming rooftop solar PV installations are sized to meet no more than the peakdemand of each district-level DC system, about 60% of total buildings PV
generation is consumed directly by buildings in China in 2060 in the APS. It would
mean that the remaining 40% would either need to be sent back to the AC grid or
to local distributed energy storage devices. Allowing market access for DC
appliances and promoting innovative business models where aggregators or
retailers own and manage consumer-sited grid assets would help regulate powersystems at a lower cost and improve distribution systems resiliency. In China, in
2060 under the APS, it represents a daily opportunity for 2 000 to 3 000 GWh of
surplus of electricity to manage.
EVs could be a prominent market player, but not all the battery capacity could be
used to store the electricity generation surplus. First, only vehicles idling on a DC
grid and not fully charged can participate. Vehicles not participating in V2G

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services have a limited margin for participation, corresponding to average daily

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

electricity use for transport, or roughly 15% of the on-board battery capacity.
However, if EV batteries are also discharging electricity to other loads in the DC
grid, their capacity to store excess rooftop solar PV generation would grow.
Around 40% of the EV fleet would be enough to absorb all excess rooftop PV
production in the spring and the fall, and 25% in summer and winter. Therefore,
the combination of DC systems, distributed PV, EVs and energy storage could not
only foster the deployment of renewable electricity production, but also facilitate
its integration to power systems and use by demand sectors.

Average daily solar PV generation in buildings in China in 2060 in the APS
EV absorption capacity
4 000

3 000

3 000

2 000

2 000

1 000

1 000

0

GWh

GWh

Generation
4 000

0
0%

25%

50%

75%

Share of vehicles participating
Self-consumed

Surplus generation

V1G only

V1G and V2G
IEA, 2021.

Note: Assumes that rooftop solar PV installations are sized to meet no more than the peak demand of each building or district
DC system.

In 2060, in the APS, about 60% of building-integrated PV in China could be consumed bybuildings themselves, while 40% of the EV fleet could absorb the rest – if the electricity is
not directed to the grid or to other distributed energy storage devices

DC buildings are already at the demonstration stage in China. One of the mostadvanced projects is Shenzhen’s Future Complex building. The development of
entire DC districts, combining several buildings and local distributed energy
resources, is at the concept stage. Projects in rural areas are under consideration,
including in Ruicheng in Shanxi province, which would involve DC microgrids anddistributed solar PV to meet local daily needs for household cooking, domestic hot

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water and heating, as well as some agriculture machinery (Li et al., 2021).

An Energy Sector Roadmap to Carbon Neutrality in China

Box 3.4

Chapter 3: Sectoral pathways

Shenzhen’s Future Complex DC building demonstration projectEnergy efficiency: the building meets low-energy consumption standards.
Annual electricity intensity approaches 50 kWh/m2, with annual electricity
consumption under 300 000 kWh. On top of various energy efficiency
measures, DC operations result in a 10-20% electricity saving from theabsence of AC/DC conversion losses.



Decarbonisation of energy supply: total annual power generation is expected
to be 340 000 kWh, exceeding the expected annual energy needs of thebuilding.

Integration of renewables: DC-enabled responsiveness to changes in voltage
signals allows improved adaptation of electricity load to renewable supply,
reducing the connection capacity to the AC grid by 80%. Distributed storage
devices are connected to a multi-voltage-level power distribution system, from375 V for a DC bus to 48 V for most appliances.

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IEA, 2021.

In Shenzhen, the Future Complex office building, completed at the end of 2020,
integrates 150 kW of solar PV capacity on the rooftop, occupying a rooftop area of
1 870 m2. The compactness of the edifice makes the project replicable in multiple
urban areas. It is also equipped with DC air-conditioning systems, light-emitting
diodes (LED) lighting and multimedia equipment, office equipment, charging piles,
and intelligent control systems. The building meets some of the zero-carbon-readybuilding requirements, particularly:

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 3: Sectoral pathways

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An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

Chapter 4: Technology needs forthe energy transitionThe energy pathway to net zero emissions by 2060 in this roadmap involves several
pillars that cut across sectors, in particular the electrification of end-use sectors, carbon
capture, utilisation and storage (CCUS), low-carbon hydrogen and sustainablebioenergy. For each pillar, innovation is needed to bring new technologies to market
and to improve existing ones.

Electrification, both of energy end uses and the production of low-emissions fuels,
contributes 13% of the CO2 emissions reductions to 2060 in the Announced Pledges
Scenario (APS), around 35% of which come from the transport sector, mainly throughthe uptake of battery electric vehicles. China is by far the largest electric vehicle battery
producer today with 70% of global capacity and home to 55% of global processing andrefining capacity for lithium – a key battery metal. China is likely to retain global
leadership in battery supply in the medium term based on planned projects. In the longrun, output would increase about 25 times, worth up to USD 250 billion a year, if it wasto supply the same share of global EV battery demand by 2060 as it does today.



CCUS accounts for 8% of the cumulative reduction in emissions to 2060 in China in
the APS and almost 50% of the cumulative CO2 captured globally. CCUS retrofits allow
some of the country’s existing power and industrial plants to continue operating. CCUS
also provides a means of generating negative emissions by storing CO2 frombioenergy combustion or directly captured from the air. China could position itself as aleader in CO2 management if it focuses on the widespread development of transportand storage infrastructure in the next decade.



Hydrogen contributes to decarbonising end-use sectors where few alternatives exist,
notably in some heavy industries and long-distance transport, and for storing energy
from variable renewables. The use of low-carbon hydrogen and hydrogen-based fuelsaccounts for more than 3% of emissions reductions over 2021-2060 in the APS, withhydrogen demand increasing more than three-fold. Electrolysis capacity reaches
750 GW, or nearly 40% of the world total, by 2060. China is currently a big player inthe manufacturing of electrolysers, with around one-third of global capacity today. Mostof the world’s fuel cell electric buses and trucks operate on Chinese roads.

The use of sustainable bioenergy accounts for almost 7% of CO2 emissions reductions
to 2060, its share in total energy demand more than doubling. The bulk of bioenergy
use in 2060 is for power and heat generation, including in industry, a sizeable part ofit with CCUS to generate negative emissions. Liquid biofuels use in transport also
grows significantly.

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Highlights

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

Introduction
The energy pathway to net zero emissions by 2060 in this roadmap involves fourpillars that cut across sectors: the electrification of the transport, industry andbuildings sectors; the deployment of CCUS technologies in power generation,industry and fuels transformation, as well as for carbon removal; the production of
low-carbon hydrogen and hydrogen-derived fuels; and the use of sustainablebioenergy for power and heat production and making gaseous and liquid biofuels.
All four are essential for carbon neutrality in China.
For each pillar, innovation is needed to bring emerging and completely newtechnologies to market and to improve existing ones (see Chapter 6). The
technology priorities of the APS are consistent with the 14th Five-Year Plan (FYP)(2021-2025), which sets out innovation priorities for the four technology areas,
focussing on electric vehicles (EVs), hydrogen and fuel cells, CCUS, bioenergy
and advanced biofuels, energy storage, smart electricity systems and traditional
renewables.

ElectrificationRole in the energy transition
Electrification, both of energy end uses and the production of low-emissions fuels,
is of particular importance to the Chinese energy transition to carbon neutrality,
covering almost the entire energy system and contributing directly to 13% of the
cumulative emissions reductions in the APS relative to 2020 over the period to2060, on top of enabling energy efficiency gains that in turn result in emissions
reductions. A near-doubling of China’s electricity demand between 2020 and 2060
in the APS is accompanied by the complete decarbonisation of electricity
generation before 2055 – a mammoth task (see Chapter 3). Yet even faster growthof electricity demand has been observed in the past in China. In the period
2000-2020, electricity demand grew on average by around 9% per year. In recent
years, demand has been increasing annually by amounts roughly equivalent to
the total amount of electricity generated each year in Indonesia (260 TWh).
The largest share of CO2 reductions to 2060 in the APS (45%) from electrificationand energy efficiency gains brought by electric technologies occur in industry, led
by a shift away from fossil fuel-fired heating towards industrial heat pumps andelectric boilers for low and medium-temperature heating needs in light industries,
and increasing production of steel from scrap in electric arc furnaces. A further

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IEA, 2021.

35% of the emissions reductions from electrification occur in transport, mainly

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Chapter 4: Technology needs for the energy transition

through the direct electrification of light-duty vehicles initially and heavy-duty
vehicles in the longer term using batteries (the use of hydrogen and hydrogenderived fuels produced by electrolysis also contributes indirectly to transport
emissions reductions, particularly during the second-half of the period to 2060.
Electrification is also an important trend in buildings, with the shift away from coaland other fossil fuels for heating and cooking (see Chapter 3)). Electrification offuels supply, mainly via the production of electrolytic hydrogen for direct use andhydrogen-based fuels production, accounts for less than 10% of the emissions
reductions to 2060.

CO2 emissions reductions from electrification by sector in China in the
APS

IEA, 2021.
Notes: Avoided emissions from electrification includes emissions avoided by displacing fossil fuels with electric equipment
as well as emissions avoided from efficiency gains brought about by electrical equipment. Mt CO2 = million tonnes of carbon
dioxide.

Around 45% of the cumulative emissions avoided to 2060 from electrification are inindustry, another 35% in transport and 12% in buildings

Box 4.1

Electricity system targets and policies

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IEA, 2021.

China has consistently met and exceeded targets set in previous five-year plansfor expansion of electricity generation capacity and the reduction in coal shares inprimary energy supply. The 14th FYP for 2021-2026 marks a shift in emphasis byhighlighting the importance of “extensively expanding” solar and wind. It further
sets a target of 70 GW of installed nuclear capacity, up from 52 GW as of mid2021, and a non-fossil fuel share of primary energy use of 20% by 2025, up fromjust under 16% in 2020. The plan sets out a blueprint for investments in the coming
five years in nuclear capacity, offshore wind and transmission grids, with the aimof both solar and wind overtaking hydropower soon after 2025 to become theAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

leading power generation technologies, after coal. It also recognises the role ofnatural gas in meeting peak load and responding flexibly to fluctuations fromvariable renewables. While the plan does not contain an explicit cap on coalcapacity expansions, it does emphasise the need for clean and efficient use of coaland leaves open the option of imposing consumption caps on coal soon (NDRC,
2021).
Power sector investment decisions were being shaped by the new targets before
they were officially announced. In early 2021, the State Grid Corporation of China
announced that it was planning to invest USD 370 billion (CNY 2.4 trillion) over thefive years to 2025 on the following projects (State Grid, 2021):


Seven ultra-high voltage direct current transmission lines with a combined
capacity of 56 GW.

Increasing interregional transmission capacity to 300 GW, of which half could
be used to carry ‘clean’ electricity.



50 MW of new pumped hydro energy storage facilities by 2025.

New peak-shaving gas power plants and distributed solar, with the latterreaching 180 GW by 2025 (up from 72 GW in 2020).



Developing EV charging capacity, including highway fast-charging andnetworks in 176 cities.

China’s national emissions trading system, which started trading in mid-2021,
initially covers coal- and gas-fired power plants, and allocate allowances
determined by carbon intensity benchmarks (see Chapter 7).
In parallel to decarbonising the power sector, China has also been pursuingincreasing electrification in end-use sectors, with Guiding Opinions on Advancing
the Replacement by Electricity issued in 2016 by eight ministries and the Energy
Supply and Consumption Revolution Strategy (2016-2030) including urban andrural electrification as a key area in reshaping energy consumption (Governmentof China, 2016). During the 13th FYP period (2016-2020), China set targets toincrease the share of electricity in final energy consumption to 27% in 2020 (from25.8% in 2015) and for fuel-switching to electricity (across all end-use sectors) tolead to a total of 450 TWh of demand.

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The 14th FYP (2021-2025) promotes coal-to-electricity switching, the expansion ofrecharging infrastructure and clean heating* and industrial furnace management
in northern areas. State Grid estimates that the potential for switching to electricity
during the 14th FYP period could be 600 TWh (nearly 9% of annual electricity
consumption in 2020), while the China Electricity Council estimates that the shareof electricity in final energy consumption could reach 38% by 2035 (State Council
Information Office of the People’s Republic of China, 2020).

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Chapter 4: Technology needs for the energy transition

In the case of transport, China’s New Energy Vehicle (NEV) Industry Development
plan sets out a strategy for innovation in automotive technologies, including EVs.
In late 2020, the Society of Automotive Engineers (SAE-China) set targets, later
confirmed by the State Council, for the share of NEVs (battery, plug-in and fuel-cellelectric vehicles [FCEVs]) in light-duty vehicle sales: 20% by 2025 and more thanhalf by 2035 (Randall, 2020).
In the residential sector, electrification efforts focus on replacing standalone coalstoves or coal boilers in areas without district heating networks. The Clean Heating
Plan for northern China in Winter (2017-2021) targets 70% of clean heating
coverage in northern regions by 2021 (up from 34% in 2016). To tackle air pollution
in the provinces of Beijing, Tianjin, Hebei, Henan, Shanxi and Shandong, it sets a
specific target for 28 Chinese cities to use 100% clean energy sources for heatingby 2021. The plan also set targets for expanding solar, biomass, and geothermal
heating in buildings (Government of China, 2017).
For the industry sector, the 2016 Guiding Opinions on Advancing the Replacement
by Electricity identified key sectors and regions for electrification, as well as
measures to promote industrial electric boilers for steam demand, particularly
textiles and wood processing on the south-eastern coast, and electric furnaces invarious sectors, including metal processing, ceramics, mineral wool, and glass(Government of China, 2016).
* Clean heating includes that by natural gas, electricity, large-scale coal facilities with pollution mitigation,
renewables and industrial excess heat.

As in other countries, the accelerated electrification of the Chinese economy
reflects both the aim to exploit low-carbon renewable generation technologies –mainly solar and wind – and the environmental and practical advantages ofelectricity over other low-carbon forms of energy in end-use applications, including
the higher energy efficiency of many electric technologies. The share of electricity
in China’s total final energy demand grows from 25% in 2020 1 to 55% in 2060 in
the APS. Taking account of the indirect use of electricity for making other final
forms of energy, the share reaches 66% in 2060, with the use of electrolysis to
produce hydrogen and synthetic fuels accounting for most of the difference.
Electricity becomes the main energy carrier in all end-use sectors, though trends
vary significantly.

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IEA, 2021.

1
These shares differ from Chinese official statistics due to different methodologies to calculate total final consumption (TFC).
TFC cited in this report includes energy consumed in blast furnaces and coke ovens in industry, which reduces the reported
electricity share.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

Growth in electricity consumption in China by sector and scenario, 20202060

IEA, 2021.
Notes: Hydrogen production here only includes merchant hydrogen. APS = Announced Pledges Scenario; STEPS = Stated
Policies Scenario.

Electricity accounts for more than half of transport and industry energy demand, 60% ofbuildings final demand and nearly 90% of hydrogen production by 2060 in the APS

Electricity is already an important fuel for China’s industrial sector today, meetingaround a quarter of its total energy needs. In the APS, industrial electricity demand
grows by more than 70% between 2020 and 2060. Direct use of electricity grows
to satisfy the demand for low- and medium-temperature heat, particularly in lightindustries for manufacturing, heat pumps and other electric heating technologies.
The stock of electric motors in the light industry sectors also grows rapidly, anddespite a greater share of higher efficiency classes and greater use of variable
speed drives, overall electricity demand doubles. In the energy-intensive steel andaluminium industries, secondary production (using scrap metal) is an important
contributor to electricity demand growth, despite falling production of these metals.
The other key area of growth is for indirect electrification of primary materials
production, mainly in the steel and chemicals sectors, through the use of hydrogenas a reduction agent in the steel industry and as a feedstock for ammonia andmethanol production in the chemical industry. Of the 7 000 TWh of electricity
consumed in industry in China in 2060 in the APS, around 13% is used to produce
electrolytic hydrogen.
Electricity demand in the buildings sector, the second largest user of electricity

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today, grows by more than 60% between 2020 and 2060 in the APS to nearlyAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

3 700 TWh, driven mostly by increased use of electrical appliances and switchingfrom traditional biomass and fossil fuels for cooking and water heating. In contrast
with the other sectors, electricity demand increases less in the APS than in the
STEPS, thanks to stringent buildings energy codes and appliance efficiency
standards. Electricity demand for space heating and cooling and lighting increases
less, thanks to progressive improvements in buildings performance andequipment efficiency.
Despite leading the world in electrification of road transport (IEA, 2021a), oil
products and natural gas still provide about 95% of China’s transport final energy
demand today. This changes dramatically in the APS, with electricity overtaking
oil as the main transport fuel by 2050. By 2060, electricity accounts for nearly twothirds of energy use for road transport with improvements in battery technology(see below). EVs dominate the passenger car fleet by then, with many trucks also
converting to electric powertrains, though their adoption lags that of cars by morethan a decade: the share of electricity in medium and heavy-duty trucks reaches
around 50% in 2060.

Technology readinessLow-carbon electricity end-use technologies are generally less mature than thosein power generation. Technologies such as EVs and heat pumps are commerciallyavailable today but may not yet be fully competitive with alternative non-electric
technologies, so their wider application depends on further innovation to improve
performance and reduce costs. 2 Other end-use technologies are further behind,particularly in heavy industry and long-distance transport. In primary steelmaking,for instance, the use of electricity to convert iron ore into steel through electrolysis
is still the subject of research projects and plans for pilot plants. In aviation,
prototypes of electric planes are currently being developed and tested by several
companies, but they are far from commercial viability, even for small numbers ofpassengers and short-haul flights, because of the technical limitations associatedwith the low energy density of batteries.
About 85% of cumulative CO2 emissions reductions in the APS, relative to 2020,come from renewables and nuclear power. Many of these technologies are
already mature or already growing steadily on the market, though they willcontinue to develop as they are deployed more widely. Similarly, many of the end-

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2
The need for further technological advances also applies to other areas of the low-carbon electricity value chain. Innovation
to develop effective means of providing greater flexibility in adjusting supply to load in low-carbon electricity system is
becoming increasingly important. Many of the most promising technologies today are between the early adoption and large
prototype stages.

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Chapter 4: Technology needs for the energy transition

use technologies that rely on electricity, such as heat pumps for buildings andindustrial applications, scrap-based steel production, lithium-ion (Li-ion) batteries
for EVs, and electric cook stoves, are already on the market. Other end-use
technologies, however, are still under development. Advanced high-energydensity batteries, which are at the prototype stage today, contribute to almost halfof the cumulative emissions reductions in road transport to 2060 in the APS. Directelectrification of heavy industry poses an important technical challenge,
particularly for those processes with high-temperature thermal needs. Most
technologies in this area are also at the prototype stage today. In the APS, electric
cement kilns, for instance, have a limited role, delivering just 1% of the cumulativeemissions reductions in the cement sub-sector to 2060.
Cumulative CO2 emissions avoided by selected electricity technologies bymaturity category in China in the APS, 2020-2060

IEA, 2021.
Note: Maturity category assigned based on detailed assessment of technology readiness levels of individual technology
designs presented in the IEA Clean Energy Technology Guide (IEA, 2020a).

Most electric technologies critical for carbon neutrality are on the market today, but further
innovation is needed to make them viable for broader applications, particularly in batteries
and heavy industrial processes

Focus on EV battery manufacturing
Advances in battery technology are central to the deployment of EVs. The energy
density of EV batteries increases to over 350 Wh per kg at the cell level – around
50% higher than the current level – during the 2020s in the APS, thanks to theintroduction of solid-state batteries (today at prototype stage), which extends
driving ranges and makes EVs more competitive with conventional vehicles,
especially heavy trucks. The energy density of batteries exceeds 540 Wh per kg
by 2060, making electric ships and planes viable over short distances. Total
battery demand for all types of vehicle operating in China (and overwhelmingly for

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IEA, 2021.

road modes) increases forty-fold between 2020 and 2060, consuming 3 TWh inAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

2060 and requiring the construction of more than 85 gigafactories, each with aproduction capacity of 35 GWh, just to meet domestic demand.
China has by far the largest production capacity for EV batteries today, accounting
for 70%, or around 470 GWh, of the 660 GWh of global capacity by the end of2020 (Benchmark minerals intelligence, 2021). Battery production plants in China
still operate well below capacity, as roughly 70 GWh of batteries were installed in2020. Contemporary Amperex Technology Co. Limited (CATL) alone exported
around 6 GWh of Li-ion batteries in 2020, meeting roughly 5% of global demand.
China’s battery manufacturing is concentrated in the eastern provinces, with
Jiangsu alone accounting for one-third.
The capacity of batteries used for energy storage in the electricity network, mainly
by utilities, has increased 35-fold since 2015, reaching 10 GWh at the end of 2020.
Of that capacity, almost 5 GWh was installed during 2020. Despite this large
increase, energy storage accounts for only 7% of total battery installations.
EV battery demand and average unit CAPEXIEA, 2021.
Notes: CAPEX = capital expenditure; APS = Announced Pledges Scenario.
Source: Historic data based on IEA (2021a).

Just under half of all the batteries produced in the world today go to China, with rapid
growth in demand for EVs driving down production costs in all regions

The cost of Li-ion batteries, which account for most of the batteries produced andsold in China today, has fallen precipitously since their invention in the early
1990s. The scaling-up of manufacturing and technology learning in China has
been a major driver of cost reductions. They were initially used for consumer
electronics, with many Chinese companies involved in their manufacturing, thanks

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IEA, 2021.

to technology agreements with US and Japanese firms. In the mid-2000s, someAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

Chinese battery makers began researching and producing batteries for EVs,
encouraged later by government subsidies for EV purchases. Until 2019, thedomestic battery industry was heavily protected since only vehicles using batteries
made by Chinese carmakers could qualify for subsidies, excluding Japanese andKorean battery makers that had a presence in China. The cost of Li-ion batteries
dropped by 50% between 2014 and 2016, a period during which battery demandin China increased sevenfold and accounted for 80% of the global battery demand
growth. Today, Li-ion battery production costs do not vary widely around the world
but they are affected by the raw material needs of each technology, prices canvary according to the volume ordered by carmakers.

Box 4.2

EV battery manufacturing in China

The two main EV battery manufacturers in China are CATL and BYD, in 2019 they
had capacities of 53 GWh and 40 GWh and national market shares of roughly 65%
and 15% respectively. Korean and Japanese companies also have large
production capacities in China: Panasonic has 10 GWh out of its total global
capacity of 58 GWh, LG Chem 30 GWh out of 70 GWh and Samsung SDI 10 GWh
out of 20 GWh. Most of the other producers are small and focus on local markets.
China has put a particular focus on the development and production of lithium
ferro-phosphate (LFP) cathode batteries – a type of Li-ion battery – with the11th FYP (2006-2010) prioritising R&D of that technology. LFP batteries, almost
all of which are made by Chinese manufacturers, are well-suited for buses as they
have a relatively long cycle-life, which is ideal for vehicles with high utilisation rates,and because energy density is not as important as for passenger cars as more
space is available for batteries relative to vehicle weight. China has by far thebiggest market for electric buses. Innovation by Chinese companies of battery
pack architecture (cell-to-pack technology) has led to a resurgence in the use of
LFP cathodes for light-duty vehicles too.
China is the biggest producer of some key components of Li-ion batteries anddominates the mineral processing industry for battery metals, accounting for 35%
of all the refined nickel, 65% of cobalt and 58% of lithium produced worldwide.
Chinese mineral suppliers and battery manufacturers co-operate closely.

China could continue to dominate the global EV battery industry in the coming
decades. Chinese demand reaches 0.85 TWh in 2030 and 3 TWh in 2060 in the
APS, accounting for about one-third of cumulative global battery demand over

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IEA, 2021.

2021-2060. Around 85% of China’s demand in 2030 is for light-duty vehicles, with

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Chapter 4: Technology needs for the energy transition

the rest mostly for trucks (10%) and buses (5%); in 2060, demand for trucks
becomes more important, accounting for about 45% of total demand.
Chinese producers are planning to expand capacity to 2.2 TWh by 2030
(Benchmark Minerals intelligence, 2021), meeting about three-quarters ofprojected global demand of 3 TWh. Battery requirements in China for energy
storage are set to reach 0.08 TWh by 2030 and 3.7 TWh by 2060 – equal to adding
120 GWh of capacity per year on average, or less than 5% of the country’s total
battery demand. The share of China in global battery demand falls in the long run
as other countries catch up in electrifying road transport, but China will most likely
continue to expand manufacturing capacity to meet rising export demand. In the
APS, global demand reaches 10 TWh by 2060 – a fifty-fold increase on 2020
levels. If China was to supply the same share of global EV battery demand in 2060
as it does today, the domestic battery manufacturing industry would have a market
volume of USD 250 billion – 25 times its current size.
Increased global demand for batteries is expected to lead to further major cost
reductions through learning-by-doing, learning-by-searching and economies ofscale, in large part thanks to Chinese innovation. Lower costs and better
performance will be both the result of and driver of increased electrification of roadtransport globally. By 2030, in the APS, average costs worldwide drop to aroundUSD

85-90/kWh(CNY586-621/kW)

in

2030

and

USD

55-60/kWh(CNY 379-414/kW) in 2060. These cost reductions are only possible if there is no
major shortage of the materials needed for battery manufacturing. Given its
disproportionate role in the battery material supply, China has a unique role to playin managing supply chains and keeping up innovation in these manufacturing
processes (see next section on supply chain infrastructure). This is particularly
true for the next decade, as other regions develop their battery manufacturing
supply chains.

Focus on heat pumps
The use of heat pumps – vapour compression units to produce space heating,space cooling or both – have grown rapidly in China in the last few years, driven

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IEA, 2021.

mainly by air-conditioning demand. China’s cooling demand has grown faster thananywhere in the world since 2010 and the country now accounts for 23% of
global energy use for cooling. In 2020, more than 40% of global air-conditioner
sales were in China (ChinaIOL, 2021). Demand for heat pumps for space andwater heating, mainly air-source units, is also growing, especially forresidential and rural buildings. Reversible units (producing both heating
and cooling) are also becoming widespread in urban areas throughout thecountry. Most of the heat pumps sold in China are domestically produced, with

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Chapter 4: Technology needs for the energy transition

output growing steadily in recent years. In parallel, China manufactures over 70%
of room ACs globally (LBNL, 2020).
The government uses various policy instruments to improve the efficiency of heatpumps manufactured and sold in China. Minimum Energy Performance Standards(MEPS) cover all types of heat pump. The government tightened MEPS forvariable-speed units and introduced a subsidy scheme to support the purchase of
efficient units in 2012, which led to a sharp increase in their energy performancein 2013-2014. As efficiency improvements for some type of units levelled off in
2017, there is scope for a further tightening of MEPS (IEA, 2019). In June 2020, a
new MEPS (GB21455-2019), which includes for the first time low-temperature airsource heat pumps, was introduced.
Chinese demand for heat pumps will undoubtedly continue to grow with risingtemperatures and increased demand for thermal comfort with increasing
prosperity. In the APS, heat pump capacity nearly quadruples between 2020 and
2060 to around 5 TW, equal to about 30% of the world total. The share of electricheat pumps in space heating energy consumption in buildings reaches 7% in 2030
and more than 20% in in 2060, compared with nearly 3% today. The share ofhouseholds owning at least one air conditioner also grows from 70% today to morethan 90% already in 2050. Total energy use by heat pumps for heating and coolingreaches 800 TWh in 2060, about 13% of the global total in buildings, and around
60% of total Chinese electricity use in the sector.
Heat pump installed capacity and average unit CAPEX in the APS

IEA, 2021.
Note: CAPEX = capital expenditure. Heat pumps include all vapour compression cycle technologies providing space heating
and space cooling, excluding ground source heat pumps. Capacity refers to input capacities.

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China accounts for over one-fifth of the global increase in heat pump capacity to 2060, witheconomies of scale and learning-by-doing driving costs down by more than 15%

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Chapter 4: Technology needs for the energy transition

Increased heat pump demand, which allows manufacturers to exploit economies
of scale, helps bring down their average cost by 5% in 2030 and nearly 15% in
2060. R&D and technology learning from cooling, e.g. in refrigerant control
systems, compressors, low global warming potential or natural refrigerants andhybrid vapour compressors cycles, also contributes to bringing down the cost ofpumps for heating applications (IEA, 2020b).

Supply chain infrastructure needs
China’s big projected increase in electricity demand over the next four decades in
the APS calls for a major expansion and transformation of its electricity network.
With the projected decline in fossil-fuel-based generation, the flexibility needed toensure that the electricity system operates reliably and securely requires
alternative sources of dispatchable generation, more short-term and seasonal
storage, demand response and reinforcements to the network, alongsideenhanced interconnections with neighbouring systems to take advantage of larger
geographical areas to help smooth out variations in local loads. These
requirements are discussed in detail in Chapter 3.
While electrification of end uses reduces reliance on fossil fuels, it increases
demand for the metals and minerals needed to produce the infrastructure andequipment associated with wider deployment of low-carbon electricity. Copper,
lithium, cobalt and platinum are at the core of the energy transition: copper isneeded for transmission and distribution lines, lithium and cobalt for Li-ion
batteries and platinum for fuel cells. The material with the most fragile supply chain
is cobalt, resources of which are highly concentrated geographically: theDemocratic Republic of Congo currently accounts for almost two-thirds of world
primary production. China imports all the pure cobalt it needs. Supply chain risks
were highlighted by a very sharp price hike in 2018, which encouraged battery
producers to reduce cobalt content. The availability of low-cobalt batteries has
since grown rapidly. Lithium is likely to keep its status as a critical material
because its physical properties make it hard to replace in high-energy-density
batteries.
Copper is used today in construction, vehicles manufacturing and power systems(including cables, for instance in ultra-high voltage transmission lines [See thesection on power generation of Chapter 3]). Demand in China is projected to growsignificantly between 2020 and 2060, but less than overall electricity demand:
faster electrification across end-uses is largely offset by reduced demand forcopper in transport due to modal shifts and to more efficient use of materials in

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IEA, 2021.

vehicle manufacturing and construction. By contrast, demand for lithium, nickel

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transitionand cobalt for making Li-ion batteries increases 50-fold, 44-fold and 22-foldrespectively due to the rapid penetration of EVs and increased battery storage inthe power sector.

Demand for selected critical metals for EVs in China in the APS

IEA, 2021.

Demand for lithium, nickel and cobalt soars due to the need for Li-ion batteries for the
rapidly expanding fleet of EVs and for storage in the power sector

China holds large reserves of some critical materials and much of the world’s
minerals processing and refining capacity. It is home to 60% of the global mining
capacity of rare-earth metals used in electric motors and wind turbines. It also has
65% of global processing and refining capacity for cobalt, more than 55% for lithium
and more than 35% for nickel. China is likely to retain its global leadership in criticalmaterial supply in the medium term based on planned projects, putting it at thecentre of the global supply chain needed to for the energy transition (IEA, 2021b).

CCUS
Role in the energy transition

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IEA, 2021.

China has made significant progress in the development of CCUS over the past
decade, which could provide the basis for a rapid acceleration in deployment. A
growing number of CCUS projects are operating or planned. There are currently
at least 21 pilot, demonstration, or commercial projects in operation in China witha combined capture capacity of over 2 Mt of CO2 per year – many of which areassociated with enhanced oil recovery involving (EOR) the injection of CO2 toboost oil production (CO2-EOR). The largest is the commercial 600 kt/year China
National Petroleum Corporation (CNPC) CO2-EOR project at Jilin that captures

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Chapter 4: Technology needs for the energy transition

CO2 from natural gas processing. Two other commercial-scale projects are underconstruction – a 700 kt/year CO2 capture project at Sinopec’s Qilu refinery ineastern Shandong, and a 400 kt/year CO2 capture project at a coal-to-chemicals
plant in Shaanxi owned by Yanchang Petroleum. Both projects will use captured
CO2 for EOR in the Shengli Oilfield and Ordos Basin respectively. All CCUS
projects are in northern or eastern China where there is a high density of coalbased chemicals and power production as well as good opportunities for
CO2-EOR and dedicated geological storage.

Box 4.3

CCUS deployment targets and policies

Policy and regulatory developments over the last decade signal that CCUS is
gaining traction in China. Since the 12th FYP (2011-2015), China has included
CCUS in its national carbon mitigation strategies and in its nationally determined
contribution. The development of large-scale CCUS demonstration projects was
included for the first time in the 14th FYP (2021-2025). Several ministries haveissued guidance documents to support the development of CCUS technologies
through research, development and demonstration (RD&D), such as the
13th Five-Year Special Plan for Climate Change Science and Technology
Innovation. Interest for CCUS is also growing at the regional level, with 29 of thecountry’s 34 administrative divisions issuing CCUS-related policies (Xian, 2021).
In 2019, the Department of Social Development of the Ministry of Science andTechnology and the Administrative Centre for China’s Agenda 21 (ACCA21) jointly
released a roadmap for the development of CCUS technology in China (ACCA21,2019). It defines several goals in five-year increments to 2050. By 2030, CCUS
should be ready for industrial applications, while long-distance onshore CO2
pipelines with capacities of up to 2 Mt/year should be available. It also aims to
reduce the cost and energy consumption of CO2 capture by 10-15% by 2030 and
40-50% by 2040. By 2050, CCUS technology is to be deployed extensively,
supported by multiple industrial CCUS hubs across the country.
China’s CCUS policies have so far focused mainly on the science and innovation,
leading to major advances in all aspects of the technology. China has not yet
enacted any specific laws to encourage the deployment of CCUS and overcome
barriers to new projects. That will require the introduction of a legal and policy
framework, market incentives including CO2 pricing and subsidies to address thehigh capital and operating costs of large-scale projects (Jiang et al., 2020).

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CCUS is set to play an important role in China’s transition to carbon neutrality in the
APS, in large part because of the composition of its existing energy infrastructure

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transitionand large role of coal in the energy mix today. CO2 capture is deployed in industry,
fuel transformation and power generation, with the CO2 either permanently stored
or used in various ways. Many of the country’s existing power and industrial plants
have been built relatively recently and could continue operation with CCUS retrofits,
avoiding potentially costly early retirements. CCUS also provides a means ofgenerating negative emissions via bioenergy with carbon capture and storage(BECCS) and direct air capture (DAC) with CO2 storage, both of which aretechnologies that can remove CO2 from the atmosphere on a net basis.
In total, CCUS contributes 8% of the cumulative reduction in China’s CO2 emissions
between now and 2060 with its contribution growing over time. In the APS only small
increases in the total volume of CO2 captured from 2020 to 2030 are needed tosupport China’s enhanced near-term targets declared in 2020 related to its
nationally determined contribution under the Paris Agreement. That period is used
to ensure that the necessary enabling environment, including advanced regulatory
frameworks and transport and storage infrastructure, is in place for widespread
deployment. Deployment of CCUS technologies ramps up after 2030 to support
deeper emissions reductions in the power, industry and fuel transformation sectors,
reaching 2.6 Gt in 2060. Around 620 Mt of CO2 are removed via BECCS and DAC
with CO2 storage in 2060, 25% of total CO2 capture, entirely offsetting residual
emissions in industry and transport.
CCUS deployment by sector and source of emissions in China in the APS

IEA, 2021.
Notes: Other energy transformation includes fuel transformation, extraction of fossil fuels, and mining. DAC = direct air
capture; CCUS = carbon capture, utilisation and storage. CCUS capacity excludes internal use of captured CO2 for chemical
production.

PAGE | 162

IEA, 2021.

CCUS focuses initially on reducing emissions from existing assets but plays a growing role
in removing carbon from the atmosphere via BECCS and DAC with storage

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

CCUS is increasingly deployed to reduce emissions from existing power andindustrial assets and in most applications, CO2 capture rates as high as 99% canbe achieved at relatively low additional cost. CO2 capture rates at coal and gasfired power plants increase over time: the average aggregate capture rate in coalfired power and natural gas fired-power reaches 96% and 95% respectively in
2030 and around 98% in 2060.
Power generation is the main driver of CCUS deployment throughout the
projection period. By 2060, the power sector accounts for around 1.3 Gt, or half ofall the CO2 captured (see Chapter 3). These high capture volumes are largely areflection of the scale of emissions at coal power plants with CCUS contributing
7% of all the emissions savings in China’s power sector in 2060 relative to 2020.
CCUS also grows rapidly in industry, especially in cement and chemicals
production (see Chapter 3). CCUS is crucial in reducing industrial emissions, as it
is one of few available technologies for reducing process emissions in cement,
steel and chemicals production. By 2060, heavy industry accounts for over 820 Mt,
or almost 32% of all CO2 captured in the APS. In the cement and chemicals
sectors, CCUS contributes as much as 33% and 13% respectively to overall CO2
emissions savings in 2060 compared with 2020.
Low-carbon fuel transformation and CO2 removal technologies play an importantrole in later decades. By 2060, around 505 Mt of CO2 capture is BECCS and
115 Mt is DAC for storage. Of all the CO2 captured in 2060, 2.5 Gt, or 96%, ispermanently stored and 120 Mt, or 4%, is used mainly for making aviation fuels.
The deployment of CCUS in China and elsewhere in the world in the APS brings
down costs due to learning-by-doing and economies of scale, while establishing asolid knowledge base, a skilled labour force and considerable technical capacity.
Chinese deployment of CCUS in fossil power generation, chemicals, cement, andfor DAC accounts for around 50-75% of global CCUS capacity across those
sectors by 2060, and around 40% in iron and steel 3. The domestic deployment of
CCUS provides an opportunity for China to export high-value knowledge andcapacity.

3

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IEA, 2021.

The high share of CCUS deployment in China relative to the rest of the world reflects, in part, that the APS takes into
account current net zero emission pledges by countries with limited deployment of CCUS outside of these countries. For
example, in 2060, cement production is shared evenly between countries with net zero pledges and those without, with China
accounting for 70% of cement production in countries with pledges. For this reason, China accounts for more than two-thirdsof cement production with CCUS in 2060 but only 35% of total global production.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

Global CCUS deployment by sector in the APS

IEA, 2021.
Note: DAC = direct air capture.The APS takes into account net zero emissions pledges that have been made around theworld (see Chapter 2). Outside of those countries, CCUS is projected to be deployed in only a limited manner. BECCS andDAC are not deployed in China in the APS to offset residual emissions from other countries but only to compensate for theremaining domestic emissions by 2060. CCUS deployment excludes internal use of captured CO2 for chemical production.

China accounts for more than two-thirds of CO2 captured globally in fossil-based power,
chemicals and cement in 2060 in the APS

Technology readiness
The contribution of CCUS to China’s pathway to carbon neutrality hinges on the
rapid development and commercialisation of capture technologies in each sector
and the expansion of CO2 transport and storage networks. The maturity of CCUS
in China today varies considerably by technology type and application. While mosttechnologies have been demonstrated in a global context, a lack of policy andregulatory support in China is holding back their deployment. Around 45% of the
cumulative emissions reductions from CCUS through to 2060 in the APS come

PAGE | 164

IEA, 2021.

from CO2 capture technologies that are currently at the prototype or demonstration

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

stage. Demonstration and commercial-scale project development needs to beaccelerated to make this pathway possible.

Cumulative CO2 emissions avoided in selected CCUS applications bymaturity in China in the APS, 2020-60

IEA, 2021.
Notes: Steel production refers to the innovative smelting reduction route with CCUS. Application maturity corresponds to thematurity of CO2 capture in a sector for the purpose of CO2 storage. Maturity categories are assigned based on detailed
assessment of technology readiness levels of individual technology designs and CCUS systems in the IEA Clean Energy
Technology Guide (IEA, 2020a).

CO2 capture is still at the demonstration stage in some sectors, including cement,
bioenergy power plants and steel, where it is needed to deliver large emissions reductions

CO2 capture
CO2 has been captured for decades in certain industrial and fuel transformation
processes such as ammonia production and natural gas processing. In otherapplications, such as cement and coal-fired power plants, CO2 capture is lesswidely deployed at present. Of the total of 2-3 Mt of CO2 capture capacity currently
in operation in China 4, at least 450 kt/year is at coal-fired power plants and
900 kt/year at coal-to-chemicals plants, with the rest in natural gas processing, oil
refining and other sectors, including one demonstration project in cement (Cai etal., 2020). At least six projects have started operating since 2019, with theircapacity ranging from 20 to 150 kt/year.
The most advanced and widely adopted capture technologies today are chemical
absorption and physical separation. Other technologies include membrane
separation and looping cycles (calcium and chemical looping), which are currently

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IEA, 2021.

4This excludes CO2 captured from process emissions in the chemical sector during normal operations to synthesize ammonia
and urea. In 2020, the Chinese chemical sector captured some 40 Mt CO2 for this purpose.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transitionat the prototype stage. Capture costs in China vary between USD 36-62/t CO2(CNY

250-430/t

CO2)

for

pre-combustion

capture,USD

43-65/t

CO2(CNY 300-450/t CO2) for post-combustion capture and USD 43-58/t CO2(CNY 300-400/t CO2) for oxyfuel combustion (ACCA21, 2019). The government
has set ambitious targets for future cost reductions of 30-40% by 2030 and
60-70% by 2050 (ACCA21, 2019).
China is making a significant contribution to global CO2 capture R&D efforts. One
example of international cooperation is CHEERS, a five year project funded by theEuropean Union’s Horizon 2020 research and innovation programme and theChinese Ministry of Science and Technology. The project aims to demonstrate achemical-looping combustion system with integrated capture in refineries. A
prototype, using petroleum coke as a fuel, is planned in China, producing CO2 foruse in EOR. Another example is the CTSCo project involving China’s Huaneng
and Glencore, a multinational resources company, which will use the former’s CO2
capture technology to capture emissions at the Millmerran coal-fired power plantin Australia. International projects like these demonstrate the potential to export
Chinese technologies and can support future roll-out of CO2 capture technology
in coal-fired power plants in China and elsewhere.

CO2 transport
The availability of infrastructure to transport CO2 safely and reliably from where itis captured to storage sites or plants that make use of the gas is essential to thedeployment of CCUS technology. Tank trucks have been used as the primarymode of transportation for at least two-thirds of CCUS projects in China to date.
Costs range between USD 0.13-0.20/t-km (CNY 0.9-1.4/t-km) (Cai et al., 2020).
Inland transport of CO2 by barge has also been demonstrated at a cost of
approximately USD 0.04/t-km (CNY 0.30/t-km) (ACCA21, 2019). While transport
by tank truck, rail and barges can be viable for short distances and small volumes,
pipelines and ships are usually cheaper for longer distances and larger volumes.
The CNPC CO2-EOR project at the Jilin Oilfield is one of the few Chinese CCUS
projects that transports CO2 by pipeline, over 53 km at a cost of USD 0.04/t-km(CNY 0.30/t-km) (Cai et al., 2020). Once operational, a pipeline will also be used
to transport CO2 captured at Sinopec’s Qilu refinery to the Shengli oilfield for EOR.
The cost of pipeline transport depends heavily on the flow rate; for example, thelevelised cost for a 35 Mt/year pipeline is more than ten times lower than that of a

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IEA, 2021.

1 Mt/year pipeline over the same distance (Wei et al. 2016). Costs also vary acrossAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

regions according to the terrain. In China, costs are lowest in central China,
followed by the east, northeast, north, northwest and south areas of China (Wei etal., 2016).
The ACCA21 China CCUS roadmap targets the construction of two 1 Mt/year of
onshore pipelines by 2025, expanding to a total transport capacity of 1 Gt/year
CO2 and more than 20 000 km of pipeline by 2050 (ACCA21, 2019). As pipeline
infrastructure expands and industrial clusters develop, the cost of CO2transportation is expected to fall due to economies of scale and the constructionof shared infrastructure. Business models that involve the separation of thecapture, transport and storage components of the CCUS value chain could also
help to mitigate risk and reduce the cost of capital.
Several commercial CCUS projects with CO2 transportation by ship are atadvanced stages of development around the world. One example is the Northern
Lights project in Norway, which will be the first large-scale CO2 shipping operation,collecting CO2 from European ports and shipping it to the coast of Norway, where
it will be piped to an offshore storage site. There are no concrete plans to ship CO2
for CCUS in China at present. However, shipping is included in the ACCA21 China
CCUS roadmap, with a planned transport capacity of 5 Mt/year by 2040.

CO2 utilisation
CO2 can be used as a feedstock for making a range of products either directly,
where CO2 is not chemically altered, or through its transformation into fuels,chemicals or building materials. Today, captured CO2 is used mainly for CO2-EOR
and making chemicals, while smaller volumes are used in the electronics and foodand beverage industries. Most RD&D has focused on new conversion pathways.
The use of CO2 to make chemical feedstock and transport fuels plays an importantrole in the APS, but the technology to do so is currently still at the prototype stage.
Innovation and policy support needs to be stepped-up now to ensure theseapplications are commercially available within the next decade. Other uses of CO2
are being applied or demonstrated at scale, including for curing concrete andcreating mineralised building materials. In both cases, the CO2 is effectively stored
long-term.
Today, approximately 100 kt/year of CO2 is used in China to synthesize high-value
chemicals with an output value of approximately USD 58 (CNY 400) million/year,
while 50 kt/year is used in synthesising materials, generating USD 29 (CNY 200)
million/year in revenues (ACCA21, 2019). China hosts the world’s first commercial
waste-gas ethanol plant, which commenced operation in 2018 at the Jingtang

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IEA, 2021.

steel mill in Hebei province. The plant, which can produce 46 kt/year

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition(160 kilolitres a day) of ethanol, uses bioreactors instead of traditional CO2 capture
technologies (LanzaTech, 2018). Waste gas from the steel mill is mixed withanaerobic bacteria that ferment the carbon monoxide and CO2 present in the gas
stream to produce ethanol. Some biologically derived CO2 is converted to foodand feed, transformed into chemicals or used to make fertilisers, though volumes
are small.
CO2-EOR has been used for more than five decades in some parts of the world,with the revenue from the sale of the oil underpinning the development of overthree-quarters of currently operating large-scale CCUS projects. Over the lifetimeof a CO2-EOR project, the vast majority of injected CO2 is permanently stored
underground and CO2-EOR practices can be modified to provide assurance oflong-term CO2 storage (IEA, 2015). In China, CO2-EOR can be economic whenoil prices rise above USD 70 per barrel (Cai et al., 2020). The Chinese government
sees CO2-EOR as a way of stimulating the rollout of CCUS and the developmentof a CO2 management industry (ACCA21, 2019). Several new CO2-EOR projects
are being developed by large energy companies in China. However, while
CO2-EOR can be a driving force for CCUS in the near term it should be regarded
as a transition step towards the wide roll-out of dedicated storage. In the longer
term, it plays much less of a role as production of oil falls with lower demand andprices and the need for dedicated CO2 storage increases.

CO2 storage
CO2 can be permanently stored both onshore and offshore in deep saline ordepleted oil and gas reservoirs. There is no dedicated commercial storage yet in
China. The largest demonstration project, in the Ordos Basin, was run by theShenhua Group over 2011-2014, injecting approximately 300 kt of CO2 into asaline aquifer (Cai et al., 2020). Although injection has stopped, CO2 is still being
actively monitored. Other demonstration projects injected much smaller volumesof CO2. Elsewhere in the world, five large-scale facilities injecting around
8 Mt/year of CO2 into saline formations are in operation today. CO2 storage indepleted oil and gas reservoirs has been limited to pilot demonstrations, but there
are plans to develop commercial facilities, for example in the Netherlands andUnited Kingdom.
There is considerable potential for CO2 storage in China and theoretical capacity

PAGE | 168

IEA, 2021.

has been estimated at more than 325 Gt in onshore basins and 77 Gt in offshore

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transitionbasins (Guo et al., 2015; Kearns et al., 2017). 5 There are extensive onshore salinestorage resources in the northern, western, and central-eastern parts of China,
including the Autonomous Regions of Inner Mongolia, Ningxia and Xinjiang and
the Shaanxi province, while offshore basins, which are generally less wellexplored but may be suitable for storage, are found along most of China’s
coastline. Oil and gas fields, including in the Ordos, Bohai Bay and Songliao
Basins, may also be suitable for CO2 storage once they have been depleted.
Those regions are also the main areas where CO2-EOR is used today.
Characterisation of the saline aquifers in regions with existing CO2-EOR activity
could stimulate development of dedicated storage while oil and gas production
continues. This could allow for shared CO2 transportation infrastructure andencourage the transition from CO2-EOR to dedicated storage.
Using data gathered during offshore oil and gas exploration and production tocharacterise offshore storage resources could help accelerate its development.
However, the widespread development of offshore resources in China is likely tolag behind that of onshore resources by several years, given the additional costand complexity and the fact that offshore transportation in China is still in theconcept phase (ACCA21, 2019).
Storage costs in China, including monitoring for 20 years after site closure, areestimated at USD 8.70/t (CNY 60/t) for onshore saline aquifers, USD 43.48/t(CNY 300/t) for offshore saline aquifers and CNY 50/t (USD 7.25/t) for depleted
oil and gas fields (ACCA21, 2019). China’s CCUS roadmap sets a goal of reducing
saline storage costs by around one-fifth by 2030 to around USD 5.80-7.25/t(CNY 40-50/t) and half by 2050 to USD 3.62-4.35/t (CNY 25-30/t).

Carbon dioxide removal
Carbon dioxide removal technologies involve extracting CO2 from the atmosphere,
directly or indirectly (via the absorption of CO2 in biomass) and permanently
storing it. Technology-based approaches to carbon dioxide removal based on
CCUS will play an important role in meeting China’s climate neutrality objectives.
BECCS is closer to large-scale commercialisation than DAC and makes a larger
contribution to emission reductions in China in the APS, mostly after 2040.
The only operating large BECCS plant in the world is the Illinois Industrial CCS
facility in the United States. It has been in operation since 2017, capturing

5

PAGE | 169

IEA, 2021.

As with other regions, the theoretical storage potential in China varies according to the methodology used to assess it. Wei
et al., 2013 estimates that 18% or 746 Gt of saline aquifer capacity onshore could be highly suitable for CO2 storage basedon technical, geographic and social criteria. Kearns et al., 2017 provides a lower and upper estimation of 325-2 287 Gt and
77-544 Gt for onshore and offshore resources respectively.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

1 Mt/year of CO2 generated from ethanol production and storing it in a saline
aquifer. BECCS can also be applied in the power sector, with CO2 captureattached to biomass-fired boilers (a process being trialled at the Drax power
station in the United Kingdom) or attached to waste-to-energy plants (such as what
is being developed at Fortum Oslo Varme in Norway). Waste-to-energy generates
a combination of fossil and biological CO2 depending on the feedstock of a plant,
which limits the amount of negative emissions. 6 Given the widespread use ofwaste for electricity and heat generation in China, those plants could offer a firstopportunity for BECCS, on condition their feedstock contains a large proportion of
biomass.
DAC plants, which capture CO2 directly from ambient air as opposed to a point
source, require significant amounts of low-carbon energy. Several small pilotscale plants are currently operating around the world, with the captured CO2 being
used in commercial facilities. A large-scale DAC facility is in development in the
United States. The optimal siting of DAC for carbon removal is in regions where
there is access to low-cost renewable sources of energy or nuclear power andCO2 storage resources. Based on the colocation of hydropower and CO2 storage
resources in the Sichuan Basin, the Sichuan Province has been identified as aregion with good potential for DAC (Pilorgé et al., 2021). The Songliao Basin in
northeastern China has also been identified as a potential region for DAC basedon the colocation of CO2 storage resources with wind or solar power (Pilorgé etal., 2021).

Infrastructure needs
For CCUS to reduce China’s emissions to the extent projected in the APS, an
extensive CO2 transport and storage network is needed. The deployment of thisinfrastructure will require government co-ordination and support at regional andnational levels. Centralised project tracking and reporting could aid co-ordination.
Initially, CCUS activities are expected to be centred on developing CO2 storage
resources in proximity to large industrial ports and major industrial clusters suchas those in eastern China. Five regions could act as onshore storage hubs. They
are home to many existing coal-to-chemicals installations, natural gas processing
facilities and CO2-EOR projects. Hydrogen production will most likely beconcentrated in these regions since they also have vast wind and solar, as well as
fossil fuel, resources. As oil production and CO2-EOR decline, part of the regional

6

PAGE | 170

IEA, 2021.

The Intergovernmental Panel on Climate Change considers that between 30-50% of the total CO2 from incinerated municipal
solid waste is generally of fossil origin (IPCC, 2006).

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

work force could be retrained to work in the CO2 management industry since it
requires many of the same skills (see Chapter 5).

Potential CO2 storage hubs in China
Storage Resources

Provinces

CO2 sources

Existing CCUS
activities

Bohai Bay Basin

Beijing, Tianjin, Hebei(North China)

Power, chemicals,
refining, iron and steel,cementCO2-EOR in theShengli andZhongyuan oil fields

Junggar and Turpan-Hami
basinsXinjiang (northwest
China)

Power, refining,chemicals, cement,
iron and steel

CO2-EOR in Xinjiang
oil field (Xinjiang
CCUS Hub)

Ordos basin

Shanxi, Shaanxi (north
China)

Power, refining,chemicals, cement,
iron and steel

Permanent storage
pilot under postclosure
monitoring;CO2-EOR in
the Jingbian, Ansai,
Wuqi, and Jiyuan oil
fieldsSongliao Basin

Heilongjiang, Jilin(northeast China)

Power, refining,chemicals, cement,
iron and steel

CO2-EOR in the Jilin oil
field

Sichuan Basin

Sichuan (central China)

Power, refining,cement, iron and steel

Unknown

Notes: All CO2 sources are within 50 km. The Xinjiang CCUS Hub is part of the Oil and Gas Climate Initiative (OGCI)
Kickstarter programme. The potential storage capacity of the Sichuan Basin is considered more limited than that of the others
shown here.
Sources: IEA analysis based on IEA’s research and ACCA21 (2019).

Onshore and offshore CO2 storage sites can receive CO2 from a single source orseveral of them. Storage sites accessible to multiple capture facilities can benefit
from economies of scale and reduced commercial risk, and can help to stimulate
the development of a CO2 management industry. Porthos in the Netherlands andNorthern Lights in Norway are examples of projects that have adopted the multisource model.
Although more expensive than onshore CO2 storage, the development of offshore
storage resources located near existing industrial ports (with high emissions)
could be a preferred alternative to transporting CO2 long distances for onshore
storage. Establishing new pipeline routes directed inland from ports may requirerouting through densely populated areas and as a result may be more challenging
than routing pipelines through existing industrial zones to offshore. The
government intends to develop offshore storage projects in a phased manner to

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IEA, 2021.

demonstrate their feasibility (ACCA21, 2019). In August 2021, China NationalAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

Offshore Oil Corporation announced plans for China’s first offshore storage facility
linked to the Enping 15-1 oilfield in the South China Sea, with capacity to store as
much as 300 kt/year of CO2.
The bulk of existing emissions-intensive activities in China are located in theeastern and central regions, notably along the coast and in the Yangtze andYellow River valleys. Based on the current location of emissions sources, anestimated 45% of existing power and industrial facilities, emitting 3.3 Gt/year, haveat least one potential storage resource within 50 km and 64% of them, emitting
4.7 Gt/year, are located within 100 km. This suggests that a large proportion of
CO2 captured in the APS could come from plants that are within proximity to a
storage resource, unless the location of emissions changes in the coming
decades.

Map of CO2 sources and potential geological storage in China

IEA, 2021.
Notes: The pipeline routes presented here are a selection of existing or planned natural gas trunk lines in China that crossthrough or connect to saline basins, large ports and industrial clusters. These routes can serve as an illustration of potential
routes for CO2 trunk lines, but may not be indicative of the full size, extent, or routing of such a network. This map included
herein, is without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers andboundaries and to the name of any territory, city or area.
Source: IEA analysis based on IEA’s research, storage data provided by the Chinese Academy of Sciences, and natural gas
trunk lines from Berman (2017).

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IEA, 2021.

In China, a national network of more than 15 000 km of CO2 trunk lines could connect
emissions sources, sinks, and ports.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

CO2 pipelines are widely considered to be the most cost-effective and scalable
way to transport emissions from source to sink. High-capacity trunk lines operating
across and between regions may be more economically efficient than multiple
smaller capacity pipelines serving the same geographic region. Clusters of largescale emissions sources across the country could be connected to their nearest
CO2 storage resources using trunk lines in the same way as natural gas
distribution. The routes of existing pipelines – for natural gas, crude oil and refined
products – are likely to be similar to those that will be required to transport CO2.
Over time, some of these existing pipelines could be converted to transport CO2,or large CO2 trunk lines could be built alongside existing pipelines to benefit fromexisting right of way access and engineering studies.
The development of CO2 trunk lines could be optimised by using a transmission
service operator model where an entity operates a regulated regional or nationaltransmission system that can be accessed by multiple users. Many natural gas
pipelines are operated this way. This approach could encourage the constructionof oversized trunk lines to minimise the risk of needing to expand transportcapacity soon after its commissioning as demand increases. The Alberta Carbon
Trunk Line in Canada is an example of this. State-owned enterprises or otherbusinesses with expertise in pipeline operations could take the lead in planningand developing shared CO2 pipeline infrastructure.
We have identified three potential deployment strategies for trunk lines in China.
These strategies are defined by the total length of trunk lines in 2060 and aredetermined by the scale of investment in offshore storage; the extent to which thelocation and capacity of sources and sinks are well matched; and regional andnational strategies to relocate emission sources close to or on top of storage
resources. Source-sink matching is used to optimise transportation and to ensurethat storage sites are matched with capture facilities. Its importance diminisheswith increasing trunk line length because of the additional redundancies built intosuch a system, however, shorter transportation distances are generally lessexpensive. The local and regional deployment strategies rely more heavily on the

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IEA, 2021.

deployment of offshore storage.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

CO2 trunk line deployment strategies towards 2060
Optimisedsourcesink
matching

Offshorestorage
capacity

Reuse ofpipelineroutesEconomiesof scale

Systemredundancies

Potentialforcapacity
constraints

Local strategy
Intra-basin~5000 km

●

●

●

●

●

●

Regional strategy
Intra-basin lines andlimited inter-basin
connection
10 000 to 15 000 km

●

●

●

●

●

●

National strategy
Cross-country
network>15 000 km

●

●

●

●

●

●

●High ● Moderate ● Low
Notes: In all cases, it is assumed that trunk lines are operated following a common carrier or transmission service operator
model - thereby accepting CO2 from any source with a fixed transport fee. IEA analysis on routing relies on the routes ofnatural gas pipelines in China. It assumes that co-locating CO2 pipelines alongside natural gas pipelines or converting natural
gas pipelines to CO2 pipelines would be more cost effective than creating entirely new routes.
Sources: IEA analysis based on IEA’s research storage data provided by the Chinese Academy of Sciences, and natural gas
trunk lines from Berman (2017).

A cross-country CO2 trunk line network in excess of 15 000 km of CO2 pipeline
could be required to connect industrial clusters to storage resources by 2060 in
the APS. That is about twice the length of the existing CO2 pipeline network in the
United States and Canada. The national deployment strategy could allow China
to capitalise on economies of scale by deploying large trunk lines that support highmass flows. It could also introduce redundancies into the system to ensure that
captured CO2 can always be transported to a storage site even when sites reachcapacity, have to be closed for maintenance or experience other operational
delays.
The development of CO2 management infrastructure will need take into accountnational and regional strategies aimed at relocating or decommissioning large
carbon-intensive industrial and power plants. Deployment plans for hydrogen andrenewable energy should also be considered. Western China has significant
storage resources and lower population density than eastern or central China.
However, it also has fewer large-scale sources of emissions as it has less heavy
industry.

Co-locating emissions-intensive,

carbon removal,orhydrogeninstallations with storage resources in western China could have economic and

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IEA, 2021.

social benefits for the region.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

HydrogenRole in the energy transition
Hydrogen – an energy carrier like electricity – can be an option to decarbonise
energy end-use sectors where few alternatives exist, notably long-distancetransport, chemicals and iron and steel production (see Chapter 3). With
increasing shares of variable renewables in the electricity generation mix, it is also
one of the very few technology options for storing large amounts of electricity overdays, weeks or even months. Hydrogen can be produced from a variety of energy
resources, including natural gas, coal, oil, renewables and nuclear energy, andcan be converted into feedstocks for the chemical industry or, in combination with
CO2, into synthetic hydrocarbon fuels for the transport sector.
CO2 emissions from hydrogen production drop sharply by 2060 in the APS. CCUS
is also retrofitted to reduce emissions from some existing fossil-based hydrogenplants. Direct emissions (i.e. excluding downstream emissions from the use ofhydrogen-derived products such as urea and methanol) drop from around 360 Mt
in 2020 to 300 Mt in 2040 and 60 Mt in 2060, with some residual emissions fromplants equipped with capture facilities. The use of hydrogen and hydrogen-based
fuels from low-carbon sources avoids the emission of close to 16 Gt CO2
cumulatively to 2060 in China. The biggest CO2 reductions from these fuels comesfrom industry, especially the chemical and steel sectors, accounting for more than
50% of those emissions avoided in the APS, with the use of hydrogen andammonia in shipping and synthetic kerosene in aviation together contributing 20%,and hydrogen in road transport 13%.
CO2 emissions avoided from hydrogen in China by sector in the APS
Mt CO2

2020

2025

2030

2035

2040

2045

0

2050

2055

2060

Buildings
Transport - trucks and
buses

-250

Transport - cars andtwo/three wheelers
Transport - aviationand shipping-500

Heavy industry-750

Other industry
Other energy supply-1000

IEA, 2021.

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IEA, 2021.

Heavy industry and long-distance transport contribute to 80% of emissions reductions fromthe use of low-carbon hydrogen and hydrogen-rich fuels.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

The contribution of hydrogen and related fuels to China’s energy transition grows
progressively over 2021-2060, especially after 2030, in the APS. Total hydrogen
demand increases 20% to 31 Mt by 2030 and more than threefold to 90 Mt by
2060 (see Chapter 3). The fuel accounts for 6% 7 of China’s final energy demandin 2060, of which close to 20% is in the form of ammonia (used mainly in shipping)and synthetic hydrocarbon fuels (used mainly in aviation). The share of hydrogenin final energy use is biggest in the transport sector. Although EVs dominate roadtransport due to their higher efficiency, hydrogen and hydrogen-derived fuels areused heavily in road freight, shipping and aviation. Overall, they meet close to onequarter of total transport energy needs in 2060. In industry, it accounts for 10% of
total energy use (including on-site hydrogen production); in chemicals and steel
production, its contribution is significantly larger, at 15% and more than 20%
respectively. In the buildings sector, the share of hydrogen is limited to less than
3% (practically all in the form of pure hydrogen in new dedicated pipelines orconverted natural gas ones).

Hydrogen production by route and hydrogen demand by sector in China
in the APS

IEA, 2021.
Notes: CNR = catalytic naphtha reforming; CCUS = carbon capture and utilisation or storage.

Hydrogen demand more than triples by 2060, with low-carbon hydrogen – mainly
electrolytic – accounting for practically all production

For hydrogen to contribute to reducing CO2 emissions, it must be produced fromlow-carbon energy sources. For synthetic fuels, which are produced using

7

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IEA, 2021.

This excludes onsite hydrogen production and use in the industry sector, which consumes around 8% of energy demand inindustry today. Including on-site hydrogen production in industry, hydrogen and hydrogen-based fuels meet 10% by 2060 in
the APS.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transitionhydrogen and carbon monoxide, to be carbon neutral, the carbon monoxide mustbe generated from biogenic CO2 or captured from the atmosphere, using DAC
technologies. In the short term, most of the growth in low-carbon hydrogenproduction comes from electrolytic hydrogen despite it being more costly thanfossil-based routes with CCUS over that period (see Chapter 3). The time required
to develop the infrastructure to transport and store the CO2 and the fact that there
are only two projects under development for hydrogen production with CCUS in
China today (equivalent to an overall 1.1 Mt CO2 captured per year) means that
production via those routes is unlikely to come online before 2030. In contrast,electrolysis has strong momentum in China with a significant number of projects
currently under development. These projects, while small in capacity terms, havemuch shorter development times given electrolysers can be mass manufactured
and are less dependent on enabling infrastructure. In the APS, electrolytichydrogen meets around 7% of total hydrogen demand already in 2030, almost
90% of which comes from the chemical industry (production of electrolyticammonia and methanol) and the steel sector (hydrogen-based direct reducediron). After 2030, fossil-based hydrogen production in industrial facilities is either
retrofitted with CCUS or replaced (especially in the case of coal-based production)by the rapid expansion of electrolytic hydrogen. By 2060, nearly all hydrogen
demand is met by low-carbon technologies, almost 80% of which being electrolytichydrogen, which emerges as a competitive production route.
The role of hydrogen in China’s energy transition to carbon neutrality reflects thecountry’s resource endowments and industrial heritage. Existing plants that
require hydrogen (e.g. ammonia and methanol production, refineries) must
consider the trade-offs between decarbonising their hydrogen supply using
electrolytic hydrogen from renewables, or retrofitting fossil fuel production with
CCUS. Factors such as proximity to good wind and solar resources and CO2
storage sites, and the potential to create hubs with neighbouring plants will
determine the most economic production route in each region. In the APS,
hydrogen provides a means of storing and transporting renewable energy fromregions with abundant renewable resources such as Inner Mongolia and Xinjiang(onshore wind and solar PV) or the coastal regions of Fujian and Guangdong(offshore wind) over thousands of kilometres to inland regions with lessrenewables potential and large demand for hydrogen in industrial clusters(Shaanxi, Chongqing). However, clusters in Hebei and Shandong provinces,which have a very young fleet of plants currently using coal to produce ammonia

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IEA, 2021.

and methanol, might consider retrofitting existing plants with CCUS due to their

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

proximity to depleted oil and gas reservoirs. Regions like Jiangsu have both alarge potential for renewables (offshore wind) and good access to potential CO2
storage capacity.

Existing oil refineries, ammonia and methanol plants, cost of renewablesbased hydrogen production and potential CO2 storage sites in China

IEA, 2021.
Notes: LCOH = levelised cost of electrolytic hydrogen produced using dedicated wind and solar energy systems. Assumptions
for techno-economic parameters available at IEA (2021e). This map included herein, is without prejudice to the status of orsovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory,
city or area.
Sources: IEA analysis based on IEA’s research and hourly wind data from Hersbach et al. (2018) and hourly solar data fromrenewables.ninja (2021). CO2 storage data provided by the Chinese Academy of Sciences.

Proximity to wind and solar resources, CO2 storage sites and the potential to create
industrial hubs will determine the most economic production route for hydrogen in eachregionTechnology readiness
The value chain for low-carbon hydrogen comprises many technologies needed
to produce, transport, store and consume low-carbon hydrogen, each of them at
a different stage of maturity. Electrolysis with low-carbon electricity to producehydrogen is a commercial technology, but it needs to be deployed on a larger

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IEA, 2021.

scale to bring down costs to a level that makes it competitive with conventionalAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

production routes. Similarly, natural gas reforming or coal gasification with CCUS
are proven technologies, but have not yet been widely deployed for cost reasons.
There are already three CCUS demonstration plants operating in China, all ofthem using the captured CO2 in EOR: the Karamay Dunhua Oil Technology CCUS
EOR Project, which captures 0.1 Mt CO2/year from the oil-based production of
methanol, a small coal-based methanol plant in the Changqing oilfield (capturing0.05 Mt CO2/year) and a coal-based ammonia plant in the Zhongyuan oilfield(capturing 0.1 Mt CO2/year) (IEA, 2021c). Two other demonstration projects underconstruction are expected to become operational in 2021: the Yanchang
Integrated Carbon Capture and Storage Demonstration Project, which willproduce hydrogen from coal while capturing 410 kt/year of CO2, and the Qilu
Petrochemical CCS Project in Zibu City, which will capture and store up to
700 kt CO2/year from an ammonia plant.
The use of hydrogen for making ammonia and methanol is already large, reaching
17 Mt in 2020, but the use of low-carbon hydrogen as a feedstock in chemicals
production and as a reducing agent in the iron and steel industry remains small
for now. The use of electrolytic hydrogen in heavy industrial processes is at thedemonstration stage today. In the chemicals industry, the production of ammonia
and methanol from electrolytic hydrogen using variable renewable electricity are
more mature technologies, with some small-scale pre-commercial methanol
already in operation and several large demonstration projects for ammonia
production under construction around the world. In China, Ningxia Baofeng
Energy Group have installed a 30 MW electrolyser to provide some of thefeedstock for making the methanol used in its coal to olefins project in Ningxia
Province (BNEF, 2021). The company is expanding this capacity to reach 100 MW
by the end of 2021, which will make the plant the largest electrolyser for dedicatedhydrogen production in the world. In the steel industry, the use of high blending
shares (up to 100%) for the iron ore reduction step is at an early stage ofdevelopment and is not expected to be demonstrated at scale until the late 2020s.
Baosteel, the country’s largest steel producer, has pledged to reach net zero
emissions by 2050, in part by developing hydrogen-based direct reduced iron
(DRI) production, starting large-scale production by 2035. Hebei Iron and SteelGroup (HBIS), the second-largest producer, has already built a small commercialscale DRI plant, blending 70% hydrogen with coke oven gas.
Beyond the industrial sector, end-use hydrogen technologies are at different
stages of development. In the transport sector, FCEVs are available today on themarket for passenger cars, light-duty vehicles and buses, whereas further
developments are needed before fuel cell trucks can be more widely deployed.

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Hydrogen boilers and fuel cells for space heating and electricity generation inAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transitionbuildings are also commercially available, although they face strong competition
with more efficient technologies such as heat pumps. In electricity production, fuelcells are available on the market for distributed generation applications and gas
turbines have the capability to run on hydrogen-rich gases. Manufacturers are
confident to provide standard gas turbines capable of running on pure hydrogenby 2030. Other uses of hydrogen-based fuels that play a significant role in getting
China to carbon neutrality in the APS, such as ammonia as a shipping fuel andsynthetic aviation fuels, are still at the pre-demonstration stage and mustovercome certain barriers, such as toxicity, nitrous oxide emissions in ammonia
use and high production costs, notably for synthetic fuels.
Technologies for transporting and distributing hydrogen, which will be critical toscaling up hydrogen use, are at differing stages of maturity. Hydrogen pipelines
are already mature and their wider deployment, especially over long distances,
will depend on the wider use of hydrogen and the development of a competitive
low-carbon hydrogen market to encourage industrial users to source merchanthydrogen from the market instead of producing it onsite. The transport of liquidhydrogen in tanker trucks for short distance delivery is also a mature technology,
although improvements are needed, such as reducing energy needs inliquefaction and minimising boil-off, and costs needed to be lowered. Hydrogen
refuelling stations (HRS) are mature as well and their deployment is advancing
quickly in China. In 2021, Sinopec announced a plan to deploy 1 000 HRS by2025. However, other technologies, such as long-distance transport of hydrogenby ships or blending of hydrogen into natural gas grids, are still being tested as
prototypes or as commercial demonstration projects. Activity in these areas in
China is still very limited.
In the APS, 90% of the CO2 emissions avoided due to the adoption of hydrogentechnologies in China between 2020 and 2060 are associated with technologies
that are at demonstration or earlier stages of development. Among the end-use
technologies that make significant contributions, only FCEV passenger cars arecommercially available – though expensive – today (see below). The productionof electrolytic ammonia and methanol need to be widely demonstrated in the early2020s to facilitate their rapid deployment from the late 2020s. The use of hydrogenand ammonia in shipping and synthetic fuels in aviation are at very early stagesof development and will require strong support for innovation to reach

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IEA, 2021.

commercialisation in the 2030s.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

Cumulative CO2 emissions avoided for selected low-carbon hydrogentechnologies by maturity in China in the APS
VRE-Electrolysis for methanol and ammonia production
Hydrogen-fired cement kilns
Hydrogen-based DRI
Synthetic liquid HC production
Ammonia-fuelled ships
Fuel cell electric cars
Fuel cell electric trucks
Fuel cell electric buses
Hydrogen boilers and fuel cells in buildings
0

1

2

3

4

5

6
Gt CO2

MatureMarket uptake

Demonstration

Prototype

IEA, 2021.
Note: DRI = direct reduced iron; HC = hydrocarbon; VRE-electrolysis = electrolysis using variable renewable energy. Maturity
categories are assigned based on a detailed assessment of technology readiness levels of individual technology designs
presented in the IEA Clean Energy Technology Guide (IEA, 2020a).

90% of the emissions avoided thanks to hydrogen-based technologies are at the prototype
or demonstration stage today, with VRE-electrolysis for chemicals production accounting
for 40% of the total

Focus on manufacturing electrolysers for making hydrogen
Electrolysis, a technique that uses direct electric current to drive an otherwise nonspontaneous chemical reaction, is a relatively mature technology that has beenlong-used in certain industrial processes, such as the production of chlorine in thechlor-alkali process (in which hydrogen is produced as a by-product). Electrolysis ofwater yields pure oxygen and hydrogen. There are several different types ofelectrolysers. Alkaline and polymer electrolyte membrane (PEM) electrolysers are
already commercial, whereas solid oxide electrolyser cells (SOECs) are at precommercial stage and anion exchange membranes at much earlier stages ofdevelopment.
The last couple of years have seen a significant increase in interest in electrolytichydrogen production in China. Capacity increased fourfold to 18 MW in 2020(accounting for one-quarter of global additions) and a further ninefold increas is
expected in 2021. More than 2 GW of capacity are currently under construction orplanned (including Ningxia Baofeng Energy’s 100 MW plant – see above). Unlike
some other countries, such as Chile and the European Union, China does not have
any target for the deployment of electrolysers. Capacity is nonetheless expected tokeep growing in the next few years, although its uptake may be slower than in otherregions. It is possible that the demand for electrolysers in China will ramp up faster

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IEA, 2021.

once the uptake of renewables in the Chinese energy system has reached a certain

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transitionlevel. Ultimately, the market development of electrolysers will require a nationalhydrogen strategy to provide some guidance to investors about the prospects forhydrogen demand. Recent FYPs have stimulated the deployment of renewables inelectricity generation but have led to grid congestion, as much of the capacity,
notably in Inner Mongolia, is far from demand centres. As a result, policy makers
are promoting the local use of these resources, which could include hydrogen foruse in heavy-duty transport or industrial applications.

Box 4.4

China’s role in global hydrogen value chains

The use of electrolysis for dedicated hydrogen production has not yet been widelyadopted anywhere in the world, though deployment has increased in the last few
years, with a more-or-less even split between alkaline and PEM designs (SOEC
are still limited to small demonstration projects). Deployment has hit a new record
every year since 2018. In 2020, more than 60 MW of electrolysis capacity wasbrought online worldwide, taking total installed capacity to more than 300 MW.
China was slow to start investing in electrolysers for dedicated hydrogenproduction, but has started to catch up with the rest of the world.
Global manufacturing capacity is around 3 GW today. As with other low-carbon
technologies such as batteries or fuel cells, China is a big player in electrolysis
manufacturing with one-third of global capacity (Europe has most of the rest). The
718 th research institute of China State Shipbuilding Corporation (PERIC) is thelargest electrolyser manufacturer in China, followed by Cockerill-Jingli Hydrogen
and TianJin Mainland. All three companies manufacture alkaline electrolysers dueto their traditional focus on chlor-alkali processes.
Alkaline designs are likely to remain the leading technology for dedicated hydrogenproduction for the foreseeable future in China since these companies are
expanding rapidly their manufacturing capacity and have a good knowledge baseto draw from. Moreover, the lack of PEM manufacturers in China has pushed
project developers interested in this technology to look for foreign manufacturers.
For example, State Power Investment Corp is currently developing a 1 MW
demonstration project with Siemens in Beijing to produce hydrogen for transport,
which is expected to come online in the second half of 2021 (Siemens, 2020).

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IEA, 2021.

China had a head start over the rest of the world in reducing the cost of alkaline
electrolysers, reaching USD 750-1300/kW today (including electric equipment, gas
treatment, balance of plant and engineering, procurement and construction [EPC]),
though some sources point to costs as low as USD 500/kW compared with around
USD 1400/kW in the rest of the world (China EV100, 2020; MOST, 2021). The
reliability and durability of electrolysers, which have an important impact on theAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

final cost of producing hydrogen across the lifetime of the plant, vary acrosscountries. However, manufacturing is improving fast in China. A few years ago,
Chinese manufacturers needed to import several components for manufacturing
electrolysers, limiting their ability to bring down costs through economies of scale.
More components are now manufactured in China and those that are still imported
will be manufactured in China soon, allowing industrial clusters to develop,
replicating previous successful experiences to bring manufacturing costs down.

Electrolyser capacity expands quickly in the APS, reaching close to 25 GW, oraround 15% of global capacity, by 2030. More than 90% of this capacity is inindustrial facilities, mainly in steel manufacturing and for the synthesis of chemical
products, while the rest is devoted to the production of merchant hydrogen to meetdemand from the transport and oil refining sectors. After 2030, new sources ofdemand for electrolytic hydrogen emerge, particularly for the production of ammonia
to be used as shipping fuel. By 2060, electrolysis capacity in China reaches
750 GW, equal to nearly 40% of the world total. With global additions of electrolysis
capacity projected to grow by a factor of 700 by 2060, costs fall substantially. By
2030, the global average capital cost reaches less than USD 600/kW of capacity,
compared with around USD 1400/kW at present. Costs are lowered by economies
of scale, automation and enhanced manufacturing techniques (learning by doing),
better designs, such as alkaline electrolysers, and increased competition between
technology providers.
Global electrolyser capacity for dedicated hydrogen production andaverage unit CAPEX in the APS

IEA, 2021.
Notes: electrolyser costs include electrical equipment, gas treatment, balance of plant and EPC.

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IEA, 2021.

China accounts for around 15% of the electrolysis capacity added globally by 2030 and 40%
by 2060, helping to drive costs down by 70%

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

Focus on fuel cells for vehicles
The demand and production of fuel cells for powering road vehicles will need to
expand rapidly for the transport sector to decarbonise at the rate projected in the
APS. The take-up today remains small and limited to trucks and buses, albeit
China leads the world in these fuel cell vehicle segments: at the end of 2020, close
to 5 300 fuel cell buses were operating in China, compared with around 360 in therest of the world, and more than 3 100 fuel cell trucks (less than 100 elsewhere).
The focus on buses and trucks is strategic, as these have predictable routes, theyrequire less refuelling infrastructure, and have higher utilisation rates thanpassenger cars. In 2020, sales of FCEV trucks (including light-commercial
vehicles) overtook sales of FCEV buses for the first time (AFC TCP, 2021). Mostof these vehicles in the fleet today have relatively small fuel cells (30-50 kW
compared with 75-150 kW in conventional fuel cell buses) functioning as range
extenders rather than the primary source of energy.
The deployment of heavy-duty vehicles with fuel cell range extenders in China is
the result of a number of regional initiatives, at the provincial and city level, as well
as a central government scheme introduced some years ago, which required only
a 30 kW fuel cell to qualify for the subsidy. A new reward-based scheme wasintroduced in 2020 to accelerate regional hydrogen demonstration projects inurban clusters. Financial support is provided to city-level governments, as
opposed to direct subsidies to companies or individuals that purchase suchvehicles. A maximum of around USD 245 million (CNY 1.7 billion) is to be allocatedto each cluster by 2023 to fund RD&D in FCEV demonstrations and related
technologies. City governments will be rewarded according to their success instimulating innovation along the entire value chain and achieving various
performance targets. Those governments will award subsidies to leading
manufacturers specialising in key fuel cell components, such as membraneelectrode assemblies and bipolar plates, as well as to buyers of FCEVs for
medium- and heavy-duty applications, on condition they meet certain technicaland operational thresholds such as minimum driving range and warranty
standards. Subsidies will also be made available for companies that produce,transport, and distribute hydrogen to reduce the price of hydrogen at the pump.
These subsidies will augment those already in place. The final list of city clusters

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IEA, 2021.

has yet to be made public.

An Energy Sector Roadmap to Carbon Neutrality in China

Box 4.5

Chapter 4: Technology needs for the energy transition

Regional hydrogen FCEV strategies in China

China has not yet prepared a national hydrogen strategy or roadmap with specifictargets and implementation measures for FCEVs. However, the provinces of
Shandong, Hebei, Jilin, Liaoning, Guizhou, Guangdong, Shaanxi and Gansu, theautonomous regions of Guangxi and Inner Mongolia, and the municipalities of
Beijing and Shanghai have announced or are developing their own hydrogenstrategies aimed at promoting regional economic development, energy
diversification and emissions reductions. These strategies cover various
technologies, including power-to-gas, renewable electricity storage, use intransport and blending into the gas grid (Energy Iceberg, 2021). The FCEVs are
the focus of most of them, targeting a combined total of at least 63 000 FCEVs by2025, of which Beijing, Shanghai and Shandong each account for 10 000.
One example of the regional strategies for deploying FCEVs is in the Pearl River
Delta Area industrial hub in Guangdong, dubbed China’s Silicon Valley, where
many of the companies that are pioneering FCEV development are based. In 2020,
Guangdong province had the highest FCEV sales, with Foshan and Guangzhou
both in the top 5 cities for FCEV sales, and by year-end there were 30 hydrogen
refuelling stations in Guangdong (Chunting 2021). Guangdong’s lead in FCEV
industry is supported by local policy and the competitiveness of the region’s
manufacturing base. In 2016, Foshan became the first city in China to operate ahydrogen-fuelled FCEV transit bus line. Guangzhou, the largest city in theprovince, aims to deploy 3 000 FCEVs by 2022 and convert at least 30% of thecity’s bus fleet to FCEVs by 2025.
The rapid deployment of FCEVs has facilitated the development of local supply
chains. Fuel cell system manufacturers in Guangdong, including CEMT, Refire andSynergy Technology, supplied at least 40% of China’s total demand. Hydrogen is
supplied mainly from industrial processes such as coke production, where it is aby-product contained in residual gas streams, but electrolysis demonstration
projects, which could reduce CO2 emissions, are planned.

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IEA, 2021.

Another example of regional development of low-carbon hydrogen production anduse in FCEVs is in Beijing and the neighbouring province of Hebei. Major
demonstration projects have been initiated, including for the Winter Olympics andParalympics in 2022, which will be co-hosted by the municipality and province. By
March 2021, the size of the FCEV bus fleet in Zhangjiakou in Hebei province,reached over 300 and is due to reach 2 500 by the start of the event. With its large
wind power resources, Hebei is a national leader in renewables-based electrolysis
projects. More than ten have already been announced and several large projects
will begin operation by the end of 2021 and 2022. Fuel cells are mostly suppliedby Sino-Hytec, a Beijing-based producer with its main factory in Zhangjiakou, using
technology developed by a joint venture with Toyota, set up in 2020.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

In Shandong Province, the Ministry of Science and Technology and the Shandong
Provincial Government recently signed a framework agreement on the "Hydrogen
into 10 000 families" project. This project aims to demonstrate the use of hydrogenin industrial parks, community buildings, road transportation and ports, and todevelop dedicated hydrogen transportation infrastructure. The initiative will receivea total investment of more than CNY 30 billion Yuan during the 14th FYP period todeploy 100 HRS and 10 000 FCEVs, and to ramp up hydrogen demand by around
50 000 tonnes each year until 2025.

China’s fuel cell manufacturing capacity is currently around 75 000 systems per
year. Facilities are mostly located near the centres of FCEV demand in Hubei,
Shandong and Shanxi and Guangdong provinces – the biggest markets thanks tolocal policy support, including procurement, and the competitiveness of theregions’ manufacturing base. The price of Chinese manufactured fuel cell systems
has dropped by about one-third over recent years and should continue to fall withlower production costs as output rises to meet demand. Chinese fuel cells and
FCEVs currently have no real cost advantage on the international market. In viewof regional FCEV deployment targets, however, economies of scale could give
Chinese manufactures a cost advantage in the coming years. However, thecurrent regional approach could segregate the market, as local producers arefavoured in public procurement, which may lead to inefficient investments andreduce the potential to scale-up production among several small local
manufacturing plants as opposed to fewer but larger plants better able to exploit
economies of scale. In the APS, average costs in China drop from around
USD 175/kW (CNY 1207/kW) today to about USD 80/kW (CNY 552/kW) in 2030
and USD 50/kW (CNY 345/kW) in 2060.
Fuel cell producers have already announced an expansion of their combined
capacity to 200 000 units per year by 2022, far exceeding the most optimistic
expectation of domestic FCEV sales. China’s Society of Automotive Engineers istargeting 50 000 FCEVs on the road by 2025 (below the combined total of 63 000
targeted by regional programmes) and 1 million by 2030. A growing share of thesecells will probably go to light-duty vehicles, requiring additional investment in more
widely dispersed refuelling infrastructure. In the APS, the total number of FCEVs

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IEA, 2021.

on China’s roads reaches 750 000in 2030 and 48 million in 2060.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

14

210

12

175

10

USD/kW

Fuel cell stacks (million)

Global demand for fuel cells for transport and average unit capital costs in
the APS

140

8
105
6
70

4

35

2
0
2020

2030
Rest of the world

0
2060

2050

2040
China

CAPEX

IEA, 2021.

China accounts for over 10% of fuel cell vehicle demand in 2030, helping to drive down thecost of fuel cells

The growing deployment of FCEVs in China and elsewhere is pushing up global
demand for platinum and palladium (known as platinum group metals, or PGMs)
and raising concerns about future supply bottlenecks. PGMs provide the catalyst
which converts hydrogen and oxygen to heat, water and electricity in a fuel cell.
Platinum is also used in catalytic converters in conventional internal combustion
engine vehicles (ICEVs). FCEVs currently require more platinum than ICEVs,
though the amount needed in the former has fallen in recent years (IEA, 2021a).
For example, Toyota was able to reduce platinum loading by about one-third
between the first-generation model of the Mirai car in 2014 and the secondgeneration model that came out in 2020. Reducing fuel cell platinum loading
further is a key objective of many public fuel cell RD&D programmes, e.g. in Japanand the United States. If successful, switching to FCEVs in China and the rest of
the world could reduce substantially global demand for PGMs. We estimate thatthe deployment of FCEVs in China leads to a reduction of over 80% in national
demand for PGMs in 2060 compared with 2020, assuming innovation to continue
reducing platinum loading. Without such innovation, PGM demand would increaseby about 140% from 2020 to 2060, despite the almost complete elimination of
PGM demand for ICEVs due to their replacement with alternative drivetrains.

Infrastructure needs
The widespread adoption of hydrogen and hydrogen-derived fuels as lowemissions energy carriers in China would require both modifications to existing
infrastructure and the development of new infrastructure to distribute these fuels

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IEA, 2021.

to end users. This includes hydrogen pipelines, HRS, large-scale storage facilities

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Chapter 4: Technology needs for the energy transition

and terminals at ports. Today, there are only around 100 km of dedicatedhydrogen pipelines in China, all of them privately owned in industrial clusters. As
shown earlier, the location of major industrial end-users, the proximity to large
renewable resources and to adequate CO2 storage sites, and the pace and scopeof growth of the distributed demand for hydrogen will determine the most suitableinfrastructure in each region. This development will take time and will need to becarefully planned, but there are some short-term opportunities, like short-distancetransport of liquid hydrogen using tanker trucks. Blending hydrogen into natural
gas in existing networks can be a way to build up low-carbon supply while thehydrogen-specific infrastructure develops. Once it is ready, the low-carbonhydrogen supply infrastructure can deliver pure hydrogen to end users. Only Jilin
province has so far considered this option yet, as the focus of hydrogen use up to
now has been on the transport sector, which requires pure hydrogen (Energy
Iceberg, 2021). If hydrogen blending were to be pursued, it would require theadoption of international harmonised safety standards and national regulations on
the maximum blend of hydrogen in natural gas networks.
Repurposing existing high-pressure gas transmission pipelines to carry purehydrogen, where technically feasible, is another possibility in China. This would
help create a national hydrogen network to connect centres of demand. However,the natural gas network in China is relatively young and is still expanding to meetrising demand, so it will be several years before certain sections may become
candidates for conversion. For that reason, it is essential to plan the developmentof new natural gas pipelines to make sure that those built between potential big
centres of hydrogen (like existing industrial hubs and refineries in regions like
Hebei, Shanxi, Shaanxi or the coastal cities) and regions with potential for
producing low-cost hydrogen (like western provinces) are designed to behydrogen-ready to facilitate their repurposing in the future.
The development of new dedicated hydrogen pipelines will also be required.
Building them in industrial clusters, for example in the north-western regions (Inner
Mongolia, Shanxi, Shandong and Shaanxi), where demand is concentrated andhigh rates of utilisation of the pipeline capacity can be guaranteed, can be a lowregret economic option. Around 50% of China’s hydrogen demand for ammonia
and methanol production today is concentrated in those regions. This could follow
a similar model to that in the transport sector, where HRSs have been initiallydeployed in industrial hubs. The availability of large quantities of by-producthydrogen from the chemicals sector and intensive use of the fuel in commercial

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IEA, 2021.

FCEVs have ensured that HRSs are well-utilised.

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Chapter 4: Technology needs for the energy transition

HRSs are another important component of hydrogen infrastructure. China has thesecond-largest HRS networks in the world. Currently, more than 100 stations arein operation (compared with more than 800 000 public EV charging stations) – justbehind Japan with more than 130 stations. It will most likely become the world
leader very soon given the strong support from several municipal FCEVs pilot
programmes and plans for new stations (IEA, 2021a). For example, Sinopec
recently announced plans to install 1 000 new HRSs by 2026 (Sinopec, 2021). In
the APS, deployment accelerates to 2 700 in 2030 and 27 000 in 2060.
The growth of hydrogen use in China in the APS also calls for a major expansionof low-carbon electricity generation to meet the needs of electrolysers. By 2060,
close to 3 300 TWh of electricity is needed for hydrogen production, equal to onefifth of China’s total electricity output. All this additional electricity comes from lowcarbon sources. While the scale of expansion of generating capacity is daunting,it presents an opportunity to tap into low-cost variable renewables as hydrogeneffectively provides a means of energy storage. In practice, a significant share ofelectricity generation from renewables could be dedicated to hydrogen production(see Chapter 3). Nuclear power could also be dedicated to electrolytic hydrogenproduction; the China National Nuclear Corporation has already started somedemonstration projects (Energy Iceberg, 2020). Hydrogen production from fossil
fuels with CCUS, including retrofits of some existing plants with CO2 capture
equipment, which contributes 15% of total hydrogen production in 2060, is
supported by the synergies with other capture applications in industrial hubs andthe possibility to make use of joint CO2 transport and storage infrastructure.

Bioenergy
Role in the energy transition
Modern bioenergy technologies, in the form of gaseous and liquid biofuels derived
from renewable biomass feedstock or direct burning of biomass in power and heatgeneration, have the potential to make an important contribution to decarbonising
China’s energy system. An important advantage of bioenergy is that it can beconverted into energy forms that are compatible with existing energy technologies
that rely on the combustion of fossil fuels: it can be co-fired with existing coal power
plants, used as feedstock in the chemicals industry and used in existing vehicle

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fuelling networks and gas pipelines. Although there are hurdles in accessing

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Chapter 4: Technology needs for the energy transition

sustainable bioenergy 8, supply could be increased by exploiting more of thecountry’s abundant resources of biomass waste and residues, and cultivating nonfood energy crops on marginal lands. The collection of agricultural wastes, suchas manure and crop residues, and forestry residues does not involve any change
in land-use nor any water consumption, though impacts on soil water retention
should be evaluated.
The country already makes considerable use of waste and residues. Since 2017,
China has been the world leader in building bioenergy power plants, contributing
60% of global capacity additions in 2019. Roughly half of these are waste-toenergy (WTE) plants mainly fuelled by municipal solid waste (MSW), a proportionof which is biomass material, e.g. food waste, wood, paper and cardboard, andwhich are concentrated around large population centres. The remaining capacity
is fuelled by agriculture and forestry residues, and, to a lesser extent, by biogas.
China also uses significant volumes of solid biomass and biogas for heating (seeChapter 3). China accounts for roughly one-third of global wood pellet production,using it domestically for large-scale heating systems. Biogas, on the other hand,
is mostly produced and consumed by households, mainly for cooking. China isalso the world’s third-largest producer of liquid biofuels after the United States andBrazil, with ethanol derived mainly from corn in the northeastern provinces andrenewable diesel from used cooking oils (UCO) (IEA, 2020c).
The availability of land for growing crops that can be used as energy sources willundoubtedly limit the role that bioenergy is able to play in China’s energy transition
to net zero emissions. In 2007, the government set out guiding principles ondeveloping bioenergy: energy crops must not be grown on arable land so as not
to undermine food supplies and must not compete with other land-uses. In
addition, boosting biofuels production should focus on using more farm andforestry residues. Limited development of non-grain energy crops grown on
marginal lands is permitted, on condition that it does not put undue strain on waterand other resources (Ministry of Agriculture, 2007).

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8
Sustainable bioenergy is bioenergy developed so that negative impacts on biodiversity, fresh water systems, food prices
and land availability are avoided (IEA 2021c).

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Box 4.6

Chapter 4: Technology needs for the energy transition

Bioenergy deployment targets and policies

The 13th FYP for 2016-2020 set bioenergy targets across three main areas:
power, heat and transport (targets under the 14th FYP (2021-2025) have not yet
been announced). In the power sector, the target was to install 15 GW of bioenergy
by 2020; it was exceeded by 50%, with capacity rising to over 25 GW. About halfof these plants use MSW and the rest a combination of forestry residues, crop
residues and livestock manure. In January 2020, the government introduced a new
subsidy scheme for biomass power plants based on size and estimated lifetime
utilisation rates. In addition, the National Development and Reform Commission,
the Ministry of Finance, and the National Energy Administration (NEA) jointly
issued a plan to accelerate the construction of such plants, again focussing on
utilising agricultural and forestry residues, and the organic fraction of MSW toaddress waste management and environmental pollution as well as promoterenewable energy generation (NDRC, 2020).
The Energy Administration of Shandong province, which fosts the fourth largest
fleet of coal-fired power stations less than 20 years old among the country’s
administrative regions, enacted a policy in March 2021 to encourage the co-firingof biomass with existing coal plants. From now on, for every 10 000 tonnes ofbiomass co-fired with coal over the course of the year, power plants that co-fire will
be prioritised to operate for a certain numbers of hours, up to a limit. The scheme
is due to run until 2025.
For heating, China almost tripled its use of pellets between 2016 and 2020 to an
estimated 22 million tonnes coal equivalent (Mtce), but still fell short of the 30 Mtce
target it had set in the 13th FYP. In January 2021, the NEA published a strategy
for the next phase of biomass heating, focussing on upgrading biomass power
plants to co-generation and prioritising subsidies for combined heat and power. It
also favours the development of other forms of bioenergy, such as biogas, forheating, but recommends not using co-firing biomass with coal, non-biogenic MSW
and other non-biogenic wastes because they would increase CO2 emissions. In
the case of biomethane, China met less than 1% of its initial FYP target for 2020(see Chapter 3).

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For transport, China initially set a national 10% blending mandate for ethanol
usage (E10) to go into effect in 2020, which was fully implemented in sevenprovinces while other provinces and cities had the mandate partially implemented(see Chapter 3) (NDRC, 2017). Due to a variety of difficulties, including dwindlingcorn stockpiles and a lack of production capacity, this mandate has been relaxed(NEA, 2020). Some advances in cellulosic ethanol production technology havebeen achieved, but no targets have been set for their use (IEA, 2021d).

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Overall, the increased use of sustainable bioenergy – with and without CCUS –contributes almost 7% of the cumulative CO2 emissions reductions in the APS in
the period to 2060. Bioenergy ties with wind to become the third largest primaryenergy sources in China after solar and nuclear in 2060. The share of bioenergy
in total energy demand more than doubling to just over 13%. In absolute terms,
primary bioenergy demand increases by 9 EJ, peaking at almost 20 EJ 9 in 2045
before reducing slightly to 16 EJ in 2060. Meeting this growth sustainably to avoid
adverse social, environmental or economic impacts will be critical. China currently
has an estimated 10-18 EJ/year of collectable 10 biomass resources in the form ofwastes and residues (corn stover, rice straw, wheat straw, forest residues andanimal manure) that could be made available for bioenergy – equal to 6-12% of
China’s total primary energy demand in 2020 (see in Chapter 3 for implications oflimited sustainable biomass supply for biofuels).

Cumulative CO2 emissions reductions from bioenergy use by sector in
China in the APS

IEA, 2021.

Power generation and heavy industries contribute to almost three-quarters of the 32 Gt CO2
avoided from bioenergy cumulatively to 2060

Most biomass feedstock potential is in the eastern half of China, ranging from
Heilongjiang in the northeast to Yunnan in the south. Shandong andHenan are home to the greatest potential (3 EJ/year) and highest density(>75 GJ/year/hectare), due to ample crop residues and manure. The latter can beused to produce biogas, which can be upgraded and injected into the existing

9

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Utilising 20 EJ of biomass resources for bioenergy is in line with recent literature on sustainable biomass resource potential
in China. Nie et al., 2018 estimated a current sustainable biomass potential of 25 EJ, while Kang et al., 2020 estimated 24 EJ
in 2050.Both numbers take into account biomass use outside of the energy sector.
10
The utilisation of wastes and residues is influenced by both technical feasibility of collection and by the need to use residues
for other non-energy purposes, such as maintaining soil organic carbon content.

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natural gas grids in the region. Sichuan and Yunnan provinces in the southwest
have 2.4 EJ/year of biomass potential, mainly agricultural and forestry residues.
Southern China holds the greatest potential for energy crops grown on marginalland, followed by the northern regions. Sichuan is particularly well-suited to leadthe deployment of BECCS in China, given its large CO2 storage potential on its
eastern side and 1.4 EJ/year of biomass resources. Existing natural gas trunk lines
near potential storage sites could be repurposed for CO2 (Kang et al., 2020; Nieet al., 2018).

Primary bioenergy demand and share in total energy demand by sector in
China in the APS

IEA, 2021.

The share of bioenergy in China’s total primary energy demand increases more than 2times to 13% by 2060, with almost half of biomass consumption combusted in power
plants, almost half of them in turn equipped with CCUS

The way in which bioenergy is consumed also changes markedly in the APS.
Around 70% of final bioenergy use and 42% of primary bioenergy use today is in
the form of traditional solid biomass, which has harmful impacts on human healthand well-being, notably due to indoor air pollution. Such use of biomass iscompletely phased out by 2030 in China, thanks in part to an increase in theefficiency of its use in solid, liquid or gaseous forms, e.g. with modern cooking
stoves or boilers. The bulk of bioenergy use in 2060 is for power and heatgeneration, including in industry, a sizeable part of it with CCUS. Bioenergy inpower generation makes significant contributions to decarbonising electricity in theearlier years, accounting for over 65% of total bioenergy-related CO2 reductionsin 2030. The share of bioenergy in the national power mix almost triples, from 3%
in 2020 to 9% in 2060, with biomass playing a vital role as a dispatchable source

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of electricity generation to support the integration of more variable renewables into

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the power system and, in combination with BECCS, to produce negativeemissions (see CCUS section above).
The use of biomass as a clean fuel and feedstock in industry increases from just
1% in 2020 to 8% in 2060 in the APS. One-fifth of total bioenergy supply in China
is consumed in industry in 2060. Bioenergy is used as a fossil-fuel replacement
for high-temperature processes, particularly in the cement industry, where
bioenergy supplies one-quarter of final energy. Bioenergy also plays an importantrole in the steel industry as a replacement for coal, meeting 8% of its energy needs
in 2060 while providing 11% of the sector’s cumulative emissions reductions to2060. In 2060, about 37% of CO2 reductions from bioenergy originate from heavy
industry.
Liquid biofuels use in transport also grows significantly in the APS, but stillaccounts for only 8% of total primary bioenergy use in 2060, with biofuels
progressively diverted to aviation as the road vehicle fleet is converted to battery
EVs and FCEVs (see Chapter 3). Biofuels use for aviation contribute 55 Mt CO2,
or 6%, of all bioenergy-related CO2 emissions reductions in 2060.

Technology readiness
The degree of technology maturity varies considerably along the bioenergy value
chain, from biomass resource collection, transformation and end use, in China andin the rest of the world. Many heating and power technologies, such as small-scale
heating and cooking and WTE plants, are already at the market uptake orcommercialisation phase. They provide almost 90% of the cumulative reductions
in CO2 emissions from bioenergy in 2021-2060 the APS. Some technologies
related to road transport and to industrial heating are similarly at market uptake
phase or early commercialisation. For example, corn ethanol, fatty acid methyl
esters biodiesel and hydrotreated vegetable oil (HVO) diesel are produced
commercially in China, in the first two cases for decades. China is a global leader
in the collection of UCO for use as a feedstock for liquid biofuels. Expanded useof bioenergy in these sectors could bring rapid emissions savings, allowing moretime for other technology pathways, such as hydrogen and electrification, toadvance.
Other bioenergy technologies remain at the demonstration or even prototype
phase. These include advanced renewable diesel and biokerosene technologies
using woody feedstocks, notably cellulosic ethanol, biomass gasification using
Fischer-Tropsch (bio-FT) and alcohol-to-jet (ATJ) kerosene. Among these

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technologies, renewable diesel plays the most important role in decarbonisingAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

long-distance transport, specifically heavy-duty trucks and shipping, in the APS:
heavy-duty trucks alone account for more than half of renewable diesel demand
from 2055 onwards. Although there are no bio-FT plants operating yet in China,
there are a several biomass gasification projects in the pipeline, two of which arein the northeast and focused on power and heat generation. One of them, in
Heilongjiang province, uses a variety of wastes and residues to power a 40 MW
CHP plant. The other, in Jilin province, uses a 20 MW biomass gasifier is co-firedwith coal at an existing 660 MW pulverised coal power plant. In addition, there are
two cellulosic ethanol plants currently operating in the same two provinces, bothof which use crop residues from corn as feedstock to produce a combined total of
120 million litres per year of cellulosic ethanol.
The production of biomethane and its injection into the national gas grid remains
at a nascent stage in China compared with Europe. In the APS, biomethane
blending shares reach 15% in 2060 (see Chapter 3). Biomethane blending faces
technical know-how and administrative barriers, including difficulty securing fairmarket access to the gas grid (IEA, 2021d). Two biomethane plants currently
operating in China illustrate different production pathways. A commercial plant in
Shanxi province upgrades biogas that is produced from anaerobic digestion ofagricultural waste by removing CO2 and other contaminants, yielding just over
7 million cubic metres (mcm) per year of biomethane. Another pilot plant in
Jiangsu uses biomass gasification and methanation to produce biomethane (alsoknown as bio-synthetic natural gas, or bioSNG) at a daily rate of 10 000 cubic
meters (just over 3 mcm per year).
In the long term, the use of biokerosene to decarbonise the aviation sector
arguably plays an even more crucial role in achieving carbon neutrality in China,
as elsewhere, in the APS, due to the lack of potential alternative fuels.
Hydrotreated esters and fatty acids (HEFA) is the most promising technology routein the near-term and bio-FT and ATJ in the long term. Biokerosene alone accounts
for 40% of aviation fuel consumption by 2060 and contributes 1.6 Gt CO2 ofcumulative CO2 reductions over 2021-2060. This underscores the importance ofinnovation in biokerosene production technologies in China. At least one HVO
plant in China has the capability of producing HEFA biokerosene today, but there
are no other projects on the horizon for biokerosene or other sustainable aviation
fuels.
Another key bioenergy sector at the demonstration stage today is biomass
feedstock for making chemicals such as methanol and ethylene. Combined, thatpathway contributes nearly 570 Mt CO2 of cumulative emissions reductions to

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2060. There are no known biomass-based ammonia plants and only a handful ofAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 4: Technology needs for the energy transition

biomass-based methanol projects operating worldwide today. The largest plant,
based on MSW, is run by Enerkem in Canada. Biomass gasification is, once again,
the key technology component in this process.

Cumulative CO2 emissions avoided from selected bioenergy technologies
by technology readiness in China in the APS, 2020-2060
Biomass-fired power plants
Bioenergy use for chemicals production
Bioenergy co-firing in cement kilns
Bioenergy use in blast furnaces
Biokerosene in aviation
Modern biomass stoves
0

1

2

3

4

5

6

7

8
GtCO2

MatureMarket uptake

Demonstration

Prototype

IEA, 2021.
Note: Maturity category assigned based on detailed assessment of technology readiness levels of individual technology
designs presented in the IEA Clean Energy Technology Guide (IEA, 2020a).

Almost 90% of cumulative CO2 reductions from bioenergy to 2060 stem from alreadycommercially available technologies

Infrastructure needs
One of the main advantages of bioenergy is its ability to be used as a drop-in fuel,making use of existing infrastructure, including natural grid pipelines, vehicles,
power plants and process heating equipment, with few if any modifications. The
expansion of bioenergy in various forms would nonetheless require substantial
amounts of additional infrastructure, ranging from small-scale to large-scale.
In the case of biofuels, many storage facilities for biomass feedstocks, especiallyfor widely dispersed, low-density crop and forestry residues, would be needed tofacilitate their collection and distribution to large plants on a “spoke and hub” basis.
Storage of biomass feedstock is vital as biofuels production requires a continuous
supply of feedstock, while collection schedules from crops or forestry may only
occur at certain points in a year. In China, there have been issues with supply
chain reliability at demonstration cellulosic ethanol feedstock plants. Large-scale
facilities for sorting and cleaning of waste and residue feedstocks would also be
required. For example, biogenic MSW used for biogas must be separated fromnon-biogenic material, while crop and forestry residues need to be cleaned of dirt,

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stone and other contaminants before being sent to biofuel plants.

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Chapter 4: Technology needs for the energy transition

For biomethane, new distribution lines and injection points would need to be built
for blending into natural gas. As waste and residue feedstocks such as manureand crop residues are widely dispersed and expensive to transport, biomethane
plants are likely to be located near feedstock sources, increasing the need for gridconnections. For small biomethane plants, as is the case for most biogas digesters
in China today, it can make financial sense to enter into a co-operative agreementwith other local producers to aggregate biomethane production before feeding intoa shared injection point. Additionally, organic fertilizer (produced as a co-productof biogas in anaerobic digestion) can be collected and distributed to local farms.
In the case of CCUS, infrastructure would need to be built to support the
deployment of BECCS in biofuels production and power generation. For instance,
where BECCS is added to biomethane production (biogas upgrading or biomass
gasification), it may make sense to build CO2 pipelines in tandem with biomethane
distribution lines, especially in those provinces with large biomethane feedstockpotential, existing natural gas pipelines and potential CO2 storage sites, such as
Sichuan and Henan in central China, and Heilongjiang and Jilin provinces in the

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northeast.

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Chapter 4: Technology needs for the energy transition

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An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 5: Near-term opportunities for afaster energy transition

Chapter 5: Near-term opportunities
for a faster energy transition
Highlights







The timing and level of the peak in emissions, as well as the pace of emissions
reductions once the peak has been reached, are of crucial importance to theachievement of The People’s Republic of China’s (hereafter, “China”) longer-termgoal of carbon neutrality. China has the technical capabilities, economic meansand policy experience to accomplish a faster clean energy transition to 2030 thanin the Announced Pledges Scenario (APS).
The Accelerated Transition Scenario (ATS) assumes enhanced policy efforts to2030 compared with the APS in three key areas: a faster decline in coal use in the
power and industry sectors; higher deployment of low-carbon technologies likerenewables, EVs and heat pumps; and increased energy and material efficiency in
end-use sectors.
Energy sector CO2 emissions follow roughly the same path to 2025 in the ATS as
in the APS as many of the additional measures take time to take effect, but thenfall by 4% per year between 2025 and 2030. In 2030, emissions reach around
9.5 Gt – 19% below the APS. Power generation accounts for about 60% of theoverall reduction in emissions in 2030 compared with the APS, and industry andtransport combined for 30%.
Coal demand in 2030 in the ATS is nearly 20% lower than in the APS, thanks
mainly to savings in power generation as a result of accelerated power market
reforms and a strengthening of the emissions trading system. The share of coal ingeneration falls to 38% in 2030 (around 3 900 TWh), about ten percentage points
below the APS.

The ATS brings many socioeconomic benefits, including for China’s central rolein global clean energy technology value chains and for clean energy innovation.
The number of jobs related to clean energy supply also grows by 3.6 million by
2030, compared with the 2.3 million jobs lost in fossil fuel supply and fossil fuelpower plants. In the APS, the net gain is only around 0.4 million. Quicker
decarbonisation also further reduces pollution, bringing public health benefits.

Anticipating bottlenecks and emerging economic and societal issues is a key nearterm challenge in the ATS. The long-term benefit is that carbon neutrality isreached in a more orderly fashion, leaving more time for markets to adjust andbusinesses and consumers to adapt. The average annual pace of emissions
reductions over 2030-2060 is almost 20% lower than in the APS. More than 20 Gt
of locked-in emissions to 2060 from new long-lived assets in the power and industry
sectors built in the period to 2030 in the APS are avoided, opening the possibility
for reaching carbon neutrality earlier.

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An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 5: Near-term opportunities for afaster energy transition

Opportunities for a faster transition to 2030
The announcement by China’s president in September 2020 – that China “aims tohave CO2 emissions peak before 2030 and to achieve carbon neutrality before
2060” – represents a significant strengthening of the country’s climate ambitions(see Chapter 1). The APS, the results of which are set out in detail in Chapter 2-4,
describes an energy pathway for meeting China’s long-term goal and is designed
to follow the enhanced targets declared in 2020 related to its nationally determined
contribution (NDC) under the Paris Agreement (see Chapter 1). Yet, as discussed
in Chapter 2, the APS is a path to achieving China’s own stated goals, notnecessarily the path. Other pathways are possible, depending, for example, on
long-term technological advances and domestic technology preferences andpriorities.
Another key uncertainty is near-term policy action. China has committed toachieve a peak in CO2 emissions before 2030, but the timing and level of that
peak, as well as the speed of decline once that peak has been reached, areuncertain, as they depend critically on policy decisions and their impact on
investment and spending decisions by businesses and consumers over the next
few years. China has the technical capabilities, economic means and policy
experience to achieve a faster clean energy transition to 2030 than in the APS.
Indeed, the fast progress already achieved in meeting its target for reaching ashare of non-fossil fuels in energy demand of 20% by 2030 in its NDC recently led
China to raise that target to 25%. China has a great interest in repeating such a
success during the 2020s: the earlier the CO2 peak, the lower it will be and themore time there will be to reach carbon neutrality, allowing for a smoother andmore cost-effective energy transition.
There are clear signs that the government is giving priority to carbon neutrality,
acknowledging the urgency of the need to slow emissions growth and bring abouta peak in emissions as early as possible. The recent establishment of the“Leadership Group” is one example (see Chapter 1). This chapter explores theopportunities for China to undertake a faster energy transition to 2030 beyond that
required by the current official target, involving a faster decline in emissions overthe second half of the 2020s, and the broad long-term implications for China andthe rest of the world.

The Accelerated Transition Scenario
Recent trends in some key indicators suggest that there is considerable scope for

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IEA, 2021.

a faster energy transition in China, notably by improving the overall efficiency of

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Chapter 5: Near-term opportunities for afaster energy transition

the energy system and accelerating the deployment of available and cost-effective
clean energy technologies, including solar PV, wind, electric vehicles (EVs) andheat pumps. Some aspects of the energy transition to 2030 in the APS represent
a continuation or even a slowdown in the pace of decarbonisation progresscompared with the recent past. For example, at 2.9% per year, the average annual
drop in the primary energy intensity of GDP is lower than the lever achieved during
2011-2020. For solar PV and wind, annual capacity installations grew by morethan 20% on average each year over the past decade; in the APS, they increaseby only another 10% by 2030 to meet the official target of a 25% share of nonfossil fuels in primary energy demand. Similarly, the coal intensity of steel
production fell by 3% per year over the last decade and 5% per year over the last
five years; in the APS, it falls by less than 1% per year to 2030. To some extent,a slowdown in some of these indicators is inevitable as opportunities for efficiency
gains or easy emissions reductions are exhausted, but the near-term potential forfurther improvements nonetheless remains very large.
To explore the implications for China’s energy system and emissions over thecurrent decade of an increase in China’s near-term climate policy ambitions, wehave prepared an Accelerated Transition Scenario (ATS). The ATS does not
involve a radical change in current policy priorities. Policies are already in place
for most of the ten core areas for action set out in the “1+N” framework that iscurrently being formulated by the new climate ‘leaders group’, including reducing
coal use, improving the efficiency of resource use, promoting energy efficiency,
building a low-carbon transport system, promoting clean energy technologicalinnovation, developing green finance, introducing supporting economic policies,
improving carbon pricing mechanisms and implementing nature-based solutions(see Chapter 1).
The ATS assumes that the government quickly reinforces and strengthen policies
in these key areas relative to the APS, in particular:

Accelerating the decline in coal use in the power and industry sectors.



Boosting the deployment of available low-carbon technologies, especiallyrenewables for power generation, new energy vehicles (mainly EVs) and heatpumps.



Increasing energy and material efficiency in the industry, buildings and transport
sectors.

As recognised by China’s president in his recent announcement, controlling coaluse is critical to curbing China’s CO2 emissions. There remains huge scope foraccelerating the decline in coal use in the power and industry sectors, which

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IEA, 2021.

are responsible for just under 95% of China’s total coal consumption today. China

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Chapter 5: Near-term opportunities for afaster energy transition

has been retiring small and inefficient coal mines; old, inefficient coal-fired power
plants and industrial facilities; and coal boilers in the residential sector since the12th Five-Year Plan (FYP) (2011-2015). In the ATS, all remaining inefficient
capacity is assumed to be retired, while operational efficiency in the power andindustry sectors is assumed to increase by 2-4% per year compared with 1-3% in
the APS over 2021-2030. The emissions trading system (ETS) is also
strengthened, including through tighter allowance allocation and a faster
introduction of auctioning and expansion of the system to cover more energyintensive industries, incentivising efficiency improvements, and fuel switching (seeChapter 7).
The growth of renewables and other clean energy technologies such as EVs
is also boosted by stronger policies. Recent solar PV and wind projects are able
to generate power at a cost below average provincial coal electricity prices,suggesting that there is further scope for rapid competitive deployment of solar PV
and wind. Accelerated electricity market reforms in the ATS enable market-based
operation of electricity dispatch, long-term power purchase agreements and costreflective retail electricity prices, boosting investment in solar PV and wind.
Electricity network infrastructure is also expanded more rapidly to connect more
solar PV and wind projects located far from demand centres and promoteinterprovincial electricity trade. EV sales are boosted through the combined effects
of more stringent fuel economy targets and clear target dates for the phase-out ofinternal combustion engine (ICE) vehicles at national and provincial levels.
Increasing energy efficiency has been a focus of Chinese policy making and has
contributed significantly to moderating energy demand and CO2 emissions growth
for more than a decade. Together, enhancing energy and material efficiency iscentral to containing energy demand growth in the APS, accounting for around
one-quarter of the emissions reductions in 2030 (see Chapter 2). Nonetheless,considerable economic potential for greater energy and material efficiency gains
still remains in 2030. The ATS assumes more stringent policies to improveenergy and material efficiency in the industry, buildings and transport
sectors are introduced immediately. They include tightening existing minimum
energy performance standards and introducing new ones, effectively banning thesale of the least-efficient technologies. Further opportunities range from retrofittingbuildings to optimising energy use in industrial production processes, particularly
in energy-intensive ones, and more efficient transport, including through

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IEA, 2021.

promoting modal shift in cities and in freight.

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Chapter 5: Near-term opportunities for afaster energy transition

Energy and emissions trends
The impact of these policy-driven measures on the medium-term outlook for CO2
emissions is substantial. At 9.3 Gt, emissions are 19% lower in the ATS than in
the APS in 2030. Emissions broadly follow the same path to 2025 in the ATS as
in the APS as many of the additional measures take time to take effect, but thenfall by 4% per year between 2025 and 2030. Historically, emissions have declined
in only three years: 2014-2016 (due to a slowdown in energy demand and thecommissioning of large amounts of nuclear and renewables, which curtailed theneed to burn coal to generate power).

Mt CO2

Annual change in energy-related CO2 emissions in China, APS and ATS
1 000

1 000

800

800

600

600

400

400

200

200

0

0
- 200

- 200
2005

2010

2015
Historic

2020
APS

Average
2020-2030

ATS
IEA, 2021.

Note: APS = Announced Pledges Scenario, ATS = Accelerated Transition Scenario.

Emissions follow broadly the same path as in the APS in the period to 2025, before
declining at an average rate of 4% per year in the second half of the decade

The CO2 intensity of GDP falls by 67% per year on average between 2020 and
2030 in the ATS, compared with 4% in the APS. The faster decline in the ATS isunderpinned by a faster decline in the energy intensity of the economy and theCO2 intensity of the energy that supplies it. The energy intensity of GDP falls by
4% per year between 2020 and 2030 in the ATS, compared with 3% in the APS.
The share of non-fossil fuels in the primary energy mix increases from 15% in2020 to 26% by 2030 in the ATS (compared with 23% in the APS). 1 Powergeneration contributes about 60% of the overall reduction in energy sector CO2

29% in the ATS and 26% in the APS in 2030 using China’s partial substitution method of energy accounting.

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1

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Chapter 5: Near-term opportunities for afaster energy transition

emissions in 2030 in the ATS compared with the APS; industry and transport
together 30%, and buildings, fuels transformation and agriculture combined theremaining 10%.

Change in energy sector CO2 emissions by sector and primary energy use
in China in 2030 in the ATS relative to the APS
CO2 emissions

Primary energy

12EJ

Gt CO2

180
Other

Other

170

11
Transport

Natural gas
160

Industry

Oil

10
Power
generation
9

APS

ATS

150

140

Coal

APS

2030

ATS
2030

IEA, 2021.
Note: APS = Announced Pledges Scenario, ATS = Accelerated Transition Scenario.

About 60% of the emissions reductions between the APS and the ATS in 2030 come fromthe power generation sector, with industry and transport contributing another 30%

Lower coal use accounts for the majority of the difference in emissions between
the ATS and the APS. Coal consumption increases in the short-term but then fallsback to 70 EJ in 2030 in the ATS, nearly 20% lower than in the APS. Nearly 70%of the lower coal use in 2030 in the ATS relative to the APS is from power
generation, where the combined effects of accelerated power market reform anda strengthened ETS push down total coal-fired power generation by over 20%
relative to the APS to around 3 900 TWh in 2030. The share of coal in total
electricity generation falls from 63% in 2020 to 38% in 2030 in the ATS, nine
percentage points lower than in the APS. Another 25% of the lower coal demandin 2030 relative to the APS is from the industry sector. Coal use in iron and steel
production is responsible for about 40 of the decline in industrial coal use, relative
to APS, followed by cement production. The drop in industrial coal use in the ATS
is facilitated by enhanced changes in the structure of the Chinese economy
towards higher value-added industries and services, combined with efforts toenhance energy and material efficiency through tighter regulations and the

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IEA, 2021.

assumed successful expansion of the ETS to cover energy-intensive industries.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 5: Near-term opportunities for afaster energy transition

Total coal consumption in 2030 by scenario/case and coal-fired power
generation in China in the APS and ATS
Coal use in 2030

100%

4 500

75%

3 000

50%

1 500

25%

TWh

EJ

Other
60

6 000

Industry
30

0

Power
generation

APS

Change bysector

0

ATS

APS
2020

ATS

Share of total

Coal-fired generation

90

0%

2030

IEA, 2021.
Note: APS = Announced Pledges Scenario, ATS = Accelerated Transition Scenario.

Coal-fired power generation declines by over 20% in absolute terms between 2020 and 2030
in the ATS, compared with a 1% increase in the APS

Box 5.1

The impact of a faster energy transition on fossil methane
emissions

Accelerating the decline in coal use in the power and industry sectors as in the
ATS brings an important benefit for fossil methane emissions but also major efforts
are undertaken to reduce the emissions intensity of fossil fuel production. Overall
fossil methane emissions is almost 60% lower in the ATS in 2030 compared to the
APS. The reductions in methane emissions from fossil fuel operations in the ATSfrom 2020 to 2030 is equivalent to about 70% of the total decline in methane fromthese sources seen globally in the APS over the same period. China can play a
key role in limiting the near-term impact of methane on global warming.

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IEA, 2021.

More than 85% of the reduction in fossil methane emissions in the ATS by 2030 isrelated to coal extraction, with coal-related methane emissions decreasing by
almost 60% in the ATS by 2030 relative to 2020 compared with just 1% in the APS.
Methane emissions from oil and gas extraction and processing decline around fourtimes more in ATS than in APS by 2030 given a faster implementation of methane
abatement measures in oil and gas operations. These reductions require
reinforced policies to ensure that most available abatement measures are fully
deployed by 2030.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 5: Near-term opportunities for afaster energy transition

Fossil methane emissions in China in the ATS and the APS

IEA, 2021.
Note: APS = Announced Pledges Scenario, ATS = Accelerated Transition Scenario.

The fall in coal use is accompanied by faster deployment of renewables and otherclean energy technologies that are commercially available today over the second
half of the 2020s in the ATS. As a result of the increasing competitiveness of windand solar PV across the country, together with market reforms to facilitate theirintegration into the electricity system, investment in those two technologies rises
by about 15% above the level of the APS to around USD 125 billion per year (CNY
800 billion per year) between 2025 and 2030, with total capacity additions
averaging 160 GW per year – around 40 GW more than in the APS). This resultsfrom the assumed power sector reforms and changes to the ETS, which bothfavour renewables and encourage faster electrification; and other policy measuresthat boost electricity demand, notably a 15% increase in the sales share of electriccars and a nearly 25% rise in market share for heat pumps in 2030 in relation to
the APS. This effect is partially compensated by electricity savings from more
efficient appliances, air conditioners, lighting and industrial equipment. On the
supply side, measures to more effectively integrate renewables such as enabling
market-based operation of electricity dispatch, long-term power purchaseagreements and cost reflective retail electricity prices help overcome bottlenecks
to their deployment.
The stronger policy action assumed in the ATS yields significant additional energy
and material efficiency improvements to 2030 over and above those achieved in
the APS. They bring major economic, environmental and social benefits beyond
those directly associated with climate change (see next section). Improving energy

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IEA, 2021.

and material efficiency is already a key pre-occupation among Chinese policy-

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Chapter 5: Near-term opportunities for afaster energy transition

makers and has reaped substantial gains in the past. For example, after the 2008
financial crisis, China allocated 5% of its CNY 4‑trillion (USD 585‑billion) stimulus
packagetoenergyconservation,

pollutantemissions

reductions

andenvironmental projects. More than CNY 40 billion was spent on energy efficiency,
mainly through the Top Ten Energy Saving Projects. As a result, coal consumption
fell in 2010, and the domestic market for energy efficiency services andtechnologies such as efficient boilers, electric motors and lighting expanded.
China is also actively pursuing the adoption of MEPS; almost two-thirds of final
energy use today is covered by such standards, nearly twice the global average
and up from only around one-third in 2010.

Indicators of the deployment of selected clean energy technologies in
China in 2030

IEA, 2021.
Note: APS = Announced Pledges Scenario, ATS = Accelerated Transition Scenario.

The deployment of available clean energy technologies accelerates in the ATS

Industry
In the ATS, energy efficiency gains contribute to a faster decline in emissions inall end-use sectors. In the industry sector, increases in the shares of scrap usedin steel and aluminium production together with decreases in the clinker-to-cement
ratio contribute to a 32% decline in the overall energy intensity of value added
during 2020-2030. This rate of decline is slightly faster than the 25% decline in the
APS, but significantly slower than the fastest rates realised over any of the FYP
periods during 2005-2020, reflecting the fact that a lot of progress has already

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IEA, 2021.

been made in this area (much of it targeted in previous FYPs).

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Chapter 5: Near-term opportunities for afaster energy transition

Average performance of selected end-use indicators in China
Indicator

2020

2030 - APS

2030 - ATS

Energy efficiency of new heating equipment in buildings

122%

233%

245%

Energy efficiency of new cooling equipment in buildings

412%

464%

602%

Energy intensity of new refrigerator units (kWh/year)

205

174

159

Efficacy of new LEDs (lumen/watt)

103

117

123

Fuel economy of new light commercial vehicles (MJ/tonne100km)

336

249

187

Fuel economy of new medium-duty trucks (MJ/tonne-100km)

111

72

66

Coal intensity of steel production (GJ/tonne)

15.6

14.3

13.7

Avoided cement production (Mt/year)--

125 (-5%)

Avoided steel production (Mt/year)--

67 (-6%)

Notes: APS = Announced Pledges Scenario; ATS = Accelerated Transition Scenario. Avoided cement and steel production
is in the ATS in 2030 relative to the APS in 2030.

Industrial energy intensity falls slightly faster in the ATS than in the APS. Additional
reductions in emissions in those sectors are obtained from modifications to themost emissions-intensive processes in the ATS. Energy efficiency plays animportant role with the adoption of the best available technologies and increased
process integration, e.g. in blast furnaces and cement kilns. Resulting energy
savings are offset to some degree by the adoption of carbon capture and lowcarbon alternative fuels, which are less emissions-intensive but more energyintensive.
Material efficiency gains also play a key role, reducing the amount of bulk
materials required to deliver the same services in the various end-use sectors that
consume them. China’s production of both cement and steel is about 2% lower in
2030 than in 2020 in the ATS; by contrast, production of these materials is 4%
higher in the APS. Overall output peaks in the mid-2020s in both cases. Material
efficiency strategies such as lightweighting, yield improvements, increased
recycling and re-use of these materials in the domestic market all contribute tolowering materials production in the ATS, with reinforced measures building on
the experience from the Industry Green Development Plan set out in the 13th FYP(2016-2020). Life-extensions of buildings with an increased rate of retrofits, which
reduces the need for more materials-intensive new construction, is a major
contributor. For example, cement and steel demand for construction is cut by more

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IEA, 2021.

than 10% in 2030 in the ATS relative to the APS due to a greater emphasis on

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Chapter 5: Near-term opportunities for afaster energy transition

structural optimisation, prefabrication, pre-casting and low-carbon material
selection, as well as building lifetime extensions through renovations andrepurposing.

Annual average change in energy intensity in industry and bulk materials
production in China

IEA, 2021.
Note: APS = Announced Pledges Scenario, ATS = Accelerated Transition Scenario. Energy intensity is measured asindustrial energy consumption per unit of industry value added.

Material and energy efficiency improvements lead to additional reductions in industrial
energy intensity in the ATS, despite the wider deployment of more energy-intensive
innovative technologies

Transport
In the transport sector, the ATS assumes that measures to accelerate emissions
reductions are reinforced over the next decade in two main climate policy areas:•

Reducing the number and length of trips, both within and between cities, or
switching them to lower carbon-intensity modes.

•

Accelerating the shift to low-carbon alternative fuels, especially to electricity inroad and rail freight.

Opportunities to avoid or reduce discretionary or low-value travel and to switch to
low-carbon modes are greatest in cities that are currently being designed and built.
Measures to encourage the use of public transit as well as walking and cycling areexpanded beyond what is already in place. Urban and transport planning are also
better integrated, reducing the need for motorised transport, e.g. smaller housing
blocks and improved local provision of commercial and other services that reduce

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IEA, 2021.

the need to travel by car or bus. This requires changing current incentive

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Chapter 5: Near-term opportunities for afaster energy transition

structures, such as those that reward fast construction, the typical practice ofselling large land tracts to a single developer and laws that stipulate how new“megablock” developments are integrated into city street grids. The same
opportunities exist, albeit to a lesser extent, in existing cities. District-level
revitalisation projects can take inspiration from projects elsewhere in the world,e.g. the successful conversion of a highway to a walkable corridor and multi-modal
public transit hub along the Cheonggyecheon stream in Seoul, Korea(Development Asia, 2016).

Fuel use by transport mode in China in the APS and ATS in 2030

EJ

12
10
8

Fossil fuels

6

Biofuels4Electricity
Hydrogen

2
0
APS

ATS
Rail

APS

ATS

Light-duty vehicles

APS

ATS

APS

Heavy-duty vehicles

ATS

Aviation

IEA, 2021.
Note: APS = Announced Pledges Scenario, ATS = Accelerated Transition Scenario.

Designing cities and transport systems to reduce vehicular travel and make low-carbon
modes more attractive reduce fossil fuel use by nearly 20% in 2030 compared with the APS

The main driver of near-term reductions in long-distance travel in the ATS comesfrom modernising the train fleet and intercity and high-speed rail networks. Fasterand expanded train services discourage road and air transport, which are morecarbon-intensive. There is a big opportunity for renewing railcars and locomotives;
resurfacing, repairing and improving tracks; and increasing the maximum cruising
speed of intercity passenger trains. Heavily used conventional routes are
upgraded and supplemented by high-speed rail to a greater degree than in the
APS.
To encourage faster improvements in vehicle efficiency and a switching to EVs,
the policies that have proved to be successful for light-duty vehicles and urban

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IEA, 2021.

transit buses are extended to other transport segments in the ATS. They include

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Chapter 5: Near-term opportunities for afaster energy transition

stronger vehicle efficiency standards, new energy vehicle (NEV) mandates fortrucks and intercity coaches, and clear targets to phase out the use of ICEs fortwo- and three-wheelers. Policies to speed up electrification of the remaining
railway operations that rely on diesel and the deployment of fuel-cell electricbuses, trucks and locomotives are also accelerated, setting the stage for fasterdecarbonisation in the 2030s.

Buildings
Tougher policy measures drive down energy needs in buildings by 5% and directemissions by 16% in 2030 in the ATS relative to the APS. Coal use in particular
falls by more than 75%. The period to 2030 is critical for China to adopt sustainable
construction and renovation practices to minimise the environmental impact ofbuildings in view of their long lifetimes.
In the APS, few of the buildings put up over 2021-2030 are zero-carbon-ready,though they are generally more efficient than recent ones thanks to a tightening ofenergy performance standards under the 14th FYP (2021-2025). In the ATS, there
is a much greater emphasis on zero-carbon-ready buildings, driven by thetightening of standards already in place, such as the Assessment Standard forGreen Buildings (GB/T 50378-2019) covering the use of materials, energy andwater as well as indoor air quality and buildings operation management (China
Legislation Standard, 2019). Their share of the total building stock reaches 16%
by 2030 – over four times higher than in the APS and over six times higher thanin 2020. Such buildings, which are much more efficient, can be easily adapted to
run on low-carbon energy and do not need any upgrade to achieve zero emissions(see Chapter 3). Deep energy retrofitting of existing buildings is critical as twothirds of China’s building stock were built after 2000. The rate of renovation to
zero-carbon-ready standards ramps up to 1% of the residential buildings stock per

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IEA, 2021.

year, or 500 million m2, in 2030, more than twice as much as in the APS.

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Chapter 5: Near-term opportunities for afaster energy transition

million m2

Zero-carbon-ready residential building retrofits and new construction in
China
2000

20%
ZCR construction

1500

15%
ZCR retrofit

1000

10%
Other construction

500

5%

0

0%
2020

APS

ATS

Share of ZCRbuildings in stock(right axis)

2030
IEA, 2021.
Note: APS = Announced Pledges Scenario, ATS = Accelerated Transition Scenario, ZCR = zero-carbon-ready.

The share of zero-carbon-ready buildings in the total building stock reaches 16% by 2030 in
the ATS – over four times higher than in the APS

A faster shift to lower-carbon heating technologies also drives down buildings’
emissions in the ATS. Coal and oil boiler sales are cut by 95% and 50%
respectively by 2030, while the share of natural gas boilers in heating system sales
reaches 15%, and continues to decline. Heat pumps, district energy systems andother direct renewables-based technologies (mainly biomass boilers, solar
thermal and geothermal) account for 75% - most of the remainder - of heating
system installations in 2030 (60% in the APS). Final energy demand is reduced
alongside emissions as the average energy efficiency of the new heating
equipment jumps from about 120% in 2020 to 245% (230% in the APS) by 2030,
driven by the faster take-up of highly efficient heat pumps, their efficiency reaching450% in 2030.

Benefits of a faster transition
Achieving a faster transition to clean energy over the period to 2030, as depictedin the ATS, brings a raft of socio-economic benefits to China beyond those
associated with alleviating the impact of climate change. This section describes

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IEA, 2021.

some of the main ones.

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Chapter 5: Near-term opportunities for afaster energy transition

A manufacturing hub for clean energy technology
If all countries heed the call to raise climate ambitions to 2030 under updated NDCs
at the 26th Conference of the Parties (COP-26) in Glasgow in late 2021, the global
market for clean energy technologies will expand. China is well placed to compete.
Over the last decade, it has become a global leader in the manufacturing of manyclean energy technologies that are sold around the world, as well as in its domestic
market. It is the leading producer and consumer of solar panels, batteries and EV.
For instance, more than 70% of global battery manufacturing capacity in 2020, or
480 GWh per year, was manufactured domestically by Chinese companies(Benchmark Mineral Intelligence, 2021). Their international outreach is also set togrow as they are building new gigafactories in Europe and elsewhere. Chinesecompanies also made about 65% of all solar PV modules (with a capacity exceeding
100 GW), nearly 80% of PV cells and more than 95% of silicon wafers in 2020 (IEA
PVPS, 2020; CPIA, 2021). China holds large reserves of some critical materials andmuch of the world’s minerals processing and refining capacity. It is also home to the
production of several key raw minerals needed for many clean technologies,
including lithium (57% global processing capacity), rare earth metals (60% global
mining capacity) and cobalt (65% global processing capacity) (see Chapter 4).
China’s central role in global clean energy technology value chains, as both atechnology developer and producer, as well as user, would be strengthened by afaster energy transition. The global reach of China’s clean energy sector is an
important driver of the development and deployment of those technologies both in
the domestic market and globally. Technology learning, leading to progressive
reductions in cost and improvements in performance and manufacturing, isparticularly rapid for technologies that are compact and can be standardised andmass- -produced, thus allowing them to be traded more easily. Batteries, solar PV
cells, fuel cells, electrolysers and heat pumps fall in this category; together, they
enable about 35% of the cumulative emissions avoided in the APS through to 2060
(or 170 Gt CO2) and even more in the ATS. By exporting these technologies,
production is expanded more rapidly, boosting technological progress and loweringcosts through economies of scale.
China’s aim to become a global leader in all the main technologies needed toachieve its target of carbon neutrality should reinforce these trends. China alreadydominates the global market for EV batteries, solar PV and heat pumps. The country
is also well-placed to expand its involvement in the value chains of emerging
technologies such as fuel cells and electrolysers. For instance, if China were tosupply the same share of global EV battery demand by 2060 as it does today, thePAGE | 215

IEA, 2021.

domestic battery manufacturing industry would be worth USD 260 billion – roughlyAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 5: Near-term opportunities for afaster energy transition

25 times its current size. China’s vast resources of critical minerals, from which
metals required for the manufacturing of these technologies can be extracted, gives
it a large competitive advantage over other countries. For instance, 60% and 35%of the global refining capacity for lithium and nickel respectively – the main metals
used in batteries – is in China.

Global manufacturing capacity of selected clean energy technologies
Batteries

Solar PV modules

Heat pumps

100%

100%

100%

80%

80%

80%

60%

60%

60%

40%

40%

40%

20%

20%

20%

0%

0%
2015

2020

0%
2015

China

2020

2015

2020

Rest of the world

IEA, 2021.
Note: PV = photovoltaics.
Sources: Derived from Benchmark Mineral Intelligence (batteries), IEA PVPS and CPIA (PV modules) and ChinaIOL (heatpumps).

In 2020, China accounted for about 70% of global manufacturing capacity for solar PV
modules and batteries, as well as over 40% of that for heat pumps

The accelerated installation of manufacturing capacity of low-carbon technologies
in the ATS increases opportunities to exploit economies of scale in China and therest of the world. Accelerating the expansion of China’s manufacturing capacity
for clean energy technologies to 2030 supports its goal to restructure its domestic
industry from heavy industrial sectors towards less energy-intensive higher valueadded industries and reinforce its position as global leader in that sector, as well
as boosting clean energy and related jobs (see below). This creates opportunities
for China to acquire a strategic advantage in critical technology areas. For
instance, a higher share of variable renewables in the electricity generating mix
requires the development of new electricity management systems, more storage
capacity and upgrades to the grid to facilitate load balancing.

Accelerating clean energy innovation
The accelerated clean energy transition in the ATS bolsters clean energy
innovation in China in areas such as hydrogen and synthetic fuel production for

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IEA, 2021.

heavy industry and long-distance transportation or CCUS. The increasing role forAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 5: Near-term opportunities for afaster energy transition

CCUS and hydrogen in the ATS starts in the next decade. CO2 capture reaches
360 Mt in 2030, compared with only 20 Mt in the APS, while low-carbon hydrogenproduction grows to nearly 8 Mt in compared with 3 Mt in the APS.
A faster transition to clean energy attracts more foreign and domestic investment
in demonstration projects for emerging low-carbon technologies in China, as thedemand for these technologies takes off sooner. This offers the opportunity oftechnology leadership to China and opens the possibility to expand exports.
China has a clearly stated aim to become a global leader in innovation as part ofits strategy to transform its economy away from low-value manufacturing andtowards high-value innovative technologies. Clean energy and critical minerals areamong its innovation priorities. The global clean energy transition offers China an
opportunity to push the technology frontier and maintain its share of the market forenergy-related appliances and equipment. The global market for these goods is
set to grow rapidly, but competition will be fierce: other countries are ramping up
their R&D spending and developing value chains for emerging technologies inareas such as hydrogen. Enhanced international collaboration on developing anddeploying clean energy technologies is required to facilitate the transition tocarbon neutrality in China and the rest of the world (see Chapter 7).

Indicators of the deployment of selected innovative clean energy
technologies in China in the APS and the ATS, 2030
Electrolyser capacity
0

20

60

40

80
GW

100
APS

Carbon capture in cement
0

20

60

40

80
Mt CO2

Additionalin ATS

Fuel cell trucks
0

0.05

0.1

0.15

0.2

0.25
0.3
million vehicles

IEA, 2021.
Note: APS = Announced Pledges Scenario, ATS = Accelerated Transition Scenario.

Clean energy technologies under development or that reached the market recently makemuch greater inroads by 2030 in the ATS than in the APS

China’s large domestic market will remain the basis for the development anddeployment of clean energy technologies. As a huge, unified market with largely

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IEA, 2021.

uniform regulations and technical requirements, it offers domestic innovators an

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 5: Near-term opportunities for afaster energy transition

attractive target for product development, fundraising and rapid large-scalecommercialisation of best international solutions, giving researchers andmanufacturers a strong competitive advantage over those in most other countries(see Chapter 6). China can continue to lead the way as a test bed for new
technologies that can be subsequently exported. This is especially true for heavy
industrial technologies, where China is expected to remain dominant (given the sizeof its domestic market), but also for those associated with energy-related
infrastructure, including electricity grids, vehicle recharging networks, long-durationenergy storage, and low-emissions ships and trains, as well as those to produce
low-carbon fuels and consumer goods, such as road vehicles and digital appliances.
Innovative technologies that are not commercially available today are deployed in
the current decade in China thanks to stronger policies. For example, in the ATS,the share of CCUS-equipped cement plants in total production reaches 4% in 2030,
whereas this technology is not deployed commercially in China in the APS.
Hydrogen-based primary steel production reaches 1% of domestic production in theATS, while it is not deployed commercially until the early 2030s in the APS. In thetransport sector, aircraft running on sustainable aviation fuels (biokerosene orsynthetic hydrogen-based fuel) account for 15% of the country’s aviation energy
demand in 2030 in the ATS, compared with just 2% in the APS.

More and better energy jobs
As in other parts of the world, the transition to carbon neutrality in China increases
the number of employees working in energy and energy-related sectors. Many ofthese jobs are well-paid and offer better and safer working conditions comparedwith traditional energy sector work, especially coal mining. These changes, if
co-ordinated with other larger shifts in labour, support China’s broader objectives
for industrial restructuring and socioeconomic development in those regions withlow GDP per capita.
Accelerating the energy transition hastens job creation. We estimate that roughly
11 million people in China were working directly in the oil, gas, coal, renewables andbioenergy supply and energy network industries in 2020. In the APS, jobs in clean
energy supply and related sectors, such as battery manufacturing and energy
efficiency retrofits, increase by 2.2 million by 2030, while employment in oil, gas andcoal fuel supply and fossil fuel power plants declines by 1.8 million, leading to a netincrease of around 0.4 million energy jobs. The change is much more significant in
the ATS: jobs in clean energy supply increase by 3.6 million and fall by 2.3 million
in the fossil fuel industries, resulting in a net increase of 1.3 million jobs over the

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IEA, 2021.

same period.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 5: Near-term opportunities for afaster energy transition

Employment in China’s coal sector is set to continue to shrink, regardless of whether
policies to speed up the energy transition are strengthened. Jobs in coal mining andwashing have already been in decline over the past decade, falling by 2 million since2013 and reaching around 3 million today. 2 This was primarily due to declining
numbers of mines under development and operation and a near 80% improvement
in coal productivity, driven by mechanisation. Another 1.6 million jobs in all coalmining (including upstream mining equipment suppliers), or 45%, are lost by 2030
in the APS, and 1.9 million, or 55%, in the ATS. These declines are driven in largepart by productivity gains (near 45% of job losses in APS and 35% in ATS), andcontinuing decline in new mine development and closing existing small mines.
Chinese coal production declines only by around 2% to 2030 in the APS and 20%
in the ATS. This accelerated decline in coal demand only results in 15% of the coal
job losses in the ATS. Productivity gains are made through the closure of inefficientmines producing less than 300 000 tonnes per year, which today account for around
40% of mines in China.

Energy-related employment in China
Total energy sector employment

Change in employment 2019-2030
4
million jobs

million jobs

12
9
6
3
0

2
0
-2
-4

APS

2019
Oil and gas
Low-emissions buildings retrofits
Electricity

Coal
Battery manufacturing
Bioenergy

ATS
Coal productivity
Hydrogen and CCUS
Net change
IEA, 2021.

Notes: Employment estimates for 2019 include energy supply sectors only as there is insufficient information on jobs directly
attributable to energy-related activities (e.g. efficiency). APS = Announced Pledges Scenario; ATS = Accelerated Transition
Scenario; CCUS = carbon capture, utilisation and storage. 2019 was chosen as the base year for modelling because of thelarge impact of the Covid-19 pandemic on employment. Changes in employment do not include jobs filled by transferring
workers from one business unit to another (e.g. conventional car manufacturing to EVs). This is likely to underestimate thetotal number of new jobs created in both the APS and the ATS.

In the ATS, clean energy jobs increase by 3.6 million, while 2.3 million are lost in fossil
fuels. This creates 1.3 million jobs on net, almost 1 million more jobs than in the APS.

2PAGE | 219

IEA, 2021.

Official employment estimates in China for coal mining and washing include only those working in legal entities registeredwith industrial and commercial departments. This misses informal employment in the sector.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 5: Near-term opportunities for afaster energy transition

China’s different coal producing regions have markedly varied levels ofmodernisation. Job losses will be more pronounced in provinces with many small
mines and low levels of coal mining mechanisation, such as Shanxi, Henan,
Shandong, Anhui, Heilongjiang, and Hebei. Whereas provinces like Inner
Mongolia, Sha’anxi, and Xinjiang deploy more modern mining practices or have ahigher share of surface mining, which allows greater labour productivity. New job
opportunities in mining could arise in different parts of the country, as demand for
critical minerals, such as lithium and rare earth metals, grows rapidly with theglobal clean energy transition, though they will probably not be sufficient tocompensate for all the lost coal mining jobs as all mining industries are meant toimprove productivity and reduce overcapacity. 3
Some of these provinces have diversified economies, and will have more
opportunities for unemployed miners to find work in new sectors. Many low-skilledcoal miners, as well as highly-skilled workers displaced in the oil and gas industry,
may move to cities and work in other industries or the services sector. Skilledemployees may find new opportunities in similar roles within wholesale trading,financial, accounting and legal services, including carbon management. Training
programmes could support transitioning these workers while cultivating a highlyskilled workforce for China’s new energy economy that increases international
competitiveness of Chinese firms. China piloted a transition support programme
to retrain and compensate workers that lose their jobs in the coal and steel
industries, which has run since 2016, with a budget of USD 14 billion(CNY 100 billion), and is set to end in the coming years. This programme could befurther refined to ensure targeted training that reaches workers directly, instead ofbeing directed through companies. Such efforts could position China’s workforce
wider objectives of restructuring the economy away from heavy industry andtowards higher-value technologies and services sector, and fostering a morevibrant private sector. In the APS, more than 20 million workers leave heavy
industries for jobs elsewhere in the economy; in the ATS, the figure is closer to
30 million. These workforce transitions happen while total employment continues
to grow in China to 2030 with greater job growth in services and tertiary industry.
Policy makers should remember that energy is just one small part of a larger

3 This push to improve productivity and reduce industrial capacity is mirrored in heavy industries as well, although occurring

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IEA, 2021.

much later than the decline of coal. However, these are all part of a larger shift in China away from primary and heavy
industry, driven by China’s economic reforms and efforts to streamline state-owned enterprise operation. From 2015-2019,
employment in primary and heavy industry fell by around 25 million and in secondary industry by around 15 million, while
employment in the services sector increased by nearly 40 million (China National Bureau of Statistics, 2020). This trend is
expected to continue over the current FYP period (2021-2025).

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 5: Near-term opportunities for afaster energy transition

labour force in flux — job losses in primary industry are 10-15 times larger thanthose in fossil energy — and design training programmes and economic transition
policies accordingly.
A faster transition to clean energy boosts the creation of jobs in related industries
as well, including manufacturing NEVs and more energy-efficient appliances andequipment, and construction. In the ATS, clean energy and related jobs in totalrise by 5 million, compared with 3.3 million in the APS. Over half of the additional
positions in the ATS and APS are highly skilled, underscoring again the need fortraining and retraining programmes. As China is already a manufacturing hub fora large portion of the clean energy supply chain; a faster transition elsewhere in
the world also boosts job creation in that sector. China is set to gain additional
market share and employment gains from any near-term increase global in solar
and battery demands, as China holds 60-80% of global manufacturing capacity
across each step of the production process. In the longer term, however, it is likelythat other countries also ramp up domestic manufacturing capacity.

Additional workers needing clean energy skills or training in the APS and
ATS, 2019-2030
By sub-sector and scenario/case
APS
ATS
1

2

3

4

By type in the ATS

Occupation

Skill level

Professional
33%

Construction
26%

5

millions

Other
19%

Manufacturing
27%

High 54%
20%

6

Grids
Power generation
EVs
Bioenergy production
Efficiency
End-use renewables
CCUS and Hydrogen
Battery manufacturing

Low
8%

Medium 32%
40%

60%

80%

100%
IEA, 2021.

Note: APS = Announced Pledges Scenario; ATS = Accelerated Transition Scenario; EV = electric vehicle; CCUS= carbon
capture utilisation and storage.

By 2030, 5 million workers will need additional skills to hold positions in clean energy
sectors in the ATS. Over half of the additional positions being highly skilled

The employment benefits of a faster energy transition in China are notautomatically evenly distributed across the country. Its populous coastal regions
today are home to many manufacturing jobs, which are less at risk in the transition.
In the less developed interior, more jobs in fossil fuel extraction are lost in the ATS,

PAGE | 221

IEA, 2021.

but are outweighed by additional jobs in renewable energy, emerging technologies

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 5: Near-term opportunities for afaster energy transition

such as CCUS, and minerals extraction and processing. Even if these newindustries demand less unskilled labour, environmental rehabilitation and forestry(not considered in our projections) could create additional demand for low-skilled
labour for fixed periods during the transition. The government would be welladvised to actively develop retraining and community transition plans, which could
locate new clean energy facilities in areas heavily affected by job losses. Together
with urbanisation and the ageing of the population, this could alleviate the pain
points of immediate job losses in these acutely effected regions.

A more orderly transition that reduces emissions lock-in
A faster transition also increases the chances of reaching carbon neutrality in anorderly fashion, leaving more time for markets to adjust and businesses andconsumers to adapt to new conditions. In the APS, there is a steady averageannual reduction in CO2 emissions of about 385 Mt/year from 2030 to 2060. In theATS, the required average annual pace of emissions reductions between 2030
and 2060 is almost 20% lower.
An important benefit of the ATS is that there is less need to lower future emissions
from long-lived carbon-intensive assets, emissions from which risk being lockedin (see Chapter 1). In the APS, such assets in the power and industry sectors emit
almost 100 Gt cumulatively over the period 2021-2030, of which assets
commissioned within that period are responsible for around 13 Gt, or 13%. The
new assets include 88 GW of new coal-fired power capacity (around 45% of all
global additions in the APS), more than 60% of which is already under construction
today. Given their long operating lifetimes, those plants would continue to emit
large amounts of CO2 – around 0.4 Gt/year on average to 2060 – unlessdecommissioned or retrofitted with CCUS or other low-carbon technologies.
Large-scale retrofits and closures are required to ensure the target of carbon
neutrality in 2060 is achieved in the APS.

Cumulative additions of selected carbon-intensive energy assets in China
in the APS and ATS, 2021-2030
Capacity additions/sales 2021-2030

APS

ATS

Unabated coal-fired power generation capacity additions (GW)

88

75

Unabated primary steel production capacity additions (Mt)

275

258

Residential fossil-fuel boiler installations (million)

135

105

ICE truck sales (million)

34

26

PAGE | 222

IEA, 2021.

Note: APS = Announced Pledges Scenario; ATS = Accelerated Transition Scenario."An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 5: Near-term opportunities for afaster energy transition

Because less long-lived fossil-fuelled capacity in the power and industry sectors iscommissioned to 2030 in the ATS, the need to cut future emissions from them isreduced by 3 Gt, or one-quarter, cumulatively to 2030, and around 20 Gt (more thanhalf) to 2060, compared with the APS. Limiting coal-fired power plants capacity
additions alone accounts for nearly 25% of the emissions savings to 2030, with theheavy industry sectors accounting for most of the rest. Beyond the power andindustry sectors, the extent to which shorter-lived assets contribute to additional
locked-in emissions is also reduced. Residential fossil-fuel boiler installations are
more than 20% lower in the ATS in 2030, leading to 30 million fewer installations
cumulatively over the period 2021-2030. Cumulative sales of ICE trucks over the
decade are also 8 million, or over 20%, lower in the ATS, compared with the APS.

A bigger energy sector contribution to carbon neutrality
A faster clean energy transition makes it easier for China to achieve its goal ofcarbon neutrality in 2060. Indeed, reaching net zero CO2 emissions from the energy
sector well before 2060 may prove necessary. The Chinese government has
recently indicated that the target for peak emissions before 2030 concerns energyrelated CO2 emissions, while the 2060 carbon neutrality target may cover economywide GHG emissions (see Chapter 1). There is some uncertainty around the exact
level of total GHG emissions in China. Emissions of non-CO2 GHGs, including nonCO2 emissions from the energy sector and GHG emissions from non-energy-related
activities such as agriculture, have recently been estimated at 2.4 Gt CO2eq in 2020,
while forestry and other land-use changes were estimated at 0.7 Gt CO2eq of netnegative emissions (He, J. et al., 2021). This compares with energy sector CO2
emissions of more than 11 Gt in 2020.
In the scenarios from integrated assessment models compiled by theIntergovernmental Panel on Climate Change (IPCC) that limit global warming to
below 1.5°C at the end of the century with limited overshoot, energy sector CO2
emissions generally reach net zero earlier than other non-CO2 GHGs, with carbon
removal used to offset residual non-CO2 and non-energy sector GHG emissions,either through energy sector technologies (bioenergy with CCUS or direct air
capture) or through natural-based solutions (IPCC, 2018) 4. This is because
eliminating some non-CO2 emissions, such as nitrous oxide emissions inagriculture, is particularly difficult. It follows that reaching net zero energy sector CO2
emissions in China earlier than 2060 may be needed to allow more time to reduce

PAGE | 223

IEA, 2021.

4
Projected non-CO2 GHG emissions in China in climate mitigation scenarios range between 1.27 and 1.76 Gt CO2-eq by
2050 – between an almost 30% and 50% reduction relative to 2020. This is in contrast with between a 75% and around 90%
emissions reductions for energy sector CO2 emissions over the same period (He, J. et al., 2021).

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 5: Near-term opportunities for afaster energy transition

its non-CO2 emissions and facilitate the achievement of overall carbon neutrality by
2060. In practice this may require accelerating the date of net zero CO2 emissions
from the energy sector and minimise its emissions already towards 2050. A fasterenergy transition to 2030, as in the ATS, makes that much easier to achieve as it
reduces the pace of that transition needed after 2030.
The faster transition to 2030 in the ATS reduces considerably the emissions fromlong-lived carbon-intensive assets coming online or being refurbished over that
period (see above). Relative to APS, this tempers the pace of deployment of clean
energy technologies needed after 2030 if China was to aim at reaching net zeroCO2 emissions by 2050. Based on an ATS trajectory to 2030, 12 GW of new solar
PV and wind capacity is avoided annually (or 5% of yearly additions) relative tofollowing the APS until 2030. In addition, around 1 million (10%) fewer residential
heat pumps need to be deployed on an annual basis, and 1 Mt (4%) of steel
production capacity addition using low-carbon routes are avoided.

Average annual growth rate of primary energy intensity and share of nonfossil fuels in primary energy demand for the energy sector to achieve net
zero CO2 emissions by 2050 in China
Non-fossil fuels in primary energy

Primary energy intensity of GDP
0%

2020-2030

2030-2040

2040-2050

10.0%

-2%

7.5%

-4%

5.0%

-6%

2.5%

-8%

0.0%
APS until 2030 to net zero emissions by 2050

2020-2030

2030-2040

2040-2050

ATS until 2030 to net zero emissions by 2050

IEA, 2021.
Note: APS = Announced Pledges Scenario. ATS = Accelerated Transition Scenario.

A faster energy transition to 2030 makes it easier to achieve net zero energy sector CO2
emissions earlier than 2060 and net zero GHG emissions by 2060

The benefits of a faster transition in China span beyond the country’s domestic
goals. China’s weight in global CO2 emissions makes its decarbonisation pathway
a key driver of the world’s CO2 emissions trajectory and, hence, the consequencesfor global temperature. Depending on when China’s emissions peak or reach net
zero, its total cumulative emissions from 2021 to the year of net zero may be cut

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IEA, 2021.

by around 45%.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 5: Near-term opportunities for afaster energy transition

References
Benchmark Mineral Intelligence (2021), Lithium ion battery megafactories assessment,www.benchmarkminerals.com/megafactories/.
ChinaIOL (2021), Datacentre of Beijing Zhixindao Sci-Tech Corp., Ltd.,
http://data.chinaiol.com/ecdata/index.
China Legislation Standard (2019), Assessment Standard for Green Buildings (GB/T 503782019), www.cnstandards.net/index.php/gb-t-50378-2019-assessment-standard-forgreen-building/.
CPIA (Chinese Photovoltaic Industry Association)CPIA (2021), China PV Industry
Development Roadmap 2020.
Development Asia (2016), Revitalizing a City by Reviving a Stream,
https://development.asia/case-study/revitalizing-city-reviving-stream, accessed 9
August 2021.
He, J. et al. (2021), Comprehensive report on China's Long-Term Low-Carbon Development
Strategies and Pathways, Chinese Journal of Population, Resources and Environment,
https://doi.org/10.1016/j.cjpre.2021.04.004.
IEA PVPS (Photovoltaic Power Systems Programme) (2020), National Survey Report of PV
Power Applications in China, https://iea-pvps.org/wpcontent/uploads/2020/09/NSR_China_2019.pdf.

PAGE | 225

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IPCC (Intergovernmental Panel on Climate Change) (2018), Summary for policymakers, in:
Global Warming of 1.5°C, Masson-Delmotte, V., P. et al. (eds.),
www.ipcc.ch/site/assets/uploads/sites/2/2019/05/SR15_SPM_version_report_LR.pdf.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 6: Innovation for carbon neutrality

Chapter 6: Innovation for carbon
neutrality


The People’s Republic of China (hereafter, “China”) has joined the top table ofenergy-innovating countries. Public spending on low-carbon energy research anddevelopment (R&D) has risen by 70% between 2015 and 2019 and now
represents 15% of the global total. China accounts for nearly 15% of patentactivity in renewables and 10% in electric vehicles (EVs). In the last three years
its start-ups have attracted 35% of global early-stage energy venture capital,
compared with 5% in 2010-2014. China’s contributions to solar photovoltaics(PV) cost reductions, in particular, have changed the way the world thinks about
energy innovation.



A major push for clean energy innovation will be required for China to achieve its
carbon neutrality targets. About 40% of the CO2 emissions reductions in 2060 in
the Announced Pledges Scenario (APS) come from technologies that are at
prototype or demonstration stage today. This share is highest in heavy industry
and long‐distance transport. To ensure that critical emerging technologies areavailable by the 2030s, major innovation efforts are needed in the 2020s.



The 14th Five-Year Plan (FYP) aims to shift the focus of technology development
to carbon neutrality and pursue new policy approaches, building on a uniquefoundation. China’s energy innovation system exhibits five key policy featuresthat are rarely found together elsewhere: the ability to mobilise funding towards
strategic national missions; devolved responsibility to state-owned enterprises(SOEs); empowering provincial and municipal governments to experiment andcompete; reaping the benefits of a vast domestic market that spreads risks andsustains competition; and learning from international co-operation, especiallybetween firms. Together, they form a framework that is highly centralised in goal
setting and relatively decentralised in goal attainment.



Low-carbon energy technologies, including carbon capture, utilisation andstorage (CCUS), hydrogen, biofuels and electrification value chains, are highly
diverse. The various features of China’s innovation system will need to beharnessed appropriately for each technology. Large-scale technologies like
CCUS and biorefining are suited to the main Chinese policy incentives, as aresome elements of network infrastructure, while for low-carbon consumer
products, China’s manufacturing strengths provide a strong foundation. Building
trust through strong intellectual property governance, fair access to markets anddepoliticised supply chains would reduce the risk of undermining international
collaboration and co-operation on clean energy innovation.

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IEA, 2021.

Highlights

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 6: Innovation for carbon neutrality

Clean energy innovation in China
This chapter summarises the case for China to intensify clean energy innovation,
drawing on various examples and policy statements to indicate a way forward. It
reviews the status of energy innovation policy making in China at the inception of
the 14th FYP (2021-2025) and explores five unique features of the Chinese energy
innovation landscape that the government could harness to accelerate thedevelopment of the key technologies needed for carbon neutrality.

Innovation is needed to meet climate goals
The Chinese government recognises that reaching carbon neutrality by 2060 will
not be achievable without a major acceleration in clean energy innovation. Suchinnovation, which is expected to be a major driver of economic growth in the
coming decades, stands at the confluence of three major strategic national
objectives:
Technological leadership: to become “the top innovation-oriented country by2035” and “the world's major science centre and a highland of innovation” (Xi,2021a; Xi, 2021b).



Innovation-driven growth: to build a "new momentum" for high quality economic
development, with scientific and technological achievements as the “mainbattlefield of the economy and society” (Wang, 2021).

Tackle environmental challenges: to achieve the vision of an “ecologicalcivilisation”, including a peak in CO2 emissions before 2030, carbon neutrality
before 2060, and tackling air, water and land pollution.

Reaching net zero emissions will require the widespread use after 2030 oftechnologies that are still at the prototype or demonstration stage today. In the
APS technologies that are available on the market today provide the bulk of theCO2 emissions reductions required in 2030 relative to 2020 but, in 2060, 40% of
the reductions come from technologies that are under development today. The
share of emissions reductions in 2060 that come from technologies currently atdemonstration or prototype stage is the highest in heavy industry and long‐
distance transport, whose decarbonisation rely on electrification, hydrogen, CCUS

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IEA, 2021.

and advanced biofuels.

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 6: Innovation for carbon neutrality

Figure 6.1 CO2 emissions reductions by current technology maturity category in China
in the APS

Gt CO218
Behaviour
15
Mature12Market uptake

96Demonstration

3

Prototype0

Service demand
2020

ServicedemandMitigation
measures2030

ServicedemandMitigation
measures

2060

IEA, 2021.
Note: APS = Announced Pledges Scenario.

More than 90% of the CO2 emissions reductions by 2030 are from technologies readily
available today whereas about half of the reductions in 2060 relative to 2030 come fromtechnologies that are currently only at the prototype or demonstration phase

To ensure that critical technologies for carbon neutrality are available in China andthe rest of the world by the 2030s, major innovation efforts are needed in thecurrent decade. As one of the world’s largest energy markets and an emerging
leader in clean energy innovation, China will be central to the global challenge. It
is expected to be home to many first-of-a-kind energy projects and products,
especially in heavy industry. China has become a major exporter of clean energy
technology in recent decades. With its R&D resources and world-scalecompanies, China has the potential to innovate advanced low-carbon
technologies for adoption and adaptation in other countries, especially in emerging
market and developing economies. Announcements in support of the 14th FYP(2021-2025) recognise the importance of international co-operation alongsideother policy mechanisms as highlighted in this chapter.

Clean energy innovation in the five-year plans
China’s overarching ambitions for energy and climate technology innovation areencapsulated in its FYPs and supported by high level strategies including “Madein China 2025” and “China Standards 2035”, which seek to ensure that Chinesecompanies participate throughout strategic value chains and have a voice ininternational rulemaking (Chipman Koty, 2020). The 14th FYP emphasises energy
technology innovation to support decarbonisation efforts more than in previous
plans (Li, 2021; Xinhua News, 2021a). It also continues the shift towards

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IEA, 2021.

technology areas compatible with carbon neutrality started in the 11th FYP

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 6: Innovation for carbon neutrality(2006-2010). Together, these plans shape how China promotes clean energy
innovation and innovation in related areas such as critical minerals, in which China
has already demonstrated strategic interests (IEA, 2021a).

Table 6.1

Generalinnovation
approach

Key focus
areas forenergyinnovation

Technology development and key energy innovation priorities outlined in
China’s recent five-year plans
11th FYP(2006-2010)

12th FYP(2011-2015)

13th FYP(2016-2020)

14th FYP(2021-2025)

Ramp up technology
manufacturing toboost exports.

Prime domestic
markets andmanufacturing
innovations.

Seek novel
innovations inpriority technology
areas.

Keep edge inmanufacturing andprime breakthroughinnovations.

Solar, wind, electricvehicles andcharging.

Next-generation
renewables, energy
storage, new energy
vehicles andbatteries, smart
power grids andbuildings energy
efficiency.

Next-generation
batteries and newenergy vehicles,
hydrogen and fuelcells, advanced
biofuels, CCUS andsmart digitalsystems.

Nuclear, coal,automobiles andnew materials.

Notes: CCUS = carbon capture, utilisation and storage. Key focus areas for innovation correspond to those technologies forwhich innovation is mentioned in high level policy documents and guidelines. As priorities typically roll over in five-year plans(FYPs), the table focuses on additions relative to previous FYPs.
Sources: NDRC (2016); NDRC and NEA (2016a and 2016b); NEA (2016); State Council (2016a and 2016b).

Documents in support of the 14th FYP (2021-2025) published since it was
released in 2020 set out expectations for energy innovation. The Energy
Development in the New Era White Paper establishes high level guidelines forstrengthening the “driving force of technology innovation” and developing
emerging strategic industries in light of China’s new carbon neutrality targets(State Council, 2020). The paper calls for major science and technology (S&T)
projects in oil and gas, third- and fourth-generation nuclear power, new energy
vehicles, smart grids, coal mining and use, renewables, hydrogen and fuel cells,
and energy storage. It targets building over 80 national energy R&D centres andlaboratories in collaboration with scientific research institutes, universities andenterprises. While the plan aims to prioritise the development of non-fossil energy,
it still foresees a major role for technology for more efficient use of fossil fuels.
The Ministry of Science and Technology is developing a “carbon peak and carbon
neutral technological innovation action plan”, which will be complemented in 2021
with a detailed carbon-neutral technology development roadmap and a list of new

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IEA, 2021.

R&D and demonstration programmes (ACCA21, 2021 and 2020; MOST, 2021a).

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 6: Innovation for carbon neutrality

There are signs that they will align much more closely with the technology needsof the APS than the initiatives associated with previous FYPs. However, there arealso indications that fossil fuels, including coal, will continue in parallel in 20212025 but will be scaled back.
China’s economy-wide push to be in the vanguard of technology innovation
involves the introduction of new policy approaches, including efforts to stimulatecompetition among technology developers and strengthen innovation cultures in
research institutions and the corporate sector. Under the 14th FYP (2021-2025),



Increase R&D spending by over 7% every year (more than the gross domestic
product (GDP) growth target for 2021) to surpass the US and European R&D
budgets, and raise the share of basic research in total public R&D to 8% (up fromabout 6% in 2019).

Concentrate resources on strategic emerging energy areas, including CCUS,
hydrogen, industrial decarbonisation, digital and smart energy, and advanced
biofuels for transport.

Grant more autonomy to researchers and increase competition among them bybroadening access to publicly funded programmes for young scientists and using
performance-based open competition mechanisms, such as the new “bounty
system” and “disruptive technology innovation competitions” (MOST, 2021b).



Set up climate neutrality innovation centres to foster collaboration between
research institutes, enterprises and universities, including China’s first carbon
neutral innovation centre in Sichuan, announced in April 2021 (Li and Chen,2021), and a CCUS innovation centre.



Encourage enterprises to increase R&D spending and capture a larger share of
global supply chains for clean energy technologies, including through tax
incentives or other non-traditional fiscal policy tools such as “innovation points”
systems that reward innovative firms located in official National High-Tech Zones
with financing (MOST, 2021c).

Enhance governance by aligning intellectual property protection with international
best practice, modernising S&T institutions, improving evaluation and monitoringmechanisms for R&D, and promoting international collaboration in energy R&D
and demonstration.

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China is expected to:An Energy Sector Roadmap to Carbon Neutrality in China

Box 6.1

Chapter 6: Innovation for carbon neutrality

Bounty system

In support of its renewed focus on innovation in the 14th FYP (2021-2025), China’s
State Council announced in May 2021 the adoption of a new bounty system to“give young and capable scientists more opportunities, facilitate thecommercialisation of their research results and help them clear technologicalobstacles to meet the country's socio-economic needs” (State Council, 2021;
Xinhua, 2021b). The system has been pilot tested locally since 2016, mostly for
non-energy technologies and will now be rolled out nationwide (Zhihao, 2021a and2021b). Several fields relevant to clean energy have been identified. For example,
special projects under this scheme have been put forward in critical and rare earth
minerals (with funding of USD 3 million [CNY 20 million]), new energy vehicles(USD 8 million [CNY 60 million]), energy storage and smart grids (USD 5 million[CNY 33 million]) and hydrogen technologies (USD 8 million [CNY 55 million])(Yezi, 2021).
The details have not yet been published, but the expected for applying andreceiving a bounty is:•

The government publishes a list of specific research obstacles (submitted bypublic institutions or private companies).

•

Any capable research teams can apply to clear those obstacles irrespective of
their educational qualifications or the job positions of their leading scientists,
with priority given to younger applicants.

•

Selected research teams will receive government funding and policy support.

•

Recipients will be evaluated rigorously for quality and timeliness.

The bounty system represents a break with previous funding programmes, whichwere often limited to SOEs or government research intuitions and followed thesame direction as their existing research.

China’s role in global energy technology development

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China has made major contributions to energy technology development since 2000.
As a hub for manufacturing innovations, innovation in China has had an impressive
impact on the clean energy sector, notably in helping to reduce the costs of solar
PV by over 90% since 2005 and automotive lithium batteries by 90% since 2010.
The experience with solar PV, batteries and light-emitting diodes (LEDs), hasarguably changed energy technology expectations more generally, raisingconfidence that innovation will lower the economic and political barriers to tacklingclimate change. More recently, China’s contributions to product and equipment
improvements have grown as its foundational science capabilities have improved,

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particularly in ultra-supercritical coal (UCS) combustion, coal conversion, ultra-highvoltage transmission and nuclear power. China is now at the forefront of further
advances in solar PV, battery, electric vehicle (EV), hydrogen and digitaltechnologies as researchers and technology developers worldwide seek energy
solutions that can follow similarly steep learning curves based on modularity andlarge-scale manufacturing.
China accounted for one-quarter of global public spending on energy R&D and 15%of spending on low-carbon energy R&D in 2020. 1 Public energy R&D spending
increased under the 13th FYP (2016-2020) from about USD 6.8 billion(CNY 47.2 billion) in 2015 to USD 8.3 billion (CNY 57.3 billion) in 2019, making
China the world’s largest energy R&D spender in absolute terms ahead of theUnited States in that year and the third-largest per unit of GDP after Norway and
Finland. Following pledges made in 2015 under Mission Innovation, China’s lowcarbon energy R&D spending increased 70% from USD 2.4 billion(CNY 16.8 billion) to USD 4.1 billion (CNY 28.1 billion) over the same period,
compared with a rise in GDP of about 30%, raising the low-carbon share of totalenergy R&D from 35% to nearly 50%.
Figure 6.2 China’s share of global public spending on low-carbon energy R&D,
venture capital and patenting
Venture capital

Share of world

R&D spending
20%

40%

15%

30%

Patenting
30%
25%
20%

10%

20%

5%

10%

15%
10%
5%
0%

0%

0%
2015
Batteries

EVs

2020

2010

2015

2020

HVAC

Hydrogen and fuel cells

2000
Lighting

2005
Smart grids

2010

2015
Solar PVWind

IEA, 2021.
Notes: Left graph: R&D = research and development. Spending includes government and "state-owned enterprises budget
estimates. Middle graph: venture capital represents seed, series A and B, grants, growth equity, private investment in public
equity, buyout and late-stage private equity, and coin/token offering venture capital deals in clean energy start-ups. Rightgraph: EVs = electric vehicles; HVAC = heating, ventilation and air conditioning; PV = photovoltaics. Patent counts in climatechange mitigation technologies relating to energy filed in at least two geographical offices. Three-year moving averages areused.
Sources: IEA analysis (2021) based on data from: IEA (2021b); Cleantech Group (2021); OECD (2020).

China accounts for about 15% of global public spending on low-carbon energy R&D and arising share of start-up and patenting activity

1

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While data on inputs to innovation, such as R&D spending and finance for entrepreneurs, and outputs from innovation, suchas patents, are imperfect proxies for innovation quality and long-term outcomes, they illustrate the rising level of effort andimportance given to clean energy innovation in China.

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The increase in China’s clean energy funding has been accompanied by a shift in
the focus of energy innovation from publicly led R&D and demonstration projects
to addressing other elements of its innovation system (IEA, 2020a). This includes
more decentralised responsibility for both R&D and deployment of newtechnologies, as well as more attention to flows of knowledge between
researchers and industry.
China’s share of international patenting activity for clean energy technologies hasgrown markedly over the last two decades. In 2018, Chinese inventors accounted
for 32% of global patenting for lighting, 23% for heating and cooling, 25% for solarPV, 10% for wind, 12% for other renewables, 13% for batteries and 8% for EV andcharging technologies. In addition, venture capital activity started to skyrocket in
China around 2015, with a focus on electric mobility and a number of very big
early-stage deals (above USD 150 million [around CNY 1 billion]); there were few
Chinese start-ups in the energy sector just ten years ago. In 2019, energy in total
attracted about as much venture capital investment as semiconductors or
medicine and health (MOST, 2021d). Over 2018-2020, China accounted for about
35% of global early-stage financing for clean energy start-ups.

China’s approach to energy innovation
Choices about technology development in China are often characterised as theresult of decisions taken and applied in a top-down manner, but this oversimplifies
the unique systems in place that encourage rapid innovation. These systems haveseveral features that are largely unmatched in their nature or scale worldwide. Thissection focuses on five features, assessing their impact on innovation andcontrasting them with approaches in other countries:

Mobilising funding for strategic national missions.



Devolving responsibility for innovation to SOEs.



Empowering provincial and municipal governments to experiment and compete.



Reaping the benefits of the country’s vast domestic market to spread risks andsustain competition.



Facilitating international co-operation to accelerate learning, especially between
firms.

The energy technologies that China has prioritised in the past decade, including
nuclear power, high voltage transmission, coal conversion, batteries, EVs and

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hydrogen, have all benefitted from these five factors to some extent.

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The combination of these features creates a framework that is highly centralised
in goal setting and relatively decentralised in goal attainment, providing
considerable flexibility for policy makers and companies to experiment quickly andon a large scale (Xu, 2020). While working within the boundaries of the objectives
established by the national government, SOEs, private companies, universities
and provincial and municipal governments are given considerable scope to definetargets, take risks and follow technological paths that would be unfamiliar to mostother countries. This is facilitated in particular by the sheer size of the national andprovincial economies, which can accommodate several projects at the same time.
It is also driven by a history of needing to deliver projects with lower budgets thanin other countries, such as the United States.
The innovation system that has emerged benefits from the rapid learning frommultiple efforts at different levels of government oversight with a higher toleranceof failure than elsewhere in the world. In digital technologies in particular, China’s
market size and speed of adoption of new products are bringing high expectationsof disruptive change, but have not yet brought the country to the international
frontier of certain complex energy technologies. That is the official goal for the next
five years.

Mobilising funding for strategic national missions
China’s FYPs provide a common vision of technology priorities over the medium
term and can ensure stable funding for R&D projects that result from the high-levelguidance. Certain energy technology objectives have been elevated to the statusof national missions with strategic socio-economic importance. They include USC
coal and nuclear power generation, as well as oilfield drilling and coal conversion,
all of which have received high-level support and large-scale funding in recent
FYPs, driven by concerns about energy security and, to a lesser extent,
environmental protection.
The development of USC coal power plants, initiated under the 11th FYP(2006-2010), is a good example of China’s ability to co-ordinate researchers,
developers and investors in meeting a technology goal. The 11th FYP targeted a
20% reduction in energy consumption per unit of GDP and 10% lower sulphur
dioxide emissions (Chang et al., 2016). Alongside the closure of small, inefficient
coal plants, R&D in advanced combustion was stepped up rapidly, involving tests
on older plants. This accelerated during the 12th FYP (2011-2015), leading to theworld’s largest supercritical circulating fluidised bed boiler and the first 1 GW USC
air-cooling unit. By 2016, a combined 66 GW of these USC units were operational

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in China, with one of them holding the world energy-conversion efficiency record

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at 48% (Wiatros-Motyka, 2016). In the case of coal conversion technology,
particularly for chemicals production given the sector’s dependence on oil and gas
imports, resources were similarly mobilised quickly to develop scientific expertiseand invest in demonstration plants followed by commercial facilities.

Box 6.2

Coal conversion: example of large-scale, centrally co-ordinatedtechnology innovation

The Chinese government has sought to develop technologies to convert coal tochemicals and other products since the 1970s, accelerating support in the early
2000s (Xu, Liu and Li, 2020; Wei, Wang and Ding, 2019; Zhao and Gallagher,2007). The National Medium and Long-term Science and Technology
Development Plan (2006-2020) promoted coal-to-chemicals, coal-to-liquids andcoal-to-gas as means to reduce reliance on imported energy to produce the goods
driving China’s economic growth (State Council, 2006). By the end of the 13th FYP
in 2020, China was home to most of the world’s large-scale coal-to-chemicals
plants (about 35 out of 40 in 2016) and some of the world’s most advanced-coal
conversion technologies, including gasification, indirect coal-to-liquids andmethanol-to-olefins. Coal-to-methanol-to-olefins, in particular, is a technology
development specific to China, achieved by aligning the funding and incentives of
stakeholders across the innovation value chain.

•

The Ministry of Science and Technology and other key actors such as the
National Energy Administration and the Institute of Coal Chemistry at the
Chinese Academy of Sciences included coal conversion among the major S&T
projects in 2001 (the 863 programme at the time, a national programme started
in 1982) and allocated dedicated annual R&D funding.

•

The government set long-term funding horizons and targets to signal that theywould sustain efforts over more than a decade. The 2006-2020 plan was
followed by the Action Plan for Clean and Efficient Utilization of Coal(2015-2020), the 13th FYP for Demonstration of Coal Deep Processing
Industry and the Energy Technology Revolution Innovative Action Plan
(2016-2030).

•

SOEs, including Shenhua Group, were elevated to become national coaltechnology champions. Shenhua established a demonstration site in 2004 andnow operates the world’s largest coal-to-chemicals plant. In 2008, China
Development Bank issued a ten-year loan of USD 350 million (CNY 2.4 billion
at the time) to set up the 0.6 million tonne capacity Baotou coal-to-olefins
demonstration project in Inner Mongolia.

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Key actions in developing coal conversion technologies include:An Energy Sector Roadmap to Carbon Neutrality in China

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The government co-ordinated new R&D and test facilities for researchers tofocus on specific technology challenges, some of which brought together
university and private sector experts. For example, Synfuels China, a 2006
spin-off from the Chinese Academy of Sciences, set up three large innovation
centres specialising in Fischer-Tropsch synthesis.

•

Provincial governments in coal mining regions were encouraged to co-invest
in and extend low cost finance to new facilities and R&D centres, leading to a
proliferation of new projects.

•

Equipment purchases, licence agreements and joint ventures were all used totest and learn from the products of European and US institutes and companies.
Shenhua’s first coal-to-liquids plant used imported technology, but by 2016 it
had developed its own, as well as a modified methanol-to-olefins technology.

R&D spending on coal mining and chemicals production in China

IEA, 2021.
Notes: Main enterprises, refer to companies with revenue from principal activities over CNY 20 million (equivalent to
USD 2.9 million in 2019). In official documents they are referred to as “industrial enterprises above the designatedsize”.
Sources: IEA analysis based on data drawn from China’s Statistical Yearbooks (NBS, 2020a), China’s Statistical
Yearbooks on Science and Technology (NBS, 2020b) and annual reports of Shenhua Group (Shenhua Group, 2020).

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Despite the technical progress made with coal conversion under this multifacetedand co-ordinated approach, the programme ran into challenges (Minchener, 2011).
Notably, the incentives for provincial governments to invest in infrastructure werestronger than expected, especially when coal prices were low. This led to a waveof large-scale projects despite a request for caution in 2006 from the National
Development and Reform Commission (Jia, 2008). The central government
eventually intervened to suspend new projects as international oil prices fell fromtheir 2008 peak. By 2010, it was also apparent that water extraction from the
Yellow River risked exacerbating water scarcity in Inner Mongolia, and several
coal-to-chemicals plants were found to be in breach of environmental regulations.

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In 2012, Shenhua indefinitely delayed its flagship integrated CCUS project
intended to show that lignite conversion could have low emissions.
The government has found it much harder to limit coal conversion investments inrecent years than it did to initiate the innovation programme. In April 2021, following
China’s carbon neutrality pledge, the president announced that the government
would strictly control coal-fired power generation projects and strictly limit theincrease in coal consumption over the 14th FYP period (2021-2025), phasing it
down in the 15th FYP period (2026-2030). In July 2021, China suspended theconstruction of the Yulin coal chemical project by state-owned Shaanxi Coal andChemical Industry Group Co. over energy consumption concerns, which was
expected to start operations in 2025 and become the world’s largest of its kind witha total investment of USD 20 billion (more than CNY 120 billion). Since 2010, coalto-liquids and coal-to-olefins operations in China have added around 750 Mt of
CO2 emissions compared with those that would have arisen had production been
based on oil.

In the case of both USC and coal conversion, the government used incentives
such as national R&D project funding, tax breaks, rewards for patents andpreferential access to capital. In addition, coal-producing provinces wereencouraged to invest in these new technologies to help them reach their GDP
targets. Under the 14th FYP (2021-2025), this policy approach, involving
selecting priority energy technologies and steering research and investment
towards them will continue, as will R&D into coal. However, the early signals arethat the range of technologies is likely to be broader and that the government
will strengthen formal mid-term reviews and monitoring mechanisms for R&D
programmes. Without these changes, the risk of over-investment and newvested interests that make it hard to change course, which troubled the coalconversion programme, will persist. Some other countries and regions also havemulti-year planning horizons for energy research, but few prioritise strategic
technology areas so strongly. The European Union, for example has a longer
planning period, with each multi-annual budget spanning seven years. Many
governments keep energy and climate technology priorities broader than China’s
major S&T projects, with more scope for adjustment and technology-neutralcompetitive processes. Japan is an example of a country that takes a narrower
approach to prioritisation, with eight specific technology areas identified for the
2016-2030 period in its National Energy and Environment Strategy forTechnological Innovation towards 2050 (IEA, 2016). It also has a dedicated

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institution – the New Energy and Industrial Technology Development

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Organization – for co-ordinating public-private consortia for large-scaledemonstration projects. As China’s expansion of industrial capacity slows in the
coming years, it may be less able to depend on provincial investment incentives
for demonstrating new priority technologies, and may need to make use of suchco-ordination mechanisms as well as performance-based project selection.

Devolving responsibility to SOEs
SOEs dominate the Chinese energy sector and play a major role in energy
investment and innovation, both nationally and globally. The five largest stateowned power generation companies own nearly half of the country’s power plant
assets, while the State Grid Corporation of China (SGCC) and the smaller stateowned China Southern Power Grid Company have monopolies on grid operations.
SOEs have a higher share of ownership of power generation capacity in China
than in most other major economies. SOEs are given explicit responsibility fordeveloping certain technologies and almost single-handedly provide the initial
market as buyers of new technologies in some sectors, including heavy industry,
fossil fuel supply and power generation, where they have spearheaded hugeinvestments in renewables.

Figure 6.3 SOE ownership share of power generation capacity in G20 countries

IEA, 2021.
Note: The definition of SOE used here includes any minority ownership of a company by a central or sub-national government
as a well as 100% SOEs.
Source: OECD (2018).

SOEs have a higher share of ownership of power generation capacity in China than in mostmajor economies

National R&D and major S&T projects are the primary instrument used by thecentral government since the 13th FYP (2016-2020) to advance energy innovation

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via SOEs. The government funds the national R&D projects according to theAn Energy Sector Roadmap to Carbon Neutrality in China

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technology priorities of the FYP with most funding going to SOEs, who also
contribute their own resources to the projects. Major S&T projects are large-scale,multi-year R&D or demonstration projects in priority sectors run by a list of selected
SOEs. Nuclear fission power generation has been a focus of major S&T projects
and their predecessors under the so-called 863 Programme – a state technology
programme that ran from 1986 to 2016. To test and validate different approaches,
three SOEs have been given mandates to develop different technologies inparallel.
The national and provincial governments also direct the SOEs to take on otherleadership roles in energy innovation. For example, they are required to developinternal technology roadmaps and talent development plans to hire skilledindividuals and train staff, and set up R&D projects and laboratories in line with
the FYPs. In the 14th FYP (2021-2025), they are required to actively promote theapplication of new energy saving, low-carbon and environmentally friendly
technologies (SASAC, 2021). In 2021, companies including SGCC – a global
leader in ultra-high voltage transmission technology and smart grid deployment –and some of the world’s largest steel producers began formulating technology
development plans compatible with carbon neutrality.

Box 6.3

Nuclear technology development by SOEs

Nuclear power has been an energy technology priority in China for many decades.
Since 2000, there has been a stronger focus on homegrown concepts for largescale advanced pressurised water reactors, including through major S&T projects
proposed by the National Medium- and Long-Term Science and Technology
Development and Planning Guidelines (2006-2020) and the Medium- and LongTerm Nuclear Energy Development Plan (2005-2020) (State Council, 2006).
China has three SOEs active in nuclear power generation. Historically, each has
adopted a different approach to technology development and innovation, with thegovernment encouraging competition to develop new designs for national adoption
and export (Yi-chong, 2010). China National Nuclear Corporation (CNNC) has amandate to design and operate its own reactor design, building on its militarytechnology expertise. China General Nuclear Power Group (CGN) operates power
plants licensed from France’s Framatome and has a mandate to adapt and learn
from these to produce a new design. State Power Investment Corporation (SPIC)
has a similar approach to CGN but focuses on designs from US suppliers.

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The government has struggled to combine the resources and knowledge of thethree SOEs in an efficient manner in recent years amid divisive views within theAn Energy Sector Roadmap to Carbon Neutrality in China

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nuclear community about how best to serve China’s nuclear technology ambitions.
In 2013, China adopted a more hybrid approach to accelerate the development of
current (generation III) technologies, bringing CNNC and CGN closer (Hui, 2014).
A formal merger has been resisted, but the two SOEs set up a joint venture SOE– Hualong Nuclear Power Technology Company – to develop the Hualong One
reactor design based on a combination of CNNC’s ACP1000 and CGN’s
ACPR1000+ designs, which have been developed separately.
Chinese regulators granted the Hualong One design a license in 2014. They weresatisfied that its developers owned the intellectual property rights and that core
parts were designed and produced domestically. However, full standardisation was
not achieved and two slightly different Hualong One versions coexist. The firstplant began operating at Fuqing in January 2021 and the first overseas unit inPakistan in May 2021, with eight others under construction. CNNC stated that it
would start construction of Hualong Two by 2024, a potentially cheaper, improved
version of Hualong One (Xu, 2021). In July 2021, CNNC started construction of
the world’s first commercial small modular reactor project, a 125 MW unit basedon the domestic Linglong One ACP100 design, and is building the world’s first
prototype (2 MW) of a commercial thorium reactor (Stanway, 2021). In parallel,
SPIC has developed another homegrown third-generation design, CAP1400,
drawing on experience with imported Westinghouse AP1000 designs.
It is not yet clear how China’s hybrid approach involving indigenous innovation andthe incorporation of foreign concepts might be applied to Generation IV technology,
reprocessing or other large-scale energy technologies. While it is a successful
example of achieving national energy technology goals, lessons could be learned
for managing the competing interests of SOEs that each have different sponsors
within government. Tensions have arisen in 2021 over co-operation agreements
between China and European countries for operating or building nuclear plants
with CGN, underscoring the vital importance of good relations with customer
countries in the field of nuclear technology exports.

Despite the recent increased involvement of private Chinese companies in energy
innovation, especially in solar PV and wind power, SOEs will probably continue toplay a central role. SOEs have extensive links to decision makers and researchcommunities, their large balance sheets enable them to finance large-scaledemonstration projects and they benefit from preferential access to capital (Zhang,2020). However, their role will vary by technology. In some resource-intensive
areas like nuclear power, chemicals, iron and steel, cement and oil refining, they
have the expertise and large-scale industrial laboratories to develop anddemonstrate new technologies, often in co-operation with universities. In power

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generation and supply, governments can direct them to provide commercial test

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beds for emerging renewables, hydrogen, storage and CO2 capture technologies.
For end-user goods like vehicles, SOEs do not always dominate markets but canhave preferential access to knowledge via international joint ventures (two leading
SOEs, FAW Group and SAIC, are manufacturing partners of Volkswagen, China’s
leading car seller). SOEs also have the resources to invest heavily in start-ups:
they accounted for 15% of all venture capital investments in 2019, about as muchas government-led funds (MOST, 2021d). For example, SAIC Motor led a
USD 1.5 billion (CNY 9.7 billion) funding round in 2020 among other state-backed
actors to back WM Motor – one of several China-based competitors of the EV
manufacturer Tesla.
Relying heavily on SOEs for clean energy innovation, which is unusual among the
major economies, carries risks. Their market dominance and internal technology
preferences, based on prior experiences or know-how, can create high barriers toentry for other companies or innovators with promising technologies. Thesebarriers can be reinforced by economic incentives that encourage SOEs to meetgovernment targets in ways that preserve the value of existing assets. Additionally,
while Chinese SOEs are unusually quick to adjust to changes in governmental
policy priorities, there are always risks associated with the inertia and influence oflarge, dominant companies with close ties to policy makers (Genin, Tan and Song,
2020; Tõnurist and Karo, 2016; Luo et al., 2016, Zhou, Gao and Zhao, 2016).
Moreover, energy SOEs typically have an incremental engineering-oriented
approach to technology and are less likely to pursue completely new innovativetechnologies.
Other governments have found various ways to engage large corporate energy
players in the development of cutting-edge technologies. In the case of regulated
network operators, several countries have followed the lead of the Netherlands(2015) and the United Kingdom (2016) in instituting so-called regulatory
sandboxes to allow innovators to trial new products and services without needing
to comply with all existing regulation (ISGAN, 2019). In the United States, theNational Renewable Energy Laboratory (NREL) runs two programmes – IN2 andGCxN – involving a private entity funding government laboratory staff to identify
entrepreneurs with relevant, high impact technologies and support their testing,validation and incubation. The funders get to learn quickly about new technologies
that were not on their radar, but do not have exclusive access to them. In 2014,
NREL helped establish a network of energy start-up incubators and accelerators,
which are now operated by electric utilities who have equal access to the ideasthat emerge and can co-operate to create demand for those closest to

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commercialisation (NREL, 2015).

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Ensuring that SOEs have incentives to continually improve technological
performance and compete fairly with each other and newcomers will help achieveclean energy goals. Staff promotion is increasingly linked to environmental andinnovation performance at Chinese SOEs, some of which are actively introducing
cultures that foster innovation, such as through the National Institute of Clean and
Low-Carbon Energy (NICE) at China Energy Investment Corporation.

Empowering provincial and municipal governments
Provincial and municipal governments have been key players in the developmentof certain energy technologies in recent years. There are 17 Chinese provinceswith economies that are each larger than that of the Philippines. Provinces andmunicipalities have strong incentives to attract investment in and become
manufacturing hubs for new technologies. Large solar PV and battery
manufacturers such as CATL, LDK, Suntec, Trina and Yingli have set up R&D
centres in cities (Ningde, Xinyu, Wuxi, Changzhou and Baoding) that supported
the establishment of their manufacturing bases. The central government
encourages sub-national governments to experiment with market creation anddifferent approaches to creating local champions, for example in EVs.
In 2009, the “Ten Cities, Thousand Vehicles” programme, which ran until 2012,
established a group of municipalities that were encouraged to support EV
production and purchases. Ten pilot cities were selected to deploy 1 000 vehicles
in each location, with each city being free to decide on how to achieve that. The
Ten Cities became home to the pioneers of EV deployment in China, such as BYD
in Shenzhen, using different combinations of purchase incentives, loans, tax
rebates, access to land, permits, export credits and direct government
procurement. The cities also set up specialised innovation clusters anddemonstration zones and spurred related investments and improvements inbattery manufacturing. By 2012, seven cities reached the target and another15 had been added to the programme. Subsidies of up to 60% of vehicle costs
were common. Shenzhen mandated electrification of its 16 000 strong bus fleet
by 2018, subsidising up to half the bus purchase price, installing charging facilities
at 180 bus depots and working with manufacturers to reduce risks for customers,for example by providing battery warranties and leases.
Since 2015, local government autonomy to provide subsidies has been graduallycurtailed and the central government released new policy support schemes withstricter technology standards. As subsidy conditions have become more stringent,national, provincial and municipal support schemes have shifted to having tighter

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thresholds for subsidies that encourage performance improvement, including forAn Energy Sector Roadmap to Carbon Neutrality in China

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vehicle range, energy consumption, battery standards and safety requirements(Muniz, Belzowski and Zhu, 2019).
Building on the country’s experience with EVs, the devolution of policy
experimentation to sub-national governments to stimulate new markets for
nascent clean energy technologies is likely to continue. One advantage is that
local policy makers are closer to the needs, preferences and resources of local
businesses and consumers, and can create support for public spending that
promotes tangible jobs and environmental benefits. The most suitable
technologies may be those for which an individual region can use public
procurement and infrastructure investment to gain a competitive edge, and look tosell a superior technology to consumers across China and overseas. The rapid
growth of hydrogen R&D and demonstration programmes since 2017 has so farlargely followed this model, building in particular on the “Ten Cities, Thousand
Vehicles” programme.

Box 6.4

Hydrogen technology development at the sub-national level

Hydrogen technologies have long been a focus of China’s energy innovation. They
were included in the Medium- to Long-Term Science and Technology
Development Plan (2006-2020) and the government has been providing subsidies
to hydrogen fuel cell electric vehicles (FCEVs) since 2009 (Ministry of Finance,
2020; State Council, 2006). Between 2006 and 2010, Shanghai and Beijing funded
FCEV demonstration programmes and SAIC Motor, an SOE, developed its own
fuel cell systems with Tongji University. However, while these early programmes
helped build some expertise in hydrogen-based mobility, overall activity hasremained limited to date.

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In 2020, the Chinese government amended its fiscal support measures for “newenergy vehicles” to include FCEV demonstrations, R&D in key core technologies
and support for building a complete FCEV industry chain over the 14th FYP period(2021-2025). It has also launched a programme to nurture FCEVs modelled after
the “Ten Cities, Thousand Vehicles” EV initiative. It encourages provinces to set
up demonstration zones in cities, provide funding for the establishment of fuel cellindustries and co-ordinate efforts in agglomerations that cross provincial borders,such as Jingjinji Metropolitan Region, Yangtze River Delta and Greater Bay Area.
By the end of 2020, 22 provinces and cities had issued a total of 105 policy
documents to support hydrogen development, up from almost none before 2017
(OGRI, 2020). Guangdong, Jiangsu and Shandong have been most active to date.

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Chapter 6: Innovation for carbon neutrality

Several of the provincial strategies cover the entire value chain, including hydrogenproduction and storage, refuelling and vehicles, as well as fuel cells.
The central government has recently changed its policy of encouraging subnational governments to subsidise FCEV purchases to rewarding technology
innovation and deployment. Bonuses will be provided to producers that achieve
performance goals for specific technologies, including electrolyser membrane,electrode assemblies, proton-exchange membranes, carbon paper, catalysis,
bipolar plates and compressors. To obtain a bonus, the technology must be usedin over 500 vehicles, each driven for more than 20 000 kilometres andperformance must be verified by a third-party.
The focus of the hydrogen plans being developed by regions and cities varies. For
example, Shandong already had some hydrogen-related technology capacity
before 2020, with Weichai, an SOE that makes engines, becoming a 20%
shareholder in Ballard fuel cells in 2018, and the private sector Dongyue Group
producing fuel cell membranes. The province now aims to set up an industrial
cluster for fuel cells in Weifeng and one for related materials in Zibo, plus othersfor FCEVs in Liaocheng and hydrogen supply in Jining. It plans to transform
Qingdao into the “Eastern Hydrogen Island” and Jinan into the “Chinese Hydrogen
Valley”. In contrast, Ningxia and Shanxi provinces, which are major coal producers,
are focused on developing new value streams for hydrogen, especially from coal.
While the central government is seeking more co-ordination of provincial subsidies
and limits on their use to avoid boom-and-bust cycles, funding from sub-national
governments remains larger than that from the central government in many cases.
These governments often own important local businesses have strong connections
to industry. These factors, combined with inter-provincial competition, could drive
rapid scale up of the hydrogen sector and innovation to produce better and cheaper
components and hydrogen supplies. However, it remains unclear whether
performance-based rewards will guide researchers towards the same narrow setof technical solutions or whether competition for export market share will prioritise
costs over longer term technology leadership and knowledge sharing between
provinces. As policies are currently directed mostly towards manufacturers, someprovinces might need additional R&D funding and skills to be able to develop
cutting-edge technologies.

Hydrogen and other clean energy technologies supported by provincial andmunicipal governments can also benefit from the National High-Tech Zones – a
programme launched in 1988 and significantly expanded since 2010. The StateCouncil approves these zones, which benefit from infrastructure investment,
access to a broad pool of skilled workers and financial incentives such as tax

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breaks. The 169 existing zones have established networks of researchers,

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laboratories, companies, incubators and technology transfer institutions (MOST,
2021e). The Ministry of Science and Technology has stated that the programme
will be modified to support the new carbon neutrality targets, including the
introduction of evaluation metrics relating to low-carbon energy (MOST, 2021f).
Reliance on sub-national led innovation is not without risks. The development of
EVs saw some cities or provinces strongly back local champions that ultimately
went bankrupt. At the other extreme, this approach can incentivise sub-national
governments to do the minimum to attract political recognition and investment
approvals, leading to superficial pilot projects that foster minimal innovative activity
and distract from the efforts of technology leaders. In addition, the ex-ante
selection of regions to host demonstrations and innovation clusters might exclude
some potential innovators in other parts of the country and lead to an overconcentration of resources for innovation in certain areas, such as corporate R&D
funds currently concentrated in eastern regions (MOST, 2021g).
The European Union has a different approach to co-ordinating test beds in
different regions. In 2008 it established a unique legal entity – the Fuel Cells andHydrogen Joint Undertaking – to accelerate the market introduction of hydrogenenergy technologies and develop an industrial base. It has a multi-year budget,which was EUR 1.3 billion (USD 1.6 billion) for 2014-2020, to which the European
Commission contributes half, and manages calls for projects in co-ordination with
the Commission, an industry grouping and a research institute. It has supported
over 250 projects and shares the technology learnings among participating EU
countries and municipalities.

Reaping the benefits of a vast domestic market
The sheer scale of China’s domestic population and the large market that has
resulted from decades of rapid economic growth benefits energy innovation inMultiple competitors can each attract substantial amounts of capital in the earlystages of market expansion for a particular technology.



A company only needs to capture a small market share to justify building a worldscale factory.



There is scope for market differentiation, including a large market for low-cost
products and services.



The market is large enough to have its own standards and regulations that allow
local firms to focus on a single set of requirements and raise barriers to entry foroverseas competitors.

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several ways:

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Chapter 6: Innovation for carbon neutrality

Risks can be spread widely and under-performing technologies are quickly
superseded by newer generations. In a market for many millions of units per year,
a company can launch an upgraded generation of products frequently, advancing
the innovation frontier.

The benefits of having a large domestic market are substantial for energy
technologies sold to other companies, such as wind turbines and ultra-high voltage
transmission, and even greater for end-use consumer technologies. China has
been one of the most dynamic markets for production and innovation in a range
of energy-related consumer products, including heat pumps, energy efficient
appliances, air conditioning, smart meters, digital connected devices, EVs andother devices containing lithium-ion batteries. EVs are a notable example of how
policy in China can create a huge new market almost from scratch and create
some of the world’s most valuable companies that are able to outcompete
established multinationals. China is keen to apply this market creation approachto hydrogen and FCEVs too, though these technologies differ from batteries and
EVs in two critical ways: they require a co-ordinated approach to pipeline andrefuelling infrastructure, and, as fuel cells are still a relatively immature technology,
more focus on fundamental innovation R&D compared with that required, forexample, by batteries and PV at the times when China adopted them.

Box 6.5

Turbo-charging China’s EV technologies by boosting demand

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China’s EV industry emerged in response to strong government support related toconcerns about import dependency and urban air pollution in the face of booming
demand for personal mobility. The sale of new cars increased more than fivefold
between 2005 and 2015 as the population grew and people became wealthier. The
11th FYP (2006-2010) aimed to “accelerate the development of automobile
engines… and components with independent intellectual property” (NPC, 2006).
The “Ten Cities, Thousand Vehicles” programme was launched in 2009. The
Energy Saving and New Energy Vehicle Industry Development Plan (2012-2020)
elevated “pure electric drive as the main strategic orientation for the developmentof new energy vehicles” and set performance targets for technology developmentin EV technologies (NPC, 2006; NEA, 2012). As a result, China overtook Europe
in 2015 as the world’s largest market for electric cars. Today, it is home to 98% of
the world’s electric buses (IEA, 2021c and 2020b). Chinese companies now
account for significant parts of the global EV value chain from lithium extraction
and processing, battery and EV manufacturing and charging to recycling. Many of

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Chapter 6: Innovation for carbon neutrality

these companies did not exist in 2015, or were focused on other sectors, but now
possess world-class technologies.
China’s success in developing its EV industry was driven by its large internalmarket and a broad consensus on the strategic importance of supporting this new
industry. Yet the creation of a large domestic EV market did not on its own spark
innovation. In the early days, several protectionist measures designed to nurture
Chinese companies – such as high purchase subsidies with local sourcing
requirements and favouring smaller EVs with limited range – held backtechnological progress and resulted in a gold rush for EVs, with over
200 companies producing on average less than 3 000 cars per year in 2015, which
created a bubble, fragmented the market and triggered subsidy fraud in manycases. Based on the experience of the regional pilots, the central government
subsequently linked incentives to continual performance improvements andestablished quotas and fuel economy standards for all automakers (Muniz,
Belzowski and Zhu, 2019).
Over the past five years, Chinese car companies have collaborated with research
institutions and established large R&D facilities that have led to major technologicaladvances in the field of EVs. With sales of 1.2 million electric cars in 2020, thedomestic market is large enough to support hundreds of manufacturers of cars andbatteries, catering for different levels of performance and luxury. BYD, a
Shenzhen-based battery company, received over USD 400 million (overCNY 2.5 billion) in public subsidies for manufacturing EVs between 2010 and 2015
(Heller, 2017), despite having no automotive experience prior to the 2000s. It is
now one of the world’s largest EV and battery companies, second only to Tesla incumulative global EV sales. Its innovative Blade Battery, which is set to go on salein Europe in 2021, offers world-leading safety performance. Since 2015, Chinese
investors, including digital companies such as Alibaba, have mobilised the world’s
biggest venture capital investments for EV start-ups including WM Motor, Xpeng
and NIO.

A large and growing domestic market for consumer products is not a sufficientcondition for innovation. China has benefitted from a corporate culture thatprioritises speed to market and market share above meeting the highest quality
standards. The result is a high level of comfort with risk and commercialising new
products in advance of full regulatory clarity. Product managers within companies
also have considerable freedom to establish new production lines (Yip and
McKern, 2017). In contrast with some popularly held impressions of Chinese
manufacturing, it has many similarities with a ”permission-free” innovation or a“move fast and break things” model, i.e. the scope of activity is only limited by what

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is explicitly outlawed, rather than one that waits for the consent of regulators andAn Energy Sector Roadmap to Carbon Neutrality in China

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society before investing. However, in coming years innovating firms may need toadapt to evolving market trends, including higher levels of disposable income anda rapidly ageing society. Higher expectations of product quality and environmental
protection could result and pose a risk to China’s dynamism.
The governments of some other countries that do not have such large and growing
markets use public procurement to facilitate investment in demonstration projects
or manufacturing plants for new clean energy equipment. For example, theNetherlands uses a system for public building works that discounts bids based on
the CO2 performance of the tenderer, giving suppliers of low-carbon cement afinancial advantage (Hasanbeigi, Becqué and Springer, 2019). As in China, many
countries use grants and concessional loans. However, it can take a high degreeof international co-operation to bring several countries together to create a large
enough early market for new technologies. Within the European Union, state-aid
rules affect how much financial assistance that countries or the European
Investment Bank can provide to companies, with larger shares of co-financing
allowed for smaller companies and innovations that benefit the environment. In
North America, British Columbia, California, Oregon and Washington have formed
the Pacific Coast Collaborative to create one regional market for low-carbon fuels,
notably by unifying their low-carbon fuel standards that can support bioenergy,hydrogen and CCUS.

Facilitating international co-operation
International co-operation is an important means by which China seeks to achieve
global leadership in energy technology and a crucial pillar of accelerating global
energy innovation. The sharing of knowledge via formal agreements, trade andinformal personnel exchanges is vital if the quality of research and its ability toreach markets and drive down costs are to be maximised. China’s large internalmarket helps secure domestic manufacturing and knowledge sharing withoverseas companies that want to invest in China, especially given much slower
economic growth in the advanced economies. For example, from 2007 until 2017
when sales of new passenger cars in China peaked, the market grew by 15% peryear on average, compared with less than 2% in the rest of the world. By 2017,
China represented more than one-quarter of the global market, compared with
10% in 2007.
Solar PV exemplifies how China managed to enter a new technology area via joint
ventures and licensing. Initially, this was not part of the central government’s solar
PV strategy. Rather, local governments helped Chinese companies set up

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manufacturing facilities based on licenced intellectual property or, in the case of

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Chapter 6: Innovation for carbon neutrality

Suntech, on that developed abroad and part-owned by a Chinese citizen. This
provided an entry point for several firms to scale up to become world-scale
manufacturers and then undertake manufacturing innovation and, more recently,
fundamental innovation in PV technology. Nuclear power and transport vehicle
technologies are other examples of how the Chinese government and companies
have used joint ventures with overseas companies to learn quickly about newtechnology areas and facilitate technology transfers.
In the case of EVs and batteries, the process was inspired by the experience withsolar PV, as well as other technologies such as smartphones. Chinese authorities
targeted manufacturing as the entry point from which to build the capacity toinnovate, creating such strong local networks of component and sub-system
suppliers that they attracted companies and orders from around the world. The
firms generally are not the original designers of the products, but by working withthe best components, interacting regularly and competing to meet the needs ofinternational innovators they have innovated new approaches, functionalities andeven new products that integrate locally available components, especially digitalsystems.
China’s central government has also encouraged companies to tap into state-ofthe-art of energy technology by investing abroad, particularly since the 10th FYP(2001-2005) with the “Go Global” strategy. This has included the acquisition by
SOEs and private companies of high-tech companies abroad, including specialists
such as Alta Devices (acquired by Hanergy in 2013) and large engineering
conglomerates such as Volvo cars (acquired in 2010 by Geely, which had only
started making cars eight years earlier). As is normal in these cases, thepurchasing company integrated the R&D activities of the new subsidiary into its
own operations, often with government support (Osborne, 2015). Chinese SOEs
have also invested in infrastructure, companies and R&D centres abroad to tap
into a broader pool of skilled labour.
Another type of international co-operation adopted by China is bilateral andmultilateral agreements with other governments. China funds joint energy R&D
activities on common challenges with several countries around the world. The
US-China Clean Energy Research Center, which has been operational since2016, is a notable example. It brings together researchers from both countries towork on five main technology areas: advanced coal, energy efficiency in buildings,
clean vehicles, medium-duty and heavy-duty truck efficiency, and energy andwater. One product of the centre is a sprayable sealant technology for energy
efficiency in buildings (US DOE, 2017). Other bilateral partnerships include the

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UK-China (Guangdong) CCUS Centre and a China-France Agreement to co-An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 6: Innovation for carbon neutrality

operate on nuclear power technology (GDCCUS, 2021; WNN, 2018). 2 In addition
to such bilateral mechanisms, China is a member of Mission Innovation – a global
initiative of 22 countries and the European Commission to catalyse action andinvestment in R&D and demonstration in clean energy and a co-lead of its smart
grids, biofuels and power sector programmes. China also participates in 27 of the
38 IEA Technology Collaboration Programmes – the fourth largest.
There is no doubt that China has the resources to continue each of these types ofco-operation and to help other emerging economies move up the technology
ladder. China’s Belt and Road Initiative – a global infrastructure development
strategy adopted by the government in 2013 to enhance physical ties to overseas
markets – is just one opportunity to work with international partners to help othercountries access the best international technology in the future, just as China
benefitted from such access in the past. Experiences from HydroChina’s
involvement in wind power development in Ethiopia indicate how suchprogrammes can incorporate local innovation capacity building (Chen, 2018).
There are also examples of support by multilateral development banks to local
innovation ecosystems, such as World Bank funding for entrepreneurs in Moroccoand the International Finance Corporation’s Catalyst Fund and Startup Catalyst
programmes (World Bank, 2017).
In contrast to the continuing expansion of China’s international co-operation onenergy technology generally, patent activity suggests that its international
collaboration on R&D has recently been in decline. The number of clean energy
inventions co-patented by a Chinese inventor and someone from outside China
has declined in absolute terms since 2013. The United States remains China’s
main patenting partner in clean energy, but China has a lower share ofinternational co-patents among all its clean energy patents than the United States.
Building trust through strong intellectual property governance, fair access tomarkets and depoliticised supply chains would reduce the risk of undermining
international collaboration and co-operation on clean energy innovation.

2

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IEA, 2021.

Other examples of formal bilateral agreements, in addition to those in which China participates, include the researchcomponent of the US-India Partnership to Advance Clean Energy (PACE-R), which has operated a joint R&D centre since2010, and the Joint UK-India Clean Energy Centre launched in 2017. In a more targeted approach, Japan has engaged
partners in Australia, Brunei, Saudi Arabia and Norway for the development of hydrogen projects.

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Chapter 6: Innovation for carbon neutrality

Figure 6.4 China’s role in international clean energy technology co-patenting

International patents families

International co-patents

Co-patenting share of total (2010-2019)

300

30%

60%

250

25%

50%

200

20%

40%

150

15%

30%

100

10%

20%

50

5%

10%

0%

0%

0
2001 2004 2007 2010 2013 2016 2019
Share of Chinese total (right)

Japan Europe China

UnitedStatesIndia

IEA, 2021.
Notes: An international patent family represents a single invention for which patent applications have been filed at a regional
patent office or in at least two jurisdictions worldwide.
Source: IEA and EPO (2021).

Over the last two decades, inventors in China have been involved in a declining number ofclean energy patents with international partners, which represents a lesser role than insome other major economies

Box 6.6

China’s transformation from a solar PV technology importer toinnovator

China has funded solar PV R&D since the 1950s, but it was not until the early
2000s that innovation efforts took off. In 2002, PV cells co-developed by a Chinese
researcher at an Australian university began production in a factory owned by the
researcher’s company, Suntech, in China. A combination of low manufacturingcosts, ambitious scale and cheap capital – Suntech was backed by a municipal
government in Jiangsu province – gave the factory an edge in export markets justas public support for PV deployment was starting to expand in Europe.

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Over the following decade, other Chinese firms built on this model of attracting
world-leading companies to manufacture in China, gaining access to technology
and global value chains (Zhang and Gallagher, 2016). In 2008, Shandong Solar
Technology licensed technology from Johanna Solar Technology, a German
company. In 2012, Tianjin Zhonghuan Semiconductor formed a joint venture with
Sunpower, a US company that went on to form other joint ventures with Dongfang
Electric Company and two other Chinese companies. Some Chinese companies
also acquired foreign competitors and progressively absorbed their R&D activities(Urban, Geall and Wang, 2016). For example, Hanergy Group acquired AltaAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 6: Innovation for carbon neutrality

Devices, a US company, in 2013. Given the commanding position of Chinese
manufacturing in global markets, raising capital for such purchases was notdifficult. In addition, several Chinese companies established partnerships with
universities overseas, such as Trina Solar’s tie-up with the Australian National
University in 2011, and put in place special programmes to hire skilled labour andexecutives with academic and professional experience abroad, with a focus on
Chinese nationals working abroad (de la Tour, Glachant and Ménière, 2011).
As competition with manufacturers in the rest of the world diminished over the
2010s, it intensified within China with the introduction of policies to support thedomestic deployment of solar PV in the 12th FYP (2011-2015). Competition formarket share, often between companies backed by different municipalities, helped
to drive impressive manufacturing innovations in China. Without innovations insilicon processing and cell assembly, the large cost reductions achieved for solar
PV would not have been possible despite economies of scale. Progress in thisarea has been attributed to the fact that Chinese solar companies are organised
around industrial clusters with relatively open exchange of knowledge andexpertise (Ball et al., 2017).
Chinese policy makers have indicated an ambition to remain the leading
manufacturer of solar PV and the leading developer of new PV technologies.
Chinese government laboratories and universities have already shifted their focus
to next-generation PV designs, with corporate labs increasingly moving in thesame direction. In 2016, Trina Solar set the world efficiency record of 19.9% for alaboratory version of a multi-crystalline solar module, though it has since been
beaten (NREL, 2021). Microquanta Semiconductor earned the record of 17.3% fora perovskite submodule in 2018 and MiaSolé Hi-Tech, purchased in 2013 byHanergy, holds a record of 17.4% for a copper-indium-gallium-selenide (CIGS) thinfilm module and claimed further records of 18.6% for a flexible module in 2019 and
27% for a hybrid perovskite-CIGS cell in 2021. Jinko Solar and Longi reported
record efficiencies above 25% for variants of n-type and p-type monocrystalline
cells in mid-2021. The gap between the performance of Chinese firms andoverseas competitors has shrunk rapidly. However, most of the PV efficiency
records set in the last three years have been by German, Japanese, Korean andUS firms.

Opportunities to accelerate innovation
The main features of China’s energy innovation system give it unparalleledcapacity to adopt, improve and bring new technologies to market quickly.
Government policy is central to all these factors. The policy tools currently used

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vary according to the type of technology and sector. They include funding forAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 6: Innovation for carbon neutrality

large first-of-a-kind projects, strategic guidance of SOEs, establishing
deployment targets for selected regions, regulating equipment performance,banning certain technology options and international co-operation. They provide
a good foundation for Chinese policy to foster the technologies needed to meet
its energy and climate goals, taking account of the specific attributes of eachtechnology.
Mass manufacturing of key technologies in the energy system is a relatively
recent phenomenon and one in which China has been a leader for solar PV,
batteries and LEDs. It has led to a wider range of innovation dynamics for energy
equipment than existed in the 20th century, when most technologies were basedon larger scale engineering solutions with unit sizes in the MW to GW range. By
mapping low-carbon energy technology types according to their general
attributes of size and modularity versus the likely barriers to entry in their markets– including the number of new purchases per year, access to regulated
infrastructure, monopoly ownership and network effects – we identify fourarchetypal technology groupings that respond differently to various policy
options. These groupings provide insights into how the component technologies
of CCUS, hydrogen, bioenergy and electrification – four of the central pillars of
the energy transition in China and the rest of the world – can be supported bygovernments.
Technologies characterised by small unit sizes, replacement cycles of under
20 years and high levels of standardisation, modularity and mass production playa major role in achieving carbon neutrality in China in the APS. These
technologies are generally well suited to China’s manufacturing strengths. Someof them, including smart controls, appliances and low-carbon vehicles, arecharacterised by high levels of product differentiation (i.e. they can be branded
according to their distant characteristics) and are generally unsuited to verticalvalue chain integration and horizontal monopoly ownership (IEA and EPO,
2021). They also generally have low barriers to market entry. They can be
disruptive in the sectors in which they are deployed, especially if policies

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incentivise innovation through competition between companies.

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Chapter 6: Innovation for carbon neutrality

Figure 6.5 Low-carbon energy technology types mapped according to their general
attributes of size and modularity versus barriers to market entry

IEA, 2021.
Sources: Adapted from IEA (2020c); Malhotra and Schmidt (2020); Schmidt and Huenteler (2016).

Large-scale technologies like CCUS and biorefining are suited to different policy incentives
than network infrastructure or end-use consumer products

The second group of low-carbon technologies deployed in the Announced
Pledges Scenario in China, including low-carbon industrial processes, modular
nuclear reactors, low-carbon fuels production and CCUS, are more similar to
traditional energy sector technologies. They are characterised by large upfront
investment, chemical engineering approaches and economies of scale at the plantlevel, with only a small number of projects commissioned each year. They are notamenable to product differentiation and are often owned by vertically or

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horizontally integrated monopolies. Innovation in these areas tends to be slower

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 6: Innovation for carbon neutralityand does not benefit as much from the accumulation of knowledge and experiencethat is typical of smaller modular technologies, such as solar PV, wind power andbatteries. Nonetheless, China has shown that it can mobilise SOEs and large
Chinese companies to reorient their R&D plans and take responsibility for largescale demonstrations of these technology types. A concerted innovation effort,
including rapid dissemination of the knowledge and experience that arises fromsuch demonstrations, will be key to their widespread deployment in China, as in
the rest of the world.
Between these two extremes lie two other groups of technologies. The firstincludes enabling technologies, i.e. intermediate or upstream supply-side
technologies that are needed to pave the way for the deployment of end-use
technologies. Electrolysers, long-duration batteries and certain types of direct air
capture are in this category. They are generally modular, mass-produced anddesigned for industrial customers, so are less amenable to product differentiation.
They have the potential for rapid cost declines through manufacturing competition,
but could become dominated by a small number of large companies. To achieve
rapid improvements in these types of technology, stronger policy incentives toinvest in R&D and manufacturing are likely to be required.
Another group of enabling technologies that are targeted to industrial users arethose that are generally not modular and are embedded in physical networks.
These include thermal and mechanical energy storage technologies (such as
pumped storage), district heating and cooling equipment, and smart grid
hardware. Network infrastructure is often the responsibility of highly regulatedmonopolies, creating barriers to entry and limiting the number of potential
customers. Public R&D and access to commercial test beds to demonstrate newideas can be crucial for accelerating improvements in these technologies.
Ease of access to capital differs markedly among the four technology groups. In
recent years, China’s financial system has proven capable of allocating large sumsof risk capital to early-stage technologies with high market growth potential, mostly
new consumer-facing products and services such as EVs. For technologies that
displace existing industrial processes, the central government has steered publicand SOE funds to incumbent technology owners. These technologies usually have
longer development times, higher development costs and higher barriers tomarket entry than venture capitalists will tolerate.
It is possible to identify the features of China’s energy innovation system that canbe mobilised for the development of the four technology groups and the types of

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capital they require. While this gives some overall guidance to policy approaches,An Energy Sector Roadmap to Carbon Neutrality in China

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each technology area has its own technical and market specificities. As discussed,
China possesses considerable experience in tailoring policy incentives andinnovation support to specific technologies. It can also draw on the wealth ofinternational experience in this field.
Not all emerging technologies will fall within the four stylised groups presented
here. For instance, digital technologies have specific innovation dynamics and canreadily penetrate new sectors by delivering productivity gains and commercial
data. They are poised to transform energy supply and use in unexpected ways in
the coming decades, yet are not expected to yield significant CO2 emissions
reductions unless combined with the types of technologies in the four groupings
described, as well as energy efficiency measures. The energy intensity of data
centres is a particular concern in China, which prompted the introduction ofnational minimum energy performance standards in 2020.

Low-carbon energy technology groups relative to possible innovation
policy approaches that build on China’s innovation strengths

Low-carbon
technology
group
New products
and services for
consumers

Capital required toaccelerate innovation

Relevant features ofChina’s energy
innovation system

Possible policy approaches in
2021-2025••

Spreading risk
and sustaining
competition withina vast internalmarket.
Competingprovincial andmunicipal pilot
projects.

•

Spreading risk
and sustaining
competition withina vast internalmarket.
Competingprovincial andmunicipal pilot
projects.
International cooperation.

•

•
•

•

Modularenabling
technologies

•
•
•

•

Grants and tax
breaks for earlystage
experimentation.
Venture capital andgrowth equity.
Debt formanufacturing
plants.
Corporate and lab
partnerships formarket testing.
Stable public R&D
funding.
Venture capital andgrowth equity.
Debt or grants for
manufacturing
plants.
Corporate and lab
partnerships formarket testing.

•

•

•

•

PAGE | 256

•
•
•

•

•
•
•
•
•

Sub-national level deployment
targets.
Performance-linked purchase
incentives.
Entrepreneurship prizes.
Access to public and SOE
laboratories for product testingand validation.
Encourage partnerships
between companies anduniversities.

Industry roadmaps andperformance targets.
Provincial and municipal pilots
and test beds.
Public procurement to create
demand for final products.
Innovation prizes.
International R&D projects on
fundamental technology.
Access to public and SOE
laboratories for product testingand validation.

IEA, 2021.

Table 6.2

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 6: Innovation for carbon neutrality

Low-carbon
technology
group

Relevant features ofChina’s energy
innovation system

Possible policy approaches in
2021-2025

•

•

•

•
•

Stable public R&D
funding.
Corporate venture
capital.
Funds for fieldtrials andcommercial-scale
projects.

••

Funding ofstrategic national
priorities.
Devolved
responsibility to
SOEs.
International cooperation.

•

•
•

•

•

Industrial
engineering
processes••

Public co-funding
and tax breaks forlong-term R&D anddemonstrations.
Corporate venture
capital.

•••Funding strategic
national priorities.
Devolved
responsibility to
SOEs.
International cooperation.

•
•

•

•
•

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Industry-wide roadmaps andperformance targets.
Public investment ininfrastructure with third-party
access conditions.
Incentives for inter-firm
collaboration on technology.
Open access knowledge
sharing from network pilots
and trials.
Investment incentives forinfrastructure upgrades, linked
to performance targets.
Reciprocal engagement ininternational technology trials.
Industry-wide roadmaps andperformance targets.
Co-ordinated and differentiated
SOE technology strategies andtargets.
National major S&T projects
and open accessdemonstrators.
Public procurement to create
demand for final products.
Certification to promoteinternational trade in lowcarbon products.

IEA, 2021.

Enabling
network
infrastructure

Capital required toaccelerate innovation

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Chapter 6: Innovation for carbon neutrality

References
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An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 6: Innovation for carbon neutrality

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Chapter 6: Innovation for carbon neutrality

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An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 6: Innovation for carbon neutrality

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An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 6: Innovation for carbon neutrality

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Chapter 6: Innovation for carbon neutrality

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An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 7: Policy considerations

Chapter 7: Policy considerations


The overriding challenge for policy makers in the People’s Republic of China(hereafter, “China”), as in other countries with net zero emissions goals, is to devise
a comprehensive policy framework to steer investment towards clean energy
technologies, transform business models and accelerate innovation while
maintaining energy security and affordability. The transition to carbon neutrality
presents an opportunity for China to move up technology value chains, create
sustainable new sources of economic growth and enhance its contribution to theglobal clean energy transition.



The transformation of China’s energy system requires a clearly formulated long-term
government strategy, integrated into plans at national, provincial and local levels.
That strategy, involving long-term roadmaps for key sectors and technologies, needs
to incorporate near-term priorities and to track progress towards medium-termmilestones. China has recently made a notable move in this direction by establishing“a Leadership Group” to co-ordinate national efforts to reach its climate goals.



The Chinese government will need to draw on a wide range of policy levers, ranging
from China’s new emissions trading system to a continuation of energy market
reforms including fuel pricing mechanisms and the phase-out of fossil fuel subsidies
that can help enable the development of new business models. Regulatory
instruments such as mandates and standards, and increased public support fortechnology research and development (R&D) and demonstration will also be
important to steer investment towards low-carbon technologies.



A key focus of policy action should be on reducing emissions from existing assets by
operating them more efficiently, shifting to low-carbon fuels, retrofitting them withcarbon capture equipment, and, where economically feasible and sociallyacceptable, retiring them early. Government intervention is also needed to accelerate
the uptake of clean energy technologies at the early stages of commercialisation.

The energy transition to carbon neutrality will require substantial investment in new
network infrastructure and upgrades. The central and provincial governments willneed to co-ordinate planning processes, provide funding for infrastructure
construction, establish clear regulatory frameworks and ensure equal and affordable
access to infrastructure.

Innovation of emerging technologies will be critical to achieve carbon neutrality.
Beyond direct R&D funding, policy can incentivise innovators through competitive
niche markets, infrastructure investment and other market-pull regulatory measures.
More international collaboration on developing and deploying clean energy
technologies is critical to facilitate the transition to carbon neutrality in China andelsewhere.

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Highlights

An Energy Sector Roadmap to Carbon Neutrality in China

Chapter 7: Policy considerations

Towards a comprehensive policy framework
China’s 2060 carbon neutrality pledge establishes a framework for its sustainablesocial and economic development in the long term. The transition to a clean
energy system is central to that vision. Given the country’s importance in the global
energy market and energy-related technologies, the pathway China takes will
have far-reaching implications for the pace and success of decarbonisation efforts
in the rest of the world. Government policies will be central to determining thatpathway. The overriding challenge for policy makers in China, as in other countries
with net zero emissions goals, is to devise a comprehensive policy framework tosteer investment and energy use towards clean energy technologies, and toaccelerate innovation in emerging technologies. This chapter outlines the mainelements of an integrated policy approach to the clean energy transition in China.
The transformation of China’s energy system will not happen at the scale or speed
required to get to carbon neutrality without a clearly formulated long-term
government strategy, integrated into energy policies and plans at national,
provincial and local levels, to guide investment decisions. That strategy needs tofoster the development and deployment of a broad portfolio of technologies,
incorporating near-term priorities and tracking progress towards medium-termmilestones to make them credible and to gain support from businesses andinvestors. There is also a need to take account of other energy policy objectives,
including energy security and affordability, and universal access to modern energy
services.
Despite the important role that behavioural change has to play, a technologicaltransformation of the way we go about producing, supplying and using energy willbe essential for the clean energy transition. It clearly makes sense to maximise
the use of technologies that are already commercially available. But, as this reportmakes clear, a large share of the emissions reductions needed for China to reachcarbon neutrality by 2060 are not yet available on the market. In our roadmap,
most of those emerging technologies are commercialised by 2030. The current
decade therefore is crucial to their development, demonstration and initial
deployment.
The current focus of government climate policy is on devising plans, strategies
and measures to turn the vision of a carbon neutral energy sector into reality.
Since the president’s announcement in September 2020 that China aims to have
CO2 emissions peak before 2030 and to achieve carbon neutrality before 2060,
the central government has announced several supplementary climate targets and

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IEA, 2021.

measures to accelerate the energy transition in support of those aims. TheyAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 7: Policy considerations

include medium-term targets for energy and carbon intensity, the share of nonfossil fuels in primary energy use, renewable energy capacity and limits on coaluse. National, provincial and sectoral plans to achieve a peak in emissions before
2030, as well as detailed sectoral targets for 2025 are currently underdevelopment, including caps on energy consumption, industry efficiency
improvements, the deployment of renewables and the electrification of energy
end-uses. The central government has recently established a “Leadership Group”,
overseen by the executive vice-premier and comprising of heads of key national
level ministries and agencies. This all-of-government effort is in line with IEA
recommendations to accelerate clean energy transitions to net zero emissions(IEA, 2021a).
China’s experience and track record in setting and implementing energy-related
targets inspire confidence that its carbon neutrality targets can be achieved.
Through its five-year planning, China has a well-established process for setting
multi-year policy priorities, tracking progress and reviewing the need for policy
modifications,

all

of

which

are

importantcomponents

forsuccessful

implementation of climate policies. Additionaly, China has a proven record of
meeting ambitious energy and climate targets. The carbon and energy intensity
reduction targets in the most recent five-year plans (FYPs) were surpassed,
except for the energy intensity target for 2020 (due to the Covid-19 crisis).
Similarly, the targets for the share of non-fossil fuels in primary energy demand
were also exceeded in the last two FYPs. On the back of such progress, theChinese government declared that it would enhance its nationally determined
contribution (NDC) targets for 2030, including reducing its CO2 emissions per unitof GDP by more than 65% from the 2005 level (compared with a target of 60-65%
previously) and increasing the share of non-fossil fuels in primary energy
consumption to around 25% (up from around 20% in the current NDC). 1 China
also has a strong record of large-scale infrastructure developments, such as highspeed rail networks, ultra-high voltage transmission lines and electric vehicle (EV)recharging facilities.

Policy approach and priorities
China’s new official targets set out a clear timeline for its path to carbon neutrality,
shifting the key policy question from “whether and when” to “how”. The next stepshould be to establish a clear vision of the energy pathway required for a peak in
CO2 emissions before 2030 and carbon neutrality before 2060 through road

1

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IEA, 2021.

China’s targets are based on the partial substitution method used by China’s National Bureau of Statistics, while IEA
statistics and energy balance use the physical energy content method.

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Chapter 7: Policy considerations

mapping processes for key sectors and technologies in co-operation withtechnology experts, civil society and market analysts. The aim should be to identify
realistic medium- and long-term targets for the deployment and development ofspecific technologies based on an assessment of technology and infrastructureneeds and innovation gaps, as well as priority technology areas and strategies fornet zero emissions taking full advantage of cross-sectoral spillover (knowledgetransferred across technology areas or obtained by implementing a technology
across different applications [IEA, 2020a]). This IEA Roadmap is intended as an
initial input to those processes.
To be effective, some policy measures will need to be tailored to thecharacteristics of the technologies they are targeting, as clean energy
technologies are at different stages of maturity. We have identified five core target
areas for policy action in China that differ by technology maturity: reducing
emissions from existing energy-related infrastructure; cultivating markets for new
clean energy technologies; building clean energy infrastructure; fostering clean
energy innovation; and collaborating with other countries on clean energy
technology. Each of these target areas are discussed in turn.

Figure 7.1 Policy priorities for China’s net zero emissions strategy by technology
maturity level

IEA, 2021.

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China’s energy policies in support for carbon neutrality should focus on five coremeasures, which differ according to their technology maturity

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Tracking progress, evaluating the impact of policies and adjusting them andtechnology priorities accordingly are important elements of the overall approach
to climate policy making. It helps to ensure that action is effective and that results
are delivered, and it enables everyone to see what progress is being made. It also
helps to identify technology areas that are struggling to keep up with requirements
and enable timely adjustments to policies as and when needed (IEA, 2020a). Thishinges on collecting reliable data. The success of China’s priority setting
approach, embodied in its FYPs, could be leveraged to establish complementary
processes to evaluate outcomes against policy objectives.
The technological transformation to achieve carbon neutrality will be guided by
China’s overall climate and energy policies. The government will need tostrengthen and draw on the wide range of policy levers at its disposal, including
carbon pricing, the phase-out of fossil fuel subsidies and other market reforms
such as competitive auctions for low-carbon generating capacity to ensure pricesignals steer consumer spending and private investment towards low-carbon
technologies, as well as regulatory instruments and frameworks such as
mandates and standards, and increased public support for technology R&D anddemonstration activities. All these policy measures will need to be strengthenedto speed up the deployment of clean and efficient energy technologies and tophase out the carbon-intensive ones such as unabated coal‐fired power stations,oil and gas boilers, and conventional internal combustion engine vehicles.
Carbon pricing, which can take the form of a carbon tax or an emissions trading
system (ETS), is a valuable instrument in the policy toolkit to help accelerate clean
energy transitions. By providing a clear and stable price signal that internalises
societal costs of greenhouse gas emissions, it can incentivise cost-effective
emissions reductions and guide technological innovation. Well-designed carbon
pricing instruments can influence a wide range of decisions about energy use overdifferent timeframes, such as the competition between fuels and technologies (e.g.
the dispatch of clean power plants) and consumer behaviour in the short term,
decommissioning of carbon-intensive assets in the medium term andinfrastructure investment for the long term. Carbon pricing could be a source of
public revenues that should be used to fund emissions mitigation or support
measures to alleviate cost burden or address other socio-economic impacts (IEA,
2020b). China’s new ETS will need to play a central role in driving the energy

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transition to carbon neutrality over the coming decades.

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China’s emissions trading system
China’s national ETS, which began trading in July 2021, is the largest CO2
emissions trading scheme in the world, accounting for almost half of all emissions
regulated by an ETS. (Worldwide, emissions trading systems cover around 16%
of global GHG emissions [World Bank, 2021a].) It initially covers the power sector(including electricity and heat generation 2), involving more than 2 000 enterprises
and accounting for around 4.5 Gt CO2 or around 40% of China’s energy sector
CO2 emissions in 2020. It is expected to be expanded to cover other energyintensive sectors, including petrochemicals, chemicals, building materials, ironand steel, non-ferrous metals, paper and domestic aviation. Those sectors
accounted for 35% of CO2 emissions in 2020.
The design of China’s ETS draws on the experience gained from eight regionalpilot schemes, which cover different sectors according to their regional energy
patterns. Even with moderate carbon prices, ranging between USD 1.5 and14.5 per tonne of CO2 (CNY 10 and 100 per tonne) in 2020, the ETS pilots, which
continue to run in parallel with the national system, have been successful inencouraging emissions mitigation measures and developing carbon management
expertise. For example, the Guangdong ETS, the largest regional pilot, helped toreduce emissions from the enterprises it covered by over 12% in 2019 comparedwith 2013, when the scheme started (Xuelan et al., 2021).
Emissions allowances in the national ETS are currently allocated to coal- and gasfired power plants (including combined heat and power) according to their output
during 2019‑20 and pre-determined emissions intensity benchmarks (in tonnes ofCO2/ t CO2/MWh for electricity and t CO2/GJ for heat generation) for each fuel andtype of plant. This encourages plants to reduce their emissions intensity below thebenchmark level while providing flexibility in how to do that. However, the output
and intensity-based approach does not set a cap on total emissions, as in theEuropean Union’s ETS and some other cap-and-trade systems, which could rise.
Allowances are currently allocated for free, but may be auctioned in the future(MEE, 2021). By the end of August 2021, allowances generally traded at around
CNY 45-60/t CO2 (around USD 8/t CO2), slightly above market expectations,although the market has displayed relatively low liquidity so far with limited trading
volume. In comparison, prices in Korea’s ETS rose from around USD 10 in 2015
to around USD 35 in 2020, before falling to just above USD 10/t in mid-2021; in
California’s cap-and-trade scheme, prices have generally fluctuated around

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2
Only heat generation from combined heat and power units is covered; heating-only plants are not covered by China’s
national ETS.

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USD 10-20/t, while prices in the EU ETS have risen steadily since 2018 to around
USD 70/t in 2021.
In the near term, the main impact of China’s national ETS is likely to be on
improving the efficiency of coal-fired power generation, which would limit theincrease in total emissions from power generation as electricity demand continues
to grow. It could lead to a peak in electricity-related emissions well before 2030,
were the benchmarks to be lowered, by stimulating more investment in efficiency
improvements, encouraging generation from efficient plants over less efficientones and incentivising the deployment of carbon capture, utilisation and storage(CCUS). However, the ETS will probably not lead to much switching away fromcoal, as the effective cost to coal- and gas-fired plants is expected to remain small
under the current technology specific benchmarking approach and free allocationof allowances (IEA, 2021b). The role of the ETS in contributing to the peak in
China’s total CO2 emissions before 2030 and reaching carbon neutrality by 2060
by guiding cost-effective mitigation measures and leveraging investment in clean
energy technologies will depend on market confidence in the CO2 price signal andchanges in its design.
International experience has shown that long-term policy predictability is important
to encourage active emissions trading and to guide investment decisions in a costeffective manner, as market participants need to have confidence that the scheme
will continue to exist and be able to integrate the price expectations into businessplans. This is particularly relevant for capital-intensive sectors with long-term
assets, such as energy supply and manufacturing. For instance, policy uncertainty
was identified as a key factor for low trading activity in Korea’s ETS at the end of
the first commitment period (2015-2017). In response, Korea established a tenyear Master Plan and a five-year Allocation Plan outlining the emissions cap andallocation method while providing market participants with technical details at least
six months before the start of a compliance period. In the case of the EU ETS, thescheme has clearly positioned as a cornerstone of its climate policy, providing
visibility on long-term emissions reductions pathways and annual linear reduction
factors for the overall cap, and releasing details for each compliance period wellin advance (IEA, 2020b). Price or supply adjustment mechanisms, such as anallowance price floor or ceiling, auction reserve price or mechanism to adjust the
number of allowances in circulation, e.g. EU’s Market Stability Reserve, can also
generate confidence in an ETS by helping to increase price certainty and improve
the system’s resilience to events such as an economic crisis. Such mechanisms
have become a standard component of many emission trading systems (World
Bank, 2021b). China has clearly communicated its intention to use the national

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the trajectory of total allowances with the overall emissions peak and longer term
targets would contribute significantly to providing certainty for businesses indrawing up their corporate plans.
China will need to adapt the way in which the ETS works for it to play a stronger
role in supporting its climate ambitions. This can be achieved, for instance, byintroducing allowance auctioning, setting an absolute cap on emissions, andfurthering the links between carbon and financial markets. A gradual introductionof auctioning can help to enhance liquidity and price discovery, and to strengthen
incentives for fuel switching and other decarbonisation measures. Auctioning canalso raise revenues for investments in low-carbon technologies and for addressing
social concerns such as energy affordability and employment. For instance, theCalifornia Climate Investments initiative, which is solely funded by auction revenue
from the state’s cap-and-trade programme, invested USD 8.3 billion between
2013 and 2020 in public transport projects, EV incentives and efficiency in thebuildings sector, of which half benefitted disadvantaged communities and lowincome households. Introducing an overall cap on emissions with a decreasing
cap trajectory would provide a clear policy signal and ensure emissions in the
sectors covered by the scheme are in line with long-term climate goals; it would
also increase policy design simplicity and help encourage the most cost-effective
mitigation measures across products and sectors that may be subject to different
benchmarks. Gradually opening trading to more actors such as financial
institutions, could help with strengthening liquidity on the market and enhance thefinancial function of the ETS. The regional pilots could be used to explore policy
designs, with a view to their later inclusion in the national ETS.
Future changes in the design of the ETS will need to be co-ordinated with theevolution of the overall climate policy framework, including regulatory reforms in
the power sector and other policies that affect the energy and technology mix in
sectors covered by the scheme, such as energy consumption standards for coalfired power plants or constraints on new coal-fired power plant investment,
renewable portfolio standard and green certificate schemes, and energy
innovation policies. The aim should be to create effective price signals, reduce
non-price barriers and encourage investment in critical emerging technologies that
may not be competitive in the near term under prevailing carbon prices.

Reducing emissions from existing assets
Reducing emissions from existing energy sector assets is a key priority for China.
The emissions projected from these assets alone, if they continue to operate

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exhaust most of the total emissions in the Announced Pledges Scenario (APS)(see Chapter 2). Infrastructure under construction today will add to these “lockedin” emissions. For China’s total energy sector emissions to peak before 2030 andto fall to zero on a net basis by 2060, emissions from those assets will need to be
curbed. Given the short timeframe and the large stock of China’s fossil fuel-based
power, cement and steel plants, and other emissions-intensive assets, policy
action needs to target these assets without delay. There are four main ways toreduce these emissions: operating those assets more efficiently; changing fueland material inputs; retrofitting with carbon capture equipment; and retiring theassets early. Policies need to address each of these levers.

Gt CO2

Figure 7.2 Energy sector CO2 emissions from existing infrastructure by sector
assuming typical lifetimes in China in the APS
12

Other

10

Buildings

8

Transport

6

Industry

4
Power
2
APS
0
2020

2030

2040

2050

2060
IEA, 2021.

Note: APS = Announced Pledges Scenario.

For China’s total energy emissions to peak before 2030 and fall to zero before 2060,
emissions from existing energy assets, especially in power generation and heavy industry,need to be curbed urgently

Box 7.1

Unlocking emissions in China’s heavy industry sectors

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China’s heavy industries produce nearly 60% of the world’s steel and cement,along with 30% of the primary chemicals used to make plastics and nitrogen
fertilisers. The fleet of plants that makes up its production capacity for theseproducts is not only vast, but young: 85-90% of China’s steel and cement plants

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are less than 20 years old. More than half the cement plants are ten years old or
less.
Herein lies both a challenge and an opportunity. The main challenge is that without
alterations to their existing modes of operation, or early retirements of large
swathes of capacity, these heavy industry plants could emit around 40 Gt CO2
cumulatively, assuming typical plant lifetimes of 25 years. If the equipment in theseheavy industry sectors is renewed with emissions-intensive capacity at the end of
their current lifetimes, adding a further 25 years of emissions from these assets,
the cumulative emissions burden could rise to nearly 120 Gt CO2.
The opportunity lies in making sure that innovative technologies are ready in time
for these plants to be renewed, which will involve the interim replacement, upgradeor retirement of a substantial portion of the capital assets employed at each site,
such as the relining of a blast furnace. The age profile of China’s existing heavy
industrial assets aligns well with the expected availability of near-zero emissions
technologies when major industrial assets need to be replaced: much of its
capacity is 10-15 years old on average, while several near-zero emissions
technologies are 10-15 years away from commercialisation.
Aligning the availability of innovative technologies to be deployed at scale with thephase-out of existing capacity, thus avoiding the need for a further cycle ofemissions-intensive capacity renewal, could avoid more than 75 Gt CO2 incumulative emissions from these sectors in China. Those emissions savings would
be equivalent to about 15% of the estimated global carbon budget of 500 Gt CO2
to have a 50% chance of limiting the average temperature increase to 1.5 °C by
the Intergovernmental Panel on Climate Change (IPCC, 2021). As well as“unlocking” these emissions, this could open up a vast new market for technology
development and capacity replacement through the creation of industrial hubs forthe deployment of new near-zero technologies.

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Industrial hubs can facilitate a more efficient use of shared infrastructure that is
critical for near-zero emissions industrial production, including hydrogenproduction, distribution and storage, CO2 transport and storage and renewable
power generation capacity. Hubs can also help focus the initial planning and coordination phases of infrastructure development, creating synergies for the actors
involved. Industrial hubs cannot be created overnight and if they and the near-zeroemissions technologies that they will host are not ready in time, China risks missing
an opportunity to avoid locking in waves of new carbon-intensive capacity,requiring more early retirements later.

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Potential emissions from heavy industry assets under typical lifetime andrenewed cycle with current operating conditions in China, 2020-2070

IEA, 2021.
Notes: Typical lifetimes for steel, cement and chemicals assets are around 25 years in China, compared with
30-40 years globally. The renewal cycle explored here assumes another 25 years of operation of these plants at theend of their current operational period, taking into account the current age of the existing capacity.

More efficient operation of existing equipment
Despite the laudable efforts in recent years to shut down the most inefficient
capacity and incentivise upgrades to raise energy performance, China still has
vast potential to improve the efficiency of fossil fuel use, especially in the power,
cement and steel sectors. Energy efficiency gains would allow the same energy
service to be provided using the same fuel, but in smaller amounts, thereby
lowering emissions. In some cases, the investment required is substantial, e.g.,heat recovery and boiler upgrades in industrial plants. Others, such as improving
operational and maintenance practices, require little or no investment and involve
minimal or no increase in operating costs. Tapping into the efficiency potential
across the energy system delivers 6 Gt of cumulative CO2 emissions reductions
by 2030 in the APS (around 25% of the total savings). Increasing the efficiency ofcoal power plants to that of current best available technology performance levels
would reduce emissions by 770 Mt CO2, equivalent to 15% of the current
emissions from those assets.
China has already established a robust policy framework for encouraging
investment in energy efficiency retrofits, as well as the development and sale of

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new energy-efficient equipment. Even stronger measures can help incentivise

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incremental energy efficiency gains in existing assets, including strengthening theTop 100/1 000/10 000 programme, an energy conservation initiative which started
in 2006 and was expanded under the 13th FYP. The programme places the top
100 energy-consuming enterprises under national regulations on energy use, thetop 1 000 such enterprises under the regulation of their respective provincial
governments and the other enterprises among the 10 000 biggest energy
consumers under the regulation of lower level governments. The regulations
include measures aimed at encouraging enterprises to take voluntary measures
to reduce energy consumption, as well as facilitating the development of energy
management systems. Tradeable energy performance standards, wherebycompanies are allowed to trade credits for complying with a specific programmesetting limits on energy consumption, are another way of achieving this goal.

Changes to energy and material inputs
In many cases, an energy service can be provided with a different energy carrier
using the same equipment. Drop-in fuels in transport, such as sustainable biofuels
and synthetic hydrocarbon fuels, often do not require modifications to existing
equipment and, where they are necessary, usually straightforward andinexpensive. The co-firing of sustainably grown biomass and renewable wastes invarious industrial processes and power plants, and blending in shares of low
emissions fuels that do not require modifications to existing equipment (e.g.
hydrogen blended into natural gas in direct reduced iron production and blast
furnaces, and in gas networks) can also be economically attractive options for
cutting emissions from existing assets. Changes in the material inputs to industrial
processes can also help reduce energy consumption, and therefore emissions,from existing assets. Examples include increasing the use of scrap in steel andaluminium production, and lowering the clinker-to-cement ratio in cement
production (see Chapter 3).
China has an opportunity to strengthen policies that encourage switching to lesscarbon-intensive fuels and production processes, especially to reduce the use ofcoal where possible, particularly in coal-fired power, steel and cement plants. The
ETS could play an important role, on condition that the prices for CO2 are highenough to encourage fuel switching and other changes in operating practices. For
secondary industrial materials, particularly steel, aluminium and plastics, thegovernment can also help co-ordinate improved recycling networks and mandate
recycling collection, testing and quality standards. This could build on efforts
outlined in the most recent 14th FYP (2021-2025) for the circular economy, which
includes targets to increase the utilisation rate of agricultural straw, bulk solid

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waste and construction waste to 86%, 60% and 60% respectively, together with

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tonnage targets for the use of waste paper (60 Mt), steel scrap (320 Mt) andrecycled non-ferrous metal (20 Mt). There is also scope to modify emissions anddesign regulations to optimise life cycle emissions performance. Other measures
are needed to improve steel recycling and sorting systems, including better quality
control, and operations to reduce in-house scrap generation, as well as toencourage the development of new business models based on value rather than
the quantity of material supplied.

Low-carbon technology retrofits
Retrofitting coal power plants, cement plants and some types of steel and primarychemical production facilities with carbon capture equipment is likely to be the only
viable option to almost entirely eliminate emissions from existing plants. The
viability of retrofitting with CCUS will depend on several factors, including the age
and efficiency of the plant, adequate space for capture equipment, access to CO2transport and storage infrastructure, and the availability, maturity and cost ofalternative technologies or approaches to reduce emissions. A retrofit is easierand less costly if the plant is built with a view to installing such equipment at a laterstage, i.e. CCUS-ready.
Policy support will be critical to exploiting opportunities for CCUS retrofits. Direct
funding of first-move projects will likely be required for some power and industrial
applications, where technologies are at an early stage of commercialisation. The
government will also have an important role to play in supporting investment in
CO2 transport and storage infrastructure, including co-ordinating and planninginvestment across different actors, such as landowners, emitters and storage
developers, and across provinces.
There is also considerable potential for retrofitting buildings to reduce their carbon
footprint. A zero carbon-ready building is both highly energy efficient and capableof either using renewable energy directly or an external source of energy such as
electricity or district heat that is fully decarbonised or capable of being so later.
Zero carbon-ready building retrofits are a no-regret measure to jumpstart progress
towards a zero emissions buildings sector. Foregoing the opportunity to makeenergy use in buildings more efficient would drive up electricity demand linked toelectrification of energy use in the buildings sector and make decarbonising theenergy system significantly more difficult and costly.
Establishing zero carbon-ready building energy codes and standards andintroducing financial incentives could encourage investment in building retrofits.

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Deep retrofits have proven to be more cost-effective compared to a series of

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several light retrofits, as the former yield bigger immediate energy savings andimprovements to thermal comforts. Identifying scalable retrofit packages to reflect
the combination of environmental and economic objectives of the various
stakeholders – building owners and occupants, and public authorities – is criticalto avoid unnecessary investment in new buildings. This includes establishingaccreditation systems to support the growth of the retrofit market, assessing how
different measures interact with each other and identifying barriers to investment
along the full supply chain. Expanding public knowledge of the benefits of retrofits
with targeted information campaigns can also foster their adoption.

Decommissioning
The early retirement of a significant amount of existing capacity in coal-fired power
generation and steel and cement production will be inevitable as China’s economy
restructures over the coming years, reducing its reliance on energy-intensive
industries to drive economic growth. Early retirements can be minimised by
exploiting the maximum potential from each of the measures outlined above.
Economic, social and energy security considerations will determine decisions
about which plants to close and when. There are already efforts underway to
reduce over capacity, particularly in coal power and steel, to improve
competitiveness and reduce air pollution. In any case, a move from primary to
secondary steelmaking as more scrap becomes available as the economy
matures will reduce the need for steel capacity and strengthen the case for closing
some plants.
Sunset clauses and mandating of retrofit-ready, or at least retrofit-capable,
designs for industrial plants can also be used to make deep emissions reductions
from existing assets easier later. In line with guidance in the 14th FYP (2021-2025)
to strictly limit expansion of energy- and emissions-intensive capacity and tosystematise mechanisms for reducing over capacity, policies should be tightened
to constrain additions of such capacity and phase out the least efficient existing
capacity and any remaining illegal plants. Pursuing these measures in tandem
could help raise utilisation rates at the most efficient plants, with the added benefitof making the more viable existing plants more profitable.

Boosting markets for clean technologies
Government intervention is needed to accelerate the uptake of clean energy
technologies at the early adoption stage in China, as in the rest of the world. The
key is to reduce their cost and performance gap relative to existing technologies

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the contribution from private capital through appropriate policies and measures
along clean energy technology value chains. Small, modular, mass-manufactured
technology designs with large potential for spillover and rapid learning could be aparticularly important focus of policy action. Solar photovoltaics (PV) and Li-ion
batteries are examples of how technology improvement, including manufacturing
techniques, have led to rapid commercialisation in the past. Electrolysers and fuelcells have similar potential.
The two main types of policy instruments that can be employed to create andnurture markets for clean energy technologies that are at the market uptake stageare:•Market-pull instruments: These are policy instruments which work to achieve apolicy objective by increasing demand for products or services with particularcharacteristics. Examples include labelling, public procurement and sales tax
rebates. Stimulating demand for clean technologies, products and services
facilitates their uptake. Market deployment boosts economies of scale andlearning-by-doing, which helps to improve the performance and reduce the costof technologies, creating a virtuous cycle. Different technologies and sectors willneed various incentive measures depending on value chain complexity and value
for customers, among other factors.

•

Continued R&D support after market introduction: Supporting an evolving
portfolio of competing designs at different stages of maturity for each priority area
improves the chances of success. Favouring options with rapid innovation
potential can also help. Historical evidence suggests that ongoing R&D is vital tostimulate the development of new designs and components, and to bring down
costs and improve performance, even after commercialisation. Diversity andcompetition help to spur progress and leave space for unexpected fruitfuldevelopments (IEA, 2020c).

Industry sector
New near-zero emission technologies in industry are likely to be significantly more
expensive than existing conventional technologies as they start to be deployed atcommercial-scale and probably for many years thereafter. This means there will
be a need to establish stable demand as soon as they appear on the market togive more certainty to investors during the earlier stages of development (piloting
and demonstration) and in the first commercial projects. This will pave the way forcontinued development of those technologies and cost reductions.
Early market-pull instruments for industrial technologies include public or private

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procurement, where government or intermediate industrial users of materials like

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car manufacturers or construction companies would agree to pay a premium, forexample for low emissions steel, cement, plastics and fertilisers. Upfront capital
support, as well as operational support, for example via tax incentives or grants,
could also help make low-carbon industrial projects financially viable. Suchmeasures, which could complement the ETS, could be tailored according to
specific development goals and technology pathways.
Clearly differentiated standards for low emissions products with certification would
benefit individual material producers and purchasers by improving their corporate
sustainability image and providing opportunities to market “green” products todomestic consumers. They would also allow those products to be sold into
markets in other regions of the world with trade rules that mandate a certain
environmental footprint for products. A carbon border adjustment mechanism,
under which importers are obliged to buy carbon certificates corresponding to thecarbon price that would have been paid had the goods been produced under theimporting jurisdiction’s carbon pricing rules, could protect Chinese producers from
unfair competition from other countries with less stringent environmental
standards, though it would need to be carefully designed to ensure compliancewith international law, notably World Trade Organization requirements. Carbon
contracts for difference is another mechanism that could work well in China.
Rather than purchasing industrial materials directly, central and provincial
governments could tender for low emissions materials and fund the difference inthe cost of production relative to conventional higher emitting production (including
differences in operating costs) for a guaranteed volume of production, in a similar
way to a feed-in tariff for renewable energy. The policy would act like a guaranteedcarbon price, complementing the ETS.
Once first-of-a-kind low emissions industrial technologies have been successfully
deployed, the government could apply content regulations to support investment
in additional plants. Regulations could take the form of a tradeable quota or
certificate system requiring minimum shares of cement, steel, aluminium, plastics
and fertilisers to be near-zero emissions with the shares rising over time. The
government could also assist in helping industrial investors tap into sustainabledebt and transition finance markets to raise funds for low-carbon technologies. For
instance, China updated its green bond standards to include CCUS in 2020, which
could aid fundraising for developing commercial projects. The first projects toaccess such funding could provide lessons on how to optimise future project

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financing structures.

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Transport sector
China is well positioned to double down on its investments in world-leading public
transportation, as well as in digital technologies such as apps that make planningroad trips and freight movements simpler, cheaper, more convenient, more energy
efficient and less carbon-intensive (see Chapter 3). A recent directive from the
Ministry of Transport and the National Development and Reform Commission
instructs policy makers at the city, provincial, and central government levels toprioritise investment in green transport infrastructure (MoT and NDRC, 2020). It
seeks to leverage China’s success in developing electric buses and otheralternatives to private cars, and mobility apps that combine several modes. It setsdifferentiated minimum targets for the shares of public non-motorised transportmodes and other sustainable modes in cities of different sizes, as well as aprocess for tracking progress and evaluating the effectiveness of meeting thosetargets. It also notes the potential for integrated urban and transport planning,
especially in greenfield developments and outlines the direction that new guidancefrom the Ministry of Transport should take in 2022 when the impact of themeasures in the directive are due to be assessed.
China’s 2016 voluntary plan to review and reform its fossil fuels subsidies under
the auspices of the G20 marked an important step in creating a market andregulatory environment to stimulate the adoption of low-carbon alternativetransport fuel and vehicle technologies. The plan recognises that the rapid phaseout of implicit and explicit subsidies for oil consumption and national crude oil
production and refining is crucial to China’s broader economic, natural resource,and environmental and climate goals. The plan acknowledges that transport fuels
should be taxed according to their resource scarcity and societal impacts,
including air pollution and climate change, with consideration for equity, e.g. tax
exemptions, or the redistribution of tax revenues to vulnerable or severely
impacted segments of the population. It also recognises the need to increase
gasoline and diesel taxes to levels commensurate with the monetary costs of theirenvironmental and health effects. Doing so, and similarly for shipping and aviation
fuels, would not only stimulate adoption of alternative technologies such as EVs
and alternative transport modes such as high-speed rail, but also as aconsequence reduce China’s increasing dependence on oil imports.
China can build on the rapid progress it has made in adopting vehicle emissions
standards and fuel quality standards. China adopted the Euro VI emissions
standard in July 2021 to align itself with international best practice. It could goeven further, setting standards that are more stringent than those in Europe or the

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United States. In the meantime, China should consider further strengthening its

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capacity to verify and enforce compliance with those standards in practice,including by stepping up inspection and maintenance testing requirements.
China could also set clear schedules for reducing the carbon intensity of transport
fuels. Low-carbon fuel standards have already been implemented in California andother states in the United States, as well as in Canada. China has experience insetting carbon-intensity targets at the national level and increasing their stringency
over time to curb emissions through the FYPs. Sector-specific targets forincorporating low-carbon fuels may be appropriate, particularly in shipping andaviation. Domestic aviation has been identified by the Chinese government as anenergy-intensive sector to be covered later by the national ETS, which could playa key role in reducing CO2 emissions in the sector.
The government could also consider setting a clear target date to phase out salesof internal combustion engine (ICE) cars, as many developed countries havealready done. There are no new ICE car sales as of around 2045 in the APS in
China although an earlier phase out is generally possible given the rapid progress
in EV deployment and falling battery costs; such an earlier phase out would enablea smoother transition to carbon neutrality by 2060 or the earlier achievement ofthat target, depending on measures taken in other sectors. The new energy
vehicle (NEV) targets set out by China’s Society of Automotive Engineers andendorsed by the State Council, in providing market certainty, are steering private
investment towards new powertrains, supply chains and refuelling infrastructure
for light-duty vehicles. This is particularly important for the supply of battery metals,
which requires long-term planning (see Chapter 4). By setting a date for thephase-out of ICE cars, China could further boost the transition to EVs. China could
also consider extending its NEV mandate to electric and fuel cell trucks, drawing
lessons in policy design from its own NEV policy schemes, such as the “dualcredit” policy and performance-based subsidies, as well as from California’s
Advanced Clean Truck Rule, which sets sales mandates for zero-emissions trucks(see the transport section of Chapter 3).
The new “city-cluster” policy, which aims to stimulate R&D and the demonstrationof hydrogen production, supply, delivery and use in fuel cell electric vehicles draws
on the successes and failures of the “Ten Cities, Thousand Vehicles” programme
launched in 2009 to promote EVs. The new policy has been adapted to thecharacteristics of hydrogen use in transport, notably the stronger near-term market
prospects for commercial and heavy-duty vehicles. This policy could anticipate theneed to accelerate the development of low-carbon hydrogen supply chains bysetting a carbon-intensity ceiling on hydrogen and establishing an ambitious

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schedule to award points for low-carbon hydrogen.

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Buildings sector
Near-term government decisions on measures to stimulate the deployment of newclean technologies in buildings will be most effective if they focus on decarbonising
the entire value chain, taking into account not only buildings but also the energy
and infrastructure networks that supply them, as well as wider considerations
including the role of the construction sector and urban planning. Such decisions
are also likely to bring wider benefits, notably in reducing fuel poverty andimproving urban air quality. The phase-out of fossil fuel subsidies will contribute toboosting the uptake of such technologies. Other measures the government could
consider include building energy codes and standards, and regulations andincentives for the use of low-carbon gases and building retrofits.
Zero carbon-ready buildings could become the norm before 2030 for both new
construction and retrofits. This would require introducing as soon as possible zerocarbon-ready building energy codes. Financial incentives that address split
incentive barriers (whereby property owners are discouraged from improving theenergy efficiency of a rented property as they do not pay the energy bills) andminimise disruption caused by building works can help make such buildings
affordable and attractive to owners and occupants. Building energy performancecertificates, green lease agreements, green bond financing and pay-as-you-savemodels could also play a part. The government could also make public buildings
zero carbon-ready in the current decade.
Minimum energy performance standards for all major appliances and equipmentused in buildings could also be strengthened over the next decade to fully exploit
efficiency opportunities and phase out the least efficient products. That would
need to take account of the ability of local manufacturers to meet more stringent
standards.

Building clean energy infrastructure
The energy transition to carbon neutrality will call for substantial investment in newenergy infrastructure and upgrades to existing networks, including smart electricity
grids, alternative fuel distribution and CO2 transport and storage. The bulk of theinvestment will be needed for electricity grids, which will need to be modernised
and expanded to facilitate the integration of increasing amounts of variable
renewables in power generation and to handle increased electricity demand (seeChapter 3). The impending surge in EVs will also create additional needs forrecharging infrastructure (including fast-charging facilities) and catenary

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(overhead) lines on highways for electric trucks or ground-based feed rails forAn Energy Sector Roadmap to Carbon Neutrality in China

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trucks, buses and cars. The current low cost of capital presents a window ofopportunity for exploiting opportunities to invest in clean energy infrastructure
projects.

Box 7.2

China’s electricity market reforms

China continues to reform its electricity sector, focusing on increasing the role ofmarket forces to reduce operating costs, achieve more cost-reflective prices andenhance environmental performance. More transparent market structures andregulations are an important foundation for increased flexibility, integration ofvariable renewables and demand-side participation, which will be vital to meetingthe country’s carbon neutrality goals.
In 2015, China launched a round of reforms, introducing competitive markets for
medium- to long-term energy contracts, spot and ancillary service markets, andelectricity retailers. The coverage of these reforms and progress in implementing
them varies, with many still at the pilot phase. The share of electricity traded inmarkets reached 33% in 2020, with trade growing at an annual rate of 2.8%. Aboutfour-fifths of trade takes place under medium- and long-term contracts, which areavailable in all provinces except Tibet (China Electricity Council, 2021).
The universal establishment of spot markets (in day ahead and real time) and trade
between provinces are two of the main elements of the strategy to improve theoperational efficiency of the electricity system and support the transition to carbon
neutrality. In the APS, full economic dispatch through spot trading alone yields
around 24% of cost savings and 31% of CO2 emissions savings, by limiting
curtailment of variable renewables to 16% by 2035, when wind and solar PV
combined provide 33% of total generation. Continuing the current approach todispatching power would lead to curtailment levels for wind and solar PV of up to
30% by then. The expansion of inter-provincial connections and trade reduce
operational costs and emissions further, by 37% and 45% respectively, and bringcurtailment down to 3% by 2035, by exploiting flexibility from existing generationand grids, and demand-side response, particularly the short-term storage capacityof the growing fleet of EVs. The combined share of wind and solar PV in electricity
reaches then 38%.

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These reforms are well underway. Pilot spot markets have been set up and brought
into operation in eight provinces – Guangdong, Inner Mongolia, Shanxi, Gansu,
Zhejiang, Sichuan, Shandong and Fujian – covering 30% of the population. Pilots
in six more provinces are planned for 2021 (Energy Monitor, 2021). All these pilot
programmes comply with overall conditions set at the national level by the National
Energy Administration, but each has its own unique design decided at theprovincial level. In addition, medium- to long-term contracts between regions andAn Energy Sector Roadmap to Carbon Neutrality in China

Chapter 7: Policy considerations

an inter-regional spot market for surplus renewable generation were establishedin 2017. An expansion of inter-regional markets is planned. Creating a complete
national or inter-provincial power market will require China to co-ordinate andharmonise the various provincial market designs to ensure that all generators are
subject to the same rules on market pricing and dispatch.
Retail market and grid tariff reforms await full implementation. In many provinces,
new retail companies can be formed, but the services they can offer are still limited.
Clearer rules on grid tariffs, including for distributed energy resources to participate
in wholesale or distribution system trading, are needed to encourage thedeployment of distributed solar, batteries and demand response. Regulatory
reforms for grid operators that rationalise grid use tariffs, which are still underconsideration, will have a major impact on the competitiveness of new renewables.
New models for grid regulation that redirect incentives from traditional asset
ownership to investment in more innovative alternatives and compensate investors
that meet results-based and innovation-based targets are currently under trial.
These reforms have already helped boost energy efficiency and investment in
distributed energy, micro grids and digital technologies that help improve systemsecurity and resiliency.

The adoption of alternative fuels, including advanced biofuels, hydrogen,ammonia and hydrogen-based synthetic fuels, in sectors where emissions areotherwise hard to abate will require modifications to existing supply infrastructure
and the development of new facilities for their production and distribution.
International trade in these fuels would create a need for new ships and terminals.
Dedicated refuelling stations will also be needed (see Chapter 4). China’s mostrecent infrastructure plan, “Outline of the National Comprehensive ThreeDimensional Transportation Network Planning”, was released in February 2021
and focusses on developing an “integrated, innovative, smart, high quality andefficiency-centred” mobility system, involving extensive integration of thetransport, information and energy sectors (Central Committee of the Communist
Party of China and The State Council, 2021). Extending this plan to the provisionof low-carbon fuels to seaports and airports would bolster China’s ability to leadinnovation in these sectors.
The large-scale deployment of CCUS depends on the construction of
infrastructure to either permanently store CO2 or use it as feedstock for producing
fuel or chemicals. This infrastructure needs to be planned across provinces andregions to match sources of emissions with storage sites. The development of

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infrastructure in industrial clusters, by boosting economies of scale and permitting

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sharing of transport and storage infrastructure, could help accelerate the uptakeof CCUS (see Chapter 4). A national strategy for building and operating CO2transportation infrastructure, taking account of regional considerations, could
provide the basis for future investments, which could be made by public-private
partnerships, as proposed by China’s Guidelines on Establishing a Green
Financial System (covering all types of clean energy investment). A transmission
service operator model for pipelines may be the best approach.
Major investments in district heating networks will also be needed. They include
modifications to convert operations to more efficient low-temperature heat andintegrate low-carbon energy sources into the supply mix. More energy storage
capacity will also be needed for intermittent energy supplies, such as excess heatfrom certain applications, to ensure continuous heat supply and help powersystems meet peak load. Exploiting decarbonised waste heat from industrial
facilities, data centers and heat co-generated from thermal and nuclear power
plants requires co-ordinated long-term planning at national, provincial andmunicipal levels. For instance, it is estimated that nuclear reactors located innorthern China could generate electricity while providing heat to about 8% ofbuildings area (about 5 billion square metres [m2]) (Jiang and Hu, 2021). Industrial
waste heat recovery could supply space and water heating to another 4 billion m2(Lin et al., 2021). Nuclear co-generation could enhance energy efficiency by
substituting coal in both power plants and household boilers. While such solutions
could be deployed in many coastal cities close to existing and planned nuclear
and industrial facilities, technical improvements are crucial to reducing distribution
losses for the eight provinces that would rely on long distance heat distribution, up
to over more than 200 kilometres – the maximum distance that heat can betransported economically today.
Given the large scale of energy networks and the large investment involved, thecentral and provincial governments are best placed to take the lead in coordinating planning processes, providing funding for infrastructure construction,
establishing clear regulatory frameworks and ensuring equal and affordable
access to infrastructure regardless of regional constraints. Once clean energy
infrastructure is in place, it can be a platform for innovation, encouraging new
ideas for how to make best use of it, especially if third-party access is guaranteed.
The need for new infrastructure however can be a major barrier to adoption if
project promoters bear the risks of putting it in place while also bearing the risksof developing other elements of the value chain. The timelines involved indeveloping new infrastructure as well as the difficulties that often come with large-

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scale infrastructure projects mean that strategic and early development planningAn Energy Sector Roadmap to Carbon Neutrality in China

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will be essential to ensure economies of scale and to maximise utilisation. The
main considerations for policy makers are to:•Incentivise network owners and operators to adapt and enhance existing enabling
infrastructure, i.e. which facilitates the deployment and use of low-carbon
technologies by integrating clean energy technologies into existing networks,
pipelines and communication systems. China’s carbon neutrality targets could
stimulate private investment in this area, supplemented by direct public finance.
Existing infrastructure can also be used to test new clean energy technologies
and help accelerate their development. Regulated network operators are usually
obliged to minimise risk, which reduces their capacity to incorporate newtechnologies into existing infrastructure, but new regulatory models thatencourage experimentation are emerging.

•

Mitigate investment risk in new projects by providing some or all of the initialinvestment. Infrastructure projects are, by nature, highly capital-intensive andlarge scale. In the APS, they require more than USD 6 trillion (around CNY 40
trillion) of cumulative investment over 2020-2060, more than 80% of which relates
to electricity. A total of USD 1.1 trillion (CNY 7.6 trillion) is needed over the current
decade alone (see Chapter 2).

•

Adopt a holistic approach to infrastructure planning. For example, aninfrastructure project to transport hydrogen from western and north-easternregions to major urban centres could be considered alongside plans to deploy
CCUS in order to exploit synergies.
Identify opportunities to reuse existing infrastructure in the future, including forhydrogen and other low-carbon fuels and CO2 pipelines.

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•

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Figure 7.3 Cumulative investment in selected energy infrastructure in China in the
APS, 2020-2060

HydrogenTransport and distribution
2020 -2030
Storage2031 -2060
Refuelling stations
0

100

200

300

CO2
2020 -2030

Transport and storage2031 -2060
0

50

100

150

Electricity
T&D

2020 -2030

EV charging stations

2031 -2060
0

1,200

2,400

3,600
4,800
Billion USD (2019)
IEA, 2021.

Notes: APS = Announced Pledges Scenario; EV = electric vehicles; T&D = transmission and distribution. Investments are
undiscounted. Hydrogen transport and distribution includes investment in import, export and liquefaction terminals, as wellas pipeline systems.

Electricity-related infrastructure dominates the cumulative capital expenditure on energy
infrastructure needed

Fostering clean energy innovation
Innovation will be critical to the success of China’s efforts to achieve the carbon
neutrality targets. It has demonstrated excellence in improving technologies thatwere developed elsewhere and taking them to new heights, but, in some key areas

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of the energy transition, off-the-shelf solutions that can be imported, deployed andAn Energy Sector Roadmap to Carbon Neutrality in China

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improved do not yet exist anywhere in the world. Chinese innovation now needs
to focus on emerging technologies.
A successful innovation system goes far beyond R&D and incentivises innovatorsand disruptors through competitive niche markets, infrastructure investment andother regulatory measures. These will require extensive inter-ministerial and interprovincial co-ordination. Action plans and R&D budgets are being developed
under the current FYP. New policy tools, including so-called “bounty systems” andinnovation centres, as well as institutionalised evaluation of R&D programme
performance against stated objectives, are being introduced (see Chapter 6).
These plans and tools should leverage some of the unique features of China’s
innovation system.
Given the urgency of the technology challenge for carbon neutrality, the world
cannot afford bottlenecks or blind spots in the transfer of ideas and results acrosssectors, technologies, regions and countries. One task for all governments is toseek to exploit synergies between various technology areas, so that knowledge
flows quickly to where it can be used. The Chinese government has successfully
supported the establishment of industrial clusters for solar PV R&D andmanufacturing, where information and personnel move relatively freely. The same
approach could be used for other technologies, for example, to ensure that
advances in electrolysis, such as membrane materials, simultaneously inspiredevelopers of batteries, fuel cells, chemical reactors or hydrogen electrolysers.
The resulting spillovers are often viewed as a hidden force behind technology
innovation, leading to serendipitous leaps in progress.

CCUS
CCUS technology is one important area of innovation policy focus. The
commercialisation of CCUS requires the combination of several different
technologies, all of which operate at large scale. China has more than one majorstate-owned enterprise (SOE) in all the key industries with expertise relevant to
CCUS, namely oil and gas, chemicals, iron and steel production and power
generation. CCUS is well suited to the main national science and technology
projects – a major innovation tool in China. The central government can help coordinate demonstration projects involving multiple entities from various sectors
with different incentives. It can also use such projects to test various approaches
to help inform a widespread roll out. These are advantages from which most othercountries are unable to benefit. But demonstration projects alone are not sufficient

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to accelerate the pace of innovation for CCUS. The government will also need to:An Energy Sector Roadmap to Carbon Neutrality in China•

Chapter 7: Policy considerations

Further explore potential CO2 storage resources and make the detailed results
widely available to potential developers and researchers.

•

Look beyond demonstration projects and start to consolidate the large potential
markets for rapid scale up by bringing together companies across sectors to
explore common challenges and policy mechanisms to support investment.

•

Establish the proposed CCUS innovation centre to devise and rapidly validate
novel technologies and techniques, especially for CO2 capture, while introducing
more competition for R&D funding and access to facilities.

In the case of direct air capture and other carbon dioxide removal technologies, atechnology roadmap could help establish common expectations for theirdeployment in China, as well as technology export opportunities, and identify thebest locations and partners for the first major projects. To encourage innovation,
universities and research institutes could be given stable funding to pursue
research on the fundamental science, while also being offered high profile (andpotentially international) annual prizes for the best performers among competing
designs.

Low-carbon hydrogen
Improving the technology portfolio for hydrogen supply, distribution and use iscentral to ensuring that investment flows to hydrogen. Like CCUS, hydrogen
opportunities cut across multiple sectors and potentially interact with many partsof the energy system, while some of the innovation needs, like large-scaledemonstrations and commercial integration with industrial processes, are sharedwith CCUS. China’s major SOEs in the chemical and steel sub-sectors could be
encouraged to play a significant role in steering efforts and creating momentum
for the hydrogen research community, as well as channelling efforts to R&D
challenges that arise. Commercial-scale projects for industries like steel, ammonia
and methanol will help in scaling up low-carbon hydrogen production in theindustrial hubs where a significant share of hydrogen demand will be located. This,in turn, can help the development and demonstration of technologies and businessmodels for hydrogen in heavy-duty transport, taking inspiration from the clusterbased model for China’s rapid deployment of light commercial vehicles. To spur
innovation in hydrogen technologies, the Chinese government should also
consider:Establishing demand for the use of low-carbon hydrogen in industrial processes
that can “pull” the most competitive solutions into the market, e.g. via mandatory
low-carbon hydrogen quotas for refining, steel and ammonia.

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•

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Taking a leading role in international and multilateral initiatives and projects toensure that technological advances and lessons learned are shared to the benefitof all countries.

•

Giving higher priority to areas of fundamental research that can improve
performance and lower manufacturing costs (including by reducing the relianceon critical materials) for technologies such as electrolysers, fuel cells andhydrogen storage.

•

Supporting international efforts to develop harmonised standards and carbon
accounting methodologies for hydrogen production, transport and distribution,
including through research projects and technology testing.

Heavy industry
There is considerable scope for encouraging experimentation through competition
among hydrogen, CCUS and electrification – the main technology options for
reducing emissions – in heavy industry. Strengths in these technologies varyacross provinces, SOEs and private companies. A nationally co-ordinatedprogramme could potentially devolve a significant amount of responsibility toprovinces and SOEs to fund the testing of various options as quickly as possible
and share the results. This could then inform national standards and regulations,in line with international experience and co-operation. Mechanisms could
potentially be found to share some of the future revenues (from taxes, technology
licensing and equipment exports) that ultimately result from these R&D efforts withall participants. In addition to supporting R&D projects, the Chinese government
could:•

Incentivise manufacturers and their suppliers to set ambitious technology goals
and encourage an innovation culture.

•

Support fundamental research into potential breakthrough technologies, such asiron ore electrolysis and electrified cement kilns, which are currently at the
prototype stage.

•

Create an innovation incubator for industrial innovators to protect intellectual
property rights and connect them with potential industrial customers andinvestors. It could also help establish new companies if the new technologies are
not a good fit with existing ones.
Participate in international projects and consortiums on heavy industry
decarbonisation, especially in countries where industrial capacity is expanding
rapidly, and share the resulting knowledge widely.

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•

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End-use energy efficiency
There is a vast potential market for new energy efficiency technologies – including
smart load management, digital verification of savings, heat pumps andstandardised retrofit solutions – in China. The primary role of the government inaccelerating innovation in these areas is likely to be in ensuring access to capitaland business skills for entrepreneurs, setting up regulated markets in which they
can compete and flourish, and providing funding for R&D. The co-ordination ofmunicipal or provincial pilot zones for EVs and hydrogen should provide very
valuable lessons.

International collaboration
Enhanced international collaboration on developing and deploying clean energy
technologies will be required to facilitate the transition to carbon neutrality in China
and the rest of the world. All countries will benefit from the faster innovation cycles
that would result from sharing experiences in bringing new technologies to market
and the economies of scale that an acceleration in trade in clean energy
technologies would bring. Reaching net zero emissions globally calls for an
unprecedented level of international collaboration between governments – foreach country, it is a race against time and not a race against each other – asachieving net zero emissions globally will need every country to cross the finishline. Therefore it is not only a matter of all countries participating in efforts to meetthe global net zero goal, but also of all countries working together in an effective
and mutually beneficial manner. Without collaboration, China will struggle to reachits 2060 carbon neutrality target, just as other countries will struggle to meet theirown goals.
International co-operation and collaboration have been critical to the cost
reductions seen in the past for many key energy technologies. As well as
accelerating knowledge transfer and boosting economies of scale, they can also
help align the emergence of demand for new clean energy technologies and fuels
in one region with the development of supply in other regions. Additional benefits
can come from the potential for creating domestic jobs and industrial capacities,
and for strengthening the resilience of supply chains.
Technology standards and innovation programmes are two important areas ofinternational governmental collaboration.
Standards: The development of international standards could accelerate energy
technology development and deployment. Industries that operate in several
countries need standardisation to ensure inter-operability and to minimise costs.

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•

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Progress on innovation and clean energy technology deployment in sectors suchas heavy industry has been inhibited in the past by uncoordinated national
policies and a lack of internationally agreed standards.
•

Innovation and diffusion: Clean energy R&D and patenting is currently
concentrated in the United States, Europe, Japan, Korea and China, which
together accounted for about 90% of all clean energy patents in the 2014-2018
period. China alone accounted for slightly less than 10%. Progress towards net
zero emissions would be boosted by moving swiftly to extend experience andknowledge of clean energy technologies in countries that are not involved in theirinitial development, and by funding first-of-a-kind demonstration projects indifferent countries. International programmes to fund demonstration projects,
especially in sectors where technologies are large and complex, would accelerate
the innovation process.

China’s gigantic steel, cement and chemicals companies have the potential to bothlearn from and contribute to the efforts of their foreign counterparts. Industrial
technology transfer between countries and companies is a concrete example ofthis type of collaboration. China has demonstrated its adeptness in this area in thepast. Similar opportunities will emerge in low emissions industrial technology andinfrastructure development, with China likely to be a key centre of expertise, given
its huge industry sector. The creation of specific zones across the country for thedevelopment and deployment of certain technologies, including EVs and hydrogenproduction, is facilitating knowledge exchange. The benefits of knowledge andapplication spill overs can be maximised by exploiting synergies internationally,
while international networks for knowledge exchange, including public-private
partnerships and cross-sector coalitions, can help avoid duplication of efforts andidentify gaps not yet addressed.
The Chinese government should continue to encourage international co-operationand collaboration on clean energy innovation. It has achieved notable success incollaborations with the EU Horizon 2020 research and innovation programme, the
UK-China CCUS Centre and the export of technology developed in China to
CCUS projects abroad, e.g., the CTSCo project in Australia. International
partnerships to advance technologies at early stages of development could beparticularly beneficial. Existing multilateral platforms for co-operation provide asound basis for deepening collaboration. The IEA Technology Collaboration
Programme (TCP), which supports the work of independent, international groupsof experts in 38 technology areas, is the world’s foremost collaborative
programme. In 2020, China joined three additional IEA TCPs to reach overall
participation of 27 out of 38 possible TCPs, including eight out of nine in the

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renewable energy and hydrogen categories. This corresponds to the fifth-highest

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Chapter 7: Policy considerations

participation in the TCPs, behind the United States (36), Japan (30), Korea (29)and Canada (27), and ahead of the European Commission (24). Other platforms
include the Clean Energy Ministerial, a community of the world’s largest countries,
companies and international experts, and Mission Innovation, a global initiative to

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catalyse action and investment in clean energy R&D and demonstration.

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References
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908&enterid=1614491908&from=groupmessage&isappinstalled=0.
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2021.
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https://www.iea.org/reports/the-role-of-chinas-ets-in-power-sector-decarbonisation.
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An Energy Sector Roadmap to Carbon Neutrality in China

Annexes

General annex

ACCA21

Administrative Centre for China’s Agenda 21

AEM

anion exchange membrane

APS

Announced Pledges Scenario

AQI

air quality index

ATS

Accelerated Transition Scenario

ATJ

alcohol-to-jet

BECCS

bioenergy with carbon capture and storage

BTHS

Beijing-Tianjin-Hebei and surrounding areas

BEV

battery electric vehicle

BF-BOF

blast furnace basic oxygen furnace

BIO-FTbiomass gasification using the Fischer-Tropsch process

BOF

basic oxygen furnace

BTXbenzene, toluene and mixed xylenes

CAPEX

capital expenditure

CCUS

carbon capture, utilisation and storage

CCS

carbon capture and storage

CCU

carbon capture and utilisation

CGN

China General Nuclear Power GroupCH4

MethaneCHP

combined heat and power

CNNC

China National Nuclear Corporation

CNPC

China National Petroleum Corporation

CNR

catalytic naphtha reforming

CNY

Chinese Yuan

CO

carbon monoxideCO2carbon dioxide

COMAC

Commercial Aircraft Corporation of China

COP

Conference of PartiesCORSIA

Carbon Offsetting and Reduction Scheme for International Aviation

DAC

direct air captureDCdirect current

DRI

direct reduced iron

DWT

deadweight-tonne

EAFelectric arc furnace

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Abbreviations and acronyms

EOR

enhanced oil recovery

ESPelectrostatic precipitator

ETP

Energy Technology Perspectives

ETS

Emissions Trading SystemEVelectric vehicle

FAME

fatty acid methyl esters

FCEV

fuel cell electric vehicle

FYP

Five-Year Plan

GDP

gross domestic product

GHG

greenhouse gas

H2hydrogenHChydrocarbon

HEFA

hydroprocessed esters and fatty acids

HEVhybrid electric vehicle

HFChydrofluorocarbon

HRShydrogen refuelling station

HSR

high-speed rail

HVAC

heating, ventilation and air conditioning

HVC

high-value chemical

HVOhydrotreated vegetable oil

IATAInternational Air Transport Association

ICAO

International Civil Aviation Organisation

ICE

internal combustion engine

ICEV

internal combustion engine vehicle

IEA

International Energy Agency

IPCC

Intergovernmental Panel on Climate Change

ISGAN

International Smart Grid Action Network

LCOH

levelised cost of hydrogenLEDlight-emitting diode

LFP

lithium ferro-phosphate

LPG

liquefied petroleum gas

Lilithium

Li-ionlithium-ion

MEE

Ministry of Ecology and Environment

MEPS

Minimum Energy Performance Standards

MFA

Ministry of Foreign Affairs

MIIT

Ministry of Industry and Information Technology

MNR

Ministry of Natural Resources

MOF

Ministry of Finance

MOST

Ministry of Science and Technology

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IEA, 2021.

An Energy Sector Roadmap to Carbon Neutrality in China

An Energy Sector Roadmap to Carbon Neutrality in China

Annexes

MoT

Ministry of Transport

MSW

municipal solid waste

MTO

methanol to olefins

N2O

nitrous oxide

NDC

nationally determined contribution

NDRC

National Development and Reform Commission

NEA

National Energy Administration

NEV

new energy vehicle

NH3

ammonia

NICE

National Institute of Clean and Low-Carbon EnergyNOxnitrogen oxide

NREL

National Renewable Energy LaboratoryOEM

original equipment manufacturer

OPEX

operating expenditure

PERIC

China State Shipbuilding Corporation

PEM

polymer electrolyte membrane

PGM

platinum group metal

PHEV

plug-in hybrid electric vehicle

PPP

purchasing power parity

PM

particulate matter

PM2.5

particulate matter with a diameter less than 2.5 micrometresPVphotovoltaic

R&D

research and development

RD&D

research, development and demonstration

SAF

sustainable aviation fuelS&T

science and technology

SASAC

State-owned Assets Supervision and Adminstration Commission of theSEERseasonal energy efficiency ratio

SGCC

State Grid Corporation of China

SO2

sulphur dioxide

SOEstate-owned enterprise

SOEC

solid oxide electrolyser cell

SPIC

State Power Investment Corporation

STEPS

Stated Policies Scenario

SUV

sport utility vehicle

T&D

transmission and distribution

TCP

Technology Collaboration Programme

TFC

total final consumption

UCO

used cooking oil

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State Council

An Energy Sector Roadmap to Carbon Neutrality in China

UN

United Nations

USC

ultra-supercritical

USD

United States dollar

V1G

vehicle from grid

V2G

vehicle to grid

VC

venture capital

VRE

variable renewables

VSD

variable speed drive

WEM

IEA World Energy Model

WHO

World Health Organisation

WTE

waste-to-energy

ZCR

zero-carbon-ready

ZCRB

zero-carbon-ready building

Annexes

Units of measure°C

degree Celsius

bcm

billion cubic metre

EJ

exajouleg CO2/kWhgramme CO2 per kilowatt hour

GJ

gigajouleGJ/tgigajoule per tonne

Gt

gigatonne

Gtce

gigatonne of coal equivalent

Gt CO2gigatonne of carbon dioxide

Gt CO2eq

gigatonne of carbon dioxide equivalent

GW

gigawatt

GWh

gigawatt hourkb/dthousand barrels per daykg

kilogrammekmkilometrektkilotonne

kt/yrkilotonne per year

kt CO2/yr

kilotonne of carbon dioxide per year

kWkilowattkWekilowatt electrickWH2kilowatt hydrogenkWhkilowatt hour

kWh/yrkilowatt hour per year
square metre

PAGE | 300

IEA, 2021.

m

2

An Energy Sector Roadmap to Carbon Neutrality in China

mb/dmillion barrels per day
megajoulemg/m

3

milligram per cubic metre

Mtmillion tonne

Mt/yrmillion tonnes per year

Mtce

million tonnes of coal equivalent

Mt CO2

million tonnes of carbon dioxide

Mt CH4

million tonnes of methaneMWmegawattMWhmegawatt-hourPJpetajoules

pkm

passenger kilometreppm

parts per million

tcetonne of coal equivalentt CO2tonne of carbon dioxide

t CO2/cap

tonne of carbon dioxide per capita

t CO2/MWhtonne of carbon dioxide per megawatt-hourt CO2/ttonne of carbon dioxide per tonne

tonne-km

tonne-kilometreTWhterawatt-hour
3

USD/t

micrometres per cubic metre
United States dollar per tonne

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MJ

μg/m

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