China Market: Decoding China’s ambitious path to ‘Net-Zero’
AXA IM’s Senior Emerging Asia Economist, Aidan Yao, shares his latest macro views on China and Asian Market every month.
This month he talks about China’s pledge to neutralize carbon emission by 2060, the reasons behind it and how it will happen.
Please find the full script below:
Hello, welcome to our monthly video series. My name is Aidan Yao. I’m the Emerging Asia Economist at AXA Investment Managers.
It is well known that China is the world’s largest emitter, contributing about 30% of CO2 emissions globally every year. What is less well known is that on a per-capita basis, China’s emissions are less than half of the US and lower than most developed countries outside Europe.
With a burgeoning middle-class aspiring to western lifestyles and China’s energy system still overly reliant on coal, dramatically reining in carbon emissions is akin to denying China’s right to future economic development.
This begs an interesting question: why is China joining the fight against global warming, with the pledge to achieve carbon neutrality by 2060?
We think there are four plausible explanations: First, the costs of environmental damages, both social and economic, have become too great to ignore. Second, a rapid transition toward renewable energy, which China could become self-sufficient, would improve the country’s position on energy security. Third, the rapid cost reduction of renewable energy is now making this transition feasible. And finally, being a global leader on climate issues can improve China’s image as a responsible nation, helping to mitigate geopolitical tensions with major countries and build soft power with other partners globally.
So how is China going to achieve this formidable challenge of decarbonization by the next 40 years?
We think this will take a two-step process. Step one, which essentially covers the period between now and 2030, is really about “flattening the emission curves”. With various explicit environmental targets set out at the 14th Five-year Plan, including the reduction of energy and carbon intensity, and electrification of China’s industrial and transportation sectors. We think China is on the path of delivering its first-stage goal of capping carbon emissions by the end of the current decade.
The real challenge, however, lies in the second phase of this process, which requires China to cut down emissions all the way down to zero in 30 years between 2030 and 2060. This is a much faster speed than pledged by the US, European Union, and Japan. In our view, it’d require fundamental changes to China’s overall macro system, including the structure of its economy, the compensation of its energy system, and how carbon emissions are being managed.
These changes, in our view, will bring transformative and fundamental changes to the Chinese economy and financial markets, over the coming decades, creating both winners and losers.
You can find more details on this topic in our latest study on our websites. As always, we hope you find this information useful and interesting. Thank you very much and stay safe.