China’s carbon neutral goal needs a lot of heavy lifting by industries

Airlines, shipping, buildings materials, chemicals and power producers, the biggest emitters of carbon dioxide, are expected to do the heaviest lifting over the next four decades for China to meet its carbon neutral goal by 2060.

Nine of every 10 vehicles on China’s roads will have to run on non-fossil fuel, while half of the aircraft fly on green hydrogen and 90 per cent of heavy industries will need to be retrofitted with carbon capture facilities to put the nation on track to cut carbon emission by 75 to 85 per cent, leaving the residual amount to be offset by removals, according to the Boston Consulting Group (BCG).

“Some of the technologies required, such as carbon capture and storage and [emission-free] hydrogen fuel are not [commercially] ready yet,” said Thomas Palme, who leads BCG’s social impact practice in China, adding that it can only be possible “with concerted effort and investment.”

The challenges underscore the technological and financial hurdles that must be overcome for China to deliver on President Xi Jinping’s surprise pledge in Septemberbefore the United Nations. If all the pieces can come together, the result could be a giant leap in technological capability for China to the top of global competitiveness, as the world grapples with strategies and policies to deal with climate change, one of the gravest problems to confront humanity.

Smoke belching from a coal-fuelled power station near Datong, in China’s Shanxi province on November 19, 2015. Shanxi, the largest coal-producing region in China, frequently ranks top among provinces with the worst air pollution. Photo: AFP

China’s coal and gas-fired power plants are responsible for almost half of the nation’s carbon dioxide emission, while heavy industries – including the world’s largest capacity for steel, aluminium, petrochemicals and cement – contribute one-third, BCG said.

With an average age of less than 13 years – out of a typical useful lifespan of 40 years – the use of some power plants could be extended even as climate policies clamp down on emissions.

Aviation has relatively low carbon impact compared to energy generation. SCMP Graphics

This is particularly important since 60 per cent of the world’s coal-fired plants could still be operating in 2050, as could 40 per cent of steel mills – mostly in China – unless they retire early, according to International Energy Agency (IEA) in Paris. That is not viable, as the cost of installing carbon capture facilities would triple the price of coal-fired power, said HSBC’s head of Asia utilities research Evan Li, citing data by the Institute for Energy Economics and Financial Analysis in Ohio.

Change is on the way, as authorities in XinjiangQinghai, Shanxi and Inner Mongolia have mandated that 5 to 20 per cent of the total capacity of solar farms must comprise energy storage, which would enhance the intermittent energy’s competitiveness against coal-fired power, said Frank Haugwitz, founder of Asia Europe Clean Energy (Solar) Advisory.

Solar power will surpass wind energy by the end of this month as China’s third-biggest source of electricity by capacity, and the rate of installing solar farms in the next five years will “much exceed” the pace in the previous five years, renewable energy officials said on Thursday.
Chinese firefighters evacuating residents during a flash flood at Pingxiang in eastern China’s Jiangxi province on 12 April 2006. Torrential rains and typhoons killed over 1,300 people in China in 2005 and destroyed 1.22 million buildings, causing direct economic loss of 155.8 billion yuan (US$19 billion). Photo: AFP

The prospect of shutting down mass coal-fired power plants could present a policy dilemma between climate change and economic stability. China’s banks could see their default ratio on loans to the coal-fired power sector surge from 3 per cent to over 20 per cent within a decade, according to a scenario analysis by Centre for Green Finance Development, Tsinghua National Institute of Financial Research.

Climate transition bonds are needed to fund the acquisition of coal-fired power companies in China, with clearly defined plans to inject renewable energy projects into them to gradually retire the plants within a set period, said the research centre’s director Ma Jun, who is also chairman of Hong Kong Green Finance Association.
This would avoid bankruptcies that spill over to bad loans and social risks, he said, adding that talks are ongoing in Shanxi, China’s largest coal producing region, to facilitate such bonds.
Compared to industry and power generation, transport is a smaller segment of total emissions. SCMP Graphics

Carbon capture, utilisation and storage (CCUS) – the capture of carbon dioxide from the emission source, or directly from the atmosphere – has been in use for 45 years, according to the consultancy Global CCS Institute in Melbourne. In the United States, large-scale CCUS projects involve injecting carbon dioxide into oil wells to enhance output.

The technology has been tested in China for about a decade, pioneered by coal mining giant Shenhua Group, now renamed as China Energy Investment Corporation. Carbon dioxide collected from coal-to-oil conversion projects in Inner Mongolia is trucked and injected into sealed underground caverns for permanent storage.

PetroChina has also been collecting carbon dioxide from a natural gas processing plant and injecting it into its Jilin oilfield since 2018.

PetroChina’s facilities in Jilin on May 24,2004. Photo Reuters

Retrofitting CCUS will have a greater chance of success for power plants and industrial facilities that are young, efficient and located near places with opportunities to store or use carbon dioxide, IEA said. When CCUS can be commercially viable in China is unclear, as details of the national mandatory carbon dioxide emission quota – critical for putting a market price on emissions – have not been announced.

“China has some successful CCUS pilots, but their applications have been rather restricted, the volumes rather limited and [they are] commercially uncompetitive,” said Yang Fuqiang, China programme senior adviser on climate and energy, at The Natural Resources Defence Council in New York.

The technology must be deployed in large scale to reach carbon neutrality, IEA said.

“Reaching net zero [carbon emission] will be virtually impossible without CCUS,” IEA said in September. “Alongside electrification, hydrogen and sustainable bioenergy, CCUS will need to play a major role.”

CCUS may be ready for industrial application by 2030 in China, with a cost reduction of between 40 per cent and 50 per cent by 2040, according to a technology development road map by the Ministry of Science and Technology (MOST) last year.

“Hurdles to faster CCUS deployment in China include the lack of a legal and policy framework, limited market stimulus and inadequate subsidies,” the IEA said. “Public understanding and awareness is relatively low.”

Global pandemic conditions have reduced emissions by aviation by around half. SCMP Graphics

“Green” hydrogen, the other key technology for fighting climate change, has made significant progress towards commercial deployment due to a drastic fall in renewable energy cost. Production of this virtually emission-free fuel involves using renewable electricity to split water into oxygen and hydrogen.

The world’s first wind-generated green hydrogen power project, scheduled for commission in January, may be expanded into a large plant for deployment around 2025, according to Siemens Gamesa, the dominant European turbines producer.

Hydrogen and ammonia are touted as the mainstay clean fuel to replace coal, diesel, petrol, bunker and jet fuel in a few decades, with potential applications in heavy industries such as iron and steel, chemicals and glass.

China’s carbon footprint is trending up. SCMP Graphics

“The pathway to emission-free electricity is wind and solar, and the pathway to emission-free everything else is green hydrogen produced from wind and solar,” said Alex Tancock, co-founder and managing director of InterContinental Energy, one of the growing list of developers pushing for hydrogen projects.

A consortium led by InterContinental proposed a US$36 billion solar and wind-powered hydrogen production project aimed at East Asia. Located in the Pilbara Desert in Western Australia state on a site six times the size of Hong Kong, it comprises 26 gigawatts of wind and solar farms, 2.3 times Hong Kong’s power generating capacity.

The consortium is in talks with Asian buyers of hydrogen and ammonia, including power and shipping firms, besides technology, energy, and asset management companies for investments by 2025 for construction to start.

Global hydrogen production could surge sevenfold by 2070 from last year’s 75 million tonnes, IEA said.

A computer-generated image of three prototypes of zero-emission hydrogen-powered aircraft made by Airbus. Photo: AIRBUS / AFP

Direct use of hydrogen by ships and vehicles may take up 30 per cent of demand in 2070, while synthetic aircraft fuel will account for 20 per cent. Liquid hydrogen can be used for short-haul flights, while synthetic fuel can be used in existing jet engines, Tancock said.

Airbus revealed three concepts in September for the world’s first zero-emission commercial aircraft, with modified gas turbine engines that use hydrogen instead of jet fuel, which could enter service by 2035.

Transport accounted for 9 per cent of China’s estimated carbon emission of 11.7 billion tonnes last year, BCG said.

Commercial aviation accounts for 2 to 3 per cent of global carbon emission, according to the International Air Travel Association (Iata), the industry guild. It has committed to cap members’ carbon emissions this year, and halve them by 2050 from 2005 levels.

An Airbus A380, the largest commercial aircraft in service, with 555 seats in standard configurations, taking off from the Toulouse-Blagnc Airport in southern France for delivery to China Southern Airlines on 14 October 2011. Photo: EPA

China has included domestic aviation among eight sectors to be subjected to carbon emission caps and quotas trading.

Domestic flights grew 7.5 per cent to 83 billion tonne-kilometre last year, while the entire industry’s carbon emission per tonne-km fell 16 per cent from 2005, according to the Civil Aviation Administration of China. Some 74.5 million tonnes of carbon dioxide emission could potentially be subject to a cap-and-trade regime.

China Southern Airlines, the nation’s largest fleet operator, said its 2019 carbon emission grew 6.4 per cent to 28.6 million tonnes. The Guangzhou-based carrier tested a 10 per cent blended bio-jet fuel made with sugar cane in a flight last year, emitting 73 per cent less carbon dioxide than conventional jet kerosene.

The CMA CGM Group’s container ship Jacques Saade at the Shanghai Jiangnan-Changxing Shipyard in September 2019. With the capacity to carry 23,000 TEUs of containers, this is the world’s largest ship to be powered by liquefied natural gas (LNG). Photo: Handout

The shipping industry is also looking to hydrogen, although huge research and development investments will be needed before this can become commercially viable, according to London-based International Chamber of Shipping.

“After a long history of wind, coal and oil-fuelled ships, a fourth propulsion revolution is needed if shipping is to decarbonise completely … an entirely new generation of fuels and propulsion systems will need to be developed,” it said in a report last month.

The task facing the industry is daunting. Long-term growth in maritime trade means even if the average carbon emission by the entire global fleet is slashed by 90 per cent, it would only cut the industry’s carbon emission by half by 2050, the chamber said. The global vessel fleet – consuming 4 per cent of oil output and contributing 2 per cent in carbon dioxide emissions – must be retrofitted, while new fuel supply networks must be developed if hydrogen and ammonia are to be adopted, it added.

The shipping industry proposed a levy on marine fuel sales to provide US$5 billion over 10 years for research to turn the “propulsion revolution” into reality, the chamber said.

For InterContinental, exporting ammonia to China is more viable, due to the high costs needed to ship hydrogen at minus 253 degrees Celsius, if the project takes off.

“I would expect China to have a big industry producing hydrogen, unlike Japan and South Korea which have little resources and would have to import,” Tancock said. “Projects like ours will supplement China’s production by providing lower-cost green alternatives like green ammonia.”

Additional reporting by Iris Ouyang and Echo Xie.

This story, originally published by South China Morning Post, has been shared as part of World News Day 2021, a global campaign to highlight the critical role of fact-based journalism in providing trustworthy news and information in service of humanity. #JournalismMatters.

Carbon neutrality: China sowing seeds of change to meet 2060 target

China’s renewable energy industry is poised to lead an unprecedented industrial transformation that would turn the world’s largest greenhouse gases emitter into a carbon neutral country in less than four decades, at an estimated cost of US$5 trillion.

The nation, already the biggest global producer of hydro, wind and solar power, will have to curtail most fossil fuel production and drastically install more equipment to harness nature’s energy to meet the 2060 carbon neutrality goal pledged by President Xi Jinping to the United Nations General Assembly in September.

The uncertain journey to carbon neutrality – where residual emission is fully offset by amounts captured from the atmosphere – will be a gradual and at times painful process, because it transforms livelihood in the tens of millions, involving trillions of dollars in funding, analysts said.

“The most challenging part of the shift is not the investment or magnitude of renewable capacity additions but the social transition,” said Prakash Sharma, head of Asia Pacific markets and transitions at resource consultancy Wood Mackenzie in London. “[Slashing] coal capacity will result in loss of coal mining jobs, affecting provinces that depend on its revenues and employment generation.”

A worker clears a conveyor belt used to transport coal near a coal mine in Datong, in China’s Shanxi province on November 20, 2015. Photo: AFP

To meet the goal, China must cut its reliance on fossil fuel to 25 per cent by 2050 from the current 85 per cent, removing much of the rest with carbon capture and storage technology, according to Sanford Bernstein’s analysts Neil Beveridge and Wang Lu.

In the makeover scenario, natural gas – with a carbon footprint half of coal and a quarter less than petroleum – is the only fossil fuel that will grow in the energy consumption mix to 14 per cent from 8 per cent. Coal’s contribution will shrink to 3 per cent from 57 per cent, while oil will decline to 8 per cent from 20 per cent.

Solar energy is forecast to be the biggest winner, rising from 1 per cent to 22 per cent and become the biggest energy source, followed by wind power at 17 per cent from 3 per cent. Nuclear energy’s weighting could quadruple to 8 per cent, and hydrogen will grow from almost zero to 11 per cent.

Solar panels arranged to form the picture of a giant panda by Panda Green Energy Group in Datong city in Shanxi province on July 21, 2017. Photo: Panda Green Energy Group

William Shen, a Chinese journalist, paid 200,000 yuan in 2017 to install a 100-square metre (1,076 square feet) solar panel on his roof in Wujiang city in Jiangsu province. He sells the power generated from his 15-kilowatt solar panel to the local electricity grid, receiving between 1,000 yuan and 2,000 yuan every month, based on the local tariff rate of 0.42 yuan for every kilowatt-hour

“It was not a good deal in business terms,” Shen said. “But I still think the money is worth of it because using clean-energy is of great social value.”

China’s energy transition will create millions of jobs in renewable energy. Already the leading equipment producer and the largest market, China employs 2.2 million people in solar power, more than half of the industry’s jobs worldwide, according to the China National Renewable Energy Centre. Chinese wind farms and factories making wind mills and turbines employed 518,000 workers, or 44 per cent of the global total.

Millions of jobs are at stake for coal mines, where the top 10 miners typically employ between 80,000 to 160,000 workers. China’s largest 50 miners, producing 71 per cent of the nation’s coal, had 4.15 trillion yuan (US$634 billion) in combined revenue last year, according to China Coal Industry Association.

SCMP Graphics

Shanxi province, the hardscrabble, landlocked region in northern China, is the nation’s largest coal production areaearning more than half of its state-owned industrial sector’s output from coal-related activities over the past three years. Coal-related assets make up 36 per cent of Shanxi’s state-owned assets, Guosheng Securities said.

Over the next four decades, many coal mines and thermal power plants may have to shut, unless the industry can slash the cost of capturing the carbon dioxide emissions.

The capture, usage and storage of carbon, a potential game-changer for the long-term decarbonisation in fossil fuel industries, is still nascent in China and is uneconomical, said HSBC’s head of Asia utilities research Evan Li. These carbon capture facilities would triple the cost of coal-fired power, he said, citing data from the Institute for Energy Economics and Financial Analysis in Ohio, which said in July that there is “no commercially viable examples of … [such projects] … anywhere in the world.”

SCMP Graphics

The world will have to look to the Chinese government’s 14th Five-Year Plan from 2021 to 2025, due to be published next year, for details of how every energy-intensive industrial segment should work toward the 2060 target. A necessary first step is the long-awaited nationwide plan for pricing, allocating and trading carbon emission quotas, which will affect the biggest emitters – most notably the power sector – when it starts within the next five years.

“I expect the change to be gradual in the next 10 to 20 years, and there will still be expansion in coal-fired power capacity in the range of 15 to 25 gigawatts over five years, similar to recent years but down from the 40 to 50GW in 2014 to 2016,” said Lucas Zhang Liutong, director WaterRock Energy Economics in Hong Kong. “The Chinese electricity system needs to get a lot of things right before participants can move aggressively on much larger wind and solar power expansion.”
SCMP Graphics

Despite the fanfare around Xi’s pledge, China’s transition to an economy with low energy intensity is in danger of stalling, as the government doubled down on stimulus policies this year and in 2021 to avert a stalling economy, especially with the coronavirus pandemic still raging around the world.

About 31GW of power plant capacity was approved in the 12 months until October, according to the China Electricity Council, while 19.7GW of coal-fired power plants were given the green light by local authorities in the first half, the biggest investments in recent years.

“Investments in renewables continue, but signs of a return to coal are emerging, a tendency that could strengthen as post-pandemic geopolitics push energy security up the policy agenda,” said S&P Global Ratings in September. “To dig the economy out of its Covid-19 low, planners are approving more infrastructure. Policymakers are stimulating heavy industry, leading to greater energy intensity.”

An array of Sinovel’s 3-megawatt wind turbines at the Shanghai Donghai Bridge Offshore Farm Project on February 22, 2011. Photo: Chinatopix Via AP

The growth prospect for renewable energy will face short-term bottlenecks. The wind power equipment industry urged the Chinese government in October to raise the average annual wind farms installation target in the next five years to 50GW, rising to 60GW after 2025, more than double the 24GW installed last year.

Such a pace may be beyond reach, as Beijing will stop subsidising new onshore wind farms and solar projects from 2021, said Daiwa Capital Markets’ analysts Dennis Ip and Anna Lu. There are also limits in the ability by power grids to absorb the intermittent and variable output from these sources.

“It is hard to achieve such an aggressive target at least in the next five years, as wind power has yet to achieve large-scale grid parity while China will halt subsidies for new installations from next year,” they said. Parity, where the cost of generating wind power matches benchmark coal-fired electricity tariffs in most regions, won’t be reached until 2022 or 2023, they said.

SCMP Graphics

For solar farms, the generation cost could drop 40 to 50 per cent by 2025, enabling grid parity to become the norm, said HSBC’s Li. Still, a wrench has been thrown into the works by the shutdown of GCL-Poly Energy’s plant in Xinjiangdisrupting the production of polysilicon used in solar panels, causing the price of the raw material to soar 60 per cent in two months. A lack of new capacity until 2022 will put a limit to solar equipment, he said.

“We invest for the future, but it is apparent that there is a long way to go before solar energy is widely used in China,” said Shen, who has solar panels on his roof in Wujiang. “Few people are able or willing to spend 200,000 yuan as an initial investment. A lot more public money needs to be poured into solar energy to encourage wide use. The government should invest for the future too.”

Smoke stacks at a coal-fuelled power station near Datong, in China’s Shanxi province, which regularly ranks near the top with China’s worst air quality, on November 19, 2015. Photo: AFP

Another constraint reining in growth has to do with financial resources.

The government’s decision to stop subsidising wind and solar tariff – financed by a surcharge on electricity bills – was intended to shift the cost burden of renewable energy to coal and gas-fired power producers. The shortfall in the state fund that pays for the subsidies is expected to triple to 300 billion yuan this year from 2018, said China Wind Energy Association’s secretary general Qin Haiyan, who proposed special government bonds to plug the hole.

Developers of renewable projects have to wait between three to five years to receive their subsidy payments, severely constraining their capacity to invest in new projects, especially for privately-owned firms that lack the deep pockets of state-owned companies.

GCL New Energy, a unit of the Jiangsu province-based GCL, was owed 9.2 billion yuan of state subsidies in June, forcing it to appoint a financial adviser to find funds to repay US$500 million of debt due in January 2021. The privately owned company was forced to sell 1.7GW, or a quarter of its projects, for 2.9 billion yuan, as its net debt surged to nearly four times its shareholders equity.

A coal worker on a goods train in the Shanxi provincial capital of Taiyuan in northern China on July 31. Photo: AP

Help may be on the way. An incentive called the “green certificate” trading system, tried on a voluntary basis since 2017 to fund carbon reduction projects, may be rolled out soon, said Global Wind Energy Council (GWEC) strategy director Zhao Feng.

If implemented, renewable energy quotas would be imposed on power generators and major energy consumers, which must buy certificates from renewable energy generators to make up for any production or consumption shortfalls. It was intended as a replacement for subsidies.

Meanwhile, the rush in installing wind farms is expected to continue until year-end to meet the deadline to qualify for subsidies, bringing onshore installations to 30GW this year, GWEC said.

“There are challenges in the supply chain, but … these can be overcome by finding new ways of doing things and new sources of supply,” said GWEC’s chief executive Ben Backwell in Brussels.

With additional reporting by Daniel Ren in Shanghai.

This story, originally published by South China Morning Post, has been shared as part of World News Day 2021, a global campaign to highlight the critical role of fact-based journalism in providing trustworthy news and information in service of humanity. #JournalismMatters.

Has the fuel cell’s day in the sun arrived on China’s road to 2060?

Qingliqingweia two-year-old start-up, wagered last year that its business in hydrogen fuel cells was about to pay off.
China’s government was increasing its drumbeat of policies to direct the nation to go green, cut carbon dioxide emissions and reduce gaseous pollution. Tens of billions of yuan were offered in subsidies, incentives and tax breaks to wean drivers, carmakers and fleet operators in the world’s largest automobile market off petrol-guzzling vehicles.

The Shenzhen-based company rolled out a fleet of 600 lorries in June 2019, each fitted with a hydrogen fuel cell engine, capable of travelling as far as 350 kilometres (217 miles) before refuelling. The vehicles, comprising light delivery trucks and 4-ton lorries, were leased to couriers, logistic companies and garbage collectors.

“It is a near certainty that the government will allocate a huge sum of additional funds to subsidise of hydrogen-powered vehicles,” the company’s vice-president Li Junzuo said in an interview with South China Morning Post in Shanghai. “An increased financial support will facilitate our expansions.”

A hydrogen fuel cell delivery truck showing its fuel cell power train. Photo Qingliqingwei

A little more than a year later, China’s President Xi Jinping pulled a surprise at the United Nationssetting a 2060 target for the country to attain carbon neutrality, becoming the second major economy in the world to put a date on the ambition.

As the world searches for the fine print of Xi’s plan – the implementation details are to be outlined in the country’s next five-year plan in March 2021 – Qingliqingwei is doing a roaring business. Its story underscores how far the Chinese government has put its considerable financial resources behind projects with very long-term, and often uncertain commercial viability.

China offers up to 400,000 yuan (US$60,836) in subsidies per fuel-cell vehicle (FCV) once it runs at least 20,000 kilometres. Fleet operators like Qingliqingwei – a pun on “do it yourself”” that replaces the “self” with hydrogen – get 30 per cent of the subsidies.

For a monthly fee of about 5,000 yuan, the trucks are leased mostly to couriers, deliverers and retailers like and Alibaba Group Holding‘s Cainiao logistics unit. JD.comone of China’s largest online retail platforms, operates 150 FCVs around Shanghai. The trucks, bought for 830,000 yuan each, comes from local manufacturers like Nissan Motor’s Chinese partner Dongfeng Motor, each fitted with a fuel cell engine.

“We serve as a bridge between the upstream vehicle manufacturers and downstream clients using trucks for logistics use,” Li said, adding that Qingliqingwei plans to expand its fleet to 3,500 trucks. “The government policies play a decisive role in the promotion of hydrogen-powered vehicles. Without cash subsidies, none of us can survive the lofty costs on purchases and running.”

SCMP Graphics

Fuel cells produce power through an electrochemical reaction of hydrogen with oxygen, generating heat and water as the by-products. They are a cleaner alternative to internal combustion engines (ICEs) that burn petrol and spew carbon dioxide, carbon monoxide and other noxious gases. They are also considered more environmentally friendly than electric vehicles that run on lithium-ion batteries, which are hard to dispose of.

Colourless, odourless, non-toxic but highly combustible, hydrogen’s versatility and cleanliness have long made it a desirable alternative energy, except for its high cost since a lot of energy is required to produce the gas sustainably.

The first hydrogen fuel cell was created in 1839 by British lawyer and physicist William Grove, by splitting water into different cells containing hydrogen and oxygen. Hydrogen was also used in the 1960s by the US National Aeronautics and Space Administration (Nasa) to supply power during space flights, since it did not emit heat or pollution into sealed spacecraft.

SCMP Graphics

Global assemblers of passenger vehicles, sports-utility vehicles, sports cars and luxury sedans have been slow to embrace hydrogen fuel cells, mostly over concern of their limited driving range, and the shortage of hydrogen refuelling stations. Almost all of the 7,200 fuel cell vehicles on China’s roads in July were retrofitted commercial trucks.

That may be about to change, as the European Union, Japan and South Korea – each with a robust car assembling industry – are also looking to hydrogen to help their commitment to carbon neutrality by mid-century.

Toyota Motor, the world’s second-largest carmaker by volume, was the first to launch a commercially viable FCV with its Mirai midsize sedan, first unveiled at the 2014 Los Angeles Auto Show. The 2016 model Mirai could go as far as 502 Km on a full tank, comparable to an electric vehicle. As of December, Toyota sold 10,250 Mirais, 60 per cent of them in the US, and a third of them in Japan.

In September,

SAIC Motor launched its EUNIQ7a seven-seat multi-purpose vehicle that runs on fuel cells, selling it for between 299,800 yuan and 399,800 yuan after subsidies of up to 400,000 yuan.

“After several false starts, the hydrogen economy has reached prime time,” according to a Sanford Bernstein report. “While hydrogen is not yet cost competitive with other energy sources, the anticipated over 50 per cent reduction in hydrogen production cost to less than US$2 a kg and 80 per cent reduction in fuel cell costs [in the next 30 years] will be a game changer.”

A Mirai fuell cell vehicle (FCV) produced by Toyota Motor. Photo: Wikipedia

Fuel cells could make up 10 per cent of China’s energy consumption by 2050, according to the projection by the China Hydrogen Alliance, an industry guild. Bernstein puts it at 11 per cent. To reach that goal, China is aiming to have 1 million fuel cell vehicles on the roads by 2030, served by 1,000 refuelling stations around the nation, according to a road map published in 2016 by an advisory committee of the Society of Automotive Engineers of China.

Such an expanded network would be a game-changer for Wu Dong, who drives fuel-cell trucks for Qingliqingwei.

“The biggest drawback of driving hydrogen-fuelled trucks is the range,” said Wu. “We have to visit the refuelling station frequently. Otherwise, the truck runs as smoothly as one running on an internal combustion engine.”

An undated photograph of a hydrogen refuelling station at Anting in Shanghai’s Jiading district. Photo Handout/Archetype Group

In China’s commercial hub of Shanghai, an experiment has been ongoing for more than a decade to promote fuel cells. At the Anting refuelling station in Jiading district, first set up in 2007, five trucks were queuing up on a recent Wednesday to top up their tanks with liquid hydrogen. Each refuel took about 10 minutes to complete.

Shanghai’s government plans to expand its network of fuelling stations to 100, from the current four, capable of serving as many as 10,000 vehicles by 2023, People’s Daily reported in September, citing Zhang Jianming, deputy director of Shanghai Economy and Information Technology Commission.

And the government is throwing more subsidies at the sector, offering 240,000 yuan for every fuel-cell passenger car, and up to 400,000 yuan per truck. These direct subsidies came to halt in April. To better incentivise the industry to work harder on cost reduction to make hydrogen vehicles more affordable, the government announced a four-year programme in September to subsidise up to 1.7 billion yuan to teams of companies involved all along the chain, from materials to refuelling stations. To qualify, the minimum target is annual sales of 1,000 vehicles, each travelling 30,000 km on average, with annual output of 5,000 tonnes of hydrogen at no more than 35 yuan per kilogram.

The world’s largest carbon dioxide emitters. SCMP Graphics

“This policy offers extra support for domestic technological breakthroughs and manufacturing of core components,” said Western Securities’ analysts Wang Guanqiao and Yu Jiaying. “It especially favours the development of the long-distance and mid-to-heavy duty truck segments that electric vehicles can hardly penetrate.”

Hydrogen is currently produced mainly through chemical processes that break down coal or natural gas, at around US$1.5 for each kilogram of the gas. Once carbon emission quotas are handed down, costly facilities will have to be installed to store carbon dioxide.

It can also be produced through electrolysis, using electricity to split water into hydrogen and oxygen. If renewable power is used, the so-called “green hydrogen” produced is almost free of carbon emission, costing about US$3 per kilogram using renewable energy.

“Existing subsidies and the rental income are not enough to support a wide use of hydrogen-powered vehicles,” said Qingliqingwei’s vice-president Li. “We are expecting the governments to make more preferential policies [to promote hydrogen-powered vehicles].”

China’s annual carbon dioxide emission has picked up after flattening between 2013 and 2016. SCMP Graphics

The average global production cost of green hydrogen is around US$4.7 per kilogram, with China as the cost-leader in the nascent industry, Sanford Bernstein’s analysts said. They estimated the global cost to fall to US$2.3 by 2030 and US$1.4 by 2050.

China is already the world’s largest hydrogen producer with annual output of 21 million tonnes, just over half used by oil refineries mainly to lower the sulphur content of diesel fuel. Output could triple to 60 million tonnes by 2050.

China is not the only country pursuing green hydrogen, whose global production could surge seven-fold by 2070 from last year’s 75 million tonnes, according to the International Energy Agency.

Several companies – most notably with projects in coastal desert regions in Australia and Saudi Arabia – are studying feasibility of green hydrogen and ammonia plants with targets to start production by the mid-2020s. They include the oil and gas giant BP and US industrial gas giant Air Products & Chemicals.

Battery cost and range of electric vehicle projections. SCMP Graphics

Fuel cells may also benefit from a mandatory nationwide carbon emission quota and trading scheme due in the next few years, which will result in higher costs of diesel and petroleum used by trucks.

For the pioneers and early adopters of hydrogen fuel cells, their day in the sun has finally arrived. Yu Zhuoping, dean of the College of Automotive Engineering at Shanghai-based Tongji University, was a partner with the Shanghai government in developing the city’s first refuelling station a decade ago.

“It was only a pilot programme to develop hydrogen-powered vehicles and refuelling stations at a rudimentary stage,” he said. “But since clean energy use is of strategic importance now with massive government support, we will naturally see a rapid growth of the industry soon.”

Still, subsidies are needed to promote the use of the clean energy.

“Without a scale, no businesses will be able to make profits or break even,” he said. “It will be some time before government subsidies to support the operation of the vehicles and stations are cancelled.”

This story, originally published by South China Morning Post, has been shared as part of World News Day 2021, a global campaign to highlight the critical role of fact-based journalism in providing trustworthy news and information in service of humanity. #JournalismMatters.

China looks to capitalism to turn 2060 carbon neutral goal into reality

China’s President Xi Jinping pulled a surprise at the United Nations in September when he committed the world’s biggest energy user and greenhouse gases emitter to a “carbon neutral” goal by 2060, becoming only the second major economy to do so.

China emits more carbon dioxide, a by-product of fossil fuels and industries, than the United States and Europe combined, at a rate that tripled in the past two decades amid the country’s breakneck economic growth as a World Trade Organization member. The 2060 goal, along with a target for carbon emissions to peak before 2030, is critical to put the world on track to meet the 2016 Paris Agreement of capping global warming at 1.5 degrees Celsius by 2100.

To reach Xi’s target, China must wean the planet’s second-largest economy – which burns half of the world’s coal, and imports more oil and natural gas than anywhere else – off fossil fuels. It’s an ambition that may cost US$5.5 trillion over the next few decades as carbon is removed or offset in energy production, heavy industry, buildings, transport and agriculture, involving technology barely used today, according to Sanford C. Bernstein’s estimate.

“Although this is a 40-year [goal], the target is so ambitious that we will have to start immediately,” said Thomas Palme, who leads Boston Consulting Group’s social impact practice in China. “China is already doing a lot, but it needs a step-change to get on the path of what President Xi has announced.”

A man doing his morning exercises in front of chimney stacks across the Songhua River in Jilin province on February 24, 2013. Photo: Reuters

The next key step would be for China to launch a long-awaited national carbon emissions quota trading scheme, a cornerstone policy that can turn Xi’s pledge into a deliverable reality. It is one of the most effective tools, besides green financing products, that uses market forces to put a price, or financial penalty, on carbon emission. A carbon futures exchange is due for commencement this year in Guangzhou, augmenting the brisk transactions of emission certificates that had been ongoing in the Guangdong provincial capital since 2013.

“While many policies have been implemented and proven to produce effective results in certain sectors, few [have] effects across sectors,” wrote Beijing-based consultancy SinoCarbon Innovation & Investment’s analysts Chen Zhibin and Yu Jiahui. “Emissions trading system (ETS) stands out, as it covers all major sectors [that] have the strongest cross-sector abatement potential.”
China generated more carbon dioxide in 2019 than the United States and the European Union combined. SCMP Graphics

ETS directs polluters to find the most cost-efficient way to cut emissions. China’s national ETS will initially cover coal and gas-fired electricity generators, before expanding to seven pollution-prone industries: petrochemical, chemical, construction materials, steel, non-ferrous metals, paper and domestic aviation.

Nearly 1,700 of these carbon emitters, each with at least 26,000 tonnes of annual carbon dioxide emissions, will initially be allocated free quotas based on their historical volumes. Companies that need to surpass their emission quota must buy additional permits to discharge, and such payments can be used to finance government initiatives in emission abatement.

China’s annual growth rate in carbon dioxide emission has already flattened since 2013 at less than 2 per cent, down from the 8.2 per cent average in the previous 10 years, according to the Our World in Data website in the UK. Still, the Chinese ETS is likely to cap an estimated 3.3 billion tonnes of annual carbon dioxide emissions as soon as it is launched, 80 per cent more than the 15-year-old peer by the European Union, the world’s oldest and largest such system.

China’s annual carbon dioxide emission has picked up after flattening between 2013 and 2016. SCMP Graphics

Yet, Beijing has not given a launch date, raising concern that the ETS’ 2020 launch date – set three years ago – may be delayed again due to the coronavirus pandemic and its debilitating effect on the global economy.

“The 14th five-year plan (2021-25) will be a landmark period for the establishment of China’s nationwide carbon market, with regional pilots transitioning to a unified national market, single-industry participation expanding to multiple sectors,” said Li Gao, head of the climate change department at the Ministry of Ecology and Environment.

China’s national ETS incorporates lessons learned from pilot schemes set up in 2013 in Beijing, Shanghai, Tianjin, Chongqing, Shenzhen, Guangdong and Hubei.

Together, the pilots involved close to 3,000 enterprises from over 20 industries trading more than 400 million tonnes of carbon emission permits valued at 9 billion yuan (US$1.36 billion).

Data accuracy is vital in an effective carbon market because the financial penalty for emission has to be high enough to drive abatement.

“Collecting and aggregating the right data accurately is not simple because different facilities may have different carbon intensities, depending on where you buy the coal and its energy content for example,” said Chan Wai-Shin, HSBC’s global co-head of environmental, social and governance research.

China is issuing more green bonds than ever before. SCMP Graphics

The data accuracy challenge is not unique to China. South Korea gave companies five years to set up a data collection system before rolling out carbon trading.

Another linchpin for the ETS is the methodology for allocating emissions quotas. On this score, the Chinese government has given few details, with the consultation circular on the provisional trading rules saying it would take into account the national emission goals, economic growth and industry structure adjustments.

The ETS may gradually transition from allowances based on a polluter’s production level to one with an absolute cap, said Ma Jun, director of the non-profit Institute of Public and Environmental Affairs in Beijing.

“The cap should be clear for each plant’s emissions, so that we can effectively promote carbon trading and cut emissions,” Ma said.

The impending transitioning of trading currently imposed on certain firms – and done on a regional basis via pilot exchanges – to the new industry-wide national trading platform will be a policy challenge.

“Participating companies in cities with pilot ETS programmes are facing an increasingly higher bar for free emission quotas and limited room for further reduction, while non-participating players may have advantages as later comers,” said a spokesperson at the Shanghai office of German chemical firm Covestro which faces the transition.

The world needs to price carbon at more than US$40 a tonne to reach the tipping point for greenhouse gas abatement to pick up pace, said Richard Mattison, CEO of Trucost, the environmental risk analysis unit of S&P Global. That bar would rise to between US$50 and US$100 per tonne next decade, 13 leading economists supported by the World Bank said in a 2017 study.

For now, carbon emissions are changing hands at below the consensus price, with the ETS permits trading at 27 (US$32) per tonne, while prices among China’s seven pilot schemes ranged between US$1.4 and US$11 per tonne, according to the inter-governmental initiative International Carbon Action Partnership.

“There is a very big gap between the price that carbon emissions are currently traded at, and the effective carbon price needed to drive emissions reduction in line with the commitments under the Paris Agreement,” Mattison said.

Initial emission quotas need to be aggressively handed out to achieve the tipping point, he said, adding that Europe’s allocation equivalent to 90 per cent or more of companies’ emission volumes had resulted in modest reductions over 15 years.

“The EU aims to halve its carbon emissions in four decades by 2030, while China has pledged to cut it to near zero in the next four decades,” he said.

The Best & Worst Countries for Climate Change Policy. Sources: New Climate Institute, the Climate Action Network and German Watch. Statista Graphics

If investors, speculators and traders are allowed to trade futures and derivative products, they can play a role in setting carbon price and boosting trading volume, said Zhang Jianyu, chief representative of the China programme of New York-based environmental non-government organisation Environmental Defense Fund, which advises China on the launch of its national carbon market.

“The Chinese government intends to use futures to promote investment and financing to indirectly facilitate efforts to reduce carbon emission,” said Cai Yongmei, a partner of international law firm Simmons & Simmons who advises on derivatives and structured products deals.

Green bonds, green loans and carbon tax could also play a big part in financing low carbon energy and manufacturing technologies and infrastructure.

China was the world’s biggest green bonds issuer last year, printing 386 billion yuan of papers, a third higher than in 2018, although only around half met international standards, according to London-based non-profit Climate Bonds Initiative (CBI).

To narrow the gap, the People’s Bank of China this year revised issuance guidelines to remove “clean utilisation of fossil fuels” from the list of projects that can qualify as “green,” but the central bank still allows up to half of the proceeds to be used as “general working capital” not earmarked for specific green projects, well above 5 per cent of the CBI’s standards.

Chinese guidelines are expected to converge with global standards in the long term, which will open up domestic green bonds to foreign investors, said Fitch Ratings. Some foreign firms issued green bonds linking interest payments to attainment of sustainability targets, which could have showed a different way for Chinese utility-sector green paper issuers to improve sustainability achievement, said Andy Chang, fixed income credit analyst at JP Morgan Asset Management.

Secretary for Financial Services and the Treasury Christopher Hui Ching-yu, at the Central Government Offices, Tamar on 5 June. 2020. Photo: Jonathan Wong

Hong Kong is well placed to seize the opportunity to act as a bridge between international investors and mainland Chinese firms seeking to raise funds for low carbon projects, said Christopher Hui Ching-yu, Secretary for Financial Services and the Treasury.

“Hong Kong, as a comprehensive international financial centre and a global yuan business hub, is well-equipped to develop into a leading regional hub for green and sustainable finance,” he said in written comments to South China Morning Post.

The city’s rules on environment, social and governance matters for listed firms would also put it in good stead as a green finance hub, said Deloitte China’s risk advisory director Herbert Yung.

Although Hong Kong has yet to set a long-term goal to cap carbon emission, when it does, there will be demand for quotas trading.

Due to the small size of the local market and a lack of carbon trading infrastructure, it should consider joining forces with neighbouring mainland cities to create a common market, said Ma Jun, chairman of Hong Kong Green Finance Association.

The city’s Environment Bureau is working with stakeholders in “setting the direction” for carbon neutrality by 2050, Joseph Chan Ho-lim, Under Secretary for Financial Services and the Treasury told a green finance forum hosted by the association this month.

As the coronavirus pandemic continues to curb global economic activities and carbon emission, the urgency to deploy market-based tools to bolster efforts to fight climate change has not changed, according to HSBC’s Chan.

“Globally, carbon emissions are expected to fall 4 to 7 per cent this year amid the pandemic,” he said. “However, what matters for climate change is the cumulative emissions in the atmosphere … this pandemic may just be a blip in atmospheric concentrations of emissions and will not change the tools used to transition towards a low carbon economy.”

This story, originally published by South China Morning Post, has been shared as part of World News Day 2021, a global campaign to highlight the critical role of fact-based journalism in providing trustworthy news and information in service of humanity. #JournalismMatters.

VIDEO: Hong Kong’s 11-year-old climate activist on a mission to help save future generations

Lance Lau Hin-yi is the 11-year-old Hong Kong schoolboy who has spent nearly every Friday standing outside the gate of his school before class, raising awareness about climate change.

He says he was inspired by “climate girl” Greta Thunberg, the Swedish activist who is internationally known for challenging world leaders to take immediate action against climate change.

Lance also organises monthly beach clean-ups to promote the concept of sustainable development. He is also a regular speaker at environmental conservation events that push governments and major companies to make climate-conscious decisions and save the Earth for future generations.

SCMP Editorial | Police are not arbiters of who is trustworthy

This editorial first appeared on August 11, 2020. Click here to see the original article on the South China Morning Post’s website. 

  • By barring journalists from some media outlets at its press conferences, the force is only hurting its own, already shaky image

Distrust and suspicion that developed between the media and the police during months of often violent civil unrest are, sadly, far from healed. It resurfaced on Monday during the national security raid on the offices of Apple Daily and the arrests of its owner Jimmy Lai Chee-ying and others. The police operations marked the adoption of a new system under which only journalists from “trusted media outlets” are allowed to report from inside the force’s cordoned off areas. As a result, those barred included foreign wire services and local outlets Stand News and RTHK. The latter was admitted later.

Commissioner Chris Tang Ping-keung has revealed it is a pilot scheme. He defined journalists from “trusted media” as those who had not acted unprofessionally and obstructed officers, and had reported fairly. This is capable of being perceived as highly subjective in practice, and hardly an assurance of objective reporting. Journalists and the public need to know what is meant by “trusted media”. Ahead of the briefing, the force made it known that only selected representatives from “well-known media outlets” would be allowed to attend. In that sense “trusted” might refer to traditional or accredited media. Given that the new policy could undermine press freedom, there is an immediate need for clarification. So it is good to hear that in light of the feedback the police will review their action.

The number of reporters may have been seen as too large to allow them all into the briefing, and the commissioner might have had a point that not everyone wearing the yellow media vests was a reporter. But the “trusted” test does raise issues for press freedom, which is enshrined in the Basic Law. They are articulated in comments by a number of media groups such as the Hong Kong Journalists Association and the News Executives’ Association, which said the admission of only selected journalists to briefings had “further damaged the thin trust between the media and law enforcers”.

It seems the police went into this without taking into account the likely perceptions and optics, which are not helpful to the force, the media or the public. “Trusted media” is a problematic concept. Given the concerns raised, the police should revisit this policy and re-engage news organisations in search of a better solution. After all, the media remain society’s eyes and ears in holding power to account.

Only unmasked protester that stormed LegCo explains July 1 drama

Hundreds of protesters stormed Hong Kong’s Legislative Council on the 22nd anniversary of the city’s handover to Chinese rule on July 1, breaking glass panels, windows, dismantling furniture, daubing graffiti in the chamber and attempting to put up the British colonial flag.

Brian Leung Kai-ping, 25, was among those who entered the legislature – and the only one who has openly revealed his identity that night.

The storming made international headlines and marked a “quantum leap” for the entire movement against the extradition bill and the city’s push for democracy, he said.

In an exclusive interview with the South China Morning Post, via a Telegram phone call – the social networking tool widely used in the movement – he explained his actions and why he had no regrets.

Watch South China Morning Post’s video here.

Where were you on Monday (July 1) and what was your role?

I skipped another major rally to stay around the Legislative Council complex for nearly eight hours, keeping a close eye on every move. Like most protesters, we had been waiting for this opportunity to make a statement inside Legco. There was, of course, no clear consensus at the time how long we should occupy it, which underlined the very nature of the extradition bill movement – decentralised, leaderless and spontaneous. We were improvising.

After an hour and a half, reporters observed you removing your mask and asking everyone to stay. Why did you do that?

At the time, more and more people, wary of police countermoves, started to leave the Legco chamber.

I made a risky move to step on the desk of one lawmaker, removed my face mask, and shouted at the top of my voice: “The more people here, the safer we are. Let’s stay and occupy the chamber, we can’t lose no more.”

Some protesters warned me not to remove my mask, but I felt it was the defining moment of the night. I felt we ought to appeal to the crowds to join in and form a barrier and support those inside the Legco complex. No one could tell when we would step foot in Legco again.

As police were drawing closer and closer, after some deliberation, most decided to end the siege. I volunteered to be in front of the camera to read out the key demands of protesters in the chamber.

The last thing I wished to see, after all the action taken, was to have no clear demands put on the table.

If we didn’t do that, the public might only remember the vandalism and point fingers at us as a mob. That would also hand the government a convenient reason to prosecute each and every one of us, which would mark yet another setback to civil society like in the 2014 Occupy movement.

But weren’t the actions of the protesters that day, along with the damage done to Legco, violent?

Be clear that any damage was only done to the Legco building or properties within, not so much to any person or even police officers. Protesters have been restrained in their use of force.

It is worthwhile to note the graffiti was not merely vandalising. For instance, protesters spray-painted and covered up “People’s Republic of China”, leaving behind only “Hong Kong Special Administrative Region”. That is a clear mistrust of the two-systems principle. Most of the other graffiti was about commemorating the three lives lost in this movement.

So they were only telling the public that this was not just mob action but to register the accumulated frustrations of an unfair electoral system. Compared with the death of three people who used their lives to deliver a message, does the damage to several glass frames even count?

So what was the young protesters’ state of mind in being part of the July 1 protest and other sieges?

The pursuit of freedom and democracy is what fundamentally drove hundreds of protesters on Monday into Legco, the same goal shared by hundreds of thousands who took to the streets earlier. The government has thus far turned a blind eye to our demands, and there was no real change nor real actions tabled. If Carrie Lam claimed herself ready to be more humble, why did she not make clear the suspended bill was completely withdrawn, a move that could easily settle the controversy?

Or, the government could choose not to charge protesters arrested earlier, which we saw happened to those in Taiwan’s Sunflower movement. Or, it could task an independent inquiry into police’s excessive use of force.
Any of these would be welcomed by the civil society, but the government refused to take these calls on board.

You mentioned the three deaths. These are suicide cases. Isn’t it wrong to glamorise them and call them martyrs?

It was evident that protesters were so outraged that three lives were sacrificed throughout this movement, when peaceful means were almost all exhausted. Young protesters were at a point of desperation.

We were not in a position to pass any judgment on their decisions but what the protesters could do was to honour their faith.

One may well argue that time is supposed to be on young people’s side. But with the disqualification and jailing of pro-democracy lawmakers and activists after 2014 “umbrella movement”, the entire generation was banned from the political system.
We do not have the luxury of our parents to settle down in another place. Nor do we have the burden of a 30-year mortgage to worry about. Young people have nothing to lose, their only hope is to stay safe to see the sun rise, and hope to join protest another day. We want democracy, now.

Can you share your personal background, your schooling, your parents?

Hong Kong’s social movement has always inspired my academic study. After graduating from the University of Hong Kong with a dual degree in law and politics, I chose for my master’s thesis the topic of how civil society could help democratic transition and prevent authoritarian regimes.

I have always aspired to become a professor and return to teach Hong Kong students to be socially aware in the future.

I really don’t want to mention my family, as I don’t think that’s helpful.

What’s next for the movement? And what’s next for you? And are you in Hong Kong?

Civil society has already exhausted every possible peaceful means, and it is not trying to exercise violence for the sake of violence. The government needs to reflect on its response.

For my own part, I am not sure whether I can fly to the United States this September to continue my PhD studies in political science at the University of Washington. I am still considering various options, and seeking as much advice as I can.

While I am not yet a political dissident in exile, that is a real threat ahead of me and my peers if the government chooses to press charges against all those who entered Legco, who played their part in this protest.

I am blessed to receive legal advice and other recommendations from my social network, while remaining financially independent through a role as a teaching assistant. For those who may be 17 and 18 years old, there could be real consequences and it is worrying.

This story by Alvin Lum was originally published by the South China Morning Post on July 5. Read more here .

Alvin Lum is an award-winning political journalist specialising in Hong Kong politics and the city’s justice system. He sought to understand the reason why protesters stormed the council even after the government had shelved the bill. This led him to contact Brian, who had left Hong Kong right after the movement, through a mutual acquaintance.Published on Jul 5, his exclusive interview was a scoop, Alvin being the first journalist to speak to the only protest leader who was willing to take off his mask during the trashing of Hong Kong’s Legislative Council. “That interview, when it was published, helped fill the void why protesters still need to resort to this kind of more radical measures which has never happened before in Hong Kong,” Alvin said. Tammy Tam, editor-in-chief, South China Morning Post added: “Alvin’s exclusive interview with Brian Leung reflects the vital role SCMP has played in independently covering and revealing insights into an important chapter of this still ongoing unprecedented political crisis in our city. We will continue in our unwavering commitment to report these developments with professionalism and courage.”