China is a double-edged sword:
it is the world-leading renewables
developer, installing more than
double the gigawatt (GW) capacity of
its nearest competitor over the past
decade both in terms of wind and
solar power (Figure 1), but at the
same time it has seen the highest
coal capacity additions over the same
period – nearly quadruple that seen
in India. The Chinese government
announced it is aiming to reach peak
coal emissions by the end of the
current five-year plan ending in 2025,
but new coal plants with 40-year life
spans do not fit well with a 2060 net
zero emissions target. China is a
country of great progress and great
opportunity, but also of contradictions.
Figure 1: China’s renewable output
Source: Bloomberg New Energy Finance, 2020.
In absolute terms, China is the
biggest contributor to global emissions
– but this is mostly due to its size.
When looking at emissions on a per
person basis it is much lower than the
US and roughly in line with the EU – the
big difference, however, is that after
more than a century of rising emissions,
the EU is now on a downward trajectory
while China’s are not (Figure 2). Another
point to consider with country level
emissions is that these are production based
emissions figures.
Figure 2: Comparing emissions
Source: Our world in data, 2020.
This means that the emissions generated from theproduction of Chinese-made goods
which are consumed in the EU or the
US is captured in China’s footprint.
If we looked at per capita consumption
emissions, China would likely look
much better than the EU, the US and
the UK.
With China’s new net zero targets
and its existing leadership in the
renewables space – the country
produces 70% of the world’s solar
panels, half the electric vehicles
and has a large share of a lot of
the materials that underpin battery
technology – it is unsurprising that
investors have been taking a closer
look at the Chinese renewables
market. Increasing investor attention,
especially from ESG-conscious
investors, has driven a rise in
corporate attention to sustainability
disclosure. The use of forced labour
in supply chains is a particular area
of focus and risk currently.
With China’s new net zero targets
and its existing leadership in the
renewables space – the country
produces 70% of the world’s solar
panels, half the electric vehicles
and has a large share of a lot of
the materials that underpin battery
technology – it is unsurprising that
investors have been taking a closer
look at the Chinese renewables
market. Increasing investor attention,
especially from ESG-conscious
investors, has driven a rise in
corporate attention to sustainability
disclosure. The use of forced labour
in supply chains is a particular area
of focus and risk currently.
Towards the end of 2021 it is
expected that a more detailed
decarbonisation roadmap will be
published. This could solve some of
the coal conundrums and is likely
to focus on three key areas: carbon
pricing, green finance and tech
investment. These developments
have the potential to accelerate the
already bullish scenario.
The market size of the opportunity
is huge. The International Renewable
Energy Agency (IRENA) predict that
by 2050 8,519 GW of solar would
be required in a <2 °C degrees of
warming scenario in line with the
Paris agreement – this represents
an 18x increase on 2018 levels.
Asia, and mostly China, is predicted
to account for more than 50% of total
installed solar power compared to
20% in North America and 10% in
Europe.
With the recent announcements
indicating a step change in the focus
on energy transition, the improving
disclosure standards and the
significant opportunity set, we believe
the Chinese market could be one
to watch. Although, importantly for
international ESG investors, this will
be conditional on ensuring that supply
chains have no exposure to the Uyghur
human rights abuses in Xinjiang.
