Also by EU-China Energy Cooperation
Platform Project
2020
EU China Energy Magazine Spring Double Issue
EU-China Energy Magazine Summer Issue
中欧能源杂志夏季刊
EU-China Energy Magazine Autumn Issue
中欧能源杂志秋季刊
EU-China Energy Magazine 2020 Christmas Double Issue
中欧能源杂志2020圣诞节双期刊
2021
EU-China Energy Magazine 2021 Spring Double Issue
中欧能源杂志2021春季双期刊
EU-China Energy Magazine 2021 Summer Issue
中欧能源杂志2021夏季期刊
Joint Statement Report Series
Electricity Markets and Systems in the EU and China: Towards Better
Integration of Clean Energy Sources
中欧能源系统整合间歇性可再生能源 - 政策考量
Supporting the Construction of Renewable Generation in EU and China:
Policy Considerations
中欧电力市场和电力系统 - 更好地整合清洁能源资源
支持中欧可再生能源发电建设: 政策考量
Integration of Variable Renewables in the Energy System of the EU and
China: Policy Considerations

Table of Contents
Also By EU-China Energy Cooperation Platform Project
EU-China Energy Magazine 2021 Summer Issue
Team Leader’s Letter
1.  Making EU energy policy fit for climate targets
2.  Ramping-up EU hydrogen markets with effective regulation
3.  EU’s Carbon Border Adjustment Mechanism lacks the detail to drive
industry’s relocation near clean energy
4.  Germany: will the end of feed-in tariffs mean the end of citizens-as-
energy-producers
5.  China’s energy system: record renewables expansion, but coal still
dominates
6.  Green Finance – A new era: China’s Green Bond Endorsed Project
Catalogue and the EU taxonomy
7.  Europe's Carbon Capture pipeline: 40+ projects. But where's the policy
support and market creation?
8.  The Carbon Neutrality Global Challenge
9.  The role of research and innovation for China’s 30-60 climate goals –
What is new and what is key?
10. Nature Inspired Innovation for Sustainable Energy
11. Aluminium-air batteries – technology of the future?

12. A circular economy for waste solar PV materials: what needs to be done

to get it started

13. News in Brief

Also By EU-China Energy Cooperation Platform Project

Team Leader’s Letter

Dear All,

With summer in full swing, deadly flooding is raging across EU and China.

It is clear we are all in the same boat, and nowhere is immune to the effects

of climate change. Our thoughts are with the people of Europe and China

during this dreadful time.

COVID-19 continues to affect our work. Personal interaction between the

EU and China remains very difficult. We hope that our magazine will go

some way towards meeting the needs of the energy community in EU and

China for news and views.

However, we can deliver some good news to our readers. Our website is

now available both in English and Chinese. Have a look here.

There have also been a few changes in our team. We say goodbye to our

junior postgraduate fellows Fatima Zarah Ainou, Markus Fischer and Brian

(Xinchun) Yang who have begun new jobs after their graduation. Fatima

has joined the APEC Sustainable Energy Center (APSEC) as an associate

researcher, Markus has successfully applied to the Graduate Programme at

Orsted, and Brian is now an Investment & Research Associate at the Third

Derivative team, a joint venture between the Rocky Mountain Institute

(RMI) and New Energy Nexus. Our best wishes to them in their new roles.

We welcome Susanna Farrell and Polly James as junior fellows, and

Alliance Niyigena as junior postgraduate fellow. Susanna is a mathematics

student at Sheffield University, Polly is a social policy and politics

undergraduate at Leeds University and Alliance will be studying global

affairs at Tsinghua University.

Among the articles in this issue, I would like to pick out just a few:

Hydrogen regulation in the EU; the EU’s Carbon Border adjustment; EU

taxonomy and China Green Bonds; CCS projects in the EU; Aluminium-

Air battery technology; and the role of R&D in reaching China’s 30-60

climate goals. We welcome all feedback!

Last but not least, I would like to say a big thank you to our demanding

editors, Daisy Chi and Helen Farrell for once again delivering a very

informative issue.

Best regards,

Flora Kan

ECECP Team Leader

1. Making EU energy policy fit for climate

targets

On 14 July 2021, the European Commission adopted the ‘Fit for 55’

package of legislative proposals, aimed at putting the European Union’s

economy and society on the right trajectory for a 55% reduction in GHG

emissions by 2030. This is arguably the most comprehensive set of

proposals the Commission has ever presented on climate and energy,

providing the basis for new jobs and a resilient and sustainable European

economy for the future. It prepares the ground for a fundamental

transformation of the EU economy in a fair, cost-efficient and competitive

way

[1]

Actions relating to the energy sector are key components of the package. In

essence, there will be greater support for renewable energy use and energy

savings, the stock of new energy vehicles will grow steadily and cleaner

transport fuels will be given priority. Energy taxation will align with the

EU’s climate and environmental objectives. Investment and innovation will

receive a big boost, to enable transition in industry and other sectors.

The energy sector must be the first to transform, before decarbonisation

kicks in across all sectors, and this calls for decisive action on four fronts:

raising the levels of renewable electricity.

replacing natural gas with renewable gases, such as hydrogen.

ensuring a sustainable contribution of bioenergy.

reducing the energy intensity of our economic activities.

The ‘Fit for 55’ package contains two energy proposals that are crucial to

the success of this endeavour: implementation depends essentially on

reshaping the EU’s entire energy system.

The first is step is to revise the renewable energy directive, or RED (first

enacted in 2009 and revised in 2018).

The following key provisions are to be added to the RED.

1. There will be a new headline target - 40% of primary energy

consumption must come from renewables. This may look very

optimistic, but there is reason to believe that it merely reflects reality

on the ground. In 2020, renewable power generation overtook fossil

fuels in the EU. Wind and solar PV now account for 20% of power

generation, compared to 13% from coal-fired power stations. The new

EU target is complemented by specific indicative targets for each

member state in line with the governance model from the clean energy

package. Besides financing from existing instruments, reaching the

target will be based on significant investment from the EU’s Post

Covid Recovery Fund.

2. The RED revision will stimulate a massive deployment of renewables

by promoting corporate power purchase agreements, encouraging

cross border cooperation and easing constraints on permits and

authorisation. The European Commission intends to address the

difficulties faced by member states when applying for permits for

renewables projects. These can delay and restrict projects, thus

undermining the ability to reach the climate targets. Work on a set of

guidance for good practice is set to be finalised no later than 2022. The

focus will also be on removing practical and legal barriers to

investment and on promoting cross border cooperation.

3. The proposal aims to promote integration of renewables in all sectors

of the economy, especially those that are lagging behind, namely

buildings, heating and cooling, transport and industry. Specific sub

targets are set for these sectors.

4. The revised RED will give an additional boost to the hydrogen

industry. To this end, another set of sub targets will be set for the

transport and industry sectors, while putting forward a clear definition

for renewable hydrogen, rules for its certification, as well as for low

carbon hydrogen.

5. Because bioenergy is still an important renewable source for some EU

member states, the RED revision will reinforce the sustainability

criteria for biomass use. Only sustainably produced bioenergy can

contribute to climate targets without creating additional unwanted

pressure on our ecosystems, especially on our forests. Stricter

sustainability criteria and the introduction of no-go areas will limit the

risk of oversupply and safeguard our primary forest, peatland and

grassland. Highly biodiverse forests will be protected. These criteria

will apply to 90% of existing installations as well as all future heat and

power installations larger than 5 MW. State aid for bioenergy will be

subject to far more stringent rules: there is no point in allowing high

quality feedstock or plants that are important for biodiversity to be

used for energy. Last but not least, biomass-based electricity

generation will not receive any more subsidies after 2026.

The Energy Efficiency Directive (EED), which was first established in 2012

and revised in 2018, is to be revised again to include the following

provisions.

1. It will set an explicitly binding target at EU level for both primary and

final energy consumption by 2030. This target is 9% higher than it was

in 2020, and will be complemented by indicative national targets.

Furthermore, the energy savings requirement is to be increased to 1.5%

per year for all member states, which is almost double the current

target. Additional measures are planned that will improve energy

efficiency in the public sector, including renovation of buildings and

green procurement.

2. Actions designed to increase energy efficiency will be geared towards

alleviating the energy poverty that affects millions of EU citizens, by

countering possible energy price increases on vulnerable households.

Public authorities and fuel suppliers will have to act jointly and pay

special attention to those in need, while direct financial support will be

available from the newly established Climate Social Fund.

3. The revised EED enshrines the Energy Efficiency First principle in EU

law, making its application a legal obligation across the board.

Making EU energy ‘fit for 55%’ is not a cheap option: the projected cost

stands at around 14 billion euros per year for solar PV, and 35 billion euros

for wind. In addition, 61 billion euros/year will be required for grid

expansions. Deployment of electrolysers for green hydrogen will probably

cost an additional 40 billion euros over the period 2021-2030.

Despite the cost, the benefits are likely to be great. The EU will grow

stronger and richer. With the creation of a large number of highly paid jobs;

European industry will move into a new era and reassert its technological

leadership, while other sectors will regenerate, based on cleaner and

cheaper electricity.

In the end, Europe’s way of life will have changed for the better, and future

generations will be grateful.

by Octavian Stamate

Counsellor of Climate Action and Energy

Delegation of the European Union to China

2. Ramping-up EU hydrogen markets

with effective regulation

In this article, Walter Boltz, Senior European Energy Advisor, makes the

case for a regulatory framework ‘mostly identical’ to the one so

painstakingly developed for natural gas with a few practical differences –

but this won’t suit everyone of course. What is the best pathway for

designing the net-zero gas system?

The EU is committed to a set of very ambitious overall decarbonisation

targets. The Green Deal, the Fit for 55 packages, the EU Hydrogen– and the

EU Sector Integration Strategy, require full decarbonisation of the EU

energy system by 2050.

To also decarbonise the hard-to-electrify sectors, like energy-intensive

industries, industries that need gaseous feedstock, heavy-duty

transportation, and air transport etc., will require a rapid ramping-up of a

hydrogen market and a decreasing share of (fossil) natural gas.

To achieve this, the European Commission (EC) is currently considering

different forms of regulation for hydrogen markets and networks. The first

set of draft regulatory rules will be released on 14 July 2021, the second one

in October 2021. So far, there is uncertainty on issues like the level of

regulatory intervention (no regulation, light or full regulation) as well as

when regulation should kick in during the hydrogen market ramp-up.

On the consumption side, hydrogen is one of the cleanest fuels, but the

overall carbon footprint depends on the source of hydrogen that determines

its life cycle GHG emissions. The contribution of hydrogen to the

decarbonisation efforts will depend very much on the regulatory framework

that can either accelerate or slow down hydrogen use in different sectors.

Hydrogen needs its investment cycle shortened

A cost-effective, sustainable, rapid development of the EU hydrogen market

and infrastructure is needed to achieve the set decarbonisation targets.

Especially, since full electrification of all sectors that use gas today is not

possible, at least not by 2050. It is obvious that the replacement of fossil gas

by hydrogen (and to a limited amount by biogas) has to happen much faster

than what usual investment cycles would allow.

So, we will need massive political interventions and public support for

accelerating the transition. This, of course, raises the risk that such policy

interventions are based on wrong assumptions, slow down and massively

increase the cost of the needed transformation.

A well-designed regulatory system will accelerate the uptake of hydrogen

and will reduce the societal costs of the EU energy system transformation.

On the contrary, a badly designed, fragmented and confusing regulatory

system with legal uncertainties will slow down investments, create delays

and makes decarbonisation more difficult and costly.

Legal uncertainties are an obstacle to investment

The current lack of investments and speed in ramping up hydrogen

infrastructures and markets is not only due to a lack of available market-

ready technologies and/or investment funding but also due to legal

uncertainties regarding the future regulatory framework for hydrogen. The

frequently changing percentage targets for GHG emission reductions further

jeopardise the regulatory predictability for stakeholders and investors. Well-

intended, but impractical rules like the stringent additionality requirements

for renewable hydrogen will further slow down the development of a

hydrogen market.

Use the existing gas infrastructure

The Internal Energy Market (IEM) objectives of a liquid, competitive and

integrated energy (gas and electricity) market, high security of supply as

well as functioning retail markets are by now achieved in almost all EU

regions. Europe benefits from a well-developed and intermeshed natural gas

infrastructure in most EU Member States as well as a mature EU regulatory

framework. The existing EU gas infrastructure grew over the past sixty

years to a significant size, also with the help of public support. Some of

those assets are already fully depreciated, but still represent a significant

monetary value in the range of 200+ bn Euro just for the gas transport

system in addition to the derived benefits and values of an IEM. We should

strive to make the best use of these assets in the interest of all EU citizens.

The decarbonised energy system in 2050 and beyond will use less gas,

which implies that parts of today’s gas infrastructure will most likely not be

needed in the future. How much of the infrastructure will be converted to

hydrogen use depends heavily on the regulatory framework and the rules

enabling such a re-purposing.

Policy decisions on the legal and regulatory framework for the

transformation of the natural gas market and infrastructure to the future

hydrogen market will determine if we are successful in decarbonising this

part of the energy system and at what cost. What Europe needs now in this

context is a pragmatic and practical regulatory framework, that provides a

high degree of legal and practical certainty as well as some flexibility on

timing, technology and applications where hydrogen can be used.

Premature exclusions of hydrogen application areas or fixing certain

technologies as winners or losers will most likely turn out to be costly

mistakes. Very rarely have policymakers been correct in predicting

technological developments correctly.

...and the gas regulatory framework

Looking back at the painfully slow and complex opening of the European

gas market, it seems the best choice of a regulatory framework for hydrogen

is one that is mostly identical to natural gas regulations with a few

adjustments to reflect structural differences. Given the infancy of the

hydrogen market, we will need the possibility to grant derogations and

exemptions from some rules over the next 10 – 15 years to enable

investments to happen now, even if they do not fully conform to the rules

that come later.

This approach would provide legal certainty to everyone in the market as

the rules for the gas market are well known and it would be clear how the

final market structure will look like. Also, the regulatory system is proven

to work in practice, including under stress situations, something that would

need to be closely checked and monitored for any set of significantly

different regulatory rules for hydrogen. As we have seen in the gas market,

it can take several rounds of legislative efforts and many years until a well

balanced and workable set of rules are in place.

Further benefits would be an easier conversion of gas infrastructures to

hydrogen use within the existing TSOs and DSOs regulatory framework (or

even regulated asset bases) and the avoidance of complex valuation

questions and transfer rules between gas and hydrogen networks.

Finally, a regulatory framework, not only for hydrogen but also for system

integration between the electricity and the hydrogen sector, is needed

urgently. Not least since an important argument for establishing a hydrogen

system is the need to store large amounts of energy long term, something

that, to our current knowledge, can only be achieved with molecules like

hydrogen or gas and not with currently known electric battery technologies.

by Walter Boltz

Re-published with permission from Energy Post

3. EU’s Carbon Border Adjustment

Mechanism lacks the detail to drive

industry’s relocation near clean energy

High emissions industries should be relocated to where the cheap clean

energy is. So long as the shipping costs (in terms of price and emissions)

aren’t prohibitively high, those locations can be anywhere in the world. To

get the calculations right, Carbon Border Adjustment Mechanisms

(accounting for the emissions of imported goods) must be harmonised

internationally. They must also – crucially – count all relevant emissions.

But the EU’s draft plans, leaked earlier this month, don’t do this, say Dolf

Gielen, Paul Durrant, Barbara Jinks and Francisco Boshell at IRENA. The

authors give examples (petrochemicals and hydrogen are left out, recycled

and pure steel should be differentiated, transparency should not be

undermined by proprietary information). The authors explain and quantify

the main relocation drivers for green hydrogen, ammonia, methane,

aluminium, iron and more. Not everything will benefit, like cement. It’s

already happening and will continue. But global emissions reduction

strategies don’t take into sufficient account these relocation opportunities,

say the authors. It should be a critical mechanism in the policy toolbox for

future net-zero strategies. That means linking the discussions of carbon

accounting for green commodities with clean energy generation.

The production of commodities such as iron, steel, chemicals,

petrochemicals, non-ferrous metals and ceramic materials is energy and

carbon intensive. In recent years, new energy-intensive services have also

emerged, such as data centres and bitcoin mining operations. This creates

an increasing challenge to reduce global emissions in the race to meet the

Paris Targets. The number of industries where energy and fossil fuel

feedstock are a sufficiently key cost component are relatively few in

number, but their impact on global energy use and CO2 emissions is

significant, accounting for around two thirds of industrial energy use.

Carbon leakage: a barrier to climate policies

Carbon leakage – the relocation of carbon-intensive activities to countries

with lax policy regimes or the increased import of carbon-intensive

commodities in preference to national production – has been a barrier for

effective climate policies and global emissions reduction for decades.

The EU is considering the introduction of a Carbon Border Adjustment

Mechanism (CBAM) no later than 2023. The European Commission is

expected to present a proposal soon and a draft was leaked in early June.

Importers would have to buy CBAM certificates for an amount that is

calculated by multiplying import volumes and embedded emissions with a

CBAM price. The CBAM price would be calculated as the average of the

closing weekly prices of all auctions of EU ETS allowances. The CBAM

would apply to electricity, steel, cement, fertilisers and aluminium but

leaves out some key categories including petrochemical products and

hydrogen. The methodology for calculating the embedded emissions is not

yet public but the United States and China are amongst those who have

already expressed their concerns.

Calculating the actual carbon content

The calculation of the actual carbon content of the product is a key issue to

be resolved. Recycled steel for example is very different from primary steel

in terms of embedded emissions but the difference is not visible in customs

categorisations. Energy and carbon benchmarking systems exist for various

industrial commodities but these contain proprietary information and cannot

be used for public purposes – this would cause issues of transparency.

Renewable energy certificate (REC) systems are well established and

enable end consumers of electricity to validate the electricity that has been

generated from renewable sources. A number of such systems are in

operation, including the European system of Guarantees of Origin (GO),

and many issuing bodies for GOs are members of the European Association

of Issuing Bodies (AIB). Rules for disclosure and certificates in new sectors

(such as renewable synthetic gases) are also under preparation (including

for hydrogen and biomethane).

As Europe is developing its carbon standards and certification systems,

other regions are also developing their own. There is a risk that the

proliferation of separate systems will complicate international trade if they

are not well aligned. International standards are usually developed under the

auspices of international organisations such as the International

Organization for Standardization (ISO) or the International Electrotechnical

Commission, however the development of such multi-national standards

can take many years.

There is therefore an urgent need to harmonise and accelerate the discussion

on carbon accounting across green commodities, clean hydrogen and

electricity.

Relocation of industry can reduce carbon leakage

Location choices for energy-intensive industry may change as energy policy

priorities change. Countries accounting for around 70% of global CO2

emissions have already subscribed to the goal of net-zero emissions by mid-

century. As more and more countries join, industry will need to consider

access to low-cost, clean energy to stay competitive.

Previous studies have suggested that leakage effects can be mitigated

through the introduction of technical emission mitigation strategies,

provided sufficient time is given for such transition – see for example

Gielen; Ismer and Neuhoff; Gąska et al.; and Neuhoff et al. These analyses

mainly focused on loss of competitiveness and carbon leakage as

complicating factors in the decarbonisation of carbon-intensive industries.

However, since these were published, the emergence of renewable energy

solutions as economically viable alternatives has created an opportunity to

change the debate and break the political deadlock.

Location drivers

Location choice is driven by many factors in addition to proximity to

resources and consumers, including the availability of a competitive, skilled

labour force and favourable political and regulatory environments, but the

cost of energy can play a significant role. The relocation of energy-

consuming processes therefore to areas with available low-cost renewable

energy resources could yield significant emissions reductions whilst

satisfying energy demand. And, since many areas with low-cost renewable

resources are located in remote parts of the world, new economic activity in

remote locations could also have positive socio-economic impacts.

There are past examples of this, for example aluminium smelters having

been typically sited close to hydropower dams with large amounts of low-

cost electricity (which is also renewable) in places as diverse as Canada,

Mozambique, Russia, Suriname and Venezuela. Ammonia plants have been

located close to sources of low-cost natural gas, for example in Russia,

Norway or the Middle East. These examples show that remoteness is not an

impediment for location choice if the business case is favourable.

Similar choices continue to be made; Indonesia has identified part of its

remote hydropower potential as a driver for industrialisation, remote areas

in the deserts of Australia and the Middle East are being developed for

green hydrogen production and bitcoin mining operations are being located

in areas with low-cost electricity such as Iceland, China and northern USA

(close to hydropower plants).

It’s already happening: relocation to where the

cheap clean energy is

Signs of an increase in locating industry closer to cheaper renewable

resources are emerging. Green ammonia (produced from green hydrogen) is

becoming economically feasible. Announced projects for renewable

ammonia currently total 17 Mt ammonia per annum by 2030. This is about

9% of the current global ammonia production of around 183 Mt produced

per annum. Approximately thirty commercial-scale plants are in

development, mainly in places with very low-cost wind and solar potential

such as in remote parts of Australia, Chile, Oman and Saudi Arabia. IRENA

and the Ammonia Energy Association are jointly assessing the

opportunities for green ammonia in more detail.

Renewable methanol (produced either from biomass or green hydrogen) can

also play a role as a key building block in the chemicals industry to produce

synthetic organic materials and fuel. Access to cheap feedstock will be

critical for this industry.

Relocation is considered economically viable where the energy cost

benefits exceed the additional shipping cost. The data in table 1 indicates

that relocation may be beneficial for aluminium, ammonia, iron, jet fuel and

methanol.

For hydrogen the benefits and cost balance out and for cement, relocation

seems generally not to be economically viable as additional shipping costs

exceed the energy cost benefit (and consideration of process emissions

would show higher vulnerability). Green commodities have much lower

shipping costs than hydrogen, therefore location choice may favour

manufacturing closer to the hydrogen production sites.

Note: Energy cost benefits have been calculated by multiplying energy

intensity with cost savings per unit of energy. Shipping cost data were taken

from recent market surveys. These are indicative as they tend to fluctuate

strongly based on the supply and demand balance. Energy cost benefit 3

ct/kWh for electricity, 5 USD/GJ for thermal energy, 1.5 USD/kg for

hydrogen / SOURCE: IRENA analysis

Industry relocation can have a significant impact on the energy and CO2

balance of countries due to the magnitude of industrial operations. Densely-

populated countries with high energy consumption intensity can be

particularly affected, for example in East Asia and Western Europe.

Industry relocation for energy reasons is not unheard of; following the oil

crises in the 1970s, Japan phased out primary aluminium smelters and

switched to imports.

Relocation can also open up important new development opportunities such

as the recent announcement by Mauritania in northern Africa signing an

MoU to develop 30 GW of hydrogen electrolyser capacity in a country with

only 0.5 GW existing power generation capacity.

Note: Production growth and share of green production based on IRENA

WETO 1.5C pathway

The way ahead

Relocation of energy-intensive industries and processes can cause carbon

leakage. However as shown above, such relocations can also have climate

benefits and can create new economic activity. The impact of location

choices on national energy and CO2 balances can be profound and could

become a critical mechanism in the policy toolbox for future net-zero

strategies. The impacts and benefits of relocation are however not properly

captured in today's carbon mitigation strategies.

As the embedded carbon content of a commodity is not evident, a

comprehensive set of standards and certification systems is needed as part

of CBAMs. As today’s systems are fragmented, it is critical that systems for

electricity, clean hydrogen and the trade of green commodities are well

aligned. Coordination of international efforts to develop such systems is

critical and will be beneficial for Europe and others. In this context, IRENA

is cooperating with the World Economic Forum and conducting a series of

dialogues with its members. In general, creating the conditions for trade in

green commodities and fuels need to be higher on the agenda for COP26 as

well as other international frameworks such as G20 and the Clean Energy

Ministerial.

by Dolf Gielen, Paul Durrant, Barbara Jinks and Francisco Boshell

Re-published with permission from IRENA and Energy Post

4. Germany: will the end of feed-in tariffs

mean the end of citizens-as-energy-

producers

Germany’s feed-in tariffs ran for 20 years. The guaranteed electricity price

and connection to the grid incentivised ordinary citizens and communities

to invest in smaller scale solar, biomass and wind generation for their

homes and local areas. But that guaranteed price is now too expensive, and

so the tariffs are ending and lowest-bid auctions are taking over. It’s the

bigger players who are winning those auctions, and some of the existing

smaller installations are becoming unviable. Isabel Sutton at Clean Energy

Wire looks at the pros and cons of the change. As costs have fallen and

scale has risen, it makes sense for the large investors to drive the expansion

of renewables. But citizens-as-energy-producers and ‘energy democracy’

was a reason why Germans strongly supported the transition despite the

higher power prices. What will happen when they become bystanders

again? Are there other ways to engage them as actors in the energy sector?

1 January 2021 marked the beginning of the end of a key phase in

Germany’s Energiewende. On this date, the pioneers of Germany’s energy

transition stopped receiving the feed-in tariff that, for the last 20 years, has

guaranteed them a fixed price for generating electricity via wind, solar or

biomass.

Feed-in payments for renewable power were introduced with the

Renewable Energy Act (EEG) in the year 2000 and enabled Germany’s

renewables boom. According to the authors of Energy Democracy, Craig

Morris and Arne Jungjohann, more than 1 GW of onshore wind capacity

was installed in the first year of the feed-in policy, and by 2002 it had risen

to 3.2 GW. This amounted to a third of global wind production capacity at

the time. Solar installations also proliferated at a phenomenal rate and, by

2007, Germany was producing 45 percent of the world’s solar electricity.

By 2013, 5 GW of power generators fuelled by biomass were in operation.

Citizen participation
Many of the early adopters of renewable energy production were groups of
ordinary citizens who invested in local citizen wind parks
(Bürgerwindparks) near their villages or put solar panels on their roofs.
Often, their motive wasn’t (only) receiving the feed-in payments but also
the opportunity to participate in a decentralised, more democratically
organised power system, independent of the major utilities that traditionally
owned the large coal and nuclear power plants that dominated the market.
With fixed payments to many of these pioneers and their followers ending
in the next few years and big utilities becoming more and more firmly
established in green energy generation, citizen energy proponents are
worried that their quick rise to success may have an early demise. Marco
Gütle of the citizen energy project association Bündnis Bürgerenergie
predicts that a significant number of plants currently supported by the EEG
across all renewable sectors are in danger of closure.
He has grounds for pessimism: Citizen participation in the Energiewende is
already in decline. In 2014, a survey commissioned by the group found that
more than half of green electricity was being generated by citizens. By the
beginning of 2021, the share of citizen-generated energy had fallen to one
third. Some of this shift in participation is due to the fact that the overall
capacity – driven by large investors in large scale renewable installations –
has also grown: from 85 GW in 2014 to 123 GW in 2020. But the question
remains, what a decreasing share of citizen energy projects in the energy
transition means for the overall power supply and for public acceptance of
the green transformation.
Losing their feed-in tariffs: biogas, solar, wind
In the biogas sector, 1,000 plants have lost the feed-in tariff this year, out of
a total of 9,500. In the solar sector, an estimated 128,000 small PV
installations will fall out of the feed-in tariff arrangement in the years
between 2020 and 2025, according to the German Solar Association
(BSW). This is out of a total of 1.7 million installations in Germany.

In 2021 almost 4 gigawatts (GW) of wind power capacity have fallen out of
the 20-year feed-in tariff arrangement. By the end of 2025, this will have
risen to approximately 15.4 gigawatts, as successive rounds of clean energy
producers come to the end of their 20-year limit. To put this in context: in
February 2021, the total onshore wind energy capacity installed in Germany
was 55 gigawatts.
Does it matter, for total generation?
However, the energy ministry stated that out of 3.5 GW of installed onshore
wind capacity for which feed-in remuneration ended in January, only 90
megawatts (MW) had ceased production.
While the government has said that seventy percent (2.3 GW) of wind
producers have not applied for follow-up funding, but have found ways to
directly market their power, it is not clear that this will be an option for
smaller producers. Marco Gütle of the Bündnis Bürgerenergie is worried
that citizen pioneer installations will not be replaced by new citizen-owned
projects. ‘Ultimately’, he says, ‘it’s a question of economics and, at the
moment, the majority of green plants cannot survive on €4-5 ct/kWh, which
is the average price available at the electricity exchange.’ While pioneer
wind parks in good condition stand a fair chance of finding a new buyer for
their electricity, the outlook for old biogas and very small solar PV
installations is often more bleak.
Feed-in tariffs and citizen energy: victims of their
own success
Germany’s citizen energy phenomenon reached its peak in the early 2010s,
in large part thanks to the feed-in tariff. The policy aimed to incentivise the
expansion of renewable energy investment by providing producers with a
minimum price for their energy and a guaranteed grid connection. The price
was fixed for 20 years and differed depending on the type of energy
produced and the environmental conditions. Thanks to the policy,
renewable energy production sped up.

As price for renewable technologies fell, the Renewable Energy Act (EEG)
was overhauled in 2014, and the government decided to replace the feed-in
tariffs with auctions – subjecting the maturing industry to market-based
conditions.
The price guarantees were getting too expensive
Previously, the tariffs (including their degression over time), were
determined by the legislator. But the government wanted to avoid the high
payment guarantees of the early renewables boom years, when solar and
wind installations were much more expensive than today. Those guarantees
still make up the bulk of the costs paid by consumers with their power bills.
So in order to ‘reduce electricity costs, expand the market to a more diverse
range of energy producers and maintain targets for increasing the country’s
renewable energy generating capacity’, a tender scheme for all but small
solar PV installations was established in 2016.
Auctions take over
Auctions started in 2017 and have since taken place several times each year.
The government stipulates the volume of the tender, power plant operators
bid on the available capacity, and the cheapest bids win. All plants or
projected plants of over 750 kW are encouraged to participate, but in
practice this hasn’t happened. It’s too costly and bureaucratic for small
citizen energy producers to compete, industry representatives have said.
Instead professional wind park developers have taken over the scene –
sometimes disguised as citizen projects.
Analysing the PV auction pilots between 2014 and 2016, consultancy
Ecofys found that ‘no cooperative was visibly successful in any of the PV
auctions over the last two years’. In his 2019 report ‘Community Energy in
Germany: More Than Just Climate Mitigation’, Craig Morris, co-author of
Energy Democracy, asserts that in ‘no country have community projects
thrived once FITs were done away with’. Far from promoting a diversity of
actors, which it claimed as a goal, the auction system has so far replaced
one set of actors (citizens) with another (big firms).

Casimir Lorenz of Aurora Energy Research (which offers analysis and
consultancy to investors in the energy transition) argues that it isn’t the
changes to the EEG but the professionalisation of the industry that is
inevitably shutting out smaller players. This is particularly the case for
onshore wind and, to a lesser extent, PV, because the limited availability of
land means that competition for space is increasingly high and renewable
developers therefore have to be fast and efficient. In particular established
municipal utilities and large energy companies are investing, e.g. Munich’s
SWM wants to invest tens of millions in 12 solar PV parks in four years and
utility EnBW is establishing Germany’s largest solar PV park which will
operate without state funding. European energy companies have announced
major renewable investments, reaching up to 1 trillion euros by 2030.
Renewable energy can boom without citizen
involvement...
There is disagreement on the consequences and costs of the decline in
citizen participation. Casimir Lorenz accepts that reduced participation is
threatening public support especially for wind but argues that citizens can
be engaged in the energy transition without necessarily being producers
themselves. One strategy is to pay citizens a so-called ‘wind power euro’
for agreeing to allow wind turbines to be built near their homes.

Dieter Fries, who sits on the board of Bundesverband Windenergie (BWE)
and is himself a pioneer, believes that small-scale producers like him laid
the path for industry to follow. Now that big players are competing to enter
the renewables market, he sees the fruits of their efforts on the horizon: an
energy market dominated by renewables.
A report and survey commissioned by energy industry association BDEW
found that even with larger investors taking over, up to two thirds of the
gross value added by investments in local energy infrastructure and
production remain in the German state where the investment takes place.
Up to one fifth of the investment remains in the region where wind parks,
solar PV installations, charging stations or production of climate-neutral
gases are established.
...but risks losing public support
Volker Quaschning, professor of renewable energy systems at the
Hochschule für Technik und Wirtschaft Berlin, says that ‘Germany cannot
fulfil its part of the Paris Agreement without citizen participation.’ The
fulfilment of its climate targets requires Germany to increase renewable
installations by a factor of 4 or 5 each year, he says. ‘German households
hold 6.7 trillion euros in savings; these funds must be tapped in order to
ensure the success of the Energiewende,’ Quaschning argues.
And Quaschning believes some kind of feed-in mechanism is needed to
restart onshore wind construction. Difficult licensing procedures due to red
tape, environmental considerations and protests by local residents all have
contributed to bring expansion to the lowest level in 20 years in 2019.
Although numbers went up again in 2020, the expansion of onshore wind
capacity is still behind the envisaged targets.
The EU has sanctioned the development of small wind parks outside the
tendering system as part of its efforts to promote community energy;
Quaschning says all the German government has to do now is act.
Deeper benefits of citizen participation

Beyond acceptance and funding, Marco Gütle says there are other reasons

to encourage community participation in the Energiewende: participation

promotes democratic values, strengthens communities and boosts local

economies.

In the AEE Community Renewables Podcast, Melanie Ball, a member of

the women’s cooperative Windfang, makes the case for a different kind of

economy represented by community energy. ‘The energy transition should

be a transition from one system to another [...] if it’s the big companies that

just change their portfolio of what kind of power plant they are building it’s

not the idea of the energy transition.’

By Isabel Sutton

This article is re-published with permission from Clean Energy Wire and

Energy Post under a ‘Creative Commons Attribution 4.0 International

Licence (CC BY 4.0)’

5. China’s energy system: record

renewables expansion, but coal still

dominates

Lara Dombrowski and Simon Göss at Energy Brainpool give the latest

headline figures for China’s energy system. In 2020 electricity generation in

China went up by 298 TWh – an increase equal to 60% of Germany’s total.

That year, renewables capacity increased more than ever before. That made

China responsible for nearly 50% of global renewable capacity additions.

But China has higher CO2 emissions than all the OECD countries

combined. And continued fossil fuel additions mean the share of thermal

generation, 90% of it coal, is still a little under 70%. It’s good that

renewables’ share of electricity generation is rising. And the new 5-year

plan targets a combined installed capacity of wind and solar of 1,200 GW

by 2030. Meanwhile, China’s national emissions trading system starts in

July 2021, and will become the world’s largest market for putting a price on

CO2. But at 8%, EV sales growth is well behind the global average of 39%

because China has been slow to introduce the policies needed to disrupt

this sector. China is moving in the right direction, but is it enough? Its sheer

size and growth means it’s a deal maker – or breaker – in the world’s

journey to net zero.

Although the economy suffered a slump in the first few months of last year,

electricity consumption rose by almost 300 TWh over the year 2020 as a

whole. The shares of renewable energies in electricity generation increased.

Especially in the last quarter of 2020, more PV and wind capacity was

added than is installed in Germany up to now.

China’s energy transition has continued to evolve in 2020. The share of

thermal generation, which consists of over 90 per cent coal-fired power

plants, is still below 70 per cent, as it was in 2019. This is shown in figure

Figure 1: Shares of different generation technologies in the Chinese

electricity mix in 2020

/ SOURCE: Energy Brainpool

The Chinese power plant portfolio generated 7,623 TWh last year. This

corresponds to more than twice as much electricity as all European

countries combined. Despite the Corona pandemic and the associated

economic influences, total generation in China increased by 298 TWh

compared to 2019. This increase alone is equivalent to more than 60 per

cent of Germany’s total electricity generation in 2020.

Share of renewables increases in the Corona year

Of this additional electricity demand of 300 TWh, 129 TWh was covered

by thermal power plants. In comparison, renewables, including hydropower,

recorded an increase of 151 TWh. The remaining increase (17.5 TWh) was

supplied by new nuclear power plants. Figure 2 shows this year-to-year

change in generation from different technologies between 2019 and 2020.

Figure 2: Change in electricity generation of different technologies

compared to the previous year in TWh / SOURCE: Energy Brainpool

When we look at the percentage increase (shown in Figure 3 below), it can

be seen that electricity generation in thermal power plants increased less in

percentage terms. This is related to the high level of capacity already

installed before 2020.

New electricity generation from wind and solar power is much larger in

percentage terms, as there has been less installed capacity here in China to

date. Generation from nuclear power increased at a lower rate of 5 per cent

compared with the previous year (2019: 20 per cent).

Figure 3: Percentage change in electricity generation of different

technologies compared to the previous year

/ SOURCE: Energy Brainpool

Renewable capacities show record growth

The increased generation from renewable energies in China 2020 is also

reflected in the newly installed capacities. Renewable energy capacities in

2020 increased more than ever before.

While hydropower capacity increased by only 14 GW, solar installations

recorded an increase of about 50 GW; installed wind power capacity even

increased by 72 GW. In comparison: In Germany, the total installed

capacity of PV systems in 2020 corresponded to 54 GW and of wind power

to 63 GW. This means that the addition of Chinese PV capacity alone is

equivalent to Germany’s total installed capacity. In the case of wind power,

the Chinese addition even exceeds this figure.

China was thus responsible for nearly 50 per cent of global renewable

capacity additions in 2020. The installed generation capacities of

renewables are shown in Figure 4.

Figure 4: Installed renewable energy capacities in China in GW

/ SOURCE: Energy Brainpool

The largest share of renewable capacity additions in China occurred in the

last quarter of 2020. With a total of 92 GW of newly installed capacity,

China added more than three times the amount of renewables in the fourth

quarter of 2020 than in the same quarter of the previous year. Wind power

in particular experienced a particularly strong increase in capacity. This

development is shown in Figure 5.

Figure 5: Wind power plant additions in GW by quarter

/ SOURCE: chinaenergyportal

With 57.5 GW of new wind capacity in Q4 2020, the addition almost

quintupled compared to the same quarter of the previous year. This

significant increase in the last quarter of the year is related in particular to

an announcement from Beijing to discontinue subsidies for new onshore

wind power projects in China from 2021. The discontinuation of subsidies

in the new year provided strong incentives for plant operators to still

complete the plants by the end of the year.

However, solar capacity additions in the final quarter of 2020 were also

more than twice as high as in the same quarter last year, at 38.1 GW. The

addition of PV systems by quarter is shown in Figure 6.

Figure 6: PV system additions by quarter

/ SOURCE: chinaenergyportal

E-mobility grew more slowly in 2020

The company Canalys recently published the sales figures for electric

vehicles in China for 2020, according to which 1.3 million electric vehicles

were sold in China last year. Although this value represents a new record,

with annual growth of only 8 per cent, this is little in a global comparison.

Global electric vehicle sales grew by a full 39 per cent in 2020. The low

growth is related in part to China’s e-vehicle policies.

Due to several policy changes and consumer subsidies, the market had been

disrupted late. As a result, automakers have had difficulty boosting the

market, even though the Chinese government generally supports the

transition to e-vehicles.

China’s national emissions trading system starts

in 2021

At the provincial level, experiments with CO2 emissions markets had

already been underway since 2015. In 2017, the process of building a

national emissions trading system from the experiences in the provincial

systems began. In February 2021 the time had finally come: the Chinese

national emissions trading system was officially launched. Trading is

scheduled to begin in July 2021.

The first phase, however, covers only the power sector and thus about 30-40

per cent of the country’s CO2 emissions and over 2200 companies. Initially,

about 70 per cent of the required pollution allowances for 2019 and 2020

will be issued free of charge to participating plants.

Gradually, however, the allocation of allowances will be managed through

auctions. Down the road, it is also conceivable that industrial sectors and

domestic aviation will be covered by emissions trading.

Expected trading prices are below the current prices of the European

emissions trading system, with estimates ranging from USD 4-6/ton. With

increased climate change ambitions, what is now the world’s largest

emissions trading system (4 Gt) could generate revenues of up to USD 25

billion in 2030.

Strong demand met by coal in the first quarter of

2021

In the first quarter of 2021, Chinese electricity demand increased sharply

compared to previous years. With 1,895 TWh, national power generation is

about 19 per cent higher compared to the first quarter of 2020.

This was due to the improved economic situation, as well as the coldest

winter months in decades. The growth in electricity generation in Q1 2021

compared to the same quarter last year by technology can be seen in Figure

Figure 7: growth in power generation in Q1 2021 compared to Q1 2020 by

technology, in per cent and in TWh

/ SOURCE: chinaenergyportal

Although China expanded its wind and solar capacity at a record rate in

2020, growth in electricity demand in Q1 2021 primarily meant growth in

thermal generation. Thus, about 82 per cent (251 TWh out of 304 TWh) of

the 19 per cent increase in electricity demand was met by thermal

generation. This in turn consisted of about 90 per cent coal-fired generation.

Of the remaining additional electricity generation, only 13 per cent came

from renewables, 11 per cent of which came from wind power alone.

Energy targets in the 14th Five-Year Plan

One of the most significant recurring political events in China is the

announcement of the Five-Year-Plan, the key planning and target document

for the country’s economic and political development over the next five

years. On March 11, 2021, the Chinese government approved the 14th Five-

Year-Plan (2021-2025) and long-term goals through 2035.

The energy targets call for an 18 per cent reduction in CO2-intensity and a

13.5 per cent reduction in energy intensity. Furthermore, a CO2-emission

cap is mentioned for the first time, but no official limit has been set yet .

In the elaboration of the Ministry of Energy (NEA) on the 14th Five-Year

Renewable Energy Plan, further concrete figures were given. For example,

the combined installed capacity of wind and PV is expected to reach 1,200

GW by 2030.

In terms of installed capacity of wind and PV by the end of 2020, over 66

GW of new capacity would need to be installed annually until 2030. The

share of wind and solar power is expected to increase from 9 per cent in

2020 to 11 per cent this year and finally to 16.5 per cent in 2025.

China has higher CO2-emissions than the OECD countries combined since

2019. Accordingly, changes in China’s energy system toward the target of

carbon neutrality in 2060 are one of the most important levers for achieving

global climate goals.

By Lara Dombrowski and Simon Göss

Re-published with permission from Energy Brainpool and Energy Post

6. Green Finance – A new era: China’s

Green Bond Endorsed Project Catalogue

and the EU taxonomy

The EU taxonomy for sustainable activities was officially published in June

2020. It is the first official document to define and classify sustainable

economic activities across Europe. Six months later, the People’s Bank of

China (PBOC), National Development and Reform Commission (NDRC),

and China Securities Regulatory Commission (CSRC) published a new

edition of the China Green Bond Endorsed Project Catalogue (the

Catalogue). This is the first time that all three Chinese regulatory

authorities have reached an agreement on the classification and definition

of green projects.

Both of these documents - the EU taxonomy and the Catalogue - will act as

important reference points for green finance institutions and investors in

Europe and China. This article briefly summarises the content and impact

of the documents.

The EU taxonomy for sustainable activities

The EU taxonomy is the world’s first official system to define and classify a

list of environmentally sustainable economic activities. The publication and

implementation of the EU taxonomy provides clear guidelines as to what

can be classified as ‘green’. The aim is to orientate and improve the flow of

money towards more sustainable activities. It is widely believed that this

classification system will have a profound impact on the green economy

worldwide.

EU taxonomy

Three types of organisation are included in the EU taxonomy:

- Financial market participants who offer financial products in the EU,

including occupational pension providers.

- Large companies, who are already required to provide a non-financial

statement under the non-financial reporting derivative.

- The EU and member states, when setting public measures, standards or

labels for green financial products or green (corporate) bonds.

The taxonomy lists 67 economic activities which are responsible for 93.2%

of carbon emission and could make a substantial contribution to climate

change mitigation. The taxonomy also includes ‘brown’ economic

activities that have not yet contributed to sustainable development but have

the potential for green development in the future. The taxonomy sets six

environment objectives: climate change mitigation, climate change

adaptation, sustainability and protection of water and marine resources,

transition to a circular economy, pollution prevention and control,

protection and restoration of biodiversity and ecosystems. Every one of the

67 economic sectors should make a ‘substantial contribution’ to one or

more of these objectives, and ‘do no significant harm’ to the remaining

objectives.

You can read the document in full here.

Before the introduction of a complete classification system, ‘green’

decisions from investors, fundraisers and borrowers were mainly driven by

intuition. Investors tend to be cautious with their money and fundraisers

have been known to practise ‘greenwashing’ – where they present an

economic activity as green when it is nothing of the kind. The result is that

it is extremely difficult for green projects to get financing, and green funds

are less effective. The EU taxonomy provides a scientific classification that

defines ‘green’ activities, and provides a standardised information

disclosure process for fundraisers and borrowers. Investors and fundraisers

can identify green projects with a high degree of reliability and accuracy,

and ‘greenwashing’ becomes harder to achieve. This is set to improve the

effectiveness of green funds and increase the flow of money into industries

that are making solid contributions to sustainable development.

The EU taxonomy is designed to provide a basic understanding of what

qualifies as green, and offer guidance on all forms of green finance tools.

There are four mainstream green finance channels – green bonds, green

loans, through green private equity, and through listed companies. Among

the four types of equities, the green bond is the most mature and sustainable

finance product.

‘The intention is to start with green bond and to go way beyond that,’ states

Mathias Lund Larsen, senior consultant at the International Institute of

Green Finance (IIGF) and PhD fellow at Copenhagen Business School.

‘Now the EU is also developing a green bond standard on the regulations

around how to make a green bond, using the taxonomy as the baseline.

Issuers for the normally non-transparent equities, such as green loan and

private equities, now also have to follow the taxonomy, or otherwise no

investors will pay attention.’

Green Bond

The Green Bond is the most common instrument for green finance, making

up 73% of the global green finance market. Green bonds (or climate

bonds) are ‘any type of bond instrument where the proceeds will be

exclusively applied in order to finance or re-finance, in part or in full, new

and/or existing eligible Green Projects’

[2]

. The global green bond market

has been growing at a rate of over 60% annually in the past five years. By

the end of 2020, the global green bond market had exceeded USD 1000

billion. Europe is still the largest issuing market for the green bond, while

China, with a total green bond value of USD 164.9 billion (both

domestically and globally), has become the second largest green bond

market in the world.

The green bond is a direct mid- and long-term finance tool which could

solve the maturity mismatch problem by providing stable capital support

for green projects with high capital expenditure and long return periods.

Compared with normal bonds, green bonds have to follow stricter rules

and be audited by certificated institutes. The issuer is obliged to disclose

the process of project assessment and selection, track the use of funds

raised, and report regularly to the public.

For detailed information please see the proposal by Green Bond Principles

and the Green Bond Initiative. Click here for the list of all green bonds in

the market.

The EU taxonomy provides a clear disclosure procedure for the assessment

of green finance projects that all investors and fundraisers in Europe must

follow. Institutions and corporate entities that have listed ‘sustainable

activities’ in their portfolios have to report annually and explain the

portfolios’ alignment with the EU taxonomy, so that the investors and the

public can compare the portfolios of different companies and gain more

confidence. The taxonomy improves the credibility of green projects and

encourages investors and fundraisers to self-regulate.

[3]

[4]

The disclosure

procedures can only be a positive development for equities and institutions

who monitor their funds effectively.

Although the EU taxonomy only applies to European financial institutions,

other countries and regions are likely to feel its impact. International

companies that finance, operate or are listed in Europe are also obliged to

follow the EU taxonomy. Moreover, other countries are likely to refer to the

EU taxonomy when they create their own taxonomies. This could attract

investors and make it easier for companies to raise financing if they follow

the taxonomy even if they are not based in Europe. The result could be a

convergence of green finance standards across the globe.

The EU taxonomy disclosure process

All fund managers are required to disclose their portfolios’ alignment with

the EU taxonomy by 1/1/2022. The date for bond issuers is the end of

2022. Disclosure should follow the following steps:

- First, determine the specific economic activities that are funded by assets

in the portfolio.

- Second, for each activity, evaluate whether it aligns with the EU

taxonomy. Only label an activity as ‘mitigating climate change’ when it

aligns.

- Third, establish whether there is a good assessment plan and whether

there are preventive measures for climate risk corresponding to each

economic activity based on the ‘do no significant harm’ principle.

- Fourth, repeat the above steps for each activity in an asset, get an

alignment score for each activity, and get the overall alignment of an asset.

- Fifth, calculate the overall alignment of the portfolio, and determine each

asset’s contribution to the portfolio.

An example can be found here:

https://api.nnip.com/DocumentsApi/files/DOC_003011

Just six months later, the 2021 edition of Green Bond Endorsed Project

Catalogue was released in China. The Catalogue was first released by the

PBOC in 2015, but it conflicted with other documents issued by NDRC and

CSRC. However, the 2021 edition was released and endorsed jointly by

PBOC, NDRC and CSRC, the three key regulation authorities, for the first

time providing uniform regulation for China’s green bond market. The 2021

edition of the Catalogue classifies green activities according to six key areas

of activity: energy conservation, pollution prevention and control, resource

conservation and recycling, clean transportation, clean energy, ecological

protection, and climate change adaptation. This classification approach is

different to that of the EU taxonomy, but it has the potential to be a more

effective reference for bond issuers as it offers a target-based approach.

Green Bonds in China

[5]

According to the 2021 edition, green bonds are defined as ‘marketable

securities that are specifically used to support green industries, green

projects or green economic activities that meet certain requirements, which

are issued in accordance with legal procedures and repay principal and

interest as agreed.’ There are five types of green bonds in China:

- Green financial bonds, which are issued by financial institutions

(including three policy banks and commercial banks) and traded in the

inter-bank market. They are primarily used in green industries via bank

loans and constitute 39% of China’s green bond market (excluding asset-

backed securities (ABS)).

- Green company bonds, which are issued by state-owned and private

companies on the Shanghai or Shenzhen stock exchanges. These are used

mainly to fund renewable projects, especially hydropower projects. They

make up 30% of the market.

- Green corporate bonds, which are usually issued by state-owned

companies and traded on the inter-bank bond market or exchanges. They

generally invest in energy conservation projects. They represent 17% of

the market.

- Green debt financing tools, which are limited-term notes issued by non-

financial companies. Most of them are medium-term notes (3-5 years

maturity) on the inter-bank market. They tend to be used to refinance green

projects. They account for 14% of the market.

- Green ABS are used to lower the cost of financing. There are three types

of green ABS: green assets with green funds; green assets with non-green

funds; non-green assets with green funds. Green ABS only make up a tiny

proportion of the market.

[6]

The biggest innovation of the 2021 edition is that it converges with

international standards. The 2015 edition conflicted with the EU taxonomy

and other internationally recognised taxonomies on many controversial

activities, including fossil fuels, clean coals, nuclear energy and so on. For

example, clean coal would never appear in the EU taxonomy, but was

included in the 2015 edition of the Catalogue. This is due to the different

environmental targets of the two regions. The EU pays more attention to the

overall effect of economic activities on climate change and the whole

environmental system, while developing economies are more interested in

pollution mitigation given their heavy reliance on fossil fuels.

A big step forward in the 2021 edition is the removal of clean coal from the

Catalogue, which means that ‘China is rapidly moving its attention from

pollution mitigation to climate change,’ according to Wenhong Xie, China

program manager at the CBI. This is set to have a positive influence on the

attitude of international investors to the Chinese market, which is currently

dominated by domestic investors. Moreover, the 2021 edition has added

activities that have seen rapid growth in recent years, including green

agriculture, sustainable buildings, unconventional water resources

utilisation, and so on. The ‘do no significant harm’ principle was also

introduced into the 2021 edition.

Wenhong Xie believes that the main aim of the 2021 edition is to improve

corporate awareness of sustainability. Although the 2021 edition also helps

screen out greenwashing from the market, the main purpose appears to be

more of a discovery process – to help corporate entities to become aware of

the green assets and green investments on their balance sheets, which

previously failed to be identified because of the lack of a clear definition

and classification. With the release of the 2021 edition, the market size,

liquidity and transparency of green bonds are also expected to grow, and

this could eventually bring more opportunities into the climate mitigation

industry.

Right now, China and the EU are working closely together to develop a

universal taxonomy under the International Platform on Sustainable

Finance (IPSF) in order to bring more investment into the climate industry

worldwide. The taxonomy and the Catalogue share similar principles and

targets, but disagreements still exist. In terms of content, the EU taxonomy

provides a more detailed definition of specific economic activities and

industries, and also includes prospective industries, such as the digital and

information industry.

[7]

Moreover, the activities in the Catalogue have not been aligned and

standardised to conform to the Classification by the National Bureau of

Statistics, whereas the EU taxonomy is based on the Statistical

Classification of Economic Activities in the European Community (NACE),

which is widely used for data collection and can be more easily promoted

globally.

[8]

In terms of approach, China is presenting itself as a policy

pioneer, based on a top-down approach, while the EU is presenting itself as

a setter of standards, based on a bottom-up approach. The Catalogue

includes compulsory measures, such as fines and punishments, to encourage

the institutions to obey, while the EU taxonomy is still voluntary rather than

mandatory. This does not alter the fact that green financial instruments tend

to be self-labelled and are subjectively evaluated by issuers and investors.

Despite these differences, a process of institutional convergence has begun.

According to Mathias Lund Larsen, ‘the first step in the process of

institutional convergence happens when China pioneers green finance

policies and moves them into the realm of what it is. The second step takes

place when EU develops policies in those areas that become global

standards.’ He believes that while convergence takes place at the policy

level, it does not happen at the level of the underlying capitalist models. It

may signify the importance of an activist state in climate change, making

the current global competition between capitalist entities an advantage as

systems complement and compete with each other, even as they collaborate.

Conclusion

As two of the biggest green finance markets in the world, the EU and China

are taking the lead when it comes to green finance regulation. By providing

a well-defined classification of green activities and a clear investment

disclosure process, the EU taxonomy and the China Green Bond Endorsed

Project Catalogue have created standard and transparent markets for market

participants in the EU and China. Although their actual effect is as yet

unknown, the publication of the taxonomy and the Catalogue undoubtedly

provide important guidance and motivation for other countries and regions.

With the implementation and convergence of the taxonomy and the

Catalogue, green classification is now set to be mapped and established in

more countries and regions. Many hope that this will result in an active,

uniform, and well-structured global green finance market.

By Brian Yang

ECECP Junior Postgraduate Fellow

7. Europe's Carbon Capture pipeline: 40+

projects. But where's the policy support

and market creation?

13 different European countries have announced more than 40 carbon

capture projects. Most are yet to become operational, but the commitment

from the private sector – ranging from new players to established energy

and industry majors – is clear. Now is the time for governments to create

for CCUS the kind of policies that accelerated the growth of wind and solar,

says Lee Beck at the Clean Air Task Force. Norway and the Netherlands are

taking those first steps. But EU-wide commitment is needed, not least to

give clear signals that carbon capture and storage has a commercial future.

The Clean Air Task Force has created a database of projects and their

status which will be continuously updated, along with a useful map. Beck

looks at the major issues and emerging trends including industrial clusters,

new partnerships and business models. She ends with policy

recommendations that will provide funding and create the markets that will

turn CCUS pilots into the Europe-wide system that can capture, transport

and store the gigatons of carbon needed. Carbon pricing and carbon border

adjustments won‘t do it on their own, says Beck.

The Clean Air Task Force’s (CATF) Europe Carbon Capture Project and

Activity Map shows more than 40 carbon capture projects have been

announced across 13 different European countries. These announcements

signal unprecedented industry interest in developing and deploying carbon

capture and storage facilities for a climate-neutral Europe. This should be a

wake-up call for policymakers as the projects' realisation will hinge on

policy support. Progress toward climate neutrality includes commercialising

carbon capture and storage technologies, and political will, policy design,

and public investment are urgently necessary.

8.6 GT of CO2 capture by 2050

According to the International Energy Agency, it will likely be ‘impossible’

to decarbonise without carbon capture and storage. The Intergovernmental

Panel on Climate Change (IPCC) has highlighted similar conclusions. The

IEA's latest net-zero compliant scenario shows 8.6 GT of CO2 capture in

2050, almost 1.5 times as much as the Paris Agreement compliant

Sustainable Development Scenario that achieves net-zero in 2070,

indicating that the importance of carbon capture and storage increases with

higher climate ambition.

Building a decarbonisation industry: key trends

The open-access map and spreadsheet show new carbon capture and storage

industry trends that constitute significant progress towards the development

of the industry. This includes projects planned in a variety of industrial

carbon capture applications.

Several projects also focus on separate parts of the carbon capture,

transport, and storage value chain and new business models. Moreover,

there is carbon capture and storage activity in 13 different European

countries. Policymakers must now build on this industry interest and help

make these projects a reality through implementing supportive policy.

Interest in carbon capture and storage now spans multiple countries,

including Italy, Greece, Belgium, Iceland, Sweden, Germany, Poland, and

Denmark, following first movers Norway, the Netherlands, and the UK.

Cement, steel, hydrogen, waste-to-energy

The applications focus on industrial decarbonisation, including cement

production, where carbon capture and storage technologies are one of the

few cost-effective decarbonisation options for process emissions, steel, and

waste-to-energy production. In addition, at least eight projects aim to

capture and store CO2 from existing and planned hydrogen production

facilities, inspired by Europe's strong push to commercialise hydrogen as a

clean energy vector for a carbon-constrained world.

For the spreadsheet database and full details on each project visit

https://www.catf.us/ccstableeurope/

CCUS Clusters

Most of Europe's carbon capture facilities are connected to manufacturing

and emissions clusters seeking to become state-of-the-art decarbonisation

and CO2 storage hubs such as the Northern Lights project, the Porthos

project, the Teesside and Humber clusters in the UK, and the C4 project in

Denmark.

These also function as essential anchor projects for technology diffusion.

For example, at least three projects and one industrial cluster project cite the

Northern Lights Project as a potential storage location. Similarly, at least

four announcements are connected to the Port of Rotterdam Porthos Project.

Both Northern Lights and Porthos have been granted policy and funding

support. The Norwegian government provided €1.7 billion in funding for

the Northern Lights Project to cover both the upfront cost for the CO2

Network and the retrofitting of the Norcem Cement Facility, along with ten

years of operating expenses. The Dutch government agreed to provide a 15-

year contract for difference with the SDE++ to the Porthos Project, bridging

the gap between the EU ETS and actual project cost, worth some €2 billion.

Technology-specific policy is also being discussed in further countries such

as Denmark, Sweden, the UK, and Germany.

Storage and infrastructure

The map shows further CO2 storage and infrastructure projects that have

been proposed, including the Greensands project off the coast of Denmark,

the Ravenna CO2 Storage Hub in Italy, and the North Sea Port CO2

Transports project connecting the Ports of Rotterdam, Antwerp, and the

North Sea Port. The current Projects of Common Interest (PCI) candidate

list includes CO2 pipeline transport and storage projects in seven countries

and multiple projects include CO2 shipping.

Investment in CO2 transport and storage is crucial to alleviating

infrastructure roadblocks to CO2 capture deployment and solve a chicken-

and-egg problem: we need the infrastructure for emitters to capture their

CO2, and we need emitters capturing their CO2 to have an investment

rationale for CO2 transport and storage infrastructure, as my colleague

Olivia Azadegan explains.

Our map also incorporates data from CO2Stop to show Europe's CO2

storage capacities in saline aquifers and depleted oil and gas reservoirs.

Europe has sufficient storage capacity to store at least 100 years of current

emissions.

New partnerships, business models

At the same time, Europe is also witnessing the development of new

industry partnerships and business models. The first-movers Porthos and

Northern Lights have been able to attract significant attention from

industrial facilities. Northern Lights and the Polaris project are both

planning to offer CO2 storage as a service. With CO2 transport and storage

solutions evolving, many more facilities are motivated to capture their CO2.

The decoupling of the different parts of the value chain enables each entity

to concentrate on its expertise, reducing cross-chain risk. It also implies

market creation supplying CO2 storage in response to anticipated demand.

Heidelberg Cement recently announced the intention to build the first

carbon-neutral cement plant, a significant development on the CO2 capture

side at facilities.

The three challenges stopping these projects from

becoming reality

While these are highly positive developments in the private sector, more

needs to be done to realise these planned projects and deliver European CO2

transport and storage infrastructure. Carbon capture and storage projects are

large infrastructure projects involving not widely deployed technologies,

nascent policy frameworks, large capital investments, and perceived risk.

Companies pressed for CCS deployment, many of them in trade-exposed

industries, may struggle with these capital investments, risks, and the higher

operating costs. Policymakers should also consider that carbon pricing and

carbon border adjustments are not a substitute for innovation policy.

There are plenty of blueprints on how we have commercialised clean

energy technologies. For example, take Denmark's leadership on offshore

wind and Germany's feed-in-tariff reducing the cost of solar. These

blueprints included deployment incentives that reduced cost, enabled

learning-by-doing, and supportive infrastructure. There are three steps

policymakers can take.

First, a carbon capture and storage strategy is needed on the European level

that signals political will and commitment. The strategy needs to enable the

near-term, efficient deployment, learning-by-doing, and cost reductions. Its

mechanisms need to support the deployment of CO2 capture at industrial

facilities while fostering European CO2 transport and storage development.

A European strategy also needs to coordinate with member-state policy.

Second, across Europe, a coordinated build-out of CO2 transport and

storage is crucial, as CO2 storage is inequitably distributed. We will also

need to solve the chicken-and-egg problem outlined above. A near-term

step would be to include all CO2 transport options and the geologic storage

of CO2 in the Trans-European Energy Networks Regulation, which is

critical for transboundary CO2 networks and establishing cross-border CO2

infrastructure in Europe, as outlined in CATF's and our partner NGO

Bellona's #TenETuesday brief. TEN-E inclusion would make CO2 transport

and storage projects eligible for Connecting Europe Facilities funding,

which has provided support for front-end-engineering design studies and

feasibility evaluations in the past, lowering the barrier to entry for these

companies. It would also signal important political recognition, thereby

reducing perceived risk. Further policy options constitute government-

backed loans and grants for developing and supersizing CO2 transport and

storage infrastructure.

Third, at the same time as we are investing in CO2 transport and storage

infrastructure, incentives are needed for more emitters to capture their CO2,

thereby creating demand for CO2 transport and storage infrastructure. For

first-of-a-kind project applications, grants will be required to cover at least

some of the capital investment of the demonstration projects. The EU

Innovation Fund's first round of large-scale project results is expected soon,

with a few carbon capture projects anticipated to win support. The Fund

will provide 60% of capital investments. However, oversubscribed 20

times, the Fund is too small for the challenge at hand. For beyond first-of-a-

kind, mechanisms that bridge the gap between actual operating costs of

carbon capture, removal, and storage and the current price of the European

Emission Trading System offer flexibility and incentives to invest in CO2

capture in the near term. An example of this kind of policy would be carbon

contracts for difference (CCfD), which have successfully supported the

commercialization of renewable energy technologies in the form of a feed-

in tariff, like the Dutch SDE++.

This unprecedented industry interest and activity in carbon capture and

storage should be a wake-up call for policymakers. Act now to support the

realisation of these projects with targeted policy strategies and funding, and

the technologies are likely to see a breakthrough for industrial

decarbonisation and carbon removal. Failure to act, however, might

jeopardise our ability to reach climate goals altogether.

A Collaborative Effort

The Clean Air Task Force created this map based on our open-access

spreadsheet to track and visualise the unprecedented commercial interest in

carbon capture and storage technologies in Europe. We also wanted to

highlight storage availability and resources, along with the variety of

carbon capture applications under development. CATF envisions this map

as a living document with regular updates. If you would like to be included

or see information that needs updating, please contact Marc Jaruzel at

mjaruzel@catf.us.

by Lee Beck

Re-published with permission from Clean Air Task Force and Energy Post

8. The Carbon Neutrality Global

Challenge

Achieving carbon neutrality to mitigate climate change is a global

imperative. However, it is crucial to remember that ‘carbon’ should refer

not just to CO2, but to all greenhouse gases (GHGs) and that their

contribution to greenhouse gas effects should be measured accurately.

Challenges of defining and achieving ‘carbon

neutrality’

When discussing climate action and the reduction of GHG emissions, the

terms ‘climate change’, ‘climate neutrality’, ‘net-zero (carbon) emissions’,

‘decarbonisation’ and ‘carbon neutrality’ are often used interchangeably or

wrongly. Pollution and GHGs are also often confused.

The table below clarifies the different terms and concepts:

Term Definition

Climate change

A long-term change in the average weather patterns that have come to define the

Earth’s local, regional and global climates. Changes observed in the Earth’s

climate since the early 20

century are primarily driven by human activities,

particularly the burning of fossil fuels.

Pollution

Refers to the overall and general contamination of air, water and soil with solid,

liquid and gas contaminants not naturally produced by nature, affecting wildlife,

human wealth and soil health. GHGs only represent a proportion of pollution:

some GHGs are not harmful to human health (e.g. CO2).

Climate

neutrality

Refers to bringing all GHG to the point of zero while eliminating all other

negative environmental impacts of an organisation.

Net zero carbon

emission

This means that an activity releases net zero carbon emissions into the atmosphere

(often considered synonymous with carbon neutrality).

Net-zero

emission

Alludes to achieving a balance between the whole amount of GHGs released and

the amount removed from the atmosphere.

Decarbonisation Decrease the ratio of CO2 or all GHG emissions related to primary energy

production.

Carbon

neutrality

Any CO2 emissions released into the atmosphere as a result of a company’s

activities are balanced by an equivalent amount being removed.

Source: PlanA Academy, 2021; NASA; Word Resources Institute.

When an organisation or a business announces its emission reduction

targets, all GHG emissions should be taken into account. Even though CO2

neutrality may be achieved, other GHGs like CH4 can continue to trap heat

in the atmosphere. Stepping up net zero emissions action means that

companies must first quantify and assess their carbon footprint. When doing

so, they often neglect to consider the whole life cycle of the products they

manufacture or services they provide, including the entire supply chain,

distribution and consumption. These omissions lead to partial evaluations of

their carbon footprint. Looking at net zero emissions from a full life cycle

perspective is crucial if offsetting frameworks are to be effective.

From a technological standpoint, apart from the replacement of

conventional technologies for power generation with cleaner solutions,

much emphasis has been put on artificial carbon sinks, especially carbon

capture, utilisation and storage (CCUS) technology. However, at present

such projects are usually too expensive for most businesses to justify, in

spite of decisive corporate social responsibility (CSR) goals. A reliance on

expensive CCS/CCUS should not be cited as an excuse to delay or avoid

carbon neutrality actions.

The debate around carbon neutrality also focuses on the fact that different

countries are at different stages of development, and may, wrongly, consider

the carbon neutrality pathway to be at odds with economic development.

Most developed countries have incorporated climate protection into their

legal procedures. Yet most emerging and developing economies still rely on

public resources to finance new energy projects and do not incorporate

emissions reductions into their planning.

Meanwhile, to achieve the climate and decarbonisation goals, several

countries, mainly European, have devised frameworks and tools to identify

and assess green investments and activities (e.g. green taxonomy, emission

trading schemes (ETS) and carbon pricing, the Carbon Border Adjustment

Mechanism, etc.). Decarbonisation joint efforts will only succeed when

there is full alignment of concepts and methodologies. Therefore, joint

mechanisms that are recognised globally need to be adopted promptly.

China carbon neutrality pathway and challenges

Over the past few years, China has been making great efforts to transform

its energy structure. Following President Xi’s decisive commitment to

carbon neutrality, China’s 14th Five-Year Plan (2021-2025) identifies

among its pillars the ‘Green Development’ that is deemed indispensable to

build an ‘ecological civilization’ – China’s vision of environmental

sustainability. However, the few targets included in the national Five-Year

Plan, i.e. reducing CO2 intensity by 18% and energy intensity by 13.5%

over a period of five years, are still timid and not yet in line with the top-

down commitments towards carbon neutrality adopted by other countries.

Despite its significant achievements, China’s pathway to carbon neutrality

still faces significant challenges, mostly concerning its energy mix,

intensity, and infrastructure.

China still relies heavily on coal and oil, which account for 76.6% of total

fuel consumption. Unstructured planning, the slow implementation of

regulations and the COVID-19 pandemic have slowed China’s transition

from coal to greener fuels, first and foremost natural gas.

Despite the improvements made over recent decades, energy intensity in

China is still high, around 1.2 times that of the US, 1.7 times that of the EU

and 2 times that of Italy. The lack of a comprehensive framework to control

industries’ and buildings’ energy intensity, as well as a lack of adequate

infrastructure, are the most relevant blocks to reducing energy consumption.

Investment in new energy infrastructure and the upgrade of existing

facilities could have a huge impact on GHG emissions reductions in the

long term. However, in 2020 China brought 38.4 gigawatts (GW) of new

coal-fired power capacity into operation - more than three times the total

amount built in the rest of the world. A total of 247 GW of coal power is

now at the planning stage or under development

[9]

. China does not seem to

be trying to move away from coal at the moment. Its high dependence on

coal remains a substantial threat to the country’s carbon neutrality

objectives.

The preliminary and most important step towards an effective

decarbonisation strategy is restructuring the country’s energy mix. The

scope of commitment remains limited in the absence of clear timetables and

action plans. The present inertia is unlikely to enable China to achieve its

net zero carbon goals by 2060.

Rethinking the approach to tackling carbon

neutrality

The path towards carbon neutrality is much more intricate than traditional

‘green development’. The mere application of clean energy technologies

cannot ensure effective decarbonisation, unless these form part of more

comprehensive, holistic and contextualised solutions.

The electric vehicle (EV) sector illustrates the issues facing China’s move

to reduce emissions: in China, each time an EV battery is charged at least

60% of the electricity is derived from coal (if it is not produced locally from

renewable sources). The production of 17 kWh – the necessary amount of

electricity required to travel 100 kilometers – generates as much as 15.5 kg

of CO2. This is comparable with emissions from Nat6 internal combustion

engine vehicles (ICEV) travelling the same distance, and is much higher

than a natural gas-powered engine.

Source: In3act analysis

Looking at the whole supply chain, it is worth noting that the manufacturing

process for an EV emits 1.5 times more CO2 than for an ICEV, mostly due

to the Li-ion batteries, the traction motor, and the significant number of

additional electronic components. All in all, in China a traditional National

6 ICEV is in general ‘greener’ than an EV (total footprint of 37.7 versus

42.7 tCO2e) with the current energy mix and electricity market constraints.

Evidently, natural gas vehicles (NGVs) have by far the least environmental

impact (22 tCO2e). Large-scale vehicle electrification is not sustainable if it

does not take place in parallel with a drastic change in the energy mix. On

the contrary, it may even raise the global transportation carbon footprint.

All industrial and service sectors must play a coordinated, proactive role,

especially those involved across the energy supply chains. New economic

models, lifestyles, and a radical cultural shift are equally important drivers

in the path to carbon neutrality.

In3act three-steps methodology

In our view, quantitative planning and ‘outside-the-box’ approaches are

prerequisites for long-term significant solutions to net zero GHG emissions.

In3act has designed a comprehensive yet pragmatic methodology based on

the existing standards and best practices (e.g. the GHG protocol, PAS 2060,

ISO 14064 (1-3), and ISO 14067, etc.), aimed at creating a toolbox for the

design and planning of effective ‘carbon neutral’ pathways. The

methodology takes into account all internal and external emitting factors

(including population behavioural patterns) linked to a designated

area/economic entity – be it a city, an industrial district, a business cluster,

or a company – where to assess, minimise and offset the carbon footprint.

The In3act approach strives to go beyond the conventional method of

calculating the footprint by converting an entity’s energy consumption into

CO2e emissions, and then reducing and compensating them, within or

outside an entity’s perimeter. It consists of three steps:

Source: In3act

A practical example: In3act three-steps

methodology – case study

In3act methodology has been applied to real-life scenarios. Below we

discuss the design of the new energy and carbon emissions planning in a

city of 20,000 inhabitants in Zhejiang province.

First, a feasibility study was carried out to assess the current potential

energy generation pattern. The study confirmed that the surging electricity

consumption caused by the deployment of EV and hydrogen (H2)-powered

vehicles can be offset by making full use of the area’s maximum potential

of 43.9MW of peak photovoltaic (PV) power (installed on plants’ and

buildings’ roofs). The PV load would also allow a 106-ton-stock of H2 to

mitigate intermittencies.

Source: In3act

The designated area’s tons of CO2e (tCO2e) were estimated to peak at

around 240,000 tCO2e with the current setup. The following assumptions

illustrate the path to carbon neutrality:

Electricity generation will only exploit renewable sources from within

the 4km

area.

All power-related emissions will be offset by achieving net zero

electricity consumption.

Incentives for EVs powered by solar energy and H2 vehicles would

reduce 90% of transportation emissions, i.e. 9,400 tCO2e.

An industrial upgrade – achievable by attracting more companies with

green credentials –would allow savings of 50% of direct carbon

emissions.

Food production management would reduce emissions from

agriculture production by 50%.

Cellulosic ethanol production using locally sourced wheat straw would

offset the remaining 61,216 tCO2e through ETS.

Source: In3act

Taking into consideration all available technology and existing

infrastructure, this new energy supply model for the area has been designed

and assessed to be sustainable and feasible. The system is based almost

entirely on clean energy consumption. Coal is absent from the energy mix

and the marginal, residual emissions generated using fuels in private

transportation can be offset.

Source: In3act

Eliminating the carbon footprint demands the adoption of bottom-up

approaches. In China, in particular, this requires in-depth knowledge of the

different contexts.

Closing remarks

Achieving carbon neutrality in 30-40 years is the world’s most urgent

mission. Shared objectives towards decarbonisation must become the

common ground so that countries can act jointly in addressing the

challenges despite geopolitical tensions.

China and Europe have both made formal commitments and adopted

stringent goals towards decarbonisation. But the challenge is truly

unprecedented. China is allocating massive resources (in the range of RMB

140-500 trillion, or EUR 18-65 trillion, over the next decades) to support its

carbon neutrality objectives. These will require China to decommission at

least 700GW of coal-fired power plants (roughly equivalent to the total

installed power capacity in Europe), and eliminate about 12GtCO2e yearly.

The Chinese traditional energy sector, however, has historically been

dominated by state owned enterprises (SOEs), whereas innovation typically

flourishes in a market-led context where private businesses thrive. Foreign

energy and environmental protection companies now have the opportunity

to invest across all priority sectors such as resource recycling, energy

efficiency, district energy modelling, energy storage and hydrogen.

European companies have the credibility and expertise to provide reliable,

advanced and sustainable solutions, and have experience of operating in

heterogeneous geographical, industrial, and social conditions.

Notably, cutting-edge technologies, processes and solutions must be paired

with innovative and highly contextualised approaches: technologies alone

will not achieve decarbonisation. Achieving actual carbon neutrality is

feasible but requires rapid, coordinated, and concrete action.

by Manfredi Lodato and Qian Xu

at In3act Business Strategy Advisory

This is a shortened version of the In3act paper. Original version in full can

also be found at ECECP website.

9. The role of research and innovation for

China’s 30-60 climate goals – What is new

and what is key?

A global green and carbon-neutral race is emerging when more and more

countries have set their new national targets and visions, including China.

As presented in our previous blogs, China’s new climate goals, i.e. peak

carbon before 2030 and carbon neutrality by 2060 are on the way to change

China’s policy frameworks and strategic actions for its economic

development and transformation, starting from the 14

Five-Year-Plan

(FYP) Period (2021 -2025). In a deeper look at concrete steps forward with

a particular focus on the transformative potentials in China’s climate

actions, let us bring some new insights by highlighting the role of research

and innovation in China’s climate- and energy transformation.

A stock-taking – Policy processes, science bases

and industrial dynamics...

Already in the 13

FYP period (2016-2020), research and innovation on

energy technology had become a priority in China’s ‘National Innovation-

driven Development Strategy’. Specific and long-term Technology and

Innovation Roadmaps (2016-2030) were also put forward (See the

attachments at the end of this blog). At the operational level, diversified

platforms and ecosystems for energy research and innovation have been

developed.

[10]

For instance:

More than 40 key national laboratories and national engineering

research centres, focusing on safe, green and intelligent coal mining,

efficient use of renewable energy, energy storage and decentralised

energy systems.

More than 80 national energy R&D centres and key national energy

laboratories in vital and frontier areas for ‘energy revolution’.

Looking at the science bases, i.e., the scale, quality and impact of China’s

energy research, we see that China has advanced significantly and is already

world-leading in some areas. For instance, among the 1,000 most influential

climate scientists in 2020, ranked by the number of publications and

citations as well as the attention received in public media, 87 Chinese

researchers were listed across 8 disciplines (See Table 1.1 below).

[11]

When

it comes to the share of the world’s total and the rank of top publications,

China’s performance is impressive (See Table 1.2 – 1.3 below).

Table 1.1 Chinese researchers on the list of top -1000 climate scientists

2020

Source: Explore the @Reuters Hot List of 1,000 top climate scientists

Table 1.2 China’s share of scientific publications in the world

(Selected energy fields, 2015 -2019)

Source: Opportunities and challenges of new energy technology research,

Chinese Academy of Sciences (CAS)

Table 1.3 Ranking of top-10% scientific publications in the world

(Selected energy fields, 2015 -2019)

Source: Opportunities and challenges of new energy technology research,

Chinese Academy of Sciences (CAS)

Together with policy development and science base enhancement, the

Chinese business sector, particularly in the field of battery has become a

key driver for innovation, not only for improvement of traditional lithium-

ion batteries, but also aiming at the next-generation batteries, for instance:

[12]

The battery manufacturer CATL has developed a frontier battery

chemistry, allowing automakers to reduce EV prices and supply

greater range.

The EV battery manufacturer SVOLT launched the ‘jelly battery’ to

improve quality through innovating in cathode and electrolyte

material.

The automobile maker GAC Group has introduced three-dimensional

graphene battery (3DG) for super-fast charging.

The EV maker BYD launched the ‘blade battery’, a new type of LFP

battery for better safety.

What’s new – new energy landscape and new

research and innovation initiatives

China’s pathway towards its new climate goals, from the 14

FYP will be

entrenched in, at least, 3 fundamentally new elements of its energy

transition:

Renewable energy will be the main, not the ‘complementary’ energy

source.

Transformation in the transport sector will not only be driven by air

pollution concerns, but also climate mitigation.

CO2 mitigation will not only be limited to the energy sector, but also

include industries.

This may explain why energy storage and hydrogen have, for the first time,

been highlighted as strategic and key technologies in the 14

FYP.

Accordingly, already in the beginning of this year, China’s National Key

R&D Programme has followed suit and set out new/updated priorities (See

Table 2 below).

Table 2 Newly announced calls for proposals (for consultation) under

National Key R&D Programme

(by Ministry of Science and Technology, Jan- April 2021)

In the field of basic research, the National Science Foundation of China

(NSFC), with its enhanced focus on multidisciplinary research as well as a

forward-looking orientation towards the scientific frontier, launched the

first batch of calls for proposals.

[13]

28 research topics have been identified

as basic research challenges of strategic importance for China’s peak carbon

and carbon neutrality, focusing on both mitigation and carbon sink,

including both forests and oceans.

The new of the ‘old’ – Carbon Capture,

Utilisation and Storage (CCUS)

While the urgency of scaling-up CCUS efforts has long been seen as critical

for climate actions, far too little research and demonstration have taken

place globally and in China. Having China’s new 30-60 climate targets as

departing point, different estimates show that CCUS and Bioenergy with

CCS (BECCS) will need to play a significant role and could theoretically

off-set between 15% - 30% of the CO2 emissions by 2050 and 2060.

However, the key challenges and obstacles need to be efficiently and timely

addressed, such as costs and financing model, CCUS value chain

development as well as safety and sustainability. For instance, apart from

leakage risks related to CCS-technology, another issue is the usage of

sustainable material for capturing carbon. Breakthroughs have been made in

finding more sustainable materials, such as the bio-based hybrid foam

containing zeolites by Chalmers University of Technology and Stockholm

University.

An overview of current development and an updated CCUS roadmap with

specific details of technology development and innovation needs towards

2050 was put forward in 2019 by the Ministry of Science and Technology

(MoST) and the Administrative Center for China’s Agenda 21.

[14]

program with specific focus on material and technology for carbon capture

was initiated in 2017, as part of a National Key R&D Program on clean and

efficient use of coal and new energy-saving technologies, initiated by

MoST. The program has supported projects and research within

technologies for carbon capture and absorption material.

The role of international cooperation in climate-

and energy related research and innovation

Looking at the latest multilateral and bilateral cooperation that have been

lunched between MoST and EU and EU Member States (MS), there is some

interesting overlapping between the National Key Special Projects and

Collaboration Key Special Projects when it comes to thematic fields. This

represents both common interests from both sides as well as the fact that

these EU MS probably see an increasing potential for both knowledge

development and market development in those fields.

Inter-governmental STI Collaboration Key Special Projects: Energy

and climate related

Examples of Joint Calls of EU and EU MS with Ministry of Science and

Technology (MoST)

and 2

batches 2021)

Source: 国家科技管理信息系统公共服务平台 (most.gov.cn)

What to watch now and beyond?

Looking ahead, the newly established MoST Leading Group of Science and

Technology for Peak Carbon and Carbon Neutrality has launched its

strategy development work:

[15]

Science, Technology and Innovation Action Plan for Carbon

Neutrality.

Carbon Neutrality Technology Roadmap.

National Key Special Projects for research, innovation and

demonstration of key technologies for achieving carbon neutrality.

Along-side with deep science and innovative solutions, the transformative

strengths in China’s climate actions, in our view, lies in the system effects

generated by a digitalisation-decarbonisation-nexus and the scaling-up

effects empowered by technology-financing synergies

[16]

. These are new

challenges, but also enormous new potentials for a climate transformation –

with both depth and speed.