The City of London think tank "Centre for the Study of Financial Innovation" has published an article from John Adams titled "The Dilemmas Facing China’s Energy Planners
The article included contributions from HR Financial director Bob Collins and insurance adviser Tim Mathieson. The full text of the article is also provided below.
The Dilemmas Facing China’s Energy Planners
China produces 28% of the world’s CO2 and coal still accounts for most of its power generation. It is currently trying to achieve three simultaneous transitions – away from the post-Covid construction boom, away from heavy industry to higher valued-added sectors and, at the same time, achieving decarbonisation.
In March 2021 China set out its Five Year Plan 2021-2025. This gives provinces and sectors guidance rather than targets on how the economy should develop. The plan was widely seen in the press as being vague on power, CO2 and pollution. This is a mis-reading of the FYP’s purpose – specific plans for the various energy sectors have yet to be developed.
Energy FYPs are normally drafted by China’s National Energy Administration (NEA). It was, however, subjected in late 2020 to inspection by the Ministry of the Environment. The stinging report charged the NEA with neglecting the ecological policies of President Xi. Two of its directors have been sentenced to life imprisonment for corruption. It remains to be seen if co-ordinated plans will be ready by 2022.
Is the Chinese data reliable?
This is a longstanding debate about political interference. Nevertheless, for national energy consumption data we can arrive at a range: China has had a 5% difference between the national and the aggregated provincial data for many years. For policy purposes and for the general direction of travel, this range is perhaps a tolerable indicator for the largest grid (2011GW) in the world.
Regarding CO2 emissions, a recent study from UN and Chinese sources shows wide variation, from 8.6 to 12 bn tonnes. But the readings cluster at the lower level, between 8bn and 9bn tonnes, implying a 10% measurement variation, again tolerable and showing the direction of travel. For example, all of the CO2 series display strong growth from 2000 to 2010, followed by a steady plateau to 2015 which has continued, according to more recent IEA data
Are China’s CO2 Targets Achievable?
In September 2020, President Xi announced that China would peak its CO2 emissions before 2030. Under the Paris Agreement’s ‘Nationally Determined Contributions’ (NDCs), China was already committed to peaking CO2 emissions by 2030, but with no specified level – perhaps reflecting the statistical uncertainty above. This limited target, with a decade time lag, is probably achievable.
President Xi’s other target, of reaching carbon neutrality by 2060, on the face of it represents a much more significant change. China will have to cut use of coal for energy and scale up renewables.
But the 2060 pledge can also be seen as a statement of reality. China’s present fleet of coal-fired power stations, even with the contentious net 30GW commissioned in 2020 (replacing some elderly generators), and the further 37GW approved for construction thereafter, will all be reaching the end of their 40 year lives by 2060, having been replaced by renewables. So this target too looks achievable.
Population is, however, a more thorny consideration. Over the period from 2024 (when China’s population is expected to peak at over 1.4bn), population may in fact decline perhaps by 10m a year, falling 20% by 2060, according to a recent report in the Lancet. UNDP projections of China’s population indicate no fall, however, and instead a steady 1.4bn to 2100. This enormous range must be a major planning headache.
China is also facing a new range of extreme weather, between +40 and -40 degrees Celsius, which will throw greater demands on electricity generation. Central heating and aircon are necessary for survival, not luxuries, for China’s increasingly elderly population. Again, China's policy and plans for demand in this area will need to be carefully rolled out.
China’s Energy Security
China’s main energy vulnerability is in the 25% of its energy consumption imported by tanker from the Middle East. It is forced to protect its shipping lanes, past a potentially hostile India, through the (blockadable) Malacca Straits and into the disputed territorial waters of the South China Sea.
This vulnerability is in part also dictating China’s present clampdown in Xinjiang, its planned oil pipelines from Iran and Pakistan into that province, and its expensive occupation of remote atolls in the South China Sea.
What could China bring to COP26?
China could be expected to issue its Nationally Determined Contributions and other targets. This would set the bar for the world (including the US and India which, along with China, failed to declare these at the end of 2020, as required).
China is also the world’s leading issuer of green bonds and might be able to adjust its own Green Taxonomy (currently under discussion with the EU) to finesse the inclusion as ‘green’ of nuclear power reactors and ‘clean’ coal.
Another Chinese initiative, GEIDCO (Global Energy Interconnection Development and Cooperation), is an important policy espoused personally by President Xi. It proposes a world electricity grid, across which surplus power could be transmitted and traded. It would also allow China to export its likely surplus capacity, using its UHV (Ultra High Voltage transmission) technology and linking, for example, with the EU grid, itself about to expand into North Africa.
On the negative side, China did not attend the UK’s COP26 pre-briefing in March because of a diplomatic disagreement over Uighurs in Xinjiang. Further politicisation of climate change does seem to have been avoided by the visit of John Kerry to Shanghai in mid-April, with a subsequent positive joint communiqué.
But the US, unlike China, has no national grid, green taxonomy, national carbon trading system or national date for phasing out fossil fuel cars. It will have a hard time reversing the past four years of malign neglect to assert its leadership. Mark Carney’s distant horizon tragedy is now bearing down on us. This is a dangerous time to be placing climate change bets in the casino on the Titanic.
A review of Bill Gate's new book How to Avoid a Climate Disaster
by HR Financial directors John Adams & Bob Collins has been published by Long Finance
. You can read the article at:
How To Pay For Going Green
Another recently published book is The New Climate War
by Michael Mann, a well known US climate specialist and inventor of the ‘Hockey Stick’ climate warming graph.
The books take contrasting positions. Here John Adams, compares and contrast these two important additions to the climate debate.
Bill Gates book (How to Avoid a Climate Disaster) is a folksy US walk through the various techie solutions to climate change. These include seeding the upper atmosphere with various substances to reduce the effects of sunlight – an untried technology with perhaps unpredictable consequences. Gates is also a proponent of nuclear power as being the only possible solution to CO2 reduction. He has been experimenting for some considerable time with computer simulations and believes that the application of AI can reduce human error (the cause of the disasters at Chernobyl and Three Mile Island) and reduce nuclear waste. Burying reactors underground could also reduce the risks of terrorist attack. He has teamed up with the US government to build a prototype – owning a nuclear reactor (or going to Mars) now seem to be individual life-style options.
Gates’ nuclear proposals do not seem however to address the disaster at Fukushima in Japan in 2011, when a Tsunami flooded the emergency back-up generators, causing three reactors to melt down – a solution to managing the waste is still unforthcoming. The end result has been a loss of public confidence in nuclear power in Japan, with only nine reactors out of 60 now allowed to operate. It is however interesting to note that China (with 28% of global CO2 emissions) seems to agree with Gates – it proposes that nuclear power supply 95% of its electricity needs by 2100 – though on some projections China’s population will have fallen by 50% by then to 732mn. China is also prone to Tsunami and earthquakes….
Michael E, Mann’s offering (The New Climate War) is very different to that of Gates. He is somewhat dismissive of techie solutions, maintaining that application of existing solutions, if correctly applied, can cut CO2 to sustainable levels. This would include the gamut of solar, wind and hydro power. Unlike Gates, his book does not mention China. It is however an excellent guide to the underhand PR techniques applied by the fossil fuel industry to discredit him personally and academically. Mann points to the diversionary and divisive strategy adopted to neuter opposition – ‘personal initiative is pointless, but try Veganism and less showers instead’.
One suspects that the blind-spot for both Gates and Mann is the loss of US leadership in world climate issues under President Trump. The US has no national grid (hence the outages in Texas) while China is proposing to integrate into a world generation grid. But, as Gates sagely remarks, if China now exports its advanced and rapid building techniques for coal-fired power stations, this could indeed be a world disaster.
Both Gates and Mann seem to ignore the role of banks in financing fossil fuel, and the ability of investment funds to influence this through divestment. HSBC has, under pressure, just announced a new medium and long-term strategy to divest from fossil fuels (FT Friday 12th March 2021). This was brought about by 15 major fund managers proposing an AGM motion against HSBC (now withdrawn). It could still be a lively AGM in May. And shareholder activism seems to work.
Scottish Widows UK pension fund has recently drawn up a measured response to fossil fuel divestment – first, a letter to the board, followed by refusal to re-elect it at the AGM, and then a three year cooling off period before divestment – but only if fossil fuels are 10% of SW’s total AUM. The argument therefore that the divested fossil fuel assets will be snapped up by even less scrupulous investors seems fallacious – these investors still require liquidity and infrastructure loans, mainly from banks. Increased mandatory supervisory reporting and disclosure of ESG (环境，社会及管治) under the TCFD (Task Force on Financial Disclosure (财务披露 工作组) by banks from 2022 will prove another powerful lever.
The pressing current false dilemma is whether national policies will opt post-COVID for “business-as-usual” carbon-led growth; or will choose ‘expensive’ investment in green technology and infrastructure. The window of opportunity may be closing here, if rising inflation and higher interest rates do make such investment more costly.
The increase in the value of Bitcoin, which if continued will inevitably drive up the power consumption of Bitcoin "mining" operations, and hence CO2 emissions, demonstrates that the competition for investment funds has no natural bias towards environmentally favourable factors. As Tesla's large position in Bitcoin demonstrates, there are no intrinsic "green" barriers or considerations of collective self-harm which apply to money chasing the potential for higher returns.