China can attain sustainable growth

Nation must step up focus on clean energy and curb some traditional investments

President Xi Jinping’s commitment, made at the United Nations in September, that China would achieve carbon neutrality by 2060, was a hugely important step in the fight against potentially catastrophic climate change and a welcome example of responsible global leadership.

It should also act as a spur for China to build a more balanced, sustainable and higher value-added economy.

To limit global warming to acceptable levels, the whole world must achieve net-zero greenhouse gas emissions by around midcentury, with all developed economies getting there by 2050 and all poorer developing countries by 2060.

That may seem ambitious, but as the global Energy Transitions Commission described in its recent Making Mission Possible report, it is certainly attainable given technological advances and cost reductions. Solar electricity costs have fallen 90 percent in just 10 years, batteries are 85 percent cheaper and the cost of producing green hydrogen from electrolysis is now collapsing.

As a result, we can now build electricity systems as much as 85 percent dependent on wind and solar resources, delivering electricity on demand throughout the year, at total costs fully competitive with coal or gas generation.

And we should electrify as much as possible, with directly used electricity growing from today’s 20 percent of final energy demand to more than 60 percent by 2050, and with hydrogen used to decarbonize sectors such as chemicals and steel production.

Building this electrified economy will not only limit global warming, but also deliver blue skies, clean water and more liveable cities. Meanwhile, the costs to economic growth will certainly be less than 1 percent of global GDP in 2050, and probably nil given further technological advances.

Big investments are needed to build this zero-carbon future, and the absolute figures can seem huge — with $1 trillion per year less investment in fossil fuels offset by a more than $2 trillion increase in investments in renewable energy generation and transmission systems, better insulated buildings, electric vehicles and charging networks, and new industrial plants.

Though large in absolute terms, the net increase represents only 1 to 1.5 percent of global GDP, and can easily be financed in a world where the balance between desired savings and desired investment is producing historically low and, in many countries, significantly negative real interest rates.

A global zero-carbon economy is therefore easily attainable — and so, too, is President Xi’s goal of Chinese carbon neutrality by 2060.

Indeed, the Energy Transitions Commission believes that China could get there even earlier, as it described in its 2019 report “China 2050: A Fully Developed Rich, ZeroCarbon Economy”.

China’s future zero-carbon economy will be deeply electrified. That is easily possible given its abundant solar and wind resources, its hydropower supply, and its large and costeffective nuclear power program.

Meanwhile, even more in China than elsewhere, the additional investment of about 1.5 percent of GDP is easily affordable, since China already invests over 40 percent of its GDP each year, and a significant share of that investment is in real estate construction.

Estimates suggest that more than 20 percent of all apartments are currently unoccupied. As many Chinese economists have shown, this has driven a rapid rise in China’s capital-output ratio, a sign of declining economic efficiency. And as the People’s Bank of China and China Banking and Insurance Regulatory Commission have frequently warned, excessive real estate investment, financed by credit, could be a cause of future financial instability.

China therefore has a win-win opportunity to both accelerate progress toward a zero-carbon economy and to reduce dangerous dependence on real estate and traditional infrastructure investment. An excellent joint report of the World Bank and the Development Research Center of the State Council

describes this opportunity.

That should entail less investment on simply “pouring concrete” and more investment in the forms of “new infrastructure” such as 5G, artificial intelligence, the internet of things and optical fibers, which Premier Li Keqiang highlighted in his Government Work Report in May.

It should also include accelerated investment in zero-carbon electricity, with no new coal expansion in the 14th Five-Year Plan (2021-25) period and with all new electricity supply coming from zero-carbon sources.

Such a commitment, combined with high-technology investments and constraints on wasteful real estate construction, would put China on a path to meet its carbon neutrality goal and build a more balanced, higher value-added economy.