What the world can expect from China at COP26

Release time：2021-10-21    

For a clearer picture of what lies ahead, Tech for Impact spoke to Christoph Nedopil, director of the Green Finance & Development Center at FISF, Fudan University.
He told us the biggest challenge for Beijing could be aligning people within China towards the same goal, especially as poorer provinces still rely heavily on fossil fuels.
“It’s not that all China can decide something and then the plan is already there,” he said. “It’s a very complex economy with a lot of different interests.”

Interview transcript

Teymoor Nabili

Christoph, hello, thanks very much indeed for joining me for a chat today.

Christoph Nedopil

Thanks for having me. What a pleasure.

Teymoor Nabili

So, I’m really interested in chatting with you because of your experience, not only in the climate field, but also your experience working in China with some of the key aspects of what Beijing is planning and thinking with regards to its climate policy. And I want to look at this in multiple dimensions, if we could. I don’t want to make it too complex, but to me it seems there are multiple dimensions: there’s the Belt and Road initiative, which you are heavily part of the institute that looks at the green aspect of the BRI activities. So that’s the external focus of China’s climate thinking. And then there’s the internal focus of China’s climate thinking. And we can even break that down further, I’d like to think of the policy and the practicality of China’s activities with regards to climate, and the philosophy and thinking conceptually of what they’re doing, as separate things. I hope that’s not too complex. But could we begin with just the big picture philosophy of what China’s doing? I mean, we spent years complaining that China is pumping this stuff out, or at least the West is complaining that China is the problem and isn’t doing enough. And yet, on the other hand, we have the ecological civilization declaration that President Xi has already made, and the very apparently determined approach to saying, right, we now believe that climate, ecology, environment are a core part of how we develop our economy, how we develop our country, how we develop our civilization. So just sum up for me, if you could, what is the philosophy of China’s climate activity today?

Christoph Nedopil

I think the philosophy of China’s climate ambitions is, if you look a little bit at the history, China has for a long time talked about balancing development in nature, having the ecological civilization as you just said, which is enshrined in the constitution, there is a lot of ambition right now, at least a lot of talk on climate change. But it has not always been like this. China, really over the last five to ten years has changed its approach to climate and the environment, where climate has become much more a centerpiece of their economic development model.

Teymoor Nabili

What does the ecological civilization mean? Let me just begin with that. What is the definition and the constitutional impact of that?

Teymoor Nabili

Let’s dig a little deeper into some of those aspects you just mentioned. The coal policy seems to be something that a lot of people are struggling to fully comprehend. We’ve had various statements, the most recent one of note being what President Xi said to Biden back in April. He promised to strictly control domestic coal power, and peak coal consumption by 2025. So, can you just give me – what is the bottom line on the coal policy?

Christoph Nedopil

I think you already mentioned, I think, the core of the dilemma. The world is hoping to get out of fossil fuels as fast as possible, to phase out fossil fuels, not to build new coal-fired power plants, but rather to accelerate the phase-out of existing coal-fired power plants in order to not have zero emissions by 2050. But – and this is very much if you look at the European Union and Germany – the question is, how much carbon stock do we have in the atmosphere rather than how much carbon emissions. By phasing out late in 2050, 2060, and then only coming to carbon neutrality then, it might actually be too much carbon in the atmosphere. So, the goal must be to upfront the phase-out of coal. Now China has, in its current five-year plan, room for developing more coal-fired power plants. It has committed to peak carbon emissions before 2030. So until 2029, China, in its own policy, can increase its CO2 emissions which can be coming from coal-fired power plants. And only by 2060 does it want to be carbon neutral, not even climate gas or greenhouse gas neutral, but carbon neutral. So, there’s still room to invest in coal-fired power plants in its commitments.

Teymoor Nabili

What is that investment plan?  Are they going to invest new money? Or are they just going to continue with the existing plants?

Christoph Nedopil

I think the challenge right now, as we’re seeing with the blackouts in China, is that there is a real cost of inefficient energy system and electricity grid and electricity market in China. There’s a number of compounding factors, the question of where do we need to invest in the energy system in order to avoid such blackouts? And I think right now, internationally, there’s of course a strong eye on China, what is China going to do? Is it going to invest more in coal because it believes that coal is the solution to the energy source or electricity shortages? Or is it going to take another path? I think it’s too early to tell really what’s going to happen in order to address the current situation, mostly because the factors that drive the electricity shortages are, I think, different in different provinces, and also of a global nature. One of the main reasons is, of course, the high price for buying coal. And if you have a very high price for coal, your cost of producing electricity with coal is of course going up. Now in China, the electricity price is fixed. And that means that all the coal-fired power operators are making a loss. And what we’re seeing is that the coal-fired power plants are not operating at full capacity. So, building new coal-fired power plants won’t solve the problem of electricity shortage. The loss-making will still continue. You might increase the efficiency in new coal-fired power plants, but ideally, a coal-fired power plant has to run for 30 to 40 years. And so I think it’s too early to tell and unlikely that we’re going to see massive new investments in coal-fired power over the next year.

Teymoor Nabili

Let me just go back to the specific issue of what the UK media are reporting and be absolutely clear on this. I’m quoting one paper, The Guardian, which says ‘China plans to build more coal-fired power plants, and has hinted that it will rethink its timetable to slash emissions’. And the paper says that this is going to be a major blow for the upcoming COP conference in Glasgow. Do you agree with that framing from The Guardian? Has China actually made significant change to its existing commitments? And does this present a threat to some kind of agreement at COP?

Christoph Nedopil

I think China reiterated its ambition to peak before 2030 and to be carbon neutral by 2060, at a number of recent meetings, high-level meetings, including the EU, China and high-level dialog on environment and climate in September. So I think it’s too early to say that it’s a strong deviation. Again, building new coal-fired power plants is part of the 14th five-year plan, the current five-year plan. It is not something that should be welcomed, if you want to protect the climate but it’s nothing that China had not announced before.

Teymoor Nabili

Okay, let’s talk a little bit then about the investment proposal. Now with the BRI – the Belt and Road Initiative – it wasn’t too long ago, when China began first making its commitments to reducing domestic coal consumption and use, that people started saying yes, yes, but all they’re doing now is they’re funding all the coal overseas, and so there’s still a problem. So where is the current situation with respect to the BRI, and its climate activities, climate-related thinking?

Christoph Nedopil

I think there has been a lot of progress, really a lot of progress has been made over the last, particularly, three years. The announcement by President Xi to not build a new coal-fired power plant I think is very important, because it solidifies the current trend that we have been seeing, that the construction of coal-fired power plants and the financing of coal-fired power plants has not been so much on the agenda over the last two years, compared to for example 2016, 2015, where we saw really tens of billions invested in coal-fired power. So that’s solidifying the trend that we see in the investment. And it’s a little bit different to understand the overseas finance and the domestic finance. The overseas finance is much more commercial-driven. It’s not that there is not some policy goals involved in the BRI as well, but particularly energy investments are much more commercial, where the power plants have to make a profit. And with the cost of renewable energies coming down so far, it’s just becoming so much more economical to invest in renewable energies, particularly solar and wind. And investing in coal-fired power plants is just loss-making. And so we’ve seen not only no new announcements for coal-fired power plants, but actually the cancellation of a number of coal-fired plants that had been already approved, or even partly constructed. For example, the coal-fired power plant in Zimbabwe, which was actively cancelled. Also, with the ICBC the host countries are canceling coal-fired power plants like Bangladesh, like Egypt, like Kenya. There’s a lot of movement away from coal for much more economical reasons. Compare this to China, where the situation is a lot more complex, and potentially also not only economically driven.

Teymoor Nabili

Let’s talk about China relative to the rest of the world. Of all the things that we’ve spoken of, how would you rate China’s policy and activity in this field, with respect to some of the other major polluting nations, whether they be the advanced nations or perhaps nations like India, which are still a little bit down that chain. Tell me what you think that that relative performance is.

Christoph Nedopil

It’s not so simple. It’s a complex question. To give you one answer, I think the green finance system, of where the central bank, particularly the People’s Bank of China, with a number of other banking regulators, is really aiming to push the application of green finance, more than many other central banks. To give you a very concrete example, if a bank holds insufficient amounts of green loans in their portfolio, or not enough green bonds, it will get publicly scolded at some point, which in the end decreases their ability to raise more funds. The central bank also provides incentives, really monetary incentives, to hold more green assets. It lowers the capital adequacy ratio, so banks can take on more leverage if they hold more green bonds. Now, this is something that really is groundbreaking, and where the People’s Bank of China has been a leader globally. So on the green finance space, there’s a lot of things happening. Now, the problem is that there’s a lot of things on the non-green finance space, dirty finance, happening as well, and to reconcile both sides is extremely challenging. And that’s why it’s not so easy to say, where are we? I think there’s many things where China is doing many, many good things, including massive investments in renewable energy, but it’s also doing a lot of things that are not necessarily aligned with the goal of the Paris Agreement.

Teymoor Nabili

Let me ask you a couple of quickfire questions around the COP conference. What do you think China’s biggest obstacle is to achieving its COP ambitions?

Christoph Nedopil

I think getting a fair or just transition in China. With a lot of people depending on the old sectors, it is a very big challenge. That, of course, is where we see the difference between the provinces, and that has to be balanced.

Teymoor Nabili

So you’re saying, balancing its ambitions and necessities with regards to economic growth and the climate goals; these are in conflict?

Christoph Nedopil

I think much more the regional differences that we’re seeing. And this has been a much bigger theme over the last weeks, with the concept of shared prosperity, where the recognition that the economic growth has not been equally distributed between particularly coastal cities and more provinces that are not at the coast. We need much more balancing, and a lot of the less-developed provinces are dependent often on more traditional sectors that are related to fossil fuels. I think that’s the biggest challenge, to get a just transition between the different provinces in China.

Teymoor Nabili

What do you think is the most ambitious target that it’s set itself, the most consequential?

Christoph Nedopil

The 30-60 target is the most consequential target – peaking before 2030 and being carbon neutral by 2060. It has really shifted the mindset of the industry, of the financial sector particularly, and, of course also of policymaking. It is the most important target right now for China’s climate ambitions.

Teymoor Nabili

With respect to the commitments that it has given and the targets that it has set, what do you think its trajectory is like? Do you think it’s going to meet its own targets?

Christoph Nedopil

I think meeting the 2030 target is very much possible. It is mathematically possible by just being extremely high on emissions in 2029. Possibly unnecessarily high if you really want to push it in order to peak in 2029. But it’s also a lot of possibility to invest in renewable energies, which is one of the biggest drivers, of course, of carbon emissions and the energy sector. There’s a willingness to address electricity markets in China, which is very challenging, even to trade electricity between the provinces. So there’s a lot of action. Usually China does meet its targets that it commits internationally to, and I also am very hopeful that it meets at least the 2030 target.

Teymoor Nabili

So much of the conversation around China is focused upon the idea of how much polluting they’re doing. A lot less seems to be focused on what they’re doing in the renewable energy field, in replacing those systems with new systems. Just give me your sense of their commitment, their activity, and their achievements when it comes to solar power, hydrogen power and other renewable technologies.

Christoph Nedopil

I think that’s a very important aspect of greening China’s economy. If you look at electricity production, China has become a leader in both wind and solar technology. I think it provides about 75% of global solar panels. It is also one of the largest producers of wind power and wind parks. It is investing globally in these renewable energy systems and the generation of electricity. There’s a lot of momentum going, and interestingly mostly driven by private companies. And I think this is an interesting conflict to explore between state-owned enterprises and private companies. A lot of the renewable energy, particularly wind and solar, is private corporations that are driving this is development, which is all good. Because of China, the cost of these renewables has come down for everyone in the world.

Teymoor Nabili

Let me end where we began – the really big picture look at what’s happening. This theme of balancing economic growth versus ecological requirements has been a constant one throughout the entire conversation. China’s desire, as you said, at the beginning, to play catch-up economically and bring its population to a state of development that it thinks is appropriate, is very strong and quite understandable to a large extent, but it is in direct conflict with a lot of these climate goals. How do you think that conflict is going to play out?

Christoph Nedopil

I think we are really at a point in history where we can ideally balance – particularly in the electricity system, and potentially in the transport system – the wish for more consumption and wealth with a more carbon-neutral economy, just because the cost of electricity from renewable energies has been dropping so much that we can generate enough electricity which is relatively carbon-free. So, I don’t see necessarily at this time in history that there is such a conflict, when we talk about carbon neutrality. I mentioned before that the goal must be actual climate neutrality. And that is, I think, a much bigger challenge if we have to look at the food systems, where particularly meat consumption contributes so much to climate change. And overall, the meat consumption in China probably has not reached its peak. So, if we would look at climate emissions more broadly, I think the conflict is much stronger than if we look at carbon emissions only.

Teymoor Nabili

Christoph, great, thank you very much for your insights into this. Hopefully, we can catch up after COP and see what actually transpires from those conversations. But for the meantime, I appreciate you talking to me.

Christoph Nedopil

My pleasure and I’m really looking forward to talking with you after COP to see what comes out of that.