China is in the zero carbon race; macro changes and broad sector impact

President Xi's high-profile pledges to achieve net-zero carbon emissions by 2060 surprised the market at the end of last year. UBS analysts across seven sectors and our ESG and China macro teams collaborated to map out the impact and trajectory of these changes. We identify nine likely sector implications linked to the net-zero target with an estimated annual investment of over US$2trn during 2020-60E. This economic revolution will demand a GDP trend towards lower energy intensity and primary energy shift from 85% fossil fuel to 85% renewables by 2060. The cost parity timeframe beyond renewables remains the key short/mid-term investment debate, as non-subsidised technology has better visibility on returns.

Structural changes in the Chinese economy; interactive model and scenarios

Between now and 2060, our UBS proprietary carbon model shows that for China's net carbon emissions to fall from 10bn tonnes (peak in 2030) to net zero, three things need to happen:

  1. amid a 4x increase in GDP, the mix towards the low-energy-intensity consumption tertiary sector will shift from 54% to 70%;
  2. a reduction in energy intensity at a 3.2% CAGR in 2020-60 (from 3.7% previously); and
  3. an 84% decrease in carbon intensity through the adoption of multiple non-carbon-emitting technologies. We lay out four scenarios for China's potential path to decarbonisation.

What is the bottom-up impact – penetration and cost parity key

Renewables and EV implications are established, but some impacts are only emerging such as hydrogen and plastic/ petchem. Other developments will be needed to support transition, such as energy storage, mass modification of the grid and the expansion of carbon trading. We estimate the average non-carbon-emitting technology penetration rate, percentage of new capacity/sales, is required to jump from 9% now to 85% by 2060E. We also think that most of these technologies would reach cost parity after 2030, except renewables (now), EV and batteries (2024-25) and energy storage (2025-2027).

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