CICC Issues Key Thematic Report

   2021-03-24 12:03

Economics of Carbon Neutrality: Macro and Sector Analysis under New Constraints

BEIJING, March 24, 2021 /PRNewswire/ — China International Capital Corporation Limited (CICC, 03908.HK, 601995.SH) held a highly successful "Carbon Neutrality 2060 Forum" in Beijing on March 23 and 24. The forum focused on China’s roadmap for carbon neutrality and invited a wide range of distinguished guests, including senior government officials, prominent domestic and overseas scholars, executives from leading companies, as well as top-notch investors. The forum featured in-depth discussions about China’s pathways to carbon neutrality over the next four decades, as well as policy implications and investment opportunities that may emerge. In addition, CICC rolled out a key thematic report: Economics of Carbon Neutrality: Macro and Sector Analysis under New Constraints, which represents the collaborative efforts of CICC Research and CICC Global Institute.



SHEN Rujun, Chairman of CICC, expressed his gratitude to guests and highlighted the importance of the forum’s theme: "Carbon neutrality is consistent with the direction of China’s economic restructuring and industrial transformation. In addition, setting high targets for carbon neutrality and carbon peak shows that China is a large and responsible nation in the international community. Since its inception, CICC has been dedicated to supporting China’s reforms, opening up, and capital market development. We hope to join hands with all of you again and contribute together to the ‘green development’ of the nation."

HUANG Zhaohui, CEO of CICC, chaired the forum. He stressed the far-reaching implications of the forum’s theme: "Carbon neutrality is an unprecedented, self-imposed revolution. The journey to carbon neutrality over the next four decades will lead to profound changes in China and the rest of the world. CICC Research and CICC Global Institute have collaborated to conduct thorough and systematic research on carbon neutrality. At this forum, we would like to share our findings with you and hear your views on this topic, so that we can better understand carbon neutrality and support the country’s endeavor to achieve it."

Prominent Domestic and Overseas Guests and Scholars Exchanged Insights into Carbon Neutrality

At the plenary session held on the morning of March 23, prominent domestic and overseas guests delivered keynote speeches to provide comprehensive analysis of carbon neutrality in China and around the world from a full spectrum of perspectives, such as carbon pricing, technological advances and social governance.

Apart from the plenary session, there were twelve parallel sessions featuring a wide range of topics, such as "Carbon Neutrality: Policies and Impacts", "What Carbon Market Can and Cannot Do", "Opportunities and Challenges of Carbon Neutrality and ESG Principles", "Green Finance", "Outlook of International Cooperation on Carbon Neutrality", "Carbon Neutrality Technology", "Green Energy", "Green Transportation", "Green Manufacturing", "Green Consumption", "Green City" and "Digital Solutions for Carbon Neutrality".

The forum brought together almost 1,500 participants, including investors, corporate executives and government officials. Nearly 1,000 guests joined us in person, while more than 500 attended online.

CICC Rolled Out A Key Thematic Report on Carbon Neutrality

The COVID-19 pandemic has compelled us to think more profoundly on the relation between humans and nature, notably on the urgency to address climate change. In September 2020, the Chinese government pledged to achieve carbon peak by 2030 and carbon neutrality, i.e., net-zero carbon emissions, by 2060. After China, Japan, EU and the US announced to reinforce emission reduction or set the schedules for carbon neutrality. Encouraging moves by these major economies signify the arrival of a carbon neutrality era. Against such a backdrop, CICC Research and CICC Global Institute collaborated to compile our latest report: Economics of Carbon Neutrality: Macro and Sector Analysis under New Constraints. The report systematically analyzes the pathways for China to achieve carbon peak and carbon neutrality, as well as their broader implications.

According to Dr. PENG Wensheng, CICC’s Chief Economist, Head of Research Department and Executive Dean of CICC Global Institute, the study of carbon neutrality other than a market research, highlights two critical aspects: 1) Carbon neutrality encompasses a wide range of fields, including economics, science, and social studies; and 2)Carbon neutrality is an unprecedented challenge for public policy, which will undoubtedly play a pivotal role. Our report represents the collaborative efforts of four macro research teams and more than 20 sector teams, along with invaluable contribution from external sources, including a global research paper contest. The report adopts both top-down and bottom-up approaches to explore China’s roadmap for carbon neutrality from aggregate and structural perspectives.

As carbon neutrality has become a clear, fixed target, the key question now is how to effectively achieve this target at a low cost rather than assessing the long-term damage caused by climate change. When business entities choose between fossil fuels and clean energy, they usually base their decisions on cost-benefit analysis, which brings up a new concept "green premium". There are two ways to lower the green premium: reducing the cost of using clean energy, and raising the cost of fossil energy. However, the economy may face significant impacts if we rely solely on carbon pricing to lower the green premium, as the level of carbon price required could be excessively high. In our view, the optimal solution is to reduce the cost of clean energy or energy consumption per unit of GDP, which requires technological advances and innovations in social governance. We believe this would be a positive supply effect to the economy and may present new development opportunities.

The energy sector accounts for nearly 90% of total carbon emissions in China. Emission reduction in this sector faces two main obstacles: the enormous emission volume and, more importantly, the growing demand for energy along with China’s on-going economic growth. Based on estimates by various sector teams in CICC Research, we expect that the energy sector to achieve carbon neutrality in 2060 by raising the clean electricity proportion to 70% of the total energy demand, 8% with green hydrogen, and 22% with other energy sources supported by carbon capture technologies.

Going green in manufacturing industries is a key step in China’s endeavor to achieve carbon neutrality. According to China Emission Accounts and Datasets (CEADs), energy-intensive manufacturing industries, such as steel, cement, oil & gas, chemicals and nonferrous metals, accounted for approximately 36% of China’s total carbon emissions in 2017. We believe 2021–2030 may be the toughest period for emission reduction in manufacturing industries. We believe these industries will need supportive public policies, complete technology upgrading in this period to help them solve their problems, and find a feasible way to reduce emissions.

The report also provides forecasts on carbon emissions in China’s transportation industry. Under neutral assumptions, we expect this industry’s carbon emissions to peak at 1.33 billion tonnes in 2030 (vs. 1.16 billion tonnes in 2019) and plunge to 260 million tonnes in 2060, down 77% from the 2019 level. We believe the passenger vehicle segment has a clear pathway to carbon neutrality, and will likely make significant progress in emission reduction thanks to China’s competitive advantage in lithium batteries. On the other hand, carbon neutrality in the road freight segment relies on the development of hydrogen fuel cells. For airlines and marine transportation, carbon neutrality is more difficult and relies more on technological advances. In contrast, the railway segment has a highly visible decarbonization pathway based on electrification.

China International Capital Corporation Limited (CICC):

China International Capital Corporation Limited (CICC, 03908.HK, 601995.SH), as the first joint-venture investment bank in China, provides comprehensive one-stop investment banking services for domestic and overseas companies, institutions and individuals. Since its inception in 1995, the Company has adhered to the core values of "by the people and for the nation, professionalism and diligence, innovation and entrepreneurship, client first, and integrity", and committed to making itself a first-class international investment bank based in China and a critical player in the future financial system. The Company is qualified for both domestic and overseas securities business operations, having set up a broad range of international business network. Headquartered in Beijing, the Company has set up a number of branch companies and subsidiaries in Mainland China, owns more than 200 securities branches in 29 provinces, municipalities and autonomous regions in China, and established offices in a series of international financial hubs including Hong Kong, New York, London, Singapore, San Francisco, Frankfurt, Tokyo etc., which enables the Company to provide one-stop domestic, overseas, and cross-border financial services. The Company has a comprehensive and balanced business structure including investment banking, equities, FICC, investment management, wealth management and research.


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