Carbonomics China Net Zero The Clean Tech Revolution
EQUITY RESEARCH January 20, 2021 8:43 PM GMTThe following is a redacted version of the original report. See inside for details.CarbonomicsChina Net Zero: The clean tech revolutionChina’s pledge to achieve net zero carbon by 2060 represents two-thirds of thec.48% of global emissions from countries that have pledged net zero, and couldtransform China's economy, starting with the 14th Five-Year Plan. We model thecountry's potential path to net zero by sector and technology, laying outUS 16 tn of clean tech infrastructure investments by 2060 that could create40 mn net new jobs and drive economic growth. Our China Carbonomics costcurve highlights three key interconnected scalable technologies for net zero:1) Electrification through renewable power dominates the lower part of the costcurve and has potential to de-carbonize around half of Chinese CO2 emissions,with power generation tripling by 2060 – dominated by wind and solar, drivingincreased demand for base metals such as copper ( 15%) and a completeoverhaul of the country’s power networks; 2) Clean Hydrogen is the secondmost important technology, potentially driving 20% of the de-carbonization,mostly in industry and heating; and 3) Carbon Capture could address 15% ofChina’s emissions, mostly in industrial processes. Exports contribute c.20% ofChinese CO2 emissions (gross): growing global consumer awareness of thecarbon footprint of goods and the prospect of a border adjustment on carbonprices add urgency to China's net zero policy and highlight the importance ofcarbon markets.Michele Della Vigna, CFA 44 20 7552-9383michele.dellavigna@gs.comGoldman SachsInternationalZoe Stavrinou 44 20 7051-2816zoe.stavrinou@gs.comGoldman SachsInternationalChao Ji 86 21 2401-8936chao.ji@ghsl.cnBeijing Gao Hua SecuritiesCompany LimitedTrina Chen 852 2978-2678trina.chen@gs.comGoldman Sachs(Asia) L.L.C.Shuo Yang, Ph.D. 86 10 6627-3054shuo.yang@ghsl.cnBeijing Gao Hua SecuritiesCompany LimitedSharmini Chetwode, Ph.D. 852 2978-1123sharmini.p.chetwode@gs.comGoldman Sachs(Asia) L.L.C.Goldman Sachs does and seeks to do business with companies covered in its research reports. As aresult, investors should be aware that the firm may have a conflict of interest that could affect theobjectivity of this report. Investors should consider this report as only a single factor in making theirinvestment decision. For Reg AC certification and other important disclosures, see the DisclosureAppendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are notregistered/qualified as research analysts with FINRA in the U.S.The Goldman Sachs Group, Inc.For the full list of authors, see inside.
AUTHORSENERGY - OIL & GAS, CARBONOMICSMichele Della Vigna, CFA 44 20 7552-9383michele.dellavigna@gs.comGoldman Sachs InternationalZoe Stavrinou 44 20 7051-2816zoe.stavrinou@gs.comGoldman Sachs InternationalBASIC MATERIALSENERGY - UTILITIESChao Ji 86 21 2401-8936chao.ji@ghsl.cnBeijing Gao Hua SecuritiesCompany LimitedFINANCIALSShuo Yang, Ph.D. 86 10 6627-3054shuo.yang@ghsl.cnBeijing Gao Hua SecuritiesCompany LimitedChelsea Zhai 86 21 2401-8679chelsea.zhai@ghsl.cnBeijing Gao Hua SecuritiesCompany LimitedSharmini Chetwode, Ph.D. 852 2978-1123sharmini.p.chetwode@gs.comGoldman Sachs (Asia) L.L.C.Joy Zhang 852 2978-6545joy.x.zhang@gs.comGoldman Sachs (Asia) L.L.C.ENERGY - OIL & GAS, REFINING & CHEMICALSNikhil Bhandari 65 6889-2867nikhil.bhandari@gs.comGoldman Sachs(Singapore) PteAUTO AND AUTO PARTSFei Fang 852 2978-1383fei.fang@gs.comGoldman Sachs (Asia) L.L.C.Trina Chen 852 2978-2678trina.chen@gs.comGoldman Sachs (Asia) L.L.C.Olivia Xu 852 2978-1521olivia.xu@gs.comGoldman Sachs (Asia) L.L.C.Polly Tao 852 2978-6349polly.tao@gs.comGoldman Sachs (Asia) L.L.C.Amber Cai 852 2978-6602amber.cai@gs.comGoldman Sachs (Asia) L.L.C.REAL ESTATEYi Wang, CFA 86 21 2401-8930yi.wang@ghsl.cnBeijing Gao Hua SecuritiesCompany LimitedKeebum Kim 852 2978-6686keebum.kim@gs.comGoldman Sachs (Asia) L.L.C.Bill Wei 86 21 2401-8946bill.wei@ghsl.cnBeijing Gao Hua SecuritiesCompany Limited
Goldman SachsCarbonomicsTable of ContentsChina net zero: Thesis in charts4China net zero: Corporate Ecosystem7PM Summary: China net zero 20608China net zero ambition: The most critical piece of the puzzle for global carbon neutrality18Differentiated and distinct emissions scale, sectoral mix and path for China21The cost curve of de-carbonization for China is very steep yet highlights a wide range of low-costopportunities26Laying out the path to net zero China30China net zero and investments: US 16 tn investment opportunity on China’s path to carbon neutrality31China net zero and job creation: Potential for the creation of c.40 mn jobs by 206033Laying out the path to a net zero China: A sectoral deep dive34China net zero: The role of carbon sequestration61China net zero: The potential implications for natural resources demand64China net zero: Addressing China’s export competitiveness in the era of climate change66China net zero: What have banks done to address China’s goal for carbon neutrality?70China ETS: Getting closer to the implementation of the world’s largest national emissions trading scheme 73Appendix: China de-carbonization cost curve details79Disclosure Appendix8120 January 20212
China Net ZeroStory in numbersChina’s pledge to achieve net zero carbon by 2060 represents two-thirds of the c.48%of global emissions from countries that have pledged net zero .as the country accounts for c.30% of global CO2 emissions (2019), and c.64% of theincrease in global CO2 emissions since 2000.despite a substantial reduction of c.40% in the CO2 intensity of its economic output(CO2 emissions per GDP) since 2000.China's net zero path leads, on our estimates, to a US 16 tn clean tech infrastructureinvestment opportunity by 2060 and c.40 mn net new jobs.Renewable power is the most important technology, potentially aiding the decarbonization of c.50% of Chinese CO2 emissions. and we expect China’s power generation to triple to 2060, driven mostly by solar,wind, nuclear and hydro generation.Electrification transforms road transportation, with almost 100% penetration of newenergy vehicles (NEVs) by 2060 requiring a US 1 tn investment opportunity incharging infrastructure.and a c.15% rise in annual copper demand, with notable increases in aluminium,lithium and nickel too.Clean hydrogen drives c. 20% of the de-carbonization, mostly in industry, heating andlong-haul transport and we estimate that the market for hydrogen could increase 7x by 2060, from c.25Mtpa to c.170 Mtpa.Carbon capture is another critical technology with a wide range of industrialapplications, critical to decarbonize c.15% of the country’s emissions.Net international trade contributes c.13% of China’s CO2 emissions through netexports (and c.20% for gross exports) whose competitiveness could be affected by a border adjustment of carbon taxesthat could cost China up to US 240 bn pa for a carbon tax of US 100/tnCO2 applied tothe entire carbon footprint of gross exported emissions.highlighting the importance of a clear de-carbonization strategy and theimplementation of carbon pricing schemes, with China’s upcoming national ETSexpected to be the largest globally and bring the total share of global GHG emissionscovered by carbon schemes to c.23%.
Goldman SachsCarbonomicsChina net zero: Thesis in chartsExhibit 2: .and for 30% of global CO2 emissions, and c.64% of theincrease in global CO2 emissions since 2000.Countries that have pledged net zero (in law, in proposed legislation andin proposed policies)CO2 emissions (GtCO2, LHS) and share of global CO2 emissions byregion (%, RHS)20%15%0.110%0.0Net zero in law orin proposed net zero legisationCO2 emissions (GtCO2) in 2019 - LHS0%BrazilSingaporeMarshall zerlandChinaUkraineDenmark*New Zealand*ChileNorwayFrance*CanadaGermanyEuropeam Union0.05%35%CO2 emissions (GtCO2)Share of global CO2 emissions %3% 5%0%ChinaUnitedStatesNet zero proposedUnderin policy documentdiscussionGlobal share of CO2 emissions (%) in 2019 - RHSOther Asia Europe& icaNorthAmerica(ex. US)South &CentralAmericaShare of global CO2 emissions 62012201830%CO2 emissions by region (GtCO2)35%10.0Share of global CO2 emissions (%)100.0Log CO2 emissions (GtCO2) in 2019Exhibit 1: China accounts for the majority of the c.48% of globalemissions from countries that have pledged net zero carbon.Source: European Commission Joint Research Centre (JRC). Emission Database for GlobalAtmospheric Research (EDGAR) release version 5.0, Goldman Sachs Global Investment ResearchExhibit 3: .despite a substantial reduction in the CO2 intensity ofits economic output.Exhibit 4: CO2 emissions in China are skewed towards industry andpower generation (c.80% of total).Reduction in annual CO2 emissions per unit of annual GDP (%)Sectoral split of CO2 emissions by region (%)Sectoral split of CO2 -60%80%60%40%% Reduction since 2010% Reduction since 2005IranSaudi ArabiaBrazilIndiaSouth AfricaJapanIndonesiaMexicoGlobalSouth KoreaAustraliaRussiaCanadaUnited StatesEU27 UKChina20%United KingdomReduction in annual CO2emissions per GDP (% reductionin tnCO2/k /yr)Source: Energy & Climate Intelligence Unit, Goldman Sachs Global Investment Research% Reduction since 20000%NorthAmerica(ex. US)BuildingsUSSouth &CentralAmericaIndiaOther industrial & waste, agricultureChinaAsiaEurope rial combustionPower generationTransportSource: European Commission Joint Research Centre (JRC). Emission Database for GlobalAtmospheric Research (EDGAR) release version 5.0, Goldman Sachs Global Investment ResearchExhibit 5: .which make up the vast majority of the carbonabatement cost curve.Exhibit 6: At current technologies, we estimate that 75%de-carbonization would cost China US 720 bn paDe-carbonization cost curve for China’s anthropogenic GHG emissions,based on current technologies and current costsDe-carbonization cost curve for China’s anthropogenic GHG emissions,based on current technologies and current 1000-100-200 00.01.02.03.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0 13.0 14.0China GHG emissions abatement potential (Gt CO2eq)Power generation (coal switch to gas & renewables)Transport (road, aviation, shipping)Industry (industrial combustion, process emissions, waste)Buildings (residential & commercial)Agriculture, forestry & other land uses (AFOLU)Non-abatable at current conservation technologiesSource: Goldman Sachs Global Investment Research20 January 20212020 ChinaCarbonomicscost curve 90%Chinade--carbderbonizazationCarbon abatement cost(US /tnCO2eq)China carbon abatement cost(US /tnCO2eq)Source: European Commission Joint Research Centre (JRC). Emission Database for GlobalAtmospheric Research (EDGAR) release version 5.0, Goldman Sachs Global Investment ResearchAnnual Cost: 1.8 tn erbonizazationAnnual Cost: 720 bn paAnnual cost : 220 bn pa1234567891011121314China GHG emissions abatement potential (GtCO2eq)Source: Goldman Sachs Global Investment Research4
Goldman SachsCarbonomicsExhibit 7: China’s net zero path implies a US 16 tn clean techinfrastructure investment opportunity by 2060.Exhibit 8: .creating c.40 mn net new jobs.Net job creation bridge on the path to net zero China by 2060 (mn)60422.10.7Hydro & other RESOffshore wind2.0Onshore wind1.9SolarRenewable Nuclear PowerEnergy Transport Biofuels Hydrogen Industrial Hydrogen CCUSpowerpower networks storageEV plants processes pipeline(batteries) FCEV(SMR nks17.30Chinanet zero2060Totalinvestments1.739.75.10.3Operation & maintenance(O&M)Construction, installation &manufacturing (CMI)Net job creation inChina to 2060 (mn jobs)0.9610(2.7)(1.4)Clean hydrogen manufacturingjobs (electrolyzer manufacturing)0.5(2.5)6.9202.7Crude oil extraction,processing & refining8300.1Biofuels and bioenergyproduction & supply chain2.70.51000.40.32.1Mining and processing ofcopper and other metals1.210.1Batteries and electrificationequipment manufacturing1240Powernetworks1450EV charging infra. construction,installation, operation,maintenance, 16.0Nuclear powergeneration0.5Coal mining &dressing0.8Coal-fired electricitygeneration and heat supply1.416Renewable electricitygeneration (CMI & O&M)18Net job creation to 2060 on the path toChina net zero(mn)Cumulative investments to net zeroChina by 2060 (US tn)Cumulative investment opportunity across sectors for China net zero by2060 (US tn)Source: Company data, Goldman Sachs Global Investment ResearchSource: UNEP - ILO - IOE - ITUC, EuropeOn, IRENA, NBSC, Goldman Sachs Global InvestmentResearchExhibit 9: Renewable power is the most important technology,potentially aiding the de-carbonization of c.50% of Chinese CO2emissions.Exhibit 10: .as we expect China’s power generation to triple by2060.China electricity generation bridge to 2060 (thousand 0-200CO2 abatement (GtCO2)30.0China electricity generation( thousand TWh)Carbon abatement cost(US /tnCO2eq)De-carbonization cost curve for China’s anthropogenic GHG emissions,with orange indicating the technologies relying on access to 1.45.215.03.610.07.55.00.0China 2019Baseelectricityelectricitygeneration incorporatingefficiencyimprovements14China GHG emissions abatement potential (Gt CO2eq)De-carbonization technologies relying on access to renewable energyOther de-carbonization technologiesGreen Elecrtic vehicles ationtrucks)penetration)of heatChina 2060Net zeroelectricitySource: BP Statistical Review, Goldman Sachs Global Investment ResearchExhibit 11: .driven by solar, wind, nuclear and hydro powergeneration.Exhibit 12: .which dominate the low-cost part of the carbonabatement curve.China electricity generation (thousand TWh)China power generation de-carbonization cost curveChina power generation(thousand TWh)30GS 204020422044204620482050205220542056205820600Coal CCUSOffshore windHydroNatural gasH2CGGTOnshore windNuclearCoalOther (biomass, geothermal)SolarOilSource: BP Statistical Review, Goldman Sachs Global Investment Research20 January 2021Carbon abatement cost (US /tnCO2eq)Source: Goldman Sachs Global Investment 3.23.64.0China GHG emissions abatement in power generation (GtCO2eq)SolarSolar batterySolar hydrogen storageH2 GCCTOnshore windWind batteryWind hydrogen storageCCUS4.4Offshore windNuclearHydroSource: Goldman Sachs Global Investment Research5
Goldman SachsCarbonomicsExhibit 13: Clean Hydrogen is the second most importanttechnology, potentially driving c.20% de-carbonization.Exhibit 14: .followed by Carbon Capture, which is key tode-carbonizing China’s industrial process emissions.De-carbonization cost curve for China’s anthropogenic GHG emissions,with blue indicating the technologies relying on clean hydrogenMerged conservation and sequestration cost curve including CCUS andnatural 00-200Carbon abatement cost(US /tnCO2eq)12000123456789101112China GHG emissions abatement potential (Gt CO2eq)1314China carbon abatement cost(US /tnCO2eq)1000800600DACCS - 400/tnCO2eq400DACCS - 200/tnCO2eq200DACCS - 100/tnCO2eq00.0De-carbonization technologies relying on clean hydrogenOther de-carbonization technologies-2001.02.03.04.05.06.06.97.98.99.910.9 11.9 12.9China anthropogenic GHG emissions abatement potential (GtCO2eq)Exhibit 15: Electrification will lead to a substantial rise in thedemand for base metals, such as copperExhibit 16: 13% of Chinese CO2 emissions (and 16% of the increasesince 2000) is embedded in net exports.Average annual incremental copper demand for China net zero (MtCu)China CO2 emissions produced, consumed and exported (MtCO2)NEVsCharging(passenger pointsEVs, EVtrucks,FCEVs)PowernetworksSolar ntalannualcopperdemandby 2060for net 40.20.0China CO2 emissions (MtCO2)Source: Goldman Sachs Global Investment ResearchIncremental annual copperdemand for China net zero(MtCu)Source: Goldman Sachs Global Investment ResearchAnnual production-based CO2 emissionsAnnual consumption-based CO2 emissionsNet exported CO2 emissionsNet exported CO2 emissions (%) - RHSExhibit 17: .whose competitiveness could be affected by a borderadjustment of carbon taxes.Exhibit 18: .hence the importance of a clear de-carbonizationstrategy and implementation of domestic carbon pricing schemes.Cost of China’s annual gross exported emissions (US bn)Carbon pricing initiatives’ share of global GHG emissions covered (%)0%20%40%60%80%100%Carbon intensity difference of China's exports with other country's localproducts (%)Carbon price - 25/tnCO2Carbon price - 50/tnCO2Carbon price - 75/tnCO2Carbon price - 100/tnCO2Source: Goldman Sachs Global Investment Research20 January 202120202019201820172016201520142013EU ETSKorea ETSCalifornia CaTMexico pilot ETSFujian pilot ETSShanghai pilot ETSOthersJapan carbon taxGermany ETSGuangdong pilot ETSUkraine carbon taxKazakhstan ETSCanada federal fuel charge2021EChina national ETSSouth Africa carbon taxMexico carbon taxAustralia ERF Safeguard MechanismHubei pilot ETSFrance carbon taxAlberta 7250Share of global GHG emissions coveredby carbon pricing (%)Source: Our World in DataCost of China's total gross globalexported emissions (US bn)Source: IRENA, International Copper Association, Goldman Sachs Global Investment ResearchSource: World Bank Group6
CHINA NET ZERO Corporate EcosystemPOWERGENERATIONINDUSTRY &WASTERenewable power utilities & nuclearMetal minersRenewableLongyuan power [0916.HK]Datang Renewable [1798.HK]Xinyi Energy [3868.HK]Zhejiang Chint [601877.SS]NuclearCGN power [003816.SZ]China National Nuclear Power[601985.SS]Utility-scale batteries andelectrolyzer manufacturersYunnan Energy [002812.SZ]Putailai [603659.SS]Senior Tech [300568.SZ]Sungrow [300274.SZ]Zhejiang Narada PowerSource Co Ltd [300068.SZ](lithium, nickel, copper)Ganfeng Lithium[1772.HK/002460.SZ]MMG [1208.HK]Jiangxi ydrogen productiondistribution &transmissionSinopec [0386.HK,600028.SS, SNP]PetroChina [0857.HK,601857.SS, PTR]CNOOC [0883.HK,CEO]Wind turbines and supply chainWind turbinesGoldwind [002202.SZ; 2208.HK]Mingyang Smart Energy [601615.SS]Turbine partsSinoma Science&Tech [002080.SZ],Titan Wind Energy [002531.SZ]Jinlei Wind [300443.SZ]Riyue Heavy Industry [603218.SS]Solar panels and supply chainSolar panels:Longi [601012.SS]Jinko Solar [JKS]JA Solar [002459.SZ]Trina Solar [688599.SS]Solar poly/wafer/cellDaqo [DQ]Tongwei [600438.SS]GCL-poly [3800.HK]Xinte [1799.HK]Longi [601012.SS]Aiko zhen SC[300724.SZ]Maxwell [300751.SZ]Zhejiang Jingsheng[300316.SZ]Solar glass/inverterXinyi Solar [0968.HK]Flat Glass[6865.HK/601865.SS]Sungrow [300274.SZ]Ginlong [300763.SZ]Goodwe [688390.SS]TRANSPORTElectric vehiclemanufacturersNIO Inc. [NIO]Li Auto Inc. [LI]BYD CO. [002594.SZ,1211.HK]Guangzhou Auto Group[2238.HK, 601238.SS]Gr
China net zero and job creation: Potential for the creation of c.40 mn jobs by 2060 33 Laying out the path to a net zero China: A sectoral deep dive 34 China net zero: The role of carbon sequestration 61 China net zero: The potential implications for natural resources demand 64
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