Honorable Secretary Cai Qi, Mayor Chen Jining, Secretary Ma Jiantang, Minister Huang Runqiu, Director Zhang Jianhua, Vice Mayor Yin Yong, Executive Director Fatih Birol, ladies and gentlemen. Good morning to you all!
It is a great honor to be invited to address the Global Energy Transition Forum, jointly hosted by the Beijing Municipality and the Development Research Council of the State Council. We have a long-standing and deep partnership with Beijing, the city in China which exemplifies the country’s innovation drive and technological capability and which – uniquely among Chinese provinces and cities – has been the first to see absolute carbon emissions decline while GDP continued to grow.
I am also delighted to highlight our ongoing, substantial cooperation with the Development Research Council. When I had freshly arrived in China 2 and half years ago, one of my first meetings was with Secretary Ma Jiantang. We discussed which key strategic issues should be at the heart of our collaboration during my stay in China, and it was thanks to his foresight that we agreed to embark on a new joint research project on Green China. We hope our joint work will inform the critical transformation of China’s economy towards a zero-carbon future.
I am also very honored to share this opening panel with Fatih Birol, who has done so much with the International Energy Agency to bring the challenges of the energy transition to the world’s attention. The IEA’s latest report on how to achieve zero emissions in the energy sector by 2050 highlights what is at stake, what is needed but importantly also what great opportunities the transition opens for new jobs and for the creation of sustainable growth paths.
In my brief remarks I want to share a few observations on China’s energy transition and on what we – at the World Bank – are trying to do to support it.
China’s power sector in 2020 accounted for around 42 percent of China’s CO2 emissions of 9.9 billion tons. As such, it is the single largest source of CO2 emissions, followed by the industrial sector with 28 percent. Both shares are higher than in high income countries and this is predominantly because of the continued reliance of China on coal as a primary source of energy. China’s energy transition will therefore fundamentally depend on the transition away from coal. In this connection, I want to make three points.
First, the transition away from coal has already started, but to accelerate the trend, a stronger policy mix may be needed.
Second, the decarbonization of the energy sector not only raises challenges for energy planners, but also has substantial distributional implications across provinces and regions. These need to be managed to ensure the transition is just and sustainable.
Third, with the right policy mix, the energy transition has the potential to create huge new economic opportunities, which China is well placed to benefit from.
China has seen a dramatic increase in renewable capacity over the past decade. Between 2010 and 2020, the share of coal in China’s energy matrix declined from 69 to 57 percent while renewables increased from 9.4 percent to 15.9 percent. Today, China has by far the largest installed capacity of renewable energy globally. During the same period, China has invested heavily in improving the energy efficiency of its industrial sector, leading to a 28 percent reduction in the energy intensity of GDP. Together, the expansion of renewables and the improvement in energy efficiency account for 80 percent of China’s abated emissions during 2011-17. We are proud that the World Bank Group has been a key partner to China in this achievement. I want to highlight in particular the close relationship we have enjoyed with the National Energy Agency and thank Director Zhang and his whole team.
China’s 14th Five Year Plan and its 2030 targets envision a continuation of these trends. Particularly remarkable is the planned expansion of non-fossil sources of energy, doubling their share in the energy matrix to 25 percent by 2030. This implies adding more than 110 GW of renewable capacity annually – the equivalent of Germany’s entire installed renewable fleet each year! Energy efficiency improvements will also continue, largely at the pace seen during the 13th FYP. Nonetheless, with these policies, coal fired capacity will continue to increase and coal consumption may not peak before the middle of the decade.
To accelerate the energy transition, therefore, more than investment in renewables and in energy efficiency are needed. What is required is a deeper process of structural change, moving China’s production and consumption away from energy intensive heavy industry, towards more innovation and skill intensive sectors, including services. Beijing’s economic transformation into a service and innovation hub can serve as an example. This transformation happens naturally as economies get richer, but to accelerate it, households and businesses will need clearer price signals. At the World Bank we side with the vast majority of economists who believe that we will need to introduce a credible price on carbon if we are to achieve the transition to zero emissions. China’s Emissions Trading System is an important step in this direction, but its allowances are too generous and its application too limited to drive structural change. The introduction of an absolute economy wide emissions cap could do much to create stronger incentives. This is another area in which we continue to work with the Ministry of Ecology and Environment and with NDRC, and which is central to our joint research on Green China with DRC.
A key challenge of the energy transition is that it affects different regions and thus workers differently. Beijing has already decoupled emissions from growth, but in some western provinces emissions are still rising faster than GDP. A realistic price on carbon would hit China’s interior provinces significantly harder than the richer coastal cities, particularly those highly dependent on coal-based value chains. The energy transition thus will require government support for poorer provinces, to ensure quality services continue to be provided, to offer retraining opportunities, to encourage investment and reform the business climate. And sometimes, it may also require allowing people to move to where the jobs of the future are. We are particularly pleased that over the past three years we have been invited to work with the provincial government of Shanxi to prepare this traditional coal province for a just transition. We have worked on training, unemployment insurance and on repurposing closed coal mines. We hope that with this help Shanxi can demonstrate that moving away from coal is possible even in the heartland of coal production.
But the energy transition is not all challenge. As Dr. Birol I am sure will elaborate, it is also a source of new growth and job opportunities. This is another reason why we argue for a broader policy mix, including credible and meaningful carbon prices and reforms to the power market to prioritize economic dispatch. The benefit of a clear price signal is that it can stimulate innovation and technological breakthroughs in areas we don’t understand today. To get the energy sector towards zero carbon, we will need these breakthroughs. A clearer price signal is more likely to incentivize the best minds to find them. It will also make it more attractive for banks and capital markets to fund these innovations and bring them to market. This is another area in which we are working closely with China. Earlier this year, in collaboration with the Ministry of Finance and the Clean Development Mechanism Fund we set up a new, green equity fund, to channel risk capital towards green enterprises at the growth stage. Already today, China employs more people in green industries than any other country. But we are only at the beginning of this transformation.
Ladies and gentlemen – China is the biggest emitter of greenhouse gases worldwide. It is also the country with the biggest renewable fleet worldwide and it is a world leader in several green technologies, such as Electric Vehicles. We believe strongly that China can leverage these capabilities, with the help of the right policies, to become a leader in energy transition and demonstrate that its opportunities outweigh its costs. This will continue to be the focus of our partnership. We look forward to working with all of you.
Thank you very much for this opportunity and wishing us all a successful Global Energy Transition Forum.