China aims to reach peak carbon emissions by 2030 and achieve carbon neutrality by 2060, which poses significant challenges during this critical period of economic transition.

How can China achieve its dual carbon goals while ensuring economic growth?

Song Lingfei, President of the GuChuan Industrial Research Institute, believes that while we feel the pressure, we should also recognize the opportunities it presents.

▲ "Industrial Development Opportunities Under the Dual Carbon Goals" Special Live Stream: Scan the QR code to watch the replay.

During the Guichuan Industrial Research Institute’s special livestream on July 25 and 26, Director Song elaborated on the contradiction between the high energy consumption demands of rapid economic development and the high-carbon characteristics of the energy structure.

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New Opportunities Amid Challenges

What challenges will the "Dual Carbon" goals pose to economic growth?

First, China’s economic growth potential remains substantial.

During the 14th Five-Year Plan period, China’s economic growth target is set at around 5–6%. Although we currently face some unique challenges, achieving a growth rate of around 5% is entirely feasible.

Economic growth in developed countries is generally around 2–3%.

Therefore, our economic growth rate is relatively high, and consequently, our demand for energy is growing rapidly. Under these circumstances, achieving carbon neutrality is extremely challenging.

Second, China’s current energy situation is not optimistic.

China is the world’s only major energy-consuming nation that relies primarily on coal; it has a high degree of dependence on foreign energy sources and an underdeveloped reserve system.

Electricity is a secondary energy source that is easy to transmit, distribute, and convert, and it is also a convenient and clean energy source.

In the future, if we are to reduce our reliance on coal and oil and achieve energy electrification, carbon emissions from power generation will be particularly important.

However, we are highly dependent on thermal power generation, especially coal-fired power, which remains the power generation method that produces the most carbon dioxide.

Therefore, carbon dioxide emissions from power generation in China are currently relatively high, and reducing them poses a particular challenge.

Third, China aims to transition from carbon peaking to carbon neutrality within 30 years—a timeline far shorter than that of developed countries.

Developed countries generally took 50 to 60 years, or even 70 years, to transition from carbon peaking to carbon neutrality.

Such a short timeframe presents us with numerous challenges.

In particular, regarding thermal power, some thermal power facilities and units have lifespans exceeding 30 years; phasing out thermal power within such a short timeframe would entail very high costs.

However, the "dual carbon" goals also present many opportunities.

They play a crucial role in helping us implement the new development philosophy and pursue high-quality development.

Viewing the "Dual Carbon" Goals Through the Lens of the New Development Philosophy

What does the new development philosophy entail?

Innovation, coordination, green development, openness, and shared benefits.

Furthermore, the 14th Five-Year Plan explicitly states that we must scientifically balance development and security and build a safer China at a higher level.

The process of achieving the "Dual Carbon" goals presents new opportunities for innovation, green development, openness, shared benefits, and security.

First, innovation is at the core of the new development philosophy.

Currently, some Chinese enterprises proactively pursue innovation, while others are forced to innovate only when facing immense pressure—when survival is impossible without it.

However, even among enterprises that innovate proactively, investment may still be insufficient.

Many studies have found that the rate of return on innovation for the innovators themselves is lower than the return it brings to society as a whole.

Since most enterprises may not pay much attention to societal returns, their investment in innovation is often insufficient.

The "dual carbon" goals, however, have effectively placed pressure on enterprises to innovate.

Because strict regulations on carbon emissions will be enforced, companies will be unable to meet these requirements without innovation.

At the same time, the government will provide stronger support for innovations related to the "Dual Carbon" goals.

In addition to innovations directly related to the "Dual Carbon" goals, there are also innovations in digital and intelligent technologies—particularly in the energy sector—which will see accelerated development driven by these goals.

In addition to technological innovation, there is also innovation in management.

In the process of achieving the dual carbon goals, many new business models will emerge, and these models will all require new management approaches.

Management innovation will create more opportunities.

In terms of energy consumption management, energy-intensive enterprises will need dedicated teams to oversee energy management in the future. Cities and regions must also improve their energy management systems.

Such innovations will not only facilitate the achievement of the dual carbon goals but also help China achieve economic growth more effectively.

Second, the dual carbon goals can create new opportunities for reform.

Reforms that previously faced resistance may now generate more opportunities with the "dual carbon" goals serving as a driving force.

For example, reforms to promote price reforms in the electricity and energy markets, as well as reforms to market organization models—including lowering market entry barriers, promoting fair competition, and resolving excess production capacity.

At the same time, to achieve the dual carbon goals, we must develop new energy sources.

In the past, some energy companies have, to a certain extent, relied too heavily on monopolies or industry protection.

The "Dual Carbon" goals will allow more dynamic enterprises to replace those reliant on monopolies and industry protection, becoming the mainstay of the energy market—a development that will have a positive impact on the economy as a whole.

Energy market and price reforms are of great importance.

Take photovoltaic power generation as an example: China’s actual photovoltaic power generation accounts for only 10% of installed capacity, while the proportion in other countries is much higher—for instance, Germany has already reached 40%.

How can this be improved? Further reforms are needed.

Third, open development is of great importance.

It is no exaggeration to say that China’s new energy sector is a global leader; for instance, both solar and wind power are highly competitive.

As the world pursues the dual carbon goals, these competitive new energy enterprises can tap into larger markets and contribute to global emissions reduction.

Take the photovoltaic industry, for example: it continues to break world records for solar cell conversion efficiency and has already formed a complete industrial chain, making it one of China’s most competitive industries.

Fourth, new opportunities for shared development.

The "dual carbon" goals can better promote common prosperity.

On the one hand, advancing the "dual carbon" goals also requires promoting carbon pricing, such as through carbon emission permit trading.

How emission permits are allocated will impact common prosperity.

If allocated to a small number of enterprises, it will not significantly contribute to promoting common prosperity. If the allocation of carbon emission allowances is tilted more toward ordinary residents, it will better promote common prosperity.

On the other hand, in areas such as solar and wind power generation, creating more opportunities for rural areas to participate in the electricity market also helps promote common prosperity.

Some economically underdeveloped regions possess abundant solar, wind, and hydropower resources. Achieving the "dual carbon" goals can bring more opportunities to these areas.

Fifth, opportunities to enhance economic security.

The carbon neutrality pathway requires reducing demand for crude oil and natural gas and replacing them with zero-carbon energy sources.

China’s current energy structure relies heavily on imports of crude oil and natural gas, which poses a certain threat to energy security.

The process of achieving carbon goals will involve greater use of clean energy.

This will help gradually reduce dependence on international energy markets, thereby improving both energy security and economic security.

Market-based mechanisms for achieving carbon neutrality

How can we achieve the dual carbon goals through various institutional and systemic reforms to better seize and utilize new opportunities?

One promising approach is to promote carbon pricing.

There are many approaches to carbon pricing.

The first is to impose limits on emission allowances.

Each year, a certain amount of emission allowances is allocated to market entities. If they need to emit, they use these allowances; if they save allowances by reducing emissions, they can sell them on the market.

In the emissions trading market, enterprises that find it difficult to reduce emissions can purchase allowances to meet their emission targets, while those with lower emission reduction costs have greater incentives to cut emissions.

In this way, the cost of emissions reductions across society can be effectively controlled, while overall societal emissions are also kept in check.

The second method of carbon pricing is a carbon tax.

If one ton of carbon dioxide is emitted, a tax of one ton must be paid, which will also provide incentives for enterprises to reduce emissions.

There are also other methods, such as when an entity owns forests or has planted vegetation that can absorb carbon dioxide—that is, perform carbon capture—it can obtain corresponding certificates, which can also be traded.

In summary, the purpose of carbon pricing is to make enterprises or individuals that generate carbon emissions bear the costs, while allowing those capable of reducing emissions to benefit from it.

Furthermore, the costs and benefits faced by everyone are the same, which allows for effective control of society-wide emission reduction costs.

These costs are not borne solely by the supply side—such as power or steel producers—but are ultimately passed on to the consumer side, where consumers must also feel the impact. Only then can people be provided with stronger incentives to reduce emissions.

Carbon pricing can also promote innovation. Since there are profits to be made from emissions reductions, the incentive for innovation is stronger.

If administrative measures are used, the social costs could be very high.

For example, the 2021 power cuts serve as a lesson: instead of using market mechanisms to limit electricity consumption, administrative measures were employed to allocate electricity quotas to individual enterprises.

For some enterprises, production can take two days to resume after a power outage; if power is cut twice a week, they cannot meet their production targets.

Using administrative measures to impose power cuts of equal duration on every enterprise forces those with high power outage costs to halt production, resulting in significant waste.

On July 16, 2021, China launched its national carbon market, which currently covers only the power sector. In the future, it will expand to cover more sectors, and we expect that during the 14th Five-Year Plan period, major high-emission sectors will be included.

In addition to the carbon emissions trading market, we can also consider a carbon tax. When considering these pricing mechanisms, we must coordinate them comprehensively to avoid unnecessary policy overlaps.

On the supply side of the energy sector, we also need to explore how to improve energy storage and peak-load regulation, and create incentives for different enterprises.

The power system must be capable of effectively managing various energy production technologies to ensure stable operation.

There are still many opportunities related to the "dual carbon" goals. Emissions from power generation, non-electric energy use, and non-carbon dioxide greenhouse gases all require the participation of numerous enterprises and innovators.

It is difficult to plan for all of these in advance; market mechanisms must be allowed to function effectively to mobilize the enthusiasm of more enterprises and consumers.

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