China’s Transition to a Low-Carbon Economy and Climate Resilience Needs Shifts in Resources and Technologies

Beijing – Climate change poses a significant threat to China’s long-term prosperity. At the same time, the country is well positioned to meet its climate commitments and transition to a greener economy while meeting its development goals, according to a World Bank Group report released today.

The World Bank Group’sCountry Climate and Development Report (CCDR) for China analyzes the fundamental changes in energy, industry, transport, cities, and land use that would enable China to realize its national commitments to reach peak carbon emissions before 2030 and achieve carbon neutrality by 2060. The report highlights the urgency of action, because of China’s large emission of greenhouse gases, the heavy exposure of China’s population and economic infrastructure to climate risks, and China’s critical role in global efforts to combat climate change.

The impacts of climate change threaten China’s densely populated and economically critical low-lying coastal cities, which are home to an estimated one-fifth of China’s population and contribute a third of its GDP. China already experiences frequent coastal flooding, storm surges, costal erosion, and saltwater intrusion. Unabated climate change could lead to estimated GDP losses of between 0.5 and 2.3 percent as early as 2030, according to the report.

Without China successfully transitioning to a low-carbon economy, achieving global climate goals will be impossible. China emits 27 percent of global carbon dioxide and a third of the world’s greenhouse gases. This transition will require a massive shift in resources, innovation, and new technologies to enhance energy efficiency and resource productivity. However, China’s advanced technological capabilities mean the pathway to carbon neutrality will open new avenues for development.

“China’s long-term growth prospects are increasingly dependent on rebalancing the economy from infrastructure investment to innovation, from exports to domestic consumption, and from state-led to market-driven allocation of resources,” said World Bank Vice President for East Asia and Pacific Manuela V. Ferro. “This report shows that the reforms which China needs to shift to such high-quality growth would also significantly lower the cost of climate action.”

The report lists a number of advantages that would allow China to turn the climate challenge into an opportunity: increasing returns on the production and development of low-carbon technologies such as wind and electricity storage; a high domestic savings rate and a leadership position in green finance; and the ability to create high-skilled jobs in high-productivity industries. China already has an estimated 54 million “green jobs”, with over 4 million jobs in renewable energy. China has also announced that it will no longer build coal-fired power plants abroad and will step up support for other countries in developing green and low-carbon energy.

Private sector participation is crucial to China’s path to carbon neutrality. The report highlights the importance of the public and private sectors working together to address the challenge. A more predictable regulatory environment as well as better access to markets and finance would allow the private sector to play a central role in delivering market solutions, improving productivity, reducing costs, stimulating technological innovation, and filling the financial gap.

“To reach net-zero emissions by 2060, the report estimates China needs between US$14-17 trillion in additional investments for green infrastructure and technology in the power and transport sectors alone,” said IFC’s Regional Vice President for Asia and the Pacific, Ruth Horowitz. “Given the immense price tag, public investments won’t be sufficient to meet these needs, so China needs policy and regulatory reforms to spur the private sector and fully tap the potential for investment and innovation.”

The report contains a comprehensive set of economy-wide and sector level policy recommendations, including for the energy, industry, building, agriculture, transport and other sectors. These include:

• Accelerate the power sector transition by increasing solar and wind power generation capacity by 2030 to 1,700 gigawatts from the current target of 1,200 gigawatts, and enhancing the integration of renewables by investing in energy storage.
• Accelerating electrification in private and commercial vehicles and providing adequate charging infrastructure.
• Ensuring a just transition for those regions and communities most affected by the shift away from fossil fuels, such as by enhancing labor mobility and developing a comprehensive labor policy package that includes training and reskilling, as well as compensation for laid-off workers.
• In the building sector, developing disclosure requirements and improving green standards.
• Reforming subsidies for water use, energy use in irrigation, and fertilizer production to support low-carbon land use in agriculture.
• Using eco-system compensation payments, developing an offset market and weather-related disaster risk insurance to encourage greater investment in carbon sinks and climate resilience.
• Expanding the current Emissions Trading System in the power sector to other high-carbon sectors such as steel, iron, and cement, and gradually transitioning to absolute emissions caps.
• Encouraging low-carbon corporate strategies in state-owned enterprises, including by adopting carbon accounting and targeting in order to support national goals.
• Establishing a high-quality corporate emissions accounting system and mandating climate-related financial reporting.

Modelling conducted for the report indicate that while China’s transition to carbon neutrality would be challenging, long-run economic costs would remain manageable. However, there will be job losses in emission intensive sectors like the coal industry. To address this, the report provides recommendations on a just transition to a low-carbon economy. This could be done through support to poor households in the face of higher energy prices, by training and reskilling workers from the fossil fuel sector and providing targeted assistance to the most affected local communities.

The World Bank Group’s Country Climate and Development Reports (CCDRs) are new core diagnostic reports that integrate climate change and development considerations. They will help countries prioritize the most impactful actions that can reduce greenhouse gas (GHG) emissions and boost adaptation, while delivering on broader development goals. CCDRs build on data and rigorous research and identify main pathways to reduce GHG emissions and climate vulnerabilities, including the costs and challenges as well as benefits and opportunities from doing so. The reports suggest concrete, priority actions to support the low-carbon, resilient transition. As public documents, CCDRs aim to inform governments, citizens, the private sector and development partners and enable engagements with the development and climate agenda. CCDRs will feed into other core Bank Group diagnostics, country engagements and operations, and help attract funding and direct financing for high-impact climate action.