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Is President Xi going to save the world? What will that do to shipping?

The world's largest PV solar cell array at Qinghai Province, China. Pic: Sungrow

On 22 September, President Xi announced that the Chinese economy will decarbonise within forty years. “We aim to have CO2 emissions peak before 2030 and achieve carbon neutrality before 2060,” he said via videolink.

To understand the scale of his commitment, consider that China will have to cut its emissions more rapidly than all other nations. Of the three big global economies, China emits 28% of global greenhouse gases (GHG), the US 13% and the EU 9%.

What’s more, Xi has committed China to a programme of investment that outstrips current climate change agreements. The Kyoto Protocol in 1997 only covered developed countries, though the US did not join. China did not join (it was not yet in the WTO either) Kyoto only covered 20 percent of global emissions.

The Paris Accord (COP 22) aimed at limiting temperature increases caused by greenhouse gas emissions only lasted a year from agreement in 2015 to President Trump’s announcement that the US would recuse itself. In any case, Paris was only meant to be a first step on the long march to decarbonisation of the global economy. Every signatory understood this.

The list of states with a dedicated decarbonisation strategy is limited. It tends to include countries with a strategic interest in reducing their dependence on imported hydrocarbons (coal, oil, gas) in favour of domestically-produced hydrogen carriers (ammonia, methanol) and batteries for transport plus renewable energy for CO2-neutral municipal electricity generation and the electricity required to produce the hydrogen carriers, then extract the hydrogen from them.

No prizes then for guessing that Japan and South Korea have well-developed decarbonisation strategies including plans for building ships that run on zero-carbon fuels.

The EU’s is a net importer of oil, but could be self-sufficient in hydrocarbons if the political and economic will existed. Its commitment to decarbonisation comes from perhaps a more ideological position based on limiting the public health costs of climate change. EU nations have a higher-than-global-average spend on public health (NB not on individual healthcare- the US spends more as a percentage of GDP on that than any other nation). It makes political sense in the EU to limit the increased costs of climate change to public health budgets, even if that means increasing costs for industry and consumers in the short term as new energy technologies are researched, developed and implemented.

Countries which have a powerful domestic hydrocarbon industry and limited hydrocarbon imports, along with lower social costs in national government budgets have perhaps the least economic incentive to reduce their dependence on hydrocarbons in favour of alternatives. Step forward, Uncle Sam! On this limited metric, Donald Trump’s rejection of the Paris Accord makes sense.

China sits in none of these camps. It is not ideologically committed to public health except as part of its policy of social control – one good reason why it did so well in its efforts to suppress the spread of Covid-19. China has a powerful domestic coal industry, well represented in the CCP at national and provincial level. It relies on coal for 60% of its electricity generation and over 50% of its overall energy consumption. 1,050 Gigawatts of coal fired electricity generation is in operation, consuming three billion tonnes of coal a year. Another 46 Gigawatts of coal fired power generation is being built in China with another 48 Gigawatts under construction despite massive overcapacity with most plants running at only around 50 per cent utilisation. China also has plans to build scores of coal fired electricity plants overseas.

China has a mature but politically important oil industry, but it supplies only around 25% of China’s daily oil requirements. The rest has to be imported, making China the biggest oil importer in the world and acutely aware of its strategic vulnerability to its maritime hydrocarbon supply chain.

China is the world’s fastest-growing importer of liquefied natural gas and will soon be the biggest LNG importer overall. China’s energy import costs continue to rise, even as coal, oil and gas prices are relatively low compared to the five years to 2020.

Xi made the speech just after Trump at the UN conference, clearly with an element of politics – showing that, compared to the US under President Trump, China is with the adults in the room.

But China has to act faster and cut harder than every other country to achieve Xi’s goal. The challenge is going to cost China about three times as much as it will have spent on urbanisation between 1990 and 2040 (Maybe USD 15 Tn for decarbonisation versus USD 5 Tn in urbanisation).

What action will China take now to demonstrate its commitment? Xi has an opportunity is to put climate action at the heart of the forthcoming five year plan which will be introduced to the plenary of the CCP in Beijing this month. Given the way that Chinese politics works, we can expect to see follow-up announcements by senior provincial politicians, the National Development and Reform Council, provincial governors and senor academic institutions.

There is already a target that 20% of electricity will be produced by non-fossil fuels by 2030. A recent cut to solar subsidies may not derail this. China has the most solar power installed of any country.

The world's largest solar array in the desert in Qinghai Province has just come on-line. It can generate 2.2 Gigawatts of electricity. It cost the equivalent of USD 2.2 Billion. Installation began in Nov-19 and finished in Sep-20. 1,600 km of transmission wire across Qinghai, Gansu, Shaanxi and Henan provinces connects this vast generator to the densely populated East Coast grid.

The Chinese National Bureau of Statistics released energy data this week which showed a significant, 19% rise in wind-generated electricity in the year to August 2020. Already, the Chinese government is instead presiding over a big increase in wind power, with ambitions to grow offshore wind power from 200 Gigawatts in 2019 to 400 GW by 2030 and 1,000 GW by 2050.

Already, as reported in Science magazine, “a research group at Tsinghua University presented a $15 trillion, 30-year road map on 27 September that calls for ending the use of coal for electricity generation around 2050, dramatically increasing nuclear and renewable power generation, and relying on electricity for 80% of China’s energy consumption by 2060.”

In the end, Xi may have his eye on the national accounts as much as on a nobel prize for saving human society from the ravages of climate change. Because it might be cheaper to decarbonise than to stay on China’s current path.

As well as the cost of importing hydrocarbons, China has to pay for building and maintaining overseas naval bases (the String of Pearls), a growing blue water navy, and all those artificial islands in the South China Sea to deny access to the American navy. The spot price of oil and gas may currently be low enough to encourage enough imports to keep the VLCC and LNG tanker markets from collapsing, but the overall costs to China’s development strategy are much higher. Already the Chinese have capped coal imports, in part to rebuke Australia for seeking a review of the origins of Coronavirus, and in part to support jobs in domestic coal. The next step is to cap domestic coal production to stop the coal barons gaining ever greater leverage.

Meanwhile, Bloomberg New Energy Finance Analysts reckon that onshore wind and solar are now the cheapest additional sources of energy, giving China an opportunity to switch employment from older more carbon intensive industries and imports, to newer, greener industries offering greater export potential.

That’s because China now has the opportunity too to dominate the global renewables market, in which it already has a leading position as the biggest manufacturer of PV cells. China could also as take a leading position in hydrogen and associated energy carriers like ammonia.

China’s strong position in Asia, the Middle East and Africa presents it with a natural market connected to the fastest growing demographies. There is a chance in less developed client states to leapfrog the carbon economy and go straight to the hydrogen / renewable energy stage of development. Those exports can offset the cost of the stranded hydrocarbon assets that will be left behind.

And as for shipping….The consequences are about more than zero carbon bunker fuel. There will be a change in energy cargoes as oil and coal are replaced by hydrogen carriers like LNG, ammonia and methanol.

it’s been clear for some time that coal’s days are numbered, it being a question of when not if coal shipping demand would start to fall. Perhaps that day is near. A switch to hydrogen and its carriers like methanol and ammonia means a switch from oil tankers more LNG tankers, to H2, CH3OH and NH3 tankers – built no doubt in Chinese shipyards, funded by Chinese banks and lessors, and in many cases operated by Chinese shipping companies. And of course all these ships will be fuelled by the same molecules as constitute their cargoes, as will the containerships, ferries, coastal vessels, harbour vessels, and other types of the future.

President Xi, as his recent predecessors, likes to present China as a good global citizen. But like all his predecessors he acts in China’s self interests (no different to any other leaders). In time I’m sure it will become clear that his pledge will reflect this reality – and shipping could face ever greater domination from a new, green-and-red China.

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