- China and Europe lead the wave of global emission reduction
The European Union’s carbon emissions peaked in 1996. The European Union was the first country to enter the downward channel of emission reductions. Based on 1990, it has reduced emissions by 31.7% by 2020. In 2020, the European Union proposed a 55% emission reduction target by 2030 and plans for the European Union to 2050. Achieve carbon neutrality by the year.
The United States’ carbon emissions peaked in 2000 and gradually declined in the 21st century. However, emissions rose slightly in 2018. After Biden took office, the US$2 trillion new energy plan launched will promote the United States to achieve carbon neutrality by 2050.
China’s carbon emissions peak in 2030 (according to the plan), and China’s carbon emissions are still on the upward path, but recently, Chinese national leaders have raised carbon emissions reductions to a national strategic level. It is expected that carbon emissions will peak by 2030 and carbon-neutral be achieved by 2060.
Under the initiative and drive of major powers, countries around the world have responded to carbon emission reductions. Among them, Uruguay, Finland, Austria, and Iceland are at the forefront of achieving carbon neutrality in 2030-2040. Developed countries such as Canada, Germany, Japan, South Korea, and South Africa aim to achieve carbon neutrality by 2050. China aims to achieve carbon neutrality by 2060. He is the first developing country to set a deadline for carbon neutrality among the world’s major emitters.
Global companies assume social responsibility and set internal carbon emission reduction targets. Outside China, Siemens, Amazon, Mercedes-Benz, etc. are the main representatives, joining the Climate Declaration Alliance, and achieving the goal of net zero carbon emissions in 2030-2040. In China, LONGi, Sunshine, Jinko, etc. are the main representatives, joining the RE100 Green Initiative, promising to realize the production and use of 100% renewable electricity as soon as possible.
- Various industries take multiple measures simultaneously, carbon emission reduction is imperative
From the perspective of the energy structure of global carbon emissions, carbon emissions mainly come from the power, transportation, and industrial industries. In 2018, the three industries accounted for 85% of carbon emissions, which are the main positions for carbon emission reduction, of which the power industry has the largest carbon emissions. In 2018, it accounted for nearly 42%. In terms of increments, the total global carbon emissions in 2018 increased by 63.4% compared to 1990. Among them, the increase in the power and transportation industries exceeded the total increase, indicating that the carbon emissions in the power and transportation industries increased rapidly from 1990 to 2018, the main industry causing global climate problems.
The power industry accounts for the largest proportion of carbon emissions, accounting for 42%. From the perspective of the energy structure of global carbon emissions, the power industry has the largest carbon emissions, reaching 14Gt CO2 in 2018, accounting for about 42%. Therefore, reducing the carbon emissions of the power industry is an important task. In the emission reduction roadmaps planned by China and the European Union, the power industry has the highest emission reduction requirements among the emission reduction targets of various industries.
The transportation industry’s carbon emissions account for 25% of the total. From the perspective of the energy structure of global carbon emissions, the carbon emissions of the transportation industry rose sharply from 1990 to 2018. By 2018, the carbon emissions reached 8.26 Gt CO2, an increase of 79.2% compared with 1990, which was higher than the global carbon emissions growth rate. In 2018, the transportation industry’s carbon emissions were second only to the power industry, accounting for about 25%. At the same time, according to the BNEF report “China’s Accelerating Low-Carbon Process”, it is more difficult for the transportation industry to achieve carbon neutrality and it is necessary to start carbon emission reduction as soon as possible.
Industrial emission reduction mainly depends on the improvement of the energy structure and the efficiency of industrial processes. Industrial energy demand has grown steadily in the past decade. As the use of materials such as steel, aluminum and plastics has decreased, industrial processes have become more efficient, and a circular economy development model has gradually been established. BP predicts that the final energy consumption of the industrial sector will decline by 2050. 15-25%, of which the proportion of industrial coal, oil, etc. has dropped sharply, while electricity and hydrogen energy have achieved positive growth.
China’s housing industry accounted for 6.1% of global carbon emissions in 2018. From the perspective of the global carbon emission structure, the residential industry’s carbon emissions reached 2.03 Gt CO2 in 2018, accounting for about 6.1%, and it is an important sector of urban energy consumption. However, with the application of green buildings and green building materials, the proportion of carbon emissions in the residential industry is clearly in a downward trend.
The carbon sink capacity is improved by increasing forest coverage. Globally, according to the United Nations Strategic Plan for Forests, the forest coverage rate is 31% by 2019, and the global forest area is planned to increase by 3% by 2030. The forest carbon sink capacity will be further improved to achieve the goal of global carbon neutrality as soon as possible. In 2018, China’s forest coverage rate was 22.96%, an increase of 6.41% compared to 2000, and it would reach 23.04% by 2020. The forest stock volume would reach 61.5 billion cubic meters, and the total carbon storage of forest vegetation would reach 9.5 billion tons. It is planned to reach 2025. The annual forest coverage rate will reach 24.3% and 26% in 2035.
- Energy supply revolution is promoted, and photovoltaics have become the main energy source
From the perspective of the global power generation structure in 2019, coal and natural gas are the main energy sources for power generation. According to IEA data, global coal and natural gas account for about 60% of the world, and renewable energy accounts for only 26.8%, of which photovoltaic wind power accounts for 8%.
Renewable energy accounts for a relatively low proportion of China’s power generation structure, and there is much room for improvement: According to data from the National Energy Administration of China, from the perspective of China’s power generation structure, China’s coal power ranked first in 2020, accounting for 64.7%. Renewable energy accounted for 27.4%, higher than the global level of 26.8%, of which photovoltaic wind power accounted for 8.4%.
Hydropower uses rivers, lakes, and other high-place water with potential energy to flow to low places, and converts the potential energy contained therein into the kinetic energy of the hydraulic turbine, and then uses the hydraulic turbine as the driving force to drive the generator to produce electricity. That is to say, hydropower has certain requirements on the geographical environment, but the global developable hydropower resources are limited, mainly concentrated in parts of southern China, South America and North America. As a kind of important clean energy, various countries actively invest and develop hydropower, but better hydropower resources are gradually being exhausted.
Biomass energy development technology is not yet mature, and the absolute amount is still small at present. According to data from the National Energy Administration of China, China’s newly installed biomass energy capacity was 1.51GW in the first half of 2020, and the cumulative installed capacity reached 25.20GW (including Guangxi self-provided biomass power plant). China plans to generate 15GW from biomass in the 13th Five-Year Plan, but due to the immaturity of technology, the actual completion is only 11.58GW. The National Energy Administration of China estimates that the technology will mature around 2030.
Wind energy is the kinetic energy generated by air movement, and is a form of conversion of solar energy. The high wind energy density in plateau mountains and coastal areas around the world has great development value. Among them, the Three Norths (Northeast, North and Northwest) of China, the coast and its islands are two wind energy resource-rich belts, which are ideal wind farms. Construction area.
Solar energy is the sun’s thermal radiation energy, while photovoltaics is a new type of power generation system that directly converts solar radiation energy into electrical energy. It is estimated that the total annual global energy consumption is equivalent to the energy that the sun irradiates on the earth’s surface within 40 minutes. Therefore, the development and utilization of solar resources and the improvement of photovoltaic conversion efficiency will be the focus of future energy development.
Energy storage is a key supporting technology for the large-scale development of renewable energy. Energy storage runs through the power generation side, the transmission and distribution side and the power consumption side, and can be widely used in power grid peak and frequency modulation, power transmission and distribution, renewable energy grid connection, emergency power supply, user-side storage, and distributed micro-grid construction. Economic improvement + policy support, photovoltaic wind power accelerates the development of matching energy storage, helps the power network shift from independence to coupling, and also promotes the growth of photovoltaic wind power as the main energy source.
To sum up, the excellent endowment of photovoltaic resources and the rapid decline in costs have brought about global parity, and brought huge room for growth in the industry, which is expected to grow as the main energy source. As the cost of photovoltaic installations continues to decline, the cost of global photovoltaic power generation has dropped rapidly from 0.37$/kWh in 2010 to 0.048$/kWh in 2020, a drop of 87%. Summarizing the lowest winning bid price of photovoltaics in various regions recently, there is a significant gap between the average electricity price and the lowest winning price of photovoltaics. The difference between Germany and Portugal has exceeded 22 cents/kWh. With the advent of the era of parity, photovoltaic wind power will grow as the main energy source. It is estimated that the global installed capacity will be 170GW+ in 2021, an increase of 36%+, and the newly installed capacity will reach 374 and 1,017GW in 2025 and 2030.
- Global carbon emission reduction is becoming stricter and electrification is in full swing
Domestic China: Subsidies have declined moderately, and the double-point assessment has become stricter. The penetration rate of electric vehicles in 2025 will reach 20%+: The new energy vehicle development plan 2021-2035 once again clarifies the goal of a 20% penetration rate of electric vehicles in 2025. Based on this, we estimate that the sales of new energy vehicles in 2025 will exceed 7 million. The compound growth rate in -2025 is close to 40%.
Starting from 2021, 80% of new vehicles in key areas will be electrified, again emphasizing that leading companies lead the market. China’s 2035 plan points out that starting from 2021, 80% of public sector vehicles such as public transportation, rental, logistics and distribution will use new energy vehicles in the national ecological civilization pilot zone and key areas for air pollution prevention and control.
In the medium term, the double points will be tightened from 2021-2022, and the extension of subsidies will boost the sales of new energy vehicles. It is estimated that the sales of new energy passenger vehicles in China will reach approximately 2.42/3.21 million units, an increase of 81%/33% year-on-year.
In the long run, the new energy vehicle development plan proposes that the sales of new energy vehicles will account for 20% in 2025. We estimate that the domestic sales of new energy vehicles will be 7 million+ that year, and the compound growth rate will be close to 40% in 2020-2025. The corresponding power battery demand is about 395Gwh.
European electric vehicle subsidy policies continue to exceed expectations: Germany, France, Britain, Italy and other major auto countries will gradually increase subsidies for electric vehicles by more than 50% from June 2020. Among them, France has increased subsidies for electric vehicles, and the purchase and replacement of vehicles have been increased by 1,000 euros, the highest subsidy is 12,000 euros; Germany doubled the subsidy for pure electric vehicles below 40,000 euros to 6,000 euros. With the subsidies from auto companies, bicycle subsidies can reach 9,000 euros. In 2021, only the United Kingdom, France and Italy have a clear subsidy decline target, which is expected to be reduced to the level before the subsidy increase, and the overall range can be digested.
The EU’s most stringent carbon emission assessment is implemented: In 2020, 95% of new cars must have an average carbon emission of 95g/km. By 2021, they must meet this requirement 100%. Vehicles that exceed the carbon emission standard will be fined 95 Euros/g. In 2025, the average carbon emissions of new cars will be reduced by 15% compared to 2021 and 37.5% less than in 2030.
Various countries plan the penetration rate of electric vehicles or ban the sale of petrol vehicles, aiming to promote the replacement of petrol vehicles by electric vehicles and achieve carbon emission reduction in the transportation industry. Among them, China plans to account for 20% of new energy vehicles and new car sales by 2025, and new energy vehicles account for more than 50% in 2035. The European Union plans to account for 35% of electric + hybrid vehicles by 2030, and the penetration rate of electric vehicles will be rapid. Upgrade, the world’s earliest or will eliminate traditional cars in 2040.
- Formal implementation of carbon trading to help the cause of emission reduction
Eight pilot regions have laid the foundation for carbon trading: China’s carbon trading market pilot was launched in 2011, and carbon emission trading pilots were carried out in seven provinces and cities including Beijing, Shanghai, Tianjin, Chongqing, Hubei, Guangdong, and Shenzhen. In 2016, Fujian Province became the 8th place in China. A pilot program was launched. The national carbon market has gradually carried out spot trading of carbon allowances among the trading entities of the power generation industry to expand market coverage and enrich trading varieties and methods.
The “Measures for the Administration of Carbon Emission Trading (Trial)” was released in January 2021, and the first compliance cycle was officially launched on February 1, involving 2225 key emission units in the power generation industry. The company that has allocated emission quotas this time is A power generation company with annual emissions of 26,000 tons of carbon dioxide equivalent.
China’s carbon emission trading system is online, which means that carbon emission allowances will gradually transition from free allocation to top-down paid allocation, with an annual allowance issuance ratio of about 90% requiring a reduction ratio of 10% or less, which can be traded through open bidding and agreement.
The core of carbon trading is the carbon emission trading quota, which needs to be measured, reported and verified in the MRV management mechanism of the carbon market before trading can be carried out. There are currently two ways to monitor carbon in the world: one is the material balance algorithm, which is manually calculated according to the amount of coal burned. China currently adopts this method. Currently, China has released power generation, power grids, steel, fossil energy, machinery and equipment, etc. Accounting guidelines for 24 industries; the other is the online monitoring method, which monitors the concentration and flow of carbon emissions of enterprises through carbon monitoring equipment to obtain the carbon emissions of enterprises.
The EU carbon trading market is mature: the EU ETS (EU ETS) was established in 2005 and is currently the world’s largest carbon trading market, accounting for approximately 60% of global carbon trading volume. 45% of EU greenhouse gas emissions are in the EU ETS transactions. The trading products are mainly European Union Emission Allowances (EUA) and Certified Emission Reductions (CER). The carbon financial derivatives market and the carbon spot market are developing simultaneously. According to ICAP data, the cumulative revenue of the EU carbon market from 2009 to 2019 was 58.968 billion euros, of which 16.41 billion euros in 2019.
The EU’s carbon price continues to climb to 39.4 Euros/ton, and it is foreseeable that the carbon trading market will be huge in the future. According to ICAP data, as of March 9, 2021, the price per ton of carbon in China’s pilot areas was between 6.76 yuan (Hubei) and 41.35 yuan (Shanghai), while the EU reached 39.4 euros (about 303.77 yuan), and it followed the European Union. Carbon emissions are becoming stricter, and the price of carbon allowances is clearly on the rise. Taking into account the annual inflation rate of 2%, it is expected that the carbon price will rise to 48-88 Euros per ton by 2030, and the carbon market revenue is expected to double. The mature carbon trading market in the EU foresees a large carbon trading market in China in the future.
The CCER project is China’s certified emission reduction, that is, China’s CER. The emission reductions participating in voluntary emission reductions need to be registered and filed in the national voluntary emission reduction transaction. The emission reductions that have been registered are called certified voluntary emission reductions (CCERs). After the voluntary emission reductions have been recorded, they shall be registered in the national register and traded in the recorded trading institutions.
The green certificate trading system is usually a companion policy to the renewable energy quota system, the core of which is that the government or regulator can mandate by regulation that a certain minimum quota or a fixed percentage of the electricity sold by a power supplier by a certain time must come from renewable energy. As of March 24, 2021, the total number of China Green Certificate subscriptions was 73,300. According to the calculation of the standard that one green certificate corresponds to 1000kwh green power, the amount of electricity consumed by the traded renewable energy reached 73.3GWh.
Source: Soochow Securities