Unpacking CNPC's net-zero road map for China

China National Petroleum Corp., or CNPC, one of China's big three national oil companies, has launched a road map for the country's energy sector to meet goals of carbon peaking by 2030 and carbon neutrality by 2060.

While the CNPC road map is not China's official plan, the state-owned enterprise's think tank called Economics & Technology Research Institute is well regarded by energy policy makers. The road map shows recent events like the energy crisis of 2021 and record high prices of generation fuels have already impacted long-term energy policy.

China's energy-related CO2 emissions to peak before 2030

CNPC's road map expects China's energy-related CO2 emissions to peak before 2030, and primary energy consumption to peak around 2030. Primary energy consumption is estimated to reach 4.2 billion mt of oil equivalent in 2030 and fall to 4.06 billion mt of oil equivalent in 2060.

High percentage of renewables penetration by 2060

ETRI expects the share of renewables in China's power generation to be even higher, touching 45% by 2030, 75% by 2050, and 88% by 2060. This will require technological breakthroughs to cope with intermittency and further reduce the share of fossil fuels.

The think tank has laid out a "renewables scenario" that assumes accelerated technology development at low cost to enable faster implementation. Under this scenario, total solar and wind installation capacity reaches 1,950 GW in 2030 and 6,630 GW in 2060, compared to the baseline scenario of 1,740 GW in 2030 and 6,130 GW in 2060. Total investment of Yuan 62 trillion is needed to support renewable capacity in this scenario, 10.3% higher than the baseline scenario.

A key component of the renewables scenario is reliance on long-distance power transmission from areas with abundant resources and land like western and northern China. More rapid growth in renewables also results in more rapid reduction in coal and oil demand, warranting focus on socio-economic issues associated with energy transition, especially in cities heavily relying on coal industry.

ETRI expects power sector carbon emissions to peak at 4.7 billion mt in the 2025-2030 period, and net-zero to be achieved around 2055 ahead of the national target of 2060.

Sectoral impact

China's energy transition is closely related with the nation's economic transition.

The Chinese economy is broadly divided into three sectors: the primary sector includes agriculture and raw materials, the secondary sector largely comprises manufacturing industries, and the tertiary includes services like finance and insurance.

The secondary sectors have grown to become the largest economic segment. China's power consumption from industries in 2021 accounted for 68% of the total in line with exponential growth in manufacturing.

The industrial sector's direct CO2 emissions have already peaked and energy demand is expected to peak at 1.89 billion toe around 2025, according to ETRI. The industrial sector will also see rapid electrification. Only 30% energy use will be through direct fossil fuel combustion in 2060, compared with 70% currently.

As part of its move to a consumption led economy, China's tertiary sectors are expected to replace emission-intensive secondary sectors. CNPC estimated tertiary sectors will collectively account for 60% of China's GDP in 2030 and 70% in 2060, steadily increasing from 54.5% in 2020.

Too conservative

CNPC's road map projects that China's coal demand will stabilize at 3.6 billion to 4 billion mt/year between 2021 and 2030, oil demand will peak by 2030 at 780 million mt/year, and natural gas demand will peak by 2040 at 650 Bcm/year.

Some industry experts at the launch event said that CNPC's fossil fuel demand projections were above consensus, technological advancements were not factored in, and discussions about carbon finance were largely absent.

The decarbonization road map was conservative, and oil and gas demand projections were high, based on existing technologies up to 2030, said Dai Yande, former deputy head of Energy Research Institute at China's top economic planner National Development and Reform Commission.

"From 2030 onwards, however, we need technologies that currently only exist in our imagination, and we should dare to imagine," he said.

"The current road map does not translate into the global warming target of 1.5 degrees," said Wu Yin, special counselor for the general office of China's chief administrative authority State Council.

Li Zheng, vice president at Institute of Climate Change, Tsinghua University, also said that in comparison with his university's research, the estimations of potential energy savings under the road map were relatively conservative.

Natural gas as a transition fuel

CNPC's road map sees gas-fired power as the most realistic solution to renewables' intermittency, with lower emissions than coal and more flexible than pumped-storage hydropower, adding that utility-scale battery storage is still struggling to scale up.

CNPC's road map projects much higher gas demand than consensus in 2030, and 410 Bcm/year gas demand in 2060, more than double IEA's projection. Assuming major breakthroughs in CCUS technologies natural gas demand in 2060 rises even more to 500 Bcm/year in 2060.

It also expects the transportation sector's energy mix in 2060: 48.8% electricity, 23.7% hydrogen, 10.4% natural gas (LNG) and 17.2% oil. Currently, around 7% is gas.

"I agree that gas demand shall peak at around 650 Bcm/year, but the demand is too high in the later phase. If natural gas demand still remains at over 400 Bcm/year in 2060, how can CO2 emissions from gas combustion be handled?" Dai said.

Using natural gas to cope with renewables' intermittency is "the choice after considering reality," the ETRI road map said. Experts at the launch event said this needs to be integrated with CCUS facilities.

CNPC's report comprises a CCUS scenario where technology development sees 440 million mt/year more CO2 captured in 2060, which enables natural gas demand to remain above 500 Bcm/year in 2060.

Carbon finance to reshape global competition

CNPC's road map did not extensively discuss assumptions about carbon costs but speakers said at the launch that carbon finance must be recognized by oil and gas companies, and the road map must discuss carbon sinks, which have enormous decarbonization potential.

Carbon sinks refer to nature-based reservoirs, such as forests and other forms of vegetations, that keep absorbing greenhouse gases in the atmosphere for a long period.

Globally, such nature-based decarbonization solutions are mainly financed through tradeable carbon credits, in voluntary or compliance emission trading schemes.

China's national carbon market is still at the beginning stage. Wang Zhen, president of Energy Economics Institute of CNOOC, another oil major, said looking at the development of EU ETS, carbon trading can be an effective tool to drive decarbonization.

"In the future, costs of carbon will become a highly important benchmark that reflects energy companies' competitiveness. On a broader scope, green finance and carbon finance are expected to reshape the competition patterns among global supply chain parties," Wang said.