An Analysis of Deep Decarbonization Trends in China’s Industrial Sector
The industrial sector is a major energy consumer and carbon emitter in China. For years, China’s industrial sector has been responsible for more than 65 percent of the nation’s energy consumption and more than 70 percent of the nation’s carbon emissions, and thus has always been the main focus of China’s climate change mitigation efforts. Industry is regarded as a hard-to-abate sector in terms of carbon emissions due to the complexity of industrial production processes and the high costs of carbon reduction. There is an international consensus that energy efficiency improvements, reduced demand for carbon-intensive products and services, and deployment of decarbonization technologies are the three main strategies for deep decarbonization in the industrial sector. Remarkable progress has been made in all these areas in China. China’s industrial sector is moving toward deep decarbonization, as can be seen in the following trends.
1. Industrial energy efficiency improvements bring great energy savings, but more potential needs to be unlocked.
The industrial sector has long been the biggest contributor to energy efficiency improvements in China. Over the years, the industrial sector has seen a decline in energy consumption intensity that is higher than the national average, and the sector has focused on improving energy efficiency for promoting green and low-carbon development. At the policy level, in 2018, seven ministries and commissions jointly revised and released The Administrative Measures on Energy Conservation in Key Energy-Using Departments, replacing the previous version issued by the State Economic and Trade Commission in 1999. The updated version establishes stricter industrial energy efficiency improvements with more detailed management measures, reward and punishment mechanisms, and legal responsibilities. In addition, the Ministry of Industry and Information Technology issued The Key Work Plan for Industrial Energy Conservation Supervision in 2018, which covers more than 5,500 enterprises in various industries, focusing on the supervision of energy-intensive industries such as the petrochemical, chemical, and paper industries. Its issuance has also promoted the improvement of energy efficiency in key industries and regions.
However, with the continuous implementation of industrial energy efficiency measures and the improvement of energy efficiency actions, the space for industrial energy conservation has been further compressed. The decline of energy consumption per unit of industrial added value was 4.6 percent in China in 2017, and the rate of decline is expected to decrease to 3.5 percent in 2018. Further efforts are still needed to unlock the potential of energy efficiency improvements in the industrial sector.
2. The scaling and standardization of “recycle and reuse” drives the reduction of demand for carbon-intensive products and services.
Recycling and utilization of waste steel and plastic products are two examples of the recycling and reuse of industrial products, both of which are material-intensive.
Recycling of waste steel is an important means of reducing the demand for new raw steel. Using waste steel for steelmaking saves more than 60 percent of the energy used in the regular process. The total consumption of waste steel in China was 141 million tons in the first nine months of 2018, 38.9 percent higher than in the same period in 2017. This helped achieve the goal proposed in the 13th Five-Year Plan for the Waste Steel Industry of having waste steel consumption account for 20 percent of crude steel production two years and three months ahead of schedule. In 2018, 252 enterprises, with an annual processing capacity of more than 70 million tons, met the entry requirements for the waste steel processing industry, accounting for one-third of the total waste steel available for the year.
The plastic industry is also continuously promoting standardized, scalable, and sustainable development. In 2018, four national standards and policies were issued: the Series National Standards on Express Delivery Packaging, the Technical Specification for Waste Plastics Recycling, Interim Measures on Assessment and Management of Comprehensive Utilization of Industrial Solid Waste Resources, and the National Products Catalogue of Comprehensive Utilization of Industrial Solid Waste Resources. These also enhance the efficiency of resource utilization.
3. With the ongoing energy transition, the electrification rate in the industrial sector is expected to increase.
Electricity playing a major role in both energy supply and demand is a clear trend in China’s movement toward a low-carbon green energy future. According to the 2018 Chinese Renewable Energy Outlook, the electrification rate of the end-use sector needs to rise from 24 percent in 2017 to 53 percent in 2050 to keep the global temperature rise below 2℃ above preindustrial levels. Electrification in industrial production processes is an essential part of the energy transition in the industrial sector, and in the country as a whole. The switch from industrial boilers and industrial coal kilns to electric boilers contributes to the reduction of direct coal burning. It not only lowers land occupation and labor costs and improves product quality, it also helps to achieve lower-carbon emissions. For China, the proportion of coal consumption has continued to shrink while the level of electrification in energy consumption has significantly improved in the industrial sector. According to Rocky Mountain Institute’s Reinventing Fire: China analysis, the industrial electrification rate should reach 39 percent in 2050 compared to 19 percent in 2010. The potential of substituting electricity for fossil fuels is expected to be realized.
4. Carbon capture, utilization, and storage pilot projects are booming, but high cost and energy consumption remain the biggest challenges.
Along with energy mix optimization and energy savings, carbon capture, utilization, and storage (CCUS) is a crucial carbon emission reduction technology. By the end of 2018, 21 large-scale operational CCUS facilities had been established globally, with a total annual CO2 capture capacity of 37 million tons. In 2018, demonstration projects were established in China in the areas of CO2 capture and storage, oil displacement, and chemical production using captured CO2, mainly by coal-fired power plants and coal chemical enterprises. This is an indication of the country’s increasing interest in and focus on CCUS technology and R&D. However, from the perspective of commercial scalability, the CCUS industry still faces several major challenges, including high cost, insufficient technical capacity, and imperfect mechanisms for policy, legal, and cross-sector coordination.
5. Hydrogen utilization flourishes and has the potential to be the leading edge of industrial decarbonization.
Due to its wide availability, capacity for storage, and ease of delivery, hydrogen energy has obvious advantages in terms of the use of clean energy and energy scalability. It also has great potential for promoting decarbonization in the industrial sector. In 2018, hydrogen energy utilization in relevant Chinese industries attracted increasing attention, with focus on hydrogen fuel cells in the transportation sector. The development of hydrogen-related industries led by hydrogen fuel cell vehicles will promote large-scale utilization of hydrogen energy in the industrial sector.
In addition to being directly used as a fuel, hydrogen is often used as a reducing agent in the steel industry and in the chemical industry for hydrotreating, hydrocracking, and desulfurization. The Hydrogen Breakthrough Ironmaking Technology (HYBRIT) project launched in Sweden in 2018 is intended to replace the coke traditionally used in iron making with hydrogen produced by renewable power. If the project succeeds, it will produce a major innovation in the steel industry and can be expected to reduce the total carbon emissions of Sweden and Finland by 10 percent and 7 percent, respectively.
The year 2018 was an important milestone in the development of the hydrogen energy industry in China. The National Alliance of Hydrogen and Fuel Cell was established in 2018, and the number of pilot projects increased significantly. For example, hydrogen energy industrial parks started operations in several regions, including Wuhan, Shanxi, Shanghai, and Liaoning. On the policy side, the Development Plan of the Hydrogen Industry of Wuhan was issued, and similar policies are under preparation in cities such as Shenzhen, Beijing, and Guangzhou. It is worth noting that, despite the huge potential and rapid development momentum of the hydrogen energy industry in China, bottleneck challenges still urgently need to be overcome. For example, top-level policies need to be enhanced, crucial technologies need breakthrough improvements, and the infrastructure needs to be scaled up.
RMI is dedicated to helping promote green transformation in China’s industrial cities, develop and communicate international best practices, and smooth the way for industrial cities to improve their competitiveness through the implementation of low-carbon development strategies. We expect that China’s industrial sector can fully achieve a comprehensive low-carbon transition through further facilitation of carbon reduction measures.