Reining in industry’s contribution to carbon emissions will be key to fulfilling China’s carbon neutrality policy. The 230 national economic and technological development zones (NETDZs) that the Ministry of Commerce (MofCom) has approved to date are responsible for 11% of China’s GDP despite only occupying 0.32% of its geography. Targeted and localised action aimed at making the country’s economic zones more environmentally friendly, therefore, holds enormous potential in terms of making Chinese industry greener more broadly.

While numerous economic zones have been quick to adopt green principles when considering their development, further funding is required to realise a green transition of such magnitude. Analysts estimate that China will need to invest over RMB 100 trillion over the next 30 years to reach its goal of carbon neutrality. While extraordinarily high, that number is not an impossible target given that China manufactures much of the technology and equipment necessary for decarbonisation. And the country should expect to continue to receive significant investment – both foreign and domestic – in its green industries as a result.

But a sophisticated policy framework will be required, too. Unfortunately, that is something that is lacking at present. China’s 14th Five-Year Plan simply commits to reducing the carbon and energy intensity of China’s GDP growth. It lacks specific targets. Thankfully, local governments are taking the initiative to formalise their province’s contributions to achieving carbon neutrality. The Hainan Free Trade Port initiative, for example, has put green finance, ecologically-friendly tourism and research and development into green technologies at the centre of its development agenda. Beijing has followed suit in the pursuit of its new professional services pilot free trade zone, and the same negative list for trade and services in Hainan will also be applied in the nation’s capital.

According to MofCom, 36 NETDZs have made “outstanding achievements in green development and upgrading”, but that means there is a still long way to go in terms of harnessing these areas so that they can drive China’s green transition.

Firstly, as industrial clusters, NETDZs have high energy consumption and carbon emissions, the latter of which accounts for 10% of the entire country’s carbon emissions. With various industries and complexities found within the zones, a green transition will be more difficult than it would be for other areas. Secondly, coal still dominates the power supply; transitioning to 100% clean energy within the zones will be a difficult undertaking. Thirdly, the imbalance and mismatch in energy supply and storage between China’s eastern and western regions pose additional challenges. Lastly, there will be no ‘one size fits all’ green technology, strategy, or solution for industries located within the NETDZs, as they have various different technical requirements for carbon reduction.

China’s economic zones have become key to China’s efforts to pursue a green transition and industrial upgrading, and we welcome the growing UK-China collaboration in this field – Andrew Seaton, Chief Executive, China-Britain Business Council

Opportunities for UK-China collaboration as NETDZs go green

COP26 made it clear that international cooperation will be crucial if the goals of emissions reduction and environmental protection are to be achieved. As two of the largest economies, the UK and China not only have important roles to play, but they also have much to benefit from mutual cooperation in green development and technology.

There is great potential for cooperation between the UK and China if both countries play on their strengths to mutually work towards sustainability. UK manufacturing’s strengths, for example, lie in early-stage R&D and technology as well as later-stage servitisation, end-of-life innovation, and high-value manufacturing. On the other hand, China’s strength in manufacturing lies in the medium stage, where production and distribution take place. By taking manufacturing as an example, both countries’ strengths are found at different stages, and thus cooperation between the two will allow for both countries to fill in where they are least proficient and achieve a win-win scenario.

China needs assistance in pursuing structural reform so that it has the policies and institutions in place to support green development and innovation, not only within its various specialist zones, but across the economy at large. UK-China collaboration to this end has been successful so far. The Sino-UK Innovation Industry Park in the coastal city of Qingdao is one example, and hosts several British companies at the cutting edge of R&D in areas such as green and intelligent manufacturing, marine conservation, and AI and big data processing for manufacturing systems.

In the future, when investing in NETDZs, UK companies should pay attention to the NETDZs’ entry requirements, local industry preferences and green technologies, among others. More specifically, foreign investors should:

• Do research and verify whether their own line of business could fit within the industries currently being promoted.
• Evaluate the green, scientific and technological attributes of their own industries and ensure that they meet the green development requirements of NETDZs, so as to achieve more synergy and high-quality development.
• Create a proactive dialogue with the local government of the intended investment areas and explore the availability of potential policies and financial support provided by local government so as to achieve optimal performance by aggregating their own advantages with external facilitation.

Conclusion

Achieving carbon neutrality across China’s NETDZs will be key to hitting the country’s target of net zero by 2060. Given that there are only 230 of these zones and that they are collectively responsible for 11% of GDP, targeted action within these areas will have a disproportionate effect on the country’s ability to go green as a whole. In short, the NETDZs are an easy and effective place to start in terms of improving Chinese industry’s green credentials. “China’s economic zones have become key to China’s efforts to pursue a green transition and industrial upgrading. We welcome the growing UK-China collaboration in this field, and building on our Net Zero Report released at COP26, and believe that the UK and China working together offers great potential in tackling the critical environmental challenges we face,” says Andrew Seaton, Chief Executive, China-Britain Business Council.

While the green transition is an area where the UK has enjoyed a fruitful collaboration with China to date and will continue to do so into the future, whether China hits its target will require the implementation of a sophisticated policy framework that comes from the top. Local leaders in Beijing, Shanghai and Hainan should be commended for taking steps to draft policies that will make their own industrial areas more environmentally friendly, but their locales remain the exception and not the rule. There remain 200 NETDZs in need of reform if China is to rise to the enormous challenge its president has set. The clock is ticking.

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s market research services can help you build knowledge and understanding of the Chinese market prior to investment.

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The recent Global Risks Reports from the World Economic Forum (WEF) are consistent in highlighting climate change and environmental degradation as amongst the highest and most impactful risks that the global economy faces. More significantly, these reports emphasise the hyper-connectivity of the global risk landscape. This means that not only are climate and environment amongst the most urgent and impactful risks to the economy, in the words of the 19th Century Scottish naturalist John Muir, these risks are ‘hitched to everything else in the Universe.’

This complexity is bound up in what Klaus Schwab (founder of the WEF) refers to as the underlying dimensions of the economic risk landscape in the 21st century: multiplicity, interconnectivity, and pace. Mastering these complexities is the foremost challenge for business and will require partnership to replace competition as the operating paradigm. Conventional models of growth through competitive advantage no longer make sense when companies are scrabbling simply to remain relevant to a new generation of consumers that is increasingly anxious about the future of their planet.

Given these challenges, what might be the new operating paradigm for companies? It is no longer enough to be ‘seen to be green.’ Consumers will demand action from corporates and verifiable outcomes that are easy to act on. The answer lies in corporates’ capacity and capability to ‘master the complexities’ Schwab referred to. Many recognise the need for joined-up business solutions that minimise unintended outcomes, often called ‘systems approaches’. However, the consequences of hyper-connectivity for the business world is often not fully grasped. This is most obvious in the approach of businesses and governments to climate and the environmental emergency.

The solution starts with understanding and accepting a simple truth: our economies are embedded within Nature, not external to it.
— Sir Partha Dasgupta, The Economics of Biodiversity, London, HM Treasury 2021

What does it mean to be ‘embedded in nature?’

What does it mean for our economy to be embedded in nature and what are the consequences for businesses and nature-based solutions?

The Invisible Hand of the free market is a greatly misused and abused concept introduced by Adam Smith in his An Inquiry into the Nature and Causes of the Wealth of Nations, arguably the most important substantive proposition in all of economics. Although elaborated beyond Smith’s original concept, it is taken to mean that in a free market economy, the outcome will be somehow ‘optimised’ through competition. Many parallels are drawn between this property of economies and the concept of Darwinian evolution – somehow ‘less fit’ species/organisations become extinct, and the ecosystem/economy is more optimal as a result. In fact, both interpretations are wrong, and we now know that economies and ecologies are innovation processes that are powered by sharing.

Kaufmann introduced the Theory of the Adjacent Possible to show how sharing of genes and innovations can lead to a hyperbolic explosion of innovation processes in evolution and in economies. The significance is the prediction that such processes generate an infinite number of possibilities in a finite time and explains the hockey-stick behaviour (long periods of slow growth followed by a rapid uptick) in both the number of species on Earth over time and in the number of innovations (products) in the global economy.

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Returning now to the quote at the top of this introduction, we might begin to understand what it means for businesses to be embedded in nature. The difference between nature and economies is that nature tempers hyperbolic growth using natural selection based on competition for finite natural resources to limit the total biomass. The only meaningful constraint on growth in our economic system is whether something can be sold for more money than it takes to make and sell it. By placing an appropriate economic value on natural resources, innovations that have a large environmental cost will become extinct compared to those that don’t.

In both economies and ecologies, the number of possible innovations far exceeds the number that are realised, but the rate of innovation is not what limits growth. What ultimately limits growth is whether innovations in the past reduce the potential for innovation in the future. In nature, it doesn’t, but the climate and environmental crisis is proof that innovation in our economy does and has.

The future of the economy depends on us developing the means to make such innovations extinct and amplifying those that do not. But it also depends on innovations that remove the existing constraints that have been built up over time. Outcomes that do both things are what we call nature-based solutions.

Stills at field-to-bottle Scottish distillery, Arbikie

Whole value-chain solutions

The interconnectedness and multiplicity of the global economic risk landscape means that we cannot treat risks in isolation. From a business perspective, the challenge is to predict how each part of your business, and the businesses it connects to, needs to change to maximise both profitability and nature-positive outcomes. This cannot be achieved by working with the parts in isolation, and a whole value-chain approach is required. The inherent complexities of taking such an approach are a barrier to adoption.

Arbikie Distillery shows the benefits that can accrue when these challenges are overcome, and provides an example of delivering nature-based solutions by taking a whole value-chain approach. Located on the east coast of Scotland, Arbikie is a unique, field-to-bottle distillery in that they grow crops, distil, mature and bottle all on the same estate. They are also working on plans to power the distillery with hydrogen. In 2020, they launched the world’s first climate-positive spirit, Nàdar Gin, created by Master Distiller Kirsty Black as part of her PhD. Distilled from homegrown peas, Nàdar is carbon-negative, avoiding the release of 1.54kg of CO2 into the atmosphere through avoidance of fertiliser use and imported soy animal feed. Nàdar Gin is already having a positive impact in the distilling industry, with the potential for the gin industry to switch from distilling with wheat to distilling with peas: dramatically reducing the product’s environmental impact.

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Measurement, reporting and verification

Assets in sustainable investment products are anticipated to exceed those in conventional funds by 2025. This means that access to capital will come with an increasing requirement to demonstrate positive environmental, social and governance (ESG) outcomes. ESG has the potential to transform the rate of investment in nature-based solutions, but this depends crucially on transparent and reliable measurement and verification of impacts.

There are now almost four times the number of connected digital devices in the world than there are people. Technology offers the potential to measure almost anything, almost everywhere, and so provides a source of pervasive data that is needed to optimise value chains for ESG. The advantage of digital technology for ESG is that data can be secured using, for example, blockchain from source to stakeholder, allowing for transparent and secure auditing of impact.

Other kinds of nature-based solutions are harder to monitor, and biodiversity is one of the hardest. Huawei has demonstrated the potential of connected acoustic sensors for quantifying biodiversity. A partnership between Huawei and Rainforest Connection (RFCx) is hoping to use this technology to build up a picture of the behaviour of endangered red squirrels in the UK, the number of which has dropped to dangerously low levels since the introduction of the non-native grey squirrel. Using acoustic monitoring as a survey technique, it is hoped the project can provide insight into behavioural patterns which support conservation work and promote UK biodiversity health based on the sounds of nature.

Technology from Huawei could help to track red squirrels in the UK

Data that feeds into measurement, reporting and verification (MRV) is only useful if proper standards and regulations are in place. This is an urgent need in the case of nature-based solutions where data related to aspects such as soil carbon and biodiversity are not subject to internationally-recognised standards. There are lessons to be learned from other sectors, and particularly from engineering. This is especially relevant given that more people now live in urban environments, and the role of cities in delivering nature-positive outcomes is critical.

For example, Shanghai’s rapid rate of urbanisation increased the risk of urban flooding and river pollution, exacerbated by the impact of climate change. To combat this, the Shanghai government developed a new Urban Drainage Masterplan in partnership with Arup.

By studying relevant cases across the globe, Arup challenged the traditional approach of focusing solely on drainage. Instead, they utilised a visionary ‘blue, green and grey’ design approach – combining the green infrastructure of the land, the blue infrastructure of the rivers and the grey infrastructure of channels and drainage networks – that exploited the full scope of the integrated water cycle within the city.

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Five steps that enable nature-based solutions

This introduction and set of case studies highlight the need to embrace complexities of an interconnected global economic risk landscape and illustrate approaches that do that. In particular, it highlights the importance of top-down regulation combined with sharing and cooperative behaviour in boosting innovation and embedding the global economy in Nature. It shows how this can be exemplified in whole value-chain approaches, and how reliable measurement, reporting and verification is a key to boosting the investment that is needed. Based on that, the following offers a set of steps that are necessary to enable nature-based solutions that impact positively on both climate and biodiversity.

Step 1: Adopt local values and set desired outcomes

Everything follows from a list of local (i.e. regional) values and target outcomes including acceptable trade-offs, and so this list is the starting point and a critical part of the concept of nature-based solutions. Local values and desired outcomes should be consistent with the global SDGs, and although the list can evolve, the initial choice can limit future options, and therefore requires careful thought.

Step 2: Identify the system

The system comprises all the connected businesses and natural processes that impact on the target outcomes, along with the interactions between them. Intrinsic uncertainties and ignorance mean we need to simultaneously embrace a range of different hypotheses about the links between cause (practices) and effect (outcomes) that constitute the systems map of the solution being sought. Each set of hypotheses will have a related level of confidence based on its consistency with available data and these should be considered when designing interventions based on the full range of hypotheses.

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Step 3: Adopt a multi-scale approach

Nature-based solutions must connect to the relevant local and global businesses, to local supply chains and infrastructure, and to local and global policies to maximise their impact. This requires careful coordination of top-down and bottom-up governance. Top-down includes establishing a set of international standards for data and measuring outcomes; transparent regulation to ensure these standards; and the establishment of international scientific collaboration. BREEAM is the world’s foremost and most widely applied environmental assessment method and rating system for buildings, with close to 600,000 buildings with certified BREEAM assessment ratings and over 2 million registered for assessment since it was first launched in 1990. Bottom-up includes identifying local values and priority outcomes; establishing stakeholder trust; scientific input; and securing a digital infrastructure for measurement, reporting and verification.

Step 4: Secure a digital infrastructure

Nature-based solutions depend on MRV and so are contingent on a digital infrastructure that enables data collection and flow across the value chain; supports inputs from sensor networks that provide the pervasive data needed; and which brings information to all stakeholders. As part of the top-down and bottom-up approach, the local data infrastructure must be compatible with a global infrastructure.

Step 5: Establish an open innovation ecosystem

Nature-based solutions at any location should link to the wider global solution base to ensure benchmarking of outcomes, appropriate sharing of what works, and combining of innovation. Approaches should be co-created by all stakeholders to maximise the impact of the outcomes and to pool associated risks. This requires governance structures that enable inputs from local and global businesses, local and national policy makers, NGOs, and local and global science.

Click here to read CBBC’s Targeting Net Zero: The Role of UK-China Business Report

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As the 26th Conference of the Parties (COP26) approaches, the signs of climate change are ever more visible around us. July 2021 was the hottest single month the world has ever experienced; while record heatwaves hit Canada and North West America in June, wildfires have raged as far apart as California, the Mediterranean and Siberia, and severe flooding has hit many parts of the world.

Amidst a gathering sense of emergency, the report in August from the United Nation’s Intergovernmental Panel on Climate Change (IPCC) warned starkly that the situation has become “code red for humanity”. Its assessment concluded that some effects of climate change such as continued sea level rise are irreversible at least for centuries – but that, if the world can reach Net Zero by the middle of the century, it is not too late to avoid the worst impacts of climate breakdown.

It is clear that the entire global community must pull together and every nation must stretch itself to make the biggest contribution it can. That being the case, what are the particular challenges and opportunities in front of the UK and China – and what potential is there for the two nations’ business communities to support and invest in each other as part of the effort?

The two countries are in quite different positions as they each face up to the challenges ahead. KPMG’s Net Zero Readiness Index, published in October and comparing the likelihood of 32 major economies reaching Net Zero by 2050, places the UK at number two while China is further back at number 20. This is because the two economies are at different stages of development, with China having to accelerate its industrialisation phase and at huge scale. See our separate box-out section for a fuller analysis of the Index findings.

The UK, which accounts for under 1% of global emissions, has already enshrined in law its commitment to achieve Net Zero by 2050. To enable this, it has further set what the government describes as “the world’s most ambitious climate change target” of cutting emissions by 78% by 2035 compared to levels in 1990. This would take the UK more than three quarters of the way towards hitting Net Zero by 2050. The UK’s major achievement to date is the decarbonisation of its power sector and the simultaneous shift to renewables. The carbon intensity of the power sector has fallen from 481gCO2/kWh in 2010 to 181gCO2/kWh in 2020; while renewables’ share of power generation has risen from around 7% to over 40% in the same period.

The government has also announced some significant plans and aspirations for the coming years, such as the creation of four major industrial clusters for carbon capture usage and storage (CCUS) and hydrogen production by 2030; a ban on the sale of new internal combustion engine (ICE) vehicles from 2030 as the nation moves to electric; the full rollout of smart meters to help households more efficiently manage their energy usage and support the transition to a more flexible energy market by the end of 2025; and a potential ban on the sale of new gas-fired boilers by the mid-2030s in favour of hydrogen and heat pumps.

With a 10 Point Plan for a green industrial revolution setting the over-arching framework and an Industrial Decarbonisation Strategy in place, together with a recently published Hydrogen Strategy, the UK has many of the building blocks in place – but still has a long way to go if it is to deliver on its ambitions, as the Climate Change Committee warned in its latest progress report to UK parliament.

The next phase of decarbonization in the UK will involve changes in almost everything we do: the cars we drive, the way we heat our homes, our travel patterns, how we use our land, what we eat. — Simon Virley, Vice Chair and Head of Energy & Natural Resources, KPMG

One challenge is the need – in common with all developed economies – to bring citizens with them on the journey and bring about changes in how people live, as Simon Virley, Vice Chair and Head of Energy & Natural Resources at KPMG in the UK observes: “The next phase of decarbonization in the UK is going to be much more intrusive than what has come before. It will involve changes in almost everything we do: the cars we drive, the way we heat our homes, our travel patterns, how we use our land, what we eat. There needs to be much greater engagement with the public on the choices ahead and what we can all do as individuals and in our communities if we are to get to Net Zero at least cost and ensure a Just Transition.”

China, meanwhile, has a population about 25 times the size of the UK and accounts for around 30% of global carbon emissions. However, its carbon usage per head of population is around half that of the United States and is also considerably lower than that of some other Western economies. While its fossil fuel usage is still growing, China has pledged that this will peak in 2030 and then decline, with a Net Zero target of 2060. It is backing this up with real action – already being the world’s largest producer of renewable energy. In 2020, it had solar power capacity of 254,355 megawatts, far ahead of the US in second at 75,572, and it had triple the wind power installations of any other country too. China hopes that a quarter of its energy will be produced from non-fossil fuel sources by 2030 – and many analysts believe it may hit that target early.

China’s commitment to reducing carbon is becoming clearer. Xie Zhenhua, China’s special envoy on climate change, has spoken publicly of the imminent release of a top-level design of China’s so-called “1+N” policy framework for reaching peak carbon and carbon neutrality targets together with specific action plans for key emitting sectors. China also opened a national carbon emissions trading scheme in July 2021 covering more than 2,000 power plants, with plans to add other industrial sectors.

With China producing a significant proportion of the world’s carbon emissions, its progress in reducing carbon is clearly of huge importance in itself. China has also taken steps to embed sustainability practices into its international Belt and Road infrastructure initiatives – with the Ministry of Commerce and the Ministry of Ecology and Environment jointly releasing in July an updated set of green development guidelines for overseas development and investment. With an emphasis on compliance with international practices, the guidelines reflect encouraging aspirations for higher environmental and green investment standards. More recently, China’s President Xi Jinping made the surprise, but most welcome, pledge at the UN General Assembly in September that China would stop financing coal-fired projects abroad.

Since President Xi’s announcement of China’s top-level commitments in September 2020, Chinese companies have started committing to or setting science-based targets to reduce greenhouse gas emissions through the application of innovative energy saving initiatives and technologies, increased use of renewable energy, etc. — Daisy Shen, Partner, Climate Change and Sustainable Development, KPMG in China

China indeed has a crucial role to play in enabling the global community to drive down carbon, as Simon Virley explains:
“China can leverage immense economies of scale and
reach price points that other countries simply can’t match. We have seen that with solar, and the same can be true of other low carbon technologies, like electric vehicles and hydrogen. The lower the cost of these green technologies, the easier it will be to maintain public buy-in around the world for the energy transition.” By extension, this means there is significant potential for UK and Chinese businesses and investors to work together in the coming years in the pursuit of a common goal.

On the UK side, there is an opportunity for London to build on its pre-eminent position as a financial services centre and become the global centre for carbon trading. The various carbon trading schemes in existence around the world will need to be linked up at some point – and London could fit the bill. There is clear potential for the UK to become the standard setter for green finance – how to define it, verify it and audit it. Alongside this, the UK could become the leading pioneer for climate risk disclosures and reporting. There will be significant opportunities for UK professional services organisations in providing consulting, legal, assurance and accounting advice around these and related areas to businesses in China, and opportunities for testing, inspection and certification organisations too.

Other export opportunities for the UK to China include offshore wind where the UK has built up considerable expertise around the integration of wind into national energy systems and the skills and services needed to support that. Smart energy systems are another fertile potential area, with UK businesses like Octopus Energy developing leading-edge systems that utilize smart technology and AI to optimize energy usage and efficiency across different needs. The UK could also lead the way – and make some in-roads in China – around carbon capture technology as well as the shift to low carbon heating.

On the Chinese side, there has been some significant investment already into UK renewable energy, particularly offshore wind, and in the UK’s nuclear industry and smart grid networks. There are likely to be increasing opportunities to invest in UK infrastructure projects such as the construction of its planned Carbon capture, utilisation and storage (CCUS) clusters. China already has a strong track record of investment into major UK energy and infrastructure projects and this can continue in Net Zero related endeavours, bringing mutual benefit – generating a return for Chinese investors and bringing down the cost of capital for the UK.

UK-Chinese links should include collaboration over the scaling of new green technologies. It will not be possible to meet Net Zero targets by solely relying on the technologies available today. Britain has a strong track record in ground-breaking scientific R&D; China has the ability to scale new technologies to market. Finding synergies through co- operation could unlock success.

Then there is energy transition. Major oil and gas businesses have become leaders in decarbonising their business models and diversifying away from hydrocarbons towards renewable energy sources, although they themselves recognise there is a long way to go. The UK’s oil and gas industry can export its knowledge and experience around this, including to the Chinese super-majors. There are win-wins to be gained here on both sides.

The UK and China have a strong trading history with each other. UK financial institutions and businesses in other sectors are benefitting from reforms and license approvals designed to increase foreign investment into China; while Chinese businesses have historically found the UK to be a welcoming and cosmopolitan place to do business.

There should be a focus on continuing and indeed increasing this where climate action is concerned, as Simon Virley says: “For the first time ever, we have China, the EU, the UK and the US all committed to Net Zero. Chinese companies are already investing heavily in the low carbon sector in the UK as the UK seeks to meet its Net Zero target, whilst a growing number of UK companies are investing in China. So, we have a great platform on which to build collaborative partnerships between the UK and China on the low carbon technologies and financing solutions needed to meet the global challenge of climate change.”

Daisy Shen, Partner, Climate Change and Sustainable Development, KPMG in China, echoes this sentiment: “Since President Xi’s announcement of China’s top-level commitments in September 2020, the momentum has accelerated. Chinese companies have started committing to or setting science-based targets to reduce greenhouse gas emissions through the application of innovative energy saving initiatives and technologies, increased use of renewable energy, etc. There is an increasing need for international cooperation to support Chinese companies’ business transformation to fit the future low-carbon economy and achieve sustainable growth. There are opportunities for China and the UK to work together across aspects of policy, infrastructure, technology, financing and best practice sharing.”

Now, through COP26 and beyond, we need to use the opportunity to deepen collaboration between the UK and China on the Energy Transition in key areas such as:

• Offshore wind
• Hydrogen
• Carbon capture
• 
Electric vehicles
• Smart energy platforms
• Carbon trading
• Climate risk reporting

Focus on hydrogen/decarbonisation

The UK government’s Hydrogen Strategy envisages a “world-leading hydrogen economy” supporting over 9,000 UK jobs and unlocking £4bn investment by 2030. The government predicts that 20-35% of the UK’s energy consumption by 2050 could be hydrogen-based. A twin-track approach is planned – bolstering blue hydrogen and CCUS production through four industrial clusters whilst also supporting the development of green electrolytic hydrogen. Companies such as ITM Power are already leading the way in green hydrogen using Proton Exchange Membrane (PEM) technology – such technological innovation could become a significant export for the UK.

China is one of the biggest manufacturers of green hydrogen technology with a particular emphasis on alkaline technology. However, alkaline technology is suited to large-scale baseload industrial electrolysers, whereas PEM technology works better with intermittent renewable technologies such as solar and wind which will give it an increasingly prominent role in global deployment. China is also a leader in hydrogen fuel cell technology – hydrogen being potentially a key power source for heavy transportation, where electric batteries are less viable. There are already some 7,000 hydrogen fuel cell buses in operation in China.

With the UK’s clear hydrogen focus, and China’s 14th Five Year Plan labelling hydrogen a “frontier” area that the country pledges to advance, there could be scope for the two nations to cooperate and cross-invest.

Focus on renewable energy

Several of China’s generation companies (gencos) have already made investments into renewables in the UK, such as:

• SDIC which acquired Edinburgh-based Red Rock Power in 2016
• CGN has extended its nuclear partnership with EDF to onshore wind assets
• China Resources Power, subsidiary of the Hong Kong-based conglomerate China Resources Group, has invested in a major operating offshore wind project alongside the Norwegian energy giant Equinor

More broadly across Europe:

• CGN has been highly active since 2015
• China Three Gorges has built significant stakes in a wide range of Renewables assets including offshore wind, both through its participation in EDP and relationship with Energias de Portugais Renewables (EDPR); and also on a stand-alone basis
• We have observed several further major gencos actively seek to enter the European Renewables market as they look to achieve their own international growth KPIs in Renewables

Looking in the other direction, a few western strategic energy companies are active in China:

• EDF has a partnership with China Energy Investment Corporation (CEI), focused on 502 MW of offshore wind projects in China.
• Other major western oil & gas companies are already well established in China and may well be considering extending operations to offshore wind, in line with their strategic growth ambitions

The focus for many of the major European (in particular) offshore wind developers is in neighbouring markets in the region – Japan, South Korea, Taiwan. Given the exciting growth potential of the Chinese offshore wind market, requiring an enormous scale of capital and strategic capability, it would be really positive to continue this trend of partnering across the major offshore wind activities.

Supply chains, meanwhile, are relatively settled. China already manufactures the great majority of the world’s solar panels. Of the world’s ten major wind turbine manufacturers, three are Chinese and these mainly supply their own national market. Of the other seven, some have factories in China.

Focus on clean transportation

With both countries already embracing progressive plans for EV adoption, but with battery life and range still potentially limiting factors, there may be scope for the nations to cooperate on R&D development in order to explore new battery technologies and chemistries, as well as to establish an effective circular economy in the battery value chain. As well as extending battery life, more cost-effective methods of recycling batteries – and/or extracting the valuable metals from them for re-use – are needed. There are also opportunities to drive cooperation across many areas of the mobility ecosystem.

Then there is hydrogen, which may have a key role to play as the powertrain for heavy and industrial vehicles. China leads the way in hydrogen buses. The UK has a leading hydrogen and low/zero-emission bus maker in Alexander Dennis (that uses hydrogen fuel cells from Chinese manufacturer BYD), while operators like First Bus have launched hydrogen fleets in some locations. There will be scope for closer ties between China and the UK in this growing area.

KPMG Net Zero Readiness Index 2021

KPMG’s Net Zero Readiness Index (NZRI) considers 103 indicators that are key drivers to achieving Net Zero in each of the 32 countries studied.

The UK ranked second in the NZRI, and China 20th. The top five countries were Norway, UK, Denmark, Sweden and Germany. Other major jurisdictions include the US (13th), Australia (14th) and Russia (25th).

China

China’s target of peak carbon emissions before 2030 and Net Zero by 2060 may be later than the dates pledged by many other countries in the NZRI, but they mean the country would move from peak carbon to Net Zero in three decades – about half the time of other countries.

China already has the world’s highest level of renewable energy capacity of 925GW in 2020, around three times as much as the US. It added 72GW of wind and 48GW of solar in 2020, both big increases on 2019. Despite this effort only 33 percent of its electricity came from low carbon sources in 2018, highlighting the need for the country to continue its rapid expansion of renewable generation.

Some key companies in high-emission sectors have announced timetables and goals to achieve carbon neutrality through measures covering energy consumption, energy efficiency and increasing use of renewables.

China is rated second among the 32 countries in the research on agriculture and land use, due to factors including relatively low consumption of dairy per person, and strong performance on limiting food losses and waste.

The country is ranked fourth in the transport sector, partly due to the high availability and use of public transport, having developed the world’s longest high-speed rail network over recent decades. China also has the world’s largest electric vehicle market, with 5.4 million in use in 2020 – nearly half of the global fleet. China’s national target is to have ‘new energy’ vehicles making up 20 percent of new car sales by 2025.

UK

Cross-party political support and clear legally-backed targets have enabled the comparatively swift decarbonisation of the power sector in the UK, with the country ranking second in the electricity and heat sector. The last coal-fired power station is due to close by 2024 and the proportion of renewable energy used in electricity production rose from 7 percent in 2008 to above 40 percent in 2020.

Progress is also being made on converting industrial processes to using hydrogen and carbon capture, with the UK ranking third in the industry sector. On transport, overall adoption may be low at present, but electric cars and small vans are increasing in popularity; their lifetime costs may now be comparatively lower than fossil fuel alternatives, which the government has banned the sale of after 2030 (with new heavy good vehicles banned from 2040 at the latest).

However, regarding public engagement, most of the work which will directly affect citizens is yet to come. Despite mandatory building energy certification and high levels of household energy security which contribute to the country’s fourth-placed rating in the buildings sector, many Britons live in poorly-insulated houses which were built many decades ago and around nine in ten are heated by natural gas. The government says that 600,000 homes a year will need to install a heat pump by 2028, while its Climate Change Committee puts the figure at 1 million annually by 2030. However, last year only around 30,000 heat pumps, which usually require the retrofitting of better insulation to be effective, were installed.

Click here to read CBBC’s Targeting Net Zero: The Role of UK-China Business Report

The post COP26: How UK-China businesses can combat climate change appeared first on Focus - China Britain Business Council.

Tackling climate change will probably be the most important issue facing the world’s diplomatic and business communities this century. A global response is urgently needed, for according to the Sixth Assessment Report by the Intergovernmental Panel on Climate Change (IPCC), without a reduction in greenhouse gas emissions, global warming could reach the critical tipping point of 1.5°C above temperatures in the pre-industrial period by the early 2030s – with catastrophic consequences for the world as we know it.

In September 2020, Chinese President Xi Jinping announced that China aims to see its CO2 emissions peak before 2030 and achieve carbon neutrality before 2060. President Xi reiterated the commitment earlier this year at the Leaders’ Summit on Climate, adding that China would begin phasing out its polluting coal-fired plants from 2025 and has subsequently announced an immediate end to the funding of new coal-fired plants in third countries.

At a time of geo-political tensions, there seems to be common interest in including China in international efforts to address climate change. In April 2021, US Special Presidential Envoy for Climate, John Kerry, met his Chinese counterpart Xie Zhenhua. In their joint statement, both sides vowed to intensify their cooperation in the fields of renewable energy, industrial decarbonisation, and low-carbon transportation, among others.

China is the world’s largest emitter of CO2, accounting for 30% of global emissions; more than double that of the United States. By contrast, the United Kingdom accounts for less than 1%, producing per capita emissions of 5.45 tonnes of CO2 per person compared to 7.1 tonnes for China. However, whereas the UK managed to reduce its emissions by 38% compared to 1990 levels, outpacing the 25.1% reduction across EU member states, China’s carbon dioxide output has soared by 380% in the same period.

Britain’s impressive efforts will have limited impact without a global shift in policy – and China’s role in this is crucial, both in its own carbon reduction efforts and in its investment in green technologies and renewable energy. Already facing environmental problems of its own, such as desertification and water shortages, China also has a strong self-interest in effective global action.

EU-China cooperation on Climate Change has also deepened. In 2018, European and Chinese leaders issued a statement expressing their mutual commitment to intensify political, technical, economic, and scientific cooperation on climate change and clean energy. Both sides also signed a memorandum of cooperation on emission trading and indicated that they would align their standards for green investment.

UK-China cooperation on climate change

As the UK charts a new course outside the EU, international cooperation on climate change will be one of the main foreign policy areas where it can put the vision of ‘Global Britain’ into practice. The 2021 Integrated Review, which outlines Britain’s strategic priorities in the next decade and beyond, lists climate change and biodiversity loss as major strategic concerns and the UK’s international priority through COP26 and beyond.

The Integrated Review not only calls for more investment in domestic green technologies, such as offshore wind farms and hydrogen power projects, but also for action to help accelerate the global transition to net zero. Cooperation with other major economies, especially those which are already heavily investing in green technologies, is therefore only logical.

Here collaboration with China plays a key role. The country is already the largest market for renewable energy. Last year alone, China increased its wind energy capacity by 60%, enough to power three times the number of homes in the UK. By 2030, global offshore wind power capacities are expected to have grown sevenfold, with China accounting for 25% of the increase. The UK is expected to add the second-largest amount, adding 16%, followed by the US with 11%, according to research by Global Data.

While there is a longstanding and fruitful collaboration between businesses and researchers in both countries, coordination at the political level provides a vital policy context for this. The UK-China joint statement on climate change – which was released during Chinese Premier Li Keqiang’s visit to the UK in 2014 – is one of the earliest and most ambitious bilateral documents in this area. A year later, both governments signed an agreement for a Clean Energy Partnership, vowing to support each other during the transition to a low carbon economy.

Recent government-level meetings between the UK and China – like the 10th Economic and Financial Dialogue in 2019 – have confirmed these goals and reiterated their mutual commitment to work together at the ministerial level to enhance cooperation on key green technologies. Furthermore, both countries’ central banks, the Bank of England and People’s Bank of China, agreed to collaborate on green finance standards and regulatory frameworks for climate-friendly financing. In September, President for COP26 Alok Sharma met China’s Special Representative Xie Zhenhua in Tianjin to discuss China’s crucial role in global climate diplomacy. Both agreed that more needs to be done and that all sides should accelerate their efforts to keep global temperatures from rising above 1.5 °C. Finally, in October, Zhang Jianhua, the head of China’s chief energy regulator, held a video conference with Kwasi Kwarteng, UK Secretary for Business, Energy and Industrial Strategy to discuss both country’s cooperation in the field of civil nuclear energy, offshore wind power generation and energy market reform.

While many of these initiatives were interrupted by the Covid-19 pandemic, the increased frequency of extreme weather events like the torrential floods in Zhengzhou make the joint combat against climate change an even more pressing task. COP26 now offers an opportunity for leaders in both countries to re-join hands and enhance the positive examples of joint action that are already taking place.

The role of business

Businesses from the UK and China will be central players in the low carbon transition, through their investment, their technologies and their services, and it’s this that CBBC’s upcoming Targeting Net Zero report aims to highlight.

KPMG, in the report’s thought-provoking introduction, draws upon recent analysis to outline what it sees as the main opportunities that will emerge for companies from what is proving a difficult and challenging transition from a fossil fuel-driven economy towards a sustainable and carbon-neutral one. They are at once plentiful and diverse, and several play into proven synergies between the UK and China.

Following the five key themes outlined at the start of the UK’s Presidency of COP26, each of the five chapter sponsors then goes on to share their own reflections on the challenges and technological advancements within their respective areas of expertise. Each chapter is then complimented with a set of four case studies, which serve to illustrate the wealth of solutions that British and Chinese firms are working on in support of our countries’ ambitious climate targets.

The entrepreneurial spirit and technical ingenuity demonstrated herein will be a major contributing factor in helping our nations reverse the destructive trends of the past in Targeting Net Zero for the future.

Click here to read CBBC’s Targeting Net Zero: The Role of UK-China Business Report

The post How will COP26 affect UK-China relations? appeared first on Focus - China Britain Business Council.

I first became interested in a zero-waste lifestyle in the summer of 2016 when I came across a video by Bea Johnson, author of the book Zero Waste Home. One of the reasons I was viewing this kind of information in the first place was that in early 2016 I was moving apartments. I was in my tiny bedroom looking at clothes that still had tags on, books that I had never read, and mountains of other stuff… all self-imposed drains on our freedom and the environment.

The Bulk House is a social enterprise, registered at the start of 2017. At the time of starting it, there was very little mention of official recycling going on in Beijing, let alone the concept of zero waste. I saw the piles of waste building up in my old housing community and I realised that I was part of the problem and I was adding to that pile every day.

When we began, the overall idea was to promote the concept of zero waste and make it accessible and convenient for all. How to do this was the challenge. We put on events and workshops, made reusable products, created zero waste group chats, created content, did interviews, went on TV, took part in documentaries, and even tried our hand at consulting for companies. The idea is to be a one-stop-shop for all things zero waste while also promoting the philosophy behind it. 

The Bulk House has grown from selling one reusable metal straw to 100s of zero waste products. We went from a tiny store to our Beiluoguxiang location, which is about four times the size of our original store with online customers from across China. However, the real growth has been our knowledge of the concept of zero waste and the number of people we have been able to pass that on to.

The true philosophy of zero waste involves multiple Rs: refuse, reduce, reuse, repair, recycle and rot. The second R, reduce, is perhaps the most important and is the essential idea of zero waste. We want more people to get into the zero-waste lifestyle, but we don’t want people to own zero waste items that they don’t need and so won’t use. I would encourage FOCUS readers to go to our WeChat Account at TheBulkHouse_China or our Weibo @thebulkhouse to see what we talk about, how we think, questions we’ve answered over the years, interviews we have done, and see the products we sell and why we sell. From the products, you can understand why they are made from certain materials, why they have little to no packaging, and why they have a very minimalist design.

The challenge for us has always been the ability to focus. There are a million and one ways to solve environmental problems, and it seems very obvious looking back that the way we are now doing it is the one that is suitable for me, but it wasn’t always that cut and dry. It took us some time to realise the cliché of “you can do anything, but you can’t do everything.”

Now, we do one big thing at a time and focus on that for a long time until it is running smoothly. Right now, that big thing is our physical store in Beijing. We also have two online stores on Taobao and Weidian (on WeChat). Both of these are running quite well and we will come back to those and improve them once we have spent some more time on improving our offline store.

Another challenge has been hiring. From our past mistakes, we have now realised that the main attribute to take into consideration when hiring is attitude. We don’t really care about your CV or which university you went to; hire based on attitude and you will place yourself in a much better position to succeed as a team. If you hire someone and they make a mistake but have a good attitude and are willing to learn and improve, then praise that person and look after them in your company. If they have a bad attitude, ask them to leave; if you are going into an office/store five to seven days a week you don’t want a negative atmosphere polluting all the actual problems you face every day.

When we first started, people called us the “recycling guys,” and we had to educate them that “yes, recycling is part of zero waste, but it is a long way down the line of zero waste concepts.” There have been many developments since then. Garbage classification has now been implemented, for example, and I think the food bins are working really well. We just need to stop a few bad apples (pun intended) from dropping their plastic waste into the food bins, thus making it even more difficult for the hard-working men and women whose jobs it is to ensure those resources get sent to the correct places each day.

Like everyone, we lost lots of business in the first few months of the pandemic, including months and months of paid events all being cancelled. However, you aren’t an entrepreneur if you can’t pivot and make the best of a bad situation. We used the time to focus on developing better products and released a new zero-waste bathroom brand called Lagom Planet. Lagom is a Swedish word/philosophy that means “Not too much, not too little, just right,” which seemed perfect for what we are trying to promote.

If I could give future China entrepreneurs one piece of advice, it would be to solve actual problems. Don’t come up with an idea and then make up a problem that your money-making idea will solve.

The post Entrepreneur Spotlight: Carrie Yu, The Bulk House appeared first on Focus - China Britain Business Council.

When I first arrived in Shanghai in 2018, I met an American girl on a trip and we talked about how we both loved thrifting when we were overseas. We wondered why there were not many thrift stores in Shanghai and we both expressed a desire to see more. It wasn’t long before we decided to organise our first clothing swap event. People responded really well to our events and we loved the feeling of creating a sort of treasure hunt for everyone. However, after about three of these swap events we had accumulated an enormous amount of unwanted clothing. All these unwanted pieces were once loved by someone but so quickly they were abandoned like trash. We asked ourselves, “do we really need that much new stuff?” and thought about how we could change the situation. That’s when we started to learn more about sustainable fashion. Since then, our purpose has been to encourage people to come out to swap clothes with us. The more we use what we already have, the less we will need to buy from the shop and therefore, waste and consume less

One of my role models has always been Sorelle Amore. She is an Australian photographer and videographer. She inspired me most when I was at my lowest point and her work influenced me to pick up photography through which I found a way to express myself.

Something I’ve noticed is that we’ve had a difficult time recruiting males to join the swapping community. Even now, we still have more females than males participating. We understand that different people enjoy different things, and we don’t mind that Savvy Exchanger is a more feminine community, but of course we would like to see everyone participate.

If people were more open to ideas of gender diversity, my sales would definitely increase. Then I could sell dresses to both guys and girls, as well as sell men’s jackets to women. I personally have bought and wear men’s clothing and I have sold female jackets to guys. Genders are labels, but styles are personal. The most important thing is that people feel comfortable wearing whatever they want, regardless of society’s expectations.

For now Savvy Exchanger is only in Shanghai, but there are people from Guangzhou, Chengdu, and other places who have contacted me and want us to bring Savvy Exchanger to their cites. We are working on organising swap events in other cities so we can have an even bigger impact.

When I left New Zealand, my friend who runs a successful travel company told me this: “If you want to get the oil, you need to be a squeaky wheel.” I think that, especially in a big city like Shanghai, if you want to stand out you need to be busy making a lot of noise to get your voice heard.

The post Sivona Lu on why sustainable fashion is catching on in China appeared first on Focus - China Britain Business Council.