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China’s New Carbon Neutrality Commitment Will Affect Global Energy Security

President Xi’s announcement yesterday at the U.N. General Assembly will have economic as well as geopolitical ramifications.

By Niharika Tagotra for
China’s New Carbon Neutrality Commitment Will Affect Global Energy Security

Solar panels in China’s Kunming city

Credit: Flickr/Matthijs Koster

President Xi Jinping announced in the U.N. General Assembly yesterday that China aims to become carbon neutral by 2060. This is a significant announcement considering that the country is both the world’s largest energy consumer as well as the largest energy importer. This is additionally significant because until 2018, almost 60 percent of China’s energy demand was fueled by coal, which accounted for almost 80 percent of China’s emissions (as per the data released by the International Energy Agency).

Carbon neutrality refers to a state wherein an entity has a net zero carbon footprint. This means that its carbon dioxide emissions are offset or balanced by creation of carbon sinks, or through the use of fuel efficient technologies, or that they are simply eliminated through replacement by zero-emission sources. Carbon neutrality for China points toward a scenario where the country will replace all of its fuel-guzzling and CO2 emitting systems with energy efficient technologies, push for greater electrification of its economy, and rapidly increase the use of renewable energy. This would also imply China cutting down on its consumption of conventional energy sources like coal and petroleum. The rampant electrification of China’s economy is being viewed by observers as China’s attempts at becoming an “electro-state.”

China is not the only country to have announced its pledge for carbon neutrality. The European Commission has also announced plans of increasing its greenhouse gas emission reduction targets to at least 55 percent compared to 1990. These announcements will have a direct bearing on the global energy market, considering that China is presently the world’s largest energy importer, followed by the EU. The long-term trend of countries shifting away from oil and gas — which was exacerbated by the depressed consumption due to the COVID-19 pandemic — will now firmly become inevitable with the Chinese deciding to reduce their dependence on imported oil and gas. While up until a few years ago, the global oil market was operating on the assumption that oil and gas were scarce commodities vis-à-vis rising demand, the future will see a reversal, wherein supplies of oil and gas in the market will be higher than the global demand, which is expected to go further down in the coming years. This means that the oil and gas markets — hitherto a seller’s market — is now looking at the possibility of turning into a buyer’s market, thus reversing the economic fortunes of several oil and gas supplying countries.

As China looks for speedy electrification of its economy based on renewable energy (RE) sources, its domestic manufacturing of renewable energy equipment is expected to go further up. This is significant because RE manufacturing relies on several critical and rare earth minerals including lithium, cobalt, graphite, neodymium, terbium, indium, dysprosium, and praseodymium. The lithium triangle of Latin America, spanning the countries of Argentina, Bolivia, and Chile — considered to be the largest source of world’s lithium supplies — is already dominated by Tianqi Lithium, a Chinese manufacturing company that own at least half of the world’s production of lithium. Similarly, the supply chain for cobalt is dominated by Chinese companies, to the extent that China virtually controls the cobalt mines in the Democratic Republic of Congo, which supplies nearly 70 percent of the world’s cobalt demand. As for the rare earth minerals, China produces nearly 85 percent of the world’s rare earth oxides and almost 90 percent of rare earth metals. This implies that in a world vying to increase the share of renewable energy in its total energy mix, the production and supplies of RE systems — including solar photovoltaic panels, wind turbines, electric vehicles and batteries — will be hugely dependent on China, which virtually dominates the world’s RE supply chain.

China’s announcement of taking a near-leadership role in the global fight against climate change rests on the back of its strong domestic RE industry. This will usher in a different kind of geopolitics, where the theater of the geopolitics of energy that was hitherto concentrated in the oil fields of Gulf and West Asia, and the Straits of Hormuz and Malacca, will now shift to the mines of Latin America and Africa.

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This is going to also have obvious implications for developing countries that are still dependent on conventional fuels like coal, oil, and gas for meeting their domestic energy requirements. On the plus side, countries can expect the market for oil and gas to loosen up further, providing them with greater choice in terms of sources and prices. The emergence of China as an alternative supplier of clean energy will be an added boon to the global energy market. On the down side, however, China’s decision to move toward carbon neutrality will add greater pressure on developing countries including the likes of India, Brazil, and South Africa, among others, to commit to greater emission reductions and reduce their dependence on carbon dioxide emitting fuels. This will have a direct bearing on the economic development plans of these countries. Besides, an overt dependence on China for supplies of RE equipment and systems will create another seller’s market, but this time more like a monopoly.

The global energy system is fast changing, and decisions by governments are bound to have significant implications — for the geopolitics as well as  geoeconomics of global energy security.

Niharika Tagotra is a nuclear physicist and currently Doctoral Candidate in International Politics at the School of International Studies, Jawaharlal Nehru University, New Delhi.