Carbon Neutrality

The role of European businesses in China’s race to 2060

European companies are well-placed to assist China with its targets of peaking its carbon emissions before 2030 and achieving carbon neutrality by 2060, yet three sets of barriers prevent them from fully contributing. Robert Jarvis, policy and communications manager at the European Chamber, outlines the key opportunities and barriers identified in the Chamber’s recent report, Carbon Neutrality: The Role of European Businesses in China’s Race to 2060, as China accelerates its transition to carbon neutrality.

All hands on deck: helping business accelerate China’s green transition

China is aiming to achieve carbon neutrality under extremely challenging conditions. This is recognised by European companies who, by and large, report it is more difficult for them to achieve their own decarbonisation goals in China than in the European Union (EU) or the rest of the world. Key perceived challenges include reducing China’s industrial dependence on cheap energy while maintaining energy security, and the fact that the state’s current energy mix contains only a small proportion of renewables.

European businesses are well-placed to assist China with overcoming these challenges. The technological expertise and experience that European companies have from working on decarbonisation with government stakeholders, non-governmental organisations (NGOs) and civil society in their home markets puts them in a strong position to contribute in China.

More than two thirds of members report having global decarbonisation pledges to fulfil and are already comparatively well advanced with their strategies. European companies are also ahead of the curve in terms of proactively decarbonising their China operations: 40 per cent have established decarbonisation teams in China, many of which report directly to boards; and 67 per cent have achieved at least a basic level of preparation. 

They are also highly incentivised to help China frontload its transition. Driven primarily by environmental, social and governance(ESG) factors, government policies (including stringent EU regulations), and increasingly by downstream customer demands, European companies are finding it imperative to proactively work not only to reduce their own emissions but also the emissions of their partners.

However, despite this commitment, the European Chamber’s latest report identifies three key sets of barriers that are hindering European businesses from fully contributing to China’s decarbonisation drive.

1. Further policy details are urgently needed, formulated with business  

China’s high-level goals are clear, yet members interviewed for the report unanimously voiced that a lack of policy guidance remains a key barrier. Companies view the path to 2030 as hazy, and the path to 2060 is largely unknown due to a lack of clear targets and milestones.

Despite China announcing its “1+N” policy framework—‘1’ being the 30/60 Goals and ‘n’ the relevant policies to get there—and releasing upwards of 30 sectoral 14th Five-year Plans—many of which include buzzwords such as ‘green’ and ‘low carbon’—tangible details are still few and far between. Two thirds of members report that a lack of clear industrial guidance and best-practice sharing from the government risks hindering their ability to achieve their decarbonisation goals in China. In the absence of a clear understanding of what tools will be adopted, businesses are unable to make well-informed investment decisions that factor China’s plans into their own global corporate decarbonisation strategies.

Members were also unanimous in identifying the need for policymakers to communicate environmental policies in a more transparent manner, and to work more closely with industry to ensure they are fit for purpose. This is clearly highlighted by the adverse effects of events such as local governments’ implementation of China’s dual control policy in autumn 2021, where 20 provincial governments curtailed businesses’ energy supplies at short notice, with some doing so in a way that led to an overall increase in emissions.

2. China’s power and carbon markets need reform

Utilising renewable energy is recognised as a key priority by both the Chinese Government and European businesses in China. However, a plethora of policy, economic and technological barriers has resulted in insufficient access to renewable energy sources. This is the most significant issue that risks derailing members’ corporate decarbonisation plans.

Addressing factors such as China’s lack of a transparent, open and flexible power market, providing more equal access to renewable energy for private companies relative to that of SOEs, and reducing barriers—including restrictions on access to foreign financing and expertise—have a role to play in ensuring that China’s huge renewable capacity is fully utilised.

Furthermore, European business also sees much scope for China to strengthen its emissions trading system (ETS), which currently has a very limited impact on businesses’ operations, by learning from the EU’s own ETS experiences. As China seeks to expand its ETS to cover more sectors and strengthen associated monitoring, reporting and verification processes, European experiences can provide much insight, given that the EU’s ETS is the world’s most established.

3. Barriers hold back scaling of leading green technologies

European businesses find the speed at which existing and new solutions can be brought to market is currently too slow due to factors such as market access and regulatory barriers, nascent green value-chains and the limited availability of green financing. For instance, despite European environmental firms being world leaders in several fields, 54 per cent of members from the sector report having missed business opportunities due to market access barriers.

However, it is not just tangible barriers that prevent companies from scaling innovative solutions; change is also needed to ensure the adoption of leading environmental solutions is prioritised. A lack of shared standards and taxonomies further curtail the pace at which foreign technologies can be brought to market in China and vice-versa. Within corporate culture and consumer society, members also see the need to increase understanding of both climate change and the adoption of common standards to ensure that ‘greenwashing’ does not take hold, and that green goods and solutions, which often cost more upfront, are recognised as being more economical in the long-run.   

Despite these challenges, European companies still believe that by fully utilising all tools at its disposal China can achieve its goals. But for this to be achieved, foreign firms will require increased market access and a level playing field on which to operate. The scale of the challenge of meeting China’s 30/60 Goals demands an open and collaborative approach. Fostering greater dialogue with European businesses, which have long been going through a similar transition in Europe, would be a welcome first step.