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Seven dimensions of “carbon neutral” economic change and opportunities From Zhongtai securities

The following is the Seven dimensions of “carbon neutral” economic change and opportunities From Zhongtai securities recommended by And this article belongs to the classification: new energy, research report.

      1、 Global consensus dimension: under the global carbon neutral consensus, the development of carbon trading market may usher in resonance

On December 12, 2015, the Paris climate change conference was officially held. At the conference, UN Secretary General Ban Ki Moon called on the international community to take measures to reduce greenhouse gas emissions, pay attention to the ability of countries to deal with climate change risks, and adopt the Paris Agreement. The agreement aims to arrange how governments should deal with global climate change after 2020. The long-term goal is to limit the rise of global average temperature, that is, compared with the pre industrial period, the rise must be within 2 degrees Celsius, and strive to control it within 1.5 degrees Celsius. On April 22, 2016, 175 national leaders signed the agreement, and environmental protection has become a global goal《 After the Paris Agreement, countries have put forward emission reduction targets in line with their own situation. The specific policies for selecting some important economies are as follows:

1.1 foreign experience: carbon financial market has realized the scientific quantification and market-oriented pricing of carbon emission environmental cost

According to the annual report “status and trend of global carbon market” published by the world bank since 2005, the trading volume of global carbon market increased from 19 million tons to 120 million tons from 1998 to 2004. In 2005, the trading volume including carbon quota and project emission reduction exceeded 700 million tons at one stroke, and the total trading volume exceeded 10.8 billion US dollars, including 329 million tons of carbon quota, The transaction volume was US $8.28 billion. In the following few years, driven by the economic boom, the volume and price of the international carbon market rose together, and the trading volume of carbon quota soared from US $8.2 billion to US $126.3 billion in four years, with an average annual growth of 1.48 times. Therefore, the carbon market was once considered to replace oil as the number one commodity market in the world.

From foreign experience, the carbon financial market has successfully realized the scientific quantification and market-oriented pricing of environmental costs such as carbon emissions, and provided a convenient channel for circulation, valuation and cash flow. The corresponding risk costs or potential benefits have been transformed into the financial performance of enterprises, and become the first link to take root in the green financial system. From 1998 to 2015, the trading volume of the global carbon financial market rose and then slowed down. We expect that after China’s participation in the carbon neutral camp, under the global carbon neutral consensus, the development of the carbon trading market may usher in resonance, and the scale of the carbon financial market may rise again.

1.2 looking forward to the future, the market pricing of carbon trading and carbon emission reduction in China may be the basis for carbon neutralization

We believe that as the first economy to pay attention to carbon development, EU’s carbon development path is worthy of our reference. EU has established a relatively complete system of policies and regulations by unifying the standards and rules of total amount setting, quota allocation and MRV (monitoring, reporting and verification) with the relevant laws and regulations of carbon market. According to the actual situation, the European Commission has made phased policies to gradually improve the management scope of enterprises with high carbon emissions, set a step-by-step goal to reduce greenhouse gas emissions and improve the energy efficiency of renewable energy, and is expected to achieve complete carbon neutrality by 2050.

The European carbon market (EU ETS), which was launched in 2005, is the largest carbon emission trading system in the world. The European carbon market includes more than 11000 emission facilities in the power, industrial and aviation sectors. In 2020, the emissions will be about 1.3 billion tons, and the trading volume will reach 8 billion tons, accounting for 90% of the total trading volume of 229 billion euros in the global carbon market in 2020. Looking forward to the future, the market pricing of carbon trading and carbon emission reduction in China may be the basis for carbon neutralization.

2、 Macroeconomic dimension: domestic energy structure enters the cycle of “old and new transformation”

From the economic point of view, the negative externalities caused by global warming caused by carbon dioxide and other greenhouse gases have always affected the global economy. The impact of production mode relying on traditional energy sources such as oil and coal is not “paid” by the private sector, but the public sector has always borne the cost of this negative externalities. With “carbon neutrality” becoming the consensus of major global economies, further adjusting the global energy use structure and exchanging technological change and innovation for long-term sustainable development of the global economy have become the focus of the follow-up carbon emission reduction policies of various economic entities.

In terms of the quality and efficiency of economic development, the government needs to correct the negative externality and internalize the environmental cost into the cost structure of the main emission body

1) on the basis of Coase theorem, establish a carbon trading market with enterprises as the main body, and use market-oriented means to minimize the cost, so as to minimize the social carbon emission cost.

2) on the basis of financial support and traditional financial activities, we should pay more attention to the protection of the ecological environment and the prevention and control of environmental pollution, develop green finance such as carbon finance, encourage green investment, inhibit polluting investment, and pay attention to both financial performance and environmental performance.

3) in terms of capital market and credit support, research and promotion of ESG (environment, society and Governance) is an important tool to promote the high-quality development of China’s economy, guide and practice the investment concept of ESG, and play the role of leading enterprises in environmental governance.

According to the data of the world energy statistical yearbook 2020, China   GDP   It accounts for about 17% of the world’s total energy consumption, 24.27% of the world’s total energy consumption, and 28.76% of the world’s total carbon dioxide emissions. The carbon emission intensity per unit GDP is about three times that of the world average. According to the United Nations “world population Outlook: 2015 revised edition” forecast, the world population will maintain an upward trend in the long term, the total population will rise from 7.3 billion in 2015 to 8.5 billion in 2030, and close to 10 billion in 2050. From this point of view, as a country with a large population and economy, China has about 19% of the world’s population and creates 17% of the world’s GDP, but its carbon emission intensity is at a high level in the world, and the task of reaching the peak in 2020 is relatively arduous. This may further force the lifestyle of residents and the production mode of enterprises to face greater “changes” in the next nine years.

In fact, with the government’s advocacy of research and use in the field of new energy, China’s energy consumption per unit GDP has declined continuously from 2014 to 2019, and China’s energy efficiency has increased year by year. In 2019, China will consume 0.49 tons of standard coal per 10000 yuan of GDP, a decrease of 4.84% compared with 2018. The proportion of clean energy in energy consumption has increased to 23.4%, but traditional coal and oil account for 57.7% and 18.9% respectively, which are still the main sources of energy consumption in China.

On the other hand, in China’s carbon emission pattern, energy activities, that is, the combustion of fossil fuels and the exploitation of fossil fuels, account for 85.4% of greenhouse gas emissions; The proportion of carbon emission from industrial process, i.e. industrial production and processing, is 15.4%; In addition, the contribution of green plant absorption to carbon emission is – 0.8%.

Therefore, reducing the use of traditional energy to replace clean energy, developing carbon capture and carbon sink (carbon absorption) become the only way to complete carbon neutralization in the future. Tsinghua University’s “China’s long-term low-carbon development strategy research” report estimates the emission reduction path under the goal of achieving the global temperature control of no more than 2 under the Paris Agreement and striving to control below 1.5. To achieve carbon neutrality before 2060 is actually to strive to achieve the emission reduction path under the goal of 1.5. That is: in the transformation of energy structure, by 2050, the total energy demand will be 5 billion TCE, non fossil energy will account for more than 85%, non fossil electricity will account for more than 90% of the total electricity, and coal will account for less than 5%. The end consumer sector has strengthened the direct combustion and utilization of electricity instead of fossil energy. The proportion of primary energy used for power generation has increased from 45% at present to about 85% by 2050, and the proportion of electricity in end energy consumption has increased from 25% at present to about 68%. On the other hand, in China’s carbon emission pattern, energy activities, that is, the combustion of fossil fuels and the exploitation of fossil fuels, account for 85.4% of greenhouse gas emissions; The proportion of carbon emission from industrial process, i.e. industrial production and processing, is 15.4%; In addition, the contribution of green plant absorption to carbon emission is – 0.8%.

We believe that the non fossil energy represented by photovoltaic wind power will become the main source of incremental energy demand before the carbon peak in 2030, and the energy structure will enter the 30-year cycle of “old and new conversion” in 2030-60. In terms of industry impact, carbon emissions mainly come from power, steel, cement, transportation and other industries. Under the constraint of carbon peak by 2030 (carbon dioxide emission per unit GDP in 2030 is 60-65% lower than that in 2005), according to the estimation of energy and environmental policy research center, the total cumulative emission space of energy system from 2020 to 2030 is 116-120 billion tons, and the direct CO2 emission ratio of various industries is 42% for power and heating, 37% for industry, 13% for transportation and 8% for construction.

3、 Domestic policy dimension: carbon constrained emission reduction has become the focus of China’s policy

At present, one of China’s policies to achieve carbon peak is to strengthen energy conservation and emission reduction under carbon constraints. So far, many places in China have issued relevant announcements to prohibit new increase of energy consumption and production capacity. At the same time, it has repeatedly stressed that the current focus of energy conservation and emission reduction should be on reducing traditional energy consumption with high energy consumption and high emission, such as oil and coal;

Another policy focus is to guide and encourage social capital to invest in new energy construction. For example, we should inject funds into the development of photovoltaic, wind power and nuclear energy, use a small amount of state-owned capital as leverage to guide social capital, speed up the parity of new clean energy, reduce construction costs and transport consumption.

During the 14th Five Year Plan period, carbon constrained emission reduction will become the focus of future policy. From December 2020 to March 2021, the central bank, the Ministry of industry and information technology, the Ministry of energy and other departments urgently issued relevant action policies on achieving “carbon neutrality” within four months. Each department has planned in detail the corresponding measures and objectives for strengthening the effect of energy conservation and emission reduction. The Ministry of ecological environment focuses on low-carbon technology development and project investment, The Ministry of industry and information technology is committed to reducing crude steel production, and the central bank focuses on the continuous implementation of green finance. For example, in March 2021, Tangshan, as a key national iron and steel base, has actively launched the policy of shutting down a number of local large-scale iron and steel blast furnaces, and shut down as many as seven large-scale steelmaking furnaces this month. At the same time, the regulatory and restrictive measures for high energy consuming industries such as electrolytic aluminum, caustic soda and so on around the country may be accelerated. We believe that the implementation of carbon neutral policy will increase rapidly after the 14th five year plan meeting, and carbon constrained emission reduction will become the focus of future policy.

Under the clear path of carbon neutral, policy implementation should be strengthened. According to the policy and information released by various parts, the policy rhythm of “carbon neutrality” in China can be summarized as follows:

By 2030, we will vigorously develop new energy construction and transportation technologies such as smart grid and ultra-high voltage to meet the technological development of new energy such as photovoltaic and wind power. At the same time, we will reduce the upstream raw material capacity of traditional energy such as oil and coal with high energy consumption and high emission, and increase the electrification cost of traditional energy to gradually reduce the proportion of traditional energy in the overall energy structure, Guide the terminal energy consumption department to rectify the consumption mode and achieve the peak of carbon by 2030;

From 2030 to 2060, we will start to replace the traditional energy sources with high energy consumption and high emission, such as oil and coal, by using new energy sources such as photovoltaic, wind power and nuclear power, and complete the breakthrough of carbon capture technology (CCUs). In combination with natural carbon sink cycle, we will improve the recovery and cycle of non new energy sources, so as to realize the overall decarbonization of the social power supply sector and completely reshape the energy structure, Achieve zero net carbon emissions.

4、 Controllable dimension of resources: under the domestic big cycle pattern, clean energy is exerting power or alleviating energy dependence

From the perspective of resource control, China’s external dependence on oil and natural gas has reached 72% and 41% respectively, but the installed capacity of photovoltaic and wind power is leading the world. In the long run, China may rely on the development of clean energy to achieve resource control at the supply side.

According to the import segmentation data, the import volume of energy such as oil and natural gas accounted for 13.28% of the total import volume, second only to chips and other key technology components, and the proportion of minerals reached 9%. As the “blood” of China’s manufacturing industry, in recent years, China’s demand for these two kinds of imports and its external dependence have shown an increasing trend: in 2019, the import of crude oil will reach 510 million tons, an increase of 9.5%, the external dependence will rise to 72.45%, the import of natural gas will reach 96.56 million tons, an increase of 6.9%, and the external dependence will be 44%. The main oil and gas importers are the Middle East countries such as the United States, Russia and Saudi Arabia. According to Irena data, the cumulative installed capacity of China’s onshore wind power, solar photovoltaic and hydropower in 2019 respectively account for 34%, 35% and 27% of the global total. Under the carbon neutral target path, the transformation of the old and new energy structure will help to improve the upstream resource controllability of China’s domestic supply side under the big cycle.

From the perspective of domestic energy production pattern, China’s energy production system has formed a stable energy multi wheel drive system, including coal, oil, gas, electricity, nuclear, new energy and renewable energy. According to world energy statistics, taking 2019 data as an example, the energy consumption of Chinese mainland is up to 141.7 billion billion joules, which accounts for about 24% of the total energy consumption in the world and 55% in the Asia Pacific region. In the same year, China’s carbon dioxide emissions reached 9825.8 million tons, accounting for 29% of the total global carbon dioxide emissions. At present, coal is still the basic energy to ensure the energy supply in China, accounting for a large proportion of energy production and consumption structure. From 2012 to 2020, China’s annual output of raw coal fluctuates between 3.41-3.97 billion tons. Therefore, improving the large and inefficient use of coal will become an important step to reduce energy consumption and carbon dioxide emissions, and the implementation of carbon neutralization in coal industry is crucial.

On the other hand, China’s crude oil imports continued to grow from 2015 to 2019, reaching a record high of 505.72 million tons in 2019. 2018-2019   China’s oil imports have exceeded 240 billion US dollars. On the contrary, China’s crude oil export showed a very obvious downward trend. In 2019, China’s oil export volume will be 810000 tons, a cumulative decrease of 69.2%.

At present, China is still in the stage of over dependence on oil imports, the pricing power of oil is not in China, and the elasticity of demand for oil in the market is basically rigid. In addition, the international crude oil market is basically oligopoly, so China must bear the fluctuation of oil prices. Therefore, in the future, the traditional heavy industry must promote the safe, intelligent and green development and utilization of coal mining industry, develop thermal power based on the principle of clean and efficient, improve the production capacity of natural gas and get rid of oil dependence.

The transformation of energy development from high carbon to low carbon is conducive to energy efficient utilization, clean and sustainable development. It will be an inevitable trend for new energy to replace traditional fossil energy in the long-term evolution of energy pattern. China has international competitiveness in the development technology and construction scale of clean energy. The power supply capacity has increased steadily in recent years, with a total installed power generation capacity of 2.01 billion kilowatts. By the end of 2019, China’s power generation has reached 7.5 trillion kwh, an increase of 75% and 50% respectively compared with 2012. According to the data disclosed by the national energy administration, at present, the cumulative installed capacity of hydropower, wind power and photovoltaic power generation all ranks the first in the world. The installed capacity of nuclear power under construction in 2019 also ranks the second in the world with the amazing data of 65.93 million kilowatts, and the installed capacity of nuclear power under construction has already reached the first in the world. The cost of clean energy also continues to decrease. For example, the unit installed cost of photovoltaic has dropped to 3.1 yuan per watt by 2021.

Low carbon, clean and efficient energy is the general trend of energy development and the urgent pursuit of China’s economic and social sustainable development. At present, China has a good foundation for the development of clean energy. In order to achieve controllable resources, China will be committed to the high-quality development of traditional industries and the further research and development of new energy in the future.

From an international point of view, compared with other major countries, China’s carbon emissions are in the forefront of the world. The main reason is that behind the rapid development of the past 20 years is the relatively high emission energy structure with relatively large side effects. Coal, oil and natural gas were the three pillars of China’s energy consumption at that time, At that time, the development of new energy in China was relatively backward compared with other countries, such as the United States, so it was unable to carry out effective alternative emission reduction, and the large-scale destruction of forest vegetation led to the low efficiency of natural carbon sequestration, which directly further worsened the situation of high carbon emissions in China.

From the perspective of carbon emission intensity, there has been an obvious low trend since 2004, thanks to the country’s emphasis on low carbon emission and green life since 2003. However, due to the lack of development of new energy and the high dependence on coal and other traditional energy, China can not get rid of the traditional energy structure with high energy consumption in the same period, even though the carbon emission intensity continues to decrease, However, the per capita emissions remained rising until 2012.

5、 The path of carbon neutral technology: Taking 2030 as the watershed to accelerate the substitution of “old and new” energy

5.1 since 2012, China’s per capita carbon emission has maintained a rising trend

China’s carbon emissions increased greatly from 2003 to 2013, because the oil and coal industries with high energy consumption and high emissions dominated China’s overall energy structure. From 13 to 17, the growth rate of China’s carbon emissions was basically zero, because China repeatedly proposed and advocated the concept of “low carbon and environmental protection” to reduce carbon emissions, The concept of mitigation of greenhouse effect is spreading and influencing the public in various ways.

5.2 looking forward to the rhythm of “old and new” energy substitution under the path of carbon neutral technology from three time dimensions

According to the technological path of carbon peaking and carbon neutralization, we look forward to the rhythm of “old and new” energy substitution in three time dimensions

In the short term, in order to achieve the goal of carbon peak by 2030, we must strive to optimize the transportation of clean energy and make breakthroughs in reserve technology, so as to lay a solid foundation for the comprehensive implementation of clean energy in the later stage. In order to speed up the construction process of National Smart Grid and UHV power grid from the perspective of photovoltaic, wind power and transportation, the 2021 State Grid conference indicated that a number of new UHV key projects will be implemented. Since the beginning of UHV construction in 2006, China has invested 651.2 billion yuan in UHV construction, and the investment in 2020 alone will reach 181.1 billion yuan, In terms of construction, there are 25 projects in operation, 7 projects under construction and 7 projects to be reviewed. Since 2005, the cumulative length of UHV projects in China has exceeded 30555 km, and remarkable results have been achieved in transportation optimization.

At the same time, in order to solve the randomness problem caused by natural conditions of wind power, photovoltaic and other new energy sources, China is also vigorously developing new energy storage technologies, such as electrochemical energy storage. According to the data of China energy storage network, in 2020, China’s newly installed energy storage capacity will be 1800MW, and the newly installed capacity of electrochemical energy storage, which is relatively more environmentally friendly, will be 785.1mw, accounting for 30.4%, The ranking rose to the second place, second only to the traditional high energy consumption pumped storage. It can be seen that the UHV as the core of transportation optimization and the lithium battery as the raw material of energy storage installation will be stronger in the short term.

In the medium term, it is necessary to reshape the overall energy structure and upgrade carbon capture technology. After the completion of the carbon peak target, with the construction and transportation cost parity of new clean energy, the traditional high energy consumption and high emission energy will be gradually replaced as a whole, China’s energy saving and emission reduction efficiency will enter a new height, and the overall energy structure will be reshaped. With the maturity of carbon capture technology (CCUs) and renewable energy, the decarbonization of power sector will be completed. Transportation, construction, industry and other end-user departments have achieved electrification, and the remaining energy supply components have also completed the transformation of low-carbon emission.

In the long run, the completion of energy structure remodeling and the maturity of carbon capture technology will gradually achieve China’s negative carbon emissions. By 2060, the goal of carbon neutralization will be achieved. At this time, resource recycling will become the theme of maintaining carbon neutralization and achieving climate neutrality. The breakthrough and maturity of new clean energy recovery and recycling technology has become the promotion rhythm after the achievement of carbon neutralization. Combined with forest, soil and other natural carbon sinks, a sustainable economic net zero carbon emission model with social and natural integration has been formed, so as to promote China to achieve climate neutrality as soon as possible.

6、 Finance and Finance: supporting carbon neutral economy with financial market tools such as carbon finance and carbon pricing

6.1 apart from public expenditure, who will pay for the financing gap of carbon neutral economy?

In the next 30 years, the scale of investment in carbon neutral area will exceed 138 trillion, and the scale of fiscal expenditure may only account for 15.94%. Carbon finance and green finance are the main ways to pay for the funding gap of carbon neutral economy. According to the data from the Institute of climate change and sustainable development of Tsinghua University, the investment scale in the field of “carbon neutral” will exceed 138 trillion yuan in the next 30 years. It is estimated that the average annual investment scale in carbon neutral areas accounts for about 2% – 2.5% of GDP. From the perspective of traditional fiscal revenue, the total expenditure on energy conservation and environmental protection in the national public finance in 2019 is 739 billion yuan. According to this calculation, the total expenditure on energy conservation and environmental protection in the next 30 years is about 22 trillion yuan, far less than 138 trillion yuan, accounting for only 15.94%.

We believe that the development of carbon finance, green finance, financial expenditure to leverage social capital to participate in the completion of carbon emission reduction targets in an all-round way, through bank credit to develop green finance and capital market to give play to financial support, or will be the main way to make up the funding gap of carbon neutral economy.

1) using the development of green finance and carbon finance to revitalize the “carbon neutral” economy

China’s green financial system is mainly indirect financing. According to the people’s Bank of China, by the end of 2020, the balance of domestic and foreign currency green loans was about 12 trillion yuan, with a year-on-year growth rate of 16%. Among them, the proportion of green loans in electric power, thermal power, transportation and other industries accounted for 59.67%. Since the development of green finance, China has been committed to establishing an economic mechanism to correct the negative externalities such as environmental pollution and greenhouse effect, giving corresponding incentives to enterprises to reduce environmental consumption, and finally blocking the environmental Arbitrage Behavior of enterprises. We expect that, at a growth rate of 16%, the growth rate will remain unchanged, and the scale of green finance will reach 100 trillion yuan in the next five years.

In the field of direct financing, the stock scale of green bonds exceeds 800 billion yuan, mainly due to the issuance of green bonds. basis   From 2016 to 2020, the cumulative financing scale of green stocks in China is only about 12 billion yuan, while the annual issuance scale of green bonds is more than 200 billion yuan. According to the data disclosed by Chen Yulu, vice governor of the people’s Bank of China, by the end of 2020, the stock of green bonds has exceeded 800 billion yuan, covering 10 kinds of bonds, including financial bonds, medium and short-term bills, corporate bonds, corporate bonds, exchangeable bonds and asset-backed securities. With the implementation of the major decision-making and deployment of carbon peaking and carbon neutralization, it is expected that China’s bond market will still play a major role in the direct financing of green finance in the future.

Carbon finance mainly refers to the financial market generated by carbon trading. After the concept of carbon trading was first put forward by the European Union, it was the financial activities caused by the market exchange of carbon emission rights allocated by the government among enterprises. It generally refers to all financial activities that serve to limit carbon emissions, including carbon emission quota and its financial derivatives trading, as well as direct investment and financing activities based on carbon emission reduction and related financial intermediary services. As far as China is concerned, the development of carbon financial market is still relatively late. It needs the market to play a decisive role in capital allocation and better guide carbon emission reduction and low-carbon investment through price. We believe that with the steady implementation of carbon neutrality, continuously improving the degree of financialization of the carbon market will help to achieve the emission reduction target of reaching the peak by 2030.

According to the World Bank forecast, the scale of China’s carbon market is about 3-4 billion tons, and the scale of carbon trading market may reach 20 billion US dollars. According to the world bank’s forecast, in 2017, the global carbon market will cover 18.36% of the global total carbon emissions of 36 billion tons, with a total of 6.6 billion tons, and China’s carbon market will contribute more than half of the total carbon emissions of 3-4 billion tons.

According to the calculation of the annual turnover rate of the global carbon market, the global carbon market trading volume in 2017 is about 18.4 billion tons. According to the estimation of the EU carbon price close to the median level of the global carbon price range in 2015, the global carbon market trading volume in 2017 is about 92 billion US dollars;

According to the turnover rate of China’s domestic spot market, the trading volume of global carbon market in 2017 will be significantly revised downward to about 8-9 billion tons; Before China starts carbon futures and other derivatives trading, the annual trading volume of global carbon market may stabilize at this level.

2) build a climate change investment and financing policy system of carbon emission with the help of capital market

On October 20, 2020, the relevant national departments jointly issued the “guidance on promoting investment and financing in response to climate change”, which put forward 15 measures in five aspects. Among them, the most important is to speed up the construction of Climate Investment and financing policy system, gradually improve the climate investment and financing standard system, including the climate information disclosure standard and the establishment of climate performance evaluation standard, At the same time, it emphasizes to guide and support the local practice of Climate Investment and financing, to carry out the local pilot of Climate Investment and financing, to create a favorable local policy environment, and to encourage the innovation of local models and tools. This will be conducive to the local implementation and practice of Climate Investment and financing policies. At present, nearly 2500 emission enterprises have been included in the seven carbon trading pilot projects nationwide, mainly focusing on the three high-tech industries of electric power, cement, steel, chemical industry and construction, and initial results have been achieved.

We believe that in terms of capital introduction, the guiding opinions put special emphasis on stimulating the power and vitality of social capital, and put forward “encouraging enterprises and institutions to fully consider the impact of future market carbon prices in investment activities”. When the national carbon market starts to operate, the guidance proposes to support the development of carbon finance activities, explore carbon futures and other derivatives and businesses, set up carbon market related funds, or guide capital market investment in capital market and credit support, practice ESG investment philosophy, and play the role of leading enterprises in environmental governance.

6.2 why is carbon pricing the key to carbon neutral economy and carbon emission reduction?

From the perspective of clear economic principles of property rights, another key issue in the development of carbon finance is pricing. As mentioned above, the biggest challenge for the development of carbon finance is how to quantify the environmental cost and price the risk, and on this basis, evaluate the environmental performance reasonably, and finally bring the operating performance and environmental performance into the unified enterprise profit statement. The financial development of the carbon market is still very low, and at the same time, it is facing the pressure of low-carbon transformation far beyond Europe and the United States. After the launch of the national carbon market in 2017, China will become the largest single carbon market in the world. It is particularly important to strive for the international carbon pricing power through the development of the carbon financial market. In fact, carbon pricing is to set a price for carbon dioxide emissions. By playing the signal role of price, economic entities can reduce carbon dioxide emissions, or pay for carbon dioxide emissions, so as to guide production, consumption and investment to low-carbon direction, and realize the coordinated development of climate change and economic society.

Carbon pricing mainly includes carbon tax and ETS. The game of carbon pricing power will become one of the important contents of the game among big countries. Currently, 61 carbon pricing mechanisms are being implemented or planned to be implemented in the world, including 31 on carbon emission trading system and 30 on carbon tax, involving 12 billion tons of carbon dioxide, accounting for 22% of global greenhouse gas emissions. In 2019-20, China’s key tasks in the construction of national carbon market infrastructure include: preparing for the first start of power industry transactions, establishing MRV related rules and carbon accounting regulations. On May 27, 2019, the Ministry of ecological environment issued the notice on submitting the list of key emission units and relevant materials of the power generation industry in the national carbon emission trading market to make preparations for quota allocation, system account opening and market test operation. The impact of carbon price fluctuation on energy price is mainly reflected in two aspects

Through the economic dispatch mechanism of the power market, carbon price is transferred into thermal power generation cost and wholesale electricity price, which affects the electricity cost of end users;

Carbon price will increase the cost advantage of gas-fired power generation compared with coal-fired power generation, because the carbon emission of the former is less than half of that of the latter, so carbon price will increase the power generation capacity of gas-fired units, increase the demand and price of natural gas, and further increase the electricity price. At present, nearly half of the carbon emissions in the regions covered by the global carbon pricing mechanism are priced at less than US $10 / T. According to the data of China’s pilot carbon trading market, from the perspective of carbon trading price performance, in 2021, the carbon trading price of China’s carbon emissions exchange will remain in the range of 10-40 yuan / ton, which is lower than the global level. In addition, the high carbon price in heavily polluted areas may play an effective role in market allocation to a certain extent.

We believe that in the strategic development of building a large domestic cycle and an international double cycle, green low-carbon economy may be a new engine for the high-quality development of China’s economy. With the improvement of carbon pricing level and marketization, emissions trading will make heavy pollution areas or high energy consumption and high carbon emission enterprises bear the due social governance costs, forcing China’s high carbon industry to adjust. China also needs to establish complete supporting policies to strive for the market pricing power of carbon emissions in the process of global carbon neutralization. In addition, from the perspective of trade, China has frequent trade with the United States, the European Union and other developed economies, and low-carbon structural transformation is conducive to avoiding the short-term impact of carbon tariffs on China’s industry; In the long run, by accelerating the development of low-carbon economy, the competitiveness of export products can be improved.

7、 The change of traditional energy industry and the opportunity of new energy industry under the broken carbon neutral policy

7.1 chemical industry: comprehensive low-carbon innovation of chemical industry, reduction of oil and coal supply, new materials or benefits

Traditional energy such as petroleum and coal is the main upstream supply of the chemical industry. Under the background of energy conservation and emission reduction, the upstream supply contraction leads to a sharp increase in the industry cost line; At the same time, the fourteenth five year plan stipulates that new coal chemical projects will no longer be approved, further reducing the production scale of the industry, which brings another supply side reform for the chemical industry, and technological breakthrough and innovation will become the future trend of the industry.

From the perspective of chemical materials, under the background of carbon neutralization, it is inevitable that new materials such as environmental friendly bio based materials and degradable materials will replace the original high energy consumption materials. Meanwhile, the “plastic ban order” will further expand the development space of new degradable materials, and the high energy consumption production capacity such as coke, polychloroethylene and methanol will be reduced; At the same time, the preferential treatment of electricity price will be cancelled to further increase the processing cost of the industry to curb high carbon emissions.

7.2 steel: the production of low-quality steel is reduced in an all-round way, and the profits of high-quality environmental protection steel enterprises are increased

China’s iron and steel industry accounts for 15% of China’s total carbon emissions, and is the manufacturing industry with the highest carbon emissions. As the main body of traditional steelmaking capacity, the output of crude steel in China remains high. The output of crude steel in China increased from 156000 tons in 1949, accounting for only 0.1% of the global output. In 2020, the output of crude steel in China will be 1053 million tons, accounting for 53.3% of the global output. In terms of growth rate, in the past 17 years, the growth rate of China’s crude steel production has begun to decline, paving the way for the withdrawal of low-quality and high carbon steel in the later stage, but the short-term crude steel is still the main production capacity of China’s steel industry.

With the introduction of relevant policies, China’s relevant departments directly reduce the steel supply source, especially the crude steel output. At the same time, local governments also began to respond positively. For example, Tangshan directly closed seven large-scale smelting furnaces. Electric arc furnace steel uses electric energy as heat source to avoid the problems of low efficiency and high discharge of steel impurities in traditional steelmaking mode, which is the first choice to replace crude steel at present. As raw material of electric arc furnace steel, the industrial demand of scrap steel began to increase steadily, and the price also continued to rise from the middle of 15 to the end of 19, The output and scale of crude steel will be gradually limited, and will be replaced by high quality and low emission steel after the breakthrough of new material technology.

In the short term, the current steel structure and demand rigidity will not be shaken, and the compression of the supply side will cause a temporary general rise in steel prices. In addition to the release of steel demand in the new season, the large reserves of domestic steel plants have also played a certain role in lifting. As a kind of high-quality steel with better quality and cost performance than open hearth steel, the proportion of EAF steel in the industry may increase, and the environmental protection of steel plants will be guaranteed to a certain extent. In the short term, scrap production enterprises and EAF steel enterprises with rapid transformation may become the main beneficiaries of steel industry under the background of carbon neutralization.

7.3 coal: the core position of short-term coal energy can not be shaken, and the industry concentration may be further improved

In the past, China’s coal consumption has been at a high level. In 2015, China’s coal consumption was 3.75 billion tons, accounting for 49% of the total global consumption; By 2019, China’s coal consumption has reached 8.167 billion tons, accounting for 52% of the total global consumption. The proportion of coal in China’s energy consumption structure has reached 64%, which is far higher than the average level of 30% of the world’s coal. As the focus of carbon neutral emission reduction, coal’s capacity reduction and technological breakthrough need a long period.

Under the background of carbon neutral and “energy dual control” policy, it is imperative to reshape the energy structure. The introduction of the goal of reaching the peak of carbon in 2030 shows that the coal demand will basically reach the top before 2030. However, as the main part of China’s current energy supply, the demand rigidity of coal in the short term can not be shaken, and China’s coal consumption has been gradually strengthening since 16 years, However, it is obvious that the growth rate has been smooth since 2018, which has laid the foundation for the reduction of coal consumption in the future. In the long run, the technological breakthrough and cost parity of clean energy will have a fundamental impact on the energy status of coal in China.

In 2015, the supply side structural reform eliminated most of the small and medium-sized illegal industries in the coal industry. The structure of China’s coal industry has shown a certain degree of industry concentration. In 2020, the coal output of national energy group will account for 13.63% of the whole industry. In the future, in the process of carbon neutral promotion, the coal production of national energy group will increase, Most of the coal enterprises will be eliminated in the reconstruction of energy structure due to the problems of technological breakthrough and high production cost. A small number of state-owned holding leading coal enterprises may be able to achieve the breakthrough of low-carbon technology in the development and realize the breakthrough in the long cycle of environmental protection, and further strengthen the market profitability, and the investment value may be strengthened.

7.4 photovoltaic: in 2021, photovoltaic will enter the parity stage, and photovoltaic leaders will benefit first

By vertical comparison, China’s new photovoltaic installed capacity has risen sharply since 2016, with no less than 30000 MW from 2016 to 2019 and even 53100 MW in 2017. The cumulative installed photovoltaic power will reach 205493.165 MW by the end of 2019, which is nearly 30 times higher than that in 2012. By horizontal comparison, China’s solar energy consumption will reach 20 billion joules in 2019, accounting for 31% of the global solar energy consumption, twice as high as that of the United States.

In recent years, China has paid more and more attention to the research and development and construction of new energy. Clean energy resources are developing rapidly, technology is gradually mature, and the cost is also reduced. The unit installed cost of PV has continued to decrease from 14.5 yuan per watt in 2011 to 3.1 yuan per watt by 2021, with a cumulative decrease of 78.62%.

During the 14th Five Year Plan period, China’s photovoltaic industry chain will usher in rapid development as a whole. In the upstream photovoltaic equipment manufacturing industry, the price of silicon material is expected to remain high. In 2021, the capacity release of the supply side is still unknown. Under the general trend driven by policy support, the demand for silicon materials is surging, and the price of silicon materials is expected to reach a high level in the state of supply and demand balance. In 2021, the release of silicon supply will accelerate, and the price may drop, which will affect the profits of enterprises. As the silicon wafer industry continues to make high profits from 2019 to 2020, it may attract a large number of manufacturers to enter the market in the future until the market is too saturated, which will greatly increase the possibility of oversupply in 2021. With the market recovery after the epidemic, inverter industry will rise significantly, especially the rebound of overseas demand. At present, the cost performance ratio of domestic inverters has exceeded that of overseas enterprises, and the inverter market will increase the export volume in the future. In the mid stream market, the change of photovoltaic glass is the most prominent. The Ministry of industry and information technology said on December 16, 2020 that photovoltaic glass will no longer be subject to capacity replacement restrictions. This favorable policy is expected to push up the production and delivery capacity of PV glass and PV modules. The investment and construction of downstream photovoltaic applications will appear, and even the operation and maintenance field may usher in large-scale development. For example, the Ministry of transport encourages reasonable layout of photovoltaic power generation facilities along service areas, slopes and other highways, and formulates technical specifications for roadside photovoltaic projects on expressways.

Photovoltaic industry in the long-term development of carbon neutral, the market scale profit, broad development space; Among them, with the launch of parity projects and the expansion of overseas parity regions, China’s leading photovoltaic enterprises have overseas comparative advantages, or take the lead in benefiting from the carbon neutral goal of global resonance.

7.5 wind power: continuous growth of installed capacity, broadening new energy application scenarios

By vertical comparison, China’s cumulative installed wind turbine capacity is about 210478 MW in 2019, an increase of 241.7% over 2012. At the same time, the cumulative installed capacity of China’s wind power has continued to grow steadily for more than 10 years, reaching 236402 MW as of December 31, 2019, with a year-on-year growth of 213.85% compared with 2012. By horizontal comparison, China’s wind energy consumption will reach 3620 billion joules in 2019, far exceeding that of developed countries in Europe and America such as Germany, Britain and France, which accounts for 28% of the total global wind energy consumption. By 2019, China’s total installed capacity of renewable energy power generation will be 790 million kilowatts, accounting for about 30% of the global total installed capacity of renewable energy power generation. Among them, the installed capacity of hydropower, wind power, photovoltaic power and biomass power respectively reached 356 million KW, 210 million KW, 204 million KW and 23.69 million KW, ranking first in the world.

The “Beijing Declaration on wind energy” proposes that in the “14th five year” plan, it is necessary to set the development space for wind power to adapt to the national strategy of carbon neutrality, that is, to ensure that the annual new installed capacity of wind power in China is more than 50 million kilowatts, and after 2025, the annual new installed capacity of wind power in China should not be less than 60 million kilowatts“ Under the trend of “carbon neutral”, the proportion of new energy power generation has increased rapidly. Under the background of “new infrastructure”, the demand for 5g base station, data center and charging pile has accelerated, the demand for supporting low-voltage electrical appliances and relays has increased rapidly, and the proportion of medium and high-end demand is expected to increase.

We believe that the strategic goal of energy Internet is clear. In the future, we will continue to increase the construction of UHV and energy Internet, further reduce the incidence of abandoning wind and power, and promote the development of distributed generation and Microgrid. The investment in power grid is expected to resume growth in 2021, and the investment in informatization, UHV and energy storage is expected to exceed expectations.

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