Cranes and diggers busily prepare land beneath the red and white-striped chimneys of the Mengtai Group coal-fired power plant at the northern city limits of Ordos, in northern China’s Inner Mongolia.
Privately owned Mengtai will soon add another two smoke stacks to the sprawling complex in an expansion that is the group’s biggest investment in its 20-year history. The new unit will burn coal to provide heating to nearby neighbourhoods as part of a regional policy unveiled in March that will add 5 gigawatts of coal power to western Inner Mongolia this year.
The resource-rich region, a swath of grassland, desert and forest that spans most of China’s northern border with Mongolia, is trapped between China’s heavy industrial past and the bold low-carbon future vision of the nation’s leaders.
Mengtai’s proposal for a new plant was agreed by the local energy bureau in May, one of 17 units recently given the go-ahead by authorities in Inner Mongolia — six have won approval this year alone as part of efforts by local governments to stimulate their pandemic-hit economies. The region has the most pending facilities of any province in China, according to data from the Global Energy Monitor, a non-governmental organisation that tracks global fossil fuel projects.
So at a time when the world is shifting away from coal — and Beijing has indicated that it will eventually do the same — China still accounts for the vast majority of newly commissioned projects globally.
“Coal is just so important in China from an energy supply and security point of view, and local governments don’t believe it is possible to get rid of coal immediately,” said Yang Yingxia, a senior fellow at the Boston University Institute for Sustainable Energy. “I don’t think the Chinese government has a crystal clear sense of how to get to carbon neutrality by 2060.”
China’s future relationship with coal is critical. It will have an outsized impact on global efforts to meet climate change targets but will also weigh heavily on President Xi Jinping’s announcement in September of a goal to be “carbon neutral” by 2060. To achieve that target would mean a reduction in carbon dioxide emissions to near zero with any remaining output dealt with by capture and storage technologies.
Heralded as a shot in the arm for global efforts to tackle climate change, the move pre-empted the next round of UN climate talks set for November 2021 and has left nations scrambling to catch up. Japan and South Korea followed with pledges to reach net-zero by 2050.
Yet, sceptics point to China’s continued investments in fossil fuels and unwillingness to introduce a moratorium on coal as evidence of its lack of credentials to be a global leader on climate change.
China has embraced clean technologies in recent years. It leads the world in annual electric vehicle sales and installations of wind turbines and solar panels, although uptake has slowed as the state has curbed previously generous subsidies.
But in industrial hubs, sustainable energy sectors remain dwarfed by polluting competitors. Since the turn of the century, municipal authorities in Ordos — a city of almost 2m people best known for high-end cashmere and coal — have embarked on wave after wave of infrastructure projects designed to revamp the local economy and wean it off coal. But many efforts have stalled. A decade-old “low-carbon valley” and cloud computing industrial park visited by the Financial Times showed little sign of having attracted business.
In contrast, a network of open-air coal mines in the countryside surrounding the city teemed with activity. Roadside signs, reminding passers-by to “protect the environment as you protect your eyes”, are coated in coal dust kicked up by a constant stream of trucks carrying piles of the black rock.
The lack of immediate obvious alternatives to bolster local growth means that residents in neighbourhoods surrounding the plant, located in Ordos’s older district of Dongsheng, mostly welcomed the Mengtai project.
“The best way Dongsheng can go green is by using coal environmentally and efficiently,” says one Mengtai engineer, who spoke on condition of anonymity. “This is our current advantage. New energy and high-tech industries are developing but it’s been a bit slow. We need to use the resources we have.”
Yet, this continued reliance on fossil fuels and heavy industry in China’s economy — industrial production has driven the country’s post-pandemic economic rebound — has cast a shadow over Mr Xi’s grand pledge. Widely hailed in the west by climate scientists and politicians alike, the announcement has given hope to the possibility of the world’s largest emitter actively joining efforts to save climate negotiations stalled by coronavirus and the US withdrawal from the Paris climate accord.
Rachel Cleetus, policy director for the climate and energy programme at the Union of Concerned Scientists in Washington, says China’s move should help the emergence of a global high-level coalition that can genuinely deliver on climate change. But she cautions that the “Achilles heels for both China and Japan is what they are going to do around coal.”
‘Hollow political overtures’
Some sceptics say that China issued the pledge in part to secure a positive role for itself in global diplomacy — to take the moral high ground on climate change as the US became more isolationist under President Donald Trump, while also currying favour with Europe. Others say that it was a distraction away from criticism over Beijing’s role in the coronavirus pandemic.
The move put Washington on the back foot. After the announcement, the US state department issued a “fact sheet” listing China’s environmental abuses. A senior official in the Trump administration dismisses China’s climate commitments as “hollow political overtures” and told the Financial Times that China had a record of “deceitful environmental practices where its words do not match reality”.
China — which fulfilled pledges to limit carbon dioxide emissions to 40-45 per cent of the 2005 level by 2020, ahead of schedule — responded to US accusations with its own, labelling Washington a “consensus-breaker” that had brought about “major retrogression” in environmental policy.
The possibility of climate change becoming yet another point of friction between the world’s two largest economies threatens to destabilise a process observers say will need Beijing’s buy-in to avoid an even more rapidly heating planet. China has accounted for about two-thirds of the growth in global carbon dioxide emissions in the past two decades. US emissions peaked in 2007.
Mr Trump’s Democratic rival in Tuesday’s presidential election, Joe Biden, has made clear that climate change would be one of his administration’s highest priorities. He has committed to rejoin the Paris agreement if he wins the election and to use climate policy as one of the cornerstones of efforts to revive the role of the US in global diplomacy.
“A significant element of that will be holding the Chinese government accountable to its commitments,” says one Biden campaign official, adding that the presidential candidate would seek to pull together allies “to put pressure on Beijing to ensure it does not shirk its vital responsibility to address climate change”.
Nations hoping to work with China will have to avoid being steamrollered, say critics, into endorsing practices they do not necessarily condone. For instance, Beijing often reaches targets by fiat, an approach that can achieve striking results but can also sideline communities and have devastating effects.
A drive to reclaim grassland in Inner Mongolia has turned local nomadic communities — deemed responsible for desertification — into “ecological migrants”, who have been settled into newly built areas in cities, including Ordos. At the same time labour rights groups warn that the drive to consolidate and upgrade the coal industry risks mass lay-offs for low-skilled workers.
The net-zero pledge is likely to intensify the best and the worst of China’s approach to environmentalism, says Li Yifei, a scholar at the University of New York’s Shanghai campus and co-author of a recent book on China’s “coercive environmentalism”.
“It could translate into policy [measures] that intervene into every realm of social life,” he says. “These heavily industrial areas are becoming the forgotten parts of the Chinese economy. The traditional fossil fuels sector and the most environmentally destructive centres of the economy are being thrown under the bus.”
The sheer scale of the transition involved in the Xi plan is huge. The Institute of Climate Change and Sustainable Development at Tsinghua University, an influential think-tank, has calculated what China needs to do to reshape its economy to meet, by 2050, the Paris accord target of keeping global temperatures within 1.5C of pre-industrial levels.
Under the most ambitious scenario, non-fossil fuel energy sources — that accounted for 41 per cent of China’s electricity production in 2019 — will make up 90 per cent within 30 years. To hit that mark would require the development of wind and solar installations equivalent to about three times the current global capacity of wind and four times that of solar. Along with costs to electrify industry and transport, this transformation would require investment of $135tn or more than 2.5 per cent of gross domestic product, the report estimated.
The research was conducted prior to Mr Xi’s announcement, but He Jiankun, an adviser to the government at Tsinghua University who led the research, believes that the recommendations for how to reach the 1.5C target align with the 2060 net-zero goal. China’s next five year plan, which is to be released in March, is also expected to include an annual carbon dioxide emission cap of 10.5bn tonnes.
“The main task of the [next] five year plan will be to ensure that emissions peak before 2030,” Mr He says. After that turning point, the institute’s research predicts a more rapid drop in emissions as renewable energy sources come online and technologies to capture carbon and improve efficiency mature.
Mr He says that new coal power plants are unlikely to mean a rise in overall consumption because of those greater efficiencies. In that scenario, new or retrofitted plants would contribute to an overall reduction by replacing low-efficiency coal burnt by individuals with high efficiency equivalents, he adds.
But by allowing continued building of fossil fuel projects, China risks carbon “lock-in” from polluting projects that will be difficult to unwind, analysts warn. The scenarios mapped out by Mr He and other leading Chinese climate researchers remain cautious and leave open a risk of delayed investments in wind and solar, according to Yan Qin, an Oslo-based analyst for Refinitiv.
“The government acknowledges the global trend towards net-zero emissions . . . but still wants to take the transition slowly. The [current] economic slowdown is the main concern,” she says. Adding that, by “allowing emissions to rise until the peak”, many scenarios leave room for negotiations with the powerful fossil fuel industry.
Adding to the uncertainty over whether China can reach its targets in 2060 — and even peak emissions before 2030 — are the policy shifts for greening the economy. Instead of pouring subsidies into establishing wind and solar manufacturers — the dominant approach for the past decade — the state is shifting towards the use of new market-driven mechanisms, such as an emissions trading scheme, green finance and electricity spot market reforms.
A flurry of new announcements followed Mr Xi’s pledge. Last week, five central government bodies released guidelines to bolster private and international investment in green bonds, to prioritise the growth in such finance. Half of all new vehicle sales by 2035 should be electric or hydrogen and a top official has reaffirmed plans to rollout carbon trading to new industries.
Yet, none of these initiatives alone will provide the necessary heft to push rapid climate reductions, analysts say. The emissions trading scheme, for example, has yet to be expanded beyond the power sector and is based on a measure of intensity, rather than clear-cut caps on total emissions.
China’s ultimate success or failure as a driving force for averting climate disaster may happen beyond its borders. About 40 per cent of all China’s overseas power plant financing from 2000 to 2019 was in coal, while only 11 per cent goes to renewable energy, according to data compiled by Boston University.
As such, global climate negotiators are determined to seize on China’s apparent willingness to encourage stronger global efforts. Kelly Sims Gallagher, formerly a senior White House climate official who helped negotiate the 2014 climate accord between Mr Xi and President Barack Obama, says Mr Xi’s new commitment is “a very important step for China to make”, adding that Beijing had developed a record for keeping to past commitments on climate.
“Given that China is the largest emitter currently, the sooner that it can achieve that peak and begin its pathway down, the lower cumulative emissions will be [creating] more flexibility for other developing countries to determine when they must peak,” says Ms Gallagher, who now directs the Climate Policy Lab at The Fletcher School, Tufts University.
But, says Ms Gallagher, it will be harder for the two countries to co-operate than it was in 2014, even under a Biden administration. Due to America’s failure to ratify both the Kyoto protocol and its withdrawal from the Paris climate accord, “the US has lost some credibility so it needs to have some humility,” she adds. “As the two largest emitters we cannot afford for these countries to not co-operate with each other on climate.”
UK pushes floating wind farms in drive to meet climate targets
In waters 15km south-east of Aberdeen, renewable energy companies are preparing to celebrate yet another landmark in the drive to end Britain’s reliance on fossil fuels.
Five wind turbines, each taller than the Gherkin building in the City of London, fixed to 3,000-tonne buoyant platforms have been towed to the UK North Sea from Rotterdam where they will form part of the Kincardine array, the world’s biggest “floating” offshore wind farm.
Wind farm developers have dabbled since the 2000s with floating technology to overcome the limitations of conventional offshore turbines. These are mounted on structures fixed to the seabed and are difficult to install beyond depths of 60m, which makes them unsuitable for waters further from shore where wind speeds are higher.
Floating projects, which are anchored to the seabed by mooring lines, are rapidly moving from the fringes to the mainstream as countries turn to the technology to help meet challenging climate targets.
Britain was the first country to install a floating offshore wind farm off the coast of Peterhead, Scotland in 2017. But existing floating projects are modest in size. The Kincardine array has an electricity generation capacity of 50MW compared to 3.6GW for the world’s largest conventional offshore wind farm.
Now the bigger wind developers are stepping up a gear with plans to build more schemes on a larger scale.
Denmark’s Orsted, Germany’s RWE, Norway’s Equinor along with the UK’s ScottishPower and Royal Dutch Shell are some of companies on a long list of bidders vying to build floating schemes in an auction of seabed rights for about 10GW of offshore wind projects in Scottish waters. The bidding round closed in mid-July with the winners expected to be announced in early 2022.
The UK is separately examining an auction exclusively for floating wind in the Celtic Sea, the area of the Atlantic Ocean west of the Bristol Channel and the approaches to the English Channel and south of the Republic of Ireland.
Developers expect the costs of floating projects to fall rapidly as more projects are deployed. In 2018 floating wind costs were estimated at more than €200 per megawatt hour, nearly double the cost of nuclear power in the UK.
The Offshore Renewable Energy Catapult, a UK technology and research centre, is hopeful developers will be able to build “subsidy free” floating projects at prices below forecast wholesale electricity costs in auctions as early as 2029. Conventional offshore wind developers reached this inflection point in a UK government auction in 2019.
UK prime minister Boris Johnson, who is hosting the UN’s COP26 climate summit later this year, has set a 1GW floating target out of a total 40GW offshore wind goal by 2030. He has underlined the importance of accessing the “windiest parts of our seas” as part of the UK’s goal to cut carbon emissions to net zero by 2050.
Other countries including France, Norway, Spain, the US and Japan are pursuing the technology, which experts said would particularly appeal to countries with limited access to shallow waters, or where the geology of the seabed makes it impossible to install conventional “fixed-bottom” turbines.
WindEurope, an industry body, predicts one-third of all offshore wind turbines installed in Europe by 2050 could be floating.
Countries pursuing floating wind are interested in it “not just as an opportunity to deliver net-zero targets. It has a real potential to be a driver of economic growth as well,” said Ralph Torr, a programme manager at the Offshore Renewable Energy Catapult.
Much like how the UK supply chain has lost out to foreign companies in the construction of conventional wind offshore farms — despite Britain having more than anywhere else in the world — there are concerns the mistakes will be repeated for floating technology. Manufacturing work for the Kincardine project was carried out in Spain and Portugal and the turbines and foundations assembled in Rotterdam.
Competition with other markets was already high as they all tried to gain a “first-mover advantage”, said Torr, who warned the UK government’s 1GW floating wind target by 2030 was not “going to unlock huge investment in the supply chain or infrastructure because it’s [just] a handful of projects”.
The Offshore Renewable Energy Catapult and developers are urging the government to commit to a second target in 2040 for floating wind, which they believe would provide confidence to industry to invest in the necessary facilities in Britain.
“Because floating [wind] becomes economic in the 2030s, it’d be much better to understand what the longer term pipeline is,” said Tom Glover, UK country chair at RWE. He added that in the Scottish seabed rights auction, developers had to “provide a commitment and an ambition for Scottish content”, which should benefit the local supply chain.
Wind developers are conscious that UK suppliers need time to gear up. Christoph Harwood, director of policy and strategy at Simply Blue Energy, which is developing a 96MW floating scheme off the coast of Pembroke in Wales, said projects that were larger than the earliest floating schemes but were not yet at a full commercial scale would be important in that process.
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“If the UK supply chain is to benefit from floating wind, don’t rush into 1GW projects, take some stepping stones towards them,” he said.
Tim Cornelius, chief executive of the Global Energy Group, which carries out offshore wind assembly work at the Port of Nigg on the Cromarty Firth in north-east Scotland, said the size of floating wind turbines offered opportunities to UK suppliers.
The floating turbines are much bigger than their conventional offshore counterparts so need to be built closer to their point of installation, which precludes using the lowest cost manufacturers in China and the Middle East.
The floating turbines require “an astonishing amount” of deepwater quayside space at ports, Cornelius explained. His company is looking at creating an artificial island for quaysides in the Cromarty Firth in Scotland, which he says would require a “material investment but is entirely justifiable as long as developers are prepared to commit”.
But he warned that “as it currently stands, the [UK] supply chain isn’t in a position to be able to support the aspirations of the [floating offshore wind] industry”.
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China tech crackdown claims ETF victims
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Beijing’s regulatory crackdown on some of its biggest companies in technology and education has delivered a bruising blow to highly specialised China-focused exchange traded funds.
Broad-based tech ETFs have sailed through virtually unscathed, but some narrowly focused thematic instruments have taken a beating. Among those most affected, the KraneShares CSI China Internet ETF (KWEB) has nearly halved in value since its peak in February.
Some ETF buyers are hunting specifically for targeted strategies, despite the risks. But Kenneth Lamont, senior fund analyst at Morningstar, said this highlights the potential drawbacks of tracking a narrow theme without the flexibility to shift tactics.
“The [passive thematic] strategy has no way to quickly react to bad news and will hold the stock until the next rebalance. The small number of fund holdings also means that overall returns can be influenced by the performance of handful of stocks,” Lamont said.
He noted that for the KraneShares ETF, one Chinese education group alone — TAL Education Group — was responsible for knocking 2.8 percentage points off performance from the end of June.
Global X Education ETF (EDUT), which has a large exposure to the Chinese online education sector, was also badly affected.
Actively managed ETFs, such as Ark Invest’s ARKK flagship Innovation fund, can react more quickly. After voicing her optimism for the prospects for China’s tech disrupters earlier this year, Cathie Wood, Ark’s chief executive, shed millions of dollars worth of shares in four China-domiciled companies.
Investors in ARKK have not been rewarded as well as those who simply put their money in broadest based funds such as the Vanguard Total World Stock Index Fund ETF (VT), but they have still managed to ride out the China tech storm far better than more exposed counterparts.
Some investors insist Chinese investments can bounce back. Mark Martyrossian, chief executive of UK-based Aubrey Capital Management, said he believed many of the affected tech companies would maintain their market leadership.
“The gravy train may have slowed but you disembark at your peril,’ Martyrossian said.
Lamont said badly hit funds had suffered such losses because they were doing exactly what they had promised to do — provide narrow exposure.
More nimble active investment strategies also face their own challenges, said Elisabeth Kashner, director of global fund analytics at FactSet. “Active managers may successfully anticipate market reversals, but they can also miss them, sometimes seriously tanking returns,” she said. “Some people can be skilful and some people can be lucky and if you’re lucky and skilful in one period you might be lucky and skilful in the next, but you might not.”
Additional reporting by Steve Johnson
Raisi vows to restore ‘trust’ with disillusioned Iranian public
Iran’s new president Ebrahim Raisi will assume power this week at a time of huge challenges for the Islamic republic, shaken by recent protests over water and electricity shortages and readying itself for more talks over the revival of its nuclear deal with global powers.
Raisi, a 60-year-old veteran of hardline politics and mooted as a successor to the supreme leader Ayatollah Ali Khamenei, secured victory in June on the lowest turnout in any presidential election since the 1979 theocratic revolution and only after barring his most serious rivals from the race.
After the election he acknowledged that “public trust has been marred” in the country’s political elite, though he suggested the outgoing centrist president Hassan Rouhani was to blame for this disillusionment. Rouhani signed the 2015 nuclear deal with the US and other major powers, only for the then US president Donald Trump to abandon it in 2018 and sanctions to be reimposed.
This waning trust could be “repaired”, Raisi said, by focusing on the home front rather than looking for foreign assistance. “Reforming the current situation is possible,” he said.
However, the new president could find himself immediately facing a fresh international row after Israel on Sunday accused Tehran of involvement in Thursday night’s suspected drone attack on an oil tanker off the coast of Oman, in which two crew members were killed. The vessel, the Mercer Street, is linked to an Israeli billionaire. The UK foreign secretary Dominic Raab said on Sunday it was “highly likely” Iran carried out the attack in “a clear violation of international law”. Iran denied any involvement.
And with Iran in the grip of the worst drought in decades and power shortages hitting an economy already ravaged by inflation, sanctions and the coronavirus pandemic, analysts are sceptical that a quick turnround is possible. Only 3 per cent of Iranians have been fully vaccinated against Covid-19.
“The country is in a very tense situation and Raisi has to make very quick and serious decisions about urgent issues such as inflation and vaccination to present a winning card and buy time until a big decision is made about the nuclear deal and sanctions,” said Saeed Laylaz, an analyst.
“But we have not yet seen any initiative from Raisi since his victory to suggest he will be able to pin something big down during his first 100 days.”
One of his biggest challenges will not be in Iran, but Vienna, where talks about the nuclear deal are set to resume when the Raisi government takes office. Tehran is in talks with world powers, with the US indirectly involved.
Raisi has made clear he wants to improve relations with neighbours, rather than the western world. “In order to help establish sustainable security and regional stability, the solution is co-operation between regional states based on mutual trust and not allowing interference of alien [western] forces in the region,” he said.
Hardliners have so far refused to make any promises about the outcome of the talks, preferring instead to focus on domestic priorities. One of these politicians, Hamid-Reza Taraghi, has listed the new government’s top priorities as curbing an inflation of 44.2 per cent, removing obstacles to domestic industrial production, dealing with water and electricity shortages and tackling the budget deficit.
But reformist analysts question how Raisi can do this while sanctions prohibiting oil exports and other business dealings remain in place. Taraghi has said the government had to find ways to “foil sanctions”, indicating that an agreement might not be reached.
One of Raisi’s most immediate challenges is to calm tensions in the southwestern province of Khuzestan, home to Iran’s biggest oil and gas reserves.
Recent protests have been driven by demand for water supply for farmlands and cattle. Raisi, allegedly part of a committee that executed thousands of political dissidents in the 1980s, has not been targeted by the protesters.
Still, demonstrators have chanted anti-regime slogans, such as “Down with the dictator” and “Neither Gaza, nor Lebanon; my life for Iran.” A regime that swept to power through street protests has typically cracked down on demonstrations. At least eight people have been killed in Khuzestan so far, Amnesty International said. Officials have confirmed three civilian deaths and one policeman. There have also been solidarity protests in the northwestern city of Tabriz, and protests over electricity shortages in Tehran.
The regime has tried to boost water supplies to Khuzestan and Raisi has vowed not to “wait even one day” to tackle problems there. He said part of the “massive wealth” in that region had to be spent on its own development. He has also spoken of the economic pressures many people are under, promising to help build at least 1m new houses a year. “Today, not only buying houses but renting them in big cities or even small towns has turned into an unachievable dream for people,” he said in July.
For now, the Islamic republic is determined to demonstrate stability through a peaceful transition of power. Raisi has met outgoing cabinet members individually and approached a wide range of politicians, including former political prisoners, about how the country should be run. Some of those arrested during the 2019 unrest, which allegedly resulted in hundreds of deaths, are set to be released, activists say.
Raisi must also contend with divisions in the hardline camp. The more radical members do not want him to bow to public demands for more social and political freedom. Parliament has ratified a plan that could regulate social media and restrict public access to the internet.
Iranians want to see if he can deliver on his promises. “Raisi has to spend 1 per cent of Khuzestan’s wealth for the province itself. This is not too much to ask and we will hold him accountable even though we have lost hope in any change under this regime,” said a protester in the province who asked not to be named.
The Khuzestan protester added: “I am 25 years old, hold an electronic engineering degree but have no job, no income and no future. The bare-feet people would not be scared of dying if their choice was between starving to death or being killed by bullets.”
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