Carbon Cap Would Supercharge Power Sector Diversification
BMI View: The introduction of a cap on carbon emissions in China would not only advance global efforts to tackle climate change exponentially, but would supercharge our already-strong forecasts for growth in gas-fired, nuclear and renewables generation. While we emphasise that coal will retain its primacy in the energy mix even if a cap is implemented, pollution in China is dominating the political discourse and government efforts to address the issue will create huge opportunities for investment.
While we greet reports that China will follow the US and announce a cap on carbon emissions in 2016 with caution, the implementation of a cap would supercharge our forecasts for power sector expansion in non-coal sectors. While there would inevitably be questions about the efficacy and enforcement of emissions reduction targets in China, even the discussion of such targets highlights the growing political pressure on Beijing to address the issue of pollution - which is at crisis levels in urban areas.
While details are scarce, we note that the timing of the Chinese announcement is relevant from a geopolitical perspective - the day after the US Environmental Protection Agency (EPA) announced it would cut emissions from domestic coal-fired power plants by 30% by 2030 ( see 'EPA Regulations: Winners And Losers', May 30 2014). While we adopt a cautious approach to reports China will introduce a target and concede that it may be part of an effort by Beijing to project its soft power ahead of climate change negotiations (we also highlight that Reuters attributes the quotes to a government adviser), China is clearly under pressure to tackle emissions.
|Burning Through The Black Stuff|
|Increases In Energy-Related C02 emissions by fuel type (non-OECD), 1990-2040 (billion metric tons)|