Prospects of a Hydrogen Economy with Chinese Characteristics
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Études de l’Ifri PROSPECTS OF A HYDROGEN ECONOMY WITH CHINESE CHARACTERISTICS Kevin Jianjun TU October 2020 Center for Energy & Climate The Institut français des relations internationales (Ifri) is a research center and a forum for debate on major international political and economic issues. Headed by Thierry de Montbrial since its founding in 1979, Ifri is a non-governmental, non-profit organization. As an independent think tank, Ifri sets its own research agenda, publishing its findings regularly for a global audience. Taking an interdisciplinary approach, Ifri brings together political and economic decision-makers, researchers and internationally renowned experts to animate its debate and research activities. The opinions expressed in this text are the responsibility of the author alone. ISBN: 979-10-373-0248-9 © All rights reserved, Ifri, 2020 Cover: © helloabc / Shutterstock.com How to cite this publication: Kevin Jianjun Tu, “Prospects of a Hydrogen Economy with Chinese Characteristics”, Études de l’Ifri, Ifri, October 2020. Ifri 27 rue de la Procession 75740 Paris Cedex 15 – FRANCE Tel. : +33 (0)1 40 61 60 00 – Fax : +33 (0)1 40 61 60 60 Email: [email protected] Website: Ifri.org Author Kevin Jianjun Tu is a non-resident fellow at Institut français des relations internationales (Ifri’s Center for Energy & Climate). He is also a senior advisor at Agora Energiewende; an adjunct professor at the School of Environment of Beijing Normal University; and a non-resident fellow at the Center on Global Energy Policy of Columbia University. Kevin has more than two decades of solid experience in the energy and environmental fields in Asia Pacific, North America, and Europe. Prior to his affiliation with Ifri, Kevin led the China energy & climate programs at the IEA and Carnegie Endowment for International Peace. He was also earlier in key managing positions in the energy consulting business and the oil & gas industry. Acknowledgments The author wishes to thank Marc-Antoine Eyl-Mazzega, director of Ifri’s Center for Energy & Climate, for his strong support and valuable inputs to this paper, and Cécile de Cordier for her assistance during the publication process. In addition, the author would like to express his sincere appreciation for research assistance provided by Yichu Lv at Columbia University, and for comments made by Zhang Jianyu at EDF China, Wang Run at Hubei University and Christopher Sebastian Weigand at the German Embassy in Beijing. Of course, mistakes if any are the author’s own. Executive Summary As the world’s largest energy consumer and producer, the Chinese energy economy is full of contradiction. On the one hand, China’s heavy reliance on carbon-intensive and pollution-prone coal makes it the world’s undisputed leading carbon emitting economy. Consequently, the gigantic Chinese energy economy is always easy to be described from an eye- catching angle such as China alone burns more than half of global coal. Nevertheless, dirty coal, rising carbon emission and filthy air are far from the entire picture of the Chinese energy economy. As the largest clean energy market in the world, China has installed more than one third of global solar and wind capacities, and deployed near half of the world’s electric vehicle (EV) stock by the end of 2019. Given China’s impressive track record of scaling up clean energy technologies in the past, when Dr. Wang Gang, vice chairman of the Chinese People’s Political Consultative Conference, urged Beijing to strengthen its infrastructure investment for the distribution of hydrogen as a fuel to accelerate development of its fuel cell electric vehicle (FCEV) industry on 2 July 2020, the international community immediately paid attention to the so called “hydrogen economy” in China. This study assesses the prospects of a hydrogen economy with Chinese characteristics. Against the backdrop of an escalating US-China trade war and the ongoing novel coronavirus (COVID-19) pandemic, key Chinese stakeholders become increasingly interested in moving the hydrogen economy agenda forward. During the first six months of 2020 alone, 37 policies in support of the hydrogen economy have been published by various level governments, including 7 by central government authorities, and 30 by local governments. Shandong alone issued 6 hydrogen supporting policies, followed with 5 by Guangdong. In sum, the hydrogen economy development not only gains traction in China, but is also in great danger of overheating. Since 2010, China’s national hydrogen production increased by an impressive 6.8% annually and reached 21 million tonnes (Mt) in 2018, accounting for 18% of global total and ranking the first in the world. Ammonia manufacturing represents a significant portion of national hydrogen demand in China: unlike the rest of the world where steam methane reforming (SMR) is the mainstream manufacturing route, the Prospects of a Hydrogen Economy with Chinese… Kevin Jianjun Tu most common feedstock in China is coal via a partial oxidation process. Hydrogen is also used for methanol manufacturing, with the bulk derived from coal gasification as well. The ambition in China is to expand hydrogen production and create new end-uses: in the transport segment (e.g. 1 million FCEVs and 1 000 hydrogen refueling stations by 2030), but possibly also, in other hard-to- abate sectors such as steel and cement manufacturing or in the electricity storage segment (Power to X). Hydrogen production from low carbon electricity could bring many benefits, notably to address curtailments of renewable electricity from wind, solar and hydro. It could also be blended into the nation-wide gas grid especially for low-concentration hydrogen (e.g. 5-10%). Until recently, China’s interest in developing the hydrogen economy has not been primarily triggered by the decarbonization objective. Nevertheless, on 22 September 2020, Chinese president Xi Jinping announced that China aims to peak national carbon emissions before 2030 and achieve carbon neutrality before 2060. Given the significant amount of carbon emissions reduction implied by the above announcement, hydrogen is now expected to play a much more important role to drastically decrease the country’s greenhouse gas emissions (GHG) over time. China’s very large hydrogen production from fossil fuels, mainly coal, would make it quite challenging to consider decarbonizing the current uses of hydrogen. What decisively drives the current interest into hydrogen is innovation and technological leadership on the one hand, which China can achieve through industrial clusters and economies of scale, and energy security on the other: reducing dependence on imported oil and gas, with rising importance of air pollution control- and decarbonization-related considerations. It remains to be seen whether China can avoid the shortcomings of its EV supporting policies as it aims to boost a hydrogen economy with Chinese characteristics. A simplified SWOT analysis presented in the report identifies the most important strength, weakness, opportunity and threat for hydrogen economy development in China: Strength - ability to significantly bring down unit manufacturing cost through industrial network clustering and economy of scale. Weakness – lag far behind advanced economies in key hydrogen- related technologies. Opportunity – enthusiasm on hydrogen economy by local governments against the backdrop of the COVID-19 pandemic. 6 Prospects of a Hydrogen Economy with Chinese… Kevin Jianjun Tu Threat - looming danger of global supply chain decoupling caused by an escalating US-China trade war. In order to move the hydrogen economy agenda forward, a preliminary “to do list” for Chinese decision-makers in this field would include: A coordinated national mechanism should be established at the central government level to lay out principles for moving the hydrogen economy agenda forward in China. Comprehensive and transparent statistical reporting and accounting throughout the Chinese hydrogen value chain should be established. In the hydrogen production segment, renewable hydrogen should be prioritized for intensive R&D and deployment in the near future, and greening China’s existing hydrogen flow should be on the Chinese government’s policy radar especially in the longer term. In this regards, the timely establishment and subsequent coverage expansion of China’s long-awaited national emissions trading scheme will be beneficial to green the Chinese hydrogen value chain in the years to come. In the hydrogen storage and transport segment, national and local government should continuously direct subsidies towards hydrogen refueling stations, and also consider to encourage low concentration blending of hydrogen into China’s natural gas network. In the hydrogen consumption segment, China should selectively focus on R&D and deployment of advanced hydrogen end-use technologies notably for cement and steel, ideally coupled with expansion of the horizon of national energy planning framework. Opening up the Chinese market to better integrate technology innovations in advanced economies and manufacturing-related competitive advantages of the Chinese economy, aiming to create a win-win situation between China and the international community. 7 Table of Contents INTRODUCTION .................................................................................. 11 OVERVIEW OF THE CHINESE HYDROGEN VALUE CHAIN .................. 15 Hydrogen production and consumption ............................................... 15 Novel applications of hydrogen