European businesses operating in China have the technology and knowhow to help the world’s biggest carbon polluter achieve its low-emissions goals. But they have been discouraged from investing by a lack of clear and predictable policy guidance, opaque power markets, and red tape preventing the import of green technologies, according to a report from the EU Chamber of Commerce in China.

China has pledged to peak emissions before 2030, the most significant milestone on the road to its long-term aim of net zero by 2060. The announcement of the 30/60 goals by President Xi Jinping two years ago galvanized Chinese climate action, but there has been a recent lack of urgency as policymakers prioritise energy security amid Covid-related disruptions, the report says.

“We are a little bit worried that the Covid situation might trigger a delay in implementing the carbon-neutrality targets and measures that China has been planning so far,” says Jorg Wuttke, president of the chamber.

“Deepening EU-China cooperation in decarbonisation seems like a logical move” Wuttke, EU Chamber of Commerce in China

“The world is not waiting for China to resolve its Covid challenge,” he says. “They move on, and China runs the risk of falling behind and losing the competitive advantage they had.”

European businesses are well-placed to help China with its low-carbon push as they are already driven by stringent environmental regulations and consumer demand at home. Some 67pc of European companies operating in China are already pursuing net-zero targets and 40pc have established China-focused decarbonisation teams—many of which report directly to the company board—according to the report.

“Given that European companies have a strong track record of working towards carbon-neutrality in their home markets, deepening EU-China cooperation in decarbonisation seems like a logical move,” says Wuttke.

Barriers to overcome

But there are barriers blocking European firms from fully contributing to China’s net-zero drive. More policy guidance at the national, local and sectoral levels is needed to enable businesses to make informed investment decisions with the 2060 net-zero target in mind.

“It is a hurdle to investment if you do not have a clear roadmap,” Wuttke says. “Businesses are reluctant to take risks associated with possible policy changes. Predictability is absolutely crucial to making investments in sometimes-more-expensive equipment, services and systems to get to a carbon-neutral stage.

Two-thirds of the chamber’s members report a lack of industrial guidance and sharing of best practice from the government or NGOs could prevent them from achieving their decarbonisation goals.

“Improving climate change performance is crucial for China to maintain its competitiveness as a global manufacturing powerhouse,” says Denis Depoux, global managing director of consultancy Roland Berger.

“Key to this will be swift and pragmatic policymaking by central and local governments, and creating medium-to-long-term predictability in the business environment so that European companies can fully contribute to China’s carbon-neutrality goal through their technology and the experience they have accumulated.”

Hydrogen expectations

The report singles out green hydrogen as a potential area of cooperation, with high expectations in both Brussels and Beijing, but development in China has been held back by issues including high production costs, transportation problems and safety. “The current lack of shared standards and regulations is also a barrier to investment, which further limits development of a clean hydrogen industry,” says the report.

67pc – Proportion of European companies active in China with net-zero targets

Another factor is that China’s power market is still not transparent, open or flexible enough to substantially increase the share of renewables in the energy mix. While China leads globally in installing new renewable energy generation capacity, barriers are preventing businesses from fully utilising it.

This presents a serious challenge for foreign businesses, the decarbonisation efforts of which in China could be derailed without sufficient access to renewable energy. The country’s emissions trading system will also require reform to fully incentivise companies to decarbonise their operations.

Encouraging European firms to bring their leading technologies and solutions into the Chinese market at speed and scale will also require China to embrace open markets and common standards. But Beijing remains reluctant to dismantle formal investment barriers, meaning some companies have missed out on business opportunities due to market access restrictions or regulatory restrictions.

“Common standards are needed to provide assurance to those looking for truly ‘green’ investments and to eliminate greenwashing,” says the report.

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Author: Shi Weijun