China’s drive to transform from coal-based energy to a low-carbon system will need huge investment to reinvent its energy system by building or retrofitting its massive energy infrastructure, according to Shell.

The Anglo-Dutch supermajor concludes in its latest analysis that China will require $12.5 trillion between 2020 and 2060 to achieve carbon neutrality, a timeline set by Chinese president Xi Jinping in 2020.

Of the total outlay, more than 50% will be needed over the next two decades, Shell says.

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“This is necessary for early decarbonisation of the power sector to ensure that China is well placed to extend low-carbon electricity to decarbonise end use-sectors,” the company states in its report, adding that early infrastructure investments this decade will also help China's economic recovery.

Shell anticipates there will be large increases in investment in infrastructure related to bioenergy, hydrogen, and carbon capture, utilisation and storage – particularly from the 2030s onwards – as technologies and markets mature and they are deployed to reduce emissions in hard-to-electrify sectors.

Significant investment is also required in the transport, industry and building sectors so as to boost energy efficiency.

Shell adds investments in low-carbon energy demand technologies will dominate, particularly in the later decades. For example, the company states that in the 2050s roughly 80% of such investments will relate to heavy industries and long-distance road freight, shipping and aviation.

Shell notes that China, which contributed 27% of global emissions in 2019, will need fundamental changes to its energy system at a pace of change that will be highly challenging in order to reach its peak emissions before 2030 and net zero emissions by 2060 targets.

Government officials anticipate even more investment is needed

Despite the massive figure, Shell’s$12.5 trillion estimate is much lower than estimates made by Chinese government officials recently for China to reach its net zero goal.

Zhang Shaogang, the vice president of China's national foreign trade and investment promotion agency — the China Council for the Promotion of International Trade (CCPIT) — said China's decarbonisation efforts will require $21.3 trillion in investment by 2060, while in another estimate Ding Zhimin, the former deputy director of the Policy & Law Department of the National Energy Administration said up to $20 trillion of investment will be needed to reach the goal.

Industry officials said that the disparities in investment estimates are derived from different modelling methodologies and different scopes covered.

A key hurdle for China to reach its emission reduction targets is overcoming its reliance on coal-based fossil power generation, even as its energy needs rise.

Coal now accounts for more than 60% of China’s energy demand mix. In December, China’s coal production rose 7.2% from a year earlier to 380 million tonnes, bringing the total coal output last year to 4.07 billion tonnes, up 4.7% year on year. The coal import in December fell 21% on year to 30.95 million tonnes with volumes for the whole year 2021 rising 6.6% on year to 320 million tonnes.

Shell says that the electricity mix will need to shift away from around 65% generated by fossil fuels to one dominated by renewables - 80% of which is generated by wind and solar - by 2060. Any remaining fossil fuels in power generation will then need to be fitted with CCUS.