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Invert Insights February 23, 2024

China misses the mark, EU emissions targets, and the CORSIA shortage.

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  • China’s at Risk of Missing All Its Major Energy and Climate Goals for 2025
  • European Commission Aims for 90% Reduction in Emissions by 2040
  • Shortage of CORSIA Credits Yet to Show on Airlines’ Radar

China’s at Risk of Missing All Its Major Energy and Climate Goals for 2025

China is at risk of missing all of its major energy and climate goals for 2025 after leaning on heavy industry and facing adverse weather last year.

Carbon emissions from the power sector jumped 5.2% in 2023 as lower rainfall and strong electricity demand required more coal burning, the Centre for Research on Energy and Clean Air (CREA) said in a report published in Carbon Brief. A surge in coal power plant approvals and construction has added to the concerns.

China set a series of climate targets as part of its 14th five-year plan that runs from 2021 to 2025, including cutting carbon intensity by 18 per cent from the 2020 level during this period. Achieving this target would mean CO2 emissions falling between 4 per cent and 6 per cent by 2025 from 2023 levels, according to the analysis by Mr Lauri Myllyvirta, Helsinki-based lead analyst at CREA and senior fellow at the Asia Society Policy Institute.

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China is the world’s top greenhouse gas polluter and Beijing has relied heavily on coal and oil to fuel the nation’s economy, both historically and during the pandemic, and to drive its recovery afterwards. But the result has been a large spike in emissions of planet-warming CO2 meaning the country will need to cut fossil fuel use and maintain record renewable energy investment to get back on track.

European Commission Aims for 90% Reduction in Emissions by 2040

The European Commission is recommending a 90% net greenhouse gas emissions reduction goal by 2040 that would make the European Union carbon neutral by 2050. An EC impact assessment published Feb. 6 said setting a 2040 climate target “will help European industry, investors, citizens and governments to make decisions in this decade that will keep the EU on track to meet its climate neutrality objective in 2050 [and] will send important signals on how to invest and plan effectively for the longer term, minimizing the risks of stranded assets.” 

According to the impact assessment, reaching the goal of 90% reduction over 1990 levels will involve ongoing discussions with stakeholders and a legislative proposal that is expected after European elections this summer. The European Parliament and EU members will also need to agree on 2040 targets.

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Achieving a 90% emissions reduction by 2040 will require a number of enabling conditions to be met. Full implementation of the existing legislation to reduce emissions by at least 55% by 2030 and the ongoing update of the draft National Energy and Climate Plans (NECPs) are key elements in progress.

Carbon pricing and access to finance are also critical for the delivery of emission reduction targets by European industry. The Commission will set up a dedicated task force to develop a global approach to carbon pricing and carbon markets. Europe will also need to mobilize the right mix of private and public sector investment to make their economy sustainable and competitive. A European approach to finance will be needed in the coming years, in close cooperation with Member States.

Shortage of CORSIA Credits Yet to Show on Airlines’ Radar

Airlines will face a challenge in finding credits to meet the first phase of the UN’s aviation emission scheme, known as CORSIA, although the impending shortage is yet to flash on their radar. Under CORSIA, all airline operators with annual emissions greater than 10,000 tonnes of CO2 will be required to report their emissions from international flights on an annual basis.

Up to 165 million credits that can be correspondingly adjusted (CA) will likely be needed by airlines when they surrender their emissions data to CORSIA in almost four years’ time, but the market is starting from scratch, warned Robert Sevens, director of product development at Climate Impact Partners.

“Getting up to volume is going to be a challenge”. There are only a few CA credits in the market currently, none of which are eligible for CORSIA to date, Stevens pointed out. 

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Future planning is needed now to ensure the market demand is met as CORSIA regulations roll out across the industry. Until the supply meets inevitable future demand, competition for high-integrity credits will be high.