Over the next two decades, China has the potential to build a "green economy," says a new report by global management consultants McKinsey & Company. According to the report, "China's green revolution: Prioritizing technologies to achieve energy and environmental sustainability," by investing in technologies that are commercially available but not yet widely understood or deployed today, China could substantially boost its energy independence by reducing its need for imported oil to power its rapidly growing fleet of automobiles, and by dramatically cutting the amount of coal it burns to fuel its power plants.

Higher energy efficiency and lower consumption of fossil fuels will help to substantially reduce the level of greenhouse gases that China emits into the atmosphere, while cutting down on water and air pollution. China also has the chance to become a global leader in rapidly emerging green technologies such as electric vehicles—if it invests early and provides policy support and private sector initiatives to develop the industry.

The Chinese government and the corporate sector have in recent years initiated a number of policies and measures aimed at boosting energy efficiency and reducing its reliance on fossil fuels. McKinsey research shows that China has consistently improved the "carbon efficiency" of its economy over the past 15 years. Through a combination of government policies and industry-wide initiatives, China has reduced the amount of carbon dioxide and other greenhouse gases that it produces for every unit of GDP by 4.9 percent each year on average over the past 15 years, compared with just 1.7 in the United States and 2.7 percent in Germany.

Further improvements are expected over the next two decades as China carries out its policy commitments and corporate sector initiatives to improve energy efficiency. China is expected to achieve a 4.8 percent annual average improvement in carbon efficiency between now and 2030. In addition to the improvements expected as a result of China’s current commitments and policies, McKinsey’s analysis identified several additional opportunities for China to make a step-change improvement in energy efficiency and a substantial reduction in greenhouse gas emissions. Their research examined more than 200 technologies that China could deploy to improve energy efficiency and reduce emissions and pollution in six key areas, including power, automobiles, heavy industry and waste management, buildings, agriculture and forestry, and urban design and consumer behavior.

The report highlights several benefits that China could reap from increasing investment in green technologies, such as enhanced energy security. By comprehensively rolling out electric vehicles over the next two decades, for example, China could cut its projected demand for imported oil by up to 30 to 40 percent in 2030.

By significantly ramping up investment in clean energy technologies such as nuclear, wind, solar, and hydropower, China could cut its reliance on coal as the source of energy for its power plants from 81 percent of total electricity generation today to 34 percent by 2030.

By comprehensively implementing energy-efficiency-improvement technologies in the building and industrial sectors, and by actively recovering and utilizing waste and by-products in the industrial sector, China could cut its projected demand for electricity and coal in 2030 by more than 10 percent, respectively.

According to McKinsey's estimates, these technologies, if fully deployed, could help China to cut its emissions of greenhouse gases by up to 50 percent in 2030 over projected levels. Because of the relatively early stage of its economic development, and the rapid growth of its economy, China could reap substantially larger improvements in energy efficiency and reductions in greenhouse gas emissions than many other countries in the world. By using green technologies in the new apartment and office buildings, automobiles, and power plants that China will need to build over the next two decades, China could avoid the costly retrofitting that other, more developed countries may require.

Transforming China into a "green economy" will require substantial capital investment over the next two decades, says McKinsey. According to their estimates, from now until 2030, up to 150 billion to 200 billion euros on average would be needed in additional investment each year to effectively deploy the green technologies needed to achieve the substantial improvements they cite in their study. On an annual basis, the investment required is equivalent to 1.5 to 2.5 percent of China’s GDP.

However, China will need to invest early and put in place the necessary policy mechanisms and industry initiatives if it hopes to capture the full potential of these technologies. For example, because of the relatively long life span of a power plant, installing green technologies in new power plants over the next two decades will be critical to reaping the full potential for energy savings and greenhouse gas reductions.

As in other countries such as the United States, China will also confront a number of barriers to implementing these technologies, such as the dearth of information regarding how to deploy these technologies, the lack of fully developed markets and pricing mechanisms for many of the less mature technologies, and the lack of industry-wide technology standards. These barriers, along with others, could limit China's ability to reap the technologies’ full potential in energy savings and greenhouse gas reductions.

"Because of its relatively early stage of economic development and the rapid pace at which China is expected to grow over the next few decades, China can install technologies that are available today into the buildings, cars, and power plants of tomorrow. As some observers have pointed out recently, China has a unique opportunity to avoid the path that other nations have taken if it makes the decisions now that will ensure a greener future," said Jonathan Woetzel, a Shanghai-based director at McKinsey and coauthor of the report.

"China's enormous scale, rapid growth, and its steady climb up the innovation curve in recent years in technologies such as electric vehicles and solar power could very well position it to emerge as a global leader in green technology. Two decades from now, China could be at the forefront of a global 'green revolution,''' said Martin Joerss, a partner in McKinsey’s Beijing office and coauthor of the report.

About the study—"China's green revolution: Prioritizing technologies to achieve energy and environmental sustainability"

Over the past year, McKinsey & Company, in cooperation with leading researchers in China and across the world, undertook a study of the range of technologies that China could deploy to address its energy and environmental sustainability challenges. The team studied more than 200 efficiency and abatement technologies, with a special focus on six key areas: residential and commercial buildings and appliances; emissions-intensive industries (including steel, cement, chemicals, coal mining, and waste management); power generation; agriculture and forestry; automobiles; and urban design and consumer behavior. In the course of their research, the team interviewed more than 100 experts from government, business, and academia.

Contact:
greaterchina_media@mckinsey.com

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