Beware: Sharp turn ahead

We hear a lot about small gains and percentage improvements to achieve a goal but, in the case of China’s trajectory to reach net zero, it’s going to be a really steep drive to achieve that target. As one of the world’s largest economies with one of the world’s highest emissions footprints, the commitment to begin emissions reductions by 2030 and achieve carbon neutrality by 2060 is huge and will require an enormous pivot across the energy system, materials and manufacturing.

The question for the property sector, developers and the construction industry in Hong Kong should be, “Will we be ready and able to deliver on the even closer target of 2050 here in Hong Kong?”

As a major producer of key products ranging from solar panels and batteries through to IT, electrical cabling, extruded aluminium and high-performance glazing, China’s manufacturing sector is a crucial link in the Hong Kong property industry supply chain. Because so much of the energy for factories is supplied from coal, gas and oil, with the continued growth in demand for products there has been a corresponding rise in emissions, even after the signing of the Paris Accord.

To achieve the net zero trajectory from the current peak emissions levels, the curve downwards to net zero appears more like an acute angled line than a smooth curve and produces a sharp corner to turn in 2030 which we need to be ready for.

Source: ClimateWorks Foundation - China pledged net-zero emissions by 2060. Here’s what it will take to get there.

Experience across the globe has shown that rapid emissions reductions are not a simple task. Indeed, in many cases, those who are honest about their position do not quite know how they are going to arrive at the net zero destination.

The buildings and construction sector is responsible for producing 37% of the world’s carbon emissions. In Hong Kong, buildings are responsible for around 60% of emissions, largely from energy use, and embodied carbon in materials equates to around 30-40% of the lifetime emissions of a new building, so we need to work through this.

I’m no statistician but I think if you plot a reduction factor of say 1% (the current requirement to achieve some Sustainability Linked Loans in Hong Kong) you don’t get there. Applying a more realistic year of year change of at least a 5% reduction this potentially takes around 6 years to achieve the change in direction that is anticipated.

What if we don’t?

Quite aside from the escalating impacts of climate change, there are both financial and reputational risks to not aligning with the China government emissions trajectory. What would you apply to achieve your commitments? I would certainly use carbon taxes or carbon levies, restrictions on sale or leasing, development consent penalties for new assets that do not address carbon, or compulsory changes to business operations such as additional levies on energy use.

To understand the opportunities for navigating the sharp turn downwards in the emissions graph we need to do a little unpacking on Scope 1, 2 & 3 emissions:

At the simplest of levels, there is a longer version of this for those who need to know more – see the A to Z of NZC, a sustainability and ESG glossary that Cundall has published recently.

Scope 1 (carbon directly emitted on site) is from things like the gas you burn for heating and cooking; or the coal, gas or oil burned on site for powering the manufacture of materials; or the carbon emitted from a chemical reaction, such as the one involved in cement production.

Scope 2 (carbon linked to energy consumed on site but emitted) is your electricity consumption.

Scope 3 is everything else – this includes the carbon in the supply chain that produces your building, products or processes, the carbon from the supply chain of things you have in the building plus the waste you throw away afterwards.

So, one significant step will be delivering a decarbonised electricity grid – although this requires large infrastructure investment this is arguably the easiest step that can be made unilaterally by a government and certainly is what has been achieved in some countries such as the United Kingdom, Australia and the USA, where renewables are achieving ever-greater penetration into the grid and ageing coal, oil and gas plants are being decommissioned.

China itself is on a major construction boom for new hydropower and utility-scale solar – and as of 2023 was providing out around one third of the world’s renewable energy capacity. This can create a step change in the Scope 2 emissions.

What’s next?

Well, Scope 1 emissions can be addressed by removing all burning of fossil fuels from site – removing gas or perhaps by finding a fully renewable alternative that can use the same infrastructure is a huge focus right now. The Hong Kong government recognises that gas is needed for the short-term as the transition to net zero energy is implemented. Investigations into hydrogen as a potential gas replacement are underway. Carbon capture may be possible with emerging technologies on larger scale facilities but there is no current technology that affordably could be rolled out to every building in Hong Kong.

And scope 3, well what do we do with them?

As I have said to many of my contacts this is the most complex and time challenged element – as it involves understanding and addressing of the concept of the embodied carbon within the materials and equipment that we use to create, use, maintain and refurbish the built environment that we occupy – and this is not just the buildings but the infrastructure that lies around and enables them.

But no-one knows about that…do they?

Well correct… currently. The challenge we have is that in order to address this most complex of points we need to find a way forward. I have heard this being placed solely at the feet of the government and is a work in progress, but it is likely to take time and could require more dramatic interventions to ensure the steep downward slide in emissions can be achieved rapidly enough to meet the 2060 target.

So, are we all therefore powerless with no opportunity to prepare to avoid the inevitable clash with government policy?

I would say take control and start to set targets and ask the questions that need asking.

Arguably, if you want to achieve anything you should set a target to aim for. In sport, in business and definitely in carbon. Know what you want to achieve, set the targets and ideally identify limits. The Hong Kong GBC Zero-Carbon-Ready Building Certification Scheme enabled tool uses this principle and the Science Based Target Initiative provides some very helpful guidance in this area. If you want to achieve anything it is worth considering what your targets / acceptable limits should be, and recognise they will be unique to your business or project.

At Cundall, our Zero Carbon Design 2030 initiative has been giving our engineers the permission and the support to ask these questions for the last three years. How much embodied carbon is there in a road; a partition; a generator; an elevator? We have seen suppliers unable to answer the questions…. at first … but we have begun to see an emerging trend of suppliers and partners who understand the reason for the question and have invested the time to work this out for themselves.

There remains a long way to go and the more complex the item - such as any item with complex wiring or computer chips - the harder it is to achieve full visibility of the embodied carbon.

That doesn’t mean backing down, it means buckling up – because the more we set the targets and ask the questions the more we empower those wanting to provide the answers and the more we bring carbon into the conversation the more we will be able to quantify and then reduce the carbon we consume.

So, how to avoid potential painful costs of China’s imminent change of direction? Plan and start to change the direction of business and industry this year, this month, tomorrow if you can!