1. Introduction

To fulfill the goals set forth by the Paris Agreement, which seeks to cap the temperature rise at 1.5°C above pre-industrial levels and significantly curtail the global average temperature increase to well below 2°C from pre-industrial times, it is imperative that the peak in greenhouse gas emissions is reached by 2025 at the latest. Subsequently, these emissions must decline by 43% by 2030 in order to effectively mitigate global warming and adhere to the 1.5°C target. The imperative to achieve the emission peak by 2025 and subsequently reduce them by 43% by 2030 remains essential for maintaining global warming at the 1.5°C mark [1]. The actualization of the Paris Agreement necessitates comprehensive economic and societal changes, prompting countries to present their Nationally Determined Contributions (NDCs), which outline their respective climate action strategies. To align with this goal, in 2015, Chinese President Xi Jinping has announced its nationally determined contributions (INDCs), illustrating his commitment to implement stringent regulations and steps for achieving a peak in carbon emissions by 2030.

Achieving a decrease in carbon dioxide emissions per unit of GDP by approximately 60% to 65%, attaining around 20% of total energy consumption from non-fossil sources, and augmenting forest stock by about 4.5 billion cubic meters have been outlined as key objectives [2,3]. Subsequently, in December 2020, the president significantly heightened these National Determined Contributions (NDCs) during the Climate Ambition Summit. The new commitments involve aiming to achieve the zenith of carbon dioxide emissions by the year 2030, achieving a reduction of over 65% in carbon dioxide emissions per unit of GDP, targeting a share of approximately 25% for non-fossil energy in primary energy consumption, augmenting the volume of forest reserves by a substantial 6 billion cubic meters stands as a pivotal objective. This pursuit is intricately tied to the overarching ambition of attaining complete carbon neutrality by the time the year 2060 arrives [4]. China’s dedication to carbon neutrality not only profoundly shapes its economic restructuring towards sustainable development but also serves as a driving force for the nation's active engagement in global climate governance, which upgrade China’s economic structure towards sustainable development.

Nevertheless, the designated benchmarks for global temperature increase of 2°C and 1.5°C serve as preliminary reference points in the broader discourse. Over the past decade, the United Nations Environment Programme has consistently issued an annual Emissions Gap Report, a comprehensive assessment that gauges the magnitudes of greenhouse gas (GHG) emissions while proffering remedial strategies for their abatement [5]. These aforementioned reports conspicuously underscore that the incremental measures enacted to date have proven inadequate, thereby resulting in an upward trajectory of GHG emissions [5].

Furthermore, in order to realize the ambitious 1.5°C objective delineated in the Paris Agreement [1], an imperative emerges to effectuate an annual reduction of 7.6% in carbon emissions during the interstitial period spanning 2020 to 2030. Likewise, the attainment of the 2°C target demands a comparable annual decline of 2.7% in carbon emissions over the same temporal ambit [5]. Notably, however, a substantial chasm pervades the existing carbon mitigation blueprints of each nation and the prescribed 1.5°C goal. It is, therefore, an exigent mandate for nations to fortify their emission curtailment endeavors and augment their Nationally Determined Contributions to avert the looming specter of irrevocable and far-reaching hazards [5].

Since 1978, China has placed a strong emphasis on fostering economic growth. Consequently, its nominal gross domestic product (GDP) has experienced a remarkable increase of approximately 220 times [6]. Along with economic growth, China stands as the largest emitter of greenhouse gases, releasing a staggering 9,877 megatons of GHGs in 2019. Regrettably, this rapid economic expansion has been accompanied by a significant rise in greenhouse gas (GHG) emissions, an outcome intricately linked to the extensive utilization of substantial energy resources [7]. The impetus behind the country’s economic growth has predominantly stemmed from coal, a source that discharges nearly twice the amount of carbon dioxide compared to alternative fossil fuels. In 2018, China’s secondary industry burned 4.55 billion tons of standard coal [8]. Therefore, China faces a huge carbon neutral challenge: industrial as the main industry of China’s economy, but its huge greenhouse gasses emissions also make China the world’s number one emitter of greenhouse gasses. How China can achieve carbon neutrality through its policies on manufacturing while ensuring that it does not affect the country’s GDP is a key issue.

2. Carbon-Neutral Policies

2.1. Industrial Sector

The “Industrial Sector Carbon Peaking Action” section of the “2030 Carbon Peaking Action Plan” encompasses a series of comprehensive policies designed to achieve carbon peaking within China’s industrial sector. Given that industrial activities are a major source of carbon emissions, these policies hold paramount importance in realizing China’s overall carbon peaking target. The plan emphasizes the urgent need for the industrial sector to expedite its transition towards green and low-carbon practices while pursuing high-quality development, striving to lead the nation in achieving carbon peaking.

To achieve this, the policy advocates a multi-faceted approach. Firstly, it calls for optimizing the industrial structure by phasing out outdated capacities and vigorously promoting the progression within strategic emerging industries [9]. Additionally, the plan stresses the importance of greening traditional industries, facilitating the low-carbon transformation of industrial processes, and improving industrial energy consumption efficiency. This involves promoting efficient and environmentally friendly use of fossil fuels, alongside a drive to expand the utilization of renewable energy sources, and enhancing electricity demand-side management and industrial electrification [9].

Furthermore, the policy encourages the implementation of green manufacturing initiatives, including the widespread adoption of green design practices and the establishment of green factories and industrial parks. The plan also urges the industrial sector to embrace digitalization, intelligentization, and green development, fostering advancements in key industries and technological transformation [9].

The policy further emphasizes the need to focus on specific industries to achieve carbon peaking. For instance, it proposes targeted measures for the steel industry, including deepening supply-side structural reforms, strictly controlling capacity additions, and promoting clean energy alternatives [9]. Similarly, the plan addresses the nonferrous metals industry, suggesting measures to consolidate and resolve excess capacity, enhance the application of clean energy sources, and promote the recycling and processing of waste nonferrous metals [9].

The plan also sets forth strategies for the cement industry, emphasizing the optimization of production capacity, prohibition of additional cement clinker and flat glass capacities, and the transition towards lightweight, intensive, and product-oriented development [9]. It encourages utilizing sustainable energy sources, like wind and solar energy, and incorporating alternative raw materials like fly ash and industrial waste slag in cement production. The plan also advocates the promotion and application of low-carbon building materials, energy-efficient technologies, and energy management systems.

Moreover, the policy outlines measures to achieve carbon peaking in the petrochemical industry. This includes optimizing capacity scale and layout, strictly controlling new capacity additions, and encouraging the substitution of coal with cleaner energy sources such as electricity and natural gas. The plan also encourages the adoption of advanced and applicable low-carbon technologies, as well as the efficient utilization of by-product gasses generated in refining and liquefied petroleum gas processes [9].

To ensure effective implementation, the plan takes a strict stance against the blind development of high energy-consuming and high carbon-emitting projects, adopting robust measures for list-based management, categorized disposal, and dynamic monitoring. It prioritizes the transformation and upgrading of existing projects and sets clear targets for energy efficiency improvement [9]. Projects that do not meet the required standards will be promptly addressed.

Overall, these comprehensive policies are set to profoundly impact China’s industrial sector, leading it towards a greener and more sustainable trajectory. The emphasis on technology adoption, renewable energy integration, and efficient resource utilization will not only facilitate carbon peaking within the industrial sector but also contribute significantly to China’s broader carbon neutrality aspirations, aligning with the global effort to combat climate change.

2.2. Manufacturing Sector

The policy outlined in the “Implementation Guidelines for Energy-saving and Carbon-reduction Upgrading in High-energy-consuming Industries (2022 Edition)” aims to drive transformative changes in the manufacturing industry concerning energy efficiency and carbon reduction. The policy advocates the adoption of advanced technologies and equipment for enterprises that currently operate below benchmark energy efficiency levels, emphasizing energy system optimization, waste heat recovery, emission reduction, waste utilization, and infrastructure improvement [10]. Moreover, the policy encourages collaborative research efforts with academia and industry associations to develop green technologies and equipment that synergistically enhance energy efficiency while reducing pollution. It also promotes industry consolidation by guiding leading enterprises to voluntarily merge, optimize production bases, and enhance process equipment and energy utilization efficiency [10]. The policy further stresses the strict elimination of outdated processes and production facilities that fail to meet green and low-carbon transformation requirements, facilitating a transition to a eco-friendly and energy-efficient manufacturing landscape.

2.3. Encouragement Policies

The policy measures implemented by China to promote foreign investment in the manufacturing industry have significant implications. The introduction of a negative list for foreign investment access opens up sectors to foreign investors, encouraging capital inflows and technology transfer [11]. Providing national treatment to foreign-invested enterprises fosters fair competition, attracting more investments and driving industrial efficiency. Facilitating the signing of foreign investment projects supports major ventures, enhancing the industry’s technological capabilities. Moreover, the policy’s emphasis on carbon neutrality initiatives encourages eco-friendly investments, leading to greener manufacturing practices and alignment with China’s carbon neutrality plan. Overall, these policies stimulate innovation, improve competitiveness, and contribute to sustainable development within the manufacturing sector.

During the “Thirteenth Five-Year Plan” period, subsidy policy played a significant role in promoting green and low-carbon development. Notably, ecological and environmental funding received continuous reinforcement, with a total allocation of 44,212 billion yuan from 2016 to 2020, growing at an annual rate of 8.2%. These expenditures are closely related to business operations and people’s livelihoods. For instance, they supported the resolution of excess capacity in the steel and coal industries, backed clean heating pilot projects in northern regions during winter, and promoted the adoption of new energy vehicles, directly benefiting enterprises and the general public. Different regions in China have varying carbon neutrality subsidy policies. For example, in Shenzhen, projects awarded the “near-zero carbon emissions” title by municipal or higher ecological environment departments receive a one-time reward equivalent to 10% of the total investment of pilot projects, up to a maximum of 500,000 yuan per project. These fiscal policies have a direct impact on the industrial sector by providing financial support for green and low-carbon initiatives, fostering technological advancements, and encouraging carbon reduction efforts, which align with China’s broader carbon neutrality objectives.

3. The Economic Impacts of Carbon-Neutral Policy to Carbon Intensive Company

Prior to China’s announcement of its carbon neutrality policy in 2020, the "China Listed Companies Carbon Emissions Ranking by “Caijing” magazine revealed that the top five companies in terms of carbon emissions in China in 2020 were Huaneng International, China National Building Materials Group, State Power Investment Corporation, China Datang Corporation, and China Resources Cement.

Huaneng International, a subsidiary of China Huaneng Group Corporation, was established in 2004 and is an energy company primarily engaged in power generation, dedicated to providing clean, efficient, and high-quality energy services. Its main business activities include electricity production, electricity sales, new energy, and environmental protection. The company operates more than 50 power projects globally, with an annual total power generation capacity exceeding 40 billion kilowatt-hours, making it one of China’s largest thermal power companies. Additionally, it was the largest carbon-emitting listed company in China in 2020, with carbon emissions reaching 333.40 million tons and a carbon intensity of 19.68 tons per million yuan. Its operating revenue for the twelve months ending on December 31, 2020, amounted to RMB 169.439 billion. During the same period, the company’s power plants within China collectively achieved a cumulative electricity generation of 404.016 billion kilowatt-hours and total electricity sales of 379.894 billion kilowatt-hours. The company's domestic power plants achieved an average annual operational duration of 3,744 hours, and it purchased 171 million tons of coal in 2020. Regarding carbon neutrality efforts, the company maintained its industry-leading position in safety production, technical economy, and energy consumption indicators in 2020. Its domestic thermal power units achieved an average equivalent availability rate of 94.92%, with a coal consumption rate for power generation of 291.08 grams per kilowatt-hour and a factory electricity consumption rate of 4.33%.

The company places significant emphasis on energy conservation and environmental protection. Presently, all its coal-fired units are equipped with desulfurization, denitrification, and dust removal facilities, all in compliance with environmental requirements. By the end of 2020, the capacity of ultra-low emission units reached 98%. Looking forward to 2021, the company’s energy-saving strategy in power generation will be guided by green development principles, with a focus on safety, quality, technological innovation, and modern management to vigorously promote clean energy, optimize thermal power structure, accelerate transformation and upgrading, and achieve high-quality development. Additionally, it aims to continually improve fuel intensive and lean control levels, solidify long-term contract signing and fulfillment, optimize imported coal procurement, manage inventory rationally, utilize strategic reserve stocks effectively, optimize procurement structure, conduct fuel innovation initiatives, and reduce procurement costs. Furthermore, it seeks to enhance digital fuel management, advance fuel management intelligence, improve management efficiency, and increase effectiveness.

As of December 31, 2022, the company achieved operating revenue of RMB 246.725 billion for the current fiscal year, representing a growth. However, the net loss attributable to the parent company amounted to RMB 10.218 billion. In 2022, Huaneng International remained the highest carbon-emitting enterprise in China, with carbon emissions reaching 36,983 million tons, indicating an increase of 10.92% compared to the levels recorded in 2020. The carbon emission intensity was measured at 18.08 tons per million yuan. Huaneng International attributed this loss to the persistently high coal prices in 2022 and the relatively high proportion of coal-fired power generation within the company, causing the profits from renewable energy to be insufficient to cover the losses from coal-fired power generation. Following the introduction of carbon neutrality policies, Huaneng International experienced a revenue growth of 20.8% in 2021, reaching RMB 204.6 billion, but still incurred a net loss of approximately RMB 12.7 billion. In 2022, the company’s revenue further increased by 20.3% to RMB 246.7 billion, with a loss of nearly RMB 10.1 billion. Over the course of two years, the total losses exceeded RMB 22.7 billion. Undistributed profits declined sharply from RMB 31.2 billion at the end of 2020 to RMB 6.7 billion at the end of 2022. Due to continuous losses, the company did not distribute dividends in 2021 and 2022 according to Tonghuashun Finance and Economics. Huaneng International further explained that the international coal market was affected by geopolitical conflicts and other factors, resulting in tight supply and significant reduction in coal imports. As a consequence, coal prices surged, domestic coal supply failed to meet expectations, and coal prices remained high throughout 2022, the raising the fuel procurement costs for coal-fired power companies and exerting immense pressure on the company’s coal power operations.

All in all, the implementation of China’s carbon neutrality policy has presented both challenges and opportunities for Huaneng International and the government alike. Despite the company’s earnest efforts to adopt cleaner technology, the observed increase in carbon emissions raises uncertainties about the policy’s immediate impact on curbing overall carbon emissions in the country. However, it is evident that the policy has effectively stimulated other corporations to embrace greener and more sustainable energy sources, fostering a notable transformation in the energy sector characterized by a growing emphasis on renewable energy and reduced dependence on conventional fossil fuels. Moving forward, addressing the financial challenges faced by companies like Huaneng International while simultaneously achieving significant and sustained reductions in carbon emissions will require continued commitment, collaboration, and innovation from both the private sector and the government to attain the shared goal of carbon neutrality and environmental sustainability in China.

4. Challenges

The challenge China currently faces towards carbon neutrality lies in its policy approach, which relies on technological innovation, maximizing material capacity, utilizing energy-efficient machinery, and providing financial support. While the country encourages companies to reduce carbon emissions, the existing punitive mechanisms for companies exceeding emission quotas are not yet fully developed. Only partial regions in China have implemented carbon emission trading pilot projects. For instance, in June 2023, Beijing Jingyushun Environmental Protection Co., Ltd. was found to have emitted carbon beyond the permitted quota and failed to fulfill its carbon emission commitments within the specified time-frame. Beijing Municipal Ecology and Environment Bureau subsequently ordered the company to comply with emission control responsibilities within two months and imposed a fine of 2.4555 million yuan, equivalent to 4.5 times the market average price of 120.89 yuan per ton for carbon emissions (based on the average trading price in the city’s carbon emission rights market six months before the case was filed). However, if such carbon emission penalties were to be implemented nationwide, high-emission companies might face significant economic pressure, potentially leading them to relocate their factories to countries with lower carbon emissions. This relocation could impact tax revenues and employment rates in China. Therefore, there is a need for an appropriate carbon price that strikes a balance, neither being too high to adversely impact companies and the nation’s economic conditions nor too low to allow companies to disregard carbon penalties and continue exceeding emissions limits.

China’s reliance on fossil fuels drives its energy consumption, resulting in suboptimal energy efficiency. When examining China’s primary energy usage in comparison to the EU and the US, it becomes evident that China's energy consumption is markedly elevated, particularly in terms of coal usage, accounting for 57.64% of its overall energy consumption, in sharp contrast to the EU’s 11.18% and the US’s 11.98% [3]. Moreover, China’s industrial and manufacturing sectors are key players in its economy, contributing to a notably high energy consumption per unit of GDP, surpassing the global average by 1.5 times [3]. This highlights the considerable challenge of bolstering energy efficiency and advancing initiatives for energy conservation and emission reduction, aligning with Chinas environmental objectives.

In addition, the complexity of global economic dynamics and rapid technological advancements introduce uncertainties in predicting emission trends and trajectories accurately. Such uncertainties impede the formulation of precise and targeted policies necessary for effectively reducing carbon emissions. Secondly, the transition towards carbon neutrality requires profound top-down reforms spanning various sectors of the economy and society. This transformation may result in considerable disparities between entities that thrive under the new paradigm and those that struggle to adapt, potentially affecting social equity and economic stability on a large scale [3].

Furthermore, the pursuit of carbon neutrality involves substantial social costs and raises concerns about political stability. The significant restructuring of energy and economic systems to reduce carbon emissions can entail financial burdens and social repercussions, which may challenge the overall acceptance and implementation of carbon neutrality policies. Additionally, the widespread deployment of emerging technologies, such as energy storage, hydrogen, and fusion, necessitates clear roles in long-term strategies, uniform regulatory standards, and the development of mature commercial practices. Coordinated efforts in these areas are essential for the large-scale application of innovative technologies and the realization of their potential in curbing carbon emissions [3].

Addressing these challenges requires an interdisciplinary approach that encompasses scientific research, technological innovation, social sciences, and behavioral studies. As China endeavors to achieve its carbon neutrality and carbon peak targets, thorough academic inquiry and evidence-based policy-making will be critical in navigating the complexities and uncertainties of this transformative journey.

5. Policy Recommendations

5.1. Talent Attraction

Currently, China’s pursuit of carbon neutrality is at its nascent phase, necessitating the adoption of more efficacious emissions reduction technologies. Consequently, metropolitan centers of China, particularly those categorized as first-tier cities or those exhibiting substantial emissions, have the potential to exert global influence through the implementation of talent attraction policies aimed at drawing experts in the domains of carbon neutrality and environmental science. By offering these distinguished professionals a comprehensive array of social welfare benefits and dedicated research grants, these urban hubs can entice and retain their presence, facilitating advanced inquiries into emissions reduction technologies. This concerted effort is poised to yield innovative strides in the field of emissions mitigation, thereby contributing to the realization of sustainable environmental practices on a broader scale.

5.2. Research Encouragement

To effectively address the multifaceted challenges associated with carbon neutrality, in-depth research in social and behavioral sciences is indispensable, facilitating adept management of social transitions. Additionally, the successful deployment of cutting-edge technologies like energy storage, hydrogen, and digital systems necessitates a coherent and coordinated approach characterized by well-defined roles, standardized frameworks, and prudent practices based on comprehensive data-driven analysis. By addressing these formidable challenges with scholarly rigor and embracing comprehensive and data-backed solutions, China can effectively promote carbon neutrality while fostering uninterrupted economic transformation and prosperity throughout the nation.

5.3. ESG Investing Principle

Promoting ESG (Environmental, Social, and Governance) investment is crucial to China’s successful pursuit of carbon neutrality. Implementing policies that encourage companies to prioritize ESG factors and adopt sustainable practices will not only contribute to achieving the country’s carbon neutrality goals but also yield significant benefits for these companies. By providing financial incentives, tax breaks, and access to green financing options, the government can foster an environment where companies are motivated to invest in research, development, and implementation of innovative technologies that reduce carbon emissions. This approach ensures that companies can maintain their competitive edge while contributing to China’s broader carbon neutrality policy. Moreover, increased green investments will generate job opportunities and stimulate economic growth, fostering a sustainable and prosperous future for both the companies and the nation.

5.4. Investment in Clean and Carbon Reduction Technology Companies

Increasing investment in companies that specialize in cleaner and carbon reduction technology is a vital policy recommendation to accelerate China’s progress towards carbon neutrality. In this way, companies that possess clean and carbon reduction technologies can allocate additional funds towards the research and development of advanced technology and related products. Once they have established a robust technological product, China’s corporations can readily integrate these cutting-edge technologies into their operations, leading to significant carbon reductions and a transition towards greener and more sustainable practices. The increased investment in these companies will not only drive economic growth and job creation in the clean technology sector but also solidify China’s position as a global leader in combating climate change and achieving carbon neutrality.

5.5. International Collaboration

To advance China’s international collaboration on carbon-neutral technology and strategies, the government must actively engage in partnerships with other nations and international organizations. By sharing knowledge, best practices, and technological expertise, China can benefit from global advancements in carbon-neutral solutions while also contributing its own innovations. Establishing international research and development centers, joint projects, and knowledge-sharing platforms will facilitate cross-border cooperation and accelerate the deployment of cutting-edge technologies. Engaging in collaborative efforts will not only strengthen China’s position as a global leader in clean energy and carbon-related technology but also help align its carbon neutrality policy with international standards and commitments. This approach ensures that China remains at the forefront of sustainable development, while creating opportunities for technology exports and bolstering the country’s standing in the global green economy. Additionally, international collaboration will foster a collective effort in addressing the climate crisis, enhancing China’s reputation as a responsible and proactive player in the global fight against carbon emissions.

6. Conclusion

In conclusion, China’s commitment to achieving carbon neutrality by 2060 is a monumental and ambitious endeavor, in line with the global climate action agenda. The country’s policies to attract talent, encourage ESG investing principles, and increase investment in clean and carbon reduction technology companies are essential steps to drive meaningful progress towards carbon neutrality. The emphasis on green technologies and green investment in industrial and manufacturing sectors demonstrate China’s determination to optimize energy efficiency and reduce carbon emissions.

However, China faces numerous challenges in its pursuit of carbon neutrality. The complex nature of global economic dynamics and rapid technological advancements presents uncertainties in predicting emission trends accurately. Striking the right balance between carbon penalties and economic stability remains a challenge, as high-emission companies might be tempted to relocate their operations to regions with lower emission standards. Furthermore, the social costs and concerns about political stability during the transition towards carbon neutrality require thoughtful mitigation strategies and thorough academic inquiry. To address these challenges effectively, interdisciplinary approaches combining scientific research, technological innovation, and social sciences are crucial. Close international collaboration will facilitate the exchange of knowledge and best practices, accelerating the deployment of carbon-neutral technologies and strategies.

By embracing comprehensive and data-backed solutions, China can foster a sustainable and prosperous future while maintaining its economic growth. The implementation of sound policies and collaborative efforts will determine the success of China’s journey towards carbon neutrality, making a profound impact not only on the nation’s economic structure but also on global climate governance. The transformation towards a low-carbon society requires collective efforts from governments, industries, and individuals, as they strive to secure a sustainable and habitable planet for future generations.