Carbon Neutrality

Weekly Reflections

Carbon neutrality refers to the total amount of carbon dioxide or greenhouse gas emissions directly or indirectly produced by a country, enterprise, product, activity, or individual within a certain period of time. Through afforestation, energy conservation, and emission reduction, the carbon dioxide or greenhouse gas emissions produced by oneself are offset to achieve positive and negative offsets and achieve relative “zero emissions”.

It is easy to set goals, but the realization process is very difficult. A car emits 2.5 kg of carbon dioxide for every 1 liter of fuel burned, an adult emits 1.4 kg of carbon dioxide per day, and a computer indirectly emits 10.5 kg of carbon dioxide a year…

The “Emissions Gap Report 2019” released by the United Nations shows that since the 2005 Paris Climate Agreement, global efforts to reduce carbon dioxide emissions have failed. Countries need to increase emission reductions to 7.6% per year to ensure that global warming does not exceed 1.5 degrees by 2030. However, no emission reduction target set globally is higher than 7.6%.

On September 22, 2020, the Chinese government proposed at the 75th United Nations General Assembly: “China will increase its nationally determined contributions, adopt more vigorous policies and measures, strive to peak carbon dioxide emissions before 2030, and strive to achieve carbon neutrality before 2060.” This means changing China’s net emissions from 10 billion tons to 0 billion tons in 40 years.

The “carbon neutrality” path can be roughly divided into three stages:

Stage I (2020-2030). The main goal is to peak carbon emissions. Under the basic task of the peak target in 2030, the main tasks are to reduce energy consumption intensity, reduce carbon emission intensity, control coal consumption, develop clean energy on a large scale, continue to promote the replacement of traditional fuel vehicles by electric vehicles, advocate energy conservation (improve energy use efficiency in industry and residents), and guide consumer behavior.

Stage II (2030-2045). The main goal is to rapidly reduce carbon emissions. The main emission reduction path after the peak turns to renewable energy as the mainstay, completing the replacement of traditional fuel vehicles by electric vehicles on a large scale, and at the same time completing the emission reduction transformation of the primary industry, supplemented by technologies such as CCUS.

In Stage III (2045-2060). The main goal is deep decarbonization, participating in carbon sinks, and completing the “carbon neutrality” goal. During the period from deep decarbonization to the completion of the “carbon neutrality” goal, the potential for efficient and clean utilization in industry, power generation, transportation, and residents has basically been developed. At this time, carbon sink technologies should be considered, mainly negative emission technologies that take into account economic development and environmental issues, such as carbon capture, utilization and storage (CCUS), and bioenergy with carbon capture and storage (BECCS).

In the process of achieving the “carbon neutrality” goal, China will bring huge opportunities in terms of employment and sustainable development, and will also face huge challenges. It cannot be denied that with the setting of the “carbon neutrality” goal, most new energy industries, energy storage industries, and energy conservation industries will usher in a spring of development in Stage I and Stage II. Investing in these industries may have long-term returns, including energy-saving technologies, energy-saving equipment, new energy vehicle industry chains, photovoltaic/wind power industry chains, etc. In 2019, the installed capacity of non-fossil energy (hydropower + renewable energy) accounted for 42.0%, and the power generation accounted for 32.7%. The growth rates of installed capacity of various energy sources in 2019 were: hydropower 1.5%, thermal power 4.%, nuclear power 9.1%, wind power and solar energy 13.5% and 17.1% respectively. After the “carbon neutrality” goal was proposed, the development of new energy needs to accelerate.

During Stage III, when the process of deep decarbonization is underway, various negative emission technologies will be officially used in large quantities. The CCUS industry chain may not usher in an explosive period of growth until 10 years later, but it will still bring sufficient employment and surrounding industry chains. Others such as afforestation, utilization of agricultural and forestry wastes, and waste resource utilization industries will also usher in growth.

At present, some developed countries have proposed “carbon neutrality” goals in the form of legislation and policies, such as France, Germany, the United Kingdom, Canada, etc. As one of the four largest emitting countries, China is the first country to propose the goal of “carbon neutrality”, which will undoubtedly bring pressure to other major carbon-emitting countries and accelerate the global emission reduction process. In the process of continuously moving towards the goal of “carbon neutrality”, we will have the opportunity to enhance exchanges and dialogues with other countries (European countries may be more willing) and further enhance international influence; on the other hand, carrying out economic and technical cooperation with other developing countries in China’s leading emission reduction fields can also achieve mutual benefit and win-win cooperation.

If the “carbon neutrality” goal of 2060 is to be achieved, the introduction and implementation of corresponding policies and laws and regulations are necessary conditions to ensure the achievement of the “carbon neutrality” goal. Including the “carbon neutrality” goal in the development goals of the next forty years will make China’s commitment to “carbon neutrality” legally based and evidence-based; starting from the “14th Five-Year Plan”, layout will begin in each five-year plan of the next forty years, proposing phased emission reduction targets and supporting them with corresponding emission reduction policies.

However, based on the impact of previous carbon emission reduction policies on the economy, we believe that achieving “carbon neutrality” within 40 years is both a challenge and an opportunity for the Chinese economy. Despite the impact of factors such as the Sino-US trade war and the COVID-19 pandemic, China’s overall development trend has not been affected. Due to the late start of new energy, there are late-mover advantages. With the arrival of deep emission reduction, China will be at the forefront of the world in many fields.

Weekly Events

After the first wave of operations, carbon neutrality is currently in a correction stage. With the intensive release of policies, it will go through wave after wave of hype. Carbon neutrality is an investment theme even more important than the millennium plan.

Weekly Market

Period: 2021-03-29 ——— 2021-04-04

4-week review: The decline this week tended to stabilize. The top three Wind industries in terms of gains were forestry, steel, and energy equipment; the top three decliners were precious metals, agriculture, and shipping. The top three Wind concepts in terms of gains were rare earth, copper clad laminate, and carbon neutrality; the top three decliners were rare metals, Stock Connect, and photovoltaic roofs.

3-week review: The decline expanded this week, and A-shares fell for three consecutive weeks. The top three Wind industries in terms of gains were electric power, steel, and coal; the top three decliners were aerospace, semiconductors, and agriculture. The top three Wind concepts in terms of gains were thermal power, electric power, and coal-fired power restructuring; the top three decliners were aviation, planting, and marketing communication.

2-week review: The decline expanded this week, and A-shares fell for four consecutive weeks. The top three Wind industries in terms of gains were home furnishing, shipping, and retail; the top three decliners were insurance, semiconductors, and energy equipment. The top three Wind concepts in terms of gains were digital currency, liquor, and mobile payment; the top three decliners were rare earth, tungsten ore, and ultra-wideband technology.

1-week review: On the last trading day of this week, the three major indices rose together. Whether this is a periodic low or a rebound remains to be verified next week. The top three Wind industries in terms of gains were daily chemicals, gas, and office supplies; the top three decliners were oil, chemical fiber, and motorcycles. The top three Wind concepts in terms of gains were removing caps, UHV, and air transport; the top three decliners were rare earth, carbon black, and propylene.

This week’s review: On the last trading day of this week, the three major indices rose together. It can be basically confirmed that it is a rebound rather than a periodic rebound. The top three Wind industries in terms of gains were semiconductors, alcohol, and water affairs; the top three decliners were forestry, environmental protection, and cultural media. The top three Wind concepts were semiconductor packaging, semiconductors, and the National Big Fund Index; the top three decliners were Beautiful China, PM2.5, and Elevator Index.

Market (%)	Index	This Week	1 Week Ago	2 Weeks Ago	3 Weeks Ago
Shanghai Composite Index	3480.39	1.93	0.4	-1.4	-1.4
Shenzhen Component Index	14122.61	2.56	1.2	-2.09	-3.58
ChiNext Index	2852.23	3.89	2.77	-3.09	-4.01
Hang Seng Index	28938.74	3.73	-2.26	0.87	-1.23
HSCEI	1098.95	1.87	-1.04	0.76	-0.81
Hang Seng China-Affiliated Corps	4103.17	0.94	-0.68	1.99	-0.84
Dow Jones Index	33153.21	1.64	1.36	-0.46	4.07
Nasdaq	13480.11	3.87	-0.58	-0.79	3.09
S&P 500 Index	4019.87	2.82	1.57	-0.77	2.64

Market (CNY, Billion)	This Week	Previous Week	2 Weeks Ago	3 Weeks Ago
Shanghai Stock Connect	-3.16	84.60	6.76	61.74
Shenzhen Stock Connect	-96.23	57.04	80.32	4.4
Hong Kong Stock Connect	40.48	-64.38	40.59	32.05

Positions

Code	Name	Current Period Dynamic
SH600526	Feida Environmental Protection	Hold
LKCO	Luokung Technology	Hold
F260104	Invesco Great Wall Domestic Demand Growth	Hold
F002083	Xinhua Xin Dongli Flexible Allocation A	Hold
F166301	Huashang New Trend Flexible Allocation A	Hold
F163406	Xingquan Herun Hybrid	Hold
F005534	Huaxia New Era Hybrid	Hold