Helping move China's clean energy solutions forward

Mark Maroon:

Hey everyone. Welcome to Climate Check. This is Mark Maroon, vice president at American Modern and Munich Re company. And today I'm joined by Bel Tonat, general manager for non-Life solutions at Munich Re's Beijing branch. Thank you Bel for joining me today.

Belhassen Tonat:

Thank you so much, Mark. Thanks for having me and great to be with you today.

Mark Maroon:

So can you maybe just start by explaining what your role is with Munich?

Belhassen Tonat:

In my role, we serve clients in Mainland China, Hong Kong, Taiwan, and Macau for all lines of businesses in the PNC reinsurance arena. Our activities go beyond traditional business and extends to bespoke insurance solutions too, such as product development and data analytics with our clients. We also have a unit for innovation, which is responsible for creating solutions with non-insurance companies like automotive makers, for example, and battery producer and the likes.

Mark Maroon:

That's fantastic. So really what we wanted to dive into a little bit today was around green solutions. So is severe weather events resulting in greater life and health and economic impacts that we're seeing, countries around the world are escalating some of the development of these technologies that will hopefully lessen their reliance on fossil fuels. Where does China's energy transformation fall among some of the advanced economies exploring these alternative methods of energy production?

Belhassen Tonat:

So China is actually at the forefront when it comes to manufacturing for wind and solar. As you know, so China has a booming economy, but also at the same time a booming energy industry. China has experienced a robust development in nonfossil energy, which accelerated the low carbon transformation of its energy mix. If you compare 2015 to 2021, the installed capacity of solar in China has increased 3,000 times. For this of wind energy, it has increased 200 times. The proportion of nonfossil energy in the country's energy mix has actually been lifted to 15.9% in 2021, and this is up from 8% in 2005. The China energy intensity which measures the energy consumption per unit of GDP decreased 28% from 2011 to 2020. An accelerated clean low carbon transformation also characterizes the country's energy consumption mix. And now fossil fuel which is derived from coal, has decreased from 50 to 56% in 2020, and it was 73% in the year 2005.

Now coming maybe to another effect which is characterizing the roads in China. So as you know, China is a huge car manufacturing and car consumption market with more than 300 cars on the roads. And yearly there is roughly 30 million cars coming anew to the roads in China.

Out of these 30 million new cars every year, one out of 20 in the year 2020 was a new energy vehicle car. And in the year 2022, we expect that one out of four cars of the new licensed cars will be a new energy vehicle. If you looked at this trend, you can see immediately that within three years, we moved from a 5% of new energy vehicles to a 25% of newly licensed car being new energy vehicles in China.

Regarding the installed capacity for new types of energy storage, the country comes actually second to none with 3.3 million kilowatt of stored energy every year. So certainly China has done very well in introducing new energies. But definitely there are also areas which we can actually do more in China in order to increase or to make this change faster.

Mark Maroon:

So I guess I was just curious to follow up on one of these things. What has China stated as its carbon emission goals?

Belhassen Tonat:

China has proposed a so-called dual carbon aim with the first target being to reach the carbon emission peak by the year 2030, and then eventually move to net-zero by the year 2060. In January, 2022, the China's central government reemphasized the importance of the carbon reduction process. This not only requires businesses to transform their operations in a more sustainable direction, but also enables greater focus on new opportunities for international insurers and reinsurers.

China as you know, is by far the biggest photovoltaic markets, not only by installed capacity, but also by the numbers of produced and exported PV panels. This is an opportunity for the global insurance industry to work with Chinese manufacturers to bring the local Chinese solutions to the world and contribute to more efficient green energy generation through solar power and other low carbon technologies.

But China with its vast land has many options to generate green energy, from offshore wind farms along its coast, to the sun solution in the west of the country. These will require intelligent and new ways of energy transmissions and energy storage systems.

Mark Maroon:

So let's dive a little deeper into that then. So I'm just curious, how can insurers in the industry, companies like Munich Re and others, how can they use their experience in maybe more mature markets to provide some guidance on solutions that are relatively new to the Chinese market?

Belhassen Tonat:

We do believe that the financial sector is well-placed to take on more responsibility through product innovation, stabilizing the green market and promoting green finance. For example, reinsurers can support green energy solutions such as new energy vehicle with performance guarantee for batteries, or enable the recently invert carbon trade market, or support climate sensitive agricultural development plans with tailor-made insurance solution.

When it comes to energy storage systems manufacturers of China, most of them are young and medium-sized companies. And they have roughly 30% of the worldwide installed capacity but with a potential to grow even further. Munich Re China with our global entities like Green Tech Solutions, we are working very close with these manufacturers to create warranty solutions for them. And we are actually bringing products which are already taking off in the market to replicate what we have done in the past with a photovoltaic industry.

Munich Re Beijing recognize the need to understand the needs of the manufacturers of new energies and the companies which are linked to this new energy systems or new energy innovations. Therefore, we decided to create a research and development center which will be based in Shanghai and launched in November, 2022 to get more inside knowledge about the technologies and be able to provide insurance solution for these technologies.

Mark Maroon:

So what do you think then moving forward are some of the big opportunities and maybe some of the big challenges as well in providing green risk solutions?

Belhassen Tonat:

I do think, Mark, that China alone cannot solve what is effectively a global issue. But nevertheless, its actions have enormous potential to impact climate change positively, and that leaves opportunities for all industries and among them insurers and reinsurers. I do believe that the countries 2030, 2060 carbon goals aim to substantially reduce global greenhouse gas emissions to limit global temperature increase. And in this particular goal, reinsurers can provide climate resilient solutions, which are private or public risk transfer schemes.

And particularly for this point, Munich Re Beijing is actually cooperating with many provinces in China to put in place government schemes. And those are actually meant to alleviate the burden of natural disasters, especially for the remote areas in China. Alone in 2020, we can count actually more than 20 schemes which have been started by the government in this particular field. And Munich Re is playing a major role here, not only in the risk assessment and the pricing, but also being one of the most important capacity provider for such solutions.

We do believe as a Munich Re that the Chinese market offer really strong potential for climate friendly economic growth. And with its vivid environment of new technologies, the fast changing risk scenarios here in China, including the insurance industry, many investors are keen to equip themselves with the latest know-how on climate change and the new energy transitions, and to invest more money into more economic, or green economy and friendly technologies.

Finally, I do believe it's not only the journey of the private sector or the government. We all believe actually in this co-creation of ideas, solution and investments in new climate friendly technologies. And this will be very essential to bolster China's climate change efforts. So at the end, addressing climate change is a challenge for all of us, but it is one that insurance and reinsurance industry is very well committed to.

We do believe that through our knowledge, risk management expertise, and our collaborations with other industries, businesses, government and societies, we can play a major role in making the energy transition reality in the near future. Together, we can all be part of this solution.

Mark Maroon:

I couldn't have said it better. I think we're all in this together moving forward. So Bel, thank you so much for your time today. We really appreciate you coming on.

And listeners if you like this episode, please subscribe to our podcast for easy access to past and future episodes of Climate Check. For more information, go to munichre.com/climate, and we will see you next time.