Webcast Recap

By Jing Chen

Last year China's CO2 emissions surpassed those of the United States—yet per capita and cumulatively, U.S. CO2 emissions far exceed those of China. While energy intensive consumption continues to fuel China's economy, the country's trajectories of future carbon emissions remain uncertain. It is possible that significant industrial research and development and continued progressive energy policy and investment could lead to a less carbon intensive pattern of growth in China. At a July 17th China Environment Forum meeting, two climate change researchers—Jim Watson (Tyndell Centre, Sussex University) and Trevor Houser (Rhodium Group, LLC)—discussed carbon emissions trends in China and explored how China's emissions might fit within a limited global carbon emissions "budget" over time, as well as the extent to which current policy proposals within China are compatible with global goals to reduce greenhouse gases.

Over the past five years, the power sector in China has been growing faster than the country's GDP—the leaps in annual energy use are frequently exceeding the expectations of even the Chinese government. The International Energy Agency (IEA) projects that China and India will account for 45 percent of global energy demand growth by 2030 and 80 percent of the increase in coal demand. While China's annual carbon emissions are rising fast, it merits mention that per capita emissions in China are only a quarter of those in the United States, and they even fall below the per capita emissions of the European Union. While the Chinese news media did report the studies about China becoming the world's top CO2 emitter, climate change stories within China generally emphasize the detrimental climate-induced weather changes that the country will face, such as melting glaciers, dropping water tables, and massive storms. Thus, global climate change has become a popular research topic in China—particularly with regard to adaptation.

Who Owns China's Emissions?
Using the most recent complete set of data—from 2004—the Tyndall Centre at Sussex University calculated that 23 percent of China's carbon emissions are directly attributable to net exports. Two factors drive this trend: (1) the large and growing trade surplus between China and the rest of the world; and (2) China's relative carbon intensity. For example, in 2000, China was 5 times more carbon intensive than the United States.

While this number is debatable, it challenges the idea that emissions should be measured by political boundaries. The usual country-by-country calculation also does not take into account the complexity of globalized trade and travel. For example, interconnected economies have meant, that much of the carbon associated with domestically consumed goods in the United States often is emitted outside the country. Moreover, China's carbon trade balance is not a static picture—since exports have been rising faster than imports, the amount of emissions from exports is most likely growing. The speakers both argued that policymakers should be wary of shunning China's products due to high carbon emissions. In terms of developing policy around these findings, it is important to consider future emissions trends before considering limiting trade to China due to its high CO2 emissions.

Future Carbon Accounting
The Tyndall Center developed a carbon budget for the century (2000-2100) to determine the amount of carbon that the world can emit without breaching the climate tipping point of the 2-degree temperature change. The difficulty in developing this budget stems from the fact that carbon emissions remain in the atmosphere a long time—thus, historic emissions have an impact on climate policy today, and somewhere between two-thirds and three-quarters of emissions currently in the atmosphere are from industrialized nations. Considering only China's new status as the largest annual carbon emitter does not produce a comprehensive international carbon budget in everyone's best interest.

One strategy for reducing emissions internationally is long-term national targets to reduce emissions. For example, in 2008, the G8 agreed to halve carbon emissions by 2050. Although achieving this goal would be admirable, its relative influence on climate change depends on whether countries take immediate action to curb emissions or wait until the target date to make radical changes and meet the goal. The second strategy leaves more cumulative emissions in the atmosphere than taking immediate action—which matters tremendously given that residual carbon remains in the atmosphere for an extended period of time.

Another method is a consumption-based global total budget, under which each country has a quota of emissions. The budget the Tyndall Center used for its calculations was 490 GT in the 21st century, although Watson admitted that even that rate could breach the carbon threshold. Within the global total budget strategy there is a debate on whether country allocations should be equal per person, or whether each country should reduce at the same rate per person—which may be more realistic for currently energy intensive countries.

An Alternative View
Trevor Houser pointed out that under a consumption-based carbon accounting scheme, China would be the biggest loser because most of the country's emissions are from industry, not consumption. In his analysis of China's carbon emissions, Houser went back in time to 1958, when Mao Zedong chose to develop the country following the energy intensive Soviet model rather than the labor intensive models of Taiwan and Japan. In 1978, however, China's economic reforms led to a dramatic drop in national energy intensity, as businesses were faced with paying the true cost of energy and then turned to pursue China's true comparative advantage—cheap labor. During the first two decades of economic reforms, energy intensity in China dropped by an unprecedented two-thirds. Forecasters assumed that this trend would continue, but in fact it reversed in the early 2000s.

Urbanization is the primary culprit for China's increasing energy intensity. In the past five years, the nature and speed of urbanization in China has shifted from using energy intensive goods obtained from overseas to using the same energy intensive goods produced domestically as China's trade balance shifted dramatically to an export economy starting in 2004. By way of example, in just four years China went from being the largest steel importer to the largest steel exporter.

Because seventy percent of China's energy demand comes from industry, little of its carbon emissions are related to personal consumption or exports, despite the country being 5 times more carbon intensive than the United States. In fact, most of China's energy intensive goods are consumed domestically. As an example, 60 to 70% of the value of a DVD player sold in the United States and marked "Made in China" is semiconductors that were manufactured in Japan or Korea and then assembled in China. The assembly is very low energy intensity. Forty-two percent of China's energy demand originates in 5 sectors—non-ferrous metals, ferrous metals, paper, chemicals, and non-metallic mineral products. With the exception of cement and paper, the United States imports very little of these products from China. In short, while Chinese exports of televisions and electronics are very important to China's economy, exports of energy intensive products are not.

Thus consumption-based accounting would badly hurt the Chinese economy, for countries would shift away from purchasing Chinese goods in favor of supposedly lower energy intensity goods, even though they are comparing China's industrial economy with service economies, which clearly emit less per unit of GDP. In fact, manufacturing in the United States is less energy efficient than China's as the U.S. relies on electrical automation rather than low cost labor.

The Chinese government is reigning in exports of energy intensive industries already, for several reasons including that these sectors employ only 13 million people—less than the service sector in Guangdong alone. The government also has campaigns to shut down the most energy inefficient and dirty enterprises in these sectors. Such actions not only make sense from an economic standpoint but will also help China decrease its carbon emissions. For example, most analysts believe that China will return to being a metal importer in the coming years.

Policy Implications
The consensus among the two climate change speakers was that China needs to rebalance the energy intensity of its growth to shift towards higher value goods and away from export-led growth. China's domestic policy is already moving in this direction as it is simultaneously beneficial to the economy and air quality. The Chinese government has publicly declared that the current model of growth is not ideal, which led the leadership to set energy intensity reduction goals of 20 percent by 2010. As part of this initiative, the central government identified the 1,000 most energy intensive enterprises and gave each of them an emissions target. However, no funding or financial incentives are available to support the program at this time.

The extent of these exported emissions calls into question the traditional national boundary carbon budget accounting. The alternative, consumption-based accounting is difficult and contentious because goods are hard to trace, but it can be used to inform policy. For example, Watson believed that accounting for emissions in imported products should spur industrialized countries to accept emissions caps and take early action for global carbon emissions because they are responsible for cumulative emissions as well as partially responsible for the emissions of other countries. Houser believes that China cannot accept a consumption-based carbon accounting scheme at this time, but if industrialized countries set a precedent by accepting emissions caps, that will give industrializing nations a chance to curb industrial emissions and subsequently approach consumption as it becomes a greater source of emissions. Both speakers stressed that increases in technical and financial assistance to industrializing countries that foster cleaner production processes will continue to play a vital role.