China’s Polluters Will Have To Pay A Price

CHINA IS NO climate denier, although the connections between climate change and the Henan flooding have been only lightly made in state media. However, reaching peak carbon before 2030 and going carbon neutral by 2060 have been policy since last year and are incorporated into the 14th Five Year Plan (2021-25). 

Specifics are sketchy beyond a 13.5% reduction in energy consumption per unit of GDP, an 18% reduction of carbon dioxide emissions per unit of GDP and an increase in the share of non-fossil-fuel energy in total energy consumption to around 20% from 15.8% over the life of the plan. The country’s new carbon trading market will have to play a significant role if those targets are to be achieved.

The long gestated national market finally launched on July 16 on the Shanghai Environment and Energy Exchange, becoming the world’s largest trading scheme for greenhouse gas emissions from the getgo.

Progress will likely be cautious. For now, only some 2,225 firms in the thermal power generation sector can participate. They emit more than 4 billion tonnes of greenhouse gases a year, contributing about 40% of China’s total carbon dioxide emissions and 15% of the world’s total. 

Other emissions-intensive sectors such, steel, cement and civil aviation are expected to join the market later. 

The initial round of carbon permits was allocated for free. The price per tonne of carbon dioxide equivalent was 48 yuan ($7.42) when the market opened. The first bulk deal — Sinopec’s agreement on July 21 to buy 100,000 tonnes of carbon quota from China Resources Group — was priced at 52.92 yuan per tonne.

By way of comparison, the price in the EU’s emissions trading scheme is around 60 euros ($70.80). 

However, China’s power generation industry is far from being a market-driven world and not well placed to shoulder the added cost of carbon. The lack of market-priced electricity — local and regional governments set prices — means there is no way for power generators to raise prices and induce lower and more efficient energy consumption by consumers. 

In the meantime, the price of coal is no longer regulated, leaving the power generators squeezed. The hope is that this will make them jettison their most outdated and inefficient power generation plants — and turn to renewable sources of energy.

The Shanghai price will inevitably rise as the government expands the number of participants, begins auctioning permits and reducing their supply. At present, there is effectively no cap on carbon credits. It will not be until then that market will significantly affect China’s capacity to meet its goal of net-zero carbon emissions by 2060.

China will probably reach peak carbon sometime this decade, come what may, as the industrial structure of the economy changes, although quite when will depend on a mix of the economic growth rate and the vigour with which authorities pursue policy enforcement of emissions reduction.

If anything, early recovery from the pandemic last year put the country on the back foot in pursuit of its goal. Energy consumption and emissions rose in China in 2020, whereas they declined almost everywhere else.

COP21: Follow The Money

THE PARIS CLIMATE talks — formally the United Nations 21st Conference of the Parties (COP21) — starting on November 30 will be a political bun fight in which China as the world’s biggest polluter will be at the centre. But the how, who and who pays arguments over environmentally sustainable development are only another front in the wider competitive-cooperative struggle between North and South for global influence.

Whatever the outcome of the Paris meeting, China will come off a winner.

The goal of COP21 is for more than 190 countries to agree a global and legally binding treaty that will let the world avoid the worst impacts of climate change. In practice, this means an enforceable plan to keep global warming below 2℃ by cutting greenhouse gas emissions.

The countries that account for 80% of the world’s emissions, three-quarters of which are accounted for by China, the United States, the 28 European Union members and India, have submitted plans for how they will play their part. However, these Intended Nationally Determined Contributions in aggregate fall short of what is needed to meet the 2℃ target.

China’s INDC’s are conventional enough: a speeding up of the transformation of energy production and consumption to mitigate increasing greenhouse gas emissions; continuing improvements in energy efficiency as the economy is rebalanced in a sustainable way; and increases in forest carbon sinks.

In hard numbers:

• Peak CO2 emissions to be reached by 2030 at the latest;
• Cut carbon intensity by 60-65% from 2005 levels;
• 20% of energy produced by renewables by 2030 (10% in 2013); and
• Increase forest coverage by 4.5 billion cubic meters compared to 2005.

These targets build on ones set out in 2009. That year, Beijing said that by 2020 it would lower carbon dioxide emissions per unit of GDP by 40-45% from 2005’s levels, increase the share of non-fossil fuels in primary energy consumption to around 15%, and increase forests by 40 million hectares and the forest stock volume by 1.3 billion cubic meters compared to 2005 levels.

In its INDC, Beijing claimed that by 2014, it had achieved:

• 33.8% lower carbon dioxide emissions per unit of GDP than the 2005 level;
• 11.2% non-fossil fuels share in primary energy consumption;
• Forested area and forest stock volume increased by 21.6 million hectares and 2.188 billion cubic meters respectively compared to the 2005 levels;
• 300 gigawatts of installed hydropower capacity — 2.57 times of that in 2005;
• 95.81 gigawatts of on-grid wind power capacity — 90 times of that of 2005);
• 28.05 gigawatts of solar power installed capacity of — 400 times of that of 2005; and
• 19.88 gigawatts of nuclear power installed capacity — 2.9 times of that for 2005.
• Also, China has initiated pilot carbon-trading markets in seven provinces and cities and low-carbon development pilots in 42 provinces and cities, with a goal of having a nationwide cap-and-trade market in place by 2017.

All of which is real progress, though not sufficient to have kept up fully with the growing economy, as the skies over Beijing bear daily witness.

China’s COP21 targets still look ambitious, unlikely to be achieved without either technological advances both to improve energy intensity (units of energy required per unit of GDP created) and to help nuclear energy replace coal-fired power generation, or a slowdown in the economy to reduce power demand. On some estimates, the later would mean China’s GDP growth rate slowing to at least 4.5% a year for a sustained period in the decade to 2030.

All of which helps to explain why the politics of climate control will be so confrontational at COP21 behind the feel-good words the politicians will spout.

As de facto spokesnation for developing economies, China wants the rich nations to carry the much more of the burden of reducing emissions than poor ones. Its argues that historically the developed countries have gone through their industrial revolutions and so should not expect developing economies to have artificial constraints put on them as they now go through theirs.

The motives for such a position fall along a spectrum running from fairness — developed nations shouldn’t get a ‘free ride’ on pollution just because it occurred centuries ago — to nefariousness — the old world powers are using climate change to hold back the development of new rivals arising in the East and South.

Thus, China wants ‘ambitious economy-wide absolute quantified emissions reductions targets’ for developed countries, while calling only for ‘enhanced mitigation actions’ on the part of developing economies such as itself. Furthermore, it wants developed countries to provide the finance, technology and capacity-building for developing nations to do so.

The proposed financing is scarcely chump change. Beijing wants it to start at $100 billion in 2020 and then increase yearly, with the monies coming from the West’s public purses, not private sources. It proposes that this financing is channeled through the UN’s Green Climate Fund, a somewhat misbegotten five-year-old UN agency that would be made directly accountable to COP21.

So far, the fund has barely raised more money than needed to cover its set-up costs and is wracked by internal disagreements over what it should be funding and how. As of May this year it had received pledges of only $10.2 billion towards its own $100 billion-by-2020 target.

Developing nations don’t like the fund’s focus on private investment, which in practice means Western investing institutions. Environmentalists don’t like its acceptance of fossil-fuel investments, and no one likes the fund’s governance, hence Beijing’s effort to switch it to public funding and put it under COP21’s authority.

The third area of contention at Paris beyond targets and where the money is coming from will be technology. Beijing wants COP21 to impose a clear requirement on developed nations to transfer technologies and R&D to developing countries ‘based on their technology needs’. That would give developing economies, including China, carte blanche to demand virtually any technologies from the developed nations that it wants.

China has need of such technologies, given the challenges of its COP21 proposals. It will not be able to displace coal from the central place it now occupies in the energy mix without a significant increase in nuclear power generation. China is developing an indigenous nuclear industry apace, but its third-generation technology remains unproven, its capacity for making key components for reactors is uneven, and it has limited abilities in spent fuel reprocessing and storage.

Free licence to demand technology transfers from Washington and Paris to tackle any and all of those problems so its nuclear industry can make itself internationally competitive is not going to be acceptable to the West.

However, COP21 will likely yield an agreement, not the vague promises of previous UN climate summits. China will, of course, not get everything it is calling for going in. Binding hard 2030 targets on developed nations are unlikely, as are commitments by the West to any significant public funding of the Global Climate Fund or carte blanche technology transfers.

A mechanism for strengthening national carbon reduction targets every five years is likely. Presidents Xi Jinping and Barack Obama agreed when they met in September to support such an approach, calling for COP21 to establish reporting and accountability that would strengthen emission reduction targets over time.

That, along with some concrete steps towards mobilizing financial and technical resources to assist the power countries to develop sustainable low-carbon and climate resilient economies would be achievement enough in Paris.

These outcomes would give Beijing plenty of advantages. It would get flexibility in recalibrating its tough 2030 domestic emissions targets and constrain Western efforts to impose a World Bank IFC-type private-sector financing model on climate mitigation.

At the same time, it would be free to expand its bilateral climate lending channels such as its South-South Climate Fund. Through its other burgeoning channels such as the Asian Infrastructure Investment Bank, the BRICS’ development bank, and its Silk Road Fund, it can position itself as a key player in global low-carbon investment through its overseas infrastructure and project finance.

With that would come another broad, long-term ratcheting up of Beijing’s global clout, and especially if the next U.S. administration is a more isolationist and climate-change-rejecting Republican one.

Pumping Greenhouse Gases From Deep Below The North China Plain

Pumping water from the deep aquifer below the increasingly arid North China Plain has a hidden cost beyond the depletion of irreplaceable water resources, a new joint UK-China study reveals. Farmers are now pumping so much irrigation water from such deep levels, up to 70 meters-80 meters below ground in some provinces, that the energy required to drill the wells and run the diesel pumps accounts for more than half a percent of China’s total greenhouse-gas emissions.

Overall, farming accounts for 17–20% of China’s annual greenhouse-gas emissions, the study’s authors say. Pumping water for irrigation is one of farmers’ most energy intensive activities. The study, conducted by scientists from the Chinese Academy of Agricultural Sciences and the U.K.’s University of East Anglia, claims to be the first detailed estimate of greenhouse-gas emissions from groundwater pumping for irrigation. The authors say its shows that “significant potential exists to promote the co-benefits of water and energy saving in order to meet national planning targets”.

The scale of the challenge of realizing those benefits is that the current five-year plan aims to increase irrigation water use efficiency by 3% by 2015, emphasizing the importance of improving groundwater resource management to control over-exploitation. However, this is to be achieved whilst increasing total grain production by 13% to 450 million tonnes and decreasing national energy consumption per unit of GDP by 16%.

Shenzhen Joins Pilot For China’s Carbon Trading Market

Shenzhen has been added to the list of provinces and municipalities that will pilot China’s proposed carbon trading market. That takes the initial set to seven. The participation of Beijing, Chongqing, Shanghai, Tianjin, Hubei and Guangdong has been known since the summer. An official with the National Development and Reform Commission confirmed the go-ahead with the pilot scheme to Xinhua, but otherwise details remain sketchy. Central government has still to set overall carbon discharge reduction targets, which are a prerequisite for establishing the national carbon trading market that has been pencilled in for a 2015 launch.

By then, China’s goal is to have cut carbon dioxide emissions per unit of GDP by 17% from 2010 levels, according to a white paper on climate change issued this week ahead of the UN’s forthcoming climate change talks in Durban in South Africa. A reduction of that magnitude will be a tough ask given the pace of the economy’s growth. The pilot carbon-trading scheme is expected to start in 2013.

China Aims For National Carbon-Trading Market By 2015

A little more flesh on the bones of China’s plans to establish carbon trading markets. At the Carbon Expo in Barcelona, where China was announced as one of eight countries to be getting $350,000 initial grants from the World Bank towards implementing market-based initiatives to fight climate change, Wang Shu of the National Development Reform Commission’s Climate Change office said:

“The Government of China will, according to the requirements of the Outline of the 12th Five-Year Plan, gradually establish a market system for carbon emissions trading to promote the achievement of its carbon intensity reduction objective….The initial plan is to establish carbon emissions trading schemes in some pilot regions, and try to establish a unified national system in 2015.”

The pilots will be carried out in Beijing, Chongqing, Shanghai, Tianjin, Hubei and Guangdong. Only Chinese companies are likely to be allowed to trade during their initial phase. Central government still needs to set its overall carbon discharge reduction targets, which are a prerequisite for establishing the national carbon-trading market. The global carbon market was valued at $124 billion last year.

Making Electric Vehicles Viable

Since 2009 China has been supporting a large-scale pilot market to promote the development of electric-vehicle manufacturing. Initially in ten cities, this is now extended to 25. Electric vehicles are estimated to become a $250 billion market worldwide within 10 years, accounting for one in ten of new vehicle sales by 2020. China is determined to be a leading supplier to this nascent market, committing $15 billion of government funding to develop its industry. The World Bank has just published an initial assessment of the pilot project, outlining some of the challenges that need to be overcome to make electric vehicles a viable commercial market. The main recommendations:

• Policy momentum: Purchase price subsidies need to be replaced by support for institutional and technology innovation, vehicle-charging infrastructure and manufacturing capacity.
• Integrated charging: The recharging infrastructure for buses, trucks and taxis needs to be expanded to accommodate private cars. 
• Common standards: Common, ideally global standards for charging, safety, and battery disposal are needed for both manufacturers and consumers. State Grid, the largest Chinese utility, has established charging standards, but these differ from U.S. and European standards, inhibiting access to global markets.
• New business models:  Commercially viability must include the cost of charging infrastructure as the industry cannot rely forever on government funding.
• Customer acceptance: Consumers will only buy electric vehicles if they think them worth the additional cost. Even when lifetime ownership costs become favorable, the initial price of electric vehicles will still be higher than that of conventional vehicles and have a longer payback period.
• Greenhouse gas (GHG) benefits: Electric vehicles will have significant low GHG emission potential. Longer term, a large electric vehicle fleet also stands to play a role in grid storage which, combined with renewable energy production, can further reduce GHG emissions.

Amid Finger Pointing, Tianjin Climate Meeting Makes Scant Progress

The climate talks in Tianjin have ended. They have done little to smooth the path to the Cancun session of the U.N.Framework Convention on Climate Change that opens at the end of next month save on the creation of the $100 billion fund rich countries agreed at the Copenhagen round of talks to provide poor countries to help deal with the impact of climate change.

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The ambition of the Tianjin meeting was always limited: to create a checklist of not what would be done at Cancun, but what might be done. Even that was barely achieved. “This week has got us closer to a structured set of decisions that can be agreed in Cancun. Governments addressed what is doable in Cancun, and what may have to be left to later,” the U.N.’s Christiana Figueres (right, pictured at the meeting’s opening) said in her end-of-meeting statement (video, speaking notes), a less-than-ringing endorsement of success. The European Commission’s Jurgen Lefevere was closer to the mark when he called the outcome “very patchy”.

The biggest of the leave-to-latter issues is the deadlock between the world’s two biggest energy consumers and polluters, China and the U.S. with the U.S. saying that China won’t agree to global binding, verifiable emissions curbs and China saying the U.S. and developed economies have to commit first to doing much more than the developing nations as they polluted first. Both Beijing and Washington accuse the other of trying to subvert the U.N. process in their separate ways.

There was some tetchiness between the two countries’ officials throughout the Tianjin meeting, as noted in Xinhua’s report. Having been blamed for the failure the Copenhagen meeting, Beijing is getting its share of finger-pointing in this time. The risk for a binding global treaty to succeed the Kyoto Protocol that expires in 2012 is that climate change becomes another bickering bilateral dispute between Washington and Beijing.

China and U.S. Take Their Climate Accord And Go Home

The Copenhagen Accord struck by China, the U.S., Brazil, India and South Africa on climate change smacks of declaring victory and going home. It is not legally binding. It does no more than recognize the need to limit global temperatures rising to no more than 2℃ above pre-industrial levels. It sets collective goals for rich nations to fund poor nations’ adjustment to going greener that are so broad as to be meaningless. It puts the monitoring of developing nations’ progress in their own hands. It does nothing of substance on promoting carbon markets beyond saying “various approaches” will be pursued. Even then the accord hasn’t got the backing of the all the participants in the UN’s Copenhagen climate conference and the meeting as a whole did no more than ‘note’ it.

From Beijing’s point of view, it is job done. It has not had to accept a binding treaty, and the verification process for whatever voluntary steps its takes to control greenhouse gas emissions will be in its own hands. (It has set itself a target of cutting the amount of carbon dioxide emitted for every unit of GDP by up to 45%.) Beijing will also have taken note of how effective its alliance with India has been in dealing with the U.S. But while the accord serves both countries interests the criticism from developing nations that China and India have sought to portray themselves as championing must have stung, whatever spin the propaganda bosses put on it.

The UN now has a year to salvage something from the rubble of Copenhagen that can turn the five-way accord in to a U.N-wide binding treaty before the climate conference reconvenes in Mexico City in December 2010.  Whether anyone in Beijing or Washington for that matter really cares is another matter.

A Green China Is A Nuclear China

The one-day U.N. summit in New York on climate change produced more hot air than substantive progress towards a meaningful deal at December’s Copenhagen summit. President Hu Jintao made a lot of the right noises to be heard as internationally cooperative but his offer to curb carbon emissions by a “notable” but unspecified margin by 2020 from 2005’s levels, while the first time China has said it will cut emissions, is an empty promise in as much as the expected rapid growth of the economy will mean that an overall reduction in emissions is unlikely even if China is able to meet its promise to cut carbon dioxide emissions per unit of GDP. In practice, the main thrust of this will mean that China will increase its reliance on nuclear power, expected to account for 15% of energy consumption by 2020.

India-China Axis On Climate Change Moves ‘Green’ Closer To Trade Sanctions

This Bystander is keeping an eye on U.S. Secretary of State Hillary Clinton’s trip to India because it will provide an indication of how China and India are lining up on the climate policy debate. Or at least whether the U.S. is managing to put any daylight between the two countries’ position.

In short, it doesn’t look that she has. She was told flatly by Environment Minister Jairam Ramesh that there was no case for mandatory curbs on CO2 emissions. That mirrors Beijing’s rejection of binding cuts, and repeats the position expressed at the G8 summit in Italy earlier this month–a line Beijing and New Delhi are likely to hold at the U.N.’s Copenhagen conference of climate change at the end of this year. Instead, the two countries are pushing energy efficiency–witness the way Beijing has promoted green technologies in its economic stimulus package.

The reluctance to accept greenhouse gas emissions curbs on the part of China, now the world’s largest emitter of such gases, will make it more difficult for the Obama administration in the U.S. to press ahead with its cap-and-trade proposals, already running into domestic political difficulties, which will ease the pressure on China and India to change their tune. It also increases the chances that the U.S. will impose punitive tariffs on imports from other major greenhouse gas emitters. Though it is open whether that would change Beijing’s hard line on emissions, trade sanctions could, perversely enough, become the most effective means of forging international action on global warming.