Tuesday, November 18, 2008

Climate Change:  China's approach

China's rapid industrialisation had by 2006 led it to becoming the world's largest emitter of CO2-e, surpassing the US with 18 per cent of the world's total emissions.  In per capita terms, China remains a low emitter with 4 tonnes per capita (cf. US 20 tonnes, Australia 16 tonnes, OECD average 11.5 tonnes).

China was and remains ostensibly fully committed to the issues of carbon reduction.  Like all other developing countries, however, the actions in creating reductions have been focussed on requiring leadership from major emitters.

China has however embarked on a strong development of wind subsidised by an amount that approaches the market price of coal based electricity.  Wind installed capacity has doubled in each of the past five year and there is an open ended requirement on the electricity suppliers to buy and pay for wind derived electricity's connection to the grid and buy the supplies offered which also benefit from a favourable tax rate.  All wind generating asset must have over 50 per cent Chinese content to qualify.  Wind is now expected to provide one per cent of electricity next year (the highest in the developing world) but the pace of expansion is expected to slacken.

In this respect, wind has been pursued more aggressively than nuclear which provides only about three per cent of electricity.  Coal based electricity is cheaper than nuclear for most of the country and though a strong nuclear expansion is planned coal will continue to dominate.

China has sought to demonstrate its credentials by stressing its intent to increase energy efficiency (by 20 per cent by 2020 -- not a very ambitious goal).  This policy of "co-benefits" is central to overall policy and also embraces pollution reductions.

In terms of the trade-off of industrialisation and domestic carbon reduction, the former takes absolute precedence.  The essence of policy scenarios includes one that foresees China's per capita emissions doubling by 2030 and not beginning to tail off until new technology and industrial transformation away from heavy industry cuts in.  There is no serious pressure to accelerate carbon reduction from the environment ministry, other than in the co-benefit of reduced local pollution.  Research is progressing into a tax based system and taxes are to be introduced on petrol but nobody is discussing a carbon tax before 2020.

On 29 October 2008 China issued a White Paper on Climate Change which markedly changed the country's policy approach.  The White Paper expresses fears about climate change and stresses the losses it says China faces from such developments.  Some Chinese analysts attribute these strongly expressed sentiments to a need to placate those forces contemplating countervailing duties on goods from sources that do not accede to Kyoto-Copenhagen agreements.  Chinese officials also see the process as one of offering opportunities to obtain better technology to reduce emissions with the co-benefits of lower local pollution and cheaper energy.

In a notable turn, the White Paper shifted the policy priority to adaptation.  This is a recognition that China (and therefore others in the developing world that embark on a rapid growth path) will not initiate serious abatement measures at least until Western levels of emissions are reached.  And in this respect the White Paper discusses cumulative levels of emissions which would justify China out-emitting Western countries on the basis of the past levels of emissions.  A corollary is that the sort of CO2-e levels of emissions said to be required to stabilise the warming effect will not be reached.

The White Paper addresses changes in the structure of industry that will enable lower energy levels per unit of output and has aspirations to reduce conservation measures, which it claims to have reduced usage by the equivalent of 240 tonnes of coal equivalent saved being the goal.  As well as pushing strongly with wind, it has policies distributing energy efficient light bulbs, energy saving renovation and air conditioning standards.

The White Paper's principles reject caps on emissions and are based on emission levels being reduced as a result of strong economic development and not as a result of retarding that development.  It called for

  1. A world committee on climate change adaptation
  2. Adaptation "capacity building" for developing countries including funding support
  3. Technology transfer to facilitate adaptation
  4. An "adaptation fund" with resources contributed be developed countries.

The White Paper also envisages a much greater role for private enterprise in energy production.  This would however require a radical change since electricity generation is virtually all state owned and it, as well as the grid, is subsidised.  Private power could only be attractive if prices were allowed to reflect costs.  This sparks fears of price protests and social unrest and underlines a major issue China confronts in moving further along the path to a market based economy.  Its heavy industries, electricity, steel and smelting, are largely state owned and have not achieved the efficiency levels of other sectors but unwinding the ownership means confronting a great many vested interests.

It would certainly seem to be the case that China is not going to make any significant efforts to cut its emissions aside from those that bring per se "co-benefits" in cost reductions and lower levels of pollution.  The country has spent considerable sums on wind and will do so on other green measures but in the greater picture these are token expenditures.

Though the government proclaims that climate change will be a costly issue for China and though it recognises that if carbon emissions are to be lowered this must also incorporate China, it has no intention of taking cap or tax based actions on C02 that would mean reducing energy growth into the medium future.  Rather, it is vigorously displaying its credentials as a concerned nation, partly to defray any countervailing import sentiments that might arise in the developed world and partly to encourage the developed world to transfer assistance and resources to other countries.

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