Emissions from a Uniper energy company coal-fired power plant and a BP refinery billow towards a wind turbine in Gelsenkirchen, Germany, on January 16, 2020. Photo: AP
Opinion
Macroscope
by Neal Kimberley
Macroscope
by Neal Kimberley
Why China must beware of climate change measures aimed at stifling its rise
The shift to zero-carbon economies will occur over decades in which it is clear the China-US relationship will be characterised by competition
Measures such as carbon taxes adopted in the name of halting climate change could also be a covert way to contain China’s economic growth
No one is going to get off scot-free when countries attend the United Nations Climate Change Conference (COP26) in Glasgow in November, but Beijing should be wary. Climate change might be a global issue, but it is not above politics.
Measures adopted in the name of combating climate change could also be a way to try to contain China’s economic prospects.
China’s global economic heft has been acquired through marshalling a vast and industrious workforce while relying on an energy mix that was heavily skewed towards hydrocarbons. That energy mix will now have to be recalibrated towards renewable energy sources as policymakers worldwide seek to address the issue of climate change.
Beijing knows this. In September 2020, President Xi Jinping pledged that China would reach peak carbon emissions before 2030 and the Chinese economy would achieve carbon neutrality by 2060.
China is currently the world’s largest emitter of greenhouse gases, which scientists have identified as being the key drivers of climate change.
03:27
World leaders pledge to cut greenhouse emissions at virtual Earth Day summit
World leaders pledge to cut greenhouse emissions at virtual Earth Day summit
In the United States, the Biden administration has set a target for the economy “to create a carbon pollution-free power sector by 2035 and [a] net zero emissions economy by no later than 2050”. The European Union aims to reach an economy with net-zero greenhouse gas emissions by 2050.
So far, so collegiate. However, this transition will occur over decades in which it is also increasingly clear that the China-US relationship is likely to be characterised by competition in many spheres. This will include the economic domain as the US seeks to protect its present position in the face of China’s continuing rise.
Climate change could be another front in that competition. As regards dealing with climate change, it might be inconvenient but, for now at least, carbon-emitting energy sources remain cheaper than renewables. That raises the question of how to ensure those who move faster towards renewable energy sources do not lose out to others whose progress is slower.
Carbon taxes are one option. It was evident at the recent Group of 7 meeting that major EU economies such as France and Germany do not entirely concur with the current US line on China.
01:57
US, China put aside differences for pledge to work together on climate change
US, China put aside differences for pledge to work together on climate change
Nevertheless, when it comes to addressing climate change, the EU’s determination to craft a “carbon border adjustment mechanism” – even one compliant with World Trade Organization rules – might end up falling disproportionately on Chinese exporters, given the scale of China’s sales to the bloc.
Beijing is alert to the risk. “We need to send a strong political signal to uphold multilateralism,” Zhao Yingmin, China’s vice-minister for the environment, said in November 2019 when the EU first floated this idea. “We need to prevent unilateralism and protectionism from hurting global growth expectations and the will of countries to combat climate change together.”
Yet the EU remains attached to the concept. The US, too, is now considering a similar scheme. In March, the Biden administration announced that “as appropriate, and consistent with domestic approaches to reduce US greenhouse gas emissions”, part of its efforts to fight climate change would include “consideration of carbon border adjustments”.
China’s exporters could be adversely affected. In contrast, a multilateral approach to taxing carbon emissions was outlined in an International Monetary Fund staff note proposal, published on June 18.
02:06
Chinese cash funds African coal plants despite environmental concerns
Chinese cash funds African coal plants despite environmental concerns
The proposal argued for an international carbon price floor where “a small number of key large-emitting countries”, including China and the US, would agree a “minimum carbon price [that] each commits to implement” but where advanced economies would pay more than emerging-market economies.
China would be classed as an emerging market economy. In theory, paying a levy per tonne of carbon dioxide produced should prompt the payer to accelerate moves to cleaner energy sources. The scheme’s multinational nature, the proposal contends, would alleviate pressure for individual carbon border adjustment schemes.
Such a scheme might appeal in Beijing, but it would be hard for other governments to sell to voters. It would also fail to meet the central appeal of nationally imposed carbon border adjustments to individual governments, namely that such adjustments are set locally and can be targeted.
It might appear a cynical view, but fighting climate change will not be a compartmentalised issue, divorced from broader national rivalries. At COP26 in Glasgow and beyond, Beijing will need to be alert to the risk that proposals, ostensibly meant solely to address climate change, might also be aimed at trying to contain China’s rise.
Neal Kimberley is a commentator on macroeconomics and financial markets
