It is received wisdom that China is on an unstoppable pathway to becoming an economic superpower.
With a poor domestic and international environmental reputation, Insight Quarterly investigates how China may respond to an increasing awareness of climate change.
In our research to answer the question we investigated the link
between economic development and climate change, its implications
for China and made recommendations as to how these can be
reconciled within an international context. Using the three
pillars of sustainable development, we analyse how climate change
may impact China internally, demonstrating the need for a proactive
stance on the world's stage.
China's attitude to local pollution is that the economic needs of
growth and its associated pollution must be balanced against
potential social unrest and improving the lives of 200 million poor
Chinese. This fundamentally influences strategies to respond
to international pressure related to climate change.
We believe that China should be increasingly proactive in its
domestic and international efforts to reduce its carbon footprint.
It is already the largest developing country recipient of carbon
financing through the Kyoto Protocol's Clean Development Mechanism,
however as yet no successor to the treaty exists.
By forming a central committee led at the highest levels of the
Communist Party strategy can become part of the country's five year
planning cycle. A suggested strategy is to steer and
participate in the post-Kyoto protocol framework currently under
discussion, and to ensure that the existing and planned rollout of
dirty coal fired power stations can be adapted and upgraded to
cleaner technology, together with a long term goal of using low or
zero carbon power generation.
The economy heats up
Since Deng Xiao Ping introduced economic reforms in the 1980s the
Chinese economy has grown exponentially.
Figure 1. China's economic rise (PRC Bureau of National Statistics, Hitotsubashi University (Japan)
This growth has caused significant environmental degradation
which is felt nationally and internationally. China is the fourth
largest economy in the world and it is about to become the world's
largest polluter and emitter of greenhouse gases. The Chinese
government and people are increasingly aware of climate change
through international political pressure, increasing coverage by
the media and health problems respectively. Indeed, a recent
survey carried out by the BBC say that the Chinese people are most
willing to accept taxes on fossil fuels to help mitigate the growth
of greenhouse gas emissions.
Part of the challenge of mitigating the production of greenhouse
gases such as CO2 is that it is considered a non-point source
pollutant i.e. it is produced by many sources, for example each
internal combustion engine or boiler. With the atmosphere,
for which no one pays, being degraded as a result, a 'tragedy of
the commons' scenario has unfolded. Individual countries therefore
have little incentive to act unilaterally by reducing emissions, as
others will benefit from their action. This is part of the
'prisoner's dilemma' that faces China as well as the international
community.
Thus the Kyoto Protocol's Clean Development Mechanism (CDM) was
devised to incentivise both developed and developing countries
through setting up a trading mechanism that encouraged investment
in clean technologies by developed countries in developing
countries, thereby hoping to 'leapfrog' more polluting technologies
seen during the industrialisation of the West.
China is currently the second largest recipient of carbon
financing under CDM, having issued 25% of certified emissions
reductions (CERs) (23m CERs) to date, although China is expected to
deliver some 78m CERs annually; around 40% of the total, going
forward . This represents considerable income to the country,
as each CER ranges between €10-€20 dependent upon the purchase
agreement.
This demonstrates that the Chinese economy can benefit from
developing in a 'cleaner' fashion through international
cooperation. It would be well advised to continue in this vein, as
climate change poses real dangers to the country's future
development.
Shaky pillars
We subscribe to the view that the "three pillars of sustainable
development": environmental protection, social and economic
development, are mutually reinforcing in the long run. If one of
the three pillars starts to crumble, the others may follow in a
domino effect. In the following section we examine China's
performance and attitude with respect to each of these
pillars.
Economy
The potential economic impact of climate change on China is not
well understood with commentators yet to reach a consensual view on
the extent to which the nation will be affected. However
there are some broad predictions of the macroeconomic forces
influencing China's economic outlook.
• A carbon tax - a tax on energy sources which emit carbon dioxide
- is the preferred tool of many economists to internalise the cost
of carbon. It would increase export prices because of China's
dependence on coal fired power generation. This would reduce demand
and growth.
• Developed nations increase protectionist policies or trade
tariffs in response to China's 'free-rider' attitude, limiting
exports which drive the engine of growth.
• Natural disasters and disease outbreaks break down China's
vulnerable developing infrastructure.
• Economic resources diverted from growth to develop more
sophisticated resource management solutions because of increased
variability and volatility in weather systems.
• Reduced agricultural yields diverting growth into food
production or purchase.
• Negative environmental feedback because of an increase in per
capita energy consumption as more extreme climatic conditions lead
to increased heating costs.
• Social migration causing upheaval and lowering growth.
Environment
Between 2001 and 2006 Chinese energy consumption doubled from 920
MtOE, to 1880 MtOE. To meet this energy demand, every week
two 500MW coal-fired power plants start production - a capacity
equivalent to that of the whole British grid. China will roll
out an additional 600 such power stations in the next ten
years.
There is a strong correlation between the level of atmospheric CO2
and mean temperature. The level of atmospheric CO2 has been
rising dramatically with increasing levels of economic development
since the Industrial Revolution in the 18th Century. As global
energy demand has soared so has the use of fossil fuels.
Temperatures are expected to continue to rise as well.
It is now widely accepted that climate change acts as a magnifier
for existing environmental, economic and social challenges, such as
flooding, migration, resource conflicts, the spread of diseases and
health degradation. However it appears that the rise in
living standards within China over the past 20 years has not
reached the point on an inverted Kuznet curve whereby environmental
degradation is reversed through heightened focus on, and investment
in, ways to build environmental capital.
China's environmental record makes alarming reading. It has 16 of
the world's 20 most polluted cities by air quality indicators, all
seven major river basins are polluted - many to a 'serious' level.
Current estimates put the economic impact of environmental
degradation at around 5.8 per cent of GDP. If factored into the
economic account, this would reduce China's growth by over
half.
These indicators act as a warning for the current low valuation
levels placed on environmental services. Historically China
has always had problems with water. Climate change could alter
rainfall patterns, destroy the value of the three gorges dam
project and ripple-through to affect food production and
potable water causing, social unrest and flooding.
Drought
Large parts of China, particularly the heavily populated
northeast, are arid with large areas given over to deserts.
While the changes to rainfall patterns may positively affect
certain areas, others will suffer from increased droughts similar
to that of last year.
Flooding
Much of China's vast population live on major fertile flood plains
between the Yangtze and Huang He (Yellow) Rivers. These are
prone to disastrous flooding episodes, for example last year some
200 million people have been affected by storms with an economic
cost in the region of £3.5 billion. According to Chinese
climate change scientists, climate change is leading to more
intense storms.
The shrinking of the No 1 Glacier, on Tianshan Mountain, in
Northwest China's Xingjian Uygur Autonomous Region, was recently
reported by China Daily. Environmentalists expect that the
impact of the glacial melt will include floods and landslides but
will also reduce the freshwater supplies at lower levels due to
changes to the glacial runoff. This impacts not only China, with
its Yangtze and Huang He Rivers, but also its neighbours with the
Mekong, the Gangees, the Bharmaputra, the Indus, and the Irawaddy
feeding from the shrinking glaciers of the Himalayas. The
consequences of such changes are unknown.
Society
Perhaps the pillar to which the Chinese government is most
sensitive is the extent of social unrest and disharmony - here we
mention broad trends resulting from climate change which are likely
deeply impact society.
Environmental refugee-ism
A social refugee is someone fleeing poor or worsening,
environmental conditions. With its huge population even
relatively small climate change influences could cause massive
relocations. Since such movement is currently controlled by the
government in order to maintain social stability there is a real
risk of upheaval and a loss of central control.
UN researchers suggest that climate change is a major factor,
exacerbating the impacts of unsustainable farming methods and
population growth. Flooding displaces many millions each year
e.g. 1.22 million houses ruined in recent flooding in Hubei
province.
Civil unrest
The Chinese Communist Party's Central Committee identified in the
mid 1990's that environmental degradation and pollution represented
one of the four leading causes of social unrest in the China.
Conflict with neighbours
The effects of China's economic growth are also affecting their
neighbours. Pollution is carried over the Pacific to the west coast
of the US and causes acid rain in South Korea and Japan. This
is creating an unwelcome friction between the countries.
Nearly half the world's population lives in river basins which
have their source in China, according to Leo Horn, an adviser to
Britain's Department for International Development. Observers
are increasingly seeing water management as a current and future
'conflict resource' in Asia.
As an economy heavily reliant on fossil fuels to drive its
economic development and with 76 million rural people living in
extreme poverty (a further 120 million live in poverty),
maintaining China's sustainable economic growth will require a
delicate balance between controlling greenhouse gas emissions,
directing international pressure to mitigate the causes of climate
change and avoiding internal social conflict caused as a result of
climate change and other local Chinese pollutions.
In light of the risks to its economic development from climate
change China should take an active role in developing an
international response to this issue.
Avoiding meltdown
Climate change is a global challenge that cannot be overcome by
unilateral action. We believe that China faces difficult
decisions to ensure that it achieves its goals of creating a
harmonious society whilst maintaining economic development in the
light of the new-found global awareness of the issue.
China has argued that the atmospheric stock of greenhouse gases
resulting from the industrialisation of the West has resulted in
current climate change. As long as the USA postpones action,
so can China - in effect a prisoner's dilemma scenario.
If China is seen as an international free rider with respect to
greenhouse gas pollution, it faces either increasing pressure from
the rest of the world as the impacts of climate change become more
apparent, or risks assisting a 'tragedy of the commons' on an
unprecedented and global scale with associated internal and
external tensions.
Regardless of whether the causes of climate change are of national
or international origin, the impacts have the potential to create
social disruption in China which could spiral out of control if
food shortages, flooding or water shortages occur.
In anticipation of almost certain international and internal
pressures we believe that China should adopt a holistic,
anticipatory, long term strategy to tackle potential problems. The
following recommendations make up a high-level change
programme:
1. Creating internal cohesion
Identify opportunities & threats
China's leaders have recognised that climate change is a
fundamental threat, but they must balance it against sustained
economic growth. There is a need to recognise that a low-carbon
economy can provides a future compromise and opportunity. Signs of
this recognition exist in new policies being enacted.
Create an empowered group
The structure of China's governmental departments and the
interdisciplinary nature of the challenge mean that a new,
empowered cross-functional group is required to centrally direct
activities. Members of the group need to have significant political
capital, power and skill in order to drive changes through. The
existing Office of National Coordination Committee on Climate
Change may provide the correct platform, but it needs the correct
individuals. That demands support from the highest level of
authority within the Chinese Communist Party and requires balancing
short-run economic development against long term greenhouse gas
emissions and local environmental changes resulting from climate
change.
Create a change programme
This needs to include a comprehensive, realistically achievable,
low carbon energy strategy with supporting legal framework. A
centrally controlled committee would then be able to implement the
envisioned future energy mix as well as the necessary incentives
and disincentives to force economic actors in the planned
direction. Such a programme would need to be included in the five
year planning process. Adopting a market-based energy price would
enable the cost of carbon to be internalised thereby providing
significant incentives towards cleaner energy production and
greater energy conservation. Penalties for those who contravene the
laws need to be rigorously enforced, correcting the current lack of
prosecutions related to the existing environmental
legislation
2. Identifying early opportunities to demonstrate success
Focus on energy efficiency
Initial focus on driving greater energy efficiency is
needed. According to consultants McKinsey, massive benefits
exist for developing countries such as China to capture improving
energy efficiency. China, as the world's industrial centre,
suffers from an energy crisis which is exacerbated by poor energy
performance. A roll out of 600 dirty Coal-fired power
stations over the next ten years whilst cheap is inefficient.
Increasing the upfront capital cost is required to capture
significant benefits over the lifetime of new capital equipment.
For a country with massive current account and trade balance
surpluses, wise investment now can help provide for a more
efficient future. This means ensuring that old and current power
generation technologies can be adapted or upgraded to cleaner
technology such as the Zhejiang ultra-super critical coal fired
power station.
Post-Kyoto framework
China's success in the Kyoto framework needs to be built upon in
its successor. The government has implied its support for a
move towards a 'contraction & convergence' framework in which
rights to pollute are given on an international per capita basis,
with the pollution rights to tradable between parties. This
would provide an equitable basis for reducing pollution. China
could use its increasing political weight, on behalf of the
developing world, to proactively bring this onto the world
agenda.
China's economic interests are best served by promoting free trade
in global markets for its goods and services as well as tradable
pollution rights and further developing access to energy resources
whilst preserving flexibility in labour and internal commodity
markets.
3. Creating a low-carbon future
Carbon Sequestration
Significant international development in carbon capture and
storage technology is a potential solution to reducing greenhouse
gas emissions. Commercially successful techniques can reduce
China's carbon footprint provided new and old plant can be fitted
with capturing technologies. However an urgent action is required
to plan to allow retrofitting to occur in a cost-effective manner.
This can benefit from mechanisms such as the Clean Development
Mechanism (CDM) of which China is the leading recipient, to bring
in carbon financing into proposals.
Nuclear
Newer, 'safer' technologies such as pebble bed nuclear reactors
may provide another component of the low-carbon energy mix,
although security issues and waste treatment are still
unresolved.
4. Green products
There will be increasing demand for renewable and low-carbon
energy technologies throughout the world. China's competitive
advantage in manufacturing costs can be brought to bear on
technologies such as photo-voltaics, solar thermal and wind
turbines. This would lever China's drive for higher level
engineering for higher engineering standards and low cost-high
quality Chinese brands.
5. Adaptation
Regional
With the majority of Asia's large rivers sourced in the glaciated
Himalayan mountains within Tibet, regional cooperation will be
required to ensure that changing rainfall patterns do not
create conditions of international competition over diminished or
unpredictable water supplies. Similarly, well regulated yet
free markets for goods (e.g. food) and services (e.g. engineering)
can help the region adapt to different climactic conditions.
International
Continued, constructive engagement with the international
community will be required to capture benefits and efficiencies as
policies and mechanisms begin switching to adaptive needs.
Summary
China, due to its scale, provides the world with an uncomfortable
case study in how sustainable development may or may not work.
Gaining the economic resources is important in helping the country
to move towards a sustainable trajectory.
Yet economic resources will not be translated into environmental
improvements unless there is political will. Environmental
difficulties are translating into social unrest, and are quickly
moving up the political agenda. Reportedly there are discussions
underway to move the EPA towards ministerial status in order to
give it the clout needed to synchronise economic and environmental
development.
It is important that this goal is achieved, and not just for
China's sake.
This report was undertaken as part of the 2007 Imperial EMBA
study tour to China. Sustain would like to thank the report's
authors for their permission to publish this report.
