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© 2017

The Climate Pivot: How China Became the World’s New Climate Leader

February 27, 2017

BEIJING (City Weekend) - Last December, a thick blanket of smog enveloped Beijing and stayed for a couple of weeks. The pollution shut schools, grounded flights, and sent Chinese social media into a spiral of panic and soul-searching. China’s Minister of Environmental Protection Chen Jining said in a press conference that he “felt guilty” about how pollution disrupted people’s lives.

 

Four years ago, an even thicker layer of smog covered eastern China and was initially met with silence.

 

The smog blanketed a quarter of China’s territory in January 2013. The air quality index (AQI) rose above 750 in Beijing, the worst value on record. People started to get sick. The smog drifted over Japan and as far as California.

 

At the same time, the Chinese Communist Party was rotating its leadership. President Xi Jinping had taken the reins of the party in November 2012. Premier Li Keqiang had promised to make environmental protection a focus of his mandate. The society they had inherited used to write off smog as fog only a few years before, but now it had coined the term “airpocalypse”—and it was going viral.

 

That combination of factors during the winter of 2013 acted as a switch for the Chinese government on the issue of pollution, says Arthur Hanson, a former president of the International Institute for Sustainable Development.

 

In September 2013, the State Council announced the “Air Pollution Prevention Plan,” which reflected a decision by the 18th Party Congress to increase environmental protection.

 

At the same time coal consumption had reached a high-water mark, as all the major sectors feeding into infrastructure and real estate construction—including steel, cement, and power generation—were seeing a peak in demand. The decline in coal consumption in subsequent years reflected China’s economic slowdown.

 

“Most of these sectors in 2012-2013 reached a tipping point and values that we’ll likely not see again,” Li Shuo, senior policy officer for Greenpeace East Asia, tells us. “The issue of environmental protection in general started to get high-level policy and political attention as well. The government put it very, very high on its agenda.”

 

Premier Li Keqiang in March 2014 “declared war” on pollution. Around the same time, the Ministry of Environmental Protection released data showing that only three of 74 major Chinese cities had met the national standard for “fine air quality” in 2013, which means an AQI value between 50 and 100. All three cities were in remote areas, including Lhasa, Tibet’s capital, and an island city south of Shanghai.

 

In November 2014, President Xi and then-U.S. President Barack Obama stood together in Beijing to announce their commitment to mitigating climate change and reaching a successful climate agreement in Paris the following year.

 

In September 2015, in Washington, D.C., the two presidents doubled down on their public commitments. Xi announced from the White House Rose Garden that China would by 2017 launch a national carbon trading market—one of the most ambitious environmental projects to date, according to Josh Margolis, director of environmental markets for the Environmental Defense Fund (EDF)’s China Program.

 

The Paris Agreement, adopted in December 2015 by 195 countries, was the first-ever universal, legally binding global climate deal. It set a target to limit global warming below 2 degrees Celsius above pre-industrial levels. China was seen as one of its strongest backers. In the span of six years since the 2009 United Nations Climate Change Conference in Copenhagen, China had turned from being the climate community’s black sheep into one of its greatest champions.

 

China’s pivot on climate change is pragmatic, experts say.

 

On the one hand, it reflects a philosophical shift from Deng Xiaoping’s attitude in the 1980s (captured in his motto: “Never take the lead—but aim to do something big”) to Xi’s current ambitions of global prominence, Hanson says.

 

“But the leadership on this particular issue is there from strong vested interest that if China can’t do it, it’s going to suffer,” he says. “It has to deal with a built-up accumulation of problems like soil pollution, ground water depletion, and the smog, and it’s going to be a struggle out of this situation.”

 

“There’s a very genuine concern about China’s energy security,” adds Li of Greenpeace. “That provides an incentive to shift away from fossil fuel energies” like natural gas, which is in short supply within China’s borders.

 

Transitioning to a low-carbon economy can also lead to job creation and increased efficiency of industries, Margolis says. As China rebuilds its ancient Silk Road trade route, it will seek to export new green technologies into Asia, Europe, Africa, and Latin America.

 

It was against this background that Donald Trump, a climate change denier, won the U.S. presidential elections last November. He threatened to pull the U.S. out of the Paris Agreement, though later he said he’d keep an open mind about it. At the Marrakech Climate Change Conference in November, international leaders expressed uncertainty about the direction of U.S. climate policy. Xie Zhenhua, China’s top climate negotiator, stressed China’s commitment to both the Paris Agreement and the 2030 Agenda for Sustainable Development, a UN platform that aims to eradicate poverty and promote sustainable development. Just like that, the world started pivoting toward China.

 

“The time has come for China to provide more leadership to the world,” said United Nations Environment Programme (UNEP) Executive Director Erik Solheim during a meeting of the China Council for International Cooperation on Environment and Development (CCICED) in Beijing in December. He warned that multilateral agreements are coming under pressure as some countries are turning inward. “That’s a very dangerous political idea. Only together can we solve global issues such as trade, security, environment, and development. Divided we are in the world very, very weak. Together under Chinese leadership we are very strong.”

 

China starts 2017 on a high note, with Xi opening the World Economic Forum in Davos and speaking to the importance of free global trade. At the same time, environmental protection became an important criterion for assessing China’s progress locally.

 

However, some environmental protection advances appear to be reversing direction. In January, Greenpeace released a report highlighting the increased air pollution in the Beijing area due to a rebound of heavy industry since the spring of 2016.

 

“This effort can be characterized as two steps forward, one step back,” Li says. “It’s probably the most daunting challenge this country has ever faced.”

 

The challenge has broad implications, both within and beyond China’s borders.

The Bet on Carbon Trading and Renewable Energy

 

At Zhang Yi’s office in east Beijing, his department is the only one that has a coffee machine, along with the ubiquitous Chinese tea sets. That’s because most of the people that Zhang leads have studied or lived abroad and picked up the habit of drinking coffee. His department of about 20 people, part of the China Building Material Certification Group, monitors and evaluates emissions reports from companies involved in Beijing’s pilot carbon trading market.

 

China has launched seven such pilots since June 2013 in the cities of Beijing, Shanghai, Tianjin, Shenzhen, Chongqing and the provinces of Hubei and Guangdong. Their role is to serve as policy laboratories, says Margolis of EDF, a New York-based nonprofit that advises the Chinese government on setting up the national carbon market.

 

The national carbon market, which is slated to launch by the end of this year, will be the largest such project in the world. Carbon markets aim to reduce a country or a region’s carbon dioxide emissions by capping the emissions of every enterprise enrolled in the market. Companies can trade carbon credits and should theoretically be incentivized to upgrade their technology so that they consume less and cleaner energy. Currently, the European Union has the world’s largest carbon market, with a cap that was set around 2 billion tons of carbon dioxide in 2013, reduced by a certain percentage every year until 2020. China’s carbon market will be twice as big, with an annual cap of 4 to 5 billion tons of carbon dioxide. Such systems also operate in California and northeastern U.S., as well as New Zealand and the other countries.

 

The liquidity of China’s pilot markets has fluctuated, and prices have plunged to less than $1 per ton of carbon dioxide. An ideal price would be $29 to $44 per ton, according to officials. Corruption and cooked data are also taking their toll on the market.

 

“It’s fake data and fake reports. Just like a fake product on Taobao,” said Ding Ying, managing director of Bright Carbon Assets Management, a carbon market broker and institutional investor for emission reduction projects.

Ding has worked in China’s environmental sector for more than a decade. She has experienced the boom created by the Clean Development Mechanism (CDM), an international exchange established in 2005 following the Kyoto Protocol to allow industrial countries to buy emission reduction credits from poorer countries. China sold billions of such credits, earned from disposing of a highly pollutant gas called HFC-23. When the E.U. banned such trading in 2011, thousands of Chinese environmental consultants, Ding included, lost their jobs.

 

But she is optimistic about China’s new carbon trading experiment: “I think the Chinese government is quite serious about this,” she tells us. Once the government fixes the data transparency issues, carbon trading could be successful, she said.

 

The government has yet to set up a system for monitoring and verifying carbon trading. But Zhang says that even at this early stage, he has seen improvements among companies whose emissions reports he verifies.

 

“They become aware” of their energy consumption, he said. “They’ll figure out, ‘OK, now’s the first time I know I’m using this amount of coal, and I’m causing this amount of CO2 emissions. I can make some changes to reduce it.’”

 

Another bet the Chinese government is making is on renewable energy. In 2016, China was the world’s largest investor in renewable energy and employed more than 40 percent of the sector’s worldwide workforce. It is currently building the world’s largest solar farm, in Qinghai province, and the world’s largest wind farm, in Gansu province.

However, coal still makes up 64 percent of China’s energy mix. And much of the clean energy produced last year was wasted because electricity from coal is prioritized over that from renewable sources. In the first half of 2016, 21 percent of China’s wind power was wasted and 12 percent of solar power in northern China was curtailed, according to the World Resources Institute.

 

At the public relations level, the government is promoting the concept of “ecological civilization,” which has been billed as sustainable development with Chinese characteristics. Ecological civilization, according to China’s Minister of Environmental Protection, is sustainable development as formulated in the policies and statements of the Chinese Communist Party and should therefore be adopted as a value by society and all government officials.

 

As China’s GDP growth slows, the government is pushing ecological civilization as a form of growth that’s smaller in quantity and better in quality. In January, the government announced that for the first time environmental protection will carry more weight than GDP growth in the assessment of local officials.

 

“We’re not blindly pursuing GDP anymore,” Vice Premier Zhang Gaoli said during the China Council meeting in December. “We need the GDP performance, but we need a better ecological performance as well.”

 

A Green Silk Road

 

China is also using clean energy as a vehicle for foreign investment, driving down the cost of renewable energy and establishing itself as a leader among developing countries in the process.

 

The impact of China’s export of clean affordable energy into Africa, Southeast Asia, and Latin America could be enormous in the future development of these regions.

 

“Throughout history developed countries have achieved the industrialization and modernization of their economies with a very high environmental sacrifice,” said Zou Ji, deputy director of the National Center for Climate Change Strategy and International Cooperation within the National Development and Reform Commission (NDRC) during the China Council meeting. “During the second wave of the industrialization, China and some other emerging economies repeated the models of industrialized countries.” In the upcoming third wave of industrialization, which is expected to take place in Africa, Southeast Asia, South Asia, and Latin America, “we could use a lower environmental cost and a lower carbon approach to develop the economy, which is unprecedented.”

 

In 2016, China increased its foreign investment in renewables by 60 percent to reach a record $32 billion, according to the Institute for Energy Economics and Financial Analysis. That included 11 new overseas investment deals worth more than $1 billion each. China also poured money into the BRICS Development Bank, which in 2016 approved its first round of loans, all for clean energy projects.

 

Meanwhile, the average price of solar panels in China dropped about 30 percent last year. There are remote islands in Indonesia, for example, which have received electricity for the first time, thanks to joint Chinese investment in affordable clean energy.

 

China is planning its future foreign investment along two major initiatives: One Belt One Road (OBOR), which entails infrastructure and technology investments along the ancient Silk Road trade route through Asia, Europe, and northern Africa and South-South Cooperation, a UN framework that encourages joint projects among countries in the Global South.

 

Chinese officials have stressed that both OBOR and South-South Cooperation projects must be “green.”

 

To ensure that, the government has promised to impose strict environmental protection rules on Chinese companies that want to invest abroad and to prevent them from exporting polluting technologies. The reality, so far, is different. For example, almost all motorcycles imported into Africa from China are pollution-heavy two-stroke engine bikes, though China’s own residents use more efficient electric bikes. And in Peru, Chinese-led mining projects have come under fire for breaking environmental and social responsibility standards, which sometimes led to projects being paralyzed.

 

Changes need to happen on both sides. Most businesspeople from southern countries want to attract Chinese investment but aren’t interested in developing green projects, says John Forgach, a Brazilian businessman with decades of experience in forestry and green banking.

 

One development theory posits that if the world is led to pursue a green economic model, that could help mitigate climate change and solve global poverty in the process. As seen in Davos last month, China is willing to take on that leadership just as the U.S. under Trump is ceding it.

 

China is juggling this new leadership role with still-nascent progress at reducing pollution domestically: As of now, air quality targets the government set for 2017 will not be met, at least not in Beijing, says Li of Greenpeace.

 

Yet many in the international climate community are enthusiastic about China’s role in maintaining momentum for climate action, which started with the Paris Agreement and should continue with its overseas investments.

 

“If we lose momentum now, it’s going to be hard to generate again,” says Hanson of the International Institute for Sustainable Development. “It’s a war against deeply entrenched ideals and vested interests of one sort or another […] Because once these things are mobilized, once the price of solar and wind energy gets down, once we have smart grids in place for electricity distribution, the job is going to be that much easier. That’s the snowball effect.”

 

 

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