Latest Articles by Hu Angang

Green development: the inevitable choice for China (part one)

Angang Hu — Mon, 26 Jun 2006 15:23:00 +0000

China’s rise is a reality, but now a green development strategy is the only way forward, says Hu Angang.

The last two hundred years have seen many shocks for China. The world’s biggest economic power at the beginning of the 19th Century, with an economic aggregate at 33% of the world’s total, China quickly declined to only 5% by the mid 20th century. The decline was not arrested until 1950 and industrialisation and modernisation began from a very low economic level. From 1978, China’s economy began to take off, generating the biggest economic miracle in human history and achieving record breaking growth and poverty reduction. Today, China is already the world’s second largest power in terms of comprehensive national power and, according to PPP (purchasing power parity) calculation, is now second only to the United States and predicted by the OECD to overtake the US by 2030, thus becoming the world’s biggest economic power again (See Table 1). For China, national reinvigoration is no longer a dream. The rise of China is a living reality.

The rise of China has aroused great concern throughout the world. Most people in the world hold that China’s development will make a positive contribution. But some also claim that China’s growth is a threat. I think the rise of China will provide the world with opportunities rather than threats and that the whole world will benefit from China’s development. In fact, over the past 20 years, China has already made a tremendous contribution to global growth and poverty reduction. China’s future development will mean a greater contribution still. But the prerequisite is that China’s growth must be grounded in its true national conditions and follow the right development path. I think that China should rise both peacefully and along the path of green development. Only by sticking to a green development strategy and shifting the growth model to a green development path, is it possible for China to realise its historic rise. Table 1 Proportion of China’s GDP in the World’s Total

Source：Angus Maddison, The World Economy: A Millennial Perspective, OECD: Paris, 2001

China’s resources, environment and the loss of natural assets

China abounds in natural resources. But on a per capita basis, it is a resource poor country. According to the World Bank’s 1997 evaluation, among the big countries whose data are available, China’s natural capital was next only to the United States and India. But on a per capita basis, it ranks at only 2670 US dollars, slightly higher than Japan (2300 dollars), 68% that of India, 64% that of Germany, 54% that of Britain, 33% that of France, 16% that of the United States, and 7% that of Australia. China’s agricultural land is 75% of its natural capital, second to India in total value; energy and mineral resources are 16% , with a total value next only to the United States. These two items together form the main part of China’s natural capital. But environmental natural resources are scarce. The value of forest resources, timber, pasture and protected zones in the United States is respectively, 2.7 times, 4.5 times, 5.4 times and 10.8 times that of China. (See Table 2)

China has big natural capital reserves but it is a small country on a per capita basis and the quality of its capital is poor. The contradiction between population and resources has always been significant in China’s productivity and economic development.

Table2 Natural Capital in Different Countries（1994）

Notes: Total Natural Capital = Natural Capital Per Capita × Total Population

Source: the figure for per capita natural capital comes from Expand the Measure of Wealth: Indicators of Environmentally Sustainable Development (World Bank, 1997); the figure for total population comes from World Development Indicators 2000 CD-ROM

China has already overtaken the United States in industrial and agricultural production to become the world’s largest “manufacturing factory”. As a result of economic reform and opening up, annual industrial added value growth averaged 11.5% in 1978-2004, more than two percentage points higher than GDP growth. If calculated by PPP, China’s industrial added value rose from 4% of the world’s total in 1980 to 22.0% in 2003, overtaking the US (16.5%) to become the world’s number one. China has already become number one in the output of iron and steel, coal, cement, chemical fertiliser and television sets. But industrialisation and urbanisation have put great pressure on water, land, energy, raw materials and other natural resources. The contradiction between population and resources has become even more prominent. China’s resources are lower than the world average per capita, yet its losses in natural resources are the biggest in the world. China is the world’s largest consumer of water (15.4% of the world’s total); China is the world’s leading emitter of water pollution (3 times that of the United States). It ranks second in the world in energy consumption and CO2 discharge and is likely to overtake the United States to become the world’s No. 1. With rapid industrialisation, the demand for natural resources and raw materials has risen rapidly and that will sharpen the contradictions between resources supply and demand even more.

The tensions between population and resources have caused tremendous damage to ecological and environmental systems. China’s ecological environment is deteriorating in its integral functions and its capacity to resist natural adversity is weakening. At the same time, ecological deterioration is growing in scope, dimension and scale of the damage. Despite restoration efforts, the damage continues. When ecological protection is applied to one area, damage is caused elsewhere and the controls are unable to offset the damage. The failing environment can be seen in declining forest quality, grassland degradation, accelerated desertification, soil erosion, serious water loss, worsening of water ecology, vast pollution in agricultural and rural areas, serious food safety problems, alien species invasion, a sharp reduction in biodiversity and the loss of genetic resources. The situation brooks no optimism.

China’s ecological security is threatened. The large scale consumption has also caused grave environmental pollution, most seriously in pollution by rural industries and water and air pollution in cities. In a word, the rapid economic growth has exerted tremendous pressure on the environment and the ecological situation is very grave.

China’s current national economic accounting system, which is based on nominal GDP, has severe flaws: it does not count the cost of natural capital. Instead, it puts the values of overexploited resources and energy, especially non-renewable resources, into the GDP as additional value. This has in fact exaggerated economic income at the expense of rapid consumption of natural resources and severe deterioration of the environment, and will inevitably lead to a great reduction of real national welfare. It is, therefore, necessary to amend the current national accounting system (Kunte et al, 1998; Hamilton and Clements, 1998).

In 1997, the World Bank put forward the concept and calculation method of genuine domestic savings – a country’s real savings rate – after the depletion of natural resources (especially non-renewable resources) and deduction of the loss caused by environment pollution. The formal model of the genuine savings is given by (Hamilton and Clements, 1999),

G=GNP-C-δK-n(R-g)-σ(e-d)+m.

Here, GNP-C is traditional gross savings, including foreign savings; GNP is gross national product, C is consumption; GNP-C-δK is traditional net savings, δK is the depreciation rate of produced assets; -n(R-g) is resource depletion, S=-(R-g) is resource stocks. S grow by an amount g, are depleted by extraction R and are assumed to be costless to produce, n is net marginal resource rental rate; -σ(e-d) is pollution emission costs, X=-(e-d) is the growth of pollutants accumulated in a stock X where d is the quantity of natural dissipation of the pollution stock, σ is marginal social cost of pollution; m is investment in human capital (current education expenditures), which does not depreciate (and can be considered as a form of disembodied knowledge).

In 2002, the World Bank estimated the natural resources loss in a number of countries since 1970, from which, in China’s case (Table 3), we see that China’s high-speed economic development over the past 20 years has been an uninterrupted process of over exploitation of natural assets. The cost not only includes losses due to pollution but also loss and exhaustion of natural, mineral, forest and water resources. Natural resource depletion is measured by the rent of exploiting and procuring natural resources. The rent is the difference of producer’s price (calculated by the international price) and total producer’s costs, including depreciation of fixed capital, and return on capital. Clearly rational exploitation of natural resources is necessary to promote economic growth. However, if the resources rent is too low, it spells over exploitation. If the rent is not reinvested – in human resources, for instance – but goes into consumption, it is “irrational.” Pollution loss mostly refers to CO2 pollution the cost of which, according to Fankhauser (1995) suggested should be calculated at 20 US dollars. This does not include air, water and other pollution. According to the World Bank, 39% of the Middle East’s gross wealth derives from natural capital, mostly oil and natural gas. After taking out natural resources depletion, the genuine savings rates in these countries are all negative (see Table 1).

Table 3 Natural Capital and Genuine Domestic Savings (% of GDP)

Notes: Natural Capital Loss of 2003 also includes Particle Emission Damages（1% of GDP）

Source: The World Bank, World Development Database, 2002, 2005.

According to research done by Sachs and Warner at Harvard (1997), ever since the 1970s, the economic growth rate of resource-rich countries has been much lower than that of resource poor ones. The World Bank’s 1997 study shows that countries relying heavily on natural resources suffer greater loss, and the genuine domestic savings rate is low or even negative.

The proportion of China’s loss of natural capital in GDP is shocking. During the early 1970s, the loss accounted for 6-7% of GDP. Between the late 1970s and 1980s, it peaked at 30% of GDP. After that, it began to drop, reaching about 15% in the late 1980s. Economic development in the early days of reform carried a heavy cost in natural resources and the environment. In the 1990s, the loss began to fall decreasing by half, up to 1995, to 7.8%. During the late 1990s, this downward trend was quite distinct, reaching a low of 4.53% in 1998 (See Figure 1). The changing trend of natural capital loss reflects that China has experienced a big turnaround during the past 20 years, for example, from “destruction” to “protection”, from pollution to control, from resources overexploitation to resources replenishment and from tree felling to tree planting.

Figure 1 China’s Natural Capital Cost as Share of GDP (%)

Source: World Bank, World Development Database, 2002, 2005.

The genuine domestic savings rate is greatly discounted for the loss of natural resources. It is reflected in the trend of genuine domestic savings rate, which gradually rises after a sharp fall. If natural capital loss is deducted, the net domestic savings rate appears to rise after the 1990s and the two curves tend to converge (see Figure 2). Another point that merits attention is that since the “Tenth Five-Year Plan” period, the real domestic savings rate has assumed a downward trend, due to the falling rate of net domestic savings, the exhaustion of energy and the rising losses caused by CO2. After green GDP account adjustment, the net natural assets loss rose by 6.3% in 2003. This shows that the quality of economic growth has dropped. This reversal in economic growth model merits our attention.

Figure 2 Genuine and Net Domestic Saving Rate (% of GDP)

To sum up, in the traditional national economic accounting system, neither high economic growth rate nor high domestic savings rate really reflect the genuine national wealth and the loss of natural resources. Only the new green GDP national economic accounting system can faithfully reflect what it really is. Though there are still some defects in the assessment by the World Bank, it provides us with a clear description of the historical environment and development track China has taken during the past 20 years. It describes the transformation of China’s economic growth mode, its changing trend of natural capital loss as a percentage of GDP, and the international comparison. Thus, it offers a useful reference to expand genuine national wealth, especially to improve the genuine domestic savings rate.

What merits attention is that every time China’s economy and investment is overheated, it touches off massive demand for domestic and international resources and costs a great deal in resource consumption and in environmental pollution. A similar situation appeared in 1993 and 2003. The problem not only reflects the rise in the proportion of loss of natural assets within GDP but also mirrors the rise of the proportion of total loss of natural assets in the world’s total. China overtook the United States to become the country with the biggest natural asset loss and its proportion of loss in the world’s total reached 38.2% by 1993, although it gradually dropped until it reached a quarter of the world’s total. The 2003 economic aggregate of the United States was less than twice the amount of China’s if calculated by PPP, but the natural assets losses sustained by China were more than double that of the United States. (See Figure 3)

Figure 3 Natural Capital Loss as Share of the World (%)

Source: World Bank, World Development Database, 2002, 2005.

Source: The World Bank, World Development Database, 2002, 2005.

Green development: the inevitable choice for China (part two)

Angang Hu — Mon, 26 Jun 2006 17:06:00 +0000

China’s rise is a reality, but now a green development strategy is the only way forward, says Hu Angang.

Green development is the inevitable path

The traditional development strategies of industrialised countries all present two distinct features whether in Europe, the United States or Japan, despite their differing national and development conditions. One is that high-speed growth is sustained by high consumption of resources (especially non-renewable resources); the other is that the high-speed growth is stimulated by high consumption of the means of subsistence. We call this a traditional development model. In view of China’s conditions, it is impossible for China to realise modernisation by following the traditional model. The six principal reasons are:

1. When Europe, the United States and Japan launched industrialisation, they took an active part in international trade and linked themselves with the world market, accumulating industrial capital and opening up the international market through war and colonisation. They relied on the two wheels of industrialisation and international trade to effect economic take-off. China, however, had endured a hundred years of suffering before opening its doors and by then the international market had long been divided up. Its export product mix, principally primary goods, puts it in a very unfavourable position.

2. China’s industrialisation has come very late for China and the initial level is low, with a large gap to bridge with industrialised countries in production technology, development and resource use. Although it enjoys advantages as a later-comer, there are many obstacles.

3. China’s per capita resources were less than a fraction of those of Europe and the United States. It cannot realise modernisation at the cost of high consumption of resources and the means of subsistence.

4. China is a very populous country.

5. It is impossible for China to realise past models of capital accumulation by waging war and plundering resources from other countries, as the industrialised economies did. It must rely on internal reform and development.

6. The limitations of realising economic growth by following the traditional model are increasingly evident.

It is therefore imperative for China to follow a different development strategy. It should follow the non-traditional model best suited to Chinese national conditions, that is, it must establish a less resource-consuming production system and a living system with a proper level of consumption, an economic system with a sustained and stable growth and steadily rising economic efficiency, a social system that ensures social benefit and social equity, an applied technology system with constant innovation, fully absorbing new technologies, new processes and new methods, an international economic system that has close ties with the world market and a system with a rational development and utilisation of resources, that prevents pollution and protects the ecological balance. When we said that “a cat is good, white or black, so long as it can catch mice”, we meant that we can adopt whatever means to ensure economic growth and improve the living standards of the people. The colour of the cat is not important. But our development over the past 20 years is in fact “black development” or “black cat development,” to be more specific. It is characterised by high capital input, low output efficiency, high resource consumption and high pollution. It has sharpened the contradictions between population and resources and between development and environment. Now, the “colour of the cat” has become important. We have to turn “black cat” into “green cat”, shifting from black development to green development.

The UNDP’s “China Human Development Report 2002 -- Making Green Development a Choice” for the first time advanced the idea that China should choose a green development path quite different from the “growth priority” traditional development model that has prevailed for years. The traditional model means “pollution first and control second” and “getting rich first, clearing up later.” It is a very dangerous path that would lead to a steady worsening of the environment and extremely uneven development, victimising the poor population. Green development stresses unified and harmonious development of the economy and environment, a positive path of people-centered sustainable development. It is possible for China not to repeat the high resource consumption and high pollution discharge process adopted by many western countries and go straight to the stage of “green development”. It is not necessary to wait for a fairly high income to be achieved to implement the “green development” strategy. The core of 21st century world development is human development, which has “green development” as its key theme. China has to shift from the traditional “black development” to “green development”. We hold that the green development model is identical to and reinforces the scientific development approach advanced by the new Chinese leadership.

China is in a good position to choose green development:

1. Economic restructuring of the economy, especially energy restructuring, is favorable for improving energy efficiency, lowering the unit output and pollution discharge and developing energy-efficient or non-energy intensive service and information industries.

2. Market-oriented reform has deregulated the energy price and introduced competition mechanisms, making it favorable for improving energy efficiency, reducing government subsidies to loss-making enterprises in production, transportation, storage and energy subsidies to urban residents.

3. Urban development has enabled more peasants to move to the cities, thus easing the pressure on the rural environment and using the scale effect of cities to lower production and consumption costs and reaping the benefits of efficiencies of scale in such urban public utilities as heating, water, gas, electricity and sewage treatment.

4. Technological innovation has made it possible to use all kinds of energy efficient and environmentally-friendly technologies, communications and transportation technologies, IT and biotechnology.

5. Economic globalisation has made it possible to utilise domestic and international resources and markets fully and to attract foreign direct investment. Open trading may provide the incentive to use new technologies and adopt clean technologies and green production. This indicates that developing countries can achieve fairly high economic growth and quality of environment before they attain the income level of developed countries.

6. An improved governance structure will help to raise the quality of government. For instance, it is necessary to introduce a mixed government model featuring both centralisation and decentralisation of power, to introduce the rule of law instead of the rule of man and establish a system complete with legislature, law enforcement and supervision; to establish a market-friendly environmental protection incentive system, reform the current environmental protection system to raise management efficiency and encourage public participation, disclose environmental protection information and public policies, to eliminate poverty and seek social justice and social equity.

Green development does not only represent a change in China’s development model but is also an important component of the strategy for the rise of the Chinese nation. In a word, we hold that China must opt for a green development model best suited to its national conditions, making full use of its rich human resources and effective and economical use of scarce natural resources, and import and develop knowledge resources in a big way. This is a non-traditional modernisation development model that conforms to Chinese national conditions. It is a people-centered scientific development approach; it is a new road to industrialisation; it is a path best suited to Chinese national conditions.

How to choose green development

Green development is a model that will sustain China’s rising strategy. China must shift its economic development model from traditional “black development” to “green development”. The general goal of the future green development should be established on a resource-efficient and environment-friendly society in which man and nature live in harmony. Specifically, it should include:

1. Effective control of population growth;

2. Raising the per capita income level and improve the equity index of income distribution and reducing poverty;

3. Increased efficiency of water use, effective water pollution control and the restoration of the deteriorating water ecology;

4. Strict protection of arable land and guaranteeing of the amount of arable land under cultivation;

5. A sharp rise in the utilisation rate of energy and a further lowering of the proportion of coal in the energy consumption structure;

6. Reduction of the CO2 discharge and effective control of air pollution in cities;

7. Further improvement of the ecological system, an increase in the forested area and expansion of the standing stock of timber;

8. Restoration of degraded grassland and expanded protection of water and soil from loss and erosion;

9. Strengthening the national safety net against natural disasters and establishing an emergency response and rescue system.

The green development choice requires green reform, which should serve as the cornerstone and institutional foundation for green development. By green reform, we mean to enable people to “enjoy more equally the benefits brought about by economic reform based on more active environmental policy and social partnership”. In other words, it is based on the market and equity principle and on good governance and effective management. The UNDP has put forward four recommendations:

1. To take advantage of the market mechanism to put forward integrated environmental and economic policies;

2. To establish a cooperative and interactive mechanism between government and the society at large to take common action to protect the environment. This could be realised by institutional innovation;

3. To develop green industries and green consumption;

4. To take the environment into full account in technical innovation.

China can make the green development choice while income levels are fairly low and it can adopt innovative low-cost strategies to limit pollution and sharply lower pollution density. China must introduce green reform and develop green industries and consumption by making full use of international resources and market mechanisms in partnership with the public, promote environment-friendly technical innovation, make extensive use of clean production technology and develop the recycling economy. The future of China’s “green development” has to experience the following process of transition:

1. Transition from “black cities” to “green cities”. It is necessary to clean the city environment, with emphasis on the control of water and air pollution and the harmless disposal of refuse. Different types of cities should have clear and different pollution discharge standards and a deadline for attaining the prescribed environmental standards. It is necessary to levy pollution tax when the time is ripe as a local surcharge. Cities must be encouraged to use clean coal technology and high-sulphur coal must be banned, the rate of centralised heat supply capacity and the use of fuel gas should be raised. Compulsory harmless disposal of city refuse and refuse classification must be imposed within a prescribed time limit.

2. Transition from “black energy” to “green energy”. It is imperative to make full use of both domestic and international energy, technology and markets by increasing the import of energy, especially clean energy, energy-efficient technology and environmental protection technology. We must develop hydropower and reduce the demand and use of coal, import natural gas and LNG to replace coal, raise the utilisation rate and penetration rate of natural gas, introduce a zero-VAT policy to encourage the use of solar energy, wind energy, tidal wave energy and other new forms of energy.

3. Transition from “black industry” to “green industry”. China should restructure its industry and actively develop labor-intensive and environment-friendly industries and services. It should continue to shut down backward, inefficient and polluting small enterprises and eliminate backward production capacities to optimise the industrial structure. Taxation, environment certification, environmental protection marks and other market means will encourage enterprises to adopt clean production technology. Foreign investors, foreign capital enterprises and private capital should be encouraged to invest in environmental pollution control and ecological restoration.

4. Transition from “black agriculture” to “green agriculture”. While consolidating ecological restoration achievements, China should emphasise major areas of ecological deterioration and, in line with the functions of different ecological systems, develop diversified and plural agriculture, forestry, horticulture, animal husbandry, breeding and aquatic industry. We should develop green food, green plants, green medicine and other high demand pollution-free agricultural products with high added value.

5. Transition from “black trade” to “green trade”. The government should support domestic enterprises to research and develop green products, actively promote green product certification according to international standards and advocate green consumption. The export of agricultural products, processed agricultural products and high-tech products that meet international standards and enjoy a competitive edge internationally should be developed. The country should open its environmental protection market and actively encourage multinational corporations to invest in energy and environmental protection industries to make full use of mature foreign pollution control technologies. China should play an active part in the handling of international environmental affairs and pursue bilateral or multi-lateral cooperation in environmental protection.

China must be firm in following the path of green development and make great efforts to bring about the shift in growth model so as to realise a well-off society, with man and nature living in harmony. The path of modernisation taken by China will be not only a “peaceful rise” but a “rise in green development”. China’s contribution to global development will be a “green contribution”.

References

1． Angus Maddison, The World Economy: A Millennial Perspective, OECD: Paris, 2001

2． ARUNDHATI KUNTE, KIRK HAMITON, JOHN DIXON AND MICHAEL CLEMENS, 1998, Estimating National Wealth: Methodology and Results[R]. January, The Environment Department, The World Bank.

3． FANKHAUSER,S ,1995 ,Valuing Climate Change :the Economics of the Greenhouse[M]. London: Earth scan.

4． KIRK HAMILTON and MICHAEL CLEMENS, 1998, Genuine Savings Rates in Developing Countries[M]. August. The Environment Department, The World Bank.

5． SACHS, J. and WARNER, 1995, Natural Resource Abundance and Economic Growth, Development Discussion Paper No. 517a, [M] Harvard Institute for International Development, Harvard University.

6． World Bank, 1997, Expanding the Measure of Wealth: Indicators of Environmentally Sustainable Development[R]. The Environment Department, The World Bank.

7． World Bank, 2002, World Development Indicator CD-ROM

Strengthening Sino-European cooperation

Angang Hu — Wed, 26 Mar 2008 11:06:00 +0000

A report by a UK think-tank says the world’s largest single market and the fastest growing economy can collaborate effectively on climate and energy security. Chinese economist Hu Angang responds.

Climate change is now a global issue and the Chinese government is already expending great efforts to tackle the problem. The government has gradually taken on the obligations commensurate with its status as a large, responsible nation. But China also has to ensure its energy and climate security; achieve good governance in energy and climate policy, and strengthen international cooperation. Sino-European cooperation is an important aspect of this, and needs to be explored intensively. Advancements can be made in the ways the two sides cooperate, and the sectors in which they work together. The extent to which China and Europe cooperate will be an important factor in determining the success or failure of global attempts to tackle climate change.

Government support

Global warming is now an urgent problem and it is imperative for us to act upon it. Climate change poses a threat to the economic development – and the survival – of the human race, and China is one of the countries that may suffer the most. Government determination to act is the most important factor in finding solutions. Carbon emissions will not fall by themselves. A low-carbon economy will not emerge of its own accord. If we want to achieve these goals and reduce our energy consumption, we need government action. Markets lose their power when faced with externalities, so changes in the system need to be made obligatory. To guarantee energy and climate security, China needs to make a huge transition: the shift from a high-carbon to a low-carbon economy. The highest energy-efficiency standards in the world should be imposed, first in big cities like Beijing and Shanghai, then in smaller cities – and then across the whole country. Among other measures, the government must increase guidance and management of carbon-intensive investments, and extend research in to low-carbon energy sources.

In fact, there is strong political will in China -- from the party and government -- to achieve scientific green development and establish a harmonious society. Tackling climate change and achieving energy and climate security are in themselves key aspects of China’s “scientific outlook on development”. As Changing Climates, a report from UK think-tank Chatham House, states: “China’s strategic aspiration towards an innovation-based economy with science-based development – as enunciated at the 17th Party Congress in October 2007 – is in line with the vision for a low-carbon transition. A focus on developing and deploying advanced climate technologies is also consistent with China’s aspiration to move up the global value chain.” (See the full report here [pdf]).

Decision-making in China since the beginning of the reform era shows that political will can be effective. As long as the party and government give their strong support and the policy is appropriate, a daunting challenge can become a catalyst for domestic reform and socio-economic transition. I am fully confident that in the process of guaranteeing its energy and climate security, China can make the change from a high to a low-carbon economy, and break the chains of carbon-intensive investment.

Combining responsibility with ability

China is a large country and is gradually taking on the responsibilities associated with this status. It is showing that it has both the ability to tackle climate change and the willingness to act.

China’s burden of responsibility stems from a number of factors. First, China is a permanent member of the UN Security Council, and as such is duty- bound to act on global challenges. In willingly taking on its responsibility to act on public affairs, China is active, not passive; the country is cooperative, not resistant. China should take advantage of its participation in international climate negotiations. Through its participation and willingness to follow regulations, China can alter its own model of development, reduce emissions and improve governance on energy conservation and emissions reductions.

The world is looking at China with great anticipation. As the Chatham House report says, “Choices made in China matter. China’s immediate decisions about its infrastructure needs and patterns of consumption will have a decisive impact on global efforts to stabilise greenhouse gas emissions, and the feasible rate of reduction to sustainable levels.” If China does not actively participate to reduce emissions, it will become a target of widespread criticism. China is more than capable of turning the challenge in to an opportunity. The country has the ability to create the world’s largest carbon exchange and green technology market. China could become the world’s largest low-carbon economy and the biggest exporter of low-carbon products.

China also has the capacity to invest in tackling climate change. A report from the IPCC states that if every country contributed just 0.12% of its GDP, we could arrest the trend of global warming from 2015 onwards. A UNDP report estimates that in order to stop carbon emissions reaching critical levels, 1.6% of global GDP would have to be contributed every year until 2030. Developed nations already have the funds to invest in emissions reduction technology, and should immediately reduce their emissions. Developing countries are as yet unable to take on this responsibility. According to China’s plan, the country’s energy consumption per unit of GDP will continue to fall after 2020, and emissions of the main pollutants will fall by 10% to 20%. From 2030, China’s total energy consumption may also begin to decline. Energy consumption per unit produced will be cut by half; national water consumption will remain constant; the proportion of total water consumption used for agriculture will fall; investment in environmental protection will go up from 1.3% of GDP to 2.5%; emissions of main pollutants will be reduced by at least one-third; and forest coverage will be increased by between 23% and 24%.

China has the ability to slow and to control climate change. The country can achieve the target of 20% emissions reductions by 2050, and exceed the target of 1.3% of GDP to be invested in tackling global warming. China can become a leader in promoting climate-change policies, and thereby help to build a harmonious world.

Cooperation on energy and climate security

Strengthening international cooperation on climate change and achieving good governance on energy and climate is an important strategy for China. In my “state of the nation” report from July 2007, entitled “How China Can Handle Global Warming”, I said: “In a globalised world, it is not enough for just one country to tackle global issues. We need international cooperation to solve these problems. This can take the form of political agreements, cooperation on scientific research, technology, markets and development of human resources. China is willing to – and already does – actively participate in global action on climate change.” Cooperation with the European Union (EU) is an important part. “China and the EU are economically entwined,” says the Chatham House report. “China is the EU’s largest trading partner. The EU is China’s second largest. The EU is also China’s largest supplier of technologies, foreign direct investment (FDI) and services.” Close economic integration has laid a solid foundation for Sino-European cooperation on energy and climate security.

There is a wide scope for such cooperation, specifically in the following areas:

• Strengthening cooperation and taking on a common responsibility for dealing with climate change. Communication can be improved in the Security Council and at international conferences. This will help us to understand each other’s positions and push for improvements in climate action and energy consumption structures.

• Strengthening agreements and setting international regulations on the environment and energy consumption. In the area of international trade, energy and climate security can be improved. The development of green industries can be promoted on both sides.

• Sharing environmental and energy conservation technologies and investing in key energy technologies. The EU ought to increase technology transfer to China and help to reduce its energy consumption and emissions.

• Establishing a Low Carbon Special Economic Zone in China. China is in the process of defining specialised functional zones in order to optimise production structures. I believe optimisation of energy consumption is the most crucial factor. The Low Carbon Special Economic Zone should not be limited to attracting investment on research and high-end production. It should also have an optimal energy consumption structure and conserve energy. The Low Carbon Special Economic Zone could be implemented in one of the current functional zones. It would be required to meet strict environmental standards. The zone could become a powerful model for the promotion of energy conservation and emissions reductions across China.

The critical state of energy and climate security poses a formidable challenge to both China and the EU. But at the same time, it provides an opportunity for cooperation. China can learn a lot from the EU in energy conservation, guaranteeing energy supplies, and climate security. But China is also a potential market. China has a strong political will and interest in the energy and climate fields, and there is broad scope for closer Sino-European cooperation. Traditional methods may no longer be effective. Political and business leaders from both sides need to be brave enough to take measures that will tether the horse before it bolts. Close cooperation will put both Europe and China at the forefront of the energy and climate challenges.

Hu Angang is professor of Public Policy & Management at Tsinghua University and director of the influential policy think tank, the Center for China Studies, Chinese Academy of Sciences/Tsinghua University. He did his post-doctoral research at Yale University and was a visiting professor at Harvard University and Keio University, Japan.

Homepage photo by Namtso via Flickr

Fighting climate change: China's contribution (part one)

Angang Hu, Guan Qingyou — Fri, 10 Oct 2008 23:12:00 +0000

Tony Blair’s report stresses the urgency for all countries to help control CO2 emissions. In the first of two articles, Hu Angang and Guan Qingyou discuss what this means for their country.

China, with its huge population, fragile environment and frequent natural disasters, is one of the biggest victims of climate change. Consequently, as a permanent member of the United Nations Security Council and as one of the most powerful developing nations, China has a responsibility in playing a major role in the global fight against climate change.

On June 27, a report by the former prime minister of the United Kingdom, Tony Blair, entitled Breaking the Climate Deadlock: A Global Deal for Our Low-Carbon Future, was published in Tokyo. Blair’s report provides a comprehensive survey of the issues that leaders need to address over the next eighteen months, along with a number of significant ideas that have come out of climate negotiations. Blair is well aware that simple persuasion cannot overcome political differences or conflicts of interest. A solution will require powerful evidence in order to convince national leaders to reach a consensus agreement.

The report provides important reference material for China’s response to climate change and future participation in international climate-change negotiations. What responsibilities and duties should China undertake in order to protect the basic and common interests of both the nation and humanity as a whole? What should China’s basic theory and political stance be? China believes that it must play a positive and leading role in accepting emissions reductions obligations by untying the knots of the “Prisoner’s Dilemma” and by making a contribution to global society.

Between 70% and 80% of the stock of carbon in the atmosphere has been released by developed nations. According to the World Resources Institute, developed nations account for seven tonnes of CO2 for every ten released since the start of industrialisation. The historical average for CO2 emissions per capita for the United Kingdom and the United States is 1,100 tonnes. The equivalent statistics for China and India are 66 tonnes and 23 tonnes per capita, respectively.

Regardless, climate change is our common problem and not that of individual countries. Emissions produced in New York or Shanghai have equal impacts on the planet. Because the climate is common property, no solitary nation can provide an effective unilateral response to climate change. Relying on the United Nations alone is not enough to produce a consensus on a universally accepted global climate change framework. The Kyoto Protocol lacks the necessary sanctions and incentives to be effective, and thus has only a limited impact on a small number of developed nations.

In these circumstances, the public good can only be achieved if the major nations (the developed and large developing countries) reach a consensus in order to establish and strengthen a new global framework for mitigating climate change.

Blair’s report provides many possible solutions for consideration. Blair hopes that G8 nations will band together to take the first steps in setting global long- and mid-term emissions-reduction targets. At the same time, Blair hopes that in the subsequent decades developing nations with emerging markets will increase their “carbon productivity” (the amount of GDP produced per carbon equivalents emitted). Will the upcoming UN climate talks in December 2009 in Copenhagen succeed? Will these talks provide the direction necessary to meet the targets for 2050?

Appropriate short-term targets and transition points must be established in order to ensure that developed nations meet their requirements and that developing nations make fair contributions. It is also necessary to establish a series of support mechanisms and organisations to provide for the improvement of these methods as part of an ongoing learning process. We need to determine if the investment, policy decisions and fund transfers promoted by the agreement are adequate to bring the twenty-first century world into a low-carbon economy. This is a hugely complex issue and it will depend upon the leadership at the highest levels – starting with G8.

Currently, the emission of greenhouse gases is concentrated in a small number of countries. The United States accounts for about one fifth of emissions, followed by China, India, Japan and Russia. These five nations alone account for over half of all emissions. According to Blair’s report, to avoid extreme climate risk, all nations should adjust their economic structures and reduce CO2 emissions. The contribution of developed nations alone will not be adequate. Although developed nations leave the deepest carbon footprint and therefore should lead the way in committing to reductions, developing nations should commit to a timetable to institute emission caps and reductions in accordance with their circumstances and ability.

Ultimately, a transition to a low-carbon economy requires unprecedented and coordinated policy measures. The provision of financial and technical support to assist developing nations in dealing with climate change is only one aspect of the task. It is also essential to assist developing nations in bolstering their economic systems and policies in order to meet the challenge of climate change. A global framework for mitigating climate change must provide developing nations with a set of practical policies and systems. But, when all is said and done, developing nations must increase their ability to cope through the transformation of their own economies.

According to an Intergovernmental Panel on Climate Change (IPCC) study on the cost of mitigation, reducing emissions will result in somewhere between a 1% increase and a 5.5% fall in GDP by 2050, which is only a 0.12% reduction in annual GDP growth. This is a tiny amount and practically insignificant when compared with the impact of interest rate changes, inflation and business cycles. The predictions examined were mostly made before the recent increases in energy costs, and hence assumed lower prices than currently exist. Blair’s report, therefore, holds that when the factors cited below are considered, the impact of emissions reductions may seem even smaller.

-- On average, the United States spent about 6% of GDP per year on defence during the cold war (1950-1990).

-- Today, the world spends about 3% of GDP per year on insurance.

-- The estimated global cost of the US sub-prime mortgage crisis for the financial sector is potentially up to 2% of GDP.

-- The estimated global cost of oil increasing from US$40 billion to US$130 billion from June 2004 to June 2008 was about 5% of GDP.

Assuming normal economic growth, the average per-capita GDP will rise from US$5,900 to US$15,900 between now and 2050. With a shift to a low-carbon economy, that figure will be between US$15,000 and US$15,600. Even with a shift to a low-carbon economy, average incomes will still increase 2.5 times.

According to calculations by the International Monetary Fund, genuine efforts to reduce climate change could have a rapid and widespread macroeconomic impact. But a carbon price, which starts low and increases gradually, will minimise that cost by spreading it over a longer time period. If impact reduction policies aimed at CO2 concentrations of 550 parts per million (ppm) by 2100 start in 2013, consumption prior to 2040 will drop by only 0.6% in net present values – and global production will still increase 2.3-fold compared with 2007.

According to William R Cline of the Petersen Institute for International Economics and the Centre for Global Development, virtually every nation has been affected by climate change. If developing nations do not play an active role, they will suffer greater losses than even the developed nations, since climate change will have a greater impact on their largely agricultural economies. China’s loss and benefit will both be 7%, meaning that climate change will have a neutral impact on the country. Cline believes that China is interested in reducing emissions.

According to our own preliminary calculations, as China’s potential growth rate falls in coming decades, the average annual cost of reducing emissions will not have a major impact on the economy. Data from Blair’s report show that even if the developing nations switch to low-carbon economies, China’s GDP per capita will expand 6.9 times by 2040, as opposed to 7.2 times if no changes occur. These figures do not take into account the significant benefits to China by emission reductions and a low-carbon economy.

The growth of a low-carbon economy will increase employment, and the transition will involve a significant investment in the creation of both jobs and business opportunities. Currently two million people are employed in the renewable energy sector. In 1998, US$10 billion was invested in environmental protection technology – by 2007 this had increased to US$66 billion. In China it is estimated that the renewable-energy sector employs one million workers with over 60% of these in solar thermal manufacturing and services.

The longer we wait, the higher the costs of reducing emissions will be. According to the [British government’s] Stern Review, ensuring that carbon concentration peaks between 445 ppm and 710 ppm in 2030 will result in a loss of no more than 3.3% of global GDP. If we take action as soon as possible, the impact will be minimised. If existing policies and measures are not improved, global emissions of greenhouse gases will continue to increase in the coming decades. If we do not take action now, the economic and social damage caused by global warming will be greater than that of the Second World War and the Great Depression, as we may lose as much as 5% to 20% of global GDP.

Next: Moving to a green economy

Hu Angang is a professor of public policy and management at Tsinghua University and director of the Centre for China Studies, Chinese Academy of Sciences/Tsinghua University.

Guan Qingyou is a director of Tsinghua University’s Centre for China Studies' Energy and Climate Project. He holds a doctoral degree in economics.

(This work is one of a series, How Can China Meet the Challenge of Climate Change?, completed with funding from Tsinghua University’s School of Public and Policy Management’s Industrial Development and Environmental Protection Centre. In June, the authors attended a meeting with Tony Blair on climate-change trends and China’s low-carbon future, organised by the Chinese People’s Institute of Foreign Affairs and the UK’s Climate Group. A brief commentary on the report prepared by Hu Angang after the dialogue has been passed on to Tony Blair’s office by the Climate Group.)

Homepage photo by sinosplice

Fighting climate change: China’s contribution (part two)

Angang Hu, Guan Qingyou — Wed, 08 Oct 2008 12:20:00 +0000

As a top CO2 producer, the country has a responsibility to reduce emissions. In the second of two articles, Hu Angang and Guan Qingyou discuss how it can -- and must -- respond.

The investment needed to mitigate climate change is smaller than people think. According to the Intergovernmental Panel on Climate Change (IPCC), the cost of halting global warming by 2015 would be equivalent to only about 0.12% of the global annual GDP. A United Nations Development Programme (UNDP) report says preventing carbon emissions from reaching dangerous levels before 2030 will cost 1.6% of the global annual GDP. From these statistics, China definitely has the financial ability to make a long-term investment in stopping climate change.

During China’s Ninth Five-Year Plan (1996-2000), the economic growth rate was 8.6% per year. During this period energy consumption increased by only 1.1% and emissions of major pollutants dropped. But since 2002, the GDP has grown by an average of 10.82% per year, with energy consumption increasing by 11.83% per year. Pollution also has increased. These statistics indicate that the economy is growing too quickly, putting excessive pressure on resources and the environment. The price being paid for growth is too high.

If we assume that average annual GDP growth from 2006 to 2020 will be between 7.5% and 8%, China’s GDP will be 4.65 to 4.98 times the size of the 2000 levels. By 2020, energy consumption would start to decrease and greenhouse emissions would be reduced by 10% to 20%. After 2030, the country’s total energy consumption has the potential to fall, with energy use relative to production falling by half. Water consumption would not increase and the percentage of water used in agriculture will fall. The money spent for environmental protection as a percentage of GDP would increase from 1.3% to 2.5%. Finally, emissions would fall by a third or more and forest coverage would reach 23% to 24%.

Reforestation will be one of the major investments in China’s battle against climate change. As a natural repository of carbon, forests have a huge capacity for reducing overall emissions. Since 1949, China’s forest cover has increased from 8.6% to 18.21%. Between 2000 and 2005, an average of 7.3 million hectares of forest were lost globally every year. China actually has increased forest cover by four million hectares a year. Global reforestation efforts account for an average gain of 2.8 million hectares of forest a year, of which 1.5 million hectares, or 53.25%, were planted in China.

According to figures from China’s State Forestry Bureau, between 1999 and 2005, the ability of China’s forests to capture carbon increased from 136.42 tonnes per hectare in the early 1980s to 150.47 tonnes per hectare at the start of the twenty-first century. Between 1980 and 2005, sustained increases in forestry resulted in absorption of 4.68 billion tonnes of carbon dioxide (CO2). Reductions in deforestation rates cut CO2 emissions by 430 million tonnes. In 2004, China’s forests absorbed 500 million tonnes of CO2, which represented slightly greater than 8% of the country's C02 emissions for the year.

Low-carbon growth represents an opportunity for China to transform its economy. A low-carbon economy is one of humanity’s core responses to climate change and is one of the most important global economic trends for the twenty-first century. For all these reasons, combating climate change and developing a low-carbon economy are critical for China.

China is currently seeing accelerating industrialisation. Between 1979 and 2007, industrial production rose on average 11.6% per year, multiplying 23-fold. But power-hungry and polluting industries still dominate. In 2005, China's industry consumption was 478 million tonnes of fuel, which represents a final energy consumption of 42%. This percentage is higher than both the country's final energy consumption in 1990 (36%) and the average final energy consumption of 22% in developed countries.

China should put itself at the forefront of global emissions reductions and use the global pressure to develop a low-carbon economy. This would require it to restructure its industry, promote high-technology, high-added-value manufacturing, increase the role of the service industry and reduce overall carbon use.

The issue for China is no longer whether or not to participate in international climate-change negotiations, but how to make its voice heard and to become one of the leaders in the process.

Participation in international negotiations on climate change and the low-carbon economy are of great international significance for China. It will be China’s first active and self-motivated participation in the formation of international rules that will shape the world’s development.

Since 1978, China’s economy has risen up, but only through passively accepting the international order controlled by the United States and other western countries. After 30 years of economic reform, China’s economic weight and international status has changed. As United Nations Secretary-General Ban Ki-moon has said, China is already a global power with global responsibilities, and will participate and cooperate on a range of global issues, including international peace and security, the UN Millennium Project, climate change, human health, environmental protection and sustainable development.

Conserving energy and resources, protecting the environment and reducing emissions will require self-restraint from China, but will benefit the whole world. China is already the world’s largest coal user and sulphur-dioxide polluter, the second-largest energy consumer and CO2 polluter, and is soon to overtake the United States for these dubious honours. These facts make China a target for global criticism. Faced with international pressure and environmental issues, China can no longer remain passive and under attack, but rather it should become an active leader. China must not hitch a lift, but instead take the wheel, participating in the formation of new international rules to ensure that it has room to grow and transform its economy.

The reduction of greenhouse-gas emissions and the development of a low-carbon economy are a huge opportunity for China. The country will become the largest renewable-energy market, bioenergy market, clean-coal market, nuclear-power market, carbon-exchange market, environmental-technology market, low-carbon economy, exporter of low-carbon products and low-carbon-technology innovator. We advocate that China considers making medium- to long-term commitments during the climate-change negotiations as to undertake clear obligations. Emission-reduction targets should be implemented in stages across different sectors. Public commitments to reducing emissions will create a huge and currently inestimable potential market for China. The shift to a low-carbon economy is a global trend – and China should keep a long-term strategic view of this situation in mind.

[Former UK prime minister Tony] Blair’s report proposes a roadmap for global emission reductions: for CO2 levels to peak by 2020, for annual emissions to be less than 35 billion tonnes by 2030, and less than 20 billion tonnes by 2050.

In accord with this, China could produce its own three-stage roadmap:

-- Aim for carbon emissions to peak by 2020, and no later than 2030.

-- After 2020, and no later than 2030, make large reductions in carbon emissions so that they reach 1990 levels.

-- By 2050, achieve carbon emissions of one-half of 1990 levels.

This is not a simple matter of technical policy -- it is a major political decision. Climate change is not a domestic issue, but instead a matter of international strategy with a global impact. More importantly, the positive involvement of countries such as China, Brazil and India will serve as role models and a moral standard for other nations, helping to form a post-Kyoto framework. China’s transition to a green economy will be a model for other developing nations and will be China’s contribution to the world.

Hu Angang is a professor of public policy and management at Tsinghua University and director of the Centre for China Studies, Chinese Academy of Sciences/Tsinghua University.

Guan Qingyou is a director of the energy and climate project at Tsinghua University’s Centre for China Studies. He holds a doctoral degree in economics.

Published in Contemporary Asia-Pacific Studies, Volume 4, 2008

Homepage photo by Addictive Picasso

A new approach at Copenhagen (1)

Angang Hu — Mon, 06 Apr 2009 13:50:00 +0000

To classify a nation as “developing” or “developed” is insufficient to decide its climate-change responsibilities. In the first segment of a three-part essay for chinadialogue, leading economist Hu Angang explains the alternative.

[Produced in association with Rutgers Climate and Social Policy Initiative]

The current classification of nations as either developed or developing does not reflect reality and is preventing agreement on an emissions reduction scheme that is acceptable to all nations. This article, which will be published in three parts, proposes two new principles to be used for classification during emissions reduction processes. First, nations should be assigned to one of four categories according to their Human Development Index (HDI) ranking, rather than classed as simply developed or developing. Second, major greenhouse-gas producers should be made to bear greater responsibility for emissions reduction. These principles can help produce binding targets for emissions reductions worldwide. The paper then calculates the emissions reductions China should make, and proposes a “road map” for use within China, based on provincial net carbon sources and HDI figures. The paper holds that an emissions reduction commitment by China will help promote a global consensus on climate change.

A new classification

The future of humanity is at stake. The United Nations Climate Change Conference in Copenhagen in December is our last chance to save the planet, and there is the possibility of failure. If emissions targets and responsibilities are not set, we will all suffer the consequences -- and China is no exception. The world’s most populous nation, and one of its geographically largest, is environmentally vulnerable. China could benefit most from global public goods, but it also has the most to lose from climate change.

Despite living in an ever-closer global village, international organisations and domestic politicians have failed to find a plan they can agree on. Differing national demands and interests mean consensus is elusive. But as the Copenhagen meeting approaches, the chances of failure rise – and failure there will be a failure for humanity.

Identifying a universally acceptable international climate-change policy and emissions reduction proposal before Copenhagen is essential. This scheme will need to redefine developing and developed nations and establish a dynamic framework within which future obligations will be set. The United Nations Framework Convention on Climate Change (UNFCCC) divides nations into two types, developed or developing, with different policies for each. But this is a very crude categorisation. Defining developed nations is relatively clear: for example, we can take the countries in the Organisation for Economic Cooperation and Development (OECD). But over 100 nations are described as “developing”. Emissions reduction obligations fall on the shoulders of a small number of developed nations; this is of no benefit for cutting global emissions. Meanwhile, the lack of action from developing nations gives some developed countries a pretext to refuse to reduce their own emissions.

Therefore, we must recategorise countries by taking into account average greenhouse-gas emissions per capita, total greenhouse-gas emissions, historical and current responsibilities. We can use efficient and equitable principles to place each of the roughly 200 countries of the world into new categories, replacing the binary distinction of developed or developing. This will determine the emissions reduction contribution of major polluters in terms of their contribution to global emissions. To this end, this article has two proposals.

First, the binary distinction should be replaced according to the HDI, an index between 0 and 1 that ranks countries by their levels of development. I propose dividing countries into High HDI (above 0.8), Medium-high HDI (0.65 to 0.8), Medium-low HDI (0.5 to 0.65) and Low HDI (less than 0.5). The planet is thus divided into four sections.

The High HDI group contains 70 countries, with a total population of 1.6 billion. These nations would make major, non-conditional emissions cuts, as specified by the UN. Over time this group will expand. According to the Human Development Report 2005, published by the United Nations Development Program (UNDP), there were 57 nations in this group in 2003, with a total population of 1.21 billion, 19.2% of the global population. An increasing number of nations will become non-conditional emissions reducers.

The Medium-high HDI group (of which China is now a member) has a population of 2.44 billion, 37.41% of the world total. These nations would be second-tier emissions reducers: conditional reducers. Targets would be set according to the gap between the nation’s HDI figure and the 0.8 threshold; the smaller the distance, the greater the obligation. When the country enters the High HDI group, they become non-conditional reducers. In the case of China, the country's HDI in 2005 was 0.777. In 2010, it will reach 0.8, and China will then become a non-conditional reducer of greenhouse-gas emissions. A UN agency to monitor the actions and achievements of these two groups should be established.

The Medium-low and Low groups would not be obliged to reduce emissions, but voluntary reductions should be encouraged where possible.

Second, we must require greater emissions cuts from the biggest polluters. Currently the world’s 20 largest emitters account for 75% of total emissions. As the largest emitters, they should be the biggest reducers. And the greater their proportion of total emissions, the larger contribution they should make. Reduction quotas will be apportioned according to the negative externalities caused by global pollution: those with the highest emissions will bear a larger responsibility for reductions, and have higher targets to meet. Those 20 nations are headed by China and the United States, who account for 38.14% of global emissions. They are followed by Russia, India and Japan, each accounting for at least 4% of global emissions, and a total of 14.23%. A third group made up of the remaining 15 countries accounts for 22.89% of total emissions. Obligations will change in line with these proportions, and HDI figures will also be factored in. Fourteen of those countries are in the High HDI group, the non-conditional reducers of emissions. Five are in the Medium-high group, the conditional reducers. India alone falls into the Medium-low group, but as a major carbon polluter it should actively reduce its emissions. As it moves into the Medium-high group it will become one of the conditional reducers.

This HDI-based system could also be used to determine financing structures. High HDI nations would be major contributors of funds and technology; Low HDI countries would receive direct development assistance and free or low-cost technological assistance; Low-medium HDI nations would benefit from low-interest loans from international financial organisations and low-cost technological assistance; High-medium HDI countries would receive technological assistance. As the UNDP publishes HDI figures every year for all countries, they represent a simple and transparent basis for a global emissions reductions and the disbursement of economic aid.

These principles can be used to set binding targets. A nation’s emissions reduction targets will be determined by its stage of development, including its total emissions, average emissions per head and historical responsibilities. HDI is an excellent measure and should be used instead of GDP. Goals are also determined by contribution to overall historical and ongoing emissions. The 20 largest emitters have a direct impact on global targets and action, so their reduction targets and actual emissions will be linked. It is feasible to use these principles at the Copenhagen conference to determine a road map for emissions reductions by all nations until 2050, determining their obligations under a global emissions reduction agreement.

TOMORROW: Can China cut its greenhouse-gas emissions?

Hu Angang is one of China’s best-known economists. He is professor at the Chinese Academy of Sciences and Tsinghua University and the director of the Centre for China Study, a leading policy think-tank. Hu has worked as the chief editor for China Studies Report, a circulated reference for senior officials.

Produced in association with:

Homepage image by Worldmapper - Copyright 2006 SASI Group (University of Sheffield) and Mark Newman (University of Michigan)

A new approach at Copenhagen (2)

Angang Hu — Mon, 06 Apr 2009 07:48:00 +0000

China must achieve and improve on its energy-saving targets in order to realise low-carbon development, writes Hu Angang in the second section of a three-part essay.

[Produced in association with Rutgers Climate and Social Policy Initiative]

China has set very challenging targets on reducing energy use and emissions. The eleventh Five-Year Plan, which runs from 2006 to 2010, aims to reduce energy intensity (energy consumption per unit of GDP) by 20%, the equivalent of reducing energy consumption from 1.22 tonnes to 0.97 tonnes of coal per 10,000 yuan of GDP. Even if China were to continue its 10% annual GDP growth, seen during the tenth Five Year Plan, energy consumption can only grow by 5.2% a year. However, the figures for 2006 and 2007 show this will be no easy task. The European Union gave itself a similar target, but has until 2020 to achieve it.

However, there are signs of change as energy consumption and release of major pollutants in China start to drop, laying a foundation for a new phase. In 2006 and 2007, energy intensity dropped by 1.23% and 3.2% respectively, the first drop for years. In 2007, SO2 emissions and Chemical Oxygen Demand (COD) dropped by 4.66% and 3.14% respectively.

Generally speaking, there is a delay from the adoption of a policy to seeing its effects. The locked-in effects of existing infrastructure mean this is especially true in this area of policy. It is no surprise that the targets have been missed these past two years.

There is a historical precedent for a large drop in China’s energy consumption. During the sixth Five-Year Plan, energy intensity dropped by 5.2% per year on average; by 5.7% during the eighth Five-Year Plan; and by 8% during the ninth. Therefore, an average annual drop of 5.4% between 2008 and 2010 is possible. Although the task is hard because of the level of economic development, industrial structure, urbanisation and trade patterns, the unprecedented international environment, political will and economic investment makes it possible. China is capable of achieving its energy saving targets in the eleventh Five-Year Plan and beyond.

The target is not simply economic; it is a political commitment by the government to its citizens – and to the world. It indicates China’s political will and its commitment to reducing emissions, meeting the challenges of climate change and developing a low-carbon economy. This target is the first step on the road to a low-carbon economy, and it is of greater political than economic significance.

However, China’s international emissions reduction policy is not in step with the world. China is still considered a developing country, with no emissions reduction responsibilities, commitments or contributions toward meeting an international consensus.

A public commitment to reduce emissions, backed by central government targets, would be a massive spur to domestic emissions cuts. Participation in international climate-change negotiations and adopting climate-change regulations can provide the opportunity to implement of a beneficial energy and climate policy. More importantly, worsening climate change will increase the pressure to cut emissions. Failure to change energy and climate policy will mean choosing to fight over resources.

In the long term, a commitment to reduce emissions is in accord with the Chinese government’s ideas of scientific development and ecological civilisation. Its implications, targets and processes are exactly those needed to ensure national energy security, address climate change and establish a resource-saving and environmentally-friendly society.

Currently the road map for global emissions reductions is clear:
•By 2020 carbon dioxide emissions should have peaked;
•By 2030 there should be annual emissions of less than 35 billion tonnes;
•By 2050 there should be annual emissions of less than 20 billion tonnes.

A Chinese road map should mirror this three-step process:
•By 2020 carbon dioxide emissions should have peaked;
•By 2030 there should be annual emissions of less than 2.2 billion tonnes (a reduction to 1990 levels).
•By 2050 there should be annual emissions of less than 1.1 billion tonnes (half of 1990 levels).

Undertaking these commitments is a major strategic decision that will impact on China’s long-term development. It is a question of whether China’s national interests are the same as those of human development.

An undertaking to reduce emissions raises two questions: what to commit to; and how to achieve it. The decisions made by Chinese politicians today will set the direction for development in the future.

In 1987 a similar plan was proposed by Deng Xiaoping: first, tto double the 1980 gross national product (GNP) and ensure adequate food and clothing for people, a goal that has already been achieved; second, to double 1980 GNP by the end of the century, and achieve a “relatively good” standard of living; third, by the middle of the twenty-first century to have per-capita GNP at that of “intermediate-level” developed countries, to be modernised and for people to be “relatively well-off”. In response to doubts, Deng said it may be necessary to rely on the greater intelligence of future generations. It now appears that all of these goals were realistic.

China’s current leaders should take a leaf out of Deng’s book: identify the strategic direction and trust that future generations will be wiser. The leaders themselves will only be in power for a decade at most; it is neither feasible nor necessary for them to reach the goals they set. Completion will take several generations. All that is needed now is the commitment.

Since 1750, the world has seen four industrial revolutions. First, the Industrial Revolution in Britain, in which China played no part. Then the industrialisation of the United States in the mid-nineteenth century, in which China also missed out. In the late twentieth century, information technology changed the world, and this time China seized its opportunity.

With the advent of the new century a change has arrived in the form of the green industrial revolution. China missed out on the first two revolutions and was only a follower in the third, but it can be the leader, innovator and driver of the fourth, alongside the United States, Japan and the EU.

We can expect climate change to form the domestic and international backdrop for China’s future development. Against this backdrop, the Chinese leadership faces two pressing questions: how to transform China’s economy into a low-carbon economy; and how to participate in global governance, moving from national to regional and worldwide governance.

There is no doubt about the direction the tide is flowing. We can ride the wave and prosper, or fight the flow and be pulled under. China’s leaders must realise this and fall in line with global proposals.

NEXT: China’s contribution to the world

Hu Angang is one of China’s best-known economists. He is professor at the Chinese Academy of Sciences and Tsinghua University and the director of the Centre for China Study, a leading policy think-tank. Hu has worked as the chief editor for China Studies Report, a circulated reference for senior officials.

Produced in association with:

Homepage photo by kongharald

A new approach at Copenhagen (3)

Angang Hu — Mon, 06 Apr 2009 05:21:00 +0000

How should China manage its emissions reductions? In the final section of a three-part essay, Hu Angang looks to the provincial level.

[Produced in association with Rutgers Climate and Social Policy Initiative]

The Kyoto Protocol and the future agreement that has been emerging since the Bali conference divide the over 6 billion inhabitants of the world – and more than 200 countries – into two groups: developed and developing. This has misled Chinese politicians into believing their country will always be a developing nation. In fact, China is not a developing nation in the typical sense. It is a country that is constantly making progress.

There are two factors that will force China to commit to emission reductions. First, the bulk of China’s population are already in the High, or Medium-high, Human Development Index (HDI) groups (see part one). Around 20 years ago, the majority were in the lower two groups. Figures from 2003 show that China is no longer a typical developing nation: 20% of its population is in the High HDI group and 75% in the Medium-high group. Analysing China’s 31 provincial-level divisions uncovers levels of human development that span the entire HDI spectrum. However, in the last two decades, China’s population has moved from primarily occupying the lowest two groups to the highest two.

This paper estimates that by 2010, 42% of China’s population will be in the High HDI group. By 2020, although China’s per-capita GDP will only have reached the world average, its HDI will be 0.87 or 0.88. Overall, China will be in the High HDI group. This reflects one of the characteristics of China’s growth: relatively low per-head income in comparison with developed nations, yet high living standards. China will have the ability to undertake emissions reduction commitments.
It is possible to calculate net carbon sources for each province, autonomous region and municipality in China by looking at sources of carbon emissions and at sequestration. One group in particular – comprising the provinces of Zhejiang, Liaoning, Guangdong and Jiangsu – accounts for 21.42% of China’s net carbon sources, and is also in the High HDI group of non-conditional emissions reducers. Therefore, these four provinces should cut their emissions, and to a far higher degree than is called for by the global road map. An initial plan would be to set these radical targets for the provinces:

•Aim for carbon emissions to peak by 2012;

•From 2020 to begin reducing carbon emissions to 1990 levels;

•By 2030 to reduce carbon emissions to half 1990 levels.

The three municipalities of Shanghai, Beijing and Tianjin account for 5.78% of total carbon sources and are also in the High HDI group. They should also reduce emissions in line with global proposals.

A second camp, comprising the provinces of Hebei, Shandong, Shanxi, Henan, Hubei and Hunan, account for 48.89% of total carbon sources and are therefore major emitters. However, they have medium HDI levels, and are therefore only conditional reducers. The degree of cuts would be determined by their contribution to national carbon sources, and their distance from the 0.8 HDI threshold.

A third camp, Yunnan, Qinghai and Tibet, have negative net carbon emissions. Their carbon emissions account for 2.23% of the total for other provinces, and these areas should receive environmental subsidies from those areas.

The remaining 15 areas, except Guizhou, are all in the Medium-high HDI group and as such should be conditional emissions reducers. As their HDI figures pass the 0.8 threshold they will become non-conditional reducers.

The Stern Review put global average carbon emissions per head at seven tonnes. Figures for developed nations range from 10 tonnes for Japan to 22 tonnes for the United States. Developing nations range from insignificant emissions in the poorest nations, to two tonnes in India and six tonnes in China. With the world’s population on course to reach nine billion, by 2050 the average carbon emissions per capita should be two tonnes.

The World Bank puts China’s per capita carbon emissions for 1990, 2000 and 2006 at 2.1, 2.6 and 3.9 tonnes respectively, compared to the global averages of 4.1, 4.0 and 4.3 tonnes. According to China’s road map, the country could see per-capita emissions peak by 2020. If China’s population reaches 1.4 billion in 2050, per-capita emissions would be at the 1990 level of two tonnes, or lower.

The second factor forcing China’s hand is its status as the world’s second-largest emitter of carbon dioxide. Figures from the UNDP show China accounted for 17.28% of global CO2 emissions in 2004. The International Energy Agency calculates this will be 27.32% in 2030, making China the largest emitter. The country is already the world’s most populous nation and its third-largest economy. But it is also the biggest source of sulphur dioxide (SO2) emissions, the largest coal consumer and the second largest energy consumer. China is one of the world’s largest polluters, and it has a responsibility to reduce those emissions.

These two factors mean that China must accept responsibilities. The current leadership has not realised this and taken these facts into full consideration. Decisions on international climate-change policy are suffering from a lack of information. If China’s leaders were clearer about the dangers of climate change and the country’s stance, they would be clearer about the obligations. If China is not clear about its responsibilities, and short-sighted enough to not make commitments at Copenhagen, India will follow suit. And if these two nations, accounting for 20% of total emissions, do not participate, EU efforts will be to no avail.

Towards an agreement

China has made three major contributions to the world since the start of the reform era: growth in the global economy, growth in global trade and huge poverty reduction. The world has already acknowledged these contributions, particularly in the area of poverty reduction.

In 2007, president Hu Jintao said that by 2020 China would be more open to the world and make a greater contribution to civilization. In the coming decades China needs to make that contribution an environmental one; and its largest contribution to humanity in the new century. China should lead developing nations in reducing emissions; become the largest planter of carbon-sink forests; publish a road map for emission reductions; and strive to halve emissions in 1990 by 2050.

In the short term, the Chinese leadership should use the opportunity of the Copenhagen conference to adopt emissions reductions and publish a timetable for doing so. This will promote a global agreement and China will become a leader in global governance.

In the long term, China’s leaders should view emissions reductions and the transition to a low-carbon economy in terms of the best interests of humanity, leading the nation toward economic and governmental transformation and making a further contribution towards human development.

Hu Angang is one of China’s best-known economists. He is professor at the Chinese Academy of Sciences and Tsinghua University and the director of the Centre for China Study, a leading policy think-tank. Hu has worked as the chief editor for China Studies Report, a circulated reference for senior officials.

Guan Qingyou, PhD, from the Centre for China Studies, contributed to this article.

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