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Tough choices for China

Calculating the economic effects of climate change is a difficult task, which has led to great disagreement among governments, business leaders and economists. In the light of this debate, Pan Jiahua considers China’s future on a warming planet.

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In October 2006, the prominent British economist Nicholas Stern published his report for the UK government on the economic effects of climate change. The Stern Review outlined the economic rationale for attempting to combat the problems of global warming. But despite gaining a certain amount of approval, the report also ignited a fierce debate and led to much reflection on the economic issues that climate change raises.

The conclusions of any economic analysis depend to a large extent on the choice of method and the figures that are used. In the case of the Stern Review, the economic analysis is wide-ranging and comprehensive – and takes a long-term view. The report considers scientific issues related to climate change, adaptation and mitigation. It takes into account First, Second and Third World countries and has analyses for the short term (2010), medium term (2050) and long term (2200). It also uses a discount rate of almost zero; a point which has provided ammunition for both supporters and critics of the report. One thing that’s clear is that governments, NGOs, academics and the corporate world all have their own opinions on the Stern Review’s methods and conclusions.

Since the report had UK government backing, the UK has not only endorsed Stern’s findings but also put forward policy proposals to encourage emissions reductions. For example, that the European Emissions Trading Scheme should be extended to include other carbon markets around the world, and that the EU should reduce its carbon emissions 30% by 2020 and 60% by 2050.

The French government has also shown its support for the Stern Review’s proposals, but officials in the US did not give the report such a warm reception. The chair of the US Council on Environmental Quality said that the report was merely one “contribution” to the overall economic analysis of climate change. Since emissions reductions will affect the fossil fuels industry, the secretary general of OPEC also criticised the report, saying that it was “unfounded” and misleading.

While environmental NGOs, such as WWF and Friends of the Earth Europe, were almost unanimously supportive of the report, responses from the corporate sector were tinged by the concerns of industry. The energy giant Shell expressed its optimism for developments in emissions reduction technology, but British budget airline Easyjet said it strongly opposed taxes or other pricing measures aimed at passengers as a method of reducing emissions. Companies involved in carbon neutral, yet relatively high-cost, renewable energy sources such as solar and wind power also criticised the report for lacking force in its policy proposals.

The academic response has also been mixed. Some praised the report, while others rejected it completely or in part. Stern’s team actively sought the opinions of the Nobel prize-winning economists, Robert Solow, Joseph Stiglitz and Amartya Sen. They all praised the report, and stand by its low discount rate and emphasis on inter-generational equality. Many of the UK’s research institutions, such as the Tyndall Centre and the Royal Society, have also backed up the report’s findings.

Economic debates

However, some economists have raised doubts about Stern’s methods and the report’s conclusions.

A number of European economists believe that there are problems with its analytical methods and assumptions. The future effects of climate change are uncertain, they say, and will not all necessarily be negative. Using too low a discount rate to calculate future economic losses does not produce a true cost-benefit analysis. The economic models used by the report are not only too simple, they say, but the repetition of simplified extrapolations is actually dangerous. Even if the negative effects of climate change were certain, humans would be constantly adapting to the changes and improving their ability to combat climate-induced disasters. The Stern Review’s 200-year projections of what the worst-case climate-change scenarios might be, according to these economists, are very unrealistic.

Partha Dasgupta, an economics professor at Cambridge, points out that Stern’s low discount rate of 0.1% means that model economy should save 97.5% of its future GDP, which is unrealistic to the point of being “absurd”. Currently, the country with the highest saving rate in the world is China, with a rate of around 45%. Some countries, such as the US, have saving rates in negative figures. Current world market discount rates are around 10% or even higher. Even for charitable investment, the discount rate is still around 5% or higher, because of the opportunity cost for the use of funds. If the discount rate is adjusted, there could be a reversal of the conclusions of the report. Therefore, Dasgupta says, the report is political rather than scholarly.

Certain well-known American economists have also openly disagreed with the conclusions of the review. William Nordhaus, professor of economics at Yale and former presidential economic adviser, has said economic analysis shows the most beneficial path for emissions reduction would be to start slowly and aim for larger reductions as technology advances in the medium- and long-term. This stands in stark contradiction to the Stern Review’s conclusion that large, immediate reductions in carbon emissions are needed, meaning people today will have to pay an enormous economic price – and sacrifice current levels of social provision. It would also be disadvantageous to later generations, as we would be unable to leave behind savings and assets – financial, intellectual or technological.

Decision time

China is currently the world’s second biggest emitter of greenhouse gases, with the US in first place. China’s greenhouse gases, mostly produced by burning fossil fuels, make up 17.9% of the global total. And according to the International Energy Agency, the country’s emissions will exceed those of the US by 2010. Moreover, China’s carbon emissions per capita are also approaching the global average, and look set to exceed it before 2010.

China is signed up to the Kyoto Protocol on a principle of “common but differentiated responsibilities”. As a developing country, the country is currently under no obligation to limit or reduce its emissions. China can use the Clean Development Mechanism to receive technology and funding from developed countries for greenhouse-gas emissions reduction projects within China; the country can also engage in carbon trading with developed countries. But the Kyoto Protocol will only run until 2012, and there are already international discussions taking place on what will happen beyond this date. As the Chinese saying goes, “a big tree attracts the wind,” and China’s emissions will inevitably be a topic for discussion at future negotiations.

But the target of maintaining atmospheric concentrations of carbon dioxide at around 0.055% is clearly at odds with China’s current phase of rapid industrialisation. It would severely restrict the country’s legitimate future development. China’s current process of industrial growth and urbanisation will continue until at least 2020, and it will be impossible to prevent an increase in greenhouse-gas emissions between now and 2050. If China was now to begin the transition to a low-carbon economy, the cost of cutting emissions would be far greater than previously imagined. For example, making buildings more energy-efficient would require an additional 15% of investment, while funding for renewable energies would need to increase by at least 30%. Where would this money come from? In the short term, the costs of technology for carbon capture and storage are also too high, and the process is energy-intensive, making it of dubious value as a method to reduce emissions.

Climate change may indeed have a serious impact on China’s environment and economy. The warming winters and China’s increasingly severe natural disasters could only be the start of global warming’s negative impacts. The effects of shrinking glaciers and rising snowlines could also have a disastrous effect on the country’s northwest, which relies on snowmelts for agriculture. We do need to take climate change seriously and reduce our emissions.

China, in its current stage of development, cannot immediately adopt emissions reductions. But it also cannot afford to ignore climate change. We need to recognise climate change and increase public awareness of the problem with extensive research, analysis and public information campaigns. China also needs to take concrete steps: to clarify its stance to the international community, and emphasise its commitment to a low-carbon future by integrating energy-efficiency with emissions reductions. China should strengthen research, development and implementation of key technologies and utilise low-carbon technology – as far as is possible during the construction of the country’s basic infrastructure.


Pan Jiahua is director of the Research Centre for Sustainable Development at the Chinese Academy of Social Sciences (CASS).

Republished by kind permission of Green Leaf magazine

Homepage photo by +graemetric-

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Default avatar
匿名 | Anonymous



Strategy formulation and emissions reductions

Balancing emissions reduction and development is one part of the story. Our generation should put further consideration into climate change adaptation - prevention is better than cure.
However, this is not enough. There are loads of tasks right in front of us, climate related disasters and social, economic problems that are waiting to be solved. They all demand strategies to be formulated, discussed, experimented and announced - as soon as possible.

Default avatar
匿名 | Anonymous


中国将超过美国成为世界上碳排放量最大的国家,而且中国政府在其碳排放达到美国的标准之前并没有进行排放限制的意图。这则新闻令我不寒而栗。仅仅因为富裕国家的某些人认为低收入可以带来较少的压力,而只是本该更加环保的中国走上另一条路。潘建华的文章描述了一套每个经济学家都非常熟悉的理论,这套理论似乎认为生态系统运行在经济理论基础之上。事实并非如此。如果全球温度上升超过两度则极有机会会引起雪崩,而其后果将会导致人类陷入无法停止的不断补救中,也将导致人类的末日——包括中国所有闪闪发亮的小车。因此,环境“能够接受的”经济理论是人类和地球共同分享的极少量的碳排放量。如果我们以环境能够遵循的经济理论为生,那么像斯特恩这样的相信到2050年世界经济将会增长四倍的经济学家就要生活在荒岛上了。斯特恩并不愿意设想达到空气中含450-500二氧化碳当量温室气体的目标,因为达到这一目标比达到500-550二氧化碳当量的目标要多花3倍的钱。较低的目标总是因为经济的发展而变化,无法保持一致。像许多经济学家一样,包括中国经济学家,斯特恩宁愿选择经济增长最后导致人类灭亡,也不愿重新考虑一种将经济基础建立在能源可持续使用之上的方式。还有什么希望存在吗?希望总是存在的。中国人已经意识到他们的“经济奇迹”其实带来了环境灾难。经济的发展也将停止下来因为中国可能会很快用完其煤炭资源。中国显著的经济增长是以过去二十几年来每年消耗2%的煤储量为代价的。从1992年到2005年中国生产了大约180亿吨煤,消耗掉了1992年公布的原620.2亿吨原煤储量的30%。但是现在公布的煤储量居然和1992年一样!所以煤储量的报告并不可信,数量远大于真实储量。或者中国的煤产量将很快达到极限,并开始走下坡路。到2025年中国的煤产量将达到极限,其后将会滑坡。http://www.energywatchgroup.org/files/Coalreport.pdf 中国的经济增长策略将无法实施——这将是很快的事情。或者中国会否像日本在20世纪30年代所做的那样,或像英国和美国多年前所做的那样为了保障本国能源和资源供应而入侵其它国家呢?如中不幸言中,那么我们可能在气候灾难之前就在世界战争中死去了。因为温室气体引起气温变化导致海平面上升吞没所有沿海城市需要30年时间。世界的命运掌握在中国的手中。Brian Davey

Nature does not obey "the laws of economics"

The news that China is about to take over from the USA as the world's major emitter of Greenhouse gases and has no intention of setting a cap on its emissions until it has reached the US "standard of living" fills me with fear. Just as some people in the rich countries are accepting a lower income to be less stressed and more ecological China is heading in the other direction.

Pan Jiahua's article describes a mind set, common to almost all economists, that seems to believe that the ecological system runs on economic principles. It doesn't. If the global temperatures rise more than 2degrees then there is a very high chance that a climate avalanche effect will be started, a vicious cycle of self reinforcing processes which will be unstoppable and which will put an end to humanity - including China with all its shiny new cars.

For this reason the only economics that "Nature understands" is a very small greenhouse gas emissions budget that has to be shared out between humans on planet earth. If we live by an economics that Nature understands then, whatever the discount rate, economists like Sir Nicolas Stern who believes that the world economy can be four times as large by 2050, are living in "cloud cuckoo land". Stern was unwilling to conceive of a greenhouse gas target at 450-500 ppm CO2equivalent target because it would be three times as costly to achieve (in financial terms) as stabilising at 500-550ppm CO2 equivalent. The lower CO2 target (which is itself probably inadequate but has a better chance of stabilising at less than 2degrees C) was inconsistent with continued economic growth. Stern, like most economists, including Chinese ones, would rather have growth plus global extinction than having to re-think the basis of managing our economic systems on an energy descent path.

Is there any hope? There is always hope that people can wake up from illusions. The Chinese people are well aware that their “economic miracle” is an environmental disaster. Indeed, it will have to stop anyway because China will probably run out of easily mined coal soon. Given its phenomenal growth rate China has been depleting its coal reserves by almost 2% per annum for over a decade and a half. Between 1992 and 2005 about 18 billion tons of coal were produced in China which should have reduced the reported proven coal reserve figures of 62.2 billion tons by almost 30%. Yet reported coal reserves today are still the same as in 1992! So either the reported coal reserves are unreliable and larger than reported or Chinese coal production will reach its peak soon and start to decline. China could have its peak of coal production about 2025 and decline thereafter.http://www.energywatchgroup.org/files/Coalreport.pdf China's growth strategy is going nowhere - very fast indeed.

Or will China start behaving like Japan did in the 1930s and Britain and America have done for decades, invading other countries to secure its energy and material supplies? If so we will probably all die in a global war before the climate disaster has fully arrived - when global temperature effects follow greenhouse gases with a 30 year time lag, with sea levels changing over the following hundreds of years and flooding all the coastal cities.

The world is in China's hands.

Brian Davey

Default avatar
匿名 | Anonymous







The World is in China's hand

The world is in China's hand.
It might be a bit exaggerating...
If so, I mean, it really concerns the world,
then, what about from this moment,
the developed countries provide funding and technology for free.

Default avatar
匿名 | Anonymous




这使得最近来自曼谷举行的联合国气候大会的中国策略报道(http://www.alertnet.org/thenews/newsdesk/SP154366.htm) 显得更加让人担忧。在极大收益于中国廉价的制造业后,发达国家应该依照大胆减排目标向中国(以及其它增长中的发展中国家)输送所需的资源。否则,中国会越陷越深,就像布什政府那样拒绝采取行动——这个结局,世界无法承受。


Stern was basically right, but who is listening?

A useful post by Andrew Leonard in his 'How the world works' blog (http://www.salon.com/tech/htww/2007/04/12/stern_review_legacy/)
gives a good round-up of economists' reactions to the Stern Report. Leonard sums up by saying:
"The next time you hear or read someone saying that Stern's bungling of the "discount rate" in the Stern Review is proof that we don't need to get our asses in gear on the climate change mitigation front, feel free to chuckle dismissively. His toughest critics agree: Even when he's wrong, he's right."

Discount rate or no, Stern's analysis should leave everyone in no doubt that acting now is the only option if ruinous costs and climate-related damages are to avoided.

This makes recent reports (http://www.alertnet.org/thenews/newsdesk/SP154366.htm)
of China's tactics in the current UN climate talks in Bangkok all the more worrying. Developed nations, which have benefited greatly from China's cheap manufacturing, need to offer China (and other growing developing economies) substantial transfers of resources tied to ambitious emissions targets. The alternative is China digging in, like the Bush administration, and refusing to move - an outcome that the world simply cannot afford.

Andrew Stevenson

Default avatar
匿名 | Anonymous




China has done much about Wetlands Conservation

Do you know wetlands function?
wetlands are the one of the Carbon-source and Carbon-sink of the Carbon Cycle, China has done much about wetlands conservation, which could reduce the greenhouse gases.
why did nobody see this factor?


Default avatar
匿名 | Anonymous


比如,上海,或伦敦什么的,重量级城市,别说我讲话太绝. 伦敦不也是污染大雾持续多少年后,才下的决心吗? 日本的MINATO (水吴) 的污染子后,才有今天的美丽环保日本吗?所以,不经历风雨,是不可能看到彩虹的. 中国不付出巨大的痛苦,是不可能哟切肤之痛的.

without wind and rain we could not see the rainbow

Everyone on this Earth is aware of the serius environment conditions of our planet. But as we enjoy its benefits, we have just to put the environment problem aside for a while.
We have only to wait until the disregard for environemt won't bring about a wreck to the government and the local economy, so that the environment status will be evident.
Take for example Shanghai, or London and so on, city of a certain importance. After how many years of fog due to pollution has London adopted resolutions and measures to reduce it?
And after the MINATO pollution, there is now a good environmental protection in Japan.
So, without wind and rain we cannot see the rainbow.
The price China is paying now, is maybe just a superficial pain compared to its future benefits.