Report

China’s Great Climate Leap Forward

Beijing is creating a carbon market to fight climate change. That could be a big deal for China's economy — and leave Washington playing catch-up.

OBXI

China’s announcement that it will launch a national carbon-trading market in 2017 and give $3 billion to developing countries to help them fight climate change underscores the sea change that six years have wrought for the world’s biggest source of carbon pollution. It also means that China, nominally a communist country, is using a capitalist approach to solve a devilish environmental problem, while the United States, the second-largest emitter, is stuck with top-down regulations and government mandates to try to achieve the same goal.

Presidents Barack Obama of the United States and Xi Jinping of China announced the new measures at a joint press conference Friday at the White House, putting some flesh on the bones of climate pledges they made last year. China’s announcement that it will launch a national market that will allow businesses to buy and sell the right to pollute is meant to accelerate the adoption of cleaner sources of energy, such as renewable energy, to curb future emissions. It offers a road map for realizing Beijing’s aspirational pledge of capping greenhouse gas emissions sometime around 2030.

“The complaints, from people in Congress and elsewhere, [were], ‘Okay, so they’ve given an aspirational target, but they haven’t said how they’re going to do it.’ Well, now they’ve done precisely that, and that’s extremely important,” said Robert Stavins, director of the Harvard Environmental Economics Program.

China’s adoption of tougher climate change measures and the joint statement with the United States highlight how far both countries have come in the last six years — and especially how China has jumped in front of the United States when it comes to implementing market-based national programs to tackle climate change. In 2009, Obama’s hopes for a national carbon-trading market sank in the Senate; instead, he has had to turn to less efficient environmental regulations that have been subject to numerous legal challenges and resistance at the state level.

China, still focused on growth at all costs, helped torpedo global climate talks in Copenhagen six years ago. Today, just before the world gathers in Paris to try to craft a global agreement to curb emissions, China is staking out a radically different position and backing its rhetoric with actions. That could remove the excuse developing countries have long used to defend their refusal to put in place measures to curb their own carbon emissions.

“When the world’s two largest economies, energy consumers, and carbon emitters come together like this, there’s no reason for other countries, whether developed or developing, not to do so as well,” Obama said.

The Chinese move could also make it harder for Republicans to argue against Obama’s environmental policies by pointing to alleged Chinese inaction. Sen. James Inhofe (R-Okla.) has long railed against U.S. action to fight climate change and often cites what he calls Chinese inaction as an argument. On Friday, Inhofe lambasted China’s “nonbinding and untrustworthy global warming pledges.” Donald Trump, who is seeking the Republican presidential nomination, this week repeated the canard that China is taking no action on climate change. The Chinese move came the same day that Pope Francis addressed the United Nations and urged world leaders to fight for environmental justice and especially to reach agreement to battle climate change.

Stavins sees the Chinese announcement as a spur to fence-sitting countries that have looked at but have not yet embraced ambitious programs to curb emissions. “This is going to give tremendous encouragement to a lot of countries to go with carbon markets,” he said. Those international impacts could be “even more important” than what carbon markets can do to clean up China itself, he said.

Despite the fanfare, China’s carbon market doesn’t come as a surprise. Beijing has been talking about such a market since 2008 and, in fact, was meant to launch the national market next year after running a series of regional pilot cap-and-trade schemes in recent years. However, coming straight from Xi, who has consolidated more political power than any Chinese leader since Deng Xiaoping, the announcement is a clarion call to all levels of the sometimes foot-dragging Chinese bureaucracy to get behind the cleaner, greener program.

What’s also unclear is just how much a cap-and-trade program will actually contribute to cleaning up China. Such programs, which have been used in Europe for years and at the state and regional level in the United States, have generally disappointed. That’s because the price of carbon emissions in those markets has seldom, if ever, been high enough to compel businesses to abandon cheap but dirty traditional fuels and embrace cleaner alternatives.

China’s regional pilot programs have suffered many of those same flaws so far. Moreover, China’s energy sector is not liberalized. That makes it harder for pure market signals, such as a price tag on each ton of carbon spewed into the atmosphere, to translate into economic efficiencies. Much will depend on just how the Chinese system is designed, how stringent it is, and whether it can be at some point linked together with other international cap-and-trade systems, such as those in Europe and parts of the United States.

Ultimately, for all the buzz that China’s carbon markets generate, the biggest green drivers there are likely to remain state-driven solutions: caps on local, regional, and national consumption of coal; aggressive targets for the installation of clean energy like wind, solar, hydro-, and nuclear power; and a mandate to rebalance the economy away from heavy industry and toward less energy-intensive activities.

Indeed, there are already indications that China’s economic reinvention, coupled with concerns over the political fallout from choking air pollution, has already done more to bend China’s emissions curve than a leap into markets will ever manage.

Photo credit: MARK WILSON/Getty

Keith Johnson is Foreign Policy’s global geoeconomics correspondent. @KFJ_FP

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