COP21: What Paris Means For China
By Hongqiao Liu 12 January, 2016
As the world's largest global emitter much attention is on China. CWR's Liu on what's next for China after COP21
On 12 December 2015, after six years of negotiations, 196 parties passed the Paris Agreement of the United Nations Framework Convention on Climate Change. It’s a remarkable moment in human history. For the first time ever, all countries reached a universal, comprehensive, legally-binding agreement on climate change – the biggest challenge of this century. Below China Water Risk’s Hongqiao Liu shares her on-ground takeaways on what COP21 means for China. Also, see our global COP21 key takeaways here.
The Paris Agreement sends a strong and clear message to the world – the era of fossil fuel is coming to an end
The Paris Agreement sends out a strong and clear message to the world – the era of fossil fuel is coming to an end. Over the next several decades the global economy will experience a significant transition. All countries, no matter whether developed or developing will need to de-carbonize their economic growth and move towards a net zero carbon emission future in order to reach the climate goals.
As the world’s largest carbon emitting country, a lot of attention is on China. Below are our five key takeaways from COP21 on what it means more China.
1. Global carbon emissions – China’s a game-changer
In 2014, China contributed 27% of global carbon emission – more than the US and the EU combined. But things are changing. A new study, Global Carbon Budget 2015, predicts global carbon emissions in 2015 to fall slightly after stalling in 2014. A decline in coal consumption and increasing investment in renewable energy in China are concluded as the main reasons of the temporary “peak”.
So far, around 190 countries have submitted their Intended Nationally Determined Contributions (INDCs) but scientists say these will only result in an average 2.7 – 3.7℃ temperature increase. To stay below 2℃ global carbon emissions need to reach net zero by 2060-2075.
Zhou Dadi from China’s NDRC is optimistic that China can continue to drive the global emissions slowdown
In China’s INDC it pledged to reduce 60-65% of its CO2 emission per unit of GDP compared to the level in 2005 by 2030. Taryn Fransen, who heads the Open Climate Network, says China’s INDC is a game-changer. His study with the World Resources Institute highlights that global carbon emissions beyond 2030 are largely dependent on whether China does peak then.
Can China continue to drive a global emission slowdown? Probably, but this also requires other developing economics like the BASICs to make changes as well. Zhou Dadi from the Energy Research Institute of China’s NDRC is optimistic with China’s 15% non-fossil fuel target in primary energy mix by 2020.
Zhou added that China has the potential to reach the 45-50% of emission reduction per unit of GDP (energy intensity) target during the 13th Five Year Period (2016-2020). These targets were set in 2009. China’s INDC sets targets to 2030.
2. Tradeoffs – peaking emissions mean GDP loss and unemployment
Post-Paris analysis estimates if China peaks its emissions by 2025 with further decline rate oft 2% between 2025-2040 and 4% per year after, together with improved pledges from the US, the EU and other countries, we may be able to limit the temperature rise to 1.8℃.
An emissions peak by 2032 would cost 1.3-3.7% of GDP and result in 3.2 – 5.3% cut in employment
But also presents new opportunities
But peaking before 2030 could come with huge economic and social benefit costs to China and the world, says Wang Yi from the Chinese Academy of Science. According to Wang’s study, to peak by 2032 means an average cost of 1.3-3.7% of China’s GDP and a 3.2 – 5.3% reduction in employment. If China peaks before 2032, then it would lose an additional 2.1% of GDP each year earlier than 2032. If the transformation is done through energy structural change, the additional GDP loss can be even higher – approximately 2.3% per year.
3. Carbon pricing: no cap, no trade – can’t do without China
In Paris, political and business leaders actively advocated for a global carbon market. On November 30 2015, heads of state from French, Canada, Chile, Ethiopia, Germany and Mexico and World Bank Group President Jim Yong Kim joined a high-level press conference to call for a price on carbon pollutants. On the same day, countries and companies joined together to establish Carbon Pricing Leadership Coalition (CPLC), aiming to facilitate global carbon trade. China, however, is not in the CPLC.
Back to 2012, EU launched its Emissions Trading System (ETS) which has been the largest carbon market in the world. Meanwhile, China started an emission trading pilots several years ago and recently announced it will set up a national emission trade system by 2017. Official figures estimate the initial emission trading to reach three to four billion tonnes with annual sales volume ranging from RMB1.2 – 8 billion. If future trading is considered, total sales volume can be as much as RMB60 – 400 billion.
China will set up a national emissions trade system by 2017
Initial sales est. range from RMB1.2 – 8 bn
Further concerns involve how to link up the national market to form a global market. So far, only 12% of global carbon emission is covered under a carbon pricing mechanism. This will significantly increase when the domestic carbon market in China starts to function. We believe the national market in China will be crucial for the future global carbon market, not only because China will take over EU to be the largest carbon market in the world, but also because the EU ETS has challenges and a new more effective system is needed.
The trade system won’t work without an overall emission cap
Will China surprise the world with its new national carbon market? We don’t know yet, but the clock is ticking. With less than two years to implement the market, experts warn the road ahead is rough and bumpy. Professor Wang Canfa, who’s involved in drafting the new climate change law, says the emission trade system won’t work without an overall emission cap. However, there is no legality to put a cap on carbon emission since CO2 is not considered as pollutant in Chinese law so far.
Zou Ji, deputy director-general of China’s National Center for Climate Change Strategy and International Cooperation (NCSC), shows concerns with the efficiency of carbon pricing. According to him, before launching the market, policy-makers should firstly find the most efficient incentive range of carbon price.
4. New normal – no room for carbon-intensive industry
After rapid development China is moving to a “new normal”, which includes upgrading its energy and industry structure.
China’s energy intensity per unit of GDP is twice the global average and 3-4 times than developed countries, according to Zhou Dadi. Zhou added that carbon intensive industries in China have already peaked or will peak before 2030 at least saying, “I don’t see any room for carbon-intensive industry in the future.”
“I don’t see any room for carbon-intensive industry in the future.”
Zhou Dadi, Energy Research Institute of NDRC
So where will these industries go then? Professor Guan Dabo from the University of East Anglia worries that a shift out of China could actually result in increasing carbon emissions due to relatively less energy efficiency in other developing countries – this is known as “carbon leakage”
In Paris, we talked with World Bank Group Climate director John Roome on the risk of this leakage. He said it’s unlikely to see heavy industry leave China due to a carbon market or even emission caps, because the transport cost and the advantages of operating in the Chinese market would still be in China. Rather than industry shift, this would result in increasing energy efficiency inside China.
5. Fossil fuel cuts not enough – emission reduction potential lies in livestock & transport
Fossil-fuels are on the out but that doesn’t mean that it’s 100% renewables. We are expecting more hydropower, wind, solar & nuclear. China recently approved the 3rd largest hydropower station, Wudongde Hydro (10.2GW) on the Jinsha River and two costal nuclear stations in Guangxi and Jiangsu. But coal, gas and oil are still on the table.
The energy sector has been the largest carbon emission sector, but it’s not enough to just focus on it to reduce emissions. The transportation sector, which is responsible for 14.5% of greenhouse emission globally, also has impact and cannot be overlooked in mitigation policies.
Transport and Livestock sectors are overlooked for emissions but they each account for ~12%
Guo Jie from the China Academy of Transportation Sciences says the transport sector, which accounts for 12% of carbon emission in China, is aiming to reach peak emissions by 2040-2045. Sivan Kartha from Stockholm Environment Institute estimates that by 2030, 25% of the vehicles in China will be electric or hybrid. But should we be aiming higher?
We are glad that an agreement was made but we would have liked for there to be more concrete plans on water. In Paris, we again heard “water over energy security” (more in our report “Towards A Water And Energy Secure China“). But Professor Guan Dabo says as to security, water comes over climate security in China, although they are strongly inter-linked.
Lots of climate-related initiatives and policies are coming out of China
Many opportunities ahead
Lots of climate-related initiatives and policies are coming out of China. That was clear at the conference. Be it the RMB20 bn South-to-South Cooperation Fund. There will be opportunities in China with the AIIB almost ready to make its first loan and the 13th Five Year Plan starting this year. China is at the table. Already in 2016 China announced that more than 1,000 existing mines will also be closed over 2016 and that no new coal mines will be approved in the next three years. Let’s see what happens next.
- COP21: 5 Takeaways from Paris – The Paris Agreement signals that the threat is real. Time is running out, especially for water. Inaction means growing costs and with financial risks across sectors also on the rise, CWR’s Thieriot shares key takeaways from COP21
- Paris Water Pact: Feeling Blue – The rise of water at COP was evidenced by the Paris Pact for Water and Adaptation, Delta Coalition & the Megacities Coalition on Water. However, we are still feeling blue, CWR’s McGregor expands
- Climate Finance: Who Pays? – A Paris Agreement was made but a lot of it and our future climate resilience comes down to money – north of USD100 bn. Xu Nan from Central University of Finance & Economics takes a look at who could pay what
- Green Finance Revolution: China Can Lead – Can financing required to meet targets laid down in Paris be met? WRI’s Shouqing Zhu & Andrew Steer on how China can lead with five recommendations
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- China Water-nomics – Will China’s economic development be hampered by limited water resources? The very existence of the Three Red Lines signals that China can’t keep developing the way it has. Read on for why GDP will be capped at 5.7% given China’s water-nomics
- Water: Can’t Always Buy What You Need – With competition for water intensifying, paying more for water may not get you what you need. Deloitte Consulting’s Will Sarni on strategies that can help corporates secure water for growth
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