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Market News

 May 30, 2007
China and the US: GHG giants and the climate dance

 Washington, D.C., USA (GLOBE-Net) -- The United States and China account for nearly 40 percent of the world's man-made greenhouse gas emissions. The environmental policies of these two nations will greatly influence the shape of any post-Kyoto climate change agreement. However, achieving a consensus between these two superpowers and the rest of the world has proven to be difficult.

Yet the United States and China are engaged in a number of cooperative initiatives aimed at improving the environment as well as boosting their respective economies. These initiatives, which also involve major industry players, are quietly advancing what can best be described as a voluntary approach to climate change mitigation. These collaborative efforts could set the tone for global climate change actions in the post 2012 period.

As of 2003, China and the United States accounted for 38% of global anthropogenic greenhouse gas (GHG) emissions. Since then, emissions of both nations have steadily risen. China is poised to become the world's largest GHG emitter sometime later this year. The economic power and environmental influence exerted by these two nations is so great, they are able to almost single-handedly derail (or advance) international negotiations on a successor to the Kyoto Protocol.

China will be present at the June summit of G8 leaders plus five industrialized countries, where energy and climate change will be on the agenda. The summit is regarded as a pivotal event leading to the negotiation of a post-2012 global climate change regime. Many are hopeful that it will lead to a resolution that would kick-start negotiations at a United Nations climate change meeting in Bali this November.

However, the United States has opposed the call for coordinated global action on climate change under the jurisdiction of the United Nations. Instead, the U.S. wants provisions that would allow each country to take its own approach depending on its individual circumstances, recognizing the merits of a 'diversity of approaches'. The U.S. has stated its opposition to the Kyoto-style approach of hard caps, and supports a technology-driven, voluntary effort to reduce GHG emissions.

The 'Alternative' to Kyoto

That view is exemplified by the Asia-Pacific Partnership on Clean Development and Climate, the six-nation pact involving the United States, China, Japan, India, South Korea and Australia. The agreement calls for collaboration among members on clean coal, liquefied natural gas, methane, nuclear power, renewable energy and bio-energy, with industry-led task groups involving the mining, fossil fuel, and utilities sectors.

China and the U.S. have already forged partnerships in areas of shared interest, notably the development and commercialization of 'clean coal' technology. China, India and Korea have joined FutureGen, a $1 billion, 10-year U.S. demonstration project to create the world's first coal-based, zero-emissions power plant.

The economic motivation behind these coal dealings is clear: China is the world's largest producer and consumer of coal, while the U.S., also a heavy consumer and producer, possesses expertise in coal technologies and services. Critics of the Asia-Pacific deal (often referred to as 'Kyoto-Lite') argue that it is a vehicle for promoting coal and fossil fuel technologies, and point out that it lacks any targets for reducing greenhouse gas emissions.

Both countries have indicated they will not accept hard targets for emissions reductions. The U.S. rejects hard caps on the basis that it will curb economic growth, and has set a goal of reducing the GHG "intensity" of the U.S. economy - the amount of GHG emissions per unit of economic output - by 18 percent by 2012. (Canada's recently released plan calls for large industrial emitters to cut intensity by 18 percent by 2010.

One of the major reasons the U.S. opted not to sign the Kyoto Protocol was that the deal did not include enforceable targets for developing nations such as China. Ironically, China has used the U.S. refusal to accept targets as justification for its own rejection of hard caps.

The Chinese government has maintained the position that industrialized countries are responsible for the vast majority of greenhouse gas emissions, and asserts that its own targets should take into account the fact that economic growth helps reduce poverty. The European Union and other developed nations have agreed on the principle that industrialized nations should commit to emissions reductions while developing countries should achieve a balance between economic growth and emissions cuts, an approach the United States rejects.

The apparent deadlock has not stopped continued collaboration however, as environmental officials from China and the U.S. gathered in Washington, D.C., for a Strategic Economic Dialogue that included energy and climate issues. Several GHG-related agreements were signed, involving clean coal technologies and energy efficiency.

According to the U.S. Environmental Protection Agency (EPA), the U.S. and China will work to develop up to 15 large-scale Coal-Mine Methane capture and utilization projects in China over the next 5 years. Methane has roughly twenty times more impact on global warming than carbon dioxide, and can provide an easily accessible energy supply.

A Memorandum of Understanding (MOU) was signed on energy efficiency product endorsement labelling. Building on the countries' own labelling programs, the deal aims to build capacity for voluntary energy-efficiency endorsement labelling in China and to explore labelling harmonization between the U.S. and China.

The countries also agreed to complete an economic study of different policy approaches for saving energy and controlling emissions from their respective power sectors before the next dialogue. Collaboration in this area will likely involve further exploration of coal technologies, with possible investments in renewable energy, transmission infrastructure, and energy efficiency. A full list of U.S. EPA clean air and energy projects in China is available here.

A significant partnership

While the U.S. and China have certainly stepped up cooperation on energy and climate issues, they are by no means perfectly aligned. China has indicated more willingness to join a post-Kyoto regime than the U.S., and has also forged ties with Kyoto supporters Japan and the European Union.

Given China's economic and environmental heft, it's no surprise that many countries are seeking a piece of the action. According to a projection from the International Energy Agency, China could be responsible for nearly 40% of the rise in global GHG emissions over the next few decades, and the country will be a huge source of demand for energy technologies. It is already one of the largest players in the international carbon market.

China has not yet been required to take a firm stance on a post-Kyoto agreement, but may be forced to do so at the upcoming G8 meeting and UN climate change conference. Were China and India to throw their weight behind a hard emissions cap and make the U.S. the only dissenting world power, they could place considerable pressure on Washington to join, while feasibly maintaining profitable partnerships in clean coal and other sectors.

However, if the U.S. and China choose to advocate voluntary actions and technology development in place of a Kyoto successor, they may be successful in pulling Australia, India, and possibly others along with them, strengthening the Asia Pacific pact that has so far attracted little investment compared to its UN counterpart. If that is the case, this powerful alliance of some of the world's largest fossil fuel consumers could set a new global tone, impeding the effectiveness of any cap-and-trade agreement reached by other nations.

In the end, the only fact that truly matters is whether or not any agreement results in a net decrease in greenhouse gas emissions to a level that will help avoid the worst impacts of climate change. Were the U.S. and China able to demonstrate the effectiveness of an alternative approach, they no doubt would be able to bring others along with them. It does seem incongruous, however, that political, economic and environmental influence in the worldwide effort to combat climate change now appears concentrated in the two countries that have been most opposed to the accord that has united other nations.