from Global Economy in Crisis

Assessing China’s Carbon-Cutting Proposal

China’s newly announced goal for cutting carbon intensity reflects important Chinese policy shifts of recent years, but fails to offer significant new measures to cut emissions, writes CFR’s Michael Levi.

November 30, 2009

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On November 26, 2009, China announced it would adopt a domestically-binding goal of cutting carbon intensity--the amount of carbon dioxide it emits per unit of GDP--by 40-45 percent from 2005 levels by 2020. It also reiterated previous goals of increasing its share of primary energy produced from renewable fuels and nuclear energy to 15 percent by 2020, and of increasing forest volume by 1.3 billion cubic meters over that period while increasing forest cover by 40 million hectares.

These targets, while impressive in some meaningful ways, are disappointing. They reflect important measures implemented in recent years, but they do not represent a deviation from existing Chinese policy. In evaluating the Chinese offer, U.S. and other policymakers will need to decide how much weight to assign to each of these two facts. This brief is a preliminary attempt to put the new numbers in context.

Ultimately, what matters most are the policies China puts in place and their effects on emissions, not the emissions targets it promises in international negotiations. China may have difficulty translating its policies confidently into expected carbon intensity cuts, which will lead to conservative offers of carbon intensity cuts and low apparent ambition. Beijing also faces a real risk that if GDP growth is considerably less than anticipated, achieving its targets will become considerably more difficult; again, this will likely deter ambition in its carbon intensity offer. Indeed, the international negotiations would benefit from a focus on specific Chinese policies, which the Chinese government can directly control, rather than on carbon intensity outcomes, which it cannot, a shift that would likely elicit increased confidence and hence ambition from China. This brief discusses one such option, including specific Chinese policy offers that might be solicited or included.

Does the Chinese carbon-intensity announcement represent a new effort?

No. The Chinese target is consistent with what experts call "business-as-usual," or BAU-the trajectory that economic models project China will follow given the policies it already has in place. That does not mean that the effort is unimportant--China has implemented a host of important emissions-cutting policies in recent years that are already incorporated in BAU--but it does mean that the announcement is highly unlikely to lead to additional emissions cuts.

Emissions and GDP projections in the U.S. Energy Information Administration (EIA) 2009 International Energy Outlook (IEO), published in May 2009, translate to a 46 percent Chinese emissions-intensity cut from 2005 to 2020. Similar projections in the International Energy Agency (IEA) 2009 World Energy Outlook (WEO), published in November 2009, are equivalent to a 40 percent Chinese emissions- intensity cut over the same period. It is interesting to note, though, that since the IEO projects higher GDP growth than the WEO, the actual projected emissions in 2020 are similar in the two models.

The problem with the proposed Chinese carbon intensity cuts is not that they do not result in absolute emissions reductions–it is that they do not represent a significant deviation from current business as usual.

The expected Chinese BAU has, importantly, improved during the last year, in part (but not entirely) because BAU changes in response to new policies. (BAU also changes due to broader shifts in the Chinese and global economies and new modeling assumptions.) The 2008 EIA IEO, published in June 2008, projected a 39 percent reduction in carbon intensity from 2005 to 2020; the increase of 7 percent in the expected Chinese carbon intensity cut, from the 2008 to the 2009 reports, is due at least in part to new policies. Older models do not provide a meaningful extension of this comparison further back in time, since assumptions about Chinese growth and economic structure have changed rapidly.

Two recent Chinese studies further illuminate the question of whether the Chinese offer represents a new effort. A 2009 study from the Chinese National Development and Reform Commission’s Energy Research Institute (ERI) projects a 44 percent decrease in carbon intensity from 2005 to 2020, consistent with the EIA and IEA projections. Another 2009 study from Renmin University, though, projects only a 33 percent cut. This study assumes a considerably lower GDP growth rate than the other studies, which accounts for a large fraction of the difference. Low GDP growth reduces the amount of new capital stock, which tends to be more technologically advanced, and hence more efficient; in addition, as China rebalances its economy, slow growth impedes its ability to shift quickly from heavy industry and toward lower-emission services. The result is a much lower expected carbon intensity cut (though, because GDP is lower, lower emissions too).

How does the Chinese target compare to what other countries have asked for?

The European Union has asked for major developing countries to reduce their emissions by 15-30 percent from business-as-usual. Since the Chinese proposal is zero percent below the current business as usual trajectory, it falls short of these requests. It is unclear how the proposal compares to projections based on business-as-usual policies circa some earlier date (such as 2005), since such modeling does not appear to have been conducted.

The United States has not made a specific public request to China on future emissions cuts. U.S. officials, though, have said that the Chinese proposal is "disappointing."

Will Chinese emissions continue to rise under the proposed targets?

Yes-but that is not a fundamental problem. The EIA projects that Chinese GDP will grow by 218 percent from 2005 to 2020. Juxtaposed with a carbon intensity cut of 40-45 percent, this yields an absolute increase in emissions of 75-91 percent over the same period. The IEO also presents "low growth" and "high growth" cases. Combining this range of possible GDP growth scenarios with the range of possible Chinese intensity cuts yields a projected increase in Chinese emissions of 63-99 percent. In reality, though, low (high) growth is likely to be associated with low (high) carbon intensity cuts, compressing that range.

Additional Chinese efforts to meet their stated target for renewable and nuclear energy could result in actual carbon intensity reductions that exceed the promised 40-45 percent range.

Even under scenarios with much stronger emissions curbs, however, Chinese emissions will continue to grow at least through 2020. Such growth is entirely consistent with stabilization of greenhouse gas concentrations at reasonably safe levels, and with evenly distributed international effort. The problem with the proposed Chinese carbon intensity cuts is not that they do not result in absolute emissions reductions-it is that they do not represent a significant deviation from current business as usual.

What about the target for renewable and nuclear energy?

Additional Chinese efforts to meet their stated target for renewable and nuclear energy could result in actual carbon intensity reductions that exceed the promised 40-45 percent range. Chinese business-as-usual does not achieve the target of increasing non-fossil energy sources to 15 percent of Chinese primary energy by 2020. If China were to implement policies that delivered on that challenging target, it would result in deeper reductions.

What might the deeper reductions look like? The IEA’s 2009 business-as-usual case results in 11.9 percent of Chinese primary energy coming from non-fossil sources in 2020. If one assumed that, instead, 15 percent came from non-fossil energy, and that the additional non-fossil sources displaced coal-fired energy, Chinese coal consumption would be reduced by 97 million tons of oil equivalent (Mtoe). Burning that much coal results in 380 million tons of carbon dioxide emissions (MtCO2), equivalent to 4 percent of the IEA-projected Chinese emissions in 2020. Added to the 40 percent carbon intensity cut projected under business as usual, this results in a 44 percent carbon intensity cut.

One can do a similar calculation using the U.S. EIA’s 2009 projections. The EIA projects that China will consume 274 billion kilowatt-hours of nuclear energy and 11.8 quadrillion BTUs of renewable energy in 2020. This is equivalent to 71 Mtoe of nuclear energy and 297 Mtoe of renewable energy, a total of 368 Mtoe, or 11.8 percent of total projected primary energy consumption. If, once again, that amount is increased to 15 percent, and is assumed to displace coal, it will result in 100 Mtoe of reduced coal consumption, and slightly less than 400 MtCO2 lower emissions, equivalent again to a 4 percent cut in emissions intensity. Adding that to the EIA BAU projection, one finds a 50 percent cut in carbon intensity from 2005 to 2020, substantially beyond the stated Chinese carbon intensity target.

How much emission cuts does the forest target translate to?

Trees absorb, on average, 1.8 tons of carbon dioxide in every cubic meter of new wood. Adding 1.3 billion cubic meters of forest, the goal proposed by China, thus translates into 2.3 billion tons of absorbed CO2. This is a total amount absorbed between 2005 and 2020. Translating this into an annual rate of emissions cuts in 2020 requires making certain assumptions.

Assume that forest area is added linearly from 2005 to 2020 and that all new forest volume comes from newly planted forests. Then the total amount of CO2 absorbed in 2020 is equal to twice the annual average, or 310 MtCO2. This is consistent with the Chinese goal of increasing forest cover by 40 million hectares. (It would require roughly 17 cubic meters of wood per hectare per year, a high number, but one that is consistent with some plantations.) Alternatively, assume that forest volume is added linearly from 2005 to 2020, which would mean that a significant fraction of new forest volume would come from growth of existing forests. Then the total amount of CO2 absorbed in 2020 is equal to the annual average, or 150 MtCO2.

The actual figure is likely somewhere in between. If one (generously) assumes that business-as-usual involves no expansion of forest stock, then this is roughly equivalent to an additional 1.6-3.2 percent cut in projected Chinese carbon intensity in 2020.

What other policies and cuts are possible?

China could realistically go substantially beyond its existing policies and non-fossil energy targets. The IEA’s 2009 report lays out a set of policies (beyond those already in place) that it projects would cut Chinese emissions intensity by 48 percent (rather than 40 percent) from 2005 to 2020. It includes policies to increase the fraction of energy coming from nuclear and renewables to 16 percent (38 percent of the additional cuts), setting of world-class efficiency standards for steel and cement production (22 percent), intensified rebalancing of the Chinese economy toward services and away from heavy industry (20 percent), standards for building efficiency, appliances, and lighting (14 percent) and stronger fuel economy standards for cars and trucks (6 percent). Rebalancing the Chinese economy is likely to be less useful than the other options, since it may simply displace heavy industry (with its associated emissions) to other parts of the world.

Other studies have identified substantially greater potential for emissions cuts. If, for example, China were to exploit all the negative- and relatively low-cost opportunities to cut emissions through 2020 identified in a recent McKinsey & Company report, it would cut its carbon intensity by about 56 percent from 2005 to 2020. The recent Chinese ERI study noted above lays out two reduced-emissions scenarios. The first entails a 54 percent cut in carbon intensity from 2005 to 2020, while the second entails a 56 percent carbon intensity reduction over the same period. The Renmin University study cited earlier presents its own "emission control" scenario, which results in a 51 percent reduction in carbon intensity from 2005 to 2020. It is reasonable for the world to expect such efforts--or at least figures closer to these than to business-as-usual--from China.

How does the Chinese goal compare to Chinese efforts over the past five years?

Poorly. China has been applauded for its current five-year plan, which aims to cut energy intensity by 20 percent from 2005 to 2010 while increasing the share of renewables and nuclear in primary energy. The net result of those targets, if met, would be a cut of about 24 percent in carbon intensity from 2005 to 2010. (Experts differ widely on whether those targets will indeed be met.) If those targets are met, the additional cut required from 2010 to 2020 to meet the declared Chinese intensity target for 2020 would be 21-28 percent, or 11-15 percent over each of the next five-year periods. This is substantially less than the goal in the current five-year plan.

Negotiators will need to be creative if they want to find a formula for increasing the ambition of the Chinese proposal while allowing Beijing to save face.

Is such a lower rate of intensity reduction justifiable? The current efficiency drive has addressed a large amount of low-hanging fruit, such as small, inefficient coal-fired power plants; those opportunities can only be captured once. But much low-cost opportunity remains, including enormously inefficient use of energy as well as rebalancing the Chinese economy away from heavy industry and toward services. On top of that, advances in technology are creating new opportunities for low or no-cost emissions cuts that were not available in 2005. Indeed, if China were to repeat its 24 percent carbon intensity cut over the next two five-year plans, that would amount to a cut of 56 percent from 2005 to 2020.

How does the Chinese proposal compare to the U.S. proposal?

It is extremely difficult to compare the Chinese and U.S. proposals, given the vastly different circumstances facing the two countries. The U.S. economy, on the one hand, is considerably more efficient than the Chinese one, leaving less room for cheap emissions cuts. The United States, though, has a greater ability to pay for emissions cuts, given the fact that its people are, for the most part, far wealthier than those in China. Any simple quantitative comparison between the two countries must therefore be interpreted carefully.

The United States has proposed reducing its emissions by 17 percent from 2005 levels by 2020. The U.S. EIA projects that U.S. GDP will increase by 41 percent over that period. The net result would be a 41 percent carbon intensity cut, similar to the proposed Chinese number-though that does not necessarily imply similar ambition. Some have argued that the U.S. cut may actually be equivalent to 27 percent from 2005 levels by 2020, if legislation creates a fund to avoid deforestation equivalent to 10 percent of 2005 U.S. emissions (as is the case in the Waxman-Markey legislation approved by the House Of Representatives). Under that accounting approach, the U.S. carbon intensity cut would be 48 percent from 2005 to 2020. It is important to note that the U.S. goal is inclusive of international offset purchases, while the Chinese goal is for domestic emissions cuts only.

What about the period from 2010 to 2020, which provides an indicator of future effort? Based on EIA projections of emissions and GDP, a 17 percent cut from 2005 emissions by 2020 would be equivalent to a 35 percent cut in U.S. carbon intensity from 2010 to 2020. This contrasts with a projected 21-28 percent cut in Chinese carbon intensity over the same period under its proposed targets, assuming that it first achieves the targets in its current five-year plan.

What happens next?

China is unlikely to revise its declared carbon intensity goal in the face of Western opposition. Negotiators will need to be creative if they want to find a formula for increasing the ambition of the Chinese proposal while allowing Beijing to save face.

One option may be to ask China to commit to continuing its existing policies (rather than committing to the intensity cut that they are likely to produce) and to also implement new policies that would deliver on existing renewables and forestry goals, along, perhaps, with new standards for some or all of heavy industry, transportation, and building and power plant efficiency. (Standards for heavy industry are of particular concern for U.S. competitiveness.) While this would still likely leave the expected Chinese emissions cuts well below what most would legitimately like to see, it would increase the likely cuts beyond the proposed Chinese intensity target, and beyond business-as-usual, without requiring that target to be explicitly revised. It would also leverage the fact that China can more confidently commit to ambitious policies than to their carbon intensity outcomes.

Much effort will also now focus on transparency measures for Chinese policy, as well as on whether and how its targets will become legally binding internationally. In announcing its carbon intensity target, China emphasized that its actions were voluntary. The day after, it reiterated that it would not allow verification for measures that were not supported by international finance or technology. These are positions that many others--and the United States in particular--will, rightly, find difficult to accept. This may not surface strongly at Copenhagen, but it will become a major sticking point if any political agreement this December is eventually to be transformed into a legally binding deal.