Diplomacy is not always diplomatic. This fact of international life was brought to the fore at the recent meeting of the principal American and Chinese diplomats in Alaska. He has also frequently characterized the long-standing climate negotiations of the United Nations – often with the same protagonists. The statement by a Chinese official, ahead of the unfortunate Copenhagen summit, that developed countries “get a hundred years bill” of climate change is revealing of both the tone and the content.
At the base of these confrontations was the assumption that the fight against climate change would be costly. The negotiations boiled down to arguments over the allocation of these costs. China and many developing countries argued that industrialized countries bore the “historic responsibility” of leading the reduction of the carbon emissions that had fueled their prosperity.
As international climate negotiations enter their fourth decade, these arguments persist, but the underlying cost-benefit analysis in many countries has changed dramatically. For a growing number of countries, reducing emissions is now about transforming economies in order to thrive in a carbon-limited future. This is the idea behind the European Green Agreement and the multitude of commitments in favor of climate neutrality – zero net carbon emissions – by 2050. Climate change could still be the “great moral challenge” of a generation that former Australian Prime Minister Kevin Rudd once described, but it is also the occasion of a century.
Despite major caveats, the policy trend is clearly in the direction of stronger climate action.
Of all the recent announcements, China’s commitment to achieve carbon neutrality by 2060, announced by President Xi Jinping last September, may end up being the most important. Indeed, China is by far the biggest emitter of greenhouse gases. In 2019, China was responsible for nearly 28% of global CO2 emissions. Simply put, tackling climate change is impossible without deep reductions in emissions in China.
Xi’s announcement surprised many observers. It has nonetheless followed an identifiable trend in policymaking that can rightly be described as China’s climate pivot. The key is to prioritize GDP growth, even at the cost of rampant pollution, to an increasing focus on the quality of economic development.
Quality means moving up global value chains, increasing indigenous innovation and building an “ecological civilization”. In climate terms, this means making the transition to cleaner technologies, rather than waiting for others to act first.
The outline of China’s 2021-2025 five-year plan, released at the annual “two-session” political meetings in Beijing in March, confirms this approach. The key policy document repeats the 2060 target and foreshadows an action plan for peaking CO2 emissions by 2030. The plan also includes binding targets to reduce CO2 intensity by 18% and energy intensity by 18%. 13.5% by 2025.
Finance is intended to play a key role in this climate transition. Following a landmark 2013 report co-authored by the World Bank, the government strived to develop a “green financial system”, encompassing various financial instruments. The government claims that China is already the largest market for “green loans” (about 12 trillion yuan) and the second largest for green bonds (about 800 billion yuan).
The Governor of the People’s Bank of China, Yi Gang, has identified green finance as a “key task” for the period 2021-2025. The priority areas he named, including standardization, disclosure and integration of climate factors into financial stability ‘stress tests’, reflect a broader drive for sustainable finance in transnational markets and the main jurisdictions.
Indeed, the governor of the PBoC reported cooperation with the European Union and within the G20 on common green classification standards (a subject that has been the subject of joint research by Chinese and European institutions in recent years. , but without tangible results so far).
China and the United States co-chair a G20 sustainable finance group that the current Italian presidency reinstated this year (previous G20 work on this topic began under the Chinese presidency in 2016). In April, the group moved from a study group to a task force, reflecting the growing momentum for sustainable finance among major economies. The group aims to report on “progress” in sustainability reporting and sustainable investment taxonomies this year.
In addition, China’s domestic carbon market was “launched” in February (trading is expected to start mid-year), covering thermal power generators. Initial expectations for its impact are modest, although the market is likely to be expanded and strengthened in the future.
Certainly, major questions arise as to the pace and quality of China’s climate transition. Coal still dominates the Chinese energy mix, accounting for 56.8% of consumption in 2020. There is a major contradiction between increasingly ambitious national targets and the vast external financing of fossil fuels under the initiative. the Belt and the Road “(although the energy mix of the latter may be changing). China’s sustainable finance standards are less stringent than international best practices, although efforts have been reported to correct this.
It has also been estimated that China’s stimulus measures against Covid-19 will “harm the environment”, meaning that the opportunity to “build back better” on a more sustainable basis has been missed. China’s 2030 targets are not as robust as many had hoped, and some experts argue that the 2060 deadline for carbon neutrality is too late. Nor should the pitfalls of “state-led environmentalism”, discussed in detail in China goes green by Yifei Li and Judith Shapiro, to be overlooked.
Despite these major caveats, however, the policy trend is clearly in the direction of stronger climate action. Funding appears to be following policy, with more than 90% of new investments in power generation reportedly going to non-fossil fuels in the first quarter of 2021.
Xi’s 2060 declaration aside, China’s climate pivot has not made the headlines. In Australia, recent coverage of China has been dominated by the pandemic, trade retaliation, Hong Kong and Xinjiang. Fair enough, too. These are all massive stories.
Nonetheless, China’s climate pivot, if pursued, would be at least as important as Covid-19 for the direction of global and regional economies. Clearly, China’s reduced dependence on fossil fuel imports and growing demand for renewable inputs would have major effects on trade relations. More broadly, a serious push for decarbonization in China would become a driver of change in financial markets, global value chains and technological innovation.
The growing momentum for climate neutrality is in everyone’s collective interest, but achieving it will require both competition and cooperation. Regarding the latter, the joint Sino-US announcement on the renewal of climate cooperation is a positive signal, especially in view of the overall state of their bilateral relationship. On the first, major economies will continue to compete for the edge in the technologies and sectors that will propel the net zero transition. Developments in China will play a big role in this landscape.