Economic slowdown and China’s green future

Economic slowdown and China’s green future

China has adopted a high-profile role as a champion for climate action and renewable energy. Yet, as the country faces new economic constraints, its climate endeavour might be in danger.

Action moves forward but the challenge persists

With the effects of climate change becoming increasingly clear, climate action is now more important than ever. In recent years, China has emerged as a new leader in climate action. It has become the largest investor in renewable energy and creating effective policies to transit to low-carbon development.

Last year´s Intergovernmental Panel on Climate Change (IPCC) Special Report concluded that coal needs to exit the energy sector by 2050 if warming is to be limited to a 1.5°C increase by 2100. Beyond this, rising temperatures will significantly increase climate-related risks. The efforts of China, the largest world emitter with 27% of global CO2 emissions, will be critical to achieving this target.

China stabilized its emissions between 2013 and 2016. It also achieved its 2020 carbon intensity reduction target by reducing intensity by 5.1% in 2017. However, emissions grew again by 1.4% in 2017 and by 4.7% in 2018. The country has been successful in staying on track to meet its Nationally Determined Contributions (NDC). However, the ambition of these pledges is not enough to limit warming below the 2-1.5°C increase. Furthermore, reliance on coal is not declining as expected. China is still responsible for 46% of global coal production and 51% of global demand. In 2018, it approved $6.7 billion worth of new coal mining projects and increased coal production by 5.2% to 3.55 billion tonnes.

Beijing’s winter dilemma

As the US-China trade dispute adds pressure on the Chinese economy, industrial profits have been cooling down. In November, profits decreased for the first time in three years to reach 594.8 billion yuan ($86.33 billion), or 1.8% less than the previous year. This earning drop is likely to continue in 2019. With the aim to counter this downturn, Beijing could relax its compliance measures against pollution.

In 2018, the Chinese government reduced subsidies for solar projects and lifted a 2-year ban on new coal-fired power plant construction. Targets for overall emissions cuts were revised down by 3% from 2017. Lu Ting, chief China economist at Nomura International said that the anti-pollution campaign this winter would be less ambitious “given the headwinds from weakening demand and more challenges from rising trade protectionism and the escalation in China-US trade tension”.

However, in their rhetoric, Chinese leaders don’t seem to be willing to give up on their fight against pollution. Beijing´s top climate change envoy declared last November that the country will work to achieve its existing greenhouse gas targets. He also said that China will strive to do better as the challenges of climate change become more urgent.

According to a recent statement of the Ministry of Ecology and Environment (MEE), the government is not planning to relax the targets on pollution. Instead, the MEE claims to be implementing a more nuanced and targeted approach. Currently, it allows local authorities to consider more appeals during environmental inspections and to implement their restrictions with consideration of regional emission levels. In 2018, the MEE issued 166,210 notices of penalty to violators, which accounted for 13.6 billion yuan ($1.98 billion) in fines.

Balancing internal needs and pressures

China’s climate change effort is mainly driven by domestic factors. Among the main ones there are its energy demand, the pollution issue, or the need to restructure its economy. Yet, this effort also faces domestic constraints. As stated by the MEE, “some regions have weakened their cognition of the significance of the environment amid economic downstream pressure”.

In China, coal remains the largest source of energy supply, accounting for 65% of the total. Even if renewable energies are becoming more affordable, coal is still cheap and abundant. The coal industry employs more than 4.3 million Chinese and is still very influential at the provincial level. A report by CoalSwarm found that local governments benefited from the decentralized permit system to develop 259 gigawatts of new coal capacity despite central government restrictions. As the shift towards low-carbon development advances, the participation and transparency of the industry actors becomes more critical. However, law enforcement is proving to be challenging.

This duality is also manifest in the public opinion arena. A wide spectrum of the climate community has exhibited disapproval in social media against the high-profile environmental expending while more visible socio-economic issues remain unattended.

Scenarios down the road

This context opens the door to different avenues. In the most likely scenario, China will need to find a balance between its domestic approaches. A more conservative sector will try to push back on the enthusiastic climate effort lead by the government. While this won’t affect the current climate policy framework, it could prevent the authorities from scaling up their ambition. Moreover, it could also slow down China crackdown on coal.

Under this possibility, China will still meet its promised NDC pledges. However, these are insufficient to meet global warming below 2°C. Unless other countries make much more substantial efforts, this would result in a global scenario with a very high risk of severe climate-related events. Here, no change will equal great changes.

In a less likely, but still realistic assumption, China could start to flatten its emissions between now and 2030. Beijing could find ways to accommodate its internal and economic needs and increase its ambitions to be better aligned with a scenario below a 2°C increase. For this, however, the international context must also evolve. Solving trade disputes and having the US back at the Paris Agreement table would strengthen China’s responsibility and enable further enthusiasm.

About Author

Borja Fernandez

Borja Fernandez is an analyst with focus in Asia-Pacific geopolitics and economics. He holds an MA in International Relations from Institut Barcelona d’Estudis Internacionals. He has studying experience and a strong interest in China and he is fluent in Mandarin. He worked on economic affairs and climate finance policy at the United Nations Economic and Social Commission for Asia-Pacific, in Thailand.