US, China and the road to Paris

22 Dec 2014Archived News Sally Cook Climate Change Matters

An unprecedented aliance has been established between the United States and China on their response to climate change. This article considers how this alliance may influence global action along with the impacts for businesses in the domestic and global marketplace.
 

The global climate debate is shifting

Together, the US and China contribute over 40% of global CO2-e emissions1.  With a history of strong differences of opinion over the form that action on climate change should take, the joint announcement of emissions reduction targets by these two large emitters, for the post-2020 period is unique in global climate change negotiations.

In summary, the following was announced:
China will cap CO2-e emissions by 2030 and increase the proportion of energy consumed from non-fossil fuel sources to 20% over the same period2.
The United States will reduce emissions by 26-28% below 2005 levels by 2025, with a longer term objective of reducing emissions by 80% by 20503.

The graphs below from the World Research Institute4 illustrate potential emissions trajectories for China and the US in the context of these targets. For China, a cap by 2030 would necessitate a path consistent with the lowest trajectory: the MIT accelerated effort scenario5.
China-CO2-emission-projections.png

 

For the US this target would reflect a continuing decrease in emissions towards a net zero position beyond 2050. 

US-emissions-projections.png

While this show of solidarity is a step change in international negotiations, it is important to note that these announced intentions will not meet the 2°C target. In order to do this, global emissions would need to peak by 2020 at the latest, a full decade earlier than China’s commitment.

Despite being insufficient under a 2°C scenario, the collaboration on this issue has sent a strong political message. The precedent established by both China and the United States by setting absolute targets may influence other countries’ commitments.

However many questions remain: is this progress likely to be mirrored in commitments by other developed and emerging economies? Will the US-China alliance create a tipping point for stronger global climate change action? And what are the impacts for Australian businesses operating domestically and globally?
 

International progress

The position taken by the US and China should be compared with the status of other major emitting or politically influential countries.

China (26% of global CO2-e emissions in 2010)

China has a lot to gain from strong action on climate change. Domestically the Government is experiencing pressure from the populace to reduce air pollution, particularly in Beijing. Reducing coal consumption will be critical to addressing this problem. This has led to a proposal to cap coal use within the next five years (to a maximum 4.2 billion tonnes by 20207). As 69% of China’s energy supply, it’s unsurprising that the target to reduce coal consumption has been matched by a concurrent push for domestic energy security.

China currently has a larger uptake of renewable energy than any other country (in absolute terms). In 2013 China had 378GW of total installed capacity from renewable sources (24% of the world’s installed capacity8) . To reduce reliance on coal the country is also heavily investing in nuclear technology. Current installed nuclear capacity is 19GW and is expected to triple by 20209.

To position itself to thrive in a low-carbon future, China has also leveraged its manufacturing power to become a key producer of renewable energy technologies.

China has also been piloting emissions trading schemes in seven cities and provinces. These schemes cover about 19% of China’s population and 16% of GHG emissions10. Coverage is expected to increase with the announcement of a national carbon trading scheme which will be introduced in 201611

Critics of China’s commitment to GHG reduction are quick to point out that the emissions cap has not been quantified and that the language about the emissions target was non-committal. Claims have also been made that China’s statements are somewhat contradictory: committing to cap coal use by 2020 yet planning to implement 50 coal gasification plants in regional areas12.

While critics may claim that China’s target lacks robustness, the commitment to peak emissions within the next 15 years will require strong action in the interim to decouple emissions from economic growth. This will necessitate a rapid decline in emissions growth and preparation for ongoing decreases in absolute emissions post 2030. Further, it indicated that China now clearly sees that it is part of the solution.

It is also likely that China will experience some pressure from the international community to quantify the levels at which emissions will peak prior to March 2015. The terms for post-2015 targets, under consideration at COP20, propose that abatement commitments will need to “be quantified or quantifiable and can be aggregated”13. The Chinese target in its current form does not meet this requirement.

United States (17% of global CO2-e emissions in 2010)

The United States stands as one of the few signatories to the United Nations Framework Convention on Climate Change (UNFCCC) to not ratify the Kyoto Protocol. Slow progress with climate change action nationally has resulted in a number of regional climate schemes. These include cap and trade schemes in California and the Regional Greenhouse Gas Initiative which covers an additional nine states. Both schemes employ declining emissions caps of between 2.5% and 3% per annum 14 15.

Most recently, the Federal EPA announced the US ‘Clean Power Plan’ which will set national GHG standards for power plants with the aim to reduce emissions by 30% relative to 2005 levels by 203016. Stronger fuel economy standards have also been set for light-duty vehicles and will be followed by standards for medium and heavy duty vehicles.
Like China, the United States has made efforts in recent times to increase domestic energy security. In particular, the significant investment and development of unconventional gas fields in recent years has decreased reliance on foreign energy sources. This has dwarfed their investment in renewable energy sources, which are negligible in comparison (172GW17 ).

Critics of the United States’ target claim that it is unambitious and will be easily met through existing policy measures. Others question the ability of the Obama administration to commit the United States to a target with a majority Republican Congress.
However, as the history of climate change action in the United States demonstrates, there is a lot which can be achieved through policy measures with co-benefits to emissions reduction. The recent public announcement with China suggests climate change will continue to be a focus of Obama’s remaining three years in office.

European Union (12% global CO2-e emissions in 2010)

Europe has historically been a strong proponent for action on climate change. In October, it announced a target to reduce greenhouse gas emissions by 40% by 2030 (relative to 1990 levels18). Each member state will have a corresponding target to contribute to these reductions.

The European Emissions Trading Scheme (ETS) will be a key mechanism to achieve the target. To address recent issues related to oversupply of permits in the ETS market the plan includes the establishment of a market stability reserve: ‘The reserve would both address the surplus of emission allowances that has built up in recent years and improve the system's resilience to major shocks.’19

To complement the abatement target, the European Commission has set a goal of increasing the proportion of renewable energy to 27% a corresponding saving in energy efficiency for 2030.

As a group the European Union has a longer term objective to reduce GHG emissions by 80-95% by 2050 (relative to 1990 levels).

India (6% global CO2-e emissions in 2010)

In international negotiations India is a strong proponent for common and differentiated responsibility: the idea that contributions to future mitigation efforts should be commensurate with economic and technical capacity as well as contribution to historical emissions. This advocates quicker and deeper cuts by developed countries and slower, shallower cuts by developing countries. It also incorporates cost shifting: compensation for developing countries for mitigation actions and to adapt to the impacts of climate change.

In 2014 Prime Minster Modi was appointed, historically an advocate for climate change action. There was indication that India’s public position on climate change may be more proactive.

Under his influence India has doubled its tax on coal to 100 rupees/tonne to fund aggressive solar targets as part of the ‘saffron revolution’20 . Modi was also behind the development of the largest solar park in Asia, the Charanka solar park and three more ‘ultra mega’ solar farms have received funding approval in 2014 21.

Despite this investment in renewable energy, India’s priority areas remain economic development and energy security. The Indian Energy Minister made a surprise announcement recently that the country would cease imports of Australian coal within two to three years. Unlike China’s coal cap, this does not appear to come with a commitment to reduce coal use. Instead imported coal would be replaced with domestic supplies. In addition there is currently a 10% gap22  between energy demand and energy supply in India, before the grid is extended to those who don’t currently have access. Increase in mining activity along with expansion of the coal-dominated electricity grid is likely to be accompanied by an ever growing emissions profile.  

Some optimistically suggest that an Indian announcement on climate targets post 2020 may be made in conjunction with President Obama’s visit in January. However, growing energy demand, economic development and reliance to move away from coal is likely to limit the level of ambition of a target.
 

What can we expect on the road to Paris?

The influence of the two largest economic powers on the political will for change should not be underestimated. Including the European Union, post 2020 targets representing 55% of the current global emissions profile have been announced ahead of the March 2015 deadline.

These announcements may also start to erode the argument relied upon in previous years’ negotiations: that commitments by developed and developing countries were insufficient for others to act. Certainly while commentators described negotiations for a global climate deal at the recent UNFCCC COP 20 meeting as a “work in progress,” there was confidence expressed that more nations would seek to restrain emissions, and in so doing reach a critical tipping point for global action23

While the path to a new global emissions reduction deal will not be smooth, as each country lobbies to ensure outcomes that favour their individual circumstances, the US/China announcement represents significant progress, which is expected to be built upon in the lead up to the adoption of GHG targets by member countries at the Paris COP (COP21).
Over the course of 2015, Australian businesses need to follow global developments and, in the local context, monitor the progress of the recently announced taskforce set up in the Department of Prime Minister and Cabinet to “propose possible new post-2020 targets for Australia to take to the Paris Conference” 24

For more on the issues for business in Australia, please see our article, “Implications for Australia of growing global support for action on climate change”.

Footnotes:

[1] The World Bank: Contribution to global emissions in 2010, http://data.worldbank.org/indicator/EN.ATM.CO2E.KT/countries

[2] Office of the Press Secretary, The White House: U.S.-China Joint Announcement on Climate Change, http://www.whitehouse.gov/the-press-office/2014/11/11/us-china-joint-announcement-climate-change, 11.11.2014.

[3] UN Climate Change News Room, "US, China Climate Moves Boost Paris Prospects", http://newsroom.unfccc.int/unfccc-newsroom/us-china-climate-moves-boost-paris-prospects, 12.11.2014.

[4] Fransen T, Ge M and Damassa T, World Resources Institute, "The China-U.S. Climate Agreement: By the Numbers", http://www.wri.org/blog/2014/11/numbers-china-us-climate-agreement, 20.11.2014.

[5] Massachusetts Institute of Technology: Tsingua-MIT, China Energy and Climate Project, http://globalchange.mit.edu/CECP/publications/latest/2849, 2014.

[6]  Rogelj J, Hare W, Lowe J, van Vuuren DP, Riahi K, Matthews B, Hanaoka T, Jiang K and Meinshausen M: nature.com, "Emission pathways consistent with a 2 °C global temperature limit",  http://www.nature.com/nclimate/journal/v1/n8/full/nclimate1258.html, 23.10.2011.

[7] China Spectator, "China aims to cap coal use by 2020", http://www.businessspectator.com.au/news/2014/11/19/china/china-aims-cap-coal-use-2020, 19.11.2014.

[8] Renewable Energy Policy Network for the 21st Century: "Global Status Report", http://www.ren21.net/ren21activities/globalstatusreport.aspx, 2014.

[9] Pennay P: China Spectator, "China in nuclear power plant push", http://www.businessspectator.com.au/news/2014/12/5/china/china-nuclear-power-plant-push, 5.12.2014.

[10] Jotzo and Teng (2014), China’s Climate and Energy Policy: On track to low-carbon growth?’ The Australian National University

[11] Newsroom, UNFCCC, "China to Open Nationwide Carbon Market in 2016", http://newsroom.unfccc.int/financial-flows/china-plans-to-open-nationwide-carbon-market-in-2016/, 25.11.2014.

[12] Editorial, The New York Times, "China Confronts Its Coal Problem", http://www.nytimes.com/2014/08/17/opinion/sunday/china-confronts-its-coal-problem.html?_r=0, 16.8.2014.

[13] Ad Hoc Working Group on the Durban Platform for enhanced action, UNFCCC, http://unfccc.int/resource/docs/2014/adp2/eng/11nonpap.pdf, 11.11.2014.

[14]  Carroll R, "FACTBOX – The nuts and bolts of California’s CO2 cap-and-trade program’, Point Carbon, 14.11.2012.

[15] Regional Greenhouse Gas Initiative: an initiative of the Northeast and Mid-Atlantic States of the U.S.,

http://www.rggi.org/

[16] United States Environmental Protection Agency, "Clean Power Plan Proposed Rule", http://www2.epa.gov/carbon-pollution-standards/clean-power-plan-proposed-rule, 2.6.2014.

[17] Renewable Energy Policy Network for the 21st Century: "Global Status Report", http://www.ren21.net/ren21activities/globalstatusreport.aspx, 2014.

[18] European Commission (2014) ‘2030 Framework for Climate and Energy Policies’ http://ec.europa.eu/clima/policies/2030/index_en.htm

[19] European Commission (2014) ‘2030 Framework for Climate and Energy Policies’ http://ec.europa.eu/clima/policies/2030/index_en.htm

[20] Parkinson G, ‘Modi accelerates India solar revolution, doubles tax on coal’, 2014.

[21] Carrington D, ‘Can Narendra Modi bring the solar power revolution to India?’ http://www.theguardian.com/environment/2014/sep/30/-sp-narendra-modi-india-solar-renewables-energy, 2014.

[22] Froome C: The Conversation, "India’s energy future: Australian coal or renewable revolution?",  http://theconversation.com/indias-energy-future-australian-coal-or-renewable-revolution-26569, 5.6.2014.

[23] CE Daily: “What Lima means for business”, http://www.cedaily.com.au/nl06_news_selected.php?act=2&nav=10&selkey=52707&utm_source=instant+email&utm_medium=email&utm_campaign=Instant+Email+Article+Link, 15.12.2014.

[24] Department of Prime Minister and Cabinet: Media release, “Assisting the global response to climate change”, https://www.pm.gov.au/media/2014-12-10/assisting-global-response-climate-change, 10.12.2014.

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