Efficiency targets fall short of achieving a low-carbon future in China

Abstract

“Current efficiency targets are based on a production-based logic leading to outsourcing and higher costs. Allocating emissions to the point of consumption may better reflect the ability to pay the costs of mitigating emissions.”

Keywords:

• carbon leakage
• China
• climate mitigation
• supply chain
• regional disparity

Several studies have shown that people in developed countries enjoy a high standard of living at the expense of CO₂ emissions produced in less affluent, developing countries [1–3]. However, this relationship between developed and developing regions also exist within a country's borders, with rich regions consuming and exporting high-value products and services that depend upon imports of low-cost and emission-intensive products from poorer domestic regions upstream in the supply chain [4]. China is the world's largest CO₂ emitter with huge regional disparity in economic development [5]. The consumption in the highly developed coastal provinces is heavily relying upon production in less-developed central and western provinces, thus externalizing pollution to these provinces.

With regard to climate change mitigation, China's 12th five-year plan sets a mitigation target to reduce carbon intensity of its economy by 17% from 2010 levels by 2015 [6], with regional differences in intended carbon intensity (carbon emissions per unit of GDP) reduction ranging from 10% in the less-developed western provinces to 19% in east coastal provinces. Therefore, highly polluting but economically poorer regions with large emissions and backward technologies are required to reduce their emissions by lower shares than the richer provinces, which are already relatively cleaner regions with much higher efficiency rates.

An unanticipated side effect of such a stricter policy in the coastal provinces might lead to carbon leakage if affluent coastal provinces respond by importing more products from less-developed provinces. In fact, to reduce the environmental impacts, rich regions in coastal China, such as Shanghai, Zhejiang and Jiangsu, have already externalized some of their emissions by buying energy-intensive but low-value-added goods from poor regions [4,7]. For example, more than half of emissions related to goods consumed in rich coastal provinces are bought from less-developed central and western provinces [4]. Thus, efficiency goals even if achieved in the central and western parts of China would be more than compensated by continuing outsourcing from coastal China. The overall effect would be less than optimal as larger shares of carbon intensive production would happen under less-sophisticated technological regimes.

This points already to a second issue that is related to ‘how cost-effective such approach would be given the differences in carbon intensity across Chinese provinces?’ Since the ‘open door’ policy was launched in China in 1978, foreign direct investment (FDI) has mainly been directed at the east coastal regions. By 2010, approximately 85% of total FDI was received in the coastal regions [8]. With the huge FDI and preferential economic zones designation driving the fast pace of economic growth, the coastal regions had the opportunity to obtain more advanced and energy-efficient technologies and develop modern production infrastructure in contrast to higher energy-intensive and backward technologies in other regions. Given their lower standard of technology, the marginal costs for carbon emissions mitigation in the less-developed central and western regions would be much lower than the advanced coastal regions. Consequently, regional inequities of technology and economic prowess may be key obstacles to achieving these national emissions reduction targets in China.

One way to deal with both of these issues is by changing the way we account for emissions and distribute responsibility. Although territorial, production-based or territorial inventories of CO₂ emissions, allocating emissions to the point of production, are generally used to evaluate progress against targets, consumption-based inventories that instead allocate emissions to the point where products are consumed may better reflect the ability to pay the costs of mitigating emissions. Current efficiency targets are based on a production-based logic with the inherent shortcomings leading to leakage and higher costs, thus policy tools should reflect a consumption based logic. This could be achieved through a carbon tax levied early in the production process that would ripple through the system and eventually guide final consumption through change in relative prices. Similarly, in a cap and trade context, a CDM within China may encourage the rich provinces to either transfer or invest in low-carbon but energy-efficient technologies in the poorer provinces to gain their carbon credits with much lower cost, which to some extent prevent the transprovincial boundary carbon leakage.

Even if households and other final consumers in such a policy regime would have the information (e.g., through consumption-based carbon labels) and incentives to reduce their carbon emissions, they would still be limited by urban infrastructure and land use, effectively locking them into certain routines, which would make their efforts to change to low-carbon alternatives very difficult. For example, suburban households may pay a higher carbon tax due to their relatively high demand for transport and heating as a result of less-efficient housing size and layout and lower housing and public transport density. There is only so much that environmental conscious consumers can do when left to their own devices. Therefore, decision-makers at the urban and local government level need to step up to provide the necessary infrastructure and urban environment that is conducive to help reduce emissions.

One caveat to urban provision of a low-carbon infrastructure is the global nature of CO₂ as a pollutant. Thus, there is no real motivation for local governments to reduce their carbon footprint other than being pushed by so far insufficient government regulation. To achieve CO₂ emissions mitigation targets at the local level, it is important to couple policies fostering CO₂ emissions mitigation with other environmental and public health issues, such as local air pollution that is related to burning fossil fuels. For example, urban energy consumption is one of the largest contributors to China's CO₂ emissions and local air pollution. According to the Chinese national observatory, 104 cities across 20 provinces are seriously suffering from air pollution [9]. According to the country's former health minister, air pollution in China kills up to 500,000 people each year [10]. In general, urban and local governments are usually more interested in solving local air pollution to reduce, for example, health-related expenses by implementing stricter environmental policies. Evidence for this can be found by a number of recent urban-level regulations focusing on curtailing local air pollution. For example, China recently set a target to reduce PM2.5 particles by 5–25% per year in response to current severe air pollution [11].

Therefore, identifying win–win solutions for CO₂ emission reduction by looking at other policy arenas such as reduction of air-pollution-related respiratory diseases or reduction of obesity levels through changing land use might have considerable co-benefits with low-carbon strategies. Such an approach would provide a more effective policy strategy by changing the cost–benefit ratio than by just focusing exclusively on CO₂ emissions.

Additional information

Notes on contributors

Klaus Hubacek

Kuishuang Feng