China didn’t need COP21 to act

Hailed as one of the greatest diplomatic efforts of the past 30 years, on Saturday 196 countries came to an agreement to take steps to reduce the risk of global temperature rising beyond 2 degrees. An effort that once again went down to the wire, the agreement represents the start of a long road towards climate change mitigation. A road that many are already calling unrealistic, but for others it was a major achievement in that it is the first time that all the major parties, including the United States, were able to agree terms.

It is a framework that has imperfections, particularly in the fact that it is non-binding and is void of specific steps that need to be or will be taken. However, make no mistake, this should be seen as a solid foundation from which action will be taken.

For many, the hard work starts now, but for the US and China, this can be seen as a continuation of the work that resulted in the September US-China Joint Statement on Climate Change. A framework that sets the models for how developing countries, like China and India, will look to prosper over the next 35 years, whilst developed countries and regions like the US and EU will look more towards how they can clean up their already matured economies.

This framework in many ways represents what many had hoped would be agreed on in Paris, particularly on areas of emissions commitments, technology transfer, and financing mechanisms.

Going forward though, and in considering the challenges that will be faced as China drive to urbanize another 300 million people by 2030, there are actions that we feel the agreements made in Paris and between the US and China set up.

Reduction in energy intensive industries

As China draws closer to 2030 and the end of its large-scale urban development, which for so long has been the basis of its economy and energy use, its footprint will naturally begin to decrease. With the urban centers well established and its urban population growth stabilizing, energy intensive industry such as cement, steel, glass, and aluminum will be replaced by a greater contribution of the service economy and reductions in resources (energy) intensity will be seen throughout the economy. These natural reductions likely underpin China’s confidence that its emissions will peak in 2030.

Increased investment in cleaner energy systems

While there have been reports over the last year that China’s coal energy production levels have come down, it is important to remember that in the short term coal will be China’s primary fuel and any divestment from coal will come later. In fact, in the last 12 months, over 150 plants have been approved across the country, which will ramp up consumption capacity.

This doesn’t mean that it will forgo its targets set out in the US-China agreement, China now leads the way in renewable investment and nuclear installation, but before King coal is officially declared dead, changes will come through large scale restructuring of the energy industry, increased investment in renewables, improvements in grid connectivity and production side efficiencies.

Investments in energy efficiency

As an area we have addressed in previous blogs, it is one of the areas where China has the most potential to see returns and we see it as a vital component to China’s hope of achieving peak emissions in 2030.

In fact, in the US-China agreement it was pledged that 50% of new building would be green by 2030. With a large portion of energy consumption coming through energy efficiency buildings and cities, the opportunity to mitigate (or even reduce) the energy load required will come through better urban planning, better building standards, and continued retrofitting of existing buildings. 

This is also likely an area where technology sales/ transfers to China can happen!

Adjusted Resource Pricing

In the final draft of the agreement there was a stress on development of education towards the issue of climate change and sustainable development. Whilst this is a nice sentiment, it is not going to lead to strong enough behavioural change in the short term

Within China, we see change coming from the rising cost associated with the consumption of energy. People will not be driven to change unless it directly impacts on their daily lives, through convenience or economic and financial implications, and recent announcements by the China’s National Development and Reform Commission and the National Energy Administration to move energy pricing to a more market-orientated system support this point – that the State sees the increased cost of the energy to residential, commercial and industrial users as a way to change behaviour.

Increase Regulation and Improved Enforcement

Whether driven by its own research showing the impact of pollution on its soils, or the increased public concern over the impacts of air pollution to urban residents, there has a clear behavioral shift by the government in recent years.

It started with statements of needing to find a balance, has resulted in the promulgation of new laws, has forced the closure, fines, and arrest of those in violation of laws, and has also been behind the government’s decision to release PM2.5 data for China’s major cities.

In this area, particularly given the challenges are likely to grow in size, scale, and speen in the coming years, it can only be expected that the level of interest (and activity) by the government will increase.  Interest that at times may not feel sustainable, but none the less has the power to negatively impact the operations of firms in China.

Conclusions

In reality, while many were looking for China (and others) to go above and beyond the call of duty, for China the big commitment was made with the US in September. PM2.5 remains and major problem in its cities and is the driving force behind civil concern and energy restructuring, and the actions explained above are seen not just as a way to reduce carbon, but to provide energy to its billion urban 2030 residents without choking its cities.

With much of the above already rumoured to be incorporated into the upcoming 5-Year plan, it is clear that whether through the COP process, as part of its drive to reduce PM2.5 emissions, or to feel secure about its energy supplies, China is actively taking steps to identify and address the challenges that its energy system faces. A system that is currently adding more power to its grid than all of Europe, every year, and is projected to more than double in size over the next 15.

So, while nothing in COP21 is legally binding, we feel that in combination with the US-China announcement, China has already begun a process of transacting on commitments to bring emissions under control. It may not be coming out of a sense of moral obligation to the global climate, but perhaps that is why many view China as one of the leaders. Because, beyond the emotion of the issues, actions are being taken everyday.

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