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The US and China – New Best Climate Buddies?

David Roland-Holst, Adjunct Professor, Agricultural and Resource Economics | November 17, 2014

This week’s climate announcement by Presidents Barack Obama and Xi Jinping is certainly momentous. The United States and China account for nearly half of global greenhouse gas emissions, making their joint participation a necessary condition for any successful global response to climate risk. By stepping up together, they are also removing one of the main pretexts for other countries to defer climate action: “Why bother if we can’t make a difference?” So an unprecedented bilateral commitment could be a watershed event for the planet.

How hopeful should we be? The answer is, as economists love to say, “It depends.”

How words will become actions in such a complex policy setting depends mainly on the motives of these two super-economies. Before we romanticize the new hookup, though, let’s recall a tart old Chinese saying about marriage: “Same bed, different dreams.”

Obama and Xi came to their partnership from very different perspectives. Despite occasional spells of strategic silence, Obama has made his climate intentions pretty clear over two terms in office: move the U.S. economy toward a lower carbon pathway, promoting innovation to compensate for adjustment costs. In our democratic system, the checks and balances of political opposition and private-sector advocacy have complicated Obama’s progress. In China, two generations of leadership have single-mindedly promoted carbon-intensive economic growth, without much in the way of checks and balances thanks to a political monopoly.

For years now, U.S. observers have scolded China about its emissions, ignoring the fact that 30 percent of China’s energy is used to produce goods for foreigners and three-quarters of the stock of atmospheric CO2 was put there by 1950, when China’s per capita income was $3/day.

It is a mistake for developed countries to claim moral authority in the climate debate. High-income societies do not regulate toxic emissions because they like clean drinking water, blue skies, or healthy babies any more than low-income societies, but because they have largely overcome more pressing needs and cannot afford the public health costs of pollution.

As average incomes rise, governments usually assume more of the cost of public health, which helps to explain our ever-rising taxes on cigarettes, alcohol, and even big sodas (in Berkeley at least). Climate risk is real, but its magnitude and timing are uncertain, and this more than anything else explains the North-South disparity in risk perception. Lower-income countries have what economists call a higher discount rate, meaning a lot of serious needs and risks to deal with right now. These include, but are certainly not limited to, poverty (still 40% of humanity), undernourishment (800 million/yr), infant mortality (2 million/yr from diarrhea alone), and death from preventable diseases (30,000/day).

It follows from these inconvenient truths that the wealthy countries should assume climate policy leadership, unless they want to wait until the damages from climate change become comparable to the adversities of daily life in the developing world. If you are curious about what that might be like, you don’t have to wait; just visit a major Chinese city this winter.

China is locally experiencing precisely this challenge, as urban air pollution reaches intolerable levels. In the North and East of the country, toxic emission concentrations last winter exceeded 16 times the World Health Organization’s recommended upper limit, and they are set to do so again. This is what really keeps Xi Jinping awake at night; he wants to dream about clear skies over his own capital.

I myself braved the air in Beijing ten days before the summit, giving a speech to the National Development and Reform Commission, China’s powerful planning agency. For the first time, outsiders were invited to make recommendations for the next (13th) Five Year Plan. Eight experts from around the world were brought to address a closed meeting of about 200 Chinese policy makers, talking about different dimensions of this blueprint for China’s future.

My topic was China in the global economy, and among ten recommendations I could not omit a reference to the environment. Here is how an outsider presents the issue if they want to hold this audience: “China’s energy system has become a critical source of public health risk, and it is imperative that per-capita toxic emissions be reduced, especially in urban areas. Natural gas fuel substitution in electric power and ground transportation is the fastest way to accomplish this goal. To meet its emission reduction needs, China should significantly expand gas imports over the next five years.”

There was no need to mention the global climate, because the primary concern for China in this context, as for every country, is domestic. Acute health risk has finally overtaken striving for material gain. The new leadership has known this since before they took office and, along with corruption, pollution reduction is among their highest domestic priorities. Of course this will benefit the climate, and Xi Jinping astutely recognized this as an opportunity to assert global leadership in common cause with a “necessary” ally.

Personally, I believe China’s commitment is real and we have much to gain from our marriage of convenience. Like our own venture community, Chinese businesses recognize that clean technology is the next breakout knowledge-intensive sector. Their entrepreneurship has already created the world’s largest hydroelectric, photovoltaic, solar water heating, and wind turbine industries. I also think we can rely on the pragmatism of Chinese leaders, who don’t waste time denying science or raising campaign funds from conventional energy interests.

China can have its dream and we can have ours, but we have a precious opportunity that should not be wasted. Our leadership can make a difference globally if it changes behavior within our own countries and brings others along to establish a credible multilateral climate agenda. To have a chance of success, this would have to include three components:

  1. Mitigation – This means climate stabilization, and the sooner the better.
  2. Adaptation – We have to protect ourselves from climate damage, and if we don’t help others do so, we will regret the consequences.
  3. The right to develop – Can we expect to be taken seriously if we deny others the livelihood aspirations we have already attained?

Will our dreams come true? Sleep on it.