Carrot-and-stick approach to make China go green

CLIMATE CHANGE is a menace. The Intergovernmental Panel on Climate Change (IPCC) just issued a report showing how serious the situation is. If warming continues on its current trajectory, the report warned, then by the end of this century average temperatures will be four degrees Celsius higher than at the start of the Industrial Revolution.

That may not sound like a big rise, but in fact the results will be catastrophic. Already, the world has warmed by one degree Celsius since the Industrial Revolution started, and the effects are starting to be apparent - the ice in the Arctic is vanishing, devastating hurricanes like Michael and Maria are becoming more common, and wildfires are gobbling up homes and businesses in California. An additional three degree rise would be far more dire - large parts of major coastal cities would be flooded and become uninhabitable, global food production would be in danger, storms and heat waves would reach epic proportions, and flooding and starvation would create waves of desperate refugees clamoring for entry to the US and Europe. Even a rise of only one more degree - which now seems inevitable - will carry serious consequences.

The effort required to halt climate change will be intense - essentially, the equivalent of a mobilisation for war. The IPCC estimated that in order to limit global warming to the relatively safe level of 1.5 degrees Celsius, the world would need to eliminate coal power and invest US$2.4 trillion a year in green energy technologies. That is about 3 per cent of global economic output, or 10 per cent of global capital formation. It is doable, but daunting.

Playing catch up

There is one huge problem with this plan, however - the bulk of this massive, unprecedented investment will have to be done not in wealthy nations, but in developing countries. And one developing country looms much larger than the rest. China now releases almost as much carbon dioxide as the US and Europe combined. Developed countries grow slowly - perhaps around 2 per cent a year. China, because it is still catching up, grows much faster, at around 6.5 per cent. That rapid growth is why China's emissions have soared since 2007, even as the US and Europe have made modest progress.

As China continues to catch up, its already enormous share of global emissions will only grow, unless it takes dramatic steps to decarbonise its economy. To its credit, China has made moves to limit coal use. But the country's emissions continue to rise.

This leads to a painful but inescapable truth - no matter how much they spend, no matter how dramatically they change their societies, the US and Europe will not be able to put much of a dent in global warming on their own. Yes, the US should ban coal power, tax carbon heavily and spend lots of money on building green energy infrastructure. But without a huge change in China, none of that will matter - the battle against climate change will be lost.

That truth will naturally sit uneasily with Americans, who as a group have grown accustomed to being the driver and arbiter of world events. Being dependent on the actions of foreigners to save US cities, crops and homes is disconcerting and unfamiliar. Many - including pundits and leaders who should know better - will be tempted to escape into fantasy, declaring that climate science is overhyped, or that a halt in rich-country growth will be enough to solve the problem. Others will desperately cling to the hope that by setting a good example, the US can cause China to change by moral force alone - ignoring that Europe set a good example by embracing the Kyoto Protocols and the Paris Agreement, and China's emissions barely paused.

Real threat

But retreating into the illusion of control will do nothing to avert the very real threat of environmental doom. Instead, Americans should think about ways that they can encourage China to reduce its carbon emissions. One idea is to tax products from China based on their carbon content.

Unfortunately, this is likely to have at best a modest effect. There is a popular misconception that US emissions have decreased only because they have been outsourced to China via offshoring of polluting industries. But when emissions are calculated based on how much countries consume, the basic situation between the two nations looks much the same.

A better idea is to actively encourage China to give up coal. China, due to coal use and its manufacturing-heavy economy, uses more carbon to produce each dollar of gross domestic product than most other countries. There is thus lots of scope for improvement. The US should consider both carrots and sticks to make that happen.

ARPA-E, the US's energy-technology research agency, should be dramatically scaled up. Either all technologies produced by ARPA-E should be given to China for free, or the agency turned into a joint venture with China, ensuring that Chinese companies are able to replace coal with solar and wind as quickly as possible.

In many cases, it is bad when China copies American technology. In this case, it is exactly what the planet needs. Of course, these technologies should also be given to India, Africa and other developing countries seeking to lift their people out of poverty.

But even with such measures, the degree to which the US and Europe can force China into going green is limited. To a large extent, the fate of the planet is now out of the developed world's hands. But that is not an excuse for doing nothing. BLOOMBERG