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Three things China can do to fight climate change

China could greatly limit its exposure to both physical climate risk and transition risk, while tapping new sources of economic growth.
Jonathan Woetzel

Leads research on China, Asia, and global economic and business trends, helps cities and regions create sustainable growth, and supports the transformation of Asian companies into global champions

In the post-coronavirus world, countries are going to grapple with restarting economies amidst a recession. However, we cannot afford to leave the climate risk agenda off the table. Climate change is here, with the associated risks to our lives and livelihoods.

All countries will be affected by climate risks, but China is among the few that have the political, technological, and economic capacity to shape the global response to climate change. In less than a decade, China—along with the rest of the world—will be hard hit by climate change. By 2030, under a high-emissions scenario, extreme heat could affect up to 45 million people in the country; the lost outdoor working hours alone could cost China up to $1.5 trillion equivalent in GDP in an average year by 2050.

By stepping up to rapidly and significantly reduce greenhouse gases, China could greatly limit its own and the world’s exposure to physical climate risk. As the annual producer of 20 percent of the world’s greenhouse gases, China could help reduce the growth in global emissions to an extent that almost no other nation can. By developing and scaling the technologies needed to reduce its emissions, China could also tap new sources for economic growth.

Doing so will require China to set bolder goals for its contributions to the fight against climate change. China has pledged to revise its current plans but it is not clear whether there is alignment around a net-zero commitment—that is, to cut global greenhouse gas emissions to net zero by 2050. As of December 2019, about 80 countries, including almost all of the European Union, have taken this pledge. Taking up this challenge—by announcing bold actions and delivering them—could have a powerful catalytic effect on other countries, encouraging them to move more quickly onto a low-carbon path.

Higher goals will also require new approaches to develop and scale carbon solutions, mobilize green finance, and support international climate collaboration. This post will look at the ways China can contribute to the battle against climate change and to sustainable economic development:

1. Develop, scale, and share climate solutions

Given its financial and technological resources, China can invest more to develop global-scale low-carbon technology. As the world moves toward a low-carbon economy, the demand for eco-friendly technologies will increase dramatically. China already leads the world market for solar panels and is seeing growing demand around the world for wind turbines, batteries, and electric vehicles.

To get ahead of the curve, China could align its technology investments to what the world will want next. Specifically, China could invest in the following products and services to address both domestic and global needs for climate solutions:

  • Alternative proteins and other solutions to reduce methane emissions from livestock
  • Electrolyzers, fuel cells, and the supporting infrastructure and components that will be crucial for sustainable hydrogen production
  • Carbon capture, use, and storage (CCUS), which will be needed to decarbonize industry
  • Sustainable aviation fuels, likely derived from organic waste or bioenergy initially
  • Batteries and electricity storage technology, building upon China’s expertise in electric vehicles
  • Resiliency planning and risk assessment modeling for city infrastructure

China also ranks second globally in both inbound and outbound foreign direct investment. That makes it a major player. It could use its position as a hub for global foreign investment to build truly global clusters of excellence in green technology and finance. China could consider including stricter, legally binding environmental requirements into cross-border investment deal terms. It could also revise the government’s encouraged and restricted outbound investment list. Explicitly including green sectors, such as renewable energy, and excluding activities like coal production, would send a much stronger signal to host countries to step up their green game.

2. Mobilize capital for green development globally

China could make bigger and bolder financial commitments to support the transition to a low-carbon world. That would be good in and of itself; it might also catalyze the growth of global green finance markets. Leading global climate finance initiatives could take many forms.

China can mobilize investment into global green finance by expanding its carbon markets. China is already one of the largest issuers of green bonds globally but questions remain about standards and disclosure, and foreign participation is minimal. As China moves to establish its carbon trading market, expanding its scheme to more sectors and provinces, it will create one of the biggest opportunities for green investors globally. Because the cost of carbon reduction in China is lower than many other locations, investors will find China’s green investment opportunities attractive. The sheer size of the Chinese market will enhance global green finance liquidity and product sophistication. China will have to work closely with global capital market players to ensure credibility as it develops these opportunities.

China’s financial resources could also directly shape development financing and support a low-carbon future globally. It could drive multilateral collaboration through emerging institutions such as the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB), as well as leadership roles at the World Bank and other development banks. Development banks can jointly review and define more stringent standards based on the Paris Agreement, then reform and implement their energy, transport, and sustainable city investment strategies. China can also prioritize green projects that cross borders and encourage other countries where it has a major investment to consider the climate impacts of their own infrastructure.

3. Support global climate collaboration

Dealing with climate change is the challenge of the 2020s. The next 10 years are critical if the world is to mitigate the risk of even more extreme climate change. The fixed “carbon budget” means that the further we delay our actions, the steeper our future decarbonization path will need to be. Meeting that budget requires a rapid transition in all sectors, everywhere. For China, this is an opportunity to carve out a new role as it contributes to global climate collaboration.

China could expand its involvement in international trade groups to elevate the climate agenda within sectors. Many have called on businesses to align their trade associations’ climate policy advocacy to be consistent with the goal of net-zero emissions by 2050. Chinese businesses could play a leading role orchestrating changes in sectoral practices.

China could support international discussions to set standards on effective carbon mechanisms and pricing. China, together with the rest of the world, could rethink the optimal international carbon mechanism, be it an emission trading scheme or a carbon tax system.

Dealing with climate risk will continue to be a top global priority and will force change in many industries. Although this transition will be difficult, it is time for China to show how it can contribute in a new, low-carbon economy.

Read more in our report Leading the battle against climate change: Actions for China.

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