Prospect for Change in China S Climate Change Policy

Prospect for Change in China’s Climate Change Policy

Bo Wang1

Abstract Having encountered enormous pressure at the UNFCCC Copenhagen Conference, China faces mounting pressure from the world to make more vigorous commitments in the post Kyoto climate regime. However, Chinese delegates seem still reluctant to adjust their long-held positions which are incompatible to both the international community expectations and its vigorous domestic mitigation efforts. How to abridge Chinese mitigation efforts with international norms poses Chinese climate change policy makers with pressing questions to. To achieve both maximized national interest and optimized climate change governance, the author proposes 4 new perspectives and their respective grounds to serve as a foundation for a new Chinese climate policy. These four approaches: (a) make conditional midterm absolute GHG reduction commitments to ease international pressure; (b) adopt a sectoral approach toward voluntary commitments which applies measurable, reportable and verifiable principles; (c) seek financial support from reformed international carbon trading schemes; and, (d) introduce new and practical strategies for low-carbon technology transfer and cooperation.

Key words: China’s climate change policy, new perspectives, international image, midterm commitment, sectoral approach, international carbon trading, low-carbon technology transfer and cooperation

1 Associate professor of international relations, assistant dean of School of International Relations, University of International Business and Economics; Deputy Director of Global Low Carbon Institute and research, associate of School of International Development , University of East Anglia, UK; Post doc fellow at Harvard Kennedy School of government ,2008 -2009.

1 Introduction The first commitment period of Kyoto Protocol will expire in 2012. The international community has been working hard to reach another agreement for the future climate governance regime with regard to the GHG reduction targets, responsibilities among states, funding and technology assistance mechanisms, etc. However, the big gaps in position between the developed and developing camps and within them respectively unsurprisingly drove the Copenhagen Conference to the verge of breakdown. While the disastrous consequences of climate change are already impacting humans, the quarrels over the share of responsibilities seem still in the beginning of a Marathon race. China as the one of the world’s most populous and fast developing economies has also seen her GHGs emission mounting to number one in terms of annual emissions. However, the inertia of her traditional climate policy stands in her way from shifting to a more feasible climate policy that both fits her appropriate position in international climate governance and her pursuit of sustainable development. The author proposes 4 new thoughts which might usefully guide a new Chinese climate policy.

China is among the first countries that signed the UNFCCC and ratified Kyoto Protocol, events which coincided with the course of her merging into the international system. Her national mitigation activities and international cooperative activities have seen significant progress. 2 China is making the last spurt to reach her reduction of energy intensity per GDP unit by 20% target in her Eleventh Five Year Plan, which ends at the end of 2010. Should the 20% target be realized, China’s CO2 emissions would have been reduced by 1.6 billion tons, which would be the most ambitious mitigation achievement in the world both in terms of absolute reductions and intensity. 3 From an international perspective, China has surpassed India and become

2State Council Information Office of the People’s Republic of China, “China’s Policies and Actions from Addressing Climate Change”, October 2008, Beijing, pp.19-35. 3 2050 China Energy and Carbon emissions Research Team, 2050 China Energy and Carbon Emssions Report, Beijing, Science Press, July 2009 .p.ii.

2 the largest seller of carbon emission credits providing over 60% of the annual emission credits supplied through “supplied through CDM. 4 The China-EU strategic partnership relationship on climate change have significantly enhanced Chinese stakeholders’ capacity and awareness of climate change governance. China also participated in the US-lead Asia-Pacific Partnership on Clean Development and Climate. 5 Though the APP still lacks substantial movement in terms of mitigation it provides a promising framework for key emitters to collaborate by sectors. In Copenhagen the huge gaps between the developing and developed camps pushed the negotiation to the brink of breakdown. 6China took an active role to narrow the gap and cooperated in creating the Copenhagen Accord which, although is not a legal binding treaty, laid a meaningful foundation for further negotiations. 7

International pressure on China mounts in international negotiations As China’s emissions grow at near 2 digit speed, the leverage of the “Common but Differentiated Responsibilities” (CBDR) principle that China has long upheld is beginning to work against China’s interests The CBDR principle has been an international consensus based on the historical fact that the developed countries contributed most to climate change both in terms of historical accumulative amount of carbon emissions and per capita emission levels. 8This principle allows the developing countries, which see themselves as more “innocent” in generating current problems and more vulnerable to the negative effects of climate change, to urge the developed to both take the lead in climate mitigation and to provide financial and technology aid

4 Bo Wang, “Can CDM Bring Technology Transfer to Developing Countries? -----An Empirical Study of Technology Transfer in China’s CDM Projects”, The Governance of Clean Development Working Paper 002 ,University of East Anglia, UK, August 2009, 5 Bo Wang，“Exploring China’s Climate Change Policy From Both International and Domestic Perspectives”， American Journal of Chinese Studies, October 2009, Issue 2, pp.401-405. 6 Wan Jiaobao, Speech at Copenhagen Conference, 7 Zhao Cheng, Tian Fan and Wei Dongze, “ Qing Shan Zhe Bu Zhu, Bi Jing Dong liu Qu—On the- Spot Report on Wen Jiabao ‘s Copenhagen Conference, Xinhua Net, Beijing, December 24, 2009, http://news.xinhuanet.com/world/2009-12/24/content_12700839.htm 。Different from What Chinese claimed for her positive role in making the Copenhagen Accord, the Europeans blamed China for her refusal to accept EU’s proposal. 8 This principle also includes: The developed countries are obliged to provide financial and technological assistance to support their mitigation and adaptation activities：L. Rajamani, “The Principle of Common but Differentiated Responsibility and the Balance of Commitments under the Climate Regime‟, RECIEL. 9(2), 2000, pp: 120-131, Kelly McManus, “The principle of ‘common but differentiated responsibility’ and the UNFCCC” Climatico Special Features. November 2009. http://climaticoanalysis.org www.climaticoanalysis.org - Independent analysis of climate policy.

3 to assist the latter in their mitigation and adaptation activities. China as a developing country has been from the very start of the negotiation upholding this principle to defend her own and other developing countries’ interest in bargaining with the developed countries.

However, from as a comparably small emitter in 1990’s, China’s emissions have seen dramatic growth as her economy has boomed, despite an equally dramatic improvement in energy intensity. A newly released report from International Energy Agency claimed that China has been come the largest energy consumer in the world. 9Prior to that, the Netherlands Environmental Institute has claimed that China’s emissions from fossil fuel combustion has reached 6 billion tons of CO2 equivalent and surpassed US became the largest emitter in 2007 by annual emissions. Between 1990 and 2007, China’s emissions increased 2 times. Most notably, the growth rates from 2003 to 2007 were respectively 16%, 19%, 11%, 11% and 8%.10 According to IEA’s projection, China’s emissions will double by 2030 compared with her emissions in 2007. By then, her annual emissions will take 29% of the global annual emissions. If China does not slow down her emissions, her accumulative emissions will also reach number one in the world. Though China’s per capita emissions are lower than those in developed countries, they are already 5% above the world average level and 70% above the developing country average level. On the other hand, the average per capita emission level has dropped from 8.58 tons CO2 equivalent in 1990 to 7.92 tons in 2007. 11.If China maintains the speed of its emissions growth speed that it has over the past 10 years, it will surpass EU in per capita levels in a few years.

The situation regarding China’ emissions are leading to a change in its status in the international emissions system. As the developed countries began to formalize

9 IEA, “China overtakes the United States to become world’s largest energy consumer”, July 20, 2010, http://www.iea.org/index_info.asp?id=1479. 10 Netherlands Environmental Assessment Agency, “Global CO2 Emissions from Fossil Fuels and Cement Production by Region, 1990-2007,” http://www.mnp.nl/en/publications/2008/GlobalCO2emissionsthrough2007.html. 11 China’s per capita emissions is 4.27 tons, ranked 92nd in the world: IEA，Key World Energy Statistics, 2008,p50.

4 their commitments to reduction targets they have begun to request that China and other advanced developing countries also submit to absolute reduction targets and put their mitigation activities in a framework which is measurable , verifiable and reportable. 12 Similar pressure is also coming from the least developed and island countries that are most affected by the negative consequences of climate change. 13

Another pressure comes from the US, the largest emitter by cumulative and per capita emissions. The US Obama Administration returns to the climate change negotiations with a more constructive approach compared with the Bush Administration’s “no” Policy. At Copenhagen, the US proposed to cut her emissions by 17% from its 2005 level by 2020. 14 The US returns to the climate regime by itself shifts pressure from US to China the largest annual emitter. At the same time, the US administration seeks a policy of intense engagement with China. Therefore, China became the focus in the international climate negotiation arena. 15

From February to November 2009, climate change has been unexceptionally on the top of the agenda in 10 rounds of China-US bilateral high level visits and dialogues. 16 In the 3 separate testimonies given by U.S. Special Envoy for Climate Change Todd Stern before Congress, he referred to China as one of the “advanced developing countries” 9 ,7,and 7 times respectively, while India was referred to by 4, 3 and 3 times respectively. Brazil and South Africa were not named individually but

12UNFCCC (United Nations Framework Convention on Climate Change), 2007, Bali Action Plan: Decision 1/CP.13, UNFCCC, Bali, Indonesia. The Pew Center on Global Climate Change, Summary of COP 13 and COP/MOP 3 prepared by the Pew Center on Global Climate Change, December 3-15, 2007,Bali, Indonesia , http://www.pewclimate.org/docUploads/Pew%20Center_COP%2013%20Summary.pdf. 13 Reuters, “Sudan delegate compares U.S.-led climate proposal to Holocaust”, December 19, 2009, http://www.haaretz.com/news/sudan-delegate-compares-u-s-led-climate-proposal-to-holocaust-1.1820. 14 Juliet Eilperin, “U.S. pledges 17 percent emissions reduction by 2020”, Washington Post, January 29, 2010. http://www.washingtonpost.com/wp-dyn/content/article/2010/01/28/AR2010012803632.html. 15 CNN, “Kyoto Outcry: What They Said”, March 29, 2001, http://edition.cnn.com/2001/WORLD/europe/03/29/kyoto.reaction/index.html?iref=allsearch; Michael A. Levi, “Copenhagen’s Inconvenient Truth: How to Salvage the Climate Conference”, Foreign Affairs, September/ October, 2008, Vol. 88, Iss. 5; pp,92-103. 16 Lin Yong Feng, Key Events in Sino-US Cooperation in Climate Change, China Energy News, Novemebr 23, 2009, p.9.

5 were grouped as “other advanced developing countries”. 17

When US began to show signs of real movement in climate mitigation pledges, the EU began to shift its pressure on China. At Copenhagen, the EU leaders almost orchestrated a “show down” with Chinese delegates to force China to pledge midterm reduction targets.18 China’s denial of their request led to EU’s reevaluation of its policy towards China, which adds new shadows to the already fractious China-EU relationship. 19

China’s alignment strategy with developing countries through G77, plus China and BASIC Four schemes, also face challenges as China’s emission status diverges from that of other developing countries. China’s emissions far exceed the other 3 in the BASIC Four (Brazil, South Africa, India and China). China’s annual emissions are five times larger than the second largest emitter, India, among developing countries.20Among the Basic Four, Brazil has proposed to reduce 30% of her emissions from the business as usual scenario by 2020. South Africa will host 2012 UNFCCC Conference. Therefore, it is also likely to propose bold reduction targets. India has proposed the most modest step, pledging to cut her emission intensity by 25-30% by 2030. 21However, the carbon intensity of India’s exports is only 1/7th or 1/8th that of China.. 22 Therefore, China is much more vulnerable than the other developing countries should the US and EU impose a carbon tax on Chinese commodities.

17 Todd Stern(Special Envoy For Climate Change），Statement to the Senate Foreign Relations Committee, April 22nd, 2009. http://foreign.senate.gov/testimony/2009/SternTestimony090422a.pdf；Todd Stern Statement to the Senate Foreign Relations Committee, September 10, 2009，http://globalwarming.house.gov/files/HRG/091009Roadmap/stern.pdf；Todd Stern Statement to the House Foreign Affairs Committee，November 4, 2009，http://www.internationalrelations.house.gov/111/ste110409.pdf. 18 Tobias Rapp, Christian Schwägerl and Gerald Traufette，The Copenhagen Protocol：How China and India Sabotaged the UN Climate Summit，DER SPIEGEL , May 05, 2010, http://www.spiegel.de/international/world/0,1518,692861-3,00.html. 19 Francois Godement. policy brief: "A Global China Policy, European Council on Foreign Relations, June 2010, http://ecfr.eu/page/-/documents/A-global-China-policy.pdf ; Antto Vihma, Elephant in the Room, The New G77 and China Dynamics in Climate Talks, Briefing Paper 6, The Finnish Institute of International Affairs ,May 26, 2010, pp.1-9. 20 IEA，Key World Energy Statistics, 2008,p53. 21 Ananth Krishnan，“After China, India considers setting emissions intensity target”The Hindu, November 27,2009, http://beta.thehindu.com/news/national/article55960.ece. 22 ZhongXiang Zhang, “The U.S. proposed carbon tariffs, WTO scrutiny and China’s responses”.

6 Among the developing camp, the least developed and the island countries have openly urged China to take more responsibility in the climate negotiations.23 On the other hand, China’s national mitigation activities that are not subject to independent international verification system have been largely counterbalanced by fast-growing emissions. Instead of getting her deserved cost compensations, Chinese mitigation efforts often are subject to suspicion. Chinese requests for substantial international financial and technology assistance from the developed camp have received little positive response. Instead, Chinese policy instruments incentivizing stake holders to localize foreign technologies and lower down the cost of technology deployment have encountered strong Western resistance. Based on the above assessment, the author proposes four fundamental changes in China’s climate change policy to adapt to her changing status.

I. Based on sound scientific research and evaluation, propose a conditional, voluntary and “no lose” midterm absolute reduction timetable to the international community.

To maintain sustainable economic growth has long been considered as China’s core national interest to become a club member of the rich and eventually eliminate the development disparities among regions and groups of people in China. 24In China, the conventional wisdom holds that curbing GHGs emissions are incompatible with economic development. Nonetheless, I believe that it is possible to set a midterm absolute emission reduction target while sustaining economic growth in China.

With China’s share in global emissions growing at a mounting pace, China’s

23 Alliance Of Small Island States (AOSIS) , Alliance Of Small Island States (AOSIS) Declaration On Climate Change 2009, New York, September 21, 2009, http://www.sidsnet.org/aosis/documents/AOSIS%20Summit %20Declaration%20Sept%2021%20FINAL.pdf. （ 24Hu Jintao, “Hold High the Great Banner of Socialism with Chinese Characteristics and Strive for New Victories in Building a Moderately Prosperous Society in all Respects----- Report to the Seventeenth National Congress of the Communist Party of China”，Beijing, October 15, 2008,, http://cpc.people.com.cn/GB/64093/67507/6429844.html.

7 room for bargaining will shrink for sure. In an international system that centers on sovereign states as the key actors, China’s large economy and emissions scale attract much attention and create expectations. Per capita emission levels are also rising, which creates a disadvantageous trend for China in maintaining its positions. China will sooner or later face compelling calls to make absolute reduction commitments. Early planning for this eventuality will help China gain more leverage of bargaining.

According a research report by the Development Research Center affiliated with the State Council and other key think tanks in Beijing, with ambitious targets and optimized management China could simultaneously achieve both the aim of sustainable development and of reducing her GHGs emissions. The report claims that if China consistently implements the 20% reduction of energy intensity reduction targets in her “Five Year Plans” prior to 2020, it will quadruple her economy by 2020 with double her energy consumption. With GHGs emissions control targets set over a longer term (say, by using the year 2050) China will hopefully achieve 2 turning points: The first turning point is to maintain fast economic growth with a significant slowdown of emissions by 2020 and static emissions afterwards. The second turning point is from 2030 on, during which period technology will permit China’s absolute emission to gradually decline while it maintains its economic growth. Eventually this would return China’s annual emissions to the level of 2005 by the year of 2050 25 To achieve the absolute emissions reduction target would require China to both improve its carbon productivity which stems from the large scale deployment of low carbon technologies and to achieve a state of sustainable economic development. 26 The Chinese leadership has also seen energy efficiency and new energy technologies are the core indicators to evaluate a country’s competitiveness.27 Therefore, setting a

25 2050 China Energy and Carbon emissions Research Team, 2050 China Energy and Carbon Emssions Report, Beijing, Science Press, July 2009 .p.ii.; Chinese official from the Energy Bureau also believes that China’s emissions are likely to peak around 2030: Wang Xiaozong, “ The plot prior to the Cancun Meeting”, China Economy Weekly, August 2, 2020. http://www.ceweekly.cn/Html/magazine/2010-8/98325.html. 26 Pan Jiahua， The Copenhagen Conference and Low-carbon Economy, Presentation at University of International Business and Economics, Beijing, March 20, 2010.。 27 Wen Jiabao, “ Rang Ke Ji Yin Ling Zhong Guo Fa Zhan” ( Let Science and Technology Play a Leading Role in China’s Development), ( A speech given at Conference of Science and technology community in Capital on November 3 , 2009), Xinhua News, Beijing , November 23, 2009, http://www.gov.cn/ldhd/2009- 11/23/content_1471208.htm

8 timetable of GHG reduction is compatible with China’s sustainable development as China reduces GHG emissions by reducing the consumption of fossil fuels and both improving energy efficiency and increasing the share of new and renewable energy resources. Despite making an absolute reduction commitment, it will not result in a political lock-in for China in international negotiations. As China is now still eligible for the shelter of “common but differentiated responsibilities principle, her timetable will not be a legally binding one that will face punitive consequence. Instead, China’s bold proposal will help the international community build confidence in the future of mitigation and reduce other parties’ concern about the uncertainties of future emission scenarios. A proposed reduction target will not only improve Chinese image as a responsible state but forge new alliance with EU to engage US in making bolder commitment. Also, this will urge other developing countries to take more active positions in setting national mitigations goals instead of free-riding on China’s “no absolute target” bandwagon. 28 . China will reap advantages in that it will have lower relative mitigation costs and will enjoy late-comers’ leapfrogging opportunities. This will provide edge for China in next round of international system realignment. As developed countries have started their absolute reductions, their infrastructure lock-in effect contributes to the higher cost in deploying new technologies .The current market mechanism, such as Clean Development Mechanism is based on such a fact that Chinese mitigation cost is much lower that that in EU or Japan. For instance, the carbon credit in European market in most instances is above 10￠/t, but Chinese supply is about 8 ￠/t. An EU report projected that by 2030 and 2050 the carbon credit in EU will be about 20￠/t and 30￠/t respectively. But the carbon price in China will be only 15 ￠/t by 2050.29 China can count on continuing to benefit from technology diffusion by taking advantage of her manufacturing capacity. China had benefited from the effect of

28 The White House , Office of The Press Secretary, “Remarks by the President to the Nation on the BP Oil Spill”June 15, 2010. http://www.whitehouse.gov/the-press-office/remarks-president-nation-bp-oil-spill; Steve Benen, “ Political Animal”, Washington Monthly, August 17, 2010, http://www.washingtonmonthly.com/archives/individual/2010_08/025243.php. 29 European Commission，World Energy Technology Outlook-2050，2006, p.27. http://ec.europa.eu/research/energy/pdf/weto-h2_en.pdf

9 technology diffusion in the past as both the low-carbon technology receiver and provider. Though China’s overall energy efficiency has been lower than the developed countries, the technology deployment in leading enterprises (i.e., the most technologically advanced) have been among the top in the world. 30 Even if China could not fulfill her absolute reduction target by the time, say, 2030, she is still well in a position to renegotiate the target according to the CBDR principle as the developed countries couldn’t do better. The leadership in the democratic developed countries is more sensitive to domestic political reactions to the cost of climate mitigation than the leadership of China, whose political authoritarian political system is not so responsive to those governed. The slow reaction from US to counter climate change was largely due to the interest group politics there. The coming mid-term elections in US Congress in November 2010, accompanied by the prolonged problems in the economic realm, have obviously slowed down Obama’s plans to take action on climate change that he demonstrated in the beginning of his term. 31 A well defined midterm reduction target would provide a confident environment for China to engage in international carbon credit trading and banking the credits for future balance of carbon emission budget. Again, the concern of a political lock-in in the negotiations is unnecessary if China makes the absolute commitment. II The GHG emissions in China’s national mitigation activities should be eligible for international carbon trading and carbon emission rights banking through the scheme of Measurable, Reportable and Verifiable (MRV) Principle. Sectoral mitigation approach is the most feasible approach that will help China to optimize her national interest. China’s national voluntary mitigation activities and China’s reductions of energy consumption intensity has not been adequately acknowledged by the international community. The main reason is that the mitigation activities are not transparent to and

30Takahiro Ueno, “ Technology Transfer to China to Address Climate Change Mitigation”, Resources for the Future Working Paper Series, #09-09, 2009 October. 31 Gary Langer, “Poll: Ahead of 2010 Midterm Elections, Incumbent Support Its Lowest Since 1994” ABC News, April 28, 2010, http://abcnews.go.com/PollingUnit/2010_Elections/poll-2010-midterm-elections-incumbent- support-lowest-1994/story?id=10487480.

10 verified by international community. Though exempting itself from international MRV has been considered as a defense of China’s national interests as a developing country under the principle of CBDR, the mounting pressure from the developed countries to levy carbon tax on Chinese manufactured commodities will pose concrete economic losses for Chinese exports which are a pillar of her economy. From the domestic perspective, government-dominated mitigation activities without independent verification are vulnerable to fraudulent activity by lower-level bureaucrats and enterprises, which when exposed will in turn create greater pressure on China with regard to its future mitigation goals. China has adopted MRV principles in the CDM in which she participated, but refused to put her other mitigation activities other than CDM under the international scrutiny. Her experiences in participation in CDM, however, have proved that MRV did not infringe on Chinese sovereignty. Instead, the revenue from selling carbon emission credits proved to be an effective tool in facilitating Chinese enterprises’ deployment of low-carbon technologies and launching clean development projects. Nevertheless, the project-based CDM scheme could hardly be a national solution for China to realize her immense national mitigation mission. China has to develop a mitigation scheme that will both meet international expectations and her sustainable development objectives. A sectoral approach (SA) would likely be the most feasible scheme. An MRV approach by sectors would also help both build international confidence in Chinese mitigation activities and exempt China from the risk of foreign carbon tax.

SA is a “bottom-up” approach which is different from the top-down target-and- timetable approach for entire economies in the Kyoto Protocol. 32 It begins with an

32There are mainly 3 types of proposals for sectoral approach: The first proposes to set sectoral emission reduction targets for countries through an inter-governmental process. Approaches in this category are usually addressed at developing countries, the idea being that developing countries adopt targets for key sectors, while developed countries adopt economy-wide targets. See: Baron, R., J. Reinaud, et al.. Sectoral Approaches to Greenhouse Gas Mitigation. Exploring Issues for Heavy Industry. Paris, International Energy Agency, 2007；R.Bradley, K. A. Baumert, et al, “Slicing the Pie. Sector-Based Approaches to International Climate Agreements”,2007. WRI Report. G. Fuhs. Washington, D.C., World Resources Institute；I. Schmidt, N. Helme, et al. "Sector-based Approach to the Post-2012 Climate Policy Architecture." Climate Policy vol.8, pp. 494-515， 2008. The second proposal focuses on the role of international industrial associations. It advocates global voluntary emission reduction commitments by industry. Firms in a global industry sector commit to a target and timetable for

11 assessment of technologies and processes for each selected industry sector and determines policy measures based on that assessment. Governments would agree to cap the absolute or relative emissions of a global energy-intensive sector by implementing targets domestically. To engage the participation of major developing countries, proponents of such approach designated the “no-lose” targets scheme.33 This scheme envisages developing country governments taking on sectoral intensity targets. These would be negotiated in a comprehensive international agreement alongside the commitments of developed countries. 34If emissions are reduced more than in their initial commitment, nations will receive credits for the additional emission reductions which could be traded on the global carbon market. 35They are considered “no-lose” because there is no penalty for non-compliance. This positive incentive, with the added promise of technical and financial assistance, is expected to secure the participation of all major emitting countries in sectors that are responsible for the bulk of GHG emissions.36 SA was included officially in the intergovernmental agenda in the Bali Action Plan of December 2007.37 Developing countries had been very cautious about this approach out of the fear of being “locked-in” once they agree to make commitment.38 However, for China, a big emitter facing immense mitigation pressure and the risk of foreign carbon taxation, SA should be a desirable mechanism to bridge the gap emission reductions through an industry association or initiative. in a given sector. Such arrangements usually involve both governments and international industry association. Firms. See: Baron, Reinaud et al. 2007; C. Egenhofer, and N. Fujiwara. “Global Sectoral Industry Approaches to Global Climate Change: The Way Forward”. CEPS Task Force Report. Brussels, Centre for European Policy Studies, 2008. The third proposal is sector-based technology cooperation that includes a variety of activities around research, development and deployment of low-carbon technologies. China and India showed great interest in this proposal.. The Asia- Pacific Partnership on Clean Development and Climate is a primitive form of such proposal. See: Philibert 2004 ; Baron, Reinaud et al. 2007 ; Bradley, Baumert et al. 2007 ; De Coninck, Fischer et al. H.De Coninck, C. Fischer, et al., “International Technology-Oriented Agreements to Address Climate Change”. ECN and Resources for the Future, 2007. 33 I. Schmidt, N. Helme, et al. "Sector-based Approach to the Post-2012 Climate Policy Architecture." Climate Policy vol.8, pp. 494-515, 2008 34 R.Bradley, K. A. Baumert, et al, “Slicing the Pie. Sector-Based Approaches to International Climate Agreements”,2007. WRI Report. G. Fuhs. Washington, D.C., World Resources Institute； 35Center for Clean Air Policy, “Sectoral Approaches: A Pathway to Nationally Appropriate Mitigation Actions”, 2008, http://www.ccap.org/docs/resources/560/FINAL%20CCAP%20Sectoral%20Study%20and%20Exec %20Overview.pdf. 36 Jonas O. Meckling, and Gu Yoon Chung, “Sectoral Approaches to International Climate Policy. A Typology and Political Analysis” Discussion Paper 2009-02, Cambridge, Mass.: Belfer Center for Science and International Affairs, January 2009. 37 UNFCCC, Bali Action Plan, 13th Session of the Conference of the Parties,2007. http://unfccc.int/resource/docs/2007/cop13/eng/06a01.pdf. 38 Personal communication with Chinese climate negotiator, Cambridge, MA, USA, September 16, 2008.

12 between her national sustainable development objectives and international pressure for more vigorous and transparent mitigation activities. SA can serve China’s interests from different perspectives: First, Chinese national mitigation schemes will also need to build up a system of MRV domestically to guarantee the implementation of mitigation activities, as China declared her emission reduction plan for the next 10 years.39 The SA approach will help integrate Chinese national mitigation mechanisms with international norms. The increase in transparency will help build international confidence in China’s mitigation efforts. The international recognition of Chinese mitigation efforts will in turn help shape the positive image of China as a responsible emerging power. This bold move will also lead China to have the initiative to shape the future’s international climate governance. The “no regret” principle will free China from any political lock-in based on the CBDR principle. Second, a sector-by-sector approach will help China to legitimize her emission reduction activities across various sectors. Internationally negotiated sectoral targets will legitimately exempt China from the risk of border carbon tax in the name of preventing carbon leakage. This will create a stable trade environment for China’s export concentrated sectors. Third, additional emission reductions beyond the benchmarks negotiated by governments will create more and predictable emission credits for China’s enhanced mitigation activities. The new sectoral crediting mechanism will overcome the disadvantages of high transaction cost in the project-based CDM. 40 This will be a reliable channel for Chinese enterprises to gain capital for low-carbon investment. China can also deposit the certified emission rights to balance China’s emission budgets in the future when China has to buy emission credits from foreign countries.

Fourth, the assessment of technology deployment in each sector will help China

39 General Office of the State Council, The State Council standing committee Meeting Decides our national GHGs emission targets)，November 26, 2009，Chinese Central Government website: http://www.gov.cn/ldhd/2009-11/26/content_1474016.htm 40 The author’s personal communication with Chinese CDM stakeholders, at the CDM Capacity Building Experience Exchange Conference , Nanchang, November 19, 2009.

13 to identify the available best technologies which will prepare good argument for China to bargain for more favorable terms in low carbon technology transfer and cooperation.

III Seek an enlarged carbon credit mechanism to channel more investment into China to escalate the mitigation process and facilitate sustainable development

According to the CBDR principle, the developed countries are obliged to provide financial assistance for the developing countries to facilitate their mitigation and adaptation activities. At the Copenhagen Conference, the developed countries have pledged an initiating fund of 30 billion USD from 2010 to 2012 to help the latter and an annual $100 billion by 2020. Let alone that this amount is only a small fraction compared with the 1% GDP demand from the developing countries, to what extent the developed nations could fulfill their commitment remains a big question. 41 From the historical experience, the rich countries have seldom done a good job in providing financial aid for the poor countries. In the UN-advocated Millennium Development Project the developed nations have pledged to contribute 0.7% of their

GDP to aid the least developed countries from 2000 to 2015. 42 However, only handful North European countries reached 0.4% by 2008 when half of the commitment period had passed. The US only contributed 0.16% by then. 43 The MDP case does lead observers to predict a better outcome in the climate case. The prolonged consequences from the financial crisis in the developed countries also add uncertainty to the West’s commitment of their financial commitment. In the midst of the crisis from the 3rd quarter of 2008 to the 3rd quarter of 2009, US GDP dropped by 6%. 44The 9.7% unemployment reached its highest point since 1983.45 On

41 UNFCCC/CP，Copenhagen Accord，Copenhagen, 18 December 2009, http://unfccc.int/resource/docs/2009/cop15/eng/11a01.pdf#page=4.. 42UN Millionium Developmen, t Targets Gap Issues Team, Build Global partnership to achieve the targets of Millennium Goals, 2008. http://www.un.org/chinese/millenniumgoals/gap08/1_1.html. 43 Ibid. 44 Bureau of Economic Analysis, Press Releases: Gross Domestic Production, October 29, 2009, http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm . 45 Bureau of Labor Statistics, Databases: Labor Force Statistics from the Current Population Survey, October 31, 2009; http://data.bls.gov/PDQ/servlet/SurveyOutputServlet .

14 the other side of the Atlantic Ocean, the Greek Financial Crisis triggered panic across the European Continent. 46 The European Commission forecasted that the Euro Zone economy would shrink by 4% in 2009 and economic growth rate would be -0.1% and employment rate would be drop by 2.5%. 47 Another significant issue is that the developed will hardly be willing to distribute their committed money to the so called “advanced developing countries,” which they consider as de facto or potential peer competitors, with China as the most prominent nation in this regard. China holds the largest foreign reserves in the world ($2.3 trillion in September 2009)48and is the largest holder of US debt. 49 Nevertheless, this large foreign reserve does not mean China has abundant capital but largely was a result of Chinese misguided policy preference in foreign reserve management. Unfortunately, the West constituents hardly know the real disparity in China’s development and naturally resist any significant financial aid to China in name of climate justice. The US chief climate negotiator Todd Stern had openly denied the possibility that the US would provide any significant financial aid to China.50 Based on the above factors, it is unrealistic for China to bargain as it used to in decades past, when it used its status as a underdeveloped nation to gain preferences and aid. However, China is in a good position to channel more investment from developed countries through carbon emission credits trading. As China’s mitigation cost is much lower than that of the developed countries, China could become the world’s the largest emission credit supplier. In fact, China has been the largest carbon emission right supplier through the CDM. Chinese enterprises provide over 60% of global CDM credits annually.51 Chinese interests lie in a reformed international carbon

46 Christopher Hope, “Greek financial crisis could hit Britain, warn economists”, Telegraph newspaper online, April, 2010 , http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7646972/Greek-financial-crisis- could-hit-Britain-warn-economists.html. 47 European Commission Economic and Financial Affairs, Spring Forecasts 2009-2010: A tough 2009 but EU economy set to stabilize as support measures take effect, May 4, 2009, http://ec.europa.eu/economy_finance/thematic_articles/article14927_en.htm .） 48 US Department of Treasury, Major Foreign Holders of Treasury Securities, October 16, 2009, http://www.treas.gov/tic/mfh.txt; State Administration of Foreign Exchange, P.R.China，China’s Foreign Reserves, 2009, October 25, 2009.，http://www.safe.gov.cn/model_safe/tjsj/tjsj_detail.jsp? ID=110400000000000000,20&id=5. 49 Qiang Xiaoji，“China's holdings of US debt hit record high”， China Daily， 2009-07-17 http://www.chinadaily.com.cn/bizchina/2009-07/17/content_8442662.htm. 50 Andrew C. Revkin and Tom Zeller Jr. ,“U.S. Negotiator Dismisses Reparations for Climate”, New York Times, December 9, 2009. http://www.nytimes.com/2009/12/10/science/earth/10climate.html. 51 Personal communication with CDM stakeholders, Nanchang, November 19, 2009.

15 market mechanism which can provide larger and stable volume of credit demand and transparent and efficient verification mechanisms. Therefore, Chinese negotiators should bargain a fair share of emission trading quota from the developed nation group and lead the way in reforming the carbon verification system. The above discussed sectoral approach would be a desirable and pragmatic mechanism to realize a win-win situation between China and the developed countries. Chinese authority should also manage the carbon emission credits supply to prevent the oversupply of credit that will result in disruptions to the market. 52 A portion of verified emission rights should be deposited for China’s future use when she has to buy credits from global market.53 Another channel for China to introduce low-carbon investment is through bilateral mechanisms. Bilateral financial arrangements are more efficient and focused than multilateral arrangements. In the developed camp, some are playing a leading role in engaging the developing countries such as the North European countries. These countries both enjoy solid domestic support and comparative advantage in energy efficiency and renewable energy technologies. Therefore, it will be easy for China to get financial support in the field of climate governance capacity building, pre-commercial stage low-carbon technology and technology transfer projects. The EU has so far been the largest financial provider for China in term of climate assistance. In the CDM capacity building project from 2007 to 2010 , ￠2.8 million hase been invested by the EU to facilitate Chinese CDM personnel’s capacity building.54 The bilateral financial mechanism can also balance the side effect of multilateral market mechanisms in which China’s lion share as a carbon credit seller caused complaints from the other small developing countries.

IV. China should designate a pragmatic international technology transfer bargain based on a well defined national interest in science and technology.

Technology transfer has been a contentious issue in international climate change

52 Personal communication with Chinese climate negotiator, Beijing, March 26, 2010. 53 Jiang Kejun, Talk at the Tianjin Climate Conference media Workshop, Beijing, September 27, 2010. 54 EU‐China CDM Facilitation Project，Final Report，March 2010, http://www.euchina- cdm.org/media/docs/Final%20report_EN.pdf. （May 08, 2010）

16 negotiations between the developed and developing camps. According to UNFCCC, the developed countries have the obligation to provide technology assistance to facilitate the transfer of technology.55 As the largest developing country, China has been consistently acting as the speaker for the developing camp.56 Nevertheless, there has been little substantial, if any, progress in the international climate change negotiations with regard to technology transfer.57 Chinese position on technology transfer has been more focused on principles than on proposing pragmatic solutions. Particularly, Chinese delegations have invested too much in both rhetoric and expectations on multilateral mechanisms such as the UNFCCC and Kyoto scheme to generate technology transfer to China. The inventory of technology needs on mitigation and adaptation for climate change listed in China’s Initial National communications on Climate Change was still based on the 1999 version. While China has seen dramatic change in her economic and technology development capacity during the past decade, the inventory did not reflect the true need of the country in terms of technology transfer and served largely to alienate the negotiators from other nations.58 China is badly in need of adjusting her negotiation strategy, if any, and make feasible proposal on low carbon technology transfer that can best serve her national interests. 1. The dual implications of Low-carbon technologies in both climate change mitigation (adaptation) and industrial competitiveness make technology transfer negotiation an unprecedented case. Low-carbon technologies do not only have climate mitigation functions but also have economic functions featured with higher energy efficiency and new energy technologies which will eventually lead to industrial competitiveness. Low-carbon technologies cover pervasively almost every industrial sector which are much

55 UNFCCC, Bali Action Plan, 2007. 56 Wan Gang ( Minister of Science and Technology), “Deal with Climate Change with Science and Technology--- Minister of Science and Technology Ministry Wan Gang’s Speech at International Forum on Climate Change and Science and Technology Innovation ( in Chinese), Beijing, April 24, 2008 57Zhu Liyi and Jiang Guocheng, “Our request for international technology transfer to counter climate change did not make any substantial progress”, Xinhua News, Beijing, November 07, 2008, Chinese National Government Official Website, http://www.gov.cn/jrzg/2008-11/07/content_1142774.htm. 58Department of Climate Change , National Development and Reform Commission, The Republic of China: Initial National Communication on Climate Change，September 3,2009，Beijing，pp.99-102； http://nc.ccchina.gov.cn/WebSite/NationalCCC/UpFile/File180.pdf。

17 different from the earlier Ozone Depletion Substances technology transfer which only affected limited number of industries.59 Therefore a change in the mechanism for low carbon technologies transfer will inevitably affect the fundamental rules in the games of intellectual property rights protection the Western countries have been upholding for centuries. In recent years the US, the EU, Japan and other Western economies have dramatically increased their investment in the R&D of low carbon technologies.60 The motivations behind the massive investment is more focused on creating more jobs, upgrading the energy industry technologies and eventually winning the competition of the future low-carbon economy than on reducing the green house gases emissions. 61 China, India and other large and more advanced developing countries also made mid and long-term low carbon technologies R& D plans aimed at achieving independent and advanced position in the next round of competition of technologies.62 From the perspective of the enterprise, the low carbon technologies at commercialized stage are mostly owned by private Western companies whose ultimate incentives are maximization of the profits from their investment. As 2/3 of the R& D investment is from the business sectors rather than the public sector, this has significant consequences. 63 Compulsory or discounted low carbon technology

59 Dilip R. Ahuja and J. Srinivasan ,“Why controlling climate change is more difficult than stopping stratospheric ozone depletion”, Current Science, Vol. 97, No. 11, 10, December 2009,pp. 1531-1534. 60 The EU Commission proposed that EU’s investment in low-carbon technology increase from an annual ￠3 billion to ￠8 billion from 2010 to 2020. Commission of The European Communities，“Investing in the Development of Low Carbon Technologies”，Communication from The Commission to The European Parliament, The Council, The European Economic and Social Committee and The Committee of The Regions，http://ec.europa.eu/energy/technology/set_plan/doc/2009_comm_investing_development_low_carbon_t echnologies_en.pdf；Shuichi Ashinaa, Junichi Fujinoa, Toshihiko Masuia, Kazuya Fujiwarab, Go Hibinob, Mikiko Kainumaa and Yuzuru Matsuokac， “Japan Roadmaps toward a Low- Carbon Society by Backcasting”, http://www.etsap.org/Workshop/India(NewDelhi)_2010/WS-Delhi2010-pdf/Session_7_-_Shuichi_Ashima.pdf; James Cust, Kate Grant, Ilian Iliev and Karsten Neuhoff，International Cooperation for Innovation and Use of Low-Carbon Energy Technology ，November 25, 2008 ， Climate Strategies, http://www.cambridgeip.com/images/cip/pressmedia/publications/cleancoalpatents2008.pdf. 61 James Cartledge ， Call For National Strategy To Boost US Clean Energy Exports ， April 28, 2010 http://www.brighterenergy.org/9499/news/legislation/call-for-national-strategy-to-boost-us-clean-energy-exports/. 62The State Council of the P.R .China, “The National Medium- and Long-Term Program for Science and Technology Development (2006-2020)”，February 9, 2006, China’s National Government Official Website, http://www.gov.cn/jrzg/2006-02/09/content_183787.htm；Prime Minister’s Council on Climate Change, Government of India, National Action Plan on Climate Change, June,30 2008 http://pmindia.nic.in/Pg01-52.pdf； Ministry of New and Renewable Energy, Government of India, National Solar Mission, 2009, http://pib.nic.in/archieve/others/2009/Nov/mission-JNNSM.pdf.； 63 Anne E. Kornblut and Lori Montgomery，“Obama to call for $100 billion business tax credit”，Washington Post ，September 5, 2010，http://www.washingtonpost.com/wp- dyn/content/article/2010/09/05/AR2010090501003.html?hpid%3Dtopnews&sub=AR

18 transfer to developing countries is obviously strongly opposed by the politicians whose policy is heavily affected by relevant interest groups. As Todd Stern made this clear in his testimony to Congress when he said he will not make any compromise in the climate change negotiations that harm US commercial interests.64 At the enterprise level, no rational manager will allow the technologies they developed to be transferred to a rival company without substantial compensation or profits. 65 This also applies to Chinese companies involved in technology transfer, both domestically and internationally. 66Therefore, in the negotiations regarding technology transfer, negotiators must deal with the climate change mitigation function both as a public good and from the perspective of economic competitiveness, particularly for the emerging economies like China who has been considered by the Western parties as both potential and de facto competitor. Any intentional or unintentional neglect of the economic competitiveness issue will not be helpful in bringing about constructive solutions. 67 The Western countries are particularly concerned about the IPR protection in transferring low carbon technologies to such countries as China and India whose self- innovation capacity pose serious competition to their domestic sectors.68 What they are pursuing is to sell more technology equipments to these emerging markets as their deployment of advanced energy facilities such as power generating equipment and smart electricity grid technology will dramatically grow in the next couple of decades.69 Therefore, any illusion of the emerging large economies like China that the

64 Todd Stern, Statement to the House Foreign Affairs Committee，November 4, 2009，http://www.internationalrelations.house.gov/111/ste110409.pdf. 65 Garten Rothkopf, “Intellectual Property Protection and Green Growth: Analysis and Implications for International Climate Negotiations”, A Report for The Global Intellectual Property Center, September 2009, http://www.gartenrothkopf.com/images/stories/docs/ipr%20and%20green%20growth.pdf. 66 Liu Wenling, Analysis of GHG Mitigation Policy in China’s Aluminum sector , presentation at a regional workshop hosted by Tsinghua University , Beijing, May 11,2009. 67 The developed countries emphasize the competitiveness in low carbon technologies and downplay their function of climate mitigation.See: Martin Khor, The Rise of ‘Climate Protectionism’ Third World Network, Briefing Paper 2, Bangkok, September28 to October 9, 2009, Bangkok, http://www.twnside.org.sg/title2/climate/briefings/bangkok02/TWN.BPBKK2009.02.doc. 68 Nitin Sethi,“Climate talks: US, others refuse to discuss IPR changes to help poor get clean tech”，The Times of India, August 13, 2009, New Delhi, http://timesofindia.indiatimes.com/articleshow/4886692.cms. 69 USTDA, “U.S. Trade and Development Agency ,Clean Energy Development in China Offers New Export Opportunities for U.S. Technology Companies -----USTDA Director Zak Encourages U.S. – China Energy Cooperation” News Release ,May 21, 2010,http://www.ustda.gov/news/pressreleases/2010/EastAsia/China/ChinaCleanEnergy_052110.p df; Lori Montgomery and Brady Dennis, “New Democratic Strategy for Creating Jobs Focuses on a Boost in Manufacturing”, Washington Post, August 4, 2010, http://www.washingtonpost.com/wp- dyn/content/article/2010/08/03/AR2010080302685.html.

19 Western countries will transfer advanced low carbon technologies under compulsory or discounted terms are unrealistic. 2 China’s interests in low carbon technology transfer are neither the same as that of her early years of opening up nor from those of other developing countries due to her current national innovation strategies, self innovation capacity, equipment manufacturing capacity and massive deployment potential. As the most populous and second largest economy in the world, China has to acquire the first class innovation capacity in science and technology if it aspires to be a competitive power in the 21 century world system. 70 In the 2006 version of Chinese mid and long-term scientific and technology development plan: 2006-2020, to promote the innovation capacity and reduce the dependence on foreign technology has been set as a strategic goal: “In today’s world, many countries have made S&T innovation a national strategy and S&T inputs strategic investments by drastically increasing R&D spending. These nations lead the world in deploying and developing frontier technologies and strategic industries and implement important S&T programs in an attempt to enhance their national innovative capability and international competitiveness. Confronted with the new international situation, we must have a greater sense of responsibility and urgency, by making S&T progress a major driving force for the economic and social development more conscientiously and resolutely. We must place the strengthening of indigenous innovative capability at the core of economic restructuring, growth model change, and national competitiveness enhancement. Building an innovation-oriented country is therefore a major strategic choice for China’s future development.71 Though China is still a developing country, China’s science and technology

70 Wen Jiabao (Premier) cautioned Chinese scientific community, “ The world is experiencing a new science and technology revolution. … (We) should bear in our mind all the time that we can not obtain advanced technology ( from foreigners) with money, therefore , We have to rely on ourselves. Quoted from: Zhao Cheng, “ Gonggu He Fazhan Hao De Shitou---Wen Jiabao Zai Shanxi Kaocha Jishi”, ( In Chinese) People’s Daily ( In Chinese), July 19, 2010, p. 01. 71 The State Council of the P.R .China, “The National Medium- and Long-Term Program for Science and Technology Development (2006-2020)”，February 9, 2006, China’s National Government Official Website, http://www.gov.cn/jrzg/2006-02/09/content_183787.htm.

20 innovation capacity has been increased dramatically with her 30 years reform and opening up. In the high tech indicators report 2007 issued by Georgia Institute of Technology Chinese Technology Standing Indicator was ranked the first.72 In another global competitiveness report 2006-2007 by World Economic Forum China was ranked 54th73 though China’s rank was quite different in the two reports, there is ample evidence that China’s position in technology innovation capacity has seen dramatic improvement. 74 For the case of clean coal technologies, China took 12% among the total 7752 filed clean coal technology patents during 2003 and 2007, behind only the US and Japan.75 3 Localization of the foreign low carbon technologies has achieved great success in China. Through purchasing production licenses, and by incentivizing foreign firms to set up foreign ventures or joint ventures, China successfully lowered the low-carbon technology deployment. A group of Chinese local enterprises have grown into leading low-carbon equipment providers with independent self-innovation capacity。76 By 2008, China took 38% of 713 units classed as “Ultra Super Critical & Super Critical Coal-fired Power Plants Super Units” under operation, construction or in planning, the largest share in the world. 77 Wind power deployment is another sector that has benefitted greatly by localization. The share of Chinese local or joint-ventures produced wind turbines grew from 15.4% in 2003 to 84.6% in 2008 in terms of cumulative capacity.78 The fast growth of wind power deployment can be attributed to

72 Porter, A.L., N.C. Newman, X-Y Jin, D.M. Johnson, and J.D. Roessner，High tech indicators: Technology- based competitiveness of 33 nations, 2007 Report. Atlanta: Georgia Institute of Technology，March 28, 2008，http://www.tpac.gatech.edu/hti2007/HTI2007TradReport2008mar4-wdisclaimer.pdf 73 World Economic Forum (Lopez-Claros, A.), The global competitiveness report 2006-2007, Geneva, Switzerland, published by Palgrave Macmillan, UK. 2006, http://www.weforum.org/en/initiatives/gcp/index.htm. 74 Alan L. Porter, Nils C. Newman, J. David Roessner, David M. Johnson, and Xiao-Yin Jin (Technology Policy and Assessment Center, Georgia Tech,）International high tech competitiveness: Does China rank #1? Technology Analysis and Strategic Management, 2009, Vol. 21, no. 2, pp.173-193. 75 James Cust, Kate Grant, Ilian Iliev and Karsten Neuhoff, “International Cooperation for Innovation and Use of Low-Carbon Energy Technology”, Nov 25, 2008, Climate Strategies, http://www.cambridgeip.com/images/cip/pressmedia/publications/cleancoalpatents2008.pdf. 76 Bo Wang, Can CDM bring technology transfer to China?—An empirical study of technology transfer in China’s CDM projects, Energy Policy, Volume 38, Issue 5, May 2010, Pages 2572-2585 77 Ichiro Maeda, “Technology Transfer in the Power Sector”, Presentation at the Asia‐ Pacific Partnership on Clean Development and Climate Sixth Policy and Implementation Committee Meeting. October 30, 2008, Vancouver, BC. 78 Shi, Pengfei , 2003-2008. “Chinese Wind Power Installation Statistics” 2003-2008, http://www.nwtc.cn/Article/ShowClass.asp?ClassID=57。

21 the dramatic increase of the equipments that are produced locally instead of imported. Chinese government preferential fiscal policy and binding requirement of 70% local contents in large wind farm concessions incentivized greatly the foreign wind turbine producers to build their manufacturing base in China either in joint ventures or independent ventures. 79 China’s innovation capacity and low manufacturing cost make it a competitive supplier of patent and exporter of technology equipment. According to the World Bank, Chinese high-tech product export ranked number 1 in 2008 both in terms of value and growth rate (reaching $381.345 billion, beating the US, the second largest exporter with $231.126 billion in sales).80 In terms of trade balances, China is a net high-tech product exporter. In the first six months of 2009, Chinese machinery exports were $306.67billion and the imports were $208.22 billions; high tech products exports were $154.32 billion while the imports were $129.95 billion.81 Another research report found that China’s share of world low carbon technology exports has been growing at a very fast pace and reached 5.8% from 1998 to 2003, just behind Japan, Germany and US.82 Such low carbon technologies as coal gasification systems, Cement waste heat recovery systems, wind turbines, and photovoltaic cells, and China’s Gasification, etc. have entered the markets in both developed and developing countries.83

79 Joanna I. Lewis, “Technology acquisition and innovation in the developing world: the case of wind turbine development in China”. Presentation PPT, presented at the Harvard China Seminar Series, March 5, 2009. 80 World Bank, High-technology Exports, 2009, http://data.worldbank.org/indicator/TX.VAL.TECH.CD. 81 Ministry of Commerce, P.R.China, “The National Machinery and Electronics Export and Import Statistics”, Jan.-June, 2009; “The National High Tech Export and Import Statistics”, Jan.-June, 2009，http://cys.mofcom.gov.cn/accessory/200909/1253518024116.xls. 82 Antoine Dechezleprêtre, Matthieu Glachant, Ivan Hascic, Nick Johnstone, Yann Ménière, Invention and Transfer of Climate Change Mitigation Technologies on a Global Scale: A Study Drawing on Patent Data, Final Report , December 2008 http://www.nccr-climate.unibe.ch/conferences/climate_policies/working_papers/Dechezlepretre.pdf 83 Center for Environmental Public Policy Goldman School of Public Policy University of California, Berkeley, “Who Owns the Clean Tech Revolution? Intellectual Property Rights and International Cooperation in the U.N. Climate Negotiations Report and proposals from a conference October 26 -27, 2009 ,University of California, Berkeley” ,Regents of the University of California, November 2009; Yu Jianguo, Vice Chancellor, East China Science and Technology University, “ Grasp the opportunity of implementing the ‘Outline’, Promote the Industrialization of Science and Technology findings” September 24, 2008, www.sipa.gov.cn/zscq/node212/userobject1ai6548/00000004.doc; China Huaneng Group, Co. Ltd., China’s Large Scale Coal Gasification System first Exported to US, August 1, 2009, http://www.chng.com.cn/n16/n110252/n110425/172564.html; Couch Group, Engineering Projects List, May, 31, http://www.conch.cn/sm2111112028.asp. Charles Guo,” China’s Photovoltaic Industry: Research and Production”, U S-China Green Summit Panel Discussion, November 17, 2009, Beijing.

22 4 Chinese strategy of localizing foreign technologies is justifiable and crucial to the low carbonization of China’s economy.

The Chinese government has been consistently implementing preferential policies to incentivize stakeholders to invest and deploy low carbon technologies through the leverage of tax rebates, investment subsidies, and other administrative mechanisms such as quotas assigned for the state-owned coal power companies to develop renewable energy and efficiency standard requirements. Foreign technology providers are encouraged to form joint ventures with local producers or invest independent firms to localize the manufacturing of their products. 84 The local authorities also provide incentives for foreign technology providers with tax breaks and favorable land use arrangements. Accompanied with low labor cost and abundance of high skilled workers and R&D personnel, the cost of deployment of Chinese locally manufactured low-carbon technology equipment or systems is reduced by 60-100% compared to the foreign produced technologies. 85 This dramatic reduction is crucial to help further the world largest annual GHG emitter’s climate mitigation process. Evidence has showed clear linkages between the reduction of cost and deployment of low-carbon technologies. For instance, the cement waste heat recovery system, which could save the cement production electricity consumption by 1/3, was first introduced from Japan and could be only deployed in China’s largest cement plant with sound financial capacity. It was not used in other plants until the system was localized and the cost of deployment fell by more than one half. Medium sized cement plants with ordinary financial conditions are now well incentivized to deploy the system. 86 As the common but differentiated responsibilities principle is hard to implement in terms of financial assistance from the developed countries to the developing

84 Wang, Can CDM bring technology transfer to China?—An empirical study of technology transfer in China’s CDM projects, , 2020; Lewis, “Technology acquisition and innovation in the developing world: the case of wind turbine development in China”, 2009; Edward S, Steinfeld,.Richard K. Lester and Edward A. Cunningham, Greener Plants, Grayer Skies? A report from the front lines of China’s Energy Sector, China Energy Group, MIT Industrial Performance Center, August 2008. 85 Lewis, 2009; Wang , 2010; 86 Wang, 2009.

23 countries due to the large scale of the developing economies, localization of the foreign low carbon technologies seems to be the only practical approach that could lead to the substantial carbon emissions reduction in the large developing economies. (either in absolute or intensity terms)87 However, the Western countries based on their national interest and domestic politics are pushing hard to sell more technology equipment to China and has raised questions to China’s localization strategies on foreign low carbon technologies.88 This conflict shows again the friction between national interest of economic competitiveness and the public good of climate mitigation. Therefore, China is in a position to point out the double standard approach in Western countries’ climate diplomacy. 5 China’s next priority in international technology transfer should focus on establishing bilateral and multilateral mechanism to provide preferential terms and a stable environment for low carbon technology transfer across borders.

Such instruments to facilitate low carbon technology transfer as tariff reduction, tax rebates, loan guarantees, etc., should be negotiated among states. The certification of key low-carbon technology and equipment eligible for such preferential treatment should be clarified. As China is also becoming a major low carbon technology provider, such mechanisms should be reciprocal. As Chinese- manufactured low carbon technology has the advantage of low cost and strong adaptive quality to third world conditions, China should play a more important role in providing low carbon technology for the developing countries.89 Apart from the financial support from Chinese government, the emerging Copenhagen Green

87 While China and other developing countries are urging the west to spend 1% of their GDP assisting the developing countries mitigation efforts, the developed countries by far has been reluctant to move any significant steps that that is close to the developing countries’ request. The biggest GHG emitter even is mired with her domestic quarrels on how to allocate enough resources to do her own mitigation let alone paying substantial money to the developing countries, particularly China and India who emerge as competitive rivals in world trade. 88 Bo Wang, “China: Driving Global Standards on IP/ Tech Transfer”, Garten Rothkop Policy Assessment, July 19, 2010, http://gartenrothkopf.net/dev4/index.php?option=com_content&view=article&id=12273:the-worlds-new- energy-leader-is-driving-global-standards-on-ip--tech-transfer-&catid=55:all-analysis&Itemid=389; Nathaniel Ahrens, “Innovation and the Visible Hand China, Indigenous Innovation, and the Role of Government Procurement”, Carnegie Papers, Asia Program, Carnegie Endowment for International Peace , Number 114, ,July 2010; John Juech, “China's Clean Energy Policies and the New Green Protectionism”, Garten Rothkop Policy Assessment, September 16, 2010, http://gartenrothkopf.net/dev4/index.php? option=com_content&view=article&id=13063:chinas-clean-energy-policies-and-the-new-green- protectionism&catid=55:all-analysis&Itemid=389. 89 Global Environment Institute, “Global Environment Institute Report, 2009”, pp.12-13, http://www.geichina.org/_upload/file/AR/GEI_AR09_CHN.pdf.

24 Climate Fund would be an important source for the developing countries to get subsidies from to support their introduction of foreign (Chinese) technology. 6 Collaboration in pre-commercialized low carbon technologies

As the request of compulsory technology transfer from the developed countries to developing countries will not likely to happen in the foreseeable future in climate governance, China and the more advanced countries should push forward the collaborative research, development, demonstration and deployment of the pre- commercialized low-carbon technologies and share both the cost and intellectual property rights. China’s low cost in labor and logistics can significantly reduce cost of new technology R, D&D.90 A typical case is the on-going Near Zero Emissions Coal (NZEC) project between EU(UK) and China to develop CCS technology in China. 91 Sino-US Clean Energy Research Center initiated during President Obama’s visit to China in 2009 is another embodiment of such cooperation. 92 Such projects can escalate the process of new low carbon technology R&D in both the developed and developing countries. The burden sharing arrangements will naturally lead to the sharing of IPR and help avoid potential disputes over technology transfer. Chinese government should expand and enrich such cooperative projects in both scale and content. China should bargain for more investment and personnel exchange in such projects. The financial support from public and private sources of $150 million over five years, split evenly between the two countries in the Sino- US Clean Energy Research Center scheme is far from being adequate for the two largest emitters.93 Multilateral mechanisms of funding should also be an important financial source to

90 Al-Juaied, Mohammed and Adam Whitmore. "Realistic Costs of Carbon Capture." Discussion Paper 2009-08, Energy Technology Innovation Research Group, Belfer Center for Science and International Affairs, Harvard Kennedy School, July 2009； Gallagher, Kelly Sims. "Key Opportunities for U.S.-China Cooperation on Coal and CCS." Paper, Brookings Institution, December 2009, http://www.brookings.edu/~/media/Files/rc/papers/2010/0108_us_china_coal_gallagher/0108_us_china_coal _gallagher.pdf. 91 “China-UK Near Zero Emissions Coal Initiative”, Summary Report, September 2009, http://www.nzec.info/en/assets/Reports/China-UK-NZEC-English-031109.pdf; Carbon Capture and Sequestration Technologies Project at MIT Databases, Near Zero Emission Coal (NZEC) Fact Sheet: Carbon Dioxide Capture and Storage Project, June 2010, http://sequestration.mit.edu/tools/projects/nzec.html. 92 The White House, Office of the Press Secretary, “Fact Sheet: U.S.-China Clean Energy Research Center”, November 17, 2009, http://www.energy.gov/news2009/documents2009/U.S.-China_Fact_Sheet_CERC.pdf. 93 Idid.

25 facilitate such pioneer low carbon projects. The emerging Copenhagen Green Climate Fund would be an important source for China to seek financial support in low carbon technology R&D.

Conclusion

Humanity is facing both the common consequence of climate change and the disagreement on the assignment of responsibilities to deal with it its consequences. For China, a more active role in countering climate change will have more than one implication. One the one hand, countering climate change threats demands both an energy technology revolution and sustainable development. Lessons from history show that crises will likely trigger constructive change if well managed. The foreign- energy- dependent West European countries and Japan emerged as the world energy efficiency and renewable energy technologies out of the Oil Crises in 1970’s while US returned to her inefficient approach of development due to her superiority as a hegemon. 94 China has missed scientific revolutions narrowly several times and now faces another opportunity to catch up. Should China be able turn this historic climate challenge into energy technology revolution and sustainable development, China will emerge as a real power. Another implication for China is the role in constructing a new model for global climate change governance. A decade ago the world saw China become a member of World Trade Organization. A decade later the world saw a more aggressive competitor in world trade. China’s changing status among the GHGs emitters from a medium emitter in 1980’s and 1990’s to the world’s largest happens to be another indicator of China’s fast development. Though China is still troubled domestically with disparities in its development, it is indisputably moving toward a more prosperous future. China should transform the progress of economic development into more confident engagement in international order reform, in particular by shaping the norms in

94 James Cust, et al. 2008.

26 climate governance. What Chinese policy makers need most is to drop their focus on maintaining the developing country mentality of the past, redefine Chinese interest in climate change, and take bold steps as the author proposes.