Going Clean – the Economics of China's Low-Carbon Development
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SEI - Africa Institute of Resource Assessment University of Dar es Salaam P. O. Box 35097, Dar es Salaam Tanzania Tel: +255-(0)766079061 SEI - Asia 15th Floor, Witthyakit Building 254 Chulalongkorn University Chulalongkorn Soi 64 Phyathai Road, Pathumwan Bangkok 10330 Thailand Tel+(66) 22514415 SEI - Oxford Suite 193 266 Banbury Road, Oxford, OX2 7DL UK Tel+44 1865 426316 SEI - Stockholm Kräftriket 2B SE -106 91 Stockholm Sweden Tel+46 8 674 7070 SEI - Tallinn Lai 34, Box 160 EE-10502, Tallinn Estonia Tel+372 6 276 100 SEI - U.S. 11 Curtis Avenue Somerville, MA 02144 USA Tel+1 617 627-3786 SEI - York University of York Heslington York YO10 5DD UK Tel+44 1904 43 2897 The Stockholm Environment Institute Going Clean – The Economics of China’s SEI is an independent, international research institute.It has been Low-carbon Development engaged in environment and development issuesat local, national, regional and global policy levels for more than a quarterofacentury. Stockholm Environment Institute and SEI supports decision making for sustainable development by the Chinese Economists 50 Forum bridging science and policy. sei-international.org Going Clean – The Economics of China’s Low-carbon Development Stockholm Environment Institute and the Chinese Economists 50 Forum Editorial Board: Fan Gang Lord Nicholas Stern Ottmar Edenhofer Xu Shanda Klas Eklund Frank Ackerman Lailai Li Karl Hallding Stockholm Environment Institute Kräftriket 2B SE 106 91 Stockholm Sweden Tel: +46 8 674 7070 Fax: +46 8 674 7020 Web: www.sei-international.org Head of Communications: Robert Watt Publications Manager: Erik Willis Layout: Richard Clay Cover Photo: © David Schroeter This publication may be reproduced in whole or in part and in any form for educational or non-profit purposes, without special permis- sion from the copyright holder(s) provided acknowledgement of the source is made. No use of this publication may be made for resale or other commercial purpose, without the written permission of the copyright holder(s). Copyright © November 2009 by Stockholm Environment Institute / Chinese Economists 50 Forum ISBN 978-91-86125-16-5 Partners: Donors: CONTENTS Acknowledgements iv Preface v Key conclusions vi 1 The climate challenge 1 1.1 Science says: a finite global budget for greenhouse gas emissions 1 1.2 China’s sustainability challenge in the climate change context 3 1.3 This report 4 2 The need for a fair deal 7 2.1 Emissions, living standards, and consumption 7 2.2 Frameworks for burden sharing 11 2.3 What is China’s fair share of global emissions reductions? 12 3 The art of the possible – a deep carbon reduction scenario 15 3.1 The deep carbon reduction scenario 15 3.2 Construction 15 3.3 Transport 16 3.4 Industry 18 3.5 Electricity generation 19 3.6 Managing the challenges and disruptive effects 20 4 Market mechanisms to price carbon 23 4.1 Phasing out subsidies 23 4.2 Carbon tax 24 4.3 Cap-and-trade system 25 4.4 China’s choices for a carbon pricing mechanism 27 4.5 A global carbon market 27 4.6 China in a global carbon market 29 4.7 International harmonisation of carbon prices 30 4.8 International competitiveness and carbon tariff proposals 31 5 Innovation and investment 33 5.1 Technology and domestic innovation policy 33 5.2 A new plan to boost technology transfer 34 5.3 Investment and financing 35 6 A low-carbon China is a modern China 39 References 41 Appendix 1: List of Annex I and non-Annex I countries 44 Endnotes 46 ACKNOWLEDGEMENTS his report, and the background papers which it SEI and CE50 would like to express their appreciation Tbuilds on, have been developed under the project to cooperating institutions for this project: the National Research and Forum on Economics of Climate Change – Economic Research Institute (NERI), China; Towards a Low-Carbon Economy in China. The project the Potsdam Institute for Climate Impact (PIK), has been jointly led by the Stockholm Environment Germany; the Deutsche Gesellschaft für Technische Institute (SEI) and the Chinese Economists 50 Forum Zusammenarbeit (GTZ), Germany; and the Grantham (CE50). Research Institute on Climate Change and Environment, UK. Naturally, this project would not have been possible The project originated from discussions between the without the generous support of funding agencies: the CE50 and SEI in the winter of 2006/2007 to establish an Swedish Ministry of Environment; the German Federal informal Chinese-international forum for dialogue and Ministry of Environment; Shell (China); the UK research between economists (including environmental Department of Energy and Climate Change (DECC); specialists), as well as experts, scientists and policy and the Rockefeller Brothers Foundation. makers concerning climate change and China’s development. Led by CE50 and SEI, an inception The project team is particularly grateful to Göran meeting to initiate this process was held in Stockholm Carstedt for moderating the inception meeting, Måns in February 2008, which identified key research issues Lönnroth for providing advice and guidance throughout and formed a research agenda. Targeted research the project process, Frédéric Cho for participation in was carried out, with scientific input from SEI, PIK, the process and valuable text input, and Zhu Saini of NERI and LSE Grantham Institute, culminating in 15 NERI for assisting with project co-ordination. Many background papers. A mid-term review meeting was thanks also to Ying Li for translation of this report into organised in Beijing in December 2008 to review the Chinese, Tom Gill for proof-reading, and Lan Wang drafts of the background papers and discuss cross- for assistance in the finalisation of the production of cutting issues, and a final Global Forum was convened the report. in Beijing in September 2009 to present and discuss key findings. The work to synthesise the research findings into this report has been carried out by a drafting team lead by The project has involved, at different stages, a number Karl Hallding. The drafting team has involved Klas of leading Chinese economists, and international Eklund (SEB); Helen Thai, Guoyi Han, Marie Olsson, economists working with climate change policies on and Sivan Kartha (SEI); Su Ming (Peking University), a global level. Chinese economists: Liu He, Fan Gang, Cao Jing (Tsinghua University), and Gunnar Luderer Wu Xiaoling, Xu Shanda, Justin Yifu Lin, Tang Min, (PIK). Cai Fang, Hu Angang, Chen Dongqi, and Xie Ping. International economists: Lord Nicholas Stern, Ottmar Edenhofer, Frank Ackerman, Assar Lindbeck, Karl- Göran Mäler, Thomas Sterner, Kai Schlegelmilch, Laurence Tubiana, Tariq Banuri, Klas Eklund, and Yuichi Moriguchi. Karl Hallding Lailai Li This international collaborative research has involved Drafting team leader Project Leader a number of outstanding academics who are listed with their respective background paper on page 41. The background papers will be published in the spring of 2010, and can be obtained electronically in draft form Stockholm and Bangkok, November 2009 from SEI. iv PREFacE he international community is increasingly Our report demonstrates that it is feasible for China Trecognising the risks of global warming caused to drastically reduce its carbon emissions in key by human activities. The estimated potential costs carbon-intensive industries, while still maintaining of non-action to climate change, based on available economic growth and development aspirations. scientific research, are so high that any action to reduce Moreover, these reductions can be achieved within carbon emission may be regarded as non-regrettable. the finite global carbon budget for greenhouse gas Therefore, climate change can be seen as the defining emissions, as determined by the hard constraints of issue of our age, as it may “rewrite the global equation climate science. Going Clean details the key economic for development, peace and security.”1 Our generation instruments, policies and institutions which would is at a crossroads, facing the greatest challenge of enable China to cost-effectively reduce its emissions. the modern, industrial era – to drastically reduce our Market mechanisms such as price liberalisation, reliance on fossil fuels while at the same time moving carbon pricing, and a global carbon market, and inter- forward economic growth. China’s participation, along country joint mitigation plans need to be supported with other rapidly emerging countries, and developed by substantial investment in clean technologies, and countries, is integral to any climate change solution. international finance and technology transfer. Such a transformation, for China and the rest of the world, will To achieve this transformation to a low-carbon global not be easy. But it is possible, necessary and worthwhile economy, we need both better international cooperative to pursue. mechanisms and new growth approaches and policy strategies for individual countries. China has already recognised the vulnerabilities of its ongoing pattern of economic growth and the need for low-carbon development.2 Even in these difficult economic times, climate change action may present more opportunities than costs, for both developed and developing nations. Johan Rockström Fan Gang China, like much of the world, would benefit from Executive Director Director early mitigation efforts. Stockholm Environment National Economic Institute Research Institute This report, Going Clean – The Economics of China’s Low-carbon Development, is unique in delivering a common research partnership between the Chinese and