Unit 4 Macro: China’s Green Development Agenda

There is a huge agenda for China with green development. The key point is that China is now fully committed to reshaping her growth in the years ahead, indded success in promoting green growth and development may be crucial to lifting China from being a middle income country to a high income economy.

* Increase energy efficiency in producing and consuming goods and services
* Improve natural resource management
* Decouple GDP growth from heavy resource use
* Develop green products, technologies & markets
* Change consumption & conservation behaviour
* Increase energy security
* Reduce exposure to volatile global prices
* Use green development to enhance economic efficiency and competitiveness

Environmental Challenges

1. China’s total annual and per capita emissions are increasing at a high rate – doubling of C02 emissions since 2003. China overtook the USA as the world’s biggest emitter of C02 in 2008

2. China is heavily dependent on coal for energy - 70% dependency on coal (Brazil: 6% and India: 51%)

The 2012 World Bank study on China in 2030 argued that “A new race towards green development is now being played out in the global economy, with significant benefits accruing to early movers.”

If China can make significant progress in these areas there are big economic, social and political spill-over benefits some of which are summarised below.

1/ Long term economic growth stimulus
Green products and technologies will create jobs, often higher-paid than in manufacturing & farming
Technologies can be licensed and drive green exports from China
China has the scale for low carbon products to be developed and sold cheaply

2/ Reduced energy dependency
By 2030, 75% of oil and 55% of gas will have to be imported
Lower dependency will help insulate businesses and consumers from volatile and higher world prices

3/ Adapting to demographic challenges and trends
China has an ageing population and in a short time a shrinking workforce
Improved environmental outcomes essential to lowering the health costs from air and water pollution, land subsidence and vulnerability to extreme weather events linked to climate change

4/ Geo Politics can never be ignored!
Success in meeting environmental challenges and cutting C02 emissions per unit of output produced will improve China’s global standing and increase confidence among international investors

5/ Reversing long term environmental degradation
The annual costs of environmental degradation and depletion are approaching 10 percent of GDP
This is higher than most other countries

Policies to Drive Green Growth and Development

As China’s development path continues, there will be large structural changes as the service sector grows in relative importance. Partly this is because real per capita incomes are expected to rise significantly and hundreds of millions of Chinese consumers will demand more services such as health care, education and household services. Will this help to limit the rise in China’s C02 emissions per capita?

The 12th Five Year Plan commits China to making significant and lasting progress in green development. For example, it includes a new carbon intensity target of 17% (a reduction in carbon emissions per unit of GDP from 2010 levels by 2015), a non-fossil fuels in total energy mix target of 11.4%, and several other pollution-related targets.

The key policy question is whether China will permit more frequent use of market-based mechanisms in managing her environment and in changing consumer and business behaviour? Or will it continue to rely more on state planning, regulations and administrative edicts?

Will the Chinese government permit natural resources to be priced properly and to take account of externalities based around the polluter-pays-principle? Or will it continue to provide expensive subsidies to state-owned monopolies wasteful in their use of energy and are heavy emitters of pollution?

There are many policy options open

1. Cap and trade emissions trading schemes
2. Carbon taxation for businesses and consumers
3. Tougher energy efficiency regulations / laws
4. Tighter laws and penalties for failures to control pollution – tough environmental standards
5. Tax incentives for green investment, research and innovation
6. Subsidies for renewable energy industries
7. Direct public sector investment in green infrastructure projects

China’s latest 5 Year Plan does involve a pilot emissions-trading scheme for some regions in China, initially on a voluntary basis

Progress in meeting sustainability objectives:

• During the period 2006–2010, China reduced the energy intensity of its economy by 20%

• Progress in lifting R&D expenditure to 2.5 percent of GDP by 2015

• High investment in smart transportation systems, smart energy grids and buildings

• In the new 5-year plan, a projected $600bn (£370bn) is committed by China to growing sectors such as information technology, clean energy, environmental protection and scientific research and innovation – they are building scale and competitive advantage in these industries

• China now has the largest capacity in the world to generate energy from solar and wind energy

• It is manufacturing one wind turbine every hour

• China is the lowest-cost producer of solar panels in the world – many of which use rare earths