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Chinaneeds to be careful in apportioning responsibility for emissions

In the recent session of the National People’s Congress,the head of a provincial environmental bureau told reporters that foreignersbuy and use clean goods made in China but it is China that will have to put upwith the pollution that comes with making those goods. Indeed, various studiesshow that goods that China exports contain huge quantities of carbon dioxide.They all come from the emissions that have helped make China the world’slargest carbon emitter after the United States, and China is pulling furtherahead in this race that no one wants to win.

This raises the question of who should be responsible forthis pollution and who should bear the costs. It is a very sensitive andcomplex issue, but several years ago, at a news conference organized by theInformation Office of the State Council, Ma Kai, the then chairman of theNational Development and Reform Commission, China’s top economic planningagency overseeing national economic planning and climate response issues, saidChina wanted importers to cover some, if not all, of the costs.

Under the accounting rules of the Intergovernmental Panelon Climate Change, all greenhouse gas emissions and their elimination are basedon in-country production measurements. Commitments under the United NationsFramework Convention on Climate Change, the Kyoto Protocol, and its follow-upregimes are set and evaluated based on this territorial-based emissionsaccounting system.

China reckons that when a country’s carbon dioxideemissions for production are higher than those for consumption, the country isin effect emitting carbon to meet the needs of other countries.

That is a perfectly reasonable argument, and putting itgoes some way in providing a better understanding of China’s emissions andtheir contributions, finding solutions to deal with the problem and allayingthe concerns of developed countries.

However, if the argument is pushed to the limit, it willnot lead to solutions but may in fact be detrimental to China’s interests.

China’s status as the workshop of the world came aboutlargely because of a comparative advantage in the division of trade. Using fewerenergy-efficient technologies to produce goods for domestic use and exports isalso largely dictated by its current state of development.

It would be fair to say that rapidly rising carbonemissions and emissions embedded in exports are also the results of China’spro-trade policies. China has not only adopted common pro-trade policies, buthas long used access to its unique giant customer base and its access tocertain raw materials as a way of enticing foreign companies to open factoriesin China or relocate their production to the country.

If you concede China’s argument that its emissions are infact European and American ones generated by China’s deliberate pro-tradepolicies, it can equally be argued that the jobs that generate those emissionsmust also be European and American. Given that job outsourcing in the currenteconomic crisis is extremely sensitive in the US and the EU, such an argumentdoes China few favors.

Combined with US concerns about the huge trade deficit andfurther deterioration of its trade balance with China, pushing theresponsibility of the consumers in importing countries is definitely a toughsell to the US. Moreover, this is not just about China versus industrializedcountries, but has a bearing on developing countries as well.

It could be argued that China ought to shoulder at leastsome of the blame. For example, it has been criticized for having a role indeforestation in Southeast Asia.

Existing studies on carbon emissions embodied in tradeconsider energy-related carbon emissions only, failing to take account of therole that land use changes and forests play in the emissions. If those factorsare taken into account, what China is doing arguably reduces these countries'capacity to use forests as a sink to absorb global carbon and increases thecarbon dioxide emissions contained in its imports.

Consumption-based accounting of carbon dioxide emissionsfurther complicates the current debate on the legitimacy of carbon tariffs. Thecarbon tariffs that the US has proposed have drawn fierce criticism from Chinaand India. However, if the consumption-based accounting of carbon emissions,either implicitly or explicitly, is to indicate that the responsibility forsuch emissions from the production of traded goods and services lies with theconsumers in importing countries, it can then be argued that the finalresponsibility for regulating those emissions lies with the governments ofimporting countries.

This line of thinking ignores the dynamics of China’sfuture development. Savvy Chinese leaders have recognized that China’scapital-intensive, export-oriented growth over the past few decades is nolonger sustainable. Accordingly, the current 12th five-year economic plan(2011-15) focuses on rebalancing an export-driven economy and on inclusivegrowth, aiming for less reliance on trade and for more on domestic consumptionto drive growth. As would be expected, the share of China’s carbon emissionsembedded in exports is expected to fall over time.

Attributing emissions to consumers suggests that whoeverconsumes is responsible for pollution from consumed goods. If you put thatuser-pays principle in a broad context, it could be argued that it is richpeople who are the highest emitters, so they are responsible for emissions intheir countries.

A study published in the Proceedings of the National Academy of Sciences shows that ifpermitted national emission levels are based on the number of high emitters,the increasing number of high-living, carbon-guzzling rich Chinese would beunable to hide behind their poor and carbon-thrifty compatriots anymore andChina would accordingly be asked to take on emissions caps even earlier, whichwould be more stringent, than it would wish.

However, assigning responsibility to China for the carbonemissions in its exports does not necessarily mean the issue can be dealt withat a domestic level alone. In fact, effectively controlling those emissionsrequires action internationally, too.

At the national level, China needs to focus on rebalancingits investment-driven, export-oriented economy, boosting the service sector anddomestic consumption. It also needs to adjust its trade structure. Theprocessing trade has played a significant role in promoting development and jobcreation, but that trade needs to be upgraded. This is essential not only ifChina is to press ahead with opening-up and maintaining its competitive edge,but also in improving the environment and reducing carbon dioxide emissions inthe production of goods, whether they be for export or for domesticconsumption.

Cutting carbon emissions in exports creates the impetusfor upgrading the energy mix and improving energy efficiency. China has madegreat strides in this area and has committed itself to settingenergy-conservation targets, the use of clean energy and carbon intensity. Butit needs to be more ambitious, aiming to reduce emissions by 46-50 percent by2020 and adopting absolute emissions caps around 2030 that will lead to theglobal convergence of per capita carbon emissions by 2050.

With rising domestic energy demand and increasingdifficulty in further cutting energy and carbon use, putting a price on carbonis a crucial step if China is to successfully harness market forces to achievethat aim, and genuinely become a low-carbon economy.

At the moment, five provinces and eight cities in Chinaare experimenting with low-carbon measures. In addition to that experiment, acarbon tax or a domestic carbon trading scheme would serve as a cost-effectivemeasure to supplement costly administrative measures that the country relied onto meet its energy-saving goal in 2010.

Internationally, cutting China’s carbon emissions inexports creates an impetus for strengthening coordination on climate change andestablishing a global carbon price framework. It is the absence of a globalcarbon price that has failed to internalize carbon costs. China and the rest ofthe world need to work more closely together to internalize those costs,ensuring that the cost of emissions embodied in traded goods is reflected inthe price to the consuming countries as well as those goods for domestic use.This is a feasible way of passing on carbon costs to consumers withoutconsumption-based accounting of carbon emissions, which is more data-intensiveand complex than production-based accounting of them.

To that end, China needs to increase its domestic carbonprices and support more stringent global greenhouse gas emissions reductions tobring about higher, more consistent carbon prices internationally.

ZhongXiang Zhang is chairman and a professor of School of Economics, Fudan University,Shanghai. The views do not necessarily reflect those of China Daily.

(China Daily 04/05/2013 page 8)