How can the West work with China on climate change?

Climate and Energy

Climate change is a global problem requiring global cooperation. The world’s biggest emitter is making progress, but has much more to do. Given the whole world has a stake in accelerating its decarbonization, how can Canada (and the West) help China reduce emissions? Let’s take a look at our wonderful array of options—from exports to ITMOs to climate clubs.

Low-carbon exports

Trade will play a role in China’s decarbonization. Canada is an exporting nation and China is a major trading partner. China’s policies will affect the nature of its demand for Canadian goods—even more so if it increases the stringency of those policies over time. Specifically, Chinese demand will rise for products that reduce emissions.

For example, if China’s national carbon price (coming in 2020) rises to $40/tonne by 2030 (totally viable!) carbon capture and storage becomes cost-competitive. From grid management tools to hydrogen cells to drilling expertise, Canadian firms can and will respond to the potentially huge change in international markets. Domestic climate policy—and the extent to which we decarbonize at home and develop our own low-carbon technology and expertise—will affect how quick the response is. (That doesn’t mean we can claim credit for our exports though.)

By the way, having our own credible and stringent climate policies strengthens the argument that Canada be first in line to meet this growing demand for low-carbon imports.

International offsets

Increasingly credible climate policies and infrastructure open the door to China’s participation in international permit trading. Notable are Internationally Transferred Mitigation Outcomes (ITMOs), provisions in the Paris Agreement for countries to buy and sell mitigation actions from one another. Developing countries are positioned to be net sellers, with developed nations funding or purchasing mitigation abroad. China straddles this line, and could end up both a buyer and a seller.

Given the scope and breadth of its climate policies, China may offer Canada and other developed ITMO mitigation that’s lower-cost than anything it could pursue domestically. If Canada falls short of Paris targets, international credits may prove a necessary supplement. Conversely, Canada could scale zero-carbon tech domestically and market credible, verifiable offsets to the world. It’s also not one or the other.

China no doubt sees ITMOs as a business opportunity. Canada should too.

Climate clubs

Exerting unilateral influence over China is impossible in the best of times. But the right mix of countries with the right mix of carrots and sticks could push China (and the world) to do better, faster. Climate clubs offer a theoretically straightforward but practically challenging way to promote greater ambition. Nobel Prize-winner William Nordhaus explains:

“The club is an agreement by participating countries to undertake harmonized emissions reductions. The agreement … centers on an “international target carbon price” that is the focal provision of an international agreement.”

Clubs have a few definitive characteristics:

  1. Member countries set a minimum standard for stringency (e.g. a carbon price floor)
  2. Countries that fail to meet the standard face a financial penalty (e.g. border carbon adjustments)

Given the revival of tariffs as a trade tool, trade instruments to spur decarbonization would be a healthy addition to the conversation.

A united front

What’s the minimum viable coalition of countries necessary to pull China into the club? The European Union and at least a fraction of the United States are essential. The inclusion of Canada and Mexico is optimal (both have a national carbon price). The EU and North America combined emit fewer GHGs than China, but they have over three times the economic might.

There are serious proposals for a national carbon price in the U.S. but federal action over the next five years is deeply uncertain. A second-best scenario entails a large contingent of U.S. states. California remains the lodestar of U.S. leadership, followed by the 10 states that price carbon through linked cap-and-trade. Oregon is also putting the finishing touches on a cap-and-trade system that will link to California’s. These 12 states comprise over one-third of U.S. GDP. Likely not enough, but a solid start.

With the pending launch of its national carbon market in 2020, China has laid some groundwork for participation in a climate club. A well-timed, coordinated, multilateral push for a higher domestic carbon price could help it kick its coal habit ahead of schedule.

China’s challenge is a global challenge

China’s developmental timeline, emissions, and economic power make it a battleground for climate mitigation. It encapsulates the all-hands-on-deck approach necessary to overcome the inertia of a carbon-intensive civilization.

China already has a lot of the essential policies in place. There are plenty of opportunities for Western nations to help crank the dials faster. A country home to 19 percent of the world’s people could reasonably be viewed as a bellwether for climate action. There’s still time for the West to lean into lean into this transition faster, unified.

China seriously confronting decarbonization leaves Canada with fewer and fewer excuses for delay. Credible climate policies of our own—including a rising carbon price—offer both a stronger business case and diplomatic leverage. Pressing China would help keep 2 degrees feasible and fuel demand for Canada’s low-carbon exports and expertise.

The West should be clear-eyed about how much influence it can exert, but it’s not zero.

Leave a Reply

*

Send this to friend