Can China decarbonise its economy?

Joseph Stiglitz thinks China should count costs of high-carbon investments in Latin America

Climate change is now firmly at the top of the agenda, especially in China. The world’s largest polluter wants to become an example of a less carbon-intensive economy, one which embraces renewable energy, makes the transition away from coal and has the capacity to capture carbon instead of emitting it. But can China ‘decarbonise’ its economy, and what does cutting carbon domestically mean for the rest of the world?

According to the 2001 winner of the Nobel Prize for Economics, Professor Joseph Stiglitz, there is a certain dilemma regarding China’s role in moving towards a low-carbon economy, especially given its deeper engagement with Latin America, the new frontier for the reproduction of Chinese capital.

Latin America will be the target of massive investments, to the tune of US$ 250 billion over the next decade, Chinese President Xi Jinping promised in January.

“I see that the Chinese Government is very committed to climate change at the national level. But they are also committed to development. This is one of the tensions. China has worked to reduce emissions within the country with some success, but just increasing the GDP causes more emissions,” said Professor Stiglitz at a scientific conference on climate change in Paris last week.

Two thousand researchers attended the conference held at UNESCO’s headquarters entitled Our Common Future Under Climate Change, and were keen to report their findings in advance of the United Nations Conference on Climate Change (COP21), which will be held in Paris at the end of the year.

Overseas emissions

Besides being the world’s leading carbon emitter, China is also responsible for major emissions outside its own borders, many of which result from infrastructure projects in Latin America. China has primarily invested in carbon-heavy industries in the region including mining and oil extraction and has funded the construction of highways, railroads and even an inter-oceanic canal.

Professor Stiglitz argued that emissions generated within a country should not constitute the total for which it is responsible and that those created by overseas invesments should also count.

“We need to take responsibility and create a climate policy that focuses not just on which countries pollute more, but also the pollutants related to the products they consume,” Professor Stiglitz said.

And China needs to lead by example, Professor Stiglitz says, adding that calculating emissions from consumption would be easier if there were a global price for carbon. But for as long as trade and investment agreements do not contain environmental clauses, this is problematic.

Ecological problems in China are at the forefront of the public consciousness, says Professor Stiglitz; “I think they are seriously committed to reducing their emissions. The air in China is unbreathable. Everyone suffers the consequences. This has increased the visibility of environmental issues.”

Environmental awareness

Ecologist Dr. Yonglong Lu, who is one of the directors of the Center for Research in Environmental Sciences at the Chinese Academy of Sciences, agrees with Professor Stiglitz on the groundswell of concern in China on environmental issues and thinks finance from new multilateral financial insitutions such as the New Development Bank (otherwise known as the BRICS bank) and the Asian Infrastructure and Investment Bank (AIIB) should be conditional on safeguarding against a project’s environmental impacts.

“Environmental awareness in China is much greater than people think, especially on the part of the population,” said Dr. Lu, adding; “the Chinese government is also serious about controlling greenhouse gas emissions, not just so as to abide by international conventions, but to improve the quality of life of its population.”

Constrained by limited domestic resources and the environmental costs of using them, China’s development needs investment outlets outside the country, Dr. Lu argues.

Faced with slower growth at home and with the support of its policy banks, China’s industries are moving production lines overseas. This has the aim of increasing industrial and infrastructural capacity in host countries and allows them to increase exports back to China, the majority of which are carbon-heavy. So while China may be ‘decarbonising’ its national economy inasmuch as its industries are emitting less carbon domestically, it is adding to the emissions of the countries in which it operates and invests.

For emerging economies such as China and Brazil, climate change is only one of the issues related to development, Dr. Lu contends, “we have to reduce emissions and at the same time we have to create jobs. Without employment opportunities, how can we improve people’s lives?” he asks. But in practice, many of the jobs created by Chinese overseas investments go to expatriated Chinese workers, causing friction with local labour and raising questions about who really benefits from this development model.

Financing adaptation

World leaders will gather in the French capital in December in an attempt to define an agreement that will involve national targets for reducing greenhouse gases. The goal is to stop global temperatures increasing more than 2°C by the end of the century – the threshold at which point “catastrophic” and “irreversible” climate change will take effect, according to scientists from the IPCC (Intergovernmental Panel on Climate Change).

The big challenge is not only countries reaching a consensus, but also finding ways to finance actions for developing countries to adapt to climate impacts (like extreme droughts and periods of intense rainfall) and to curb their carbon emissions as they grow.

The UN’s Green Climate Fund, created at the 2010 Cancun Climate Conference to support climate adaptation in vulnerable countries, is unlikely to meet the global costs of mitigation and adaptation in poor countries. With a US$ 100 billion target, its current funds stand at US$ 10 billion. Professor Stiglitz argues that the actions of the recently created New Development Bank and the AIIB, both initiatives promoted by China, need to help provide funds and foster new alliances if they are not to undermine global climate action. For Professor Stiglitz,  it is imperative that these banks factor-in climate change as a central criterion when deciding whether to finance major projects in Latin America.

“The Green Fund is important because commitments have been made, and we cannot run away from them. But I think that climate change concerns should be a condition for banks financing projects. This would be a good example compared to what is usually imposed, such as what happened during the Washington Consensus, or austerity, which we know was disastrous,” said the American economist.

Carbon reduction will benefit the world and everyone needs to contribute, Professor Stiglitz commented, adding; “even so, developed countries have an obligation to reduce their emissions and help developing countries.”


“It’s not just the question of whether China can decarbonise or not, the question is how to use all this carbon,” says Dr. Lu. And to do this they need incentives to invest in new technologies, he adds.

China is now moving towards making a transition away from coal and converting to other technologies. It aims to promote industrial restructuring by 2020, yielding improvements to air, soil, and water quality, as well as restoring vegetation. It will be a mix of public and private investment and will count on international cooperation.

Changing to ‘greener’ development models in China will be a top-down process. And the concept of the ‘ecological civilization’, elaborated in a document released by the Chinese Communist Party in April this year, is a strong declaration of intent from the country’s leaders.

“It is a new concept of how to achieve harmony between the economy and the environment, between man and nature,” Dr. Lu summarises. “We need to assess the value of our natural capital. Decision makers should pay attention to natural capital,” he said.