China: winner in a low-carbon economy

China’s model of economic growth is highly energy intensive and a recipe for climate disaster, writes Karl Hallding. Now is the time for a new, competitive infrastructure, which can accommodate social development while minimising energy use.

China’s climate future looks grim. The structure of its economy and current development model rests on high energy intensity in a booming economy driven by low-end production for international consumer markets. This is coupled with investment-driven urban-industrial infrastructural expansion and a surge of investment in heavy industry, which supply the inputs for China’s entire expansion. As a consequence, the country has rapidly risen as the world’s largest greenhouse-gas emitter and, according to a host of authoritative future scenarios, so it will continue for the foreseeable future.

China is already suffering from climate impacts which result mainly from the OECD countries’ industrialisation since the mid-nineteenth century, with the US being the main culprit of the world’s accumulated carbon emissions. With escalating climate change, China is bound to be very exposed to climate impacts.

While the US and Europe have been the world’s dominant carbon emitters since the nineteenth century, China is going to be a leading emitter over the coming century. It is obvious that there can be no solution to climate change without China’s active participation. The question, therefore, is what could motivate China to move towards an active role in global climate mitigation. A growing global focus on the low-carbon economy provides opportunities for China to gain competitiveness, international reputation and environmental benefits. A less active – or reactive – approach to climate change may involve considerable risks, both of reduced growth and further environmental degradation.

Growing awareness

The picture of how China will be affected by a changing climate, detailed in China’s first “National Assessment Report on Climate Change”, is truly disquieting. Over the next 13 years, China’s average temperature is expected to increase by 1.3 to 2.1 degrees Celsius. In reality, this means that many parts of the country will see drastic temperature increases. While precipitation is expected to increase by 2% by 2020 and 7% by 2050, this will not alleviate chronic water shortages in the north, but rather add to flooding problems in the south. It will also add to China’s catastrophic and costly flooding and drought disasters, with significant impacts on the country’s potential for development.

Other consequences include negative agricultural impacts that will dramatically undermine food security, as well as increasing vulnerabilities from flooding, typhoons, salt water intrusion and erosion in China’s densely populated coastal zone, including the economically important regions of the Pearl River and Yangtze River deltas.

Given China’s precarious water situation, the pronounced temperature increase in the Himalayas is particularly worrisome. Large amounts of water will melt from the glaciers, adding to the risk of large-scale flooding until the melt-off peaks between 2030 and 2050, at which point the headflows of China’s largest rivers will diminish, with huge consequences for all human activity along the big rivers.


This litany of climate impacts, many of which will challenge economic development even in the near future, are a strong argument for China to become an active driver of global efforts to come to grips with the climate. The National Report stresses the importance of China’s active contribution to solving global warming, and urges China’s leaders to start seeing current climate change as a conclusive driving force for the development of new energy technologies, energy efficiency and alternative energy sources.
China’s emergence


China’s main priorities are economic development, poverty alleviation and social stability. After three decades of near 10% growth, China is now the world’s fourth-largest economy. But still only a small fraction of the population lives in the same conditions as developed countries. According to the World Bank, 800 million still live on under US$2 a day, and 135 million live on under $1 dollar a day; China’s need for development is immense. Development, however, requires growth, which is fuelled by energy, and while there is no denying China’s need for energy for development, the question is how growth can be generated in a more energy-efficient manner – and increasingly based on renewable energy sources.


Looking at China’s energy intensity in the reform era, it is striking that the economy, for two decades until late 1990s, grew twice as fast as its energy needs. This is partly because of the very low level of energy efficiency in China’s economy to start with. Pre-reform China built a very energy-intensive and economically inefficient structure based on state-owned heavy industry, for which the country was ill-suited given its high population and scarce natural resource base. Reforms created a dramatic increase in agricultural productivity and generated some surplus cash on a household level, which was often invested in labour-intensive light manufacturing in township and village industry. These became the engine of growth through much of the 1980s and ‘90s, and transformed Chinese industrial structure from heavy to light industry, with a higher economic output in relation to energy input.


But at the dawn of the new millennium, something happened that changed the 20-year trend of continuously lower energy intensity. The sheer volume of the Chinese economy started to make increasing impacts on the global economy, its markets and resource flows, and capital accumulated in Chinese state-owned banks. China’s WTO accession in the early 2000s opened the Chinese production base to the cheap production of consumer goods for global markets, which accumulated even more profits in the Chinese system. This all increased the pace of urbanisation; suddenly there was an immense need for steel, cement, aluminium and other goods required for building infrastructure. With lots of cheap capital in the banking system, investment flows turned towards heavy industry. Soon enough, energy demand skyrocketed. Since the turn of the century, China’s energy demands have been growing 50% faster than the economy.


Consequently, every possible energy source is now running full throttle, while new capacity is added as fast as possible, meaning conventional pulverised coal technology, with a much lower coal-to-electricity efficiency than the supercritical technologies used in the west. Half of the world’s nearly 1,000 coal-fired power plants currently in the pipeline for finalisation before 2012 are being built in China, adding carbon dioxide emissions enough to swamp present Kyoto commitments by as much as four times.

Changing perspectives

China’s current development mode is highly energy intensive. Although Chinese industrial sectors have seen energy efficiency improvements as a result of more market prices and less distorting subsidies, the energy intensity of the whole economy is still around 10 times higher than Japan’s, roughly five times higher than the OECD and even almost three times higher than India. In other words, there is a lot of room for improving competitiveness in a future of increasing global energy prices.


China therefore needs to change its development perspective, and find the way back to an industrial structure that is optimal for an economy with a large labour force and scarce resources. This means policies that increase the costs for energy-intensive production, such as carbon and air pollution related taxes. These policies could also improve energy efficiency within Chinese industry, which generally uses up to 50% more energy per unit output than its international competitors. 


Per capita energy usage is still low by international standards. But as the country grows richer, more and more of its energy demand will come from consumption. There are still a relatively small number of communities in China’s large eastern cities that reach the roughly US$5,000 GDP per capita where consumption and transportation start to consume larger amounts of energy. This is, however, the real long-term challenge for China’s energy consumption.


What is increasingly important, both in the short- and long-term, is for China to invest now in a society built on an infrastructure that can accommodate social development while minimising energy use. Return on investment in energy-efficient housing and transportation is huge, and here China is still in a position to make the right choices – and build an energy-efficient society.


A study produced last year by Swedish utility Vattenfall in cooperation with McKinsey shows that there are many cost-effective solutions for coming to grips with climate change, and that most of the low-hanging fruit – actions that gives good return on investments – are readily at the disposal of developing countries.


China has every reason to take an active position in combating climate change. By doing so, it can find a way out of the environmental dystopia it is running towards head-on, while at the same time gaining competitiveness and international reputation.



Karl Hallding heads Stockholm Environment Institute’s China Programme and has followed and worked with China’s environment since the mid-1980s. He was the main author of UNDP’s China Human Development Report 2002, “Making Green Development a Choice” and participated in the expert team behind the recent OECD Environmental Performance Review of China, where he was responsible for drafting the chapter on “Environmental – Social Interface”.

Homepage photo by Alex Kirch