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Breaking The Suicide Pact: U.S.-China Cooperation On Climate Change
Breaking The Suicide Pact: U.S.-China Cooperation On Climate Change
P EIG
CARNEGIE
O N
he N L ICY
for t
ext Pres
iden
E N D O W M E N T F O R I N T E R N AT I O N A L P E A C E
t
M AY 2 0 0 8
S u m mary
n U.S.–China climate cooperation is the critical step toward a global climate agreement.
Yet the two countries are locked in a “suicide pact”; each refuses to act before the other.
n The time to act is now: for the first time, China is considering an emissions target while half
of U.S. states have set their own targets.
n The U.S. and Chinese energy sectors have distinct structures, but both would benefit from
improvements in energy efficiency.
n Yet both countries could reach a deal—without a treaty—that could unlock the global stalemate.
n Such a U.S.–China deal would result in the adoption of existing energy technologies to increase
efficiency; joint innovation of new technologies; and an agreement to prevent the two countries
from not taking advantage of steps taken by either.
Together, China and the United States pro- climate change. Chinese leaders counter that
duce 40 percent of global greenhouse gas emis- American per capita greenhouse gas emissions
sions. Their actions to curb or expand energy are five times theirs and say, “You created this
consumption will determine whether efforts problem, you do something about it.”
to stop global climate change succeed or fail. Concern for energy security deepens this
If these two nations act to curb emissions, the dilemma. U.S. congressional staff experts
rest of the world can more easily coalesce on think energy is twice as likely to cause conflict
a global plan. If either fails to act, the mitiga- between the two countries as human rights.
tion strategies adopted by the rest of the world Mainstream Americans fear that China is gob-
will fall far short of averting disaster for large bling up oil and driving up the price of gasoline.
parts of the earth. The Chinese fear American control of Middle
These two nations are now joined in what East oil and of shipping lanes to China.
energy analyst Joe Romm has aptly called “a However, current events are opening a win-
mutual suicide pact.” American leaders point dow for change. The United States is moving
to emissions growth in China and demand to address climate change, if only at the state
that Chinese leaders take responsibility for level. Almost half the fifty states have made sig-
POLICY BRIEF
nificant commitments to cut carbon emissions. Revolution, the United States has produced
Crucially, Chinese leaders recently suggested 1,150 billion tons of carbon from fossil fuels,
that they might be willing to make a climate compared to China’s 310 billion tons. The av-
commitment. Analysts at the Energy Research erage Chinese produces just one-fifth as much
Institute, a leading Chinese government think carbon dioxide as the average American. Still,
tank, suggest that China could cut its current there is no argument even from Chinese lead-
emissions growth rate by half through 2020, ers that China’s rapid economic expansion
and from that level reduce absolute emissions poses a major threat to the global environment
by one-third by 2050. This scenario would put commensurate with America’s continued high
within reach a global goal of stabilizing the at- consumption rates. China maintains that cli-
mospheric concentration of carbon dioxide be- mate action should be taken on the basis of
William Chandler is a leading
low 500 parts per million. Such a commitment “differentiated responsibility.” This concept
expert on energy and climate
would represent a profound shift in China’s means that the nations that grew rich burning
at the Carnegie Endowment for
position, and it could be pivotal in reducing lots of fossil fuel should take stronger action,
International Peace. Based in
the worst risks of climate change. while rapidly developing nations also share the
the Washington, D.C. office, he
Thus, a path can be glimpsed to breaking responsibility to act.
leads Carnegie’s work in these
fields, collaborating closely
the suicide pact and achieving a bilateral break-
on projects with Carnegie’s
through, if Chinese and American leaders and Supply and Demand
Moscow, Beijing, Brussels, and
policy makers can find a deeper understanding Reaching this type of mutual accommoda-
Beirut offices. of energy realities; grasp the need for immediate tion needs to start with an understanding of
Prior to joining the Carnegie action to reduce carbon emissions; and develop the two countries’ baseline energy consump-
Endowment, Chandler spent 35 a new, non-treaty-based approach to reaching tion. China today uses 65 exajoules of energy
years working in energy and an international agreement—and eventually compared with 100 exajoules for the United
environmental policy. He is even a post-Kyoto global climate accord. States. Energy demand in each country is
president of Transition Energy forecast to grow to 120–150 exajoules by the
and co-founder of DEED A Billion Americans middle of this century. Both reducing demand
China—private companies with What if the Chinese used energy like Ameri- and changing the mix of energy supply sources
energy efficiency investments in cans? Global energy use would double, and will be crucial to climate protection.
China. He is founder and former five more Saudi Arabias would be needed just The structure of energy demand in the two
director of Advanced Interna- to meet oil demand. China itself would pro- economies could not be more different (figure
tional Studies at the Joint duce six times as much coal as it does today. 2). Industry takes over two-thirds of China’s
Global Change Research Many observers fear that this is exactly energy supply and only one-third of America’s.
Institute (Battelle, Pacific what will happen. China has tied the United The Chinese burn about 10 percent of their
Northwest National Labora- States for the dubious distinction of being the energy as fuel for transport, while Americans
tory), where he was senior staff largest national source of greenhouse gas emis- consume almost 30 percent for transport.
scientist and laboratory fellow. sions, producing more than 18 billion tons of The Chinese use 20 percent of energy in their
Chandler has been adjunct
carbon dioxide per year. China’s population is buildings, compared with almost 40 percent
professor of international
more than four times that of the United States, for Americans. China in many respects re-
relations in energy and
though it is growing more slowly (see figure 1). mains a developing country with a per capita
environment at the Johns
After decades of aggressive and unprecedented gross domestic product and energy use several
Hopkins University since 1992.
energy and population policies that dramati- times lower than those of the United States.
He served as a member of the
cally reduced emissions growth, Chinese en- Energy intensity—the amount of energy
international energy panel of
ergy demand has this decade surged one-third used per unit of economic output—declined
the U.S. President’s Committee
of Advisors on Science and
faster than the economy. dramatically in China from 1980 through
Technology, and was a lead
No one can deny that the United States 2000 but has increased just as dramatically
author for the Intergovernmen-
has created far more climate pollution than during the past decade. An explosion in the
tal Panel on Climate Change. China. Since the beginning of the Industrial production of energy-intensive materials such
Breaking the Suicide Pact: U.S.–China Cooperation on Climate Change
as steel, cement, and chemicals has helped fuel Chinese appliances remain small and efficient
China’s phenomenal economic growth. China compared with those used by Americans.
now produces 35 percent of the world’s pig China suffers what the poet Pablo Neruda
iron and 45 percent of its cement—most of called “the curse of coal.” If China consumed
which is used domestically. The United States the same total amount of energy as it does
now imports from China about 20 percent today but used the same energy mix as the
more embodied energy—the energy con-
sumed in product manufacturing—than it
exports to China. A non-treaty based approach
An American is twenty times more likely can break the suicide pact.
to have a car than a Chinese, and the United
States has weaker fuel economy standards
than China. Automobile ownership in China nited States, its carbon emissions would be
U
remains low, with only forty cars per 1,000 20 percent lower. Coal provides only a quarter
people, but it is growing very rapidly. China of American primary energy supply but almost
has about 35 million cars on the road, whereas three-quarters of China’s (figure 3). Casual ob-
the United States has roughly 185 million. servers assume that China has no choice but
Automobile sales in China in 2006 were up to use its billions of tons of coal reserves. They
more than 25 percent over the previous year, overlook the fact that U.S. coal reserves are
to more than 7 million vehicles. more than twice as large as China’s, and the
Households in America use vastly more United States uses coal to a far lesser degree.
energy than households in China. American For more than a decade, China has been the
homes average two and a half times the size world’s second-largest electricity consumer, but
of Chinese homes, a disparity not expected its per capita consumption even today stands
to disappear for twenty to thirty years, if ever. at only half the world average and one-eighth
Population
(millions) 1,300 300
Annual Gross Domestic
Product growth
(billion dollars)
572 360
Annual
energy use 65 100
(exajoules)
Historical CO2
Emissions 310 1,150
(gigatons)
Annual CO2
per person 4.4 19.8
(tonnes)
Annual energy
use per person 50 350
(gigajoules)
Annual Gross
Domestic Product 4,000 40,000
per person (dollars)
it remains affordable. Nuclear power costs States provides a few billion dollars in tax subsi-
about the same as hydroelectric power in both dies each year to oil and gas producers. This is an
countries but is twice as expensive as coal-fired important subsidy for accelerating global warm-
power. Beyond economics, the key question ing. The Chinese provide even greater subsidies
for nuclear advocates is how nations can secure by sponsoring massive, inefficient state-owned
the plutonium—fuel for nuclear weapons— firms and guaranteeing their finances.
unavoidably produced by commercial power
reactors. For coal advocates, carbon capture Underpricing energy represents the
and sequestration seems to provide a technical world’s number one subsidy for
solution that nations can explore for the long
environmental destruction.
term. But budget pressures recently led to the
cancellation of U.S. government support for
PowerGen, the largest demonstration project The U.S. federal government heavily inter-
of this technology. venes in the power market, requiring utilities
The overwhelming conclusion from numer- to guarantee power supply almost no matter
ous technical and sectoral analyses is that the how high the cost and then providing pricing
potential for energy-efficiency intervention in regulations that essentially ensure that the util-
the U.S. and Chinese economies is very large ities—including federally owned ones—make
and growing. The research literature, anecdotal a profit. Whenever the consumer throws the
evidence, case studies, and direct experience all switch, whether for a small lamp or an energy-
suggest that this potential could be captured hogging plasma TV screen, the power must be
profitably—but probably will not be without there. It is a basic tenet of economics that con-
intervention. Saving energy is simply no one’s sumers should be charged the marginal cost
priority, even when it saves them money. Fiscal of electric power—the cost of adding the last,
and financial incentives can help elevate energy most-expensive unit consumed. But regulators
saving in industry, but regulatory policy seems set consumer prices on the basis of the average
to work better for households. cost of power, effectively providing the largest
The challenge for policy makers is to develop subsidy of all for power consumption and its
strategies that help the market converge on attendant pollution.
the most cost-competitive technologies. This Since the early 1980s, China has imple-
means that U.S.–China cooperation should mented an extensive system of appliance labels
focus on encouraging feasible market-based and standards. Mandatory standards exist for
technologies and on removing barriers to their nine major household appliances and a vol-
widespread deployment. untary labeling program covers thirteen prod-
ucts, including air conditioners, refrigerators,
Perverse Policies and televisions. Chinese policy regarding ap-
Pricing profoundly affects energy choices. pliance efficiency standards was consolidated
Underpriced energy is the world’s largest sub- and accelerated by the passage in 1997 of the
sidy for environmental destruction. National Energy Conservation Law. However,
The Chinese government continues to in- most experts admit that this law is more of a
tervene heavily in energy pricing, recently framework—a shell—than an effective mech-
even freezing—in a profoundly wrongheaded anism for enforcing regulations.
move—key energy prices. But that does not im- In contrast, U.S. efficiency standards for
ply low prices for Chinese consumers. The price energy-gobbling appliances are almost unique
of natural gas sometimes exceeds American lev- in the world and certainly rank among the
els. Coal prices in both countries climbed to most successful American energy policies.
about $50 per metric ton in 2007. The United American refrigerators built in the mid-1980s
POLICY BRIEF
consumed 1,500 kilowatt-hours a year. To- latory relief, or financial support for doing so.
day, the same-size models providing similar In practice, it is largely ignored.
features use only about 600 kilowatt-hours a
year. Air conditioners, water heaters, furnaces, A Path to Cooperation
and other appliances are similarly regulated. The United States and China seemingly re-
Efficiency legislation passed in 2007 effective- main locked in their suicide pact, each arguing
ly bans the incandescent light bulb. that the other is the reason it cannot stop its
Significantly, China has recently adopted a self-destructive energy-using behavior. Nego-
law to regulate automobile fuel economy in a tiations for a global post-Kyoto climate agree-
manner similar to the U.S. corporate average ment are not likely to break this impasse. On
fuel economy standards. If fully implemented, the contrary, reaching a global climate change
it will actually ban many fuel-inefficient sport agreement will first require accommodation
utility vehicles or require them to improve fuel between the United States and China.
economy above U.S. passenger car levels. The There is a way forward. Chinese climate
law should increase the fleet fuel economy of leaders, at the Bali climate conference and else-
Chinese cars to 6.7 liters per 100 kilometers where, have suggested that China could set a
(35 miles per gallon) by 2015. The United target to cut emissions growth to half the rate
States recently enacted similar legislation that of growth in gross domestic product through
does not achieve that level until 2020. The 2020, and then cut emissions from that level
U.S. law also contains an “alternative fuels” by 30 percent by the middle of this century.
loophole that will undermine enforcement. Significantly, China is already aggressively
In China, the legal and regulatory barri- pursuing a goal to reduce the energy intensity
ers to clean energy investment are significant. of its economy by 20 percent by 2010. Many
Controls on foreign investment create high inefficient and outmoded state-owned cement
transaction costs. Banks are effectively for- plants and other heavy industrial facilities are
bidden from lending to the energy-intensive being shut down to shift production to newer,
sectors, inadvertently blocking a vital path- more efficient plants.
way for investment in energy efficiency where At the same time, U.S. states including
it could make the most difference. Tax policy California have set strenuous targets for emis-
discourages domestic energy services with a sion reductions—50 to 80 percent or more by
high value-added tax. A lack of transparency 2050. Some states have imposed stringent fuel
in regulatory policy increases uncertainty, economy standards on cars and portfolio stan-
risk, transaction costs, and corruption. For dards on utilities. The states’ emission goals are
example, the deadline for a foreign equity voluntary in the sense that no outside power
transfer, the permissible scope of a business can enforce them. But the standards and the
license, or the determination of ownership of measures they impose to achieve them are en-
emissions credits can be decided by local of- forceable. This same model could be applied
ficials on the basis of “internal regulations”— internationally. China and the United States
unpublished rules that vary by province and could cooperate to set individual, national
by individual. goals and then work together to achieve them
China’s strong, centralized policy on clean through domestically enforceable measures
and renewable energy has not been translated and international agreements that prevent
into tangible incentives at the provincial level. either nation from taking advantage of steps
The Cleaner Production Promotion Law, for taken by the other.
example, avers that “enterprises shall recover Cooperation could be organized in three
and utilize their own wastes or wasted heat,” priority areas: deployment of best practice
but the law offers no realistic incentives, regu- technologies, innovation in new technologies,
Breaking the Suicide Pact: U.S.–China Cooperation on Climate Change
and agreements to prevent the two countries years. To pursue this process, it would be in
from taking advantage. the interest of American laboratories to link
Deployment means promoting the market more closely to Chinese markets. Innovation
penetration of existing carbon emission reduc- stems from feedback from the marketplace,
tion technologies. Business leaders could help making joint research and development in
by working with both governments to solve China, where the market is most dynamic,
problems impeding the market application of necessary for U.S. firms to remain competi-
existing technologies. Joint policy initiatives to tive. Unfortunately for American science,
provide tax breaks for investment and impose there is little congressional support for this
tax penalties on high-carbon energy would re- approach. Fortunately, however, China today
duce the risk that either country would take is in a position to share research and develop-
advantage of goals and measures set by the ment costs with the United States.
other. Beijing could make it easier for foreign Strikingly, given the urgency of climate ac-
companies to invest directly in clean energy tion, resources are meager within both China
projects by removing constraints on convert- and the United States for energy efficiency
ing foreign exchange for investing and repa- and power sector decarbonization. Technol-
triating profits. Another priority is to exempt ogy deployment gets little support within ei-
energy-efficiency services from China’s 17 per- ther nation. Official funding for clean energy
cent value-added tax. The government could cooperation between the countries amounts to
encourage banks to do risk-based clean energy only about $1 million a year. The private U.S.
lending, which means removing the regulatory Energy Foundation provides twenty times
cap on interest rates for energy-efficiency in- more, but even this level of funding is far be-
vestments. No investor or lender wants to earn low the need.
interest at rates just barely above inflation, as Making climate cooperation integral to
banks in China are limited to doing. trade policy should be a priority. For example,
The leaders among U.S. states in energy both countries could agree that after 2015 they
innovation, especially California, could pro- would export only appliances, cars, and equip-
vide assistance to Chinese provincial leaders ment with efficiency levels higher than the
struggling to deal with energy problems. The world average today. And they could jointly
Chinese central government has set sound set production standards to limit the energy
high-level policies for efficiency and clean en- used in manufacturing exports.
ergy development, but it leaves implementa- If this U.S.–China policy experiment works,
tion to unprepared, underresourced provincial it could be replicated in other countries, notably The author is grateful to
leaders. Beijing could support these provincial India. China and the United States could develop the Blue Moon Fund and the
leaders by providing funds, training, exper- packages of policies and measures, test them for Henry Luce Foundation for their
tise, and tax and regulatory flexibility to en- efficacy, correct them, and share them. generous support of this publication.
able them to take decisive action to encourage U.S.–China collaboration should not be
clean energy investment. And the U.S. states envisaged as a threat to the climate leader- The Carnegie Endowment normally
could share their experience, providing advice ship of any region or nation or to global co- does not take institutional positions
on which policies actually work. operation. It should not challenge existing on public policy issues; the views
Efforts to develop new technologies—car- or planned emissions cap and trade systems. presented here do not necessarily
bon capture and storage systems, very effi- Rather, it would be, and should be, consid- reflect the views of the Endowment,
cient industrial production processes, a smart ered an act of mutual self-preservation, help- its officers, staff, or trustees.
electric grid system to integrate distributed ing both the United States and China to avert
energy production and demand-side manage- climate disaster and the eventual sanctions of © 2008 Carnegie Endowment
ment—all would take massive investments, other nations if they do not act, and laying the for International Peace.
the best scientists and engineers, and many basis for successful global action. n All rights reserved.
www.CarnegieEndowment.org
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