The Chinese president may not be attending COP26, but China already has a master plan for climate action. Do you, President Biden?
It may be one of the great ironies of COP26 that the leader of the nation that emits more carbon than the United States, India and the European Union combined is skipping the climate conference in Glasgow. For China and President Xi Jinping, it’s politics as usual. Perhaps it’s about maintaining COVID protocols, or he is still smarting from the new nuclear submarine deal between the U.S. and Australia. For whatever reason, President Xi will limit his COP presence to a video link.
But Xi’s physical absence at the summit should not be mistaken for inaction on climate change. Besides a commitment to check the increase in greenhouse gas emissions in 2030 and reach net zero by 2060, China has quietly put together an extraordinarily comprehensive climate plan.
Climate & Capital has spent the last several weeks listening to senior Chinese officials explain –– not merely how they will combat climate change –– but how they will finance the process. Moreover, they were remarkably candid about how they expect climate action to bolster China’s global “soft power” initiatives. The officials insisted on being off the record, so what follows is our take on China’s emerging climate roadmap.
It is worth noting, by the way, that in addition to China, India and Europe are all well into the technical and financial details of their own comprehensive approaches to the global climate crisis. By contrast, the United States, for all its talk, has so far offered little more than a patchwork of policy proposals. Not for lack of trying but noticeably on the way to COP, Biden’s U.S. is all goals, no plan.
The official goal in China is to ensure that the country delivers on Xi Jinping’s pledge to be net zero by 2060. To that end, the country this week accelerated its efforts to control peak carbon emissions and reduce overall carbon intensity before 2030.
“We embrace a green world economy,” said one Chinese senior finance official.
But the Chinese are not just about tweaking rules to make up numbers. What’s most compelling about their approach is that climate action has been elevated to a singular level of national prominence reminiscent of truly historic Chinese Communist Party campaigns. If he lacks Mao’s flair for the poetry of destiny or Deng Xiaoping’s combination of political sense and pragmatism, Xi Jinping offered his own iteration of China’s next Great Leap Forward during a climate conference in Kunming in early October. “We shall take the development of an ecological civilization as our guide,” he announced, “to coordinate the relationship between man and nature.”
Xi went on to exhort that the grand objective is for China to “live within planetary boundaries and build a green, low-carbon circular economy.” That’s a worthy goal for the whole world to keep in mind, particularly at COP26. At his direction, however, it’s pretty clear that all of China is likely hard at work setting practical targets for that ecological civilization, planetary boundaries notwithstanding.
As the world heads to COP26, it’s clear China sees an emerging green economy as the ticket to future domestic prosperity and global economic dominance. “We embrace a green world economy,” said one Chinese senior finance official, who described it as “digitally-driven and market-based.” As Bloomberg’s David Fickling said in a recent pre-COP briefing: “For China on climate, it’s not about what international negotiators say, it’s what Xi Jinping says.”
In other words, expect Xi and the Chinese Communist Party to want to make “green” a critical element of all future financing, investing and trading with the aim to make China the world’s dominant player in eco and climate-related products and services. Chinese officials see green finance as having a “multiplier effect that will accelerate green financial innovation and scale a green economy.”
Sustainable development, they say, will have to go hand in hand with escalating geopolitical competition.
This means Chinese banks will be encouraged to offer green credit, a new generation of wealth managers will be selling green retail financial products and efforts will be accelerated to build a vibrant green capital market complete with derivative futures, swaps and options. The centerpiece is a new carbon trading market that opened in July with little global attention. Immediately it became the world’s largest carbon trading scheme by volume and emissions.
Climate transition and geopolitical competition
The country’s realpolitik officials are also cold-eyed about the challenges of developing –– and dominating –– a global climate economy. Sustainable development, they say, will be a tangible factor in any escalating geopolitical competition. They recognize that economic tensions will intensify, particularly with the U.S. There is specific concern already about President Joe Biden’s recent decision to order a strategic review of battery supply chains, and labeling lithium and cobalt as critical materials. It’s important to note here that Chinese officials made it clear that they hope deepening economic ties with American companies will offset deteriorating bilateral government relations.
Xi Jinping’s coal paradox
The glaring blemish on China’s green ambitions is massive and black as coal. There are no plans to end coal-fired power, which accounts for more than 60% of the country’s energy supply. With 80% of all global energy derived from fossil fuels, Chinese officials stress the need to balance new and traditional energy. Ironically, all of this should be music to the ears of American Republican legislators, and the fossil fuel industry which, not surprisingly, are insisting on a similar go-slow carbon transition. “The dominance of traditional energies won’t be changed overnight given new energies are still toddling along,” says one official.
Climate action as ‘soft power’
China also hopes to use climate policy to bolster its soft power ambitions with much of the developing world. This means, Chinese officials say, balancing decarbonization with “survival” and “development.” Any drastic reduction of carbon emissions cannot come at the expense of economic progress for developing countries. “Decarbonization will threaten survival,” they say. To reduce poverty in Africa by 30% will require a 204% increase in emissions. That seems like a lot until you understand that Africa’s carbon footprint is just 2 to 3% of the world’s carbon dioxide emissions from energy and industrial sources.
To reduce poverty in Africa by 30% will require a 204% increase in emissions, Chinese officials say.
The question now is how China’s private sector will live up to Xi’s new slogan. “We really have no idea how we will meet these climate goals,” one official said. “But at least we know what to do.”
Embrace the E, but ignore the S and G of ESG?
And then there is the knotty problem of the ‘s’ and the ‘g’ of Environmental, Social and Governance (ESG). In all the discussions, the focus is 100% on climate and technical environmental issues. China may be determined to build and dominate the emerging climate economy, but any discussion of the country’s social or governance issues is not on the agenda.
There is still much work for China ahead. But those attending COP26 would do well to recognize that China’s empty chair at the talks doesn’t mean the country isn’t stepping right up to lead global climate action. Unlike the United States, the country seems to not only have a climate plan but a way to pull it off to make this century China’s century.