China, Australia and the future of climate change

Well-designed climate policies can fuel economic growth in China and Australia in the medium term, but both countries need to work together more closely.

The conclusion earlier this week of another round of international climate change negotiations -- this year held in Lima -- marked the end of a highly-charged month of climate change politics in which Australia and China featured prominently, albeit for very different reasons.

China’s response to climate change was highlighted at the conclusion of the APEC summit in Beijing in mid-November, with an important joint announcement between the US and Chinese presidents concerning their respective emissions reduction goals.  

Coming right before the G20 leaders’ summit in Brisbane, the US-China announcement focused international attention on Australia’s perverse attempts to have climate change excluded from the G20 agenda. These attempts derailed when President Obama drew attention to the urgency of Australian action on climate change in a speech at the University of Queensland during the G20 meeting. All of a sudden, climate change had become the main point of discussion.

It was in this context that 15 Australian and 15 Chinese young professionals and future leaders came together for the 5th annual Australia-China Youth Dialogue, this year held in Beijing from November November 21-24, which included an insightful session on climate change and energy issues.

At the session a number of Chinese and Australian climate experts shared their insights from the cutting edge of academic scholarship and policy practice on climate change. Delegates were prompted to consider some of the opportunities and challenges facing China and Australia with regard to the transition away from high-carbon, fossil fuel-based energy systems and toward the zero carbon energy systems that will be needed to power the world economy throughout the 21st century.

In stark contrast to the claim made by Australian Treasurer, Joe Hockey, that climate change was an inappropriate subject of discussion at the G20 because that forum is focused on “economic growth”, the ACYD delegates learned about recent research and policy analysis by some of the world’s leading economic thinkers and institutions, which focused on the potentially large contribution of well-designed climate policy to a country’s medium-term economic growth, irrespective of what other countries do on climate change.

Those medium-term benefits arise in addition to the fundamentally important reductions in greenhouse gas emissions (and hence long-term climate risk) which are the primary aim of good climate policy.

Good climate policies -- including well-designed carbon pricing schemes, support for innovation (the research, development, demonstration and deployment of zero carbon technologies and processes), mandatory energy efficiency standards for buildings, appliances and vehicles, and investment in network infrastructure such as public transport systems and smart electricity grids -- can increase medium-term economic growth primarily through three important mechanisms.

First, they can improve the productivity of energy and natural resource use. Second, whereas muddled climate policies and mixed messages raise the risk to investors of investing in infrastructure, particularly in the energy sector, good climate policies can reduce this ‘policy risk’ and induce private investment in clean infrastructure. And third, good climate policies can induce innovation in low/zero-carbon and environmental industries.

The effects on innovation are particularly important: good policies can help bring down the cost of new zero carbon technologies over time, so that they eventually become cheaper than high-carbon incumbents; and they can induce innovation across other sectors of the economy, since clean technologies tend to have higher ‘knowledge spillover’ into other sectors of the economy than do the dirty technologies they replace.

With concerted and well-targeted policy and institutional change, the potential for innovation-led growth in the transition to a zero carbon economy is immense, likely to be in the order of a ‘new energy-industrial revolution’ or a new ‘golden age’ of capitalism.

Aside from boosting medium-term growth (in some economic circumstances, strong climate action can be a stimulus to growth in the short term, too), there are many ‘co-benefits’ to well-designed climate policies that improve the quality of people’s lives, whether or not they also increase GDP.

More compact cities with efficient public transport, walking and cycling infrastructure and green spaces produce lower levels of air pollution, congestion, noise and waste, making them more appealing places to live. Other co-benefits from good climate policy can include improving the natural environment and generating energy from more localised and secure energy sources.

In Beijing, where the level of PM2.5 particulate air pollution reached a staggering 583 on the US EPA’s Air Quality Index (above 300 is considered “hazardous” to human health, and this is the highest category) the evening before the ACYD began, delegates were especially attuned to the value of policies that improve the quality of the urban environment while at the same time reducing greenhouse gas emissions.

Indeed, hazardous urban air pollution -- most of which is caused by burning coal, and much of the remainder from vehicles -- is one reason among many why China is aiming to restructure its economy away from heavy, energy-intensive industries and fossil fuels and toward a more resource-efficient, environmentally sustainable, equitable and low-carbon model of development.

Other reasons for this important strategic shift include: a desire to improve productivity; concerns about risks to energy security associated with China’s currently large imports of fossil fuels; and the pursuit of major market opportunities in critical zero-carbon technology sectors such as solar photovoltaics and wind energy.

Accordingly, China has already undertaken major initiatives to conserve energy, close old and inefficient power stations and industrial plants, cap and reduce coal use, deploy non-fossil energy sources through massive investments in renewable energy, and experiment with carbon pricing.

There is an emerging consensus that deeper efforts along these lines would yield great benefits for China and for the world. Accordingly, President Xi also recently announced a target for meeting 20 per cent of China’s primary energy demand from non-fossil sources by 2030, which will require an additional 800–1000 gigawatts of non-fossil energy capacity to be deployed by that time. This is an immense undertaking, equivalent to almost the total current electricity generation capacity in the United States. China’s ambitions are profound and sincere, yet it faces numerous challenges in implementing all of the policies and measures needed to achieve them.

By contrast, Australia has immense opportunities to move to a zero carbon energy system (indeed a net-zero carbon economy) very quickly. Yet the current government’s ambition is in the wrong direction. The Abbott Government has turned Australia into an international climate change Pariah by scrapping Australia’s two-year-old carbon pricing scheme, vigorously promoting the interests of a handful of multinational coal and gas companies over the public interest, and destabilising global efforts to reduce emissions and adapt to climate change.

This destructive approach could not have been more at odds with the attitude of delegates to the 2014 Australia-China Youth Dialogue. We weren’t interested in the ‘why’ or the ‘when’ , but rather in the “how”: how can Australia and China, both separately and together, forge a zero-carbon Asian century?

On this issue, perhaps more than any other, it’s time the current generation of leaders listened more closely to the next generation.

Fergus Green is a policy analyst and research adviser to Professor Nicholas Stern at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics, and a delegate to the 2014 Australia-China Youth Dialogue. This article is a modified version of Fergus’ essay in Inside Story of 21 November 2014

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