In focus

China: the most radical climate reformer of all?

In the race to net zero, China is receiving much attention. The media coverage of China’s plans to stop funding new coal power plants overseas is indicative of how every single announcement on climate policy is put under the microscope and debated.

China’s announcement in September 2020 that it plans to reach net zero carbon emissions by 2060 took some by surprise, particularly as other major economies such as the US and Australia had not set an equivalent goal at the time.

Two important points are often missing from this net zero discussion.

The first one is that countries measure their emissions and set their targets based on production-based emissions. But another way to look at this is through consumption-based emissions, which are emissions that have been adjusted for trade. So, if a product is exported to another country, then the emissions from its production would count towards the importing country’s emissions.

Since China is a net exporter, its consumption-based emissions are lower than its production-based emissions. The chart below highlights this point. This means that its emissions are linked to the consumption of countries that are importing Chinese goods and, therefore, the burden of emission reduction will also fall to consumers in those countries too.

The second point that is seldom brought up in this discussion is how ambitious China’s net zero target actually is, particularly if one considers where it is now and how much time it has given itself to reach its goal.

While other regions such as the EU reached peak emissions back in 1990, China has not reached peak emissions yet. It plans to do so in 2030. When it does, China’s peak emissions in 2030 will probably be two to three times higher than the peak of the EU including the UK.

This means that China will have to transition in half the time the EU has and it will have to cover more than double the distance. China will also have 15 years less time to transition compared to the US.

This transition will mean structural changes in the Chinese economy such as a significant reduction in manufacturing and a substantial change in its energy mix that will see it move away from coal quite rapidly. Boston Consulting Group estimates that the cost of this transition to be about $13.5-$15 trillion through to 2050, which is about 2% of China’s cumulative GDP from 2020-2050.

So, although the EU is often seen as the leader in the race to net zero, it may well be that the most radical action comes from China. Indeed, China could become one of the global leaders in climate change policy in the decades to come.

If successful, China's transition could show other emerging market economies, such as India and Russia, that it is feasible.

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