The Chinese Government is making progress in achieving a reduction in carbon emissions through its technology and energy sectors, writes Professor John Quiggin.
OVER THE PAST WEEK, we’ve heard a lot about the need to counter the aggressive policies being adopted by the Chinese Government in relation to geopolitical issues like the status of the South China Sea. This has obscured the fact that remarkable progress has been made recently on an issue in which the interests of China and the rest of the world are at one: the need to stabilise the global climate.
For the last few years, China seemed to be going backwards on climate policy. With the withdrawal of nearly all other sources of finance, Chinese banks were the main source of investment funds for new coal mines and coal-fired power stations in the developing world. Much of this finance was organised through the Belt and Road Initiative, the signature policy proposal of President Xi Jinping.
Domestically, after imposing a moratorium on new coal-fired power in 2017, the central government closed its eyes as provincial governments restarted a number of projects. This process accelerated in 2020 as capital-intensive coal investments were used to stimulate recovery from the COVID-19 pandemic.
There were countervailing trends. The majority of the coal-fired projects announced with Chinese finance after 2017 have subsequently been cancelled. And China has continued its leadership in solar photovoltaics as both the main producer and the largest single market. Overall, however, China’s continued involvement with coal appeared as the biggest single obstacle to decarbonising the global economy.
Things have changed radically in the space of a week. First, speaking at the U.N. General Assembly, Xi announced that China would no longer fund coal-fired power plants abroad, bringing the policy into line with that announced by the G7 in May and already adopted by most major financial institutions globally.
Such policies usually have loopholes, such as exemptions for existing projects. Nevertheless, it seems likely that Xi’s announcement signals the end of coal-fired power plant development outside China. Developing countries such as Vietnam and the Philippines, seen until recently as sources of future demand growth for coal, are now taking part in a program in which the Asian Development Bank will buy coal-fired plants with the sole purpose of shutting them down.
At least as significant and somewhat more surprising has been a renewed commitment to limit the development of coal-fired power in China itself. The National Development and Reform Commission (NDRC), the Government’s central planning agency, has released a new plan on energy consumption that includes requiring all provinces to review already permitted high-emissions projects, including those under construction. Combined with the emissions trading market launched in July, this development suggests that Xi’s stated goal of reaching a peak in China’s coal consumption by 2026 may well be reached.
The final development of the past week has been the announcement of a ban on Bitcoin trading, reinforcing an earlier ban on “mining” (that is, wasting electricity on pointless calculations to generate Bitcoins). It’s been estimated that, until recently, Chinese miners were responsible for 60 per cent of the 120 Terawatt-hours wasted globally in this activity.
Banning Bitcoin mining will reduce China’s CO2 emissions by an amount comparable to those of a country like New Zealand. And the ban on Bitcoin transactions removes a large amount of demand from the system.
The Chinese Government has already announced plans for its own digital currency, effectively allowing citizens to hold accounts with the central bank rather than private banks. Because this currency is centrally issued, it does not require Bitcoin’s energy-wasting “proof of work”.
Similar moves are already being advocated elsewhere, most notably by Saule Omarova, the Biden Administration nominee for the Office of Comptroller of the Currency. Such a policy would provide the benefits of cryptocurrencies like Bitcoin without either the destructive waste of energy or the potential for use in ransomware and illegal transactions that represent the dominant use of Bitcoin.
It’s hard to predict the course of politics anywhere, but particularly in a system as opaque as that of the Chinese Government. Nevertheless, the developments of the last week give us some hope that China will play its part in the transition to a zero-carbon global economy.
John Quiggin is Professor of Economics at the University of Queensland. His new book, The Economic Consequences of the Pandemic, will be published by Yale University Press in late 2021.
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